Deck 3: Economic Decision Makers

Question 1

Which of the following is one of the chief reasons for the increased number of married women in the U.S. workforce?

A) The marginal cost of working in the labor force has increased.
B) Jobs provide greater independence and self-worth.
C) The opportunity cost of household work has increased.
D) The sunk cost of household appliances has risen to the point where women must work to make payments on them.
E) Women spend more time shopping as a result of the increasing division of labor in household production.

Answer 1

The opportunity cost of household work has increased.

Question 2

Which resource generates the largest share of household income in the United States?

A) Labor
B) Land
C) Capital
D) Entrepreneurial ability
E) Money

Answer 2

Labor

Question 3

Caleb teaches economics at Happy State University and is paid $50,000 per year. He also provides economic forecasts for local businesses for which he charges $100 per hour. Which of the following is true?

A) All of Caleb's income is salary.
B) Some of Caleb's income is salary and some is personal interest
C) All of Caleb's income is proprietor's income.
D) Some of Caleb's income is salary and some is proprietor's income.
E) All of Caleb's income is personal interest.

Answer 3

Some of Caleb's income is salary and some is proprietor's income.

Question 4

Harold, a delivery man, washes and irons his own shirts. Sarah, his boss, sends her clothes to a laundry. Which is the most plausible economic explanation for this difference?

A) Harold must enjoy ironing more than Sarah does.
B) Harold must be better at ironing than Sarah is.
C) The opportunity cost of ironing is greater for Harold.
D) Harold probably has an absolute advantage in ironing.
E) Sarah has a higher opportunity cost of washing and ironing her clothes than Harold does.

Question 5

Which of the following is a result of increased real wages in the United States?

A) A decrease in the quantity of services demanded by households
B) An increase in the opportunity cost of remaining employed in the home
C) A decrease in the opportunity cost of working outside the home
D) A decline in the number of households providing labor outside the home
E) Reduced use of labor-saving devices in households

Question 6

The statement "Households maximize utility" means that households:

A) try to be as useful as possible to the economy.
B) are only interested in maximizing their earnings.
C) are assumed to buy useful things before they buy luxuries.
D) are only interested in acquiring material wealth.
E) are assumed to do what they think will most increase their satisfaction.

Question 7

Which of the following is an example of an in-kind transfer?

A) Welfare payments
B) Most Social Security benefits
C) Unemployment compensation payments
D) Food stamps
E) Charitable contributions

Question 8

Households act as demanders when they demand:

A) that corporate executives and government officials be held accountable for their actions.
B) dividends from the stocks they hold. interest and capital gains from the bonds they hold.
C) interest and capital gains from the bonds they hold.
D) goods and services from firms and governments.
E) payment for the goods and services they sell to firms and governments.

Question 9

If real wage decreases, the opportunity cost of working in the home will:

A) increase.
B) decrease.
C) not be affected.
D) increase as long as worker productivity also rises.
E) increase only if households want to maintain their standard of living.

Question 10

The increased labor force participation of married women in the United States is most often explained by:

A) declining productivity in agricultural production.
B) a rise in average household size.
C) increased education and an increased demand for labor.
D) the decreased opportunity cost of working in the home.
E) declining productivity in household production.

Question 11

The term "utility" means:

A) satisfaction.
B) a low-valued good.
C) productivity.
D) adaptability.
E) efficiency.

Question 12

The objective of the household is to:

A) maximize household wealth.
B) own as much land as possible.
C) save as much money as possible.
D) acquire as many goods as possible.
E) maximize utility.

Question 13

The movement in U.S. population from the farms to urban areas was caused primarily by:

A) each member of a farm family specializing in a particular set of tasks.
B) a sharp increase in farm productivity.
C) a decline in the demand for labor in urban areas.
D) a sharp decline in the demand for agricultural products.
E) increased education among married women.

Question 14

Rationality in the household decision-making process means that:

A) all households make the same decisions.
B) everyone in the household agrees on all decisions.
C) households act in their own best interests.
D) households want to earn as much income as possible.
E) all households would make the same decisions given the same information on product quality and prices.

Question 15

Households act as suppliers when they provide:

A) goods and services to firms and governments.
B) resources to firms and governments.
C) tax payments to governments.
D) the demand for only what firms supply or make available.
E) money to firms in exchange for goods and services.

Question 16

In the United States since World War II, there has been:

A) a dramatic increase in the population living in rural areas.
B) a decline in the number of women in the labor force.
C) a decrease in the opportunity cost of working in the home.
D) more specialization of production within households.
E) a dramatic increase in the number of married women in the labor force.

