Transcript Multiple Choice Tutorial Chapter 4 The Economic Actors

Multiple Choice Tutorial
Chapter 3
Economic Decision Makers
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1. Households supply the four basic groups of
resources in our economy. They include all of
the following except
a. land
b. final goods and services
c. capital
d. entrepreneurial ability
B. Final goods and services are provided for
by businesses not households.
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2. Rational households with limited resources
attempt to maximize
a. the amount of goods acquired
b. the amount of services obtained
c. marginal utility
d. average utility
e. total utility
E. Households make individual decisions
based on their marginal utility; in the
process their total utility is maximized.
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3. The majority of income earned by
households comes from
a. rents
b. interest
c. wages and salaries
d. dividends
C. This is because the majority of Americans
are not self employed.
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4. The major source of individual income in the
United States is from which group of
resources?
a. land
b. oil wells
c. capital
d. entrepreneurial ability
e. labor
E. People who own a business have a good or
service to sell, but if you do not own a
business the only thing you have to sell is
your labor.
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5. Which of the following is not a transfer
payment?
a. food stamps
b. Medicare
c. Aid to Families with Dependent Children
(AFDC)
d. the direct deposit of an FBI agent’s
paycheck while she is doing undercover
work
D. Payment to an FBI agent is paying someone
that is employed and performing a service,
people who receive transfer payments need
not sell their labor to receive payments.
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6. Which of the following is not a durable
good?
a. automobile
b. refrigerator
c. television set
d. new coat
D. A coat would be a durable good, but a new
coat is not because it is new only once.
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7. Each of the following is a nondurable good
except
a. clothing
b. gasoline
c. newspaper
d. food
e. medical care
E. All of the above are nondurable except
medical care because once they are used they
are gone, but medical care continues on and
on regardless how often it is used.
Nondurable goods make up about 30% of
consumption.
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8. Durable goods account for about what
percent of after tax expenditures for a typical
household?
a. 80%
b. 60%
c. 39%
d. 13%
D. The other 87% is spent on nondurable
goods, like food, gasoline and services etc.
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9. Which of the following accounts for the
largest percentage of spending by households
in the United States?
a. durable goods
b. nondurable goods
c. services
d. insurance payments
C. Services are such things as housing,
electricity, and medical care. Services make
up about 57% of personal consumption.
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10. Services account for about what percent of
after tax expenditures for a typical
household?
a. 78%
b. 57%
c. 35%
d. 24%
e. 10%
B. See previous question.
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11. Which of the following is not an economic
reason for the existence of household
manufacturing?
a. minimal skills and specialization required
b. cheap labor
c. reduced transaction costs
d. easy to avoid taxes
B. Whether the business is home based or
not, it still has to hire labor from the same
labor market.
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12. Which of the following characteristics does
not describe a modern business firm?
a. profit-seeking
b. uses hired resources
c. uses large, centrally powered factories
d. minimal specialization
D. The modern business firm is highly
specialized. The more specialization that
takes place the greater are the chances to
increase productivity.
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13. Entrepreneurs face limits on their ability
to monitor all the specialized resources,
exercise control at each stage, and keep
track of the entire process. This is known as
a. unbounded rationality
b. the invisible hand concept
c. bounded rationality
d. diseconomies of scale
C. Bounded rationality means that they face
limits on their ability to monitor all the
specialized resources, exercise quality control
at each stage, and keep track of the entire
process.
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14. The advantages of a sole proprietorship
would include all of the following except
a. ease of organization
b. be your own boss
c. receive all profits
d. unlimited liability
D. Unlimited liability is certainly not an
advantage of a sole proprietorship. In a sole
proprietorship the assets of the business are
not differentiated from the assets of the
owner. The owner of this type of business can
be sued for their private holdings as well as
the holdings of the business.
