TRUE/FALSE - Valencia



CHAPTER 1

1. Any organization that produces a good or service can be classified as a business.

Answer: False LG: 1/LL: 1 Page: 4

2. Businesses seek to earn a profit by providing goods and services to others.

Answer: True LG: 1/LL: 1 Page: 4

3. Businesses and nonprofit organizations often strive to accomplish the same objectives.

Answer: True LG: 1/LL: 1 Page: 8

4. Stakeholders are all the people who stand to gain or lose by the policies and activities of a business.

Answer: True LG: 1/LL: 1 Page: 6

5. Since businesses strive to earn a profit, they benefit their owners at the expense of the rest of society.

Answer: False LG: 1/LL: 2 Page: 5

Rationale: In the pursuit of profit, businesses create jobs, produce goods and services that contribute to a higher standard of living, and pay taxes that support important government programs. Thus, businesses benefit others in society as well as their owners.

6. People living in the nation of Carpozia earn more money than people living in the country of Wagonia. This will result in the citizens of Carpozia enjoying a higher standard of living than the citizens of Wagonia.

Answer: False LG: 1/LL: 2 Page: 5

Rationale: The standard of living depends on the price level as well as the income people earn. As our text indicates, people in Germany and Japan may earn more money than Americans, but they have a lower standard of living because the prices they pay for goods and services are higher.

7. An effort to please one group of stakeholders eventually pleases all stakeholders.

Answer: False LG: 1/LL: 2 Page: 7

Rationale: Balancing the demands of all stakeholders is a tremendous challenge for organizations. Tradeoffs are common. Benefiting one group may have a negative impact on another group of stakeholders.

8. A charitable organization, such as the Red Cross or Salvation Army, is best classified as a small business.

Answer: False LG: 1/LL: 2 Page: 7

Rationale: A charitable organization is not classified as a business since it does not seek a profit. Charities are classified as nonprofit organizations.

9. Nonprofit organizations are similar to businesses in that they often provide goods and services that satisfy the needs of society.

Answer: True LG: 1/LL: 2 Page: 7-8

Rationale: Businesses are not the only organizations that produce goods and services. Government agencies, public schools, and charities such as the Salvation Army provide goods or services, but are classified as nonprofit organizations since there is no profit motive.

10. The only way a firm can increase its profits is to increase its sales revenue.

Answer: False LG: 1/LL: 2 Page: 4

Rationale: Profit is determined by subtracting expenses from revenue. Thus a firm with stable or even declining sales might be able to improve profits by reducing expenses.

11. Starting a business is a riskier path toward business success than working your way up the ranks of a large business.

Answer: True LG: 2/LL: 1 Page: 9

12. The two factors of production that are the most important for creating wealth are entrepreneurship and the effective use of knowledge.

Answer: True LG: 2/LL: 1 Page: 11

13. If they wish to create more wealth, poor nations should focus on policies that increase entrepreneurship and the effective use of knowledge.

Answer: True LG: 2/LL: 2 Page: 11

Rationale: Poor nations often have plenty of labor and land, as well as access to capital. However, the absence of entrepreneurship and knowledgeable workers seems to be the reason that most poor countries remain poor.

14. The government of the small nation of Bingland is trying to achieve a high quality of life by imposing strict regulations to protect the environment and ensure safe working conditions in factories and mines. The government also has established ambitious programs to help the poor, financing them by setting high tax rates. These efforts by Bingland’s government should create an atmosphere that encourages entrepreneurship.

Answer: False LG: 3/LL: 2 Page: 13

Rationale: One of the things a government can do to encourage entrepreneurship and the formation of wealth is to keep regulations and taxes to a minimum.

15. An increase in productivity indicates that more can be produced in a given time period with the same amount of resources.

Answer: True LG: 4/LL: 1 Page: 15

16. Bar codes allow retailers to scan information about the products consumers buy directly into a database.

Answer: True LG: 4/LL: 1 Page: 17

17. The primary focus of successful firms is designing and producing high quality goods. Advertising is then used to convince consumers to buy their superior products.

Answer: False LG: 5/LL: 2 Page: 18

Rationale: Successful businesses are customer-driven, meaning that they listen to the wants and needs of customers and adjust their products, policies and practices to better meet customer demands.

18. A “cafeteria-style benefits” package reduces the number of benefits options offered to employees in order to simplify and standardize their choices.

Answer: False LG: 6/LL: 1 Page: 23

19. Manufacturers in China, India and Mexico pose little threat to U.S, manufacturers because they are unable to meet the quality levels demanded by American and European consumers.

Answer: False LG: 7/LL: 1 Page: 24

20. There are more high-paying jobs in the service sector than in the goods-producing sector.

Answer: True LG: 8/LL: 1 Page: 26

21. ____________ is the amount a business earns over and above what it spends for salaries and other expenses.

A) Profit

B) Revenue

C) Interest

D) Dividends

Answer: A LG: 1/LL: 1 Page: 4

22. A business incurs a ___________ if its costs and expenses exceed its revenues.

A) loss

B) liability

C) debit

D) dividend

Answer: A LG: 1/LL: 1 Page: 5

23. The total amount of money that businesses earn by selling goods and services is called ________.

A) profit

B) revenue

C) loss

D) retained earnings

Answer: B LG: 1/LL: 1 Page: 5

24. Often in business the greater the risk, the:

A) greater the potential reward.

B) lower the expected revenues.

C) lower the value provided to society.

D) greater the number of stakeholders.

Answer: A LG: 1/LL: 1 Page: 5

25. A key characteristic of entrepreneurs is that they:

A) are willing to accept the risks involved in starting and managing a business.

B) have a high level of scientific and technical expertise.

C) possess a great deal of personal wealth.

D) have experience in running large, complex organizations.

Answer: A LG: 1/LL: 2 Page: 4

Rationale: An entrepreneur is a person who risks time and money to start and manage a business.

26. Business and nonprofit organizations are similar in that they both:

A) contribute to the welfare of society.

B) seek to earn a profit.

C) have a limited life.

D) must be controlled by a board of directors.

Answer: A LG: 1/LL: 2 Page: 8

Rationale: A business is an activity that seeks to profit by providing goods and services to others. Nonprofit organizations, such as charities and government agencies, also provide goods and services in order to satisfy the needs of people within a society, but they do not seek a profit.

27. As a factor of production, the term capital includes:

A) stocks and bonds issued by corporations.

B) natural resources such as land and water.

C) tools, machinery, and buildings.

D) services provided by the government that enable businesses to be more productive.

Answer: C LG: 2/LL: 1 Page: 10

28. The two factors of production that seem to contribute the most to making countries rich are:

A) land and labor.

