264)
According to Ricardo’s explanation of land rent, what happens when the demand for land
increases?
264)
A)
Revenues to owners of land increase but economic rent declines.
B)
The supply curve shifts to the right just enough to keep the price per acre constant.
C)
Both revenues to owners of land and economic rent increase.
D)
The amount of economic rent stays constant, constrained by a perfectly inelastic supply curve.
265)
According to the random walk theory
265)
A)
stock prices can easily be predicted for as much as 52 weeks into the future.
B)
stock prices rise and fall in predictable cycles that correspond with the overall business cycle.
C)
successive prices of a stock are independent of each other.
D)
today’s stock price will be related to yesterday’s stock price.
266)
The opportunity cost of owner–provided labor is the
266)
A)
profit after all of the bills have been paid.
B)
explicit part of the wage rate paid to the owner.
C)
salary the owner could have made if she worked at her best alternative job.
D)
wage rate paid to the owner.
267)
Which of the following is NOT an advantage of a proprietorship?
267)
A)
Profits are only taxed once.
B)
Liability of the owner is unlimited.
C)
Decision–making resides with one personthe owner.
D)
They are easy to form and dissolve.
268)
Single–owner proprietorships often unintentionally exaggerate their profits because they
268)
A)
forget their explicit losses.
B)
pay their bills late and therefore incur large interest charges.
C)
look at after–tax instead of pre–tax costs.
D)
neglect to consider the opportunity cost of the owner’s labor.
269)
Pure economic rent is
269)
A)
a payment to a resource owner over and above what is necessary to keep the resource in its
current use.
B)
the competitive rental rate on capital.
C)
a payment to a resource owner just sufficient to keep its supply constant.
D)
the inverse of economic profit.
A
270)
Economic profits equal
270)
A)
total revenue less the opportunity costs of all factors of production.
B)
accounting profits.
C)
accounting profits less economic rents.
D)
accounting profits plus the owner’s labor opportunity costs.
A
271)
The first economist to analyze economic rent was
271)
A)
Henry George.
B)
John Stuart Mill.
C)
David Ricardo.
D)
Karl Marx.
C
D
272)
Suppose that Lady Gaga sells 1,000 tickets to a concerts at $480 each. If the equilibrium price is $600
per ticket for a fixed supply of 1,000 tickets, what is the value of the additional economic rent that
Lady Gaga could earn if she charged the market clearing price?
272)
A)
$600,000
B)
$120,000
C)
$480,000
D)
$1,080,000
273)
The value of a future amount expressed in today’s dollars is
273)
A)
present value.
B)
the interest rate.
C)
the discount rate.
D)
the inflation rate.
Explanation:
274)
Which combination of circumstances will most likely raise the rate of interest for a loan the most?
274)
A)
low handling charges and a long length of time for repayment
B)
high risk and a long length of time for repayment
C)
low handling charges and low risk
D)
high risk and low handling charges
Explanation:
275)
The opportunity cost of capital is
275)
A)
the normal rate of return.
B)
a part of economic profits.
C)
usually unknown and must be estimated by looking at the price of capital goods.
D)
an explicit cost.
Explanation:
276)
Economists also refer to the normal rate of return on investment as
276)
A)
the fixed cost of entrepreneurship.
B)
the opportunity cost of capital.
C)
the equity kicker.
D)
a residual cost.
Explanation:
Explanation:
277)
Any business wanting to attract financial capital must expect to
277)
A)
earn a positive economic profit.
B)
pay a normal rate of return.
C)
keep implicit costs as close to zero as possible.
D)
pay a below normal rate of return in order to make a positive rate of return itself.
278)
An advantage of a partnership over a proprietorship is
278)
A)
the ability to take advantage of greater specialization.
B)
that profits are not taxed twice.
C)
that it is easier to dissolve.
D)
limited liability.
279)
The concept of economic rent is associated with the economist
279)
A)
Henry George.
B)
Karl Marx.
C)
Adam Smith.
D)
David Ricardo.
280)
Owners face unlimited liability in
280)
A)
national corporations and global corporations.
B)
proprietorships and corporations.
C)
partnerships and corporations.
