Question 1

When economists talk about business organisations they are referring to

Accepted Answer

Economists refer to all types of business organizations, including public corporations, private sector firms, and cooperatives, when discussing business organizations. These categories encompass the broad range of organizational structures through which business is conducted.

Question 2

Transaction costs are

Accepted Answer

Transaction costs refer to the expenses incurred in making an economic exchange, including the costs of making arrangements for production, distribution, and sales, rather than taxes or commission charges.

Question 3

Transaction costs are caused by

Accepted Answer

Transaction costs are caused by a variety of factors including the need to monitor contracts, the complexity of contracts, and imperfect knowledge. These elements contribute to the overall costs associated with making and enforcing agreements in economic transactions.

Question 4

The existence of transaction costs on an activity means that

Accepted Answer

Transaction costs can make it preferable to organize an activity within the firm to avoid the costs associated with market transactions, such as negotiating and enforcing contracts. This doesn't mean it's always cost-effective or that external contracts are inherently bad, just that it may be preferable in some cases.

Question 5

The traditional theory of the firm assumes that firms aim to

Accepted Answer

The traditional theory of the firm posits that the primary objective of a firm is to maximise its profits. This involves both revenue maximization and cost minimization strategies, but the ultimate goal is defined as profit maximization.

Question 6

If we employ someone to carry out our wishes, the resulting conflict of interest is known by economists as the

Accepted Answer

The principal-agent problem occurs when one party (the agent) is supposed to act in the best interest of another (the principal), but there is a conflict of interest because the agent's interests may not align perfectly with the principal's. This is a common issue in situations where someone is employed to carry out another's wishes, as their incentives might not fully align.

Question 7

The principal- agent problem arises because of

Accepted Answer

The answer of The principal- agent problem arises because of...

Question 8

A divorce of ownership from control creates problems such as

Accepted Answer

Conflicts between the objectives of managers and owners arise because managers may pursue personal goals that do not align with the owners' goal of maximizing shareholder value.

Question 9

The divorce of ownership and control tends to occur in

Accepted Answer

The divorce of ownership and control is a characteristic feature of public limited companies, where ownership is spread among numerous shareholders while control is typically concentrated in the hands of a board of directors or management team.

Question 10

The divorce of ownership and control causes a problem usually referred to by economists as

Accepted Answer

The principal-agent problem arises when there is a conflict of interest between the owners (principals) and the managers (agents) who control the business, due to the separation of ownership and control.

Question 11

Which of the following statements is false?

Accepted Answer

Firms that are too cautious may indeed be forced out of an industry if their caution leads them to miss out on important innovations or market opportunities, allowing more aggressive competitors to gain an advantage.

Question 12

Which of the following decisions would you associate with a very cautious firm?

Accepted Answer

A very cautious firm would prefer using tried and tested approaches to minimize risk and ensure stability.

Question 13

If a business is owned by _________it is called a _________.

Accepted Answer

A business owned by shareholders is called a public limited company.

Question 14

If a business is owned by _________it is called a_________.

Accepted Answer

A partnership is a type of business structure where two or more people own and operate the business together, sharing profits and liabilities.

Question 15

If a business is owned by_________it is called a_________.

Accepted Answer

C) one person; sole proprietor is correct because a sole proprietorship is a business owned and operated by a single individual, with no distinction between the business and the owner.

Question 16

If a business is owned by_________it is called a _________

Accepted Answer

A public corporation is a company that is owned by the government, which is referred to as "the state" in the question.

Question 17

If a business is owned by_________it is called a_________.

Accepted Answer

The answer of If a business is owned by_________it is...

Question 18

Which of the following is not an advantage of being a sole trader?

Accepted Answer

Unlimited liability is a disadvantage of being a sole trader because it means the owner is personally responsible for all the debts of the business, which can put personal assets at risk.

Question 19

Which of the following are advantages of being a partnership as opposed to being a sole trader?

Accepted Answer

All of the choices are advantages of being a partnership as opposed to being a sole trader.

Question 20

Which of the following is often an advantage for a sole proprietor?

Accepted Answer

Sole proprietorships can adapt more quickly to changing market conditions due to the streamlined decision-making process, as decisions are made by a single owner without the need for consultation with partners or shareholders.

Quiz 3: Business Organisations