C. it is legally treated as a person and owned by stockholders who are liable for the actions of
the corporate “person” regardless of their investment
D. each owner is liable only to the extent of his or her own investment.
63. A business is likely a sole proprietorship if:
A. it has two or more owners, with each owner liable for every other owner’s actions.
B. it has only one owner who has unlimited liability.
C. it is legally treated as a person and owned by stockholders who are liable for the actions of
the corporate “person.”
D. multiple owners are liable only to the extent of their own investment.
64. One advantage of a partnership over a sole proprietorship is:
A. greater accountability.
B. limited liability.
C. ease of formation.
D. the ability to share the work and risks of business.
65. One advantage of a partnership over a corporation is:
A. greater accountability.
B. limited liability.
C. increased ability to get funds.
D. the ability to share the work and risks of business.
66. One advantage of a corporation over a sole proprietorship is:
A. greater accountability.
B. avoidance of double taxation.
C. ease of formation.
D. greater ability to obtain funds.
67. One advantage of a sole proprietorship over a corporation is:
A. limited liability.
B. the ability to share work and risks.
C. ease of formation.
D. greater ability to obtain funds.
68. One advantage of a sole proprietorship over a partnership is:
A. direct control by the owner.
B. limited liability.
C. the ability to share the work and risks of business.
D. greater ease of obtaining financing.
69. Which of the following is a disadvantage of setting up a business as a corporation?
A. Limited personal liability
B. Greater ability to get funds
C. Limited control by owners
D. Risk of personal assets not invested in the firm
70. Which of the following statements is correct?
A. Stockholders are legally liable for all the debt of a corporation.
B. A corporation is a business that is legally owned by its employees.
C. Corporations are legal entities that, in law, are treated as persons.
D. Most large companies and many small companies in the United States are not corporations.
71. Which of the following statements is correct?
A. Neither stocks nor bonds are financial assets.
B. Stocks are financial assets but bonds are not.
C. Bonds are financial assets but stocks are not.
D. Both stocks and bonds are financial assets.
72. A company that explicitly takes on a social mission in addition to profit-seeking is
considered a:
A. social welfare organization.
B. benefit corporation or L3C.
C. nonprofit organization.
D. social partnership.
73. Certificates of ownership of a company are called:
A. financial liabilities.
B. limited liabilities.
C. profits.
D. stocks.
74. The difference between an L3C and other types of businesses is that:
A. L3Cs are chartered by the government and all profits are retained by the government.
B. L3Cs do not pursue profit, but instead seek social goals.
C. L3Cs explicitly take on a social mission as well as profit-seeking.
D. L3Cs cannot accept government funding of any kind.
75. In the United States, the government regulates business in its role as a “referee.” Which of
the following is not among the laws regulating the interaction between households and
businesses?
A. Businesses must follow certain rules about workplace safety, minimum wages, and overtime
rules.
B. Businesses cannot meet with other businesses to agree on prices they will charge.
C. In some businesses, in some states, employees must join a union in order to work at certain
jobs.
D. Businesses are required to produce certain goods, called public goods, for the government.
76. From the Great Depression in the 1930s until the tax reforms of the 1980s, the United States
government integrated a number of what might best be called ________ institutions into the
economy.
A. socialist
B. capitalist
C. entrepreneurial
D. profit-seeking
77. The ability to organize and meet an objective, such as meeting regulatory and financial
requirements to start and run a business, is known as:
A. business sovereignty.
B. consumer sovereignty.
C. democratic capitalism.
D. entrepreneurship.
78. Which group has ultimate control over the U.S. economy?
A. Business
B. Households
C. Multinationals
D. Government
79. The largest source of household income in the United States is:
A. stock dividends.
B. wages and salaries.
C. interest earnings.
D. rental income.
80. In principle, households ultimately control:
A. businesses.
B. the government.
C. both businesses and the government.
D. neither businesses nor the government.
81. When Coca Cola introduced a new, low-calorie version of Coca Cola called C2, despite a
major marketing effort, sales of C2 were weak and many doubted that the product would last.
Coke’s experience with C2 illustrates the economic concept of:
A. producer sovereignty.
B. consumer sovereignty.
C. limited liability.
D. market failure.
82. Corporate advertising:
A. may reinforce consumer sovereignty.
B. may undermine consumer sovereignty.
C. cannot affect consumer sovereignty.
D. makes consumer sovereignty meaningless.
83. State and local governments do not receive income directly from which source?
A. Property taxes
B. Sales taxes
C. Social security taxes
D. Local income taxes
84. The tax revenues of federal, state, and local governments have different sources, in that the
federal government relies primarily on:
A. income taxes; state and local governments rely to a greater extent on sales and property taxes.
B. sales and property taxes; state and local governments rely to a greater extent on income taxes.
C. excise and property taxes; state and local governments rely on sales taxes.
D. sales taxes; state and local governments rely on excise and property taxes.
85. Which two sources of revenue comprise most of federal government revenue?
A. Corporate income taxes and social security taxes and contributions
B. Corporate income taxes and excise taxes
C. Individual income tax and corporate income taxes
D. Individual income tax and social security taxes and contributions
86. When Churchill County residents voted whether to continue allowing two brothels to
operate, the government was acting as:
A. referee.
B. actor.
C. big spender.
D. public goods supplier.
87. Which of the following is not an example of government’s role as a referee?
A. Equal opportunity and labor laws that restrict businesses’ freedom to hire and fire whomever
they want.
