Unit 3 Exam IOA

1. The main advantage to a corporation is…
A) ease of entry
B) limited liability for the owners
C) dividends all go to one person
D) owners share managerial duty
E) all of the above
2. The main advantage to a sole proprietorship is…
A) ease of entry
B) financial capital is easy to obtain
C) owners need little expertise in the day to day business
D) limited liability for the owner
E) all of the above
3. The main disadvantage to a sole proprietorship is…
A) profits must be shared
B) difficult and expensive to open
C) unlimited liability
D) single taxation
E) all of the above
4. The owners of a corporation are called
A) Corporate officers
B) The board of directors
C) Stockholders
D) Corporate executives
5. Profit is defined as
A) net revenue minus depreciation.
B) average revenue minus average total cost.
C) marginal revenue minus marginal cost.
D) total revenue minus total cost.
6. Which of the following is most likely to be a fixed cost?
A) materials
B) wages
C) rent
D) utilities
E) all of the above
7. A variable cost…
A) increases as production increases.
B) is a constant cost of production.
C) is always changing no matter the circumstance.
D) is a cost like manager’s salaries, rent, etc.
E) none of the above
8. Opportunity costs are comprised of
A) explicit costs.
B) implicit costs.
C) forgone income.
D) all of the above.
9. An example of an explicit cost of production would be
A) the cost of forgone labor earnings for an entrepreneur.
B) the cost of flour for a baker.
C) the lost opportunity to invest in other capital markets when the money is invested in one’s business.
D) none of the above.
10. If marginal cost is rising
A) marginal product must be rising.
B) marginal product must be falling.
C) average variable cost must be falling.
D) average fixed cost must be rising.
11. Economies of scale occur when
A) long-run average total costs rise as output increases.
B) average fixed costs are falling.
C) long-run average total costs fall as output increases.
D) average fixed costs are constant.
12. For a firm in a perfectly competitive market the price of the good is always equal to
A) marginal revenue.
B) average revenue.
C) equilibrium market price.
D) all of the above.
13. Which of the following is not a characteristic of a perfectly competitive market?
A) Firms are price takers.
B) There are many sellers in the market.
C) Goods offered for sale are largely the same.
D) Firms have difficulty entering the market.
14. When firms are said to be price takers, it implies that if a firm raises its price,
A) buyers will go elsewhere.
B) buyers will pay the higher price in the short run.
C) competitors will also raise their prices.
D) firms in the industry will exercise market power.
15. Characteristics of a Monopoly include:
(i) sole seller of its product.
(ii) product does not have close substitutes.
(iii) generates large economic profits.
(iv) they must sell at a certain price.
A) (i), (iii), and (iv)
B) both (i) and (iii)
C) both (i) and (ii)
D) all of the above
16. A fundamental source of monopoly market power arises from
A) barriers to entry.
B) perfectly elastic demand.
C) perfectly inelastic demand.
D) availability of “free” natural resources, such as water or air.
17. Monopolistically competitive firms are typically characterized by
A) many firms selling identical products.
B) a few firms selling similar or identical products.
C) a few firms selling highly different products.
D) many firms selling similar, but not identical products.
18. In markets characterized by oligopoly,
A) collusive agreements will always prevail.
B) collective profits are lower under cartel arrangements.
C) pursuit of self-interest by profit maximizing firms always maximizes collective profits in the market.
D) there is tension between cooperation and self-interest.
19. If identical products are sold by firms participating in a market, the market is
(i) perfectly competitive.
(ii) an oligopoly.
(iii) monopolistically competitive.
A) (i) or (ii)
B) (ii) or (iii)
C) (i) or (iii)
D) (i) only
20. The Sherman Antitrust Act
A) enhanced the ability to enforce cartel agreements.
B) restricted the ability of competitors to engage in cooperative agreements.
C) was passed to encourage judicial leniency in the review of cooperative agreements.
D) was concerned with self-interest dominated Nash equilibriums in prisoners’ dilemma games.
21. One way in which monopolistic competition differs from oligopoly is
A) there are no barriers to entry in oligopolies.
B) all oligopoly firms eventually earn zero economic profits.
C) strategic interactions between firms are rarely evident in oligopolies.
D) in oligopoly markets there are only a few sellers.
22. Because of product differentiation, a firm in a monopolistically competitive market
A) always has some market power.
B) is very similar to a perfectly competitive firm.
C) does not face the elastic portion of its demand curve.
D) is unaffected by the elasticity of demand.
23. A company should produce at a level
A) that maximizes profit.
