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1. Which of the four types of economic decision makers is most important? a. firms, because they produce all goods and services in the economy b. households, because they demand goods and services and supply resources c. government, because it ultimately sets and enforces the "rules of the game" d. government, because it steps in when there is market failure e. the rest of the world, because there are over 150 countries          


 2. Households act as demanders when they demand a. that corporate executives and government officials be held accountable for their actions b. dividends from the stocks they hold c. interest and capital gains from the bonds they hold d. goods and services from firms and the government e. payment for the goods and services they sell to firms and governments           


 3. In the United States since World War II, there has been a. a dramatic increase in the population living in rural areas b. a decline in the number of women in the labor force c. a decrease in the opportunity cost of working in the home d. more specialization of production within households e. a dramatic increase in the number of married women in the labor force      

 4. The term "utility" means a. Satisfaction b. a low-valued good c. Productivity d. Adaptability e. Efficiency            


 5. Economists generally assume that a. firms act to maximize the dividends paid to stockholders b. households act to maximize their wealth c. households act to maximize utility d. firms act to maximize revenue e. both households and firms act to minimize expenditures          


 6. Which resource generates the largest share of the income in the United States? a. Labor b. Land c. Capital d. entrepreneurial ability e. Money         


 7. Which of the following is an example of an in-kind transfer? a. welfare payments b. most Social Security benefits c. unemployment compensation payments d. food stamps e. charitable contributions        


 8. Luigi owns and operates a small restaurant. The income he receives from the restaurant is classified as a. Saving b. proprietor's income c. wages and salaries d. rental income e. Dividends          


 9. Households supply four basic types of resources. They include all of the following except a. natural resources b. final goods and services c. Capital d. entrepreneurial ability e. Labor        


 10. Household income is spent on all of the following except one. Which is the exception? a. Services b. tax payments c. durable goods d. nondurable goods e. Dividends         


 11. Which of the following is an example of a durable good? a. food prepared at home b. food eaten at a restaurant c. high-fashion clothing d. binoculars e. motor oil   


   12. Which component of U.S. household spending has grown the most over the past ten years? a. Taxes b. Savings c. spending on services d. spending on nondurable goods e. spending on durable goods             


 13. A cottage industry is one that a. produces rural housing b. takes advantage of the division of labor c. uses highly specialized resources in a complex production process d. produces cottage cheese e. carries out production in workers' homes          

     14. Which of the following is a major advantage of the sole proprietorship? a. separation of ownership and control b. limited liability for business debt c. transferability of ownership and firm continuity over time d. ease of start-up e. ease of obtaining financing           


 15. Which form of business organization is the most common in the United States? a. sole proprietorship b. Partnership c. Corporation d. nonprofit organization e. S-corporation          


 16. Which of the following is most likely to be a partnership? a. Uncle Mort's Red Wrigglers b. the accounting firm of Hope and Williams c. General Motors d. the Boston Symphony Orchestra e. the U.S. Post Office     


 17. All of the following are advantages of partnerships except one. Which is the exception? a. they are relatively easy to start b. their profits are taxed once as personal income c. their liability is limited by each partner's share of the business d. a greater opportunity for specialization by the owners e. a continuation of the firm if one partner dies               


 18. Suppose you form a legal partnership with your best friend, and she purchases consulting services calling for a $100,000 fee. Your business is broke, and you never wanted the consultants to work for you -- only your partner did. For how much of this debt are you legally liable? a. none of it b. all of the $100,000 c. the proportion reflected by the proportion of the business owned d. only an amount equal to the assets of the business e. $50,000           


 19. Owners of corporations are referred to most frequently as a. Entrepreneurs b. lien holders c. limited partners d. Managers e. Stockholders       


 20. Stockholders share in the profits of a corporation a. in proportion to their years of stock ownership b. in proportion to their ownership of stock c. equally regardless of number of shares owned d. only if they participate in firm management decisions e. only if they attend stockholders' meetings            


 21. The corporate form of business organization a. is chosen by more firms than any other form of organization in the United States b. gives firm owners limited liability c. generates less than half of the output in the U.S. economy d. combines the limited liability of the partnership with the personal control of the sole proprietorship e. is the least complex form of business organization        


 22. Which of the following is a disadvantage of the corporation compared to the sole proprietorship? a. limited liability b. difficulty raising start-up money c. lack of profitability d. corporate income is taxed twice e. corporations are more vulnerable in the case of the death of an owner         