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15. Compared to a corporation, the major
disadvantages of a sole proprietorship would
include all of the following except
a. the opportunities for specialization
b. unlimited liability
c. limited lifespan
d. complexity of organization
D. An advantage of a sole proprietorship is the
simplicity of organization. With no employees
or partners the whole business process does
not have the complexities of other types of
business organizations.
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16. Compared to proprietorships and
partnerships, the major advantages of a
corporation would include all of the
following except
a. financial capability
b. the manner in which the owners’ profits
are taxed
c. the extent of liability of each owner
d. the ease of transferring ownership
B. A disadvantage of a corporation is double
taxation. When a dollar is made as profit, it is
taxed, then when that dollar is paid out as a
dividend to a stock holder, the stock holder
pays taxes again on that same dollar.
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17. The major disadvantages of a corporation
would include all of the following except
a. double taxation- the manner in which the
owners’ profits are taxed
b. unlimited lifespan - the potential lifespan
of the firm
c. an individual owners’ ability to influence
the firm
d. the manner in which a realized capital
gain is taxed
B. A big advantage of a corporation is the fact
that it is considered a legal person. Because
the business can be sold or inherited, there is
no limit to its potential lifespan.
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18. Which category includes the largest
number of firms?
a. sole proprietorship
b. partnership
c. corporation
d. S-corporation
A. The sole proprietorship is the smallest type
of business firm, but in terms of numbers,
there are more sole proprietorships than any
other type of business.
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19. Which of the following would not be
considered a nonprofit institution?
a. Columbia Broadcasting Corp. (CBS)
b. American Red Cross
c. Salvation Army
d. a public library
A. CBS is a business that exists for the
purpose of making a profit for its owners.
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20. All of the following are discussed in the text
as governmental responsibilities to improve
society’s welfare when the market fails except
a. promoting competition
b. regulating natural monopolies
c. providing public goods
d. providing private goods
D. In a free market system, the government
does not provide us with private goods.
Businesses owned by private individuals
provide us with private goods.
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21. When public cost is greater than private
cost, we have
a. positive externality
b. negative externality
c. public good
d. private good
B. An externality is the cost or benefit that falls
to third parties and is therefore ignored by
the two parties to the market transaction.
The externality is negative when the result is
something undesirable.
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22. Which of the following situations would be
an example of a negative externality?
a. driver education classes
b. public health clinics
c. a neighbor’s uncovered trash can
d. a neighbor’s well-cared-for yard and
garden
C. The trash can may have been left uncovered
unintentionally and the bad smell was not
meant to bother a neighbor, but the sight and
the smell of the trash did effect a third party.
The owner of the trash being the first party,
and the sanitation company being the second.
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23. If third parties (innocent bystanders)
receive benefit from some market transaction
or activity, there is a
a. positive externality
b. negative externality
c. public good
d. private good
A. Not all externalities are negative. A well
kept lawn is an example of a positive
externality to neighbors.
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24. Which of the following would not have
significant negative externalities?
a. a firm dumps particles of heavy metals,
such as lead, into a local stream
b. a coal burning electric generating plant
with no pollution controls
c. an outdoor rock concert in a residential
neighborhood
d. restaurant consumption of foods high in
saturated fat, such as some Mexican foods,
pizza, etc.
D. Foods eaten of high saturated fats only hurt
the person who is doing the eating, not third
parties in the sense of negative externalities.
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25. Which of the following is not a public good?
a. national defense
b. the justice system
c. a lighthouse
d. a movie
D. A public good is one that is available for
all to consume, regardless of who pays and
who does not.
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26. Which of the following would best be
considered a public good?
a. an automobile
b. an airplane
c. a dam on a river
d. a country club
C. A dam on a river benefits everyone and no
one is excluded from its benefits. The power
and even the lake that results provide positive
consequences for everyone.
