Question 1

According to efficient market theory, which of the following can best predict the stock price of a particular company tomorrow?

Accepted Answer

A)  a finance professor who knows a lot of investment theory 
B)  a stock trader who has traded stocks for more than 10 years 
C)  that company's employee who has inside information about the company 
D)  none of the above: Everyone has an equal chance of predicting future stock prices 
A)  a finance professor who knows a lot of investment theory 
B)  a stock trader who has traded stocks for more than 10 years 
C)  that company's employee who has inside information about the company 
D)  none of the above: Everyone has an equal chance of predicting future stock prices

Question 2

Which of the following statements about stock market brokers and dealers is TRUE?

Accepted Answer

A)  Brokers earn commissions from trading stocks but dealers try to profit from trading stocks. 
B)  Brokers try to profit from trading stocks but dealers earn commissions from trading stocks. 
C)  Both brokers and dealers earn commissions from trading stocks. 
D)  Both brokers and dealers try to profit from trading stocks. 
A)  Brokers earn commissions from trading stocks but dealers try to profit from trading stocks. 
B)  Brokers try to profit from trading stocks but dealers earn commissions from trading stocks. 
C)  Both brokers and dealers earn commissions from trading stocks. 
D)  Both brokers and dealers try to profit from trading stocks.

Question 3

The person most likely to receive a payment from a corporation in a year of losses is the

Accepted Answer

A)  bondholder. 
B)  common stockholder. 
C)  preferred stockholder. 
D)  investment banker. 
A)  bondholder. 
B)  common stockholder. 
C)  preferred stockholder. 
D)  investment banker.

Question 4

In analyzing land rent, David Ricardo constructed a model based on

Accepted Answer

A)  perfectly elastic demand for land. 
B)  a perfectly elastic supply of land. 
C)  land being available in infinite quantities. 
D)  the supply of land being perfectly inelastic. 
A)  perfectly elastic demand for land. 
B)  a perfectly elastic supply of land. 
C)  land being available in infinite quantities. 
D)  the supply of land being perfectly inelastic.

Question 5

Which of the following is NOT a characteristic of a corporation?

Accepted Answer

A)  Limited liability for shareholders 
B)  Double taxation 
C)  Separation of ownership problems 
D)  Limited ability to raise capital funds 
A)  Limited liability for shareholders 
B)  Double taxation 
C)  Separation of ownership problems 
D)  Limited ability to raise capital funds

Question 6

You have won the lottery. There are two payment options for you. The first option is a lump sum payment of $10 million that you will receive immediately. The second option is an annual payment of $1 million for each of the next 12 years. Assume there is no inflation. How would you make a decision between the two options?

Accepted Answer

You need to compare the present values o

Question 7

If a major league baseball player would be willing to work for $500,000 per year and is currently being paid $1,200,000 per year, that player is earning an annual economic rent of

Accepted Answer

A)  $500,000. 
B)  $1,200,000. 
C)  $1,700,000. 
D)  $700,000. 
A)  $500,000. 
B)  $1,200,000. 
C)  $1,700,000. 
D)  $700,000.

Question 8

A proprietorship is

Accepted Answer

A)  two or more individuals in business together. 
B)  a corporation that is taxed like an individual. 
C)  a business owned by one individual who makes all of the decisions. 
D)  a government-owned franchise. 
A)  two or more individuals in business together. 
B)  a corporation that is taxed like an individual. 
C)  a business owned by one individual who makes all of the decisions. 
D)  a government-owned franchise.

Question 9

An advantage of the proprietorship as a form of business organization is

Accepted Answer

A)  its limited liability. 
B)  its limited access to capital, thus reducing the possible size of debt. 
C)  that it is easy to form. 
D)  that it can sell bonds to the public. 
A)  its limited liability. 
B)  its limited access to capital, thus reducing the possible size of debt. 
C)  that it is easy to form. 
D)  that it can sell bonds to the public.

Question 10

A payment for a resource above the opportunity cost of the resource is

Accepted Answer

A)  economic rent. 
B)  social rent. 
C)  nominal rent. 
D)  real rent. 
A)  economic rent. 
B)  social rent. 
C)  nominal rent. 
D)  real rent.

Question 11

A legal claim against a firm that usually entitles the owner of the claim to receive a fixed annual coupon payment, plus a lump-sum payment at some future date, is known as

Accepted Answer

A)  a bond. 
B)  a share of common stock. 
C)  a share of preferred stock. 
D)  a reinvestment coupon. 
A)  a bond. 
B)  a share of common stock. 
C)  a share of preferred stock. 
D)  a reinvestment coupon.

Question 12

Information that is not available to the general public about what is happening in a corporation is

Accepted Answer

A)  opportunity benefit. 
B)  limited liability. 
C)  economic rent. 
D)  inside information. 
A)  opportunity benefit. 
B)  limited liability. 
C)  economic rent. 
D)  inside information.

Question 13

Which legal claim comes with voting rights?