 23. Contracts are enforced by a. the firms that make the contracts through buy-out clauses b. law firms that specialize in contract enforcement c. corporations specializing in contract writing and enforcement d. the government through the judicial system e. both households and firms through customer relations departments               


 24. Natural monopolies occur when a. government antitrust laws are too weak or not enforced b. negative externalities are present c. firms collude to set prices and divide the market among themselves d. one firm can service the market more cheaply than two or more firms can e. a public good is produced by a private firm              


 25. Which of the following is a defining characteristic of a public good? a. It is produced and distributed by the government. b. The decision to produce it is made by the public through the voting process. c. It is produced and distributed by private firms according to government regulations. d. It is freely available to everyone once it is produced. e. It is purchased by one government agency from another government agency.         


 26. The funds to pay for police protection are usually raised through taxation because a. police protection would be hard to provide exclusively to those who voluntarily pay for it b. people would not voluntarily pay salaries to officials who might arrest them c. police protection is a basic necessity d. goods financed through taxation can be guaranteed to all who pay for it e. the government believes that those who receive the benefits from the service should pay for it          


 27. A public good is one that is supplied to a. only people who pay for it b. only people who do not pay for it c. all people, regardless of whether they pay or not d. the government from private firms e. foreign governments from our federal government            


 28. Externalities are defined as a. any transaction external to the firm b. costs or benefits that fall on third parties c. policies that firms undertake to sell products outside the country d. managers' dealings with stockholders outside the firm e. costs of maintaining plant and equipment to avoid the scrutiny of external auditors                 


 29. An example of a positive externality is a. pollution because it affects people not directly involved with producing it b. a homeowner's maintenance of a beautiful lawn because this creates a benefit for neighbors c. creating a monopoly d. driving a car that emits pollution e. cigarette smoking because this imposes an indirect cost on people around the smoker               


 30. Which of the following is not a government transfer program? a. unemployment compensation b. Social Security c. food stamps d. Medicare e. movement of soldiers to a different military base             


 31. The term "fiscal policy" refers to a. the amount of physical output produced by firms b. the means by which government policy makes firms more productive c. the avenue by which government influences credit markets d. spending and taxing by governments e. a tool of government that works in the opposite direction of monetary policy                


 32. The difference between fiscal policy and monetary policy is that a. fiscal policy is macroeconomic policy and monetary policy is microeconomic policy b. monetary policy is macroeconomic policy and fiscal policy is microeconomic policy c. fiscal policy involves regulation of natural monopolies and monetary policy involves the provision of public goods d. monetary policy involves regulation of the money supply and fiscal policy involves government spending and taxing e. fiscal policy involves the promotion of competition and monetary policy involves collecting money to pay for taxes     


   33. When the social cost of production is greater than the private cost, we have a a. positive externality b. negative externality c. public good d. private good e. positive spillover         


 34. A common assumption that economists make about the behavior of elected officials is that they try to a. maximize the size of their government salaries b. maximize the size of their control over the budget process c. maximize the number of votes they receive in the next election d. minimize the government's expenditures in order to balance the budget e. conform to the wishes of special interest groups so that the government behaves as a single, consistent decision maker        

 35. Gross Domestic Product is the market value of a. all exchanges made during the course of a year b. all final goods produced during the course of a year c. all monetary transactions during the course of a year d. all the goods produced during the course of a year over and above what is required to maintain the population and the stock of capital e. all final goods sold during the course of a year  


 36. What part of federal government spending has grown the most rapidly in recent years? a. national defense b. welfare c. interest on the national debt d. social security and Medicare e. all other forms of federal government spending         


 37. The main source of revenue for the U.S. federal government is a. personal income taxes b. corporate income taxes c. sales taxes d. borrowing on financial markets e. revenue from the sale of government goods and services                


 38. Which of the following taxes is most clearly based on the benefits-received principle of taxation? a. corporate income tax b. gasoline tax c. personal income tax d. payroll tax e. value added tax          


 39. The incidence of a tax refers to a. who receives the benefits from the revenue generated by the tax b. the changes in the marginal tax rate as income increases c. whether the tax is regressive, proportional, or progressive d. who bears the burden of the tax e. whether the tax is based on the ability-to-pay principle               


 40. A progressive tax means a. people who make more money pay less total taxes b. the marginal tax rate increases as income increases c. the percentage of income paid out decreases as income increases d. people who are poor receive the proceeds of the tax e. the same thing as a flat-rate tax       

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