Question 17

Roxanne and Eileen live in an apartment building with a laundry room in the basement. Roxanne does her laundry at home, spending $4 and 5 hours per week. Eileen sends her laundry out, spending $20 and 15 minutes per week transporting the laundry. On the basis of the information given, which one of the following must be true?

A) Roxanne earns more labor income than Eileen.
B) Eileen earns more total income than Roxanne.
C) Eileen enjoys doing laundry; Roxanne does not.
D) Eileen has less laundry than Roxanne.
E) Eileen and Roxanne attach different utilities to time spent doing laundry.

Question 18

Mark and Charles are roommates at college. Each has written a 25-page term paper for the same English class. They are equally poor typists. Charles types his own paper and gets paid by Mark to type his, too. On the basis of the information given, which one of the following must be true?

A) Mark is wealthier than Charles.
B) Mark needs more time to study than Charles.
C) Charles hates typing.
D) Mark and Charles have different utilities for typing but place the same value on time.
E) Mark's opportunity cost of typing is higher than Charles's.

Question 19

One explanation for the increased participation of married women in the U.S. labor force is that:

A) fewer women are being trained for household work by the public school system.
B) the rapid growth in the service sector has increased job opportunities for women.
C) the cost of professional day care has increased.
D) couples are having more children.
E) husbands earn more today than they did previously.

Question 20

Economists generally assume that:

A) firms act to maximize the dividends paid to stockholders.
B) households act to maximize their wealth.
C) households act to maximize utility.
D) firms act to maximize revenue.
E) both households and firms act to minimize expenditures.

Question 21

Households supply four basic types of resources. They include all of the following except:

A) natural resources.
B) final goods and services.
C) capital.
D) entrepreneurial ability.
E) labor.

Question 22

Which of the following did not occur during the Industrial Revolution?

A) Worker productivity increased.
B) Factories became larger.
C) Direct supervision of labor decreased.
D) Division of labor increased.
E) Fewer stages of production were organized in the household.

Question 23

Which of the following is the category to which the largest portion of households' personal income is allocated?

A) Taxes collected by government
B) Savings
C) Purchases of services
D) Purchases of durable goods
E) Purchases of nondurable goods

Question 24

Raghib teaches mathematics at Camford University and receives $40,000 per year. His spouse, Noraini, works as a self-employed computer programmer and charges $40 per hour. Which of the following is true?

A) Raghib's income is personal interest; Noraini's is wages.
B) Raghib's income is a salary; Noraini's is personal interest.
C) Both Raghib and Noraini receive proprietor's income.
D) Both Raghib and Noraini receive wage or salary income.
E) Raghib's income is a salary, and Noraini's income is proprietor's income.

Question 25

Which of the following is an advantage of a sole proprietorship?

A) The ability to pool resources
B) Limited liability
C) Double tax exemption of the firm's earnings
D) Ease of organization
E) Ease of raising funds

Question 26

Which of the following is a major advantage of a sole proprietorship?

A) Separation of ownership and control
B) Limited liability for business debt
C) Transferability of ownership and firm continuity over time
D) Ease of start-up
E) Ease of obtaining financing

Question 27

Which of the following did not occur during the Industrial Revolution?

A) Production became more reliant on highly specialized equipment.
B) A more efficient division of labor was promoted.
C) Workers bore much of the costs of production.
D) The transaction costs of contracting with individual resource owners were reduced.
E) Technological development increased the productivity of most workers.

Question 28

One disadvantage of a sole proprietorship as a form of business organization is that:

A) sole proprietorships cannot lower the transaction costs associated with contracting with resource owners.
B) sole proprietorships are less efficient than corporations, because they are less specialized in production.
C) owners of sole proprietorships can lose all their personal assets if the business is sued or fails.
D) owners of sole proprietorships generally find it difficult to negotiate separation agreements with the other partners in the firm.
E) owners of sole proprietorships generally have very little control over how they operate their businesses.

Question 29

Which of the following is an example of a durable good?

A) Food cooked at home
B) Food eaten at a restaurant
C) High fashion clothing
D) Binoculars
E) Motor oil

Question 30

A cottage industry is one that:

A) produces rural housing.
B) takes advantage of the division of labor.
C) uses highly specialized resources in a complex production process.
D) produces cottage cheese.
E) carries out production in workers' homes.

Question 31

Which of the following includes the four basic resources supplied by households?