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27. Which of the following terms best describes
a public good?
a. excludable and rivals
b. non-excludable and non-rivals
c. non-excludable and rivals
d. excludable and non-rivals
B. For example, a lighthouse is a public good.
Once it exists, all boats can use it and no boat
can be excluded from using it. Also, the
benefits of a lighthouse are not diminished
due to competition.
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28. Which of the following terms best describe
a private good?
a. excludable and rivals
b. non-excludable and non-rivals
c. non-excludable and rivals
d. excludable and non-rivals
A. An automobile would be an example of a
private good. It specifically benefits the owner
and others can be excluded from its use.
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29. Federal government spending constituted
what percent of GDP in 1995?
a. 10%
b. 15%
c. 34%
d. 23%
D. Total government spending, that is
federal, state and local, constitute about
34% of GDP; the federal government is
responsible for about 23%.
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30. Total government spending, national,
state, and local combined, constituted what
percent of GDP in 1995?
a. 12%
b. 23%
c. 34%
d. 55%
C. Same as previous question.
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31. What part of federal spending has grown
the most rapidly in recent years?
a. national defense
b. welfare
c. net interest on the debt
d. Social Security and Medicare
D. Transfer payments are the fastest growing
programs of the federal government.
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32. What part of federal government spending
has grown the most slowly in recent years?
a. national defense
b. welfare
c. net interest on the debt
d. Social Security and Medicare
A. Under the Reagan administration from
1980 to 1988 there was an increase in
military spending. But with the Clinton
administration beginning in 1992, there
has been less emphasis and support for
the military.
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33. The largest source of federal government
revenue is
a. corporate income taxes
b. individual income taxes
c. payroll taxes
d. sales and excise taxes
B. This is because there are so many
individual tax payers.
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34. The fastest growing area of federal tax
revenues in recent years would be
a. corporate income taxes
b. individual income taxes
c. payroll taxes
d. sales and excise taxes
C. Because the majority of individual tax
payers work for someone else, that is, they
do not own their own business, they pay
their federal and state income taxes via
payroll deduction.
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35. Over the last decade, the individual income
tax has accounted for about what percent of
federal government income?
a. 15%
b. 30%
c. 45%
d. 60%
C. Assorted and varied types of taxes make up
the rest of the 55%.
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36. In the United States, the individual income
tax is best described as what type of tax?
a. regressive
b. proportional
c. flat
d. progressive
D. It is progressive because higher income
earners pay a larger percentage of each
additional dollar then do lower income tax
payers. This is because each dollar is taxed
on the margin, that is, the last dollar earned.
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37. Under a progressive tax system, the
marginal tax rate
a. increases as income decreases
b. decreases as income increases
c. remains constant as income increases
d. increases as income increases
D. Most tax payers fall into either the 15%
tax bracket or the 28% bracket. If the
demarcation between the two is $30,000 for
example, and your taxable income is
$32,000, you will pay 15% in taxes for every
dollar up to $30,000 and 28% on each
dollar above $30,000.
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38. Under a regressive tax system, the marginal
tax rate
a. decreases as income increases
b. increases as income increases
c. remains constant as income increases
d. decreases as income decreases
A. The Social Security tax is an example of
this. Above a certain income level, a tax payer
does not pay additional tax dollars.
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39. Which of the following taxes best represents
a progressive tax?
a. excise and luxury taxes
b. Social Security tax
c. sales tax
d. federal individual income tax
D. Only the individual income tax taxes
income more at higher incomes than at
lower incomes.
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40. Which of the following taxes best
represents the benefits received principle?
a. Social Security taxes
b. individual income taxes
c. sales tax
d. gasoline taxes
D. The benefits received principle is a tax that
falls most heavily on the people who benefit
the most from the use of something. For
example, our roads are built and maintained
by taxes on each gallon of gasoline purchased.
So the more one drives and uses the roads, the
more taxes that person will pay.
