Quiz 2-Summer 2009



Quiz 2-Summer 2009

Multiple Choice

Identify the choice that best completes the statement or answers the question.

____ 1. Which of the following would be studied in the greatest detail in a macroeconomics course?

|a) |How a large automobile manufacturer decides how many SUVs to produce in a given model year. |

|b) |How consumers would respond if a restaurant raised its prices. |

|c) |How a firm in an oligopolistic market would respond to a change in the pricing strategy of other firms in its market. |

|d) |Factors that influence the nation’s unemployment rate. |

____ 2. GeeGee’s is a community-based bakery known for its scrumptious tea cakes. The recipe calls for expensive spices imported from Asia. Recently the cost of these spices has risen dramatically, leading GeeGee’s to consider increasing its prices. In order to analyze how this change would affect consumer choices, GG’s management could perform a

|a) |microeconomic analysis. |

|b) |macroeconomic analysis. |

|c) |transformational economic analysis. |

|d) |structural analysis. |

____ 3. Prior to 1999, most consumers believed that there was virtually no difference between cheese produced by the thousands of dairy farms in different states. But the “Happy Cows” campaign created by the California Milk Board created a perception that California cheese is better. This successful product differentiation means that the cheese market is no longer:

|a) |purely competitive |

|b) |monopolistic |

|c) |consistent with capitalism. |

|d) |oligopolistic |

____ 4. In 1999, Coca-Cola considered a plan to install thermometers in vending machines that would charge more for cold beverages on particularly hot days. If the demand curve for Coke is like most demand curves, on hot days such a strategy would have:

|a) |resulted in a shortage of Coca Cola. |

|b) |resulted in a lower quantity of Coke demanded than at the lower price. |

|c) |increased the available supply of competing soft drinks. |

|d) |had no effect on the amount of Coke consumers would buy. |

____ 5. In 2005, General Motors introduced a blockbuster promotion by offering customers the employee discount prices for any vehicle. Chrysler and Ford followed the trend and offered the same program. This intense price competition among three major automobile producers resulted in lower profits for all three companies. This outcome illustrates a problem for firms in:

|a) |pure competition. |

|b) |pure monopoly. |

|c) |monopolistic competition. |

|d) |oligopolistic markets. |

____ 6. The Rainland government enjoys a socialist economic system, but in recent years has found that new business growth has stalled. In an effort to stimulate more growth the government will probably

|a) |create regulations giving consumers and workers more protection. |

|b) |take over most new businesses and operate them as government enterprises. |

|c) |reduce taxes and cut back on some social programs. |

|d) |increase the number of citizens who qualify for free education and healthcare. |

____ 7. ________________ measures the total value of all goods and services produced within a nation’s borders over a given period of time.

|a) |The consumer price index |

|b) |Gross domestic product |

|c) |Net national production |

|d) |The production function |

____ 8. The four basic types of unemployment are

|a) |natural, artificial, voluntary, and induced. |

|b) |cyclical, seasonal, structural, and frictional. |

|c) |recovery, expansion, contraction, and stagnation. |

|d) |micro, macro, industrial, and market-specific. |

____ 9. Denise is a hard worker, but within the last year she and her boss have not seen eye to eye. Angela, her boss, has become more demanding and harder to reach to get clarification on projects. After one too many long working days with little or no job satisfaction, Denise walks into Angela’s office and submits her resignation. Denise knows that her resume is strong and feels confident she will find work. Denise is now facing

|a) |seasonal unemployment. |

|b) |structural unemployment. |

|c) |frictional unemployment. |

|d) |cyclical unemployment. |

____ 10. Martha has noticed that the CPI has increased by 7% over the past year. The best conclusion for Martha to make based on this information is that

|a) |her cost of living has increased by 7%. |

|b) |her income has increased by 7%. |

|c) |the weighted average of prices of goods and services in a market basket bought by a typical consumer have increased by |

| |7%. |

|d) |the price of necessities such as food, rent, and medicine have increased by an average of 7%. |