A) Natural resources, labor, intelligence, capital
B) Money, labor, natural resources, entrepreneurial ability
C) Intellectual ability, physical ability, money, natural resources
D) Labor, capital, intelligence, entrepreneurial ability
E) Labor, natural resources, entrepreneurial ability, capital

Question 32

Luigi owns and operates a small restaurant. The income he receives from the restaurant is classified as:

A) saving.
B) proprietor's income.
C) wages and salaries.
D) rental income.
E) dividends.

Question 33

In terms of the numbers of firms in the U.S. economy, the most common type of firm is the:

A) corporation.
B) partnership.
C) sole proprietorship.
D) nonprofit organization.
E) limited partnership corporation.

Question 34

Which of the following is true about a sole proprietorship in the United States?

A) It is the most common form of business organization.
B) It is responsible for a large portion of the total production of goods and services.
C) It offers the owner the least personal liability of any form of business organization.
D) There is no opportunity cost to operating the business.
E) Only one individual can work in such a firm.

Question 35

Household income is spent on all of the following except one. Which is the exception?

A) Services
B) Tax payments
C) Durable goods
D) Nondurable goods
E) Dividends

Question 36

Which form of business organization is the most common in the United States?

A) Sole proprietorship
B) Partnership
C) Corporation
D) Nonprofit organization
E) S corporation

Question 37

Suppose you own a proprietorship that is in serious financial difficulty. The assets of the company are $100,000 but liabilities are $175,000. You also have, however, stock in General Motors worth $200,000. If you file for bankruptcy, what amount of personal assets do you stand to lose?

A) $100,000
B) $75,000
C) $200,000
D) $275,000
E) $375,000

Question 38

Which component of U.S. household spending has grown the most over the past ten years?

A) Taxes
B) Savings
C) Spending on services
D) Spending on nondurable goods
E) Spending on durable goods

Question 39

Brian is the sole proprietor of Long Voyage Software, which generates maps for wilderness trips. He started the business with an initial investment of $80,000. A faulty map caused one customer to get hopelessly lost. After her rescue and recuperation, she sued Long Voyage for $5,000,000. Which of the following is true?

A) The customer can be awarded only $80,000-what the firm has available to pay.
B) The customer can be awarded $5,000,000 but can get only $80,000.
C) The customer can be awarded $5,000,000, but Brian personally won't have to pay more than $80,000.
D) If $5,000,000 is awarded, Brian will have to pay none of it.
E) If $5,000,000 is awarded, Brian is personally responsible for paying all of it.

Question 40

Which of the following is an example of a durable good?

A) A strawberry muffin
B) A cherry pie
C) A newspaper
D) A handheld calculator
E) A pencil

Question 41

Which of the following have their profits taxed twice?

A) Sole proprietorship
B) Partnership
C) Corporation
D) Nonprofit institutions
E) S corporations

Question 42

Which category includes the largest number of firms?

A) Sole proprietorship
B) Partnership
C) Corporation
D) S corporation
E) Limited partnerships

Question 43

You own stock worth an estimated $1 million in the LPL Corporation. In addition, you have personal assets worth another $2 million. LPL becomes insolvent, with debts exceeding assets by $15 million. Your personal wealth will decline by:

A) $0.
B) $1 million.
C) $1.5 million.
D) $3 million.
E) your proportion of the total outstanding stock shares times $15 million.

Question 44

Owners of corporations are referred to most frequently as:

A) entrepreneurs.
B) lien holders.
C) limited partners.
D) managers.
E) stockholders.

Question 45

Which form of business organization is the least common in the United States?

A) Sole proprietorship
B) Partnership
C) Corporation
D) Nonprofit organization
E) Conglomerate

Question 46

The Salvation Army is an example of a(n):

A) military organization.
B) not-for-profit organization.
C) partnership.
D) S corporation.
E) U.S. government agency.

Question 47

Which of the following is most likely to be a partnership?

A) Uncle Mort's Red Wrigglers
B) The accounting firm of Hope and Williams
C) General Motors
D) The Boston Symphony Orchestra
E) The U.S. Post Office

Question 48

Which of the following lists the three types of firms in the United States from smallest to largest in terms of volume of sales?

A) Partnerships, sole proprietorships, corporations
B) Sole proprietorships, partnerships, corporations
C) Sole proprietorships, corporations, partnerships
D) Corporations, partnerships, sole proprietorships
E) Partnerships, corporations, sole proprietorships

Question 49

Suppose you form a legal partnership with your best friend, and she purchases consulting services calling for a $100,000 fee. Your business is broke, and you never wanted the consultants to work for you-only your partner did. For how much of this debt are you legally liable?

