Deck 3: Economic Decision Makers

Question 1

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.

Answer 1

Mark's opportunity cost of typing is higher than Charles's.

Question 2

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 the government
E)payment for the goods and services they sell to firms and governments

Answer 2

goods and services from firms and the government

Question 3

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

Answer 3

resources to firms and governments

Question 4

The term "utility" means

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

Question 5

If the 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 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 increase their satisfaction

Question 7

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

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 that women must work to make payments on them.
E)Women spend more time in the market as a result of the increasing division of labor in household production.

Question 8

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 9

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)Roxanne enjoys doing laundry; Eileen does not.
D)Eileen has less laundry than Roxanne.
E)Eileen and Roxanne attach different utilities to time spent doing laundry.

Question 10

Which of the four types of economic decision makers is most important?

A)firms, because they produce all goods and services in the economy
B)households, because they demand goods and services and supply resources
C)government, because it ultimately sets and enforces the "rules of the game"
D)government, because it steps in when there is market failure
E)the rest of the world, because there are over 150 countries

Question 11

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 12

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

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

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 15

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 laundering her clothes than Harold does.

Question 16

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

Question 17

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 18

Households act as demanders when they

A)vote for President
B)recieve dividends from the stocks they hold
C)recieve interest and capital gains from the bonds they hold
D)buy a car from the local car dealer
E)recieve payment for resources they provide to a Fortune 500 company

Question 19

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 20

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)rapid growth in the service sector has provided additional 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 21

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

A)food prepared at home
B)food eaten at a restaurant
C)high-fashion clothing
D)binoculars
E)motor oil

Question 22

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

Question 23

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 products qualities and prices

Question 24

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 25

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 26

Which of the following is the best example of the ownership of the resource called labor

A)John Smith's ownership of 10 shares of a manufacturer of farm tractors
B)Pogo O'Reilly's ownership of 10 shares of a natural gas extraction company
C)Helen Restock's ownership of a $10, 000 savings bond
D)Abe Hawthorne's college degree in marketing
E)Ann Stump's creative, risk-taking personality

Question 27

Which of the following represents the best example of personal interest?

A)the paycheck that Freeda brings home from her job as a computer programer
B)the interest that Hans earns from the savings account he has with USA Bank
C)the revenue that Janet has left over after she pays all the expenses associated with running her software development business
D)the check that Hunter receives each month for leasing his land to the natural gas company that is drilling on his land
E)the check that Trisha gets each month from the Social Security Administration

Question 28

Which of the following is the best example of the ownership of the resource called capital

A)John Smith's ownership of 10 shares of a manufacturer of farm tractors
B)Pogo O'Reilly's ownership of 10 shares of a natural gas extraction company
C)Helen Restock's ownership of a $10, 000 savings bond
D)Abe Hawthorne's college degree in marketing
E)Ann Stump's creative, risk-taking personality

Question 29

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

Question 30

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 a proprietor's income

Question 31

Which of the following represents the best example of rental income?

A)the paycheck that Freeda brings home from her job as a computer programer
B)the interest that Hans earns from the savings account he has with USA Bank
C)the revenue that Janet has left over after she pays all the expenses associated with running her software development business
D)the check that Hunter receives each month for leasing his land to the natural gas company that is drilling on his land
E)the check that Trisha gets each month from the Social Security Administration

Question 32

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 33

Which of the following is the best example of the ownership of the resource called entrepreneurship

A)John Smith's ownership of 10 shares of a manufacturer of farm tractors
B)Pogo O'Reilly's ownership of 10 shares of a natural gas extraction company
C)Helen Restock's ownership of a $10, 000 savings bond
D)Abe Hawthorne's college degree in marketing
E)Ann Stump's creative, risk-taking personality

Question 34

Which of the following represents the best example of a transfer payment?

