Business Lesson: Capitalism and Wealth PDF

One lesson of business: a. is tracing the consequences of a policy. b. promoting a policy change to eradicate inefficiencies. c. moving assets from lower to higher value uses, thereby creating wealth. d. None of the above *ANSWER:* c *TOPICS:* Section 1: Capitalism and Wealth 2. An i...

One lesson of business: a. is tracing the consequences of a policy. b. promoting a policy change to eradicate inefficiencies. c. moving assets from lower to higher value uses, thereby creating wealth. d. None of the above *ANSWER:* c *TOPICS:* Section 1: Capitalism and Wealth 2. An individual's value for a good or service is the e. The amount of money he or she used to pay for a good f. The amount of money he or she is willing to pay for it g. The amount of money he or she has to spend on goods h. None of the above *ANSWER:* b *TOPICS:* Section 1: Capitalism and Wealth 3. The difference between Capitalism and Socialism is that i. Capitalism is concerned more about how to slice up the "pie" j. Socialism is concerned with making the "pie" as large as possible k. Capitalism is concerned with making the "pie" as large as possible l. Both A and B *ANSWER:* c *TOPICS:* Section 1: Capitalism and Wealth 4. A consumer values a car at \$30,000 and a producer values the same car at \$20,000. If the transaction is completed at \$24,000, the transaction will generate: a. No surplus b. \$4,000 worth of seller surplus and unknown amount of buyer surplus c. \$6,000 worth of buyer surplus and \$4,000 of seller surplus d. \$6,000 worth of buyer surplus and unknown amount of seller surplus *ANSWER:* c *TOPICS:* Section 1: Capitalism and Wealth 5. A consumer values a car at \$30,000 and a producer values the same car at \$20,000. The transaction will not take place if a tax is imposed m. equal to the seller surplus n. smaller than the total surplus o. larger than the total surplus p. smaller than the buyer surplus *ANSWER:* c *TOPICS:* Section 1: Capitalism and Wealth 6. A consumer values a car at \$30,000 and a producer values the same car at \$20,000. If the transaction is completed at \$24,000, what level of sales tax will result in unconsummated transaction? a. 0% b. 25% c. 20% d. 40% *ANSWER:* d *TOPICS:* Section 1: Capitalism and Wealth 7. A consumer values a car at \$30,000 and a producer values the same car at \$20,000. What amount of tax will result in unconsummated transaction? a. \$4,000 b. \$9,000 c. \$15,000 d. \$2,000 *ANSWER:* c *TOPICS:* Section 1: Capitalism and Wealth 8. A consumer values a car at \$30,000 and a producer values the same car at \$20,000. If a tax is levied on the seller, what level of tax will result in unconsummated transaction? a. 0% b. 25% c. 60% d. 40% *ANSWER:* c *TOPICS:* Section 1: Capitalism and Wealth 9. A consumer values a house at \$525,000 and a producer values the same house at \$485,000. If the transaction is completed at \$510,000, the transaction will generate: a. No surplus b. \$25,000 worth of seller surplus and unknown amount of buyer surplus c. \$15,000 worth of buyer surplus and \$25,000 of seller surplus d. \$25,000 worth of buyer surplus and unknown amount of seller surplus *ANSWER:* c *TOPICS:* Section 1: Capitalism and Wealth 10. A consumer values a house at \$525,000 and a producer values the same house at \$485,000. If the transaction is completed at \$510,000, what amount of tax will result in unconsummated transaction? a. A tax of \$9,000 b. A tax of \$14,000 c. A tax of \$15,000 d. A tax of \$18,000 *ANSWER:* d *TOPICS:* Section 1: Capitalism and Wealth 11. A consumer values a house at \$525,000 and a producer values the same house at \$485,000. If the transaction is completed at \$510,000, what level of tax rate will result in unconsummated transaction? a. 1% b. 5% c. 3% d. 2% *ANSWER:* b *TOPICS:* Section 1: Capitalism and Wealth 12. A buyer values a house at \$525,000 and a seller values the same house at \$485,000. If sales tax is 8% and is levied on the seller, then what would be the lowest price that the seller would be willing to sell at? a. \$527,000 b. \$523,800 c. \$525,000 d. \$500,000 *ANSWER:* b *TOPICS:* Section 1: Capitalism and Wealth 13. A buyer values a house at \$525,000 and a seller values the same house at \$485,000. If sales tax is 8% and is levied on the buyer, then, what would be the highest price that the buyer would be willing to pay? a. \$525,000 b. \$523,800 c. \$485,000 d. \$486,111 *ANSWER:* d *TOPICS:* Section 1: Capitalism and Wealth 14. The difference between the maximum price the consumer is willing