B. Regulations governing safety in the workplace, wages, overtime, and hours of work
C. Laws prohibiting businesses from meeting to fix prices
D. Laws that require states and the federal government to balance their budgets
88. Which of the following is not an example of government’s role as an actor?
A. Equal opportunity and labor laws that restrict businesses’ freedom to hire and fire whomever
they want
B. Social security tax cuts that reduce the percentage paid by employees
C. Increases in social security spending
D. Laws that require states and the federal government to balance their budgets
89. When a government intervenes in an economy in a way that influences the relationship
between households and businesses, it is:
A. serving as an economic actor.
B. serving as an economic referee.
C. serving the public good.
D. reducing social welfare by interfering with the invisible hand.
90. Government regulation of working conditions is an example of:
A. government as referee.
B. government as owner.
C. government as actor.
D. government as dictator.
91. Enron executives were charged with numerous counts of corporate fraud and corruption.
Among the charges was insider trading, which involves the trading of a corporation’s stock by
insiders who may have access to information that the public does not. Which role is the
government playing when it makes insider trading illegal?
A. providing for public goods
B. promoting effective and workable competition
C. correcting for externalities
D. adjusting for undesirable market results
92. In the United States, government performs all of the following functions except:
A. redistributing income.
B. purchasing goods and services.
C. regulating the economy.
D. determining production levels.
93. If federal, state, and local governments were unable to raise any revenue, then government’s
role as:
A. only a referee would be unaffected.
B. only an actor would be unaffected.
C. both an actor and a referee would be eliminated.
D. both an actor and a referee would be unaffected.
94. Governments can make trading easier and more beneficial by:
A. establishing externalities.
B. limiting private restrictions on trade.
C. setting quotas.
D. providing merit goods.
95. Suppose a single firm gains control of an industry by preventing other firms from entering
the industry. As a result, the price charged by the single firm is much higher than the price that
would be charged by many different firms producing this product in a competitive market. This
situation can best be described as:
A. a market failure.
B. a government failure.
C. an efficient outcome.
D. a competitive outcome.
96. Which of the following is most likely an action that supports competition?
A. Requiring professionals, such as architects and engineers, to be licensed
B. Using tariffs to restrict the ability of foreign firms to sell products in domestic markets
C. Preventing two dominant firms in the same market from merging
D. Granting subsidies to farmers based on production levels
97. Which of the following would most likely generate a positive externality?
A. Roller coaster rides
B. Pollution
C. Alcoholic beverages
D. Education
98. Which of the following would most likely generate a negative externality?
A. Education
B. A lighthouse
C. Cigarette smoke
D. Employment
99. When my neighbors benefit from my cleaning up of my yard, they are experiencing a:
A. merit good.
B. partnership.
C. economic pressure.
D. positive externality.
100. Flu vaccinations of school children have the unintended effect of protecting the vulnerable
elderly from contracting the virus. This is an example of a:
A. free rider problem.
B. social force.
C. goods distribution.
D. positive externality.
101. New developments in computer monitors have made flat panel LCD’s cheaper and better
than the older CRT models. Given that monitors can contain as much as 8 pounds of lead,
disposing of the old monitors creates a:
A. negative externality.
B. positive externality.
C. neutral externality.
D. limited liability.
102. Waste produced by a power plant that harms local fishing industries is an example of a:
A. demerit good.
B. private good.
C. limited liability.
D. negative externality.
103. Assuming government’s goal is to benefit society as much as possible:
A. actions with negative and positive externalities should be encouraged.
B. actions with negative and positive externalities should be restricted.
C. actions with negative externalities should be encouraged and actions with positive
externalities should be restricted.
D. actions with negative externalities should be restricted and actions with positive externalities
should be encouraged.
104. Which of the following is one of the macroeconomic goals established by the 1946
Employment Act?
A. Preventing large fluctuations in exchange rates
B. Maintaining a constant level of consumer expenditure
C. Providing an economic environment conducive to growth
D. Ensuring that employers pay workers a minimum wage sufficient to escape poverty
105. Which of the following is a good example of government’s attempt to correct for
macroeconomic externalities?
A. Preventing excessive amounts of pollution
B. Providing public goods
C. Maintaining full employment
D. Providing for smoke-free public spaces
106. Which of the following is the best example of a macroeconomic externality?
A. One person saving less without considering the effect on their retirement needs
B. Many people saving more without considering the effect on unemployment
C. One person starting a business without knowing whether the goods will sell
D. One person spending more in order to help stimulate the economy