Question 1

Economists assume that the goal of a firm is to

Accepted Answer

A)  maximize economic profits. 
B)  sell as many units as possible. 
C)  maximize gross revenues. 
D)  be the largest firm in its industry. 
A)  maximize economic profits. 
B)  sell as many units as possible. 
C)  maximize gross revenues. 
D)  be the largest firm in its industry.

Question 2

Interest rates are positive because

Accepted Answer

A)  people prefer future consumption over current consumption. 
B)  people prefer current consumption over future consumption. 
C)  usury laws require rates to be very high. 
D)  banks are not competitive. 
A)  people prefer future consumption over current consumption. 
B)  people prefer current consumption over future consumption. 
C)  usury laws require rates to be very high. 
D)  banks are not competitive.

Question 3

Suppose that you open your own business and earn an accounting profit of $35,000 per year. When you started your business, you left a job that paid you a $30,000 salary annually. Also, suppose that you invested $70,000 of your own funds to start up your business. If the normal rate of return on capital is 10 percent, your economic profit is

Accepted Answer

A)  $5,000. 
B)  -$5,000. 
C)  $2,000. 
D)  -$2,000. 
A)  $5,000. 
B)  -$5,000. 
C)  $2,000. 
D)  -$2,000.

Question 4

Which of the following is NOT a principal method of financing today?

Accepted Answer

A)  common stock 
B)  bond 
C)  reinvestment 
D)  the entrepreneur's wealth 
A)  common stock 
B)  bond 
C)  reinvestment 
D)  the entrepreneur's wealth

Question 5

What is the random walk theory?

Accepted Answer

The random walk theory is the theory tha

Question 6

Suppose the supply of land is perfectly inelastic and landowners are receiving payments equal to $25,000 an acre. If the government taxed the landowners' income with a tax rate of 80 percent, how much tax would the government collect?

Accepted Answer

A)  zero, because the owner would do something else with the tax rather than pay such a high tax 
B)  less than $20,000 because the owners would change their behavior so as to pay less tax 
C)  more than $20,000 because the combined effects of all the owners trying to change their behavior actually would generate higher returns 
D)  $20,000 because the use of the land doesn't depend on the price the landowners receive for the land 
A)  zero, because the owner would do something else with the tax rather than pay such a high tax 
B)  less than $20,000 because the owners would change their behavior so as to pay less tax 
C)  more than $20,000 because the combined effects of all the owners trying to change their behavior actually would generate higher returns 
D)  $20,000 because the use of the land doesn't depend on the price the landowners receive for the land

Question 7

The characteristic of limited liability enables corporations to

Accepted Answer

A)  avoid taxes on some of their profits. 
B)  exist even when owners die. 
C)  raise large amounts of financial capital. 
D)  start up and dissolve easily. 
A)  avoid taxes on some of their profits. 
B)  exist even when owners die. 
C)  raise large amounts of financial capital. 
D)  start up and dissolve easily.

Question 8

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 9

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 10

An investor who owns preferred stock has

Accepted Answer

A)  regular voting rights. 
B)  preferential treatment in the payment of dividends. 
C)  the same rights as a bond holder. 
D)  unlimited liability for the debts of the firm. 
A)  regular voting rights. 
B)  preferential treatment in the payment of dividends. 
C)  the same rights as a bond holder. 
D)  unlimited liability for the debts of the firm.

Question 11

Economic rents are useful because

Accepted Answer

A)  they increase the income of the owner. 
B)  they make it easy to calculate opportunity cost. 
C)  resources will go to their most efficient use. 
D)  they increase tax revenue. 
A)  they increase the income of the owner. 
B)  they make it easy to calculate opportunity cost. 
C)  resources will go to their most efficient use. 
D)  they increase tax revenue.

Question 12

The amount that must be paid to an individual to get them to invest in the industry is

Accepted Answer

A)  a normal rate of return. 
B)  the explicit costs. 
C)  reinvestment. 
D)  financial capital. 
A)  a normal rate of return. 
B)  the explicit costs. 
C)  reinvestment. 
D)  financial capital.