D)
proprietorships and partnerships.
281)
A bond is
281)
A)
a nonlegal promise to provide an annual payment to the holder when the corporation makes
profits.
B)
a legal claim to a part of a corporation’s future profits that includes voting rights.
C)
a legal claim to a part of a corporation’s future profits that does not include voting rights.
D)
a legal claim against a firm, providing a fixed annual coupon payment and a lump–sum
payment at maturity.
282)
If your business earns $10,000 in revenues, has explicit costs of $7,000, and implicit costs of $5,000,
your economic profit is
282)
A)
$2,000.
B)
$5,000.
C)
–$2,000.
D)
$3,000.
283)
Economic rent applies to
283)
A)
real property only.
B)
land only and nothing else.
C)
any resource in fixed supply.
D)
all resources.
284)
A legal claim to a part of a corporation’s future profits is called
284)
A)
a share of stock.
B)
a dividend.
C)
a bond.
D)
a financial debt.
285)
Accounting profit can be calculated as
285)
A)
total revenue – fixed costs.
B)
total revenue – explicit costs – implicit costs.
C)
total revenue – explicit costs.
D)
total revenue – implicit costs.
286)
Corporations are responsible for approximately what percentage of total business revenues?
286)
A)
83 percent
B)
72 percent
C)
50 percent
D)
19 percent
287)
Which of the following is not an advantage of a partnership?
287)
A)
Profits are subject to only personal taxation.
B)
limited liability
C)
easy to form
D)
permits more effective specialization in occupations
288)
A disadvantage of the corporate form of business organization is
288)
A)
unlimited liability for shareholders.
B)
that the corporation can only do business in the state where it was incorporated.
C)
limited access to capital.
D)
double taxation.
289)
The payment for a factor of production that is completely inelastic in supply is
289)
A)
discounting.
B)
limited liability.
C)
economic rent.
D)
opportunity cost.
290)
The payment for current rather than future command over resources is
290)
A)
interest.
B)
an implicit cost.
C)
an implicit benefit.
D)
opportunity cost.
291)
Suppose Jon Stewart of the “Daily Show” makes an annual income of $1,000,000. If he quit his
television job and went into producing he could make $400,000 per year. Jon Stewart‘s opportunity
cost as a producer is
291)
A)
$600,000.
B)
1,000,000.
C)
$400,000.
D)
$1,400,000.
292)
The most commonly accepted objective for a firm is
292)
A)
to maximize economic profit.
B)
to maximize total revenue.
C)
to minimize the variable cost outlay.
D)
to stay in business at all cost.
293)
Interest rates are positive because
293)
A)
banks are not competitive.
B)
people prefer future consumption over current consumption.
C)
people prefer current consumption over future consumption.
D)
usury laws require rates to be very high.
294)
Economists assume that the goal of a firm is to
294)
A)
maximize gross revenues.
B)
maximize economic profits.
C)
sell as many units as possible.
D)
be the largest firm in its industry.
295)
The real rate of interest is
295)
A)
the interest rate actually paid explicitly by the borrower.
B)
the interest rate received by the lender minus the handling charges of the loan.
C)
the average rate of interest over the last 20 years.
D)
the nominal interest rate minus the anticipated rate of inflation.
296)
If the interest rate is 10 percent per year, and you have $100,000 now, which of the following is
closest to what your $100,000 will be worth in one year?
296)
A)
$110,000
B)
$100,000
C)
$105,000
D)
$102,000
297)
Which is the best example of a firm’s implicit costs?
297)
A)
the opportunity cost of owner–provided labor
B)
taxes
C)
wages
D)
rent
A
298)
What is the relationship between accounting and economic profits?
298)
A)
Economic profits are always larger than accounting profits.
B)
There is no relationship between economic and accounting profits.
C)
Accounting profits are always larger than economic profits.
D)
Economic profits are always negative.
C
299)
One role of the interest rate is to
299)
A)
reduce the rate of inflation by encouraging government borrowing.
B)
allocate capital to its most efficient uses.
C)
discourage saving and encourage current consumption.
D)
redistribute income from the wealthy to the poor.
