Deck 3: Economic Decision Makers

Question 1

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

Answer 1

C

Question 2

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

Answer 2

E

Question 3

Which of the following is one of the chief reasons for the increased numberof 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 self­worth.
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.

Answer 3

C

Question 4

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

Question 5

The term "utility" means

A)satisfaction
B)a low­valued good
C)productivity
D)adaptability
E)efficiency

Question 6

Harold, a delivery man, washes and irons his own shirts.Sarah, his boss,sends her clothes to a laundry.Which is the most plausible economicexplanation 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 7

The movement in U.S.population from the farms to urban areas was causedprimarily 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 8

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

Question 9

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 10

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

Question 11

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 12

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 13

The increased labor force participation of married women in the UnitedStates 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 14

One explanation for the increased participation of married women in theU.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 15

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 16

Rationality in the household decision­making 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 17

Which resource generates the largest share of the income in the UnitedStates?

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

Question 18

Mark and Charles are roommates at college.Each has written a 25­pageterm 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 thebasis 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

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 20

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

Question 21

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 22

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

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

Question 23

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

Question 24

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

Question 25

Households supply four basic types of resources.They include all of thefollowing except

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

Question 26

Luigi owns and operates a small restaurant.The income he receives fromthe restaurant is classified as

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

Question 27

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

A)services
B)tax payments
C)durable goods
D)nondurable goods
E)dividends

Question 28

Which of the following is the category to which the largest portion ofhouseholds' 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 29

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 30

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

A)a cowboy
B)a cherry pie
C)a newspaper
D)a hand­held calculator
E)a pencil

Question 31

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 32

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 33

The fastest­growing component of U.S.personal consumption is services.

Question 34

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

Question 35

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

Question 36

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

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

Question 37

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

Question 38

Raghib teaches mathematics at Camford University and receives $40,000per year.His spouse, Noraini, works as a self­employed computerprogrammer 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 39

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

A)taxes
B)savings
C)spending on services
D)spending on nondurable goods
E)spending on durable goods

Question 40

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

Question 41

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

Question 42

In terms of total sales, the dominant form of business firm in the U.S.economy is the

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

Question 43

One disadvantage of a sole proprietorship as a form of businessorganization 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 44

Which category includes the largest number of firms?

A)sole proprietorship
B)partnership
C)corporation
D)S­corporation
E)limited partnerships

Question 45

Brian is the sole proprietor owner of Long Voyage Software, whichgenerates maps for wilderness trips.He started the business with an initialinvestment of $80,000.A faulty map caused one customer to get hopelesslylost.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 $80,000­­what 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 46

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

Question 47

Suppose you form a legal partnership with your best friend, and shepurchases consulting services calling for a $100,000 fee.Your business isbroke, and you never wanted the consultants to work for you ­­ only yourpartner 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 48

Which of the following lists the three types of firms in the United Statesfrom 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

Owners of corporations are referred to most frequently as

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

Question 50

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

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 51

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 52

Suppose you own a proprietorship that is in serious financial difficulty.Theassets of the company are $100,000, but liabilities are $175,000.You alsohave, however, stock in General Motors worth $200,000.If you filebankruptcy, 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 53

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

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

Question 54

Which form of business organization is the most common in the UnitedStates?

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

Question 55

Messitt and McNulty spend $50,000 each to form a law partnership.On thefirst 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 56

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 57

Which of the following is true about sole proprietorship in the UnitedStates?

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.

Question 58

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 59

In terms of the numbers of firms in the U.S.economy, the most commontype of firm is the

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

Question 60

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 start­up
E)ease of obtaining financing

Question 61

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

Question 62

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

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 63

You are more likely to do­it­yourself than hire a plumber to repair a leakydrain pipe

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 that you possess
D)if you already own the specialized tools required to complete the repair work
E)as the transaction cost of the do­it­yourself repair work increases

Question 64

The Salvation Army is an example of a(n)

A)military organization
B)not­for­profit organization
C)partnership
D)S­corporation
E)U.S.government agency

Question 65

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 66

You are more likely to hire your teenage child to cut your lawn than alandscaping firm

A)since the teenager is paid each time when she finishes and the landscaping firm bills your credit card
Each month
B)if the teenager has a lower opportunity cost of cutting 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 reputable landscaping firm to do the
Job

Question 67

Nonprofit, or not­for­profit, 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 68

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 69

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 70

Which of the following have their profits taxed twice?

A)sole proprietorships
B)partnerships
C)corporations
D)nonprofit institutions
E)S­corporations

Question 71

Which of the following is not a not­for­profit institution?

A)Columbia Broadcasting System (CBS)
B)American Red Cross
C)Salvation Army
D)a public library
E)a typical college or university

Question 72

Household production increases when there is a stronger desire to avoidtaxation.

Question 73

You are more likely to hire a plumber to repair a leaky drain pipe

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 that you possess
E)as the transaction cost of entering into a plumbing contract increases due to government regulations

Question 74

Household production still exists because it often requires fewer specializedresources than market production does.

Question 75

An external benefit is a benefit from an activity that falls on a third partywho is not a party to the activity.

Question 76

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 desirable
D)less control over the final product is desirable
E)the opportunity cost of household production is high

Question 77

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)all of the above

Question 78

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)all of the above are functions of the federal government

Question 79

Household production is more likely to occur when

A)it requires many specialized resources
B)technology makes it easier 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 80

Despite specialization and comparative advantage, household productionstill 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)food and clothing expenditures represent a small portion of their total budget