B) land and capital.

C) entrepreneurship and labor.

D) entrepreneurship and knowledge.

Answer: D LG: 2/LL: 1 Page: 11

29. In countries where businesses are government owned:

A) there is less incentive to work hard.

B) the right amount of each good is produced.

C) profits tend to be higher.

D) the quality of goods is high but profits are low.

Answer: A LG: 3/LL: 1 Page: 13

30. High tax rates tend to:

A) promote economic development.

B) make a nation’s currency tradable.

C) discourage entrepreneurship.

D) reduce the amount of money created by the government.

Answer: C LG: 3/LL: 1 Page: 13

31. In the United States, the level of taxes and types of government regulations in different states and cities:

A) influence where entrepreneurs locate their businesses.

B) are standardized according to the Uniform Tax Act.

C) appear to have no effect on the creation of wealth.

D) have little or no effect on the incentives of entrepreneurs.

Answer: A LG: 3/LL: 2 Page: 13

Rationale: Some cities and states in the U.S. have much higher taxes and more restrictive regulations than other areas. Areas that have high taxes and restrictive regulations tend to drive entrepreneurs out; areas with lower taxes and fewer regulations tend to attract them.

32. A review of the decision making process as to where to locate a new business venture suggests that:

A) entrepreneurs seem to like professional sports.

B) entrepreneurs respond to differences in tax rates and government regulations.

C) risk has no bearing on where businesses locate their operations.

D) entrepreneurs almost always start their businesses within 25 miles of their hometown.

Answer: B LG: 3/LL: 3 Page: 13

Rationale: States and local areas with high taxes or excessive regulations are losing businesses, while those with lower taxes and fewer regulations are attracting more businesses.

33. The series of lines on a product packaging that the cashier scans when you check out at a grocery store or discount store is called a:

A) bar code.

B) zip code.

C) scan code.

D) laser code.

Answer: A LG: 4/LL: 1 Page: 17

34. Successful businesses are keenly focused on their:

A) customers.

B) managers.

C) creditors.

D) bureaucrats.

Answer: A LG: 5/LL: 1 Page: 18

35. Lamar is a salesperson for Bi-State Direct. He really appreciates the amount of freedom and authority Bi-State gives its sales people in order to better meet the needs of customers. Lamar’s experience suggests that Bi-State practices:

A) centralized management.

B) fast response theory.

C) enfranchisement.

D) empowerment.

Answer: D LG: 5/LL: 2 Page: 20

Rationale: Empowerment means giving front-line workers more freedom to respond quickly to customer requests.

36. Some companies allow workers to ___________, using telephones, faxes, and e-mail to do their work at home. This benefits workers with children since it allows them to stay at home and raise a family while still earning an income.

A) outsource

B) subcontract

C) net-work

D) telecommute

Answer: D LG: 6/LL: 1 Page: 23

37. An increase in global trade will bring about a(n):

A) increase in prices.

B) decrease in jobs.

C) increased political instability.

D) increase in global competition.

Answer: D LG: 7/LL: 1 Page: 24

38. Cooperation among firms from different nations is:

A) likely to become a thing of the past as competition among nations increases.

B) illegal and will eventually hurt consumers.

C) a way to expand world markets and achieve greater world prosperity.

D) likely to result in a loss of jobs in poor nations as production shifts to wealthier countries.

Answer: C LG: 7/LL: 2 Page: 24

Rationale: Businesses have gone beyond simply competing with organizations in other nations. They have begun to cooperate in ways that have the potential to create growing world markets and promote peace and prosperity.

39. Businesses that produce and sell tangible products such as appliances, furniture, and clothing are part of the:

A) manufacturing sector.

B) knowledge-based sector.

C) service sector.

D) production sector.

Answer: A LG: 8/LL: 1 Page: 26

40. Appliance repair firms, tax consultants, law firms, and insurance companies are all business firms that are part of the:

A) production sector.

B) management sector.

C) neo-industrial sector.

D) service sector.

Answer: D LG: 8/LL: 2 Page: 26

Rationale: All of these companies provide an intangible product. Thus, they are included in the service sector.

41. Shelley recently opened a new restaurant specializing in fast foods prepared with less fat and calories for health-conscious diners who are in a hurry. Shelley knows that there are some risks associated with opening and managing a restaurant, but she is confident that she can earn a profit. Shelley is an example of a(n):

A) arbitrageur.

B) entrepreneur.

C) speculator.

D) account manager.

Answer: B LG: 1/LL: 2 Page: 4

Rationale: An entrepreneur is a person who assumes the risk of staring a business.

42. In countries where businesses are government owned:

A) there is less incentive to work hard.

B) the right amount of each good is produced.

C) profits tend to be higher.

D) the quality of goods is high but profits are low.

Answer: A LG: 3/LL: 1 Page: 13

43. All of the following policies would tend to foster entrepreneurship except:

A) establishing a currency that is tradable on world markets.

B) establishing more regulations to protect the environment.

C) developing policies to reduce corruption in business and government.

D) allowing private ownership of businesses.

Answer: B LG: 3/LL: 2 Page: 13

Rationale: Establishing regulations tends to increase the cost and red tape associated with operating a business. This would discourage entrepreneurship.

CHAPTER 2

2-2. Economists study how people use resources to produce and distribute goods and services for consumption among competing groups and individuals.

Answer: True LG: 1/LL: 1 Page: 36

2-3. Macroeconomics is the economic perspective that looks at the operation of a nation's economy as a whole.

Answer: True LG: 1/LL: 1 Page: 36

2-4. Microeconomics focuses on the decisions and behavior of people and organizations in particular markets.

Answer: True LG: 1/LL: 1 Page: 36-37

2-5. Adam Smith believed that the key to creating rising standards of living was to limit population growth.

Answer: False LG: 1/LL: 1 Page: 39

2-6. Adam Smith believed the self-interest of businesspeople would lead them to create needed goods, services, and jobs.

Answer: True LG: 1/LL: 1 Page: 39

2-7. The concept of the invisible hand is based on the assumption that the primary motivation of entrepreneurs is to enjoy the financial rewards of their hard work.

Answer: True LG: 1/LL: 2 Page: 39

Rationale: The concept of the invisible hand suggests that the primary motivation of entrepreneurs is their own individual gain. However, in seeking to earn a profit for themselves, entrepreneurs will create jobs and produce goods and services that satisfy the wants of others.

2-8. Under the basic principle of supply, as the price goes down, manufacturers and suppliers of a product tend to supply less of the product to the market.

Answer: True LG: 2/LL: 1 Page: 43

2-9. Demand refers to the quantity of a good that consumers are willing and able to buy at different prices at a specific time.