____ 11. At the beginning of the 21st century:

|a) |many developing nations seemed poised for strong economic growth. |

|b) |China and India seemed likely to experience strong growth, but most other developing nations seemed unlikely to achieve |

| |much economic success. |

|c) |economic growth seemed likely to remain strong only in the already well developed nations such as the United States, |

| |Japan, and Germany. |

|d) |South Korea and Turkey seemed to be the only developing nations that were likely to grown rapidly. |

____ 12. Rose works as an insurance claims adjuster. She is responsible for data management, which includes record keeping and client management. However, her supervisor has assigned Rose some new responsibilities. As a result of these new duties, Rose is finding that she isn’t able to process as many claims as she could in the past. This illustrates the concept of:

|a) |opportunity cost. |

|b) |comparative advantage. |

|c) |fixed cost. |

|d) |absolute advantage. |

____ 13. When the total value of exports is higher than the total value of imports, a country experiences a

|a) |trade exchange. |

|b) |trade surplus. |

|c) |trade deficit. |

|d) |countertrade. |

____ 14. The Chinese government has loosened control of its economy and is actively pursuing economic growth. Foreign trade, as a result, has surpassed $1.4 trillion in China. This growth has raised concern for U.S. officials because

|a) |too many Chinese citizens are leaving the country for other opportunities. |

|b) |trade with China is undermining U.S. trade relations with other Asian nations. |

|c) |trade with China accounts for the largest share of the overall U.S. balance of trade deficit. |

|d) |the increase in demand for Chinese goods is causing the price of these low cost goods to rise rapidly, fueling |

| |inflationary pressure in the United States. |

____ 15. An example of foreign direct investment would involve Honda Corporation, with headquarters in Tokyo, Japan,

|a) |building a manufacturing plant in the U.S. |

|b) |building a manufacturing plant in Japan. |

|c) |licensing the Honda trademark in promotional advertising in Germany. |

|d) |investing in the Japanese automotive market. |

____ 16. Uberholtz, a German company, has granted Sistec, an American company, the right to manufacture Uberholtz’s product and use the Uberholtz trademark in return for a fee. Sistec is the ________ and Uberholtz is the ___________.

|a) |franchisee, franchisor |

|b) |franchisor, franchisee |

|c) |licensee, licensor |

|d) |licensor, licensee |

____ 17. Due to the rising prices of gasoline, Harleen is looking for a car with better gas mileage. She hopes to purchase the newest Preo, an imported car using hybrid technology. But Preos are hard to find because the government in Harleen’s country has limited the number of them that can be imported each year. Harleen is witnessing the impact of a(n) ____________.

|a) |tariff |

|b) |quota |

|c) |voluntary export restriction |

|d) |embargo |

____ 18. Nashika spent a two-week vacation in Africa and purchased more than $4,000 worth of African tribal art. Upon returning to the U.S., she was required to pay a(n) ________ on the art work.

|a) |tariff |

|b) |quota |

|c) |embargo |

|d) |customs charge |

____ 19. The purpose of the General Agreement on Tariffs and Trade (GATT) was to

|a) |encourage worldwide trade. |

|b) |prevent wars based on trade issues. |

|c) |create intellectual property regulations. |

|d) |ensure that every nation receives its fair share of any revenues generated from international trade and tariffs. |

____ 20. U2’s Bono is a champion for some of the world’s poorest nations. His work with rich countries to forgive the debt of some of the poorest nations will mean

|a) |richer countries will get credit for doing the right thing. |

|b) |poorer countries can increase spending to reduce poverty and growth in their own countries. |

|c) |driving a poor country into further debt makes rich countries look bad. |

|d) |poorer countries will decrease spending to increase poverty and stifle growth. |

____ 21. Dana wants to open her own business after completing college. As a fine arts student, she is planning to provide services as a graphic artist. She wants the freedom to be her own boss and doesn’t want to deal with a lot of rules and regulations. But she is nervous about risking her personal wealth. She is thinking about forming a sole proprietorship and asks you for your opinion about this form of business. Which of the following statements is most accurate?