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41. Which of the following taxes would best
reflect the ability to pay principle?
a. tax on income
b. tax on medicine
c. tax on food
d. tax on property, such as land or buildings
A. The ability to pay principle says that the
more one can afford to pay the tax, the more
tax that person will pay. With the
progressive income tax, the higher a
person’s income, the more tax that person
pays on each additional dollar.
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42. A comparison of a country’s exports with its
imports is known as its
a. balance of payments
b. merchandise trade account
c. capital account balance
d. gold flow account
B. Money can enter or leave a country in many
ways. When we look at the flow of money in
and out of a country strictly in terms of
exports and imports, this is what is called the
merchandise trade account.
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43. Which of the following was the result of
voluntary trade restrictions on automobiles
by the Japanese in the 1980’s?
a. prices for U.S cars went down
b. American consumers had greater choice
and availability of cars to purchase
c. more upscale Japanese automobiles were
shipped to the U.S. instead of subcompacts
C. By restricting the importation of automobiles
from Japan, the Japanese made up the loss in
revenue by marketing higher priced cars. If
you can’t make the money in terms of volume,
the profit per unit becomes more important.
The profit margin on an expensive car is more
than on an economy car.
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44. Trade restrictions result in all of the
following except
a. higher prices
b. fewer choices
c. improved quality
d. misallocation of resources
C. If anything, the quality of an import would
decline because of trade restrictions. The
added costs of the import tax lessons the
profit margin on each item sold.
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45. Trade restrictions can take any of the
following forms except
a. tariffs
b. free trade agreements
c. quotas
d. voluntary trade restrictions
B. Free trade agreements help limit trade
restrictions on imports and exports.
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46. Which of the following firms have limited
liability?
a. both c and d
b. partnership
c. sole proprietorship
d. corporation
D. Corporations have limited liability because
the corporation is a legal person in the eyes of
the law. The assets, debts and liabilities
become separate from those of its owners.
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47. Which of the following firms have the most
financial capability?
a. both c and d
b. partnership
c. sole proprietorship
d. corporation
D. The corporation has the largest financial
capability because it is the largest
business form.
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48. Which type of business accounts for less
than 11% of the total dollar amount of U.S.
sales?
a. both c and d
b. corporation
c. sole proprietorship
d. partnership
A. In terms of dollar amount, the corporation is
the largest, although fewer in number then
sole proprietorships. Partnerships fall into
between these two extremes.
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49. Which of the following accounts for the
largest dollar volume of sales in the U.S?
a. sole proprietorships
b. partnerships
c. corporations
d. nonprofit institutions
C. Same as the previous question.
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50. Which of the following effectively has its
profits taxed twice?
a. sole proprietorships
b. partnerships
c. corporations
d. nonprofit institutions
C. This is because the dollar earned as
profit is taxed and is taxed again when
received by the business owner (stock
holder) as dividend.
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51. Which of the following has declined the
most since WWII as a percentage of federal
government receipts?
a. both b and c
b. payroll taxes (Social Security and
Medicare taxes)
c. personal income taxes
d. corporate income taxes
D. This is because we want to give business
owners and prospective business owners an
incentive to start and operate a business. Also,
a tax on a business can simply be passed on to
the consumer in the form of higher prices.
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52. Which of the following taxes has accounted
for approximately 45% of federal
government revenues since the end of WWII?
a. tariffs on imported goods
b. corporate income tax
c. personal income tax
C. This is contrasted to the tax situation in
many European countries where the value
added tax is prominent. With the value
added tax, the person who buys the finished
product is the one who ends up paying the
tax. If one receives income, but saves it
instead of spends it, that person will not pay
taxes on that income.
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53. Which typically lasts longer?
a. c and d are approximately the same length
b. economic stagnation
c. economic expansions
d. economic contractions
C. Historically, economic expansions last about
three times longer than economic
contractions.
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54. Since WWII, which of the following has
been the least common in the United States?
a. depression
b. recession
c. economic expansion
d. inflation
A. We have not experience a depression since
the Great Depression of the 1930’s.
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END
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