Question 1

What is the random walk theory?

Accepted Answer

The random walk theory is the theory tha

Question 2

Do people make decisions on the basis of the nominal interest rate or the real interest rate? What is the relationship between the two interest rates?

Accepted Answer

People make their decisions on the basis

Question 3

The opportunity cost of capital is

Accepted Answer

A)  the rate of return realized on an investment. 
B)  the rate of return that could be earned by the owner's capital were it used elsewhere. 
C)  the rate used to calculate a firm's tax liability. 
D)  the rate of interest the government uses to calculate legal business tax penalties. 
A)  the rate of return realized on an investment. 
B)  the rate of return that could be earned by the owner's capital were it used elsewhere. 
C)  the rate used to calculate a firm's tax liability. 
D)  the rate of interest the government uses to calculate legal business tax penalties.

Question 4

A popular entertainer gives a concert in a 50,000 seat stadium. To give her fans a break, she charges only $50 a seat instead of the customary $75 a seat. At $75 a ticket, there would have been 50,000 tickets sold, and at $50, there are 80,000 people who want tickets. As a consequence of the generosity of the entertainer,

Accepted Answer

A)  her fans are made better off. 
B)  a more fair system of pricing the tickets has been found. 
C)  another type of system will have to be found to allocate the tickets, making some of her fans better off and others worse off. 
D)  her fans are made worse off since there is an excess demand of 30,000 tickets. 
A)  her fans are made better off. 
B)  a more fair system of pricing the tickets has been found. 
C)  another type of system will have to be found to allocate the tickets, making some of her fans better off and others worse off. 
D)  her fans are made worse off since there is an excess demand of 30,000 tickets.

Question 5

What is the present value of $100 one-year from now at an interest rate of 6%?

Accepted Answer

A)  $160 
B)  $106 
C)  $94.34 
D)  $6 
A)  $160 
B)  $106 
C)  $94.34 
D)  $6

Question 6

A legal entity that may conduct business in its own name just as an individual does is a(n)

Accepted Answer

A)  corporation. 
B)  entrepreneur. 
C)  proprietorship. 
D)  partnership. 
A)  corporation. 
B)  entrepreneur. 
C)  proprietorship. 
D)  partnership.

Question 7

What is the relationship between accounting and economic profits?

Accepted Answer

A)  Accounting profits are always larger than economic profits. 
B)  Economic profits are always larger than accounting profits. 
C)  There is no relationship between economic and accounting profits. 
D)  Economic profits are always negative. 
A)  Accounting profits are always larger than economic profits. 
B)  Economic profits are always larger than accounting profits. 
C)  There is no relationship between economic and accounting profits. 
D)  Economic profits are always negative.

Question 8

In a partnership,

Accepted Answer

A)  each partner's liability is limited to their investment in the company. 
B)  profits are taxed at both the corporate rate and the personal income tax rate. 
C)  upon the death of a partner it may be necessary to sell the business. 
D)  there is a separation of ownership and management like in a corporation. 
A)  each partner's liability is limited to their investment in the company. 
B)  profits are taxed at both the corporate rate and the personal income tax rate. 
C)  upon the death of a partner it may be necessary to sell the business. 
D)  there is a separation of ownership and management like in a corporation.

Question 9

What is the difference between accounting profits and economic profits? Which of the two concepts is more appropriate for explaining decisions made by entrepreneurs? Explain.

Accepted Answer

The difference between accounting profit

Question 10

Comparing proprietorships with partnerships, which is true?

Accepted Answer

A)  In both cases, profits are taxed only once. 
B)  Partnerships outnumber proprietorships 2-to-1 in the United States. 
C)  Proprietorships generally end with the death of the owner, but partnerships continue as long as at least one partner survives. 
D)  A proprietor faces unlimited liability for her firm's debts, but in a partnership each partner is only responsible for an even share of the firm's indebtedness. 
A)  In both cases, profits are taxed only once. 
B)  Partnerships outnumber proprietorships 2-to-1 in the United States. 
C)  Proprietorships generally end with the death of the owner, but partnerships continue as long as at least one partner survives. 
D)  A proprietor faces unlimited liability for her firm's debts, but in a partnership each partner is only responsible for an even share of the firm's indebtedness.

Question 11

Tim has a toenail clipping business that is a sole proprietorship. If he is sued for a botched pedicure,

Accepted Answer

A)  he has limited liability. 
B)  he has separation of ownership and control. 
C)  all of his personal assets are at risk. 
D)  he will be taxed doubly. 
A)  he has limited liability. 
B)  he has separation of ownership and control. 
C)  all of his personal assets are at risk. 
D)  he will be taxed doubly.

Question 12

Explicit costs are

Accepted Answer

A)  the opportunity costs of all resources used by the firm. 
B)  the costs associated with the resources that the firm owns. 
C)  actual expenditures that a firm must make. 
D)  all costs associated with the short run. 
A)  the opportunity costs of all resources used by the firm. 
B)  the costs associated with the resources that the firm owns. 
C)  actual expenditures that a firm must make. 
D)  all costs associated with the short run.