B
A
300)
Economic rent is any payment
300)
A)
in excess of the resource’s opportunity cost.
B)
received by the owner of a resource in perfectly elastic supply.
C)
received by the owner of a resource with a supply curve that is not horizontal.
D)
below that of a normal profit or return.
301)
The fundamental goal of a firm or a business is to
301)
A)
organize the factors of production and take risks.
B)
earn the highest possible returns.
C)
produce the largest number of output units possible.
D)
employ labor in the most socially responsible manner possible.
302)
A key assumption of Ricardo’s economic rent concept was that
302)
A)
land is too differentiated to be able to measure.
B)
all land is equally productive.
C)
land is always cheap and needs development.
D)
only land in large cities matters.
303)
The owners of a corporation are
303)
A)
completely in control of the firm.
B)
taxed only once.
C)
the employees of the firm.
D)
the shareholders.
304)
Which of the following is correct?
304)
A)
real interest rate = nominal interest rate * anticipated inflation rate
B)
real interest rate = nominal interest rate – anticipated inflation rate
C)
real interest rate = nominal interest rate / anticipated inflation rate
D)
real interest rate = nominal interest rate + anticipated inflation rate
305)
A star basketball player signs a contract that newspaper reports say is worth $20 million. The
player receives $5 million on signing, and $5 million a year for three years. The contract is worth
305)
A)
$20 million as reported in the papers.
B)
either more or less than $20 million, depending on the value of the discount rate.
C)
more than $20 million because the present value of $5 million received one or more years
from now is more than $5 million.
D)
less than $20 million since the present value of $5 million received one or more years from
now is less than $5 million.
306)
Each of the following is a source of financial capital for a corporation EXCEPT
306)
A)
dividends.
B)
issuing new stock.
C)
reinvestment of profit or retained earnings.
D)
issuing bonds or borrowing funds from a bank.
307)
A payment for a resource above the opportunity cost of the resource is
307)
A)
real rent.
B)
nominal rent.
C)
social rent.
D)
economic rent.
308)
Stocks are
308)
A)
shares of ownership in a corporation.
B)
a liability of a proprietorship.
C)
promises to repay loans.
D)
a liability of a corporation.
309)
Which of the following statements about business organizations is TRUE?
309)
A)
Partnerships are larger than both proprietorships and corporations but are less numerous
than corporations.
B)
Proprietorships are more common than either partnerships or corporations but are
responsible for the smallest share of total business receipts.
C)
Partnerships are more common than proprietorships and are responsible for a larger
percentage of business receipts.
D)
Corporations are larger in number than either proprietorships or partnerships and also
receive a larger percentage of total business receipts.
B
310)
Accounting profits are
310)
A)
total revenue minus implicit costs.
B)
total revenue minus explicit and implicit costs.
C)
total revenue minus normal costs.
D)
total revenue minus explicit costs.
D
311)
Present value is
311)
A)
the nominal value instead of the real value of something.
B)
the value of a dollar received a year from now, expressed in terms of its future value.
C)
the inverse of the interest rate.
D)
the value of a future amount expressed in today’s dollars.
D
A
312)
The real rate of interest will approximately be equal to
312)
A)
the stated rate minus the opportunity cost of capital.
B)
the stated rate of interest in a high–inflation economy.
C)
the nominal interest rate minus the expected rate of change in the price level.
D)
the nominal interest rate plus the expected rate of inflation.
313)
When economic profits are zero, accounting profits
313)
A)
must be positive.
B)
will be negative.
C)
will equal zero.
D)
could be positive, negative or zero.
314)
In a partnership, debts accumulated by one partner are
314)
A)
the responsibility of all of the other partners for the full amount of the debt.
B)
the responsibility of that partner only.
C)
the responsibility of that partner plus any partners who are actively involved in running the
partnership.
D)
the responsibility of all of the other partners, up to the total value of the firm.
315)
Normal rate of return is
315)
A)
accounting profit.
B)
economic profit.
C)
an explicit cost.
D)
the amount that must be paid to obtain investment in a business.
316)
Most businesses in the United States are ________, and the type of business organization that
accounts for the LEAST amount of total revenues is ________.