Question 13

Another term for the opportunity cost of capital is

Accepted Answer

A)  the normal interest rate. 
B)  the normal rate of return. 
C)  a normal profit. 
D)  a normal wage rate. 
A)  the normal interest rate. 
B)  the normal rate of return. 
C)  a normal profit. 
D)  a normal wage rate.

Question 14

The rate of discount is best described as the rate of

Accepted Answer

A)  return on physical capital after the cost of capital has been removed. 
B)  return on financial assets after an inflation adjustment has been made. 
C)  interest used to derive the present values of future sums. 
D)  return on financial capital that has not been adjusted for inflation. 
A)  return on physical capital after the cost of capital has been removed. 
B)  return on financial assets after an inflation adjustment has been made. 
C)  interest used to derive the present values of future sums. 
D)  return on financial capital that has not been adjusted for inflation.

Question 15

Exchanges of stocks take place

Accepted Answer

A)  in New York City only. 
B)  in the principle financial city of each country, such as New York City for the United States and London for England. 
C)  in a decentralized fashion around the world. 
D)  in centralized physical locations known as stock exchanges and online through Internet brokers. 
A)  in New York City only. 
B)  in the principle financial city of each country, such as New York City for the United States and London for England. 
C)  in a decentralized fashion around the world. 
D)  in centralized physical locations known as stock exchanges and online through Internet brokers.

Question 16

By definition, a proprietorship is

Accepted Answer

A)  owned by many shareholders. 
B)  a large manufacturing concern. 
C)  owned by a single individual. 
D)  managed by a large group called the "board of directors." 
A)  owned by many shareholders. 
B)  a large manufacturing concern. 
C)  owned by a single individual. 
D)  managed by a large group called the "board of directors."

Question 17

If you want a say in the management of a corporation, you should buy

Accepted Answer

A)  common stock. 
B)  preferred stock. 
C)  bonds. 
D)  either bonds or preferred stock. 
A)  common stock. 
B)  preferred stock. 
C)  bonds. 
D)  either bonds or preferred stock.

Question 18

Owners face unlimited liability in

Accepted Answer

A)  national corporations and global corporations. 
B)  partnerships and corporations. 
C)  proprietorships and corporations. 
D)  proprietorships and partnerships. 
A)  national corporations and global corporations. 
B)  partnerships and corporations. 
C)  proprietorships and corporations. 
D)  proprietorships and partnerships.

Question 19

What is the future value of $1,000 in three years if the rate of discount is equal to 5 percent?

Accepted Answer

A)  $1,150.00 
B)  $1,005.00 
C)  $1,157.63 
D)  $863.84 
A)  $1,150.00 
B)  $1,005.00 
C)  $1,157.63 
D)  $863.84

Question 20

The nominal rate of interest is

Accepted Answer

A)  the rate observed in the market that includes an inflation premium. 
B)  not the rate observed in the market. 
C)  not adjusted for inflation. 
D)  expressed in dollars from the chosen base year. 
A)  the rate observed in the market that includes an inflation premium. 
B)  not the rate observed in the market. 
C)  not adjusted for inflation. 
D)  expressed in dollars from the chosen base year.

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

Economists assume that the goal of a firm is to

Interest rates are positive because

Which of the following is NOT a principal method of financing today?

What is the random walk theory?

Suppose the supply of land is perfectly inelastic and landowners are receiving payments equal to $25,000 an acre. If the government taxed the landowners' income with a tax rate of 80 percent, how much tax would the government collect?

The characteristic of limited liability enables corporations to

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

Explicit costs are

An investor who owns preferred stock has

Economic rents are useful because

The amount that must be paid to an individual to get them to invest in the industry is

Another term for the opportunity cost of capital is

The rate of discount is best described as the rate of

Exchanges of stocks take place

By definition, a proprietorship is

If you want a say in the management of a corporation, you should buy

Owners face unlimited liability in

What is the future value of $1,000 in three years if the rate of discount is equal to 5 percent?

The nominal rate of interest 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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