Question 13

Bond coupon payments represent

Accepted Answer

A)  dividends paid to owners. 
B)  interest on the amount borrowed. 
C)  capital gains for tax purposes. 
D)  payments to preferred shareholders. 
A)  dividends paid to owners. 
B)  interest on the amount borrowed. 
C)  capital gains for tax purposes. 
D)  payments to preferred shareholders.

Question 14

A payment for the use of any resource over and above its opportunity cost is called

Accepted Answer

A)  accounting profit. 
B)  economic profit. 
C)  normal cost. 
D)  economic rent. 
A)  accounting profit. 
B)  economic profit. 
C)  normal cost. 
D)  economic rent.

Question 15

If land is reallocated or switched from agricultural use to recreational use, then it is likely that

Accepted Answer

A)  food is not as important as recreation. 
B)  the demand for food is less today than in previous decades. 
C)  land earns a higher rent in recreational use than in agricultural use. 
D)  the demand curve for land in the agricultural industry is shifting to the right. 
A)  food is not as important as recreation. 
B)  the demand for food is less today than in previous decades. 
C)  land earns a higher rent in recreational use than in agricultural use. 
D)  the demand curve for land in the agricultural industry is shifting to the right.

Question 16

Economic rent is defined as

Accepted Answer

A)  any payment that has a contract period. 
B)  a payment to an owner of a factor that is in perfectly elastic supply. 
C)  a payment to an owner of a factor greater than the opportunity cost of utilizing the factor. 
D)  the opportunity cost or return to a productive factor such as capital. 
A)  any payment that has a contract period. 
B)  a payment to an owner of a factor that is in perfectly elastic supply. 
C)  a payment to an owner of a factor greater than the opportunity cost of utilizing the factor. 
D)  the opportunity cost or return to a productive factor such as capital.

Question 17

What are the two meanings of interest in economics?

Accepted Answer

Interest refers to the price p

Question 18

Economic rent is broadly defined as

Accepted Answer

A)  a payment received by a landowner. 
B)  a payment for the use of any resource that has a fixed supply. 
C)  the return to owners of farmland. 
D)  the dividend return on a share of stock. 
A)  a payment received by a landowner. 
B)  a payment for the use of any resource that has a fixed supply. 
C)  the return to owners of farmland. 
D)  the dividend return on a share of stock.

Question 19

The theory that there are no predictable trends in securities prices that can be used to "get rich quick" is the

Accepted Answer

A)  dartboard theory. 
B)  random walk theory. 
C)  Wall Street theory. 
D)  inefficient market hypothesis. 
A)  dartboard theory. 
B)  random walk theory. 
C)  Wall Street theory. 
D)  inefficient market hypothesis.

Question 20

Economic rent is

Accepted Answer

A)  the return to owners of farmland. 
B)  the return to landlords. 
C)  a payment for the use of any resource above its opportunity cost. 
D)  a payment for land, an apartment, or a house that one does not own. 
A)  the return to owners of farmland. 
B)  the return to landlords. 
C)  a payment for the use of any resource above its opportunity cost. 
D)  a payment for land, an apartment, or a house that one does not own.

Exam 21: Rents, Profits, and the Financial Environment of Business

What is the random walk theory?

Do people make decisions on the basis of the nominal interest rate or the real interest rate? What is the relationship between the two interest rates?

The opportunity cost of capital is

What is the present value of $100 one-year from now at an interest rate of 6%?

A legal entity that may conduct business in its own name just as an individual does is a(n)

What is the relationship between accounting and economic profits?

In a partnership,

What is the difference between accounting profits and economic profits? Which of the two concepts is more appropriate for explaining decisions made by entrepreneurs? Explain.

Comparing proprietorships with partnerships, which is true?

Tim has a toenail clipping business that is a sole proprietorship. If he is sued for a botched pedicure,

Explicit costs are

Bond coupon payments represent

A payment for the use of any resource over and above its opportunity cost is called

If land is reallocated or switched from agricultural use to recreational use, then it is likely that

Economic rent is defined as

What are the two meanings of interest in economics?

Economic rent is broadly defined as

The theory that there are no predictable trends in securities prices that can be used to "get rich quick" is the

Economic rent is

The Nature of Economics

Scarcity and the World of Trade-Offs

Demand and Supply

Extensions of Demand and Supply Analysis

Public Spending and Public Choice

Funding the Public Sector

The Macroeconomy: Unemployment, Inflation, and Deflation

Measuring the Economys Performance

Global Economic Growth and Development

Real GDP and the Price Level in the Long Run

Classical and Keynesian Macro Analyses

Consumption, Real GDP, and the Multiplier

Fiscal Policy

Deficit Spending and the Public Debt

Money, Banking, and Central Banking

Domestic and International Dimensions of Monetary Policy

Stabilization in an Integrated World Economy

Policies and Prospects for Global Economic Growth

Demand and Supply Elasticity

Consumer Choice

The Firm: Cost and Output Determination

Perfect Competition

Monopoly

Monopolistic Competition

Oligopoly and Strategic Behavior

Regulation and Antitrust Policy in a Globalized Economy

The Labor Market: Demand, Supply and Outsourcing

Unions and Labor Market Monopoly Power

Income, Poverty, and Health Care

Environmental Economics

Comparative Advantage and the Open Economy

Exchange Rates and the Balance of Payments

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