316)
A)
corporations; proprietorships
B)
proprietorships; partnerships
C)
proprietorships; proprietorships
D)
corporations; partnerships
317)
The present value of $110 to be received one year from now
317)
A)
is $121.
B)
depends on the rate of discount.
C)
is $100.
D)
is $110.
318)
Corrina was working as a waitress in an Italian restaurant making an annual income of $25,000 per
year when she decided to start up her own catering business. Corrina used $10,000 of her savings
that was earning 5 percent annual interest to establish her business. After the first year she made an
accounting profit of $20,000. Her economic profit was
318)
A)
$5,550.
B)
$25,000.
C)
–$5,000.
D)
$20,000.
319)
The present value of a sum to be received in the future is greater
319)
A)
the greater the discount rate.
B)
the less the time period before receiving the sum.
C)
the greater the inflation rate.
D)
the greater the interest rate.
320)
Which of the following is a disadvantage of the corporate form of business organization?
320)
A)
limited liability
B)
double taxation
C)
unlimited liability
D)
limited financing
321)
Which form of business organization accounts for the largest proportion of sales in the United
States?
321)
A)
the corporation
B)
the subchapter S partner–based proprietorship.
C)
the proprietorship
D)
the partnership
322)
By definition, a firm is
322)
A)
a business organization that consists of more than one person.
B)
an organization, whether private or public, that may or may not make a profit.
C)
a business organization that makes profits.
D)
a business organization that utilizes resources to produce goods or services with the goal of
making a profit.
323)
The concept of economic rent is associated with the British economist David Ricardo (1772–1823).
Ricardo analyzed economic rent for land. Which of the following is FALSE with respect to
determining land rent?
323)
A)
Payment for a resource below its opportunity cost is rent.
B)
The supply curve for land is vertical (perfectly inelastic).
C)
Rent is payment for a resource above its opportunity cost.
D)
Ricardo assumed the quantity of land in a country is fixed.
324)
Pure economic rent is a payment to a resource that
324)
A)
has a perfectly elastic demand.
B)
has a high opportunity cost.
C)
has a perfectly inelastic supply.
D)
has a negative opportunity cost.
325)
Suppose a family–owned yogurt shop has $80,000 in total revenues, $36,000 in rent, and $20,000 in
additional operating costs. The husband and wife work in the shop and pay no wages to
themselves or others. The economic profits from the shop are
325)
A)
less than $24,000.
B)
more than $24,000.
C)
$24,000.
D)
$80,000.
326)
What is the present value of $100 one year from now at an interest rate of 5%?
326)
A)
$105
B)
$95.24
C)
$100
D)
$5
327)
The goal of the firm is
327)
A)
to maximize sales.
B)
profit maximization.
C)
to minimize costs.
D)
low labor turnover.
328)
The greater the interest rate
328)
A)
the lower the discount rate.
B)
the more a dollar invested today will be worth a year from now.
C)
the greater the present value of a sum to be received a year in the future.
D)
the greater the opportunity cost of another dollar of current consumption.
329)
An investor who owns preferred stock has
329)
A)
preferential treatment in the payment of dividends.
B)
unlimited liability for the debts of the firm.
C)
regular voting rights.
D)
the same rights as a bond holder.
330)
Which of the following statements about “inside information” is FALSE?
330)
A)
It is information that is not available to the general public.
B)
The government never imposes fines or other penalties for abuse of inside information.
C)
It is illegal to knowingly use inside information when trading stocks.
D)
Profits can be made using inside information.
331)
Given a discount rate of 10 percent, the present value of receiving $10,000 two years in the future is
331)
A)
$8,000.
B)
$12,000.
C)
$8,264.46.
D)
$12,100.
C
332)
Suppose that you open your own business and earn an accounting profit of $35,000 per year. When
you started your business, you left a job that paid you a $30,000 salary annually. Also, suppose that
you invested $70,000 of your own funds to start up your business. If the normal rate of return on
capital is 10 percent, your economic profit is
332)
A)
–$2,000.
B)
$5,000.
C)
$2,000.
D)
–$5,000.