A) $25,000
B) All of the $100,000
C) The proportion reflected by the proportion of the business owned
D) Only an amount equal to the assets of the business
E) $50,000

Question 50

Messitt and McNulty spend $50,000 each to form a law partnership. On the first day, someone trips over a potted plant in their lobby and sues them for $400,000. Which of the following is true?

A) If a $400,000 judgment is against the partnership, then each partner will have to pay $200,000.
B) If a $400,000 judgment is against the partnership and if McNulty cannot afford to pay any of it, then Messitt is liable for $400,000.
C) Messitt's liability is limited to $300,000 because she owns three-quarters of the firm.
D) Each individual partner cannot be sued for more than $200,000.
E) Only McNulty is personally responsible for the damages because he was the one who put the potted plant in the office.

Question 51

Which of the following is not an example of a business operated by a consumer cooperative?

A) A grocery store
B) An apartment building
C) Sunkist, a farm cooperative owned and operated by citrus growers
D) A health plan
E) An electric power facility

Question 52

A realized capital gain is:

A) the difference between the price of a share of stock and what the investor paid for it (i.e., the broker's fee).
B) the difference between the original value of a piece of equipment and its depreciated value.
C) an increase in the net worth of a sole proprietorship or partnership.
D) an increase in the market value of a share of stock held by an individual.
E) the difference between the selling price and the purchase price of a share of stock.

Question 53

Which of the following would not describe two-thirds of the for-profit businesses in the United States as measured by the sheer number of firms?

A) Small retail businesses
B) Small service operations
C) Part-time home-based businesses
D) Small farms
E) Multinational corporations

Question 54

One thing that is not true about cooperatives is that they:

A) put out raw materials, like wool and cotton, to rural households that turn it into finished products.
B) pool resources to buy and sell more efficiently.
C) try to minimize costs.
D) operate with limited liability of members.
E) enjoy tax-exempt status.

Question 55

Nonprofit, or not-for-profit, firms:

A) maximize revenue instead of profit.
B) minimize cost rather than maximize profit.
C) often pursue goals other than profit maximization.
D) pursue profit as their main goal despite their name.
E) have no incentive to produce efficiently.

Question 56

All of the following are advantages of partnerships except one. Which is the exception?

A) They are relatively easy to start.
B) Their profits are taxed once as personal income.
C) Their liability is limited by each partner's share of the business.
D) They offer a greater opportunity for specialization by the owners.
E) They enable continuation of the firm if one partner dies.

Question 57

Which of the following is a disadvantage of a corporation compared to a sole proprietorship?

A) Limited liability
B) Difficulty raising start-up money
C) Lack of profitability
D) Double taxation of corporate income
E) Vulnerability in the case of the death of an owner

Question 58

The corporate form of business organization:

A) is chosen by more firms than any other form of organization in the United States.
B) gives firm owners limited liability.
C) generates less than half of the output in the U.S. economy.
D) combines the limited liability of the partnership with the personal control of the sole proprietorship.
E) is the least complex form of business organization.

Question 59

Stockholders share in the profits of a corporation:

A) in proportion to their years of stock ownership.
B) in proportion to their ownership of stock.
C) equally regardless of number of shares owned.
D) only if they participate in management decisions.
E) only if they attend stockholders' meetings.

Question 60

Which form of business organization accounts for the largest proportion of business sales in the United States?

A) Sole proprietorship
B) Partnership
C) Corporation
D) Nonprofit organization
E) Conglomerate

Question 61

Household production is more likely to occur when:

A) it requires few specialized resources.
B) technology makes it more costly than market production.
C) tax avoidance is undesirable.
D) less control over the final product is desirable.
E) the opportunity cost of household production is high.

Question 62

A public good is one that is supplied to:

A) only people who pay for it.
B) only people who do not pay for it.
C) all people, regardless of whether they pay for it or not.
D) the government by private firms.
E) foreign governments by our federal government.

Question 63

Which of the following is true of public goods?

A) The market mechanism helps to signal the quantity that is demanded by the public.
B) Payment for consumption is efficiently provided by market prices.
C) Consumption by one person does not preclude consumption of the same good by another person.
D) The public sector is guided to produce the correct quantity by market prices.
E) Voluntary contributions will be sufficient to finance the production of public goods.

Question 64

Which of the following is not primarily a function of the federal government?

A) National security
B) Higher education
C) Economic stability
D) Market competition
E) Dealing with externalities

Question 65

Household production is more likely to occur when:

A) it requires many specialized resources.
B) technology makes it more costly than market production.
C) tax avoidance is undesirable.
D) more control over the final product is desirable.
E) it has a very high opportunity cost.