|a) |Forming a sole proprietorship will enable you to be your own boss. But if you are really nervous about risking your |

| |personal assets, you might want to consider some other form of ownership because it will also expose you to unlimited |

| |liability. |

|b) |Forming a sole proprietorship is a bad choice. Not only is a sole proprietorship subject to extensive government |

| |regulation that will limit your ability to run your business, it also exposes you to unlimited liability. |

|c) |Forming a sole proprietorship is a great idea. It gives you the ability to be your own boss while also protecting your |

| |personal assets from loss. |

|d) |Forming a sole proprietorship can help you protect your personal assets, but it is a poor choice for individuals who |

| |want to be their own boss because this form of business is heavily regulated. |

____ 22. Sue has a great idea for a business but has limited financial assets. She wants to retain control over the management of the company, but she needs someone to provide additional financing. Her friend Tom has some money to invest and likes Sue’s idea. He would like to share in any profits, but he doesn’t have the time or interest in managing the company and is nervous about the liability involved in running a business. A _______________ would probably match the needs of both Sue and Tom.

|a) |general partnership |

|b) |limited partnership |

|c) |sole proprietorship |

|d) |foreign corporation |

____ 23. Types of corporations include

|a) |sole, general, and nonprofit. |

|b) |general, S, statutory close, and nonprofit. |

|c) |limited, general, nominal, and S. |

|d) |general, limited, and limited liability. |

____ 24. Benny’s Bumpers is incorporated in Ohio but also conducts business in Florida. Benny’s Bumpers is a _______ in Ohio but is a _________ in Florida.

|a) |C corporation, S corporation |

|b) |global, multinational |

|c) |primary corporation, secondary corporation |

|d) |domestic corporation, foreign corporation |

____ 25. You are in a group of investors that is considering taking over Sips and Chips, the cybercafe in town. Several investors favor reorganizing the cafe by forming a C corporation. You want to make sure these investors are aware of the possible drawbacks of this form of ownership, so you point out that

|a) |this type of business lacks permanence. |

|b) |earnings that the investors receive would be taxed both as corporate income and as income to the investors. |

|c) |all of the investors would be subject to unlimited liability for any debts the firm incurs. |

|d) |all of the items in this list would be legitimate drawbacks of forming a C corporation. |

____ 26. Recently, several well-known large companies such as Home Depot, Inc., and Time Warner, Inc., have been criticized for paying CEOs exorbitant salaries and bonuses even when the corporations they lead have lost value. This is considered a failure on the part of the __________ of these firms to protect the rights of the ___________ who elected them.

.

|a) |boards of directors, creditors |

|b) |boards of directors, stockholders |

|c) |top management, employees |

|d) |audit committee, partners |

____ 27. A key difference between S Corporations and C Corporations is that

|a) |the owners of C corporations have limited liability while the owners of S corporations have unlimited liability. |

|b) |S corporations may have no more than 100 shareholders who must all be citizens or permanent residents of the United |

| |States, while C corporations do not have these restrictions on ownership. |

|c) |C corporations seek profits while S corporations operate as not-for-profit organizations. |

|d) |C corporations have stockholders who have the right to vote in stockholders’ meetings while S corporations have members |

| |with no voting rights. |

____ 28. In 1988, Philip Morris, the leading cigarette manufacturer in the United States, merged with Kraft, Inc., the maker of several leading food brands, such as Miracle Whip, Velveeta, and Maxwell House. This combination would be classified as a _________ merger.

|a) |horizontal |

|b) |vertical |

|c) |conglomerate |

|d) |macro |

____ 29. Tim, Bill, and Mel want to start a rehabbing business. All of them want to take an active role in managing their company while also protecting their personal assets from unlimited liability. They are likely to find that forming a ______________ will meet their needs.

|a) |nonprofit corporation |

|b) |limited partnership |

|c) |limited liability company |

|d) |general partnership |

____ 30. Successful franchisors are particularly vigilant in avoiding the ______________, a situation where the behavior of an incompetent or irresponsible franchisee harms the reputation of the franchisor and other franchisees.

|a) |pie-in-the-sky effect |

|b) |saturated effect |

|c) |negative halo effect |

|d) |restructuring effect |

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