A)the paycheck that Freeda brings home from her job as a computer programer
B)the interest that Hans earns from the savings account he has with USA Bank
C)the revenue that Janet has left over after she pays all the expenses associated with running her software development business
D)the check that Hunter receives each month for leasing his land to the natural gas company that is drilling on his land
E)the check that Trisha gets each month from the Social Security Administration

Question 35

Which of the following is the best example of the ownership of the resource called land

A)John Smith's ownership of 10 shares of a manufacturer of farm tractors
B)Pogo O'Reilly's ownership of 10 shares of a natural gas extraction company
C)Helen Restock's ownership of a $10, 000 savings bond
D)Abe Hawthorne's college degree in marketing
E)Ann Stump's creative, risk-taking personality

Question 36

Which of the following represents the best example of proprietor's income?

A)the paycheck that Freeda brings home from her job as a computer programer
B)the interest that Hans earns from the savings account he has with USA Bank
C)the revenue that Janet has left over after she pays all the expenses associated with running her software development business
D)the check that Hunter receives each month for leasing his land to the natural gas company that is drilling on his land
E)the check that Trisha gets each month from the Social Security Administration

Question 37

Which of the following represents the best example of wages and salaries?

A)the paycheck that Freeda brings home from her job as a computer programer
B)the interest that Hans earns from the savings account he has with USA Bank
C)the revenue that Janet has left over after she pays all the expenses associated with running her software development business
D)the check that Hunter receives each month for leasing his land to the natural gas company that is drilling on his land
E)the check that Trisha gets each month from the Social Security Administration

Question 38

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

A)labor
B)land
C)capital
D)entrepreneurial ability
E)money

Question 39

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 40

Which of the following represents the largest source of income for U.S.households?

A)personal interest
B)proprietor's income
C)wages and salaries
D)rental income
E)transfer payments

Question 41

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 42

Which of the following accounts for the largest percentage of spending by households in the United States?

A)durable goods
B)nondurable goods
C)services
D)insurance payments
E)underground activities (e.g., illegal activities)

Question 43

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

Question 44

Which of the following is a major advantage of the 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 45

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

A)a cowboy
B)a cherry pie
C)a newspaper
D)a hand-held calculator
E)a pencil

Question 46

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 47

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

Question 48

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 49

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 50

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

Question 51

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

Question 52

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 53

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

Question 54

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

Question 55

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 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 56

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

Question 57

Brian is the sole proprietor owner 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 58

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

Question 59

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 60

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 61

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 62

Which of the following would be the best example of a sole proprietorship?

A)The legal office of Alias, Smith and Jones
B)A local mom and pop restaurant
C)Microsoft
D)A local hospital
E)A State University

Question 63

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 64

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 65

The primary reason why individuals are willing to pay entrepreneurs to organize production is

A)that they have to guarantee that the entrepreneur will make a profit
B)they avoid taxation when activities are organized by someone else
C)that it is better for businesses to pay taxes than individuals
D)that it reduces transaction costs
E)that entrepreneurs are more vulnerable in the case of the owner

Question 66

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 67

Which of the following would be the best example of a corporation?

A)The legal office of Alias, Smith and Jones
B)A local mom and pop restaurant
C)Microsoft
D)A local hospital
E)A State University

Question 68

Often trade will not occur because

A)transaction costs are too high
B)neither party has an opportunity cost
C)the benefits to one party just equal the losses to the other party
D)no one expects to gain from the trade
E)the profits of the firm are excessive

Question 69

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 70

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 71

Owners of corporations are referred to most frequently as

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

Question 72

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 73

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)a greater opportunity for specialization by the owners
E)a continuation of the firm if one partner dies

Question 74

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

A)limited liability
B)difficulty raising start-up money
C)lack of profitability
D)corporate income is taxed twice
E)corporations are more vulnerable in the case of the death of an owner

Question 75

Which of the following would be the best example of a partnership?

A)The legal office of Alias, Smith and Jones
B)A local mom and pop restaurant
C)Microsoft
D)A local hospital
E)A State University

Question 76

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 77

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 firm management decisions
E)only if they attend stockholders' meetings

Question 78

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 79

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)none of it
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 80

Which of the following is true about 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 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.