Answer: True LG: 2/LL: 1 Page: 43

2-10. Price is the key factor that determines both quantity supplied and quantity demanded.

Answer: True LG: 2/LL: 1 Page: 44

2-11. Product differentiation is a key to success in monopolistic competition.

Answer: True LG: 2/LL: 1 Page: 45

2-12. Jill owns a bakery that specializes in cheesecakes. Until recently, Jill charged a price of $12 for each cheesecake. At this price Jill’s customers bought an average of 84 cheesecakes each week. For the last few weeks, she has reduced her price to $10.50 per cheesecake, and her customers have purchased an average of 96 cheesecakes each week. These results are consistent with the economic concept of demand.

Answer: True LG: 2/LL: 2 Page: 43

Rationale: Generally speaking, the quantity demanded tends to rise when the price of a good falls.

2-13. Monica notices that just a few big companies produce the vast majority of soft drinks. She would be correct in describing the soft drink industry as an oligopoly.

Answer: True LG: 2/LL: 2 Page: 46

Rationale: An oligopoly exists when a few large sellers dominate a market. Examples of oligopolistic markets include beer, automobiles, soft drinks, and breakfast cereals.

2-14. Harry Cutter is the owner of Harry's Hairy Business, one of a large number of barbershops that compete against each other in the city where Harry lives. Harry has tried to attract more customers by staying open longer hours than most barbershops, and by advertising heavily on local radio to convince people that he offers the best haircuts in town. Harry appears to be operating in an oligopolistic market.

Answer: False LG: 2/LL: 2 Page: 45

Rationale: Harry faces competition from many other barbershops. An oligopoly is a market in which just a few sellers dominate. Markets characterized by many firms selling differentiated products are classified as monopolistic competition.

2-15. Permany is a nation with an economic system that closely approximates pure capitalism. While Permany's economy is likely to generate a great deal of wealth, it may do a poor job of providing an acceptable level of income for the elderly or disabled.

Answer: True LG: 2/LL: 2 Page: 46

Rationale: A strength of capitalism is its ability to generate wealth. A weakness of capitalism is that it results in a very unequal income distribution that may not be very responsive to those who are too old or infirm to compete in the market system.

2-16. In socialist economies, the government owns some, if not most, basic businesses such as coal mines and utilities.

Answer: True LG: 3/LL: 1 Page: 47

2-17. The major benefit of socialism is that it creates strong incentives to work hard and take the risks associated with starting and operating a business.

Answer: False LG: 3/LL: 1 Page: 48

2-18. One drawback of socialism is that it may result in a reduction in the individual's incentive to work hard.

Answer: True LG: 3/LL: 1 Page: 48

2-19. High tax rates in socialist countries is a major reason these nations have experienced a brain drain.

Answer: True LG: 3/LL: 1 Page: 48

2-20. In a mixed economy, the government's goal is to grow the economy and maintain some measure of social equality.

Answer: True LG: 4/LL: 2 Page: 50

Rationale: Mixed economies exist when the market and the government are both involved in the allocation of resources. Command economies have adopted some elements of free market systems in order to stimulate more growth, while free market economies have adopted a larger role for the government to promote a more equitable distribution of income.

2-21 The total value of a country's output of final goods and services in a given year is known as the nation's gross domestic product (GDP).

Answer: True LG: 5/LL: 1 Page: 53

2-22. To be classified as unemployed, a person must be at least 16 years old and must have tried to find a job within the past four weeks.

Answer: True LG: 5/LL: 1 Page: 53

2-23. The consumer price index (CPI) measures what is happening to prices at the wholesale level.

Answer: False LG: 5/LL: 1 Page: 54

2-24. The CPI is based on what is happening to the prices of about 400 goods and services.

Answer: True LG: 5/LL: 1 Page: 54

2-25. An increase in productivity means that a worker is now able to produce more goods and services in the same amount of time.

Answer: True LG: 5/LL: 1 Page: 55

2-26. As productivity increases, the cost of producing goods and services is likely to fall.

Answer: True LG: 5/LL: 1 Page: 55

2-27. Fiscal policy involves the federal government’s efforts to stabilize the economy by increasing or decreasing taxes and/or government spending.

Answer: True LG: 6/LL: 1 Page: 56

2-28. The size of the national debt increases when the federal government runs a deficit.

Answer: True LG: 6/LL: 1 Page: 57

2-29. Monetary policy involves the management of the money supply and interest rates by the Federal Reserve System.

Answer: True LG: 6/LL: 1 Page: 59

2-30. One of the major ways the Fed influences economic conditions is through its control of interest rates.

Answer: True LG: 6/LL: 1 Page: 59

2-31 The Fed is concerned that the economy is growing too rapidly. Given these concerns, it is likely to pursue policies to restrict the supply of money and raise interest rates.

Answer: True LG: 6/LL: 3 Page: 59

Rationale: The Federal Reserve System (the Fed) is in charge of monetary policy. This involves controlling the supply of money and interest rates. When the Fed wants to slow down the economy it will restrict the money supply and increase interest rates to reduce the amount of borrowing.

2-32. Economics is the study of how:

A) to invest wisely in the stock market.

B) to employ resources to produce goods and services and distribute them among competing groups and individuals.

C) sophisticated statistical techniques can be used to make predictions about the evolution of society over the long run.

D) people govern themselves in a democratic society.

Answer: B LG: 1/LL: 1 Page: 36

2-33. ___________ studies the operation of a nation's economy as a whole.

A) Microeconomics

B) Socioeconomics

C) Econometrics

D) Macroeconomics

Answer: D LG: 1/LL: 1 Page: 36

2-34. ____________ looks at the behavior of individual people and organizations in specific markets.

A) Macroeconomics

B) Finite economics

C) Microeconomics

D) Nanoeconomics

Answer: C LG: 1/LL: 1 Page: 36-37

2-35. A key to economic growth and development is to:

A) locate more deposits of gold and other precious metals.

B) emphasize a fair and equitable distribution of income.

C) provide people with better education.

D) allow government planning to guide the allocation of resources.

Answer: C LG: 1/LL: 1 Page: 38

2-36. _________ is considered by some to be the father of modern economics.

A) John Maynard Keynes

B) Adam Smith

C) Thomas Carlyle

D) Samuel Kapital

Answer: B LG: 1/LL: 1 Page: 39

2-37. Adam Smith believed that countries would prosper if businesspeople were free to start and run their own businesses, because businesspeople would make a profit by providing the goods, services and ideas that others in the economy wanted. This was called the:

A) kinked demand theory.

B) invisible hand.

C) spending multiplier.