Question 66

Natural monopolies occur when:

A) government antitrust laws are too weak or not enforced.
B) negative externalities are present.
C) firms collude to set prices and divide the market among themselves.
D) one firm can service the market more cheaply than two or more firms can.
E) a public good is produced by a private firm.

Question 67

Household production is more likely to occur when:

A) it requires many specialized resources.
B) technology makes it more costly than market production.
C) tax avoidance is undesirable.
D) less control over the final product is desirable.
E) the opportunity cost of household work is relatively small.

Question 68

A group of farmers in southwestern Pennsylvania bought a pesticide-free pasture. They sold their locally raised organic beef in the butcher shop they owned together. This group of farmers would be identified as a(n):

A) not-for-profit organization.
B) S corporation.
C) producer cooperative.
D) sole proprietorship.
E) cottage industry.

Question 69

Which of the following is not a reason why some production continues in households?

A) Some household production requires many specialized resources.
B) The opportunity cost of household production has decreased over time.
C) Household production avoids taxes.
D) There have been important technological advances in household production.
E) Some households prefer the ability to control production.

Question 70

You are more likely to hire your teenage child than a landscaping firm to mow your lawn:

A) since the teenager is paid more than the landscaping firm.
B) if the teenager has a lower opportunity cost of mowing the lawn than the landscaping firm does.
C) because the teenager is less likely to have the specialized tools necessary to complete the job quickly.
D) due to the bounded rationality of the diversified landscaping firm.
E) when it does not take a substantial amount of time and effort to find a reputed landscaping firm to do the job.

Question 71

You are more likely to repair a leaky drainpipe yourself than hire a plumber:

A) as the tax rate on your earned income dramatically decreases.
B) if the opportunity cost of your time decreases.
C) the less knowledge and experience in plumbing repair work you possess.
D) if you need to purchase the specialized tools required to complete the repair work.
E) as the transaction cost of the do-it-yourself repair increases.

Question 72

Some people have argued that government should provide only those goods that we would truly define as public goods. If so, which of the following should government provide?

A) National defense
B) Daycare centers for children of working mothers
C) Mail delivery
D) Unemployment benefits
E) Subsidies for agricultural products

Question 73

Which of the following is a defining characteristic of a public good?

A) It is produced and distributed by the government.
B) The decision to produce it is made by the public through a voting process.
C) It is produced and distributed by private firms according to government regulations.
D) It is freely available to everyone once it is produced.
E) It is purchased by one government agency from another government agency.

Question 74

Which of the following is the best example of a public good?

A) Food stamps
B) Police services
C) Trash removal
D) A restaurant meal
E) An iPad

Question 75

You are more likely to hire a plumber to repair a leaky drainpipe:

A) as the tax rate on your earned income rises.
B) if you already own the specialized tools required to complete the plumbing repair work.
C) following an increase in the opportunity cost of your time.
D) the more knowledge and experience in plumbing repair work you possess.
E) as the transaction cost of entering into a plumbing contract increases due to government regulations.

Question 76

Contracts are enforced by:

A) the firms that make the contracts through buy-out clauses.
B) law firms that specialize in contract enforcement.
C) corporations specializing in contract writing and enforcement.
D) government through the judicial system.
E) both households and firms through customer relations departments.

Question 77

Government antitrust laws were designed to:

A) encourage the production of public goods.
B) prevent natural monopolies.
C) prevent collusion among firms.
D) regulate natural monopolies.
E) correct the outcomes of positive and negative externalities in private markets.

Question 78

Despite specialization and comparative advantage, household production still exists because for some households:

A) the opportunity cost of production at home is greater than the cost of purchasing the good in the market.
B) production at home is less costly than purchasing the good in the market.
C) the value of home production exceeds the sunk cost of home production.
D) the value of home production is ignored.
E) the expenditure on food and clothing represents a small portion of their total budget.

Question 79

The funds to pay for police protection are usually raised through taxation because:

A) police protection would be hard to provide exclusively to those who voluntarily pay for it.
B) people would not voluntarily pay salaries to officials who might arrest them.
C) police protection is a basic necessity.
D) goods financed through taxation can be guaranteed to all who pay for it.
E) the government believes that those who receive the benefits from the service should pay for it.

Question 80

Which of the following is a reason why government is a participant in a market-oriented economy?

A) To enforce contracts and protect private property
B) To promote collusion
C) To promote the growth of natural monopolies
D) To provide more inequality in the distribution of income
E) To promote externalities