B) where marginal revenue is greater then marginal cost
C) where marginal revenue is equal to marginal cost
D) both A and B
E) both A and C
24. In markets with perfect competition
A) information is closely guarded and difficult to obtain.
B) producers sell highly differentiated products.
C) businesses must compete by keeping their costs down.
D) new businesses find it very difficult to enter the market.
E) none of the above
25. An externality exists when
A) the government intercedes in the operation of private markets by forcing the market to adjust to the balance of supply and demand.
B) markets are not able to reach equilibrium.
C) a firm sells its product in a foreign market.
D) a person engages in an activity that influences the well-being of a bystander and yet neither pays nor receives payment for that effect.
26. Negative externalities occur when one person’s actions
A) cause another person to lose money in a stock market transaction.
B) cause his or her employer to lose business.
C) reveal his or her preference for foreign-produced goods.
D) adversely affect the well-being of a bystander (or bystanders) who is (are) not party to a market exchange.
27. Private goods are
A) excludable and nonrival.
B) nonexcludable and rival.
C) excludable and rival.
D) nonexcludable and nonrival.
28. Goods that are nonexcludable and nonrival are
A) public goods.
B) private goods.
C) natural monopolies.
D) common resources.
29. The purpose of the government producing a public good is…
A) to keep some companies from producing certain goods
B) to make it more efficient to produce
C) to provide goods and services that may not be produced due to market failure
D) to share the costs of production
E) all of the above
30. A business is producing paper in a small community. An example of negative externalities in this scenario would be …
A) added benefits to the production of paper created by the business
B) added costs to the production of paper paid for by the business
C) of little effect on the communities located around the paper mill
D) costs incurred by those with no involvement with the production of the paper
E) all of the above
31. Education makes Chris a better worker, voter, parent, and citizen. Since the benefits from education go beyond those that Chris enjoys himself, education provides
A) Increasing marginal utility
B) Externalities that should be taxed
C) Decreasing marginal utility and should be taxed
D) Externalities that should be subsidized
E) None of the above
32. If the demand for labor rises and the supply of labor remains the same, wages will
A) rise
B) fall
C) remain the same
D) more information needed to determine an answer
E) be adjusted by union officials
33. If the minimum wage is set higher than the equilibrium wage
A) fewer people will be available to work
B) fewer jobs will be available than at the equilibrium wage
C) more benefits will be offered to workers
D) more jobs will be available than at the equilibrium wage
E) all of the above
34. Which of the following best explains why athletes have the potential to have a higher income than civil service individuals (policeman, teachers, fire fighters, etc…)?
A) There is a high demand for great athletes
B) There is a high supply of civic service individuals
C) There is a low supply of great athletes
D) Because of differences in supply and demand, equilibrium wages will be higher for athletes than civic service individuals
E) all of the above
35. Which sector currently employs the highest percentage of workers in the U.S.?
A) agriculture
B) service
C) manufacturing
D) professional sports
E) industrial
36. Incomes may be different from one group of people to the next because of
A) discrimination between the groups
B) differences in education among the groups
C) differences in productivity among the groups
D) all of the above
E) none of the above
37. Labor unions typically negotiate wages, employee benefits, and
A) company stock dividends.
B) employee tax deductions.
C) workplace rules and practices.
D) company marketing strategies.
E) all of the above
38. What is the name of the process when management and a labor union negotiate a new labor agreement?
A) arbitration
B) collective bargaining
C) conciliation
D) mediation
E) injunction
39. When citizens are subject to an income level that falls below the poverty threshold, the U. S. government often initiates..
A) Policies that punish those taking advantage of these people.
B) A “safety net” that is created to reduce the level of poverty.
C) Steps to encourage private entities, such as individual and corporations, to reduce the poverty level.
D) Both a and b.
E) Both b and c.
40. Most of the total income earned in the U.S. economy was ultimately paid to households in the form of
A) rent.
B) wages.
C) interest.
D) profit.
41. When a labor market experiences a surplus of labor, there is downward pressure on
A) wages.
B) the marginal productivity of labor.
C) final product price.
D) the demand for labor.
42. When the supply of workers is scarce, one would predict that market wages would be
A) determined solely by factors that affect demand.
B) determined outside the domain of the neoclassical theory.
C) high, other things equal.
D) low, other things equal.
43. For a given wage, which of the following statements is true?
A) The supply of labor for easy jobs exceeds that for difficult jobs.
B) The supply of labor for fun jobs exceeds that for dull jobs.
C) The supply of labor for safe jobs exceeds that for dangerous jobs.

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