Deck 3: Economic Decision Makers

Question 1

Sole proprietorships produce more goods and services than does any other form of business organization.​

Answer 1

False

Question 2

A major advantage of the corporate form of business organization is the limited personal liability of the owners.​

Answer 2

True

Question 3

The movement of households from rural to urban settings reduced the degree of specialization in household production.​

Answer 3

True

Question 4

Personal income in the United States is primarily determined by selling labor services.​

Question 5

A disadvantage of the corporate form of business organization is that corporate income is taxed twice.​

Question 6

The most common form of business organization in the United States is the sole proprietorship.​

Question 7

If left to market forces, activities that produce external benefits will be overproduced.​

Question 8

Household production consists of households producing goods and services, like meals, cleaning and child care, instead of firms.​

Question 9

Household production increases when there is a stronger desire to avoid taxation.​

Question 10

Household production still exists because it often requires fewer specialized resources than market production does.​

Question 11

As the real wage increases, the opportunity cost of working in the home increases.​

Question 12

The most common form of business organization in the United States is the partnership.​

Question 13

To serve the public interest, government sometimes promotes competition by breaking up natural monopolies.​

Question 14

An external benefit is a benefit from an activity that falls on a third party which is not involved in the activity.​

Question 15

A cooperative, or co-op for short, is a single-owner firm.​

Question 16

Two important roles of government in the economy are to safeguard private property and enforce contracts.​

Question 17

A major disadvantage of the corporate form of business is limited liability.​

Question 18

The fastest-growing component of U.S. personal consumption is services.​

Question 19

The partnership is the least common form of business organization in the United States.​

Question 20

A large number of businesses are organized as sole proprietorships because it is easy for them to acquire large amounts of financing.​

Question 21

The personal income tax is based on the benefits-received principle of taxation.​

Question 22

If the value of the euro increases relative to the U.S. dollar, then French goods will be less expensive in the U.S.​

Question 23

The excise tax on gasoline is based on the ability-to-pay principle of taxation.​

Question 24

A public good is available to all regardless of who pays for it and who does not.​

Question 25

Under a regressive income tax system, individuals with higher incomes pay higher marginal tax rates.​

Question 26

Private goods are excludable and nonrival in consumption.​

Question 27

Public goods are both rival and nonexclusive.​

Question 28

Goods and services produced by the government are sold at prices that are set to recover production costs.​

Question 29

Most economists assume that the goal of elected officials is to promote the public interest.​

Question 30

Imposing a tax on an activity that generates an external benefit will cause participants in the activity to increase the amount of the activity undertaken.​

Question 31

Externalities can occur as a result of either production or consumption activities.​

Question 32

Revenue for the state governments in the United States comes primarily from income taxes.​

Question 33

Gasoline taxes illustrate the benefits-received principle of taxation.​

Question 34

The value of a country's imports cannot exceed the value of its exports.​

Question 35

In recent years, redistribution has been the fastest growing category of federal government outlays.​

Question 36

The primary source of revenue for local governments is the property tax.​

Question 37

Federal individual income taxes illustrate the ability-to-pay principle of taxation.​

Question 38

It is difficult to exclude individuals from the use of public goods and services.​

Question 39

A positive externality is one in which there is an external benefit bestowed on a third party.​

Question 40

When externalities are present, market prices do not reflect all the social costs or benefits of the activity.​

Question 41

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 42

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 43

​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 44

The term "utility" means:​

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

Question 45

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 46

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 47

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 48

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 49

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 50

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 51

Import quotas on sugar entering the United States result in lower sugar prices in the United States.​

Question 52

An import quota taxes an import but does not set a limit on how much may be imported.​

Question 53

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 54

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 55

Import restrictions usually benefit domestic producers at the expense of domestic consumers.​

Question 56

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.
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 57

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 58

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.

Question 59

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 60

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 61

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 62

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.

Question 63

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 64

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 65

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 66

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 67

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 68

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 69

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 70

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 71

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 72

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 73

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 74

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 75

​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 76

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 77

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 78

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 79

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

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

Question 80

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​