A
333)
If profits are reinvested in the corporation, then
333)
A)
payments made to bondholders will be less.
B)
there are fewer funds available to distribute to stockholders.
C)
the high profits indicate that common stockholders will get larger dividends than normal.
D)
the company will sell more bonds in order to pay dividends to stockholders.
B
334)
A legal claim against a firm that usually entitles the owner of the claim to receive a fixed annual
coupon payment, plus a lump–sum payment at some future date, is known as
334)
A)
a bond.
B)
a reinvestment coupon.
C)
a share of preferred stock.
D)
a share of common stock.
A
B
335)
An advantage of proprietorships is
335)
A)
the ease with which they can be formed and dissolved.
B)
the breadth of management expertise that comes from having a board of directors.
C)
their ability to raise large amounts of equity capital.
D)
the fact that their profits are not taxed.
336)
Rents
336)
A)
have an economic purpose only if they are taxed and provide revenue to the government.
B)
have an allocative function since they help decide to which use a resource will be put.
C)
have no useful economic purpose.
D)
have a distributional function since they affect incomes, but have no allocative function since
the resource is in fixed supply.
337)
Assuming a market interest rate of 6 percent per year, what is the present value of $5,000 payable at
the end of three years?
337)
A)
$4,717
B)
$4,317
C)
$4,450
D)
$4,198
338)
The real rate of interest is 4% and the anticipated rate of inflation is 1%. What is the nominal rate of
interest?
338)
A)
1%
B)
5%
C)
3%
D)
4%
339)
Refer to the above figure. If demand curve D1 is the relevant demand curve, rent is
339)
A)
area KHG.
B)
OG.
C)
area FHGO.
D)
zero.
340)
When a business has implicit costs
340)
A)
economic profits are greater than accounting profits.
B)
economic profits are less than accounting profits.
C)
economic and accounting profits are the same.
D)
economic costs are the same as accounting costs.
341)
The payment for the use of a resource in an amount higher than the resource‘s opportunity cost is
341)
A)
an irrational economic concept.
B)
economic rent.
C)
reinvestment.
D)
a proprietorship.
342)
Assuming a market rate of interest equal to 7 percent, what is the present value of $200 to be
received one year from today?
342)
A)
$123
B)
$187
C)
$210
D)
$156
343)
Owners may have little to do with the management of the firm in the case of
343)
A)
either corporations or proprietorships.
B)
corporations.
C)
partnerships.
D)
proprietorships.
B
344)
If the nominal interest rate is high and rising, a possible cause is
344)
A)
a rising inflation rate.
B)
increased government borrowing.
C)
increased lending activity.
D)
a falling real interest rates.
A
345)
The yield percentage of a stock is calculated as
345)
A)
the corporation’s net worth divided by the number of shareholders.
B)
the expected appreciation of the stock.
C)
the stock dividend divided by the price of the stock.
D)
the book value of the stock divided by the number of shareholders.
C
346)
Economic profit is
346)
A)
total revenue – (explicit costs – implicit costs).
B)
total revenue × (explicit costs – implicit costs).
C)
total revenue + (explicit costs + implicit costs).
D)
total revenue – (explicit costs + implicit costs).
D
B
347)
Economic profit can be calculated as
347)
A)
total revenue – fixed costs.
B)
total revenue – implicit costs.
C)
total revenue – explicit costs.
D)
total revenue – explicit costs – implicit costs.
348)
Which of the following is NOT a characteristic of a corporation?
348)
A)
limited liability for shareholders
B)
limited ability to raise capital funds
C)
double taxation
D)
separation of ownership problems
349)
One disadvantage of a partnership is
349)
A)
lower monitoring costs.
B)
difficulty raising funds.
C)
it permits greater specialization.
D)
limited liability.
350)
A portion of a worker’s earnings is economic rent if the worker
350)
A)
has been on the job for at least a year.
B)
has skills that make him more productive than an unskilled worker.
C)
was the last person hired at the going wage rate.
D)
would accept a small reduction in pay without quitting.
351)
What is the present value of $100 three years from now at an interest rate of 5%?
351)
A)
$90.70
B)
$86.38
C)
$115.76
D)
$85