D) demand accelerator.

Answer: B LG: 1/LL: 2 Page: 39

Rationale: Adam Smith believed that self-interest would lead profit-seeking entrepreneurs to produce goods and services wanted by consumers. This concept was referred to as the invisible hand.

2-38. Under capitalism:

A) most of the means of production and distribution are privately owned and operated for profit.

B) the primary function of the government is to distribute wealth more evenly.

C) utilities, health care, education, and other services are controlled by the government.

D) markets operate to carry out the decisions made by central planners.

Answer: A LG: 2/LL: 1 Page: 41

2-39. In capitalism, most decisions about what goods and services to produce are made by:

A) a variety of government agencies.

B) businesspeople.

C) a central planning board that consists of consumers, business executives, and employees.

D) majority rule, with everyone receiving an equal vote.

Answer: B LG: 2/LL: 1 Page: 41

2-40. A typical supply curve shows that an increase in the price of a good will cause the quantity supplied to:

A) decrease.

B) increase.

C) remain constant.

D) fluctuate randomly around its equilibrium value.

Answer: B LG: 2/LL: 1 Page: 43

2-41. If a shortage exists for a good in a free-market economy, the:

A) price of the good will rise.

B) price of the good will fall.

C) government will order suppliers to increase the production of that good.

D) government must establish a rationing system to make sure that the good is fairly distributed.

Answer: A LG: 2/LL: 1 Page: 44

2-42. __________ is characterized by a large number of firms selling products that appear to be identical.

A) Oligopoly

B) Monopolistic competition

C) Perfect competition

D) Microeconomic competition

Answer: C LG: 2/LL: 1 Page: 45

2-43. ___________ exists when a large number of firms produce goods that are similar but are perceived by buyers as being different.

A) Perfect competition

B) Monopolistic competition

C) Oligopoly

D) A monopoly

Answer: B LG: 2/LL: 1 Page: 45

2-44. __________ exists when the entire supply of a good is controlled by a single seller.

A) Perfect competition

B) Oligopoly

C) Pure Capitalism

D) A monopoly

Answer: D LG: 2/LL: 1 Page: 46

2-45. An oligopoly is a market that is characterized by:

A) one firm that totally dominates the supply of the product.

B) a large number of small firms all producing very similar products.

C) a few large sellers who dominate the market supply.

D) several small firms that compete primarily by differentiating their products.

Answer: C LG: 2/LL: 1 Page: 46

2-46. Which of the following statements most accurately identifies a serious limitation of the free-market economic system?

A) Free-market economies offer little opportunity for the poor to work their way out of poverty.

B) Free-market economies have been unable to create wealth as rapidly as other types of economic systems.

C) Free-market economies often are plagued by shortages of needed consumer goods.

D) Free-market economies result in a very unequal distribution of wealth.

Answer: D LG: 2/LL: 3 Page: 46

Rationale: Free-market economies have been a major factor in the creation of wealth enjoyed by many of the world's nations. This type of system gives people opportunities to work their way out of poverty. And, the ability of market prices to adjust will help eliminate shortages (and surpluses) of goods and services. However, the incentive structure in a free-market economy naturally leads to inequality in the distribution of income and wealth.

2-47. The reason why many socialist countries have experienced brain drain is that:

A) socialism encourages a very unequal distribution of income.

B) the government does little to protect the natural environment.

C) workers tend to have to work longer hours and receive fewer benefits under socialism.

D) tax rates on talented individuals tend to be very high.

Answer: D LG: 3/LL: 1 Page: 48

2-48. The four basic types of unemployment are frictional, structural, seasonal, and:

A) cyclical.

B) procedural.

C) industrial.

D) traditional.

Answer: A LG: 5/LL: 1 Page: 54 (Figure 2.5)

2-49. The ___________ index measures changes in the prices of about 400 goods and services such as food, housing, apparel and medical care.

A) market price

B) producer price

C) wholesale price

D) consumer price

Answer: D LG: 5/LL: 1 Page: 54

2-50. _____________ refers to a general rise in the price level of goods and services over time.

A) Acceleration

B) Recession

C) Inflation

D) Escalation

Answer: C LG: 5/LL: 1 Page: 54

2-51. __________ is a condition in which the average level of prices is actually falling.

A) Deflation

B) Disinflation

C) Stagflation

D) Unflation

Answer: A LG: 5/LL: 1 Page: 54

2-52. One reason the CPI is followed very closely by the government, businesses, and workers is that:

A) it indicates whether we are running a budget surplus or a deficit.

B) some wages, interest rates, tax rates, and government benefits are tied to changes in the value of the CPI.

C) it is the best measure of worker productivity in the service sector.

D) the gross national product is computed from the reported increases in the CPI.

Answer: B LG: 5/LL: 2 Page: 54

Rationale: As a measure of inflation, the CPI is an index which is often used to determine cost of living increases in wages, salaries, interest rates, and other payments. Income tax brackets and some government benefits, such as Social Security payments, are also adjusted when the CPI changes.

2-53. ____________ refers to the efforts of the federal government to keep the economy stable by increasing or decreasing taxes and/or government spending.

A) Monetary policy

B) Incomes policy

C) Fiscal policy

D) Cyclical policy

Answer: C LG: 6/LL: 1 Page: 56

2-54 . In the United States, the control of the money supply is the responsibility of the:

A) United States Treasury.

B) Federal Reserve System.

C) Department of State.

D) Federal Deposit Insurance Corporation.

Answer: B LG: 6/LL: 1 Page: 59

2-55 Efforts by the Federal Reserve System to control the money supply and interest rates are known as:

A) fiscal policy.

B) incomes policy

C) monetary policy

D) securities policy.

Answer: C LG: 6/LL: 1 Page:59

2-56. The Federal Reserve System operates:

A) as a semi-private organization not under the direct control of the government.

B) under the direct control of the executive branch of the government.

C) under the direction of the Banking Oversight Committee of Congress.

D) as a special agency of the U.S. Treasury.

Answer: A LG: 6/LL: 1 Page: 58

2-57 . According to the invisible hand concept, the best way for the government to encourage the creation of jobs and the production of the products most wanted by consumers would be to:

A) take over the operation of all firms in major industries, such as telecommunications, transportation, and energy, and operate these firms as nonprofit organizations.

B) allow private ownership of businesses, but make use of extensive regulation to force businesses to behave in a socially desirable way.

C) allow entrepreneurs a great deal of personal freedom to follow their own self-interest.

D) impose high taxes on individuals, and use the revenue to subsidize businesses to encourage them to produce the maximum rate of output.