Accepted Answer

A)  Common stock 
B)  Preferred stock 
C)  Bond 
D)  Reinvestment 
A)  Common stock 
B)  Preferred stock 
C)  Bond 
D)  Reinvestment

Question 14

If the interest rate is 10 percent and a business pays $100,000 for a lease on a factory, the explicit costs are

Accepted Answer

A)  $110,000. 
B)  $10,000. 
C)  $100,000. 
D)  $90,000. 
A)  $110,000. 
B)  $10,000. 
C)  $100,000. 
D)  $90,000.

Question 15

A person starts his own business after quitting his job in which he made $75,000. Expenses include $100,000 for wages and salaries, which includes a wage for the owner of $75,000, utilities of $5000, equipment of $50,000, and materials of $40,000. If revenues are $200,000, his accounting and economic profits are respectively

Accepted Answer

A)  $80,000 and $5000. 
B)  -$70,000 and -$70,000. 
C)  -$70,000 and $5000. 
D)  $5000 and $5000. 
A)  $80,000 and $5000. 
B)  -$70,000 and -$70,000. 
C)  -$70,000 and $5000. 
D)  $5000 and $5000.

Question 16

Economic rent serves

Accepted Answer

A)  a descriptive function by making some wealthier than others, but serves no allocative function. 
B)  an allocative function by guiding available supplies to the most efficient use. 
C)  only to make the rich richer and the poor poorer. 
D)  no useful function in a modern economy. 
A)  a descriptive function by making some wealthier than others, but serves no allocative function. 
B)  an allocative function by guiding available supplies to the most efficient use. 
C)  only to make the rich richer and the poor poorer. 
D)  no useful function in a modern economy.

Question 17

Which of the following equations is correct?

Accepted Answer

A)  accounting profit = total revenue - (explicit costs + implicit costs) 
B)  normal profit = accounting profit + economic profit 
C)  economic profit = accounting profit - implicit costs 
D)  economic profit = accounting profit - explicit costs 
A)  accounting profit = total revenue - (explicit costs + implicit costs) 
B)  normal profit = accounting profit + economic profit 
C)  economic profit = accounting profit - implicit costs 
D)  economic profit = accounting profit - explicit costs

Question 18

Suppose that the nominal rate of interest is holding steady at 8 percent even as the anticipated rate of inflation rises. What is happening to the real rate of interest?

Accepted Answer

A)  It is unchanged. 
B)  It is increasing. 
C)  It is decreasing. 
D)  It equals the nominal interest rate. 
A)  It is unchanged. 
B)  It is increasing. 
C)  It is decreasing. 
D)  It equals the nominal interest rate.

Question 19

The problem with the separation of ownership from control is that

Accepted Answer

A)  the owner in a proprietorship may not always act in the profit-maximizing fashion because he or she may not have the experience or expertise that professional managers have. 
B)  the managing partner of a firm may not always behave in the way that other managers would if they were the managing partners. 
C)  the managers of the firm can make decisions that reduce the wealth of the owners while not reducing their own wealth. 
D)  the owners of firms may not always know the best way to run a firm, yet they are the ones who elect the managers of the firm. 
A)  the owner in a proprietorship may not always act in the profit-maximizing fashion because he or she may not have the experience or expertise that professional managers have. 
B)  the managing partner of a firm may not always behave in the way that other managers would if they were the managing partners. 
C)  the managers of the firm can make decisions that reduce the wealth of the owners while not reducing their own wealth. 
D)  the owners of firms may not always know the best way to run a firm, yet they are the ones who elect the managers of the firm.

Question 20

Suppose a family-owned yogurt shop has $80,000 in total revenues, $36,000 in rent, and $20,000 in additional operating costs. The husband and wife work in the shop and pay no wages to themselves or others. The economic profits from the shop are

Accepted Answer

A)  $24,000. 
B)  less than $24,000. 
C)  more than $24,000. 
D)  $80,000. 
A)  $24,000. 
B)  less than $24,000. 
C)  more than $24,000. 
D)  $80,000.

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

According to efficient market theory, which of the following can best predict the stock price of a particular company tomorrow?

Which of the following statements about stock market brokers and dealers is TRUE?

The person most likely to receive a payment from a corporation in a year of losses is the

In analyzing land rent, David Ricardo constructed a model based on

Which of the following is NOT a characteristic of a corporation?

If a major league baseball player would be willing to work for $500,000 per year and is currently being paid $1,200,000 per year, that player is earning an annual economic rent of

A proprietorship is

An advantage of the proprietorship as a form of business organization is

A payment for a resource above the opportunity cost of the resource is

A legal claim against a firm that usually entitles the owner of the claim to receive a fixed annual coupon payment, plus a lump-sum payment at some future date, is known as

Information that is not available to the general public about what is happening in a corporation is

Which legal claim comes with voting rights?

If the interest rate is 10 percent and a business pays $100,000 for a lease on a factory, the explicit costs are

Economic rent serves

Which of the following equations is correct?

Suppose that the nominal rate of interest is holding steady at 8 percent even as the anticipated rate of inflation rises. What is happening to the real rate of interest?

The problem with the separation of ownership from control is that

Suppose a family-owned yogurt shop has $80,000 in total revenues, $36,000 in rent, and $20,000 in additional operating costs. The husband and wife work in the shop and pay no wages to themselves or others. The economic profits from the shop are

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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