Answer: C LG: 1/LL: 3 Page: 39

Rationale: The invisible hand concept suggests that self-interested behavior can benefit society. The desire to earn a profit will lead entrepreneurs to produce goods and services that consumers demand. Moreover, successful businesses will create more jobs in the economy.

2-58. The market price of apples is currently rising. In a free-market economy, the most likely explanation of this price change is that:

A) the government has decided to set a higher price so that the firms in the market make an adequate profit.

B) there is a shortage in the market for apples.

C) the supply of money has decreased.

D) the equilibrium price is lower than the market price.

Answer: B LG: 2/LL: 3 Page: 44

Rationale: In a free market, prices are the result of the interaction of supply and demand. Market prices tend to rise when there is a shortage (i.e. when the quantity demanded exceeds the quantity supplied), and fall when there is a surplus (i.e. when quantity supplied exceeds quantity demanded).

2-59 . The front-page headline of your local newspaper states that the Fed is becoming increasingly worried about the rate of inflation and wants to slow the economy. Which of the following policies is the Fed most likely to pursue?

A) Increase taxes.

B) Decrease interest rates.

C) Restrict the money supply and drive up interest rates.

D) Devalue the dollar on international currency exchanges.

Answer: C LG: 6/LL: 3 Page: 59

Rationale: When the Fed is concerned about inflation it is likely to try to slow down the economy by increasing interest rates and restricting the money supply.

. 2-60 .Monetary policy involves the management of the money supply and interest rates by the Federal Reserve System.

Answer: True LG: 6/LL: 1 Page: 59

CHAPTER 3

1. Exporting involves the selling of products to another country.

A) Answer: True LG: 1/LL: 1 Page: 68

2. One reason countries trade with other countries is that even technologically advanced nations cannot produce all the products their people want and need.

A) Answer: True LG: 1/LL: 1 Page: 69

3. Comparative advantage theory states that a country should sell to other countries those products that it produces most efficiently and buy from other countries those products it cannot produce as efficiently.

A) Answer: True LG: 1/LL: 1 Page: 69

4. A country has an absolute advantage if it has a monopoly in the production of a specific product or is able to produce it more efficiently than all other nations.

A) Answer: True LG: 1/LL: 1 Page: 70

5. Dumping is the practice of selling products in foreign markets for more than you charge for the same product in your own country.

A) Answer: False LG: 2/LL: 1 Page: 74

6. Foreign firms find it difficult to sell goods in the United States because most goods produced by foreigners are already produced more efficiently by American firms.

A) Answer: False LG: 2/LL: 2 Page: 73

B) Rationale: The United States in the largest importer in the global marketplace. This indicates that foreign firms have found great success in selling their products in the U.S.

7. A Chinese steel manufacturer is selling certain types of steel in the United States at a price significantly lower than it sells the same steel in its home market. This practice may be a violation of U.S. law.

A) Answer: True LG: 2/LL: 2 Page: 74

B) Rationale: Japan and Russia have been accused of dumping steel in an effort to increase their exports to the U.S. The United States has specific laws to make such pricing practices illegal.

8. A favorable balance of trade occurs when the value of a nation's exports exceeds its exports.

A) Answer: False LG: 2/LL: 2 Page: 72

B) Rationale: A favorable balance of trade occurs when the value of exports exceeds imports.

9. The value of Chinese exports to the United States is greater than the value of the goods they buy from the United States. This results in a U.S. trade deficit.

A) Answer: True LG: 2/LL: 2 Page: 72

B) Rationale: A trade deficit occurs when the value of the country’s imports exceed that of its exports.

10. The Nissan automobile assembly plant in Tennessee is an example of foreign direct investment in the United States.

A) Answer: True LG: 2/LL: 2 Page: 74

B) Rationale: Foreign direct investment in the United States is the buying of permanent

C) property and businesses in the United States.

11. Granting another firm the right to manufacture your product or use your trademark for a fee is called licensing.

A) Answer: True LG: 3/LL: 1 Page: 76

12. One way to satisfy an unexpected increase in sales is through contract manufacturing.

A) Answer: True LG: 3/LL: 1 Page: 79

1. Rationale: Joint ventures create a partnership in which companies join to undertake a major project.

13. Devaluation refers to a decline in the value of a nation's currency relative to other currencies.

A) Answer: True LG: 4/LL: 1 Page: 84

14. A devaluation of the U.S. dollar would make American goods more expensive to foreign buyers.

A) Answer: False LG: 4/LL: 2 Page: 84

B) Rationale: After a devaluation, it would take less foreign currency to acquire U.S. dollars. Therefore foreign buyers would find that it costs less of their currency to buy U.S. made goods.

15. Countries often used trade protectionism measures to protect their domestic industries from foreign competition.

A) Answer: True LG: 5/LL: 1 Page: 87

16. ____________ is the selling of goods and services to other countries.

A) In-trading

B) Exporting

C) Importing

D) Dumping

E) Answer: B LG: 1/LL: 1 Page: 68

17. _____________ is the purchase of goods and services produced in foreign countries.

A) Importing

B) Outsourcing

C) Retailing

D) Exporting

E) Answer: A LG: 1/LL: 1 Page: 68

18. A nation has a ___________ in the production of a good if it can produce that good more effectively or efficiently than it can produce other goods.

A) supreme advantage

B) primary efficiency

C) qualified advantage

D) comparative advantage

E) Answer: D LG: 1/LL: 1 Page: 69

19. An exchange rate is the value of one nation's currency relative to the currencies of other nations.

A) Answer: True LG: 4/LL: 1 Page: 84

20. The main purpose of a protective tariff is to increase the tax revenue of the government.

A) Answer: False LG: 5/LL: 2 Page: 87

B) Rationale: The goal of protective tariffs is to raise the retail price of imported products so that domestic products will be more competitive. Revenues tariffs are designed to raise money for the government.

21. __________________ occurs when a country has a monopoly on producing a product or is able to produce it at a cost below that of all other countries.

A) Comparative advantage

B) Absolute advantage

C) Complete advantage

D) Dumping advantage

22. Answer: B LG: 1/LL: 1 Page: 70

23. Which theory states that a nation should produce and sell goods to other countries that it produces most efficiently, and buy goods produced more efficiently by other countries?

A) Comparative advantage.

B) Absolute advantage.

C) Mercantilism.

D) Bilateral advantage.

E) Answer: A LG: 1/LL: 2 Page: 69

F) Rationale: Comparative advantage is the guiding principle behind international trade. The theory of comparative advantage states that a country should produce and sell to other countries those products that it produces most effectively and efficiently. Countries should buy from other countries those products it cannot produce as effectively or efficiently.

24. Country A is an extremely efficient producer of tin. However, its climate and terrain makes it difficult to produce corn. According to the theory of comparative advantage, Country A should:

A) produce both tin and corn in order to remain self-sufficient.

B) watch the global market to see which product is bringing the highest price.

C) import the resources needed to produce corn.

D) concentrate its production on tin and buy corn from an efficient producer.

E) Answer: D LG: 1/LL: 2 Page: 69

F) Rationale: The theory of comparative advantage contends that a nation should produce and export those goods that they produce efficiently, and import those goods that another country produces more efficiently.

25. Free trade between nations generally results in:

A) industrialized nations gaining at the expense of developing nations.

B) the loss of jobs in developed nations.

C) mutually beneficial exchange relationships.

D) higher prices for goods that are imported.

E) Answer: C LG: 1/LL: 2 Page: 69

F) Rationale: Free trade allows nations to specialize according to comparative advantage and obtain goods they would be unable to produce (or could produce only at great cost) from other nations. The result is the efficient production of goods and mutually beneficial exchange.

26. Patrick's Products has a manufacturing plant near Chicago. The plant specializes in compact washers and dryers for countries in which consumers have less living space. Patrick's Products participates in the global market through:

A) importing.

B) dumping.

C) exporting.

D) balancing trade.

E) Answer: C LG: 1/LL: 3 Page: 68

F) Rationale: Exporting is selling products to another country.

27. When foreign firms build production facilities in the United States, they are engaging in:

A) exporting.

B) importing.

C) foreign direct investment.

D) countertrading.

E) Answer: C LG: 3/LL: 1 Page: 74

28. __________ is the practice of selling a product in foreign countries for a lower price than the good is sold domestically.

A) Deflating

B) Countertrading

C) Inflating

D) Dumping

E) Answer: D LG: 2/LL: 1 Page: 74

29. The strength of U.S. economy helps explain why:

A) foreign direct investment in the United States has grown steadily.

B) the United States enjoys a favorable balance of trade.

C) China and Japan formed a common market to become more competitive.

D) the U.S. is able to avoid becoming a debtor nation.

E) Answer: A LG: 2/LL: 3 Page: 74

F) Rationale: The strength of the U.S. economy made it a more attractive place to invest than other nations.

30. Granting a foreign company the right to manufacture your product or to use your firm's trademark in return for a fee is called:

A) a joint venture.

B) a foreign subsidiary.

C) licensing.

D) outsourcing.

E) Answer: C LG: 3/LL: 1 Page: 76

31. A business that is owned by a parent company located in a foreign country is referred to as a foreign:

A) licensee.

B) franchisee.

C) subsidiary.

D) host country.

E) Answer: C LG: 3/LL: 1 Page: 80

32. _______ involves the production of private-label goods by a foreign company to which a company then attaches its brand name or trademark.

A) Franchising

B) Contract manufacturing

C) Import trading

D) Export trading

E) Answer: B LG: 3/LL: 1 Page: 78

33. A ____________________ is a partnership in which companies from two different countries join to undertake a major project.

A) multinational cooperative

B) joint venture

C) franchisee transfer

D) recruit affiliation

E) Answer: B LG: 3/LL: 1 Page: 79

34. Which of the following terms describes a long-term partnership between two or more companies intended to help each firm build competitive market advantages? This arrangement does not call for the firms to share costs, risks, or management.

A) Export-trading affiliation

B) Joint venture

C) Strategic alliances

D) Foreign subsidiaries

E) Answer: C LG: 3/LL: 1 Page: 79

35. A risk unique to firms with direct investment in a foreign county is the potential takeover of the firm's assets by the government of that country. This takeover is called a(n):

A) hostile takeover.

B) political bias.

C) unholy alliance.

D) expropriation

E) Answer: D LG: 3/LL: 1 Page: 80

36. Firms such as McDonald's, Pizza Hut, and KFC, have entered the global market by offering investors the opportunity to set up:

A) licensed trade offices.

B) independent exporting houses.

C) multinational subsidiaries.

D) franchises.

E) Answer: D LG: 3/LL: 2 Page: 78

F) Rationale: A franchise is a contractual arrangement whereby one business buys the rights to use the name and sell the product or service of another business. Many U.S. retail firms have sold franchises as a strategy to reach global markets.

37. An American firm recently criticized a Chinese steel producer for charging a lower price for their products in the United States than they charge in China. If proven to be true, the Chinese firm has engaged in:

A) industrial protectionism.

B) a low labor cost strategy.

C) dumping.

D) exchange rate manipulation.

E) Answer: C LG: 2/LL: 2 Page: 69

F) Rationale: If a foreign firm sells its products for less in the United States than it charges for the same products at home, this is referred to as dumping.

38. When entering a foreign market, Anheuser-Busch will contract with a local firm to brew and market the Anheuser-Busch product Budweiser. This is an example of:

A) licensing.

B) franchising.

C) foreign direct investment.

D) foreign subsidiaries.

E) Answer: A LG: 3/LL: 2 Page: 76

F) Rationale: Licensing reduces the risk of entering a foreign market. In this case, Anheuser-Busch spends little money to produce and market their product in this foreign market. The foreign-based licensee incurs these costs.

39. McHugh Corporation of Ireland and Enomoto Enterprises based in Japan have undertaken the production of a new electric car with rechargeable batteries that can be driven at high speeds for long distances. They have shared the investment, and each has contributed important technological expertise to the effort. These two firms have entered into a(n):

A) international joint venture.

B) multinational cartel.

C) industrial countertrade agreement.

D) multinational limited partnership.

E) Answer: A LG: 3/LL: 3 Page: 79

F) Rationale: An international joint venture is a cooperative relationship in which companies from two different countries join to undertake a major project.

40. Nike will often enter a foreign market through an agreement with a foreign firm. The agreement calls for the foreign firm to manufacture products to Nike's standards and attach the Nike name and trademark. This technique allows Nike to experiment in a new market without incurring the large start-up costs involved with building their own production facilities. This is an example of:

A) contract franchising.

B) a global joint venture.

C) global licensing.

D) contract manufacturing.

E) Answer: D LG: 3/LL: 3 Page: 78

F) Rationale: Contract manufacturing involves the production of private-label goods by a foreign company to which a company then attaches its own brand name or trademark.

41. If a Swiss chocolate firm purchases an American ice cream manufacturer, the American ice cream manufacturer becomes a:

A) global franchise.

B) a global joint venture.

C) foreign subsidiary.

D) contract manufacturer.

E) Answer: C LG: 3/LL: 3 Page: 80

F) Rationale: A foreign subsidiary is a company that is owned and operated in a foreign nation by another company called the parent company. The Swiss firm Nestlé’s purchase of the U.S. based Dreyer’s Ice Cream is an example a Swiss owned foreign subsidiary operating in the United States.

42. Which of the following represents the value of one nation’s currency relative to the currencies of another country?

A) Euro rate.

B) Currency rate.

C) Exchange rate.

D) Standard of living.

E) Answer: C LG: 4/LL: 1 Page: 84

43. Under the floating exchange rate system, the value of a country's currency is determined by:

A) the monetary authorities of that country.

B) the United Nations Committee on Floating Currencies.

C) the currency’s supply and demand in the global market.

D) countertrading.

E) Answer: C LG: 4/LL: 1 Page: 84

44. ____________ occurs when a country lowers the value of its currency relative to the currency of other nations.

A) Devaluation

B) Extrapolation

C) Depreciation

D) Downward justification

E) Answer: A LG: 4/LL: 1 Page: 84

45. An influential foreign government official has approached your firm requesting a large sum of money. In return for this bribe, the official promises that your firm will receive preferential treatment in future government contracts. You refuse the request, explaining that the _________ Act of the United States prohibits you from making such payments.

A) Federal Trade Commission

B) Sherman Anti-trust

C) Foreign Corrupt Practices

D) Celler-Kefauver Act

E) Answer: C LG: 4/LL: 2 Page: 85

F) Rationale: The Foreign Corrupt Practices Act prohibits "questionable or dubious payments" to foreign officials to secure business contracts.

46. Hennessy Hardware, a U.S. retailer, buys much of its inventory from Asian countries. Hennessy Hardware would benefit if the value of the dollar ________ relative to the currencies of the countries from which Hennessy imports.

A) rose

B) fell

C) remained constant

D) floated unpredictably

E) Answer: A LG: 4/LL: 2 Page: 84

F) Rationale: A higher value of the dollar means that a dollar would buy more foreign goods. Inventory costs, therefore, would be reduced for the U.S. based firm.

47. ___________ is the use of government regulations to limit the import of goods and services.

A) Trade protectionism

B) Fiscal policy

C) Countertrade policy

D) Monetary policy

E) Answer: A LG: 5/LL: 1 Page: 87

48. ______________ is the economic theory advocating that a nation should try to sell more goods to other nations than it buys from them.

A) Capitalism.

B) Comparative advantage.

C) Mercantilism

D) Inflation

E) Answer: C LG: 5/LL: 1 Page: 87

49. ________ tariffs are designed to raise money for the government.

A) Regulatory

B) Revenue

C) Price

D) Profit

E) Answer: B LG: 5/LL: 1 Page: 87

50. In an effort to protect domestic jobs, some countries will place a limit on the number of certain types of products that can be imported. These limits are called:

A) revenue tariffs.

B) protective tariffs.

C) import quotas.

D) tariffs.

E) Answer: C LG: 5/LL: 1 Page: 87

51. A(n) __________ refers to a complete ban of the imports or exports of certain products from a specific country.

A) absolute tariff

B) health quarantine

C) quota

D) embargo

E) Answer: D LG: 5/LL: 1 Page: 88

52. Which of the following government policies creates an environment of restrictive standards intended to make it difficult for foreign firms to successfully sell their products?

A) Monetary tariffs

B) Countertrade policies

C) Nontariff barriers

D) Export constraint policies

E) Answer: C LG: 5/LL: 1 Page: 88

53. The purpose of the General Agreement on Tariffs and Trade (GATT) is to:

A) facilitate global trade.

B) create common market arrangements in specific geographical regions.

C) negotiate an end to civil wars.

D) establish a set of international property right laws.

E) Answer: A LG: 5/LL: 1 Page: 89

54. The __________ represents the first attempt to establish a truly global mediation center to resolve international trade disputes.

A) International Trade Court

B) World Trade Organization

C) Global Trade Commission

D) United Nations Arbitration Center

E) Answer: B LG: 5/LL: 1 Page: 89

55. A _____________ is a regional group of countries that have no internal tariffs, a common external tariff, and the coordination of laws to facilitate exchange among the member countries.

A) trade cartel

B) mutual trade association

C) common market

D) joint venture

E) Answer: C LG: 5/LL: 1 Page: 90

56. Which of the following countries are the top two trading partners of the United States?

A) Canada and Mexico

B) China and Japan

C) Germany and England

D) Japan and Taiwan.

E) Answer: A LG: 5/LL: 1 Page: 91

57. The U.S. government has announced a 5 million-pound annual limit on beef imported from Argentina. This type of trade restriction is called a(n):

A) embargo.

B) revenue tariff.

C) import quota.

D) export cap.

E) Answer: C LG: 5/LL: 2 Page: 87

F) Rationale: Import quotas limit the number of products in certain categories that can be imported.

58. Responding to pressure from political lobbyists representing the steel industry, the U.S. government levies a tax on steel products imported from Europe. This is an example of a(n):

A) protective tariff.

B) revenue tariff.

C) quota.

D) embargo.

E) Answer: A LG: 5/LL: 2 Page: 87

F) Rationale: A protective tariff is designed to raise the retail price of imported products so that domestic products will be more competitive.

59. A major concern voiced by U.S. critics of the North American Free Trade Agreement (NAFTA) is that it would result in:

A) higher prices for consumer goods.

B) loss of jobs in the U.S. economy.

C) national security problems.

D) increased illegal immigration from Mexico.

E) Answer: B LG: 5/LL: 3 Page: 91

F) Rationale: Critics of NAFTA, such as billionaire Ross Perot and some leaders of organized labor, predicted a "giant sucking sound" as jobs and capital left the U.S.

Chapter 4

1. Statutory law refers to written legislation.

Answer: True LL: 1 Page: 125

2. Common law is the body of law established through legislative action by Congress.

Answer: False LL: 1 Page: 125

3. Administrative agencies are given the power by Congress to pass rules and regulations within a specific area of authority.

Answer: True LL: 1 Page: 125

4. Lower courts must abide by the precedents set by higher courts.

Answer: True LL: 1 Page: 125

5. Unintentional behavior that causes harm or injury is an example of a tort.

Answer: True LL: 1 Page: 126

6. The rule of strict liability holds a firm liable for a defective product only if the firm knowingly placed a hazardous product on the market.

Answer: False LL: 1 Page: 126

7. Companies that produced lead-based paint 30 years ago are still subject to the strict product liability provisions of federal tort law.

Answer: True LL: 1 Page: 126

8. Producers of government approved drugs and chemicals cannot be sued by individuals who develop side effects years later.

Answer: False LL: 1 Page: 127

9. A patent gives inventors exclusive rights to their inventions for 20 years.

Answer: True LL: 1 Page: 128

10. Patent owners are prohibited from selling or licensing their patent rights to others.

Answer: False LL: 1 Page: 128

11. The Uniform Commercial Code establishes a standardized set of regulations for business transactions in all 50 states.

Answer: True LL: 1 Page: 129

12. A copyright protects an individual's ownership rights to materials such as books, articles, photos, and cartoons which they created.

Answer: True LL: 1 Page: 129

13. If in the normal course of a job an employee creates a cartoon, the copyright belongs to the employer.

Answer: True LL: 1 Page: 129

14. A trademark is a legally protected name, symbol, or design that identifies the goods or services of one seller.

Answer: True LL: 1 Page: 130

15. A warranty guarantees that the product sold will be acceptable for the purpose for which the buyer intends to use it.

Answer: True LL: 1 Page: 130

16. Batteries and tires sold with an express warranty provide the buyer with a guarantee regarding the life of the product.

Answer: True LL: 1 Page: 130

17. The Sherman Antitrust Act was designed to prevent large businesses from restraining the competition of smaller or newer firms.

Answer: True LL: 1 Page: 132

18. The Justice Department's lawsuit against Microsoft is an example of an antitrust case.

Answer: True LL: 1 Page: 132 - 133

19. __________ instruments are forms of commercial paper that are transferable among businesses and individuals that represent a promise to pay a specified amount.

Uniform

Contract

Express

Negotiable

Answer: D LL: 1 Page: 130

20. The purpose of governmental deregulation is to eliminate laws that seem to hinder competition.

Answer: True LL: 1 Page: 138

21. When your New Jersey based mail-order computer company sells to a customer in Illinois, the Uniform Commercial Code (UCC) will establish the legal requirements that your firm must follow.

Answer: True LL: 2 Page: 129

Rationale: The Uniform Commercial Code (UCC) is a comprehensive commercial law that covers sales laws and other commercial laws.

22. Your paycheck and the check you write to Old Navy for a pair of jeans are both examples of a negotiable instrument.

Answer: True LL: 2 Page: 130

Rationale: Negotiable instruments are forms of commercial paper (such as checks) that are transferable among businesses and individuals and represent a promise to pay a specified amount.

23. A contract is a legally enforceable agreement between two or more parties.

Answer: True LL: 2 Page: 130

Rationale: A contract is a legally enforceable agreement between two or more parties.

24. __________ refers to rules, statutes, codes, and regulations established to provide a legal framework within which business may be conducted.

A) Common law

B) Statutory law

C) Bankruptcy law

D) Business law

Answer: D LL: 1 Page: 125

25. Which of the following holds a company liable for negligence in the production, design, sale, or use of products the firm markets?

A) Breach of contract

B) Price discrimination

C) Unintentional harm responsibility

D) Product liability

Answer: D LL: 1 Page: 126

26. The Nike Swoosh and the Golden Arches of McDonald's are examples of a __________.

A) trademark

B) submarine patent

C) copyright

D) commercially protected symbol

Answer: A LL: 1 Page: 129

27. Which of the following was designed to simplify and standardize the laws affecting businesses involved in interstate trade?

Common law

Statutory law

The standardized commerce rules

The Uniform Commercial Code

Answer: D LL: 1 Page: 121

28. A(n) __________ occurs when one party fails to follow the terms of a contract.

breach of contract

discharge of obligation

obligation failure of enforcement

infringement of contract

Answer: A LL: 1 Page: 131

29. The section of the Bankruptcy Code that allows a business to reorganize and pay only a limited proportion of its debts is Chapter:

7.

11.

13.

17.

Answer: B LL: 1 Page: 137

30. ________ is the process of eliminating laws and regulations that hinder competition.

Downsizing

Restructuring

Deregulation

Bankruptcy

Answer: C LL: 1 Page: 138

31. The intent of a patent is to:

increase competition in the marketplace.

reward innovation and hard work of inventors.

slow the growth of monopolies.

encourage copycat inventions.

Answer: B LL: 2 Page: 128

Rationale: A patent awards inventors exclusive rights to their inventions for 20 years. Patent owners may sell or license the use of the patent to others.

32. Which of the following is not a requirement for commercial paper to be considered a negotiable instrument? It must:

be payable on demand or a specified date.

contain an unconditional promise to pay.

be a promise to pay a specified amount of money.

be an oral agreement between two or more parties.

Answer: D LL: 2 Page: 130

Rationale: Article 3 of the Uniform Commercial Code states that negotiable instruments must be (1) written and signed by the maker, (2) made payable on demand or at a certain time, (3) made payable to the bearer or to order, and (4) contain an unconditional promise to pay a specified amount of money.

33. One result of deregulation in the airline industry has been:

less intense competition.

increase aviation related fatalities.

higher prices for consumers.

lower prices for consumers.

Answer: D LL: 2 Page: 138

Rationale: When government regulations were lifted, the airlines began competing for different routes and charging lower prices. New airlines were born to take advantage of the new opportunities.

34. The Environmental Protection Agency is an example of a(n) ___________.

common law agency

statutory judicial agency

private placement agency

administrative agency

Answer: D LL: 2 Page: 125

Rationale: Administrative agencies are institutions created by Congress with delegated power to pass rules and regulations within its mandated area of authority.

35. A software development firm based in Florida and conducting business in Texas is unsure about the differences in state laws regarding business transactions. What body of laws standardizes interstate business regulations?

Uniform Commercial Code

Universal Business Regulations

National Commercial Rules

Unified Commercial Regulations

Answer: A LL: 3 Page: 129

Rationale: All states have adopted the Uniform Commercial Code to standardize commercial law. There are, however, sections of Louisiana that have not adopted the Uniform Commercial Code.

36. Utilizing the bankruptcy laws, Yankee Distribution petitioned the court to reorganize and continue operations while paying only a limited proportion of its current debts. This represents an example of a chapter ________ bankruptcy.

7

11

13

14

Answer: B LL: 3 Page: 137

Rationale: Chapter 11 of the bankruptcy code allows a firm to reorganize and continue operations. During this time period, the court appointed trustee monitors the firm’s activities to protect the interests of creditors. While only some debts are paid, chapter 11 is designed to help both debtors and creditors.

37. Several states now allow for competition in the electric power industry. Business customers, for example, can purchase their electric service from several different utility companies. This activity reflects a movement toward ________ in the utility industry.

re-regulation

monopoly pricing

deregulation

privatizing

Answer: C LL: 3 Page: 138

Rationale: Deregulation refers to the government actions to reduce the laws and regulations that seem to hinder competition. Deregulation has successfully been used in the airlines and trucking industries.

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