to pay and the price the consumer actually pays for a product is referred to as: a. market surplus. b. market shortage. c. consumer surplus. d. producer surplus. *ANSWER:* c *TOPICS:* Section 1: Capitalism and Wealth 15. If you are willing to sell your car business for \$500,000 and someone offers you \$420,000 for it, this transaction will generate: q. There is no surplus created r. \$80,000 worth of seller surplus and unknown amount of buyer surplus s. \$40,000 worth of buyer surplus and \$40,000 of seller surplus t. \$80,000 worth of buyer surplus and unknown amount of seller surplus *ANSWER:* a *TOPICS:* Section 1: Capitalism and Wealth 16. If you are willing to purchase a house for \$300,000 and you purchase the house for \$275,000, this transaction will generate: u. There is no surplus created v. \$25,000 worth of seller surplus and unknown amount of buyer surplus w. \$10,000 worth of buyer surplus and \$15,000 of seller surplus x. \$25,000 worth of buyer surplus and unknown amount of seller surplus *ANSWER:* d *TOPICS:* Section 1: Capitalism and Wealth 17. If you are willing to purchase a house for \$500,000 and you purchase the house for \$500,000, this transaction will generate: y. There is no surplus created for either of the party. z. \$0 worth of seller surplus and unknown amount of buyer surplus. a. \$0 worth of buyer surplus and unknown amount of seller surplus. b. No information provided. *ANSWER:* c *TOPICS:* Section 1: Capitalism and Wealth 18. Total surplus or gains created from trade equal c. Seller surplus d. Buyer surplus e. The summation of seller and buyer surplus f. Profits earned by a firm *ANSWER:* c *TOPICS:* Section 1: Capitalism and Wealth 19. The biggest advantage of capitalism is that g. It generates wealth with the help of government intervention h. Prices hinder in moving assets from high-value to low-value uses i. It forces involuntary exchanges j. It creates wealth by letting a person follow his or her own self-interest *ANSWER:* d *TOPICS:* Section 1: Capitalism and Wealth 20. The difference between the minimum price the producer is willing to accept and the price the producer actually receives for a product is referred to as: a. market surplus. b. market shortage. c. consumer surplus. d. producer surplus. *ANSWER:* d *TOPICS:* Section 1: Capitalism and Wealth 21. If you are willing to sell your lawn mower business for \$355,000 and someone offers you \$420,000 for it, this transaction will generate: k. There is no surplus created l. \$65,000 worth of seller surplus and unknown amount of buyer surplus m. \$30,000 worth of buyer surplus and \$35,000 of seller surplus n. \$65,000 worth of buyer surplus and unknown amount of seller surplus *ANSWER:* b *TOPICS:* Section 1: Capitalism and Wealth 22. Wealth is created when o. Assets move from lower value use to higher value use p. Assets move from higher value use to lower value use q. Assets move from individuals who are willing to pay less for them to individuals who are willing to pay more r. Both A and C *ANSWER:* a *TOPICS:* Section 1: Capitalism and Wealth 23. A creative entrepreneur is one who knows how to s. Run a business t. Escape the burden of taxes u. Profitably exploit money making opportunities v. All of the above *ANSWER:* c *TOPICS:* Section 1: Capitalism and Wealth 24. An advantage of capitalism is that w. It allows the market to self-regulate and clear itself x. It allows a person to follow his or her own self interest y. It allows voluntary transactions, which create wealth z. All of the above *ANSWER:* d *TOPICS:* Section 1: Capitalism and Wealth 25. Which of the following describes a firm? a. Purchases labor hours from workers b. Borrows capital from investors c. Combines labor and capital to create production, moving them from their low value use to high value use d. All of the above *ANSWER:* d *TOPICS:* Section 1: Capitalism and Wealth 26. If company X is successfully outsourcing its production of T-shirts to China, it is d. Creating wealth by moving labor in China from lower value use to higher value use e. Should be stopped on economic grounds since it is destroying wealth f. Destroying wealth by acquiring cheaper labor from China g. Both A & C *ANSWER:* a *TOPICS:* Section 1: Capitalism and Wealth 27. A retailer X that is operating at a loss gets bought out by a larger chain of department stores, which shuts down the brand, using its assets for their own brand, h. Wealth is destroyed since the company shut down i. Wealth is created since the resources were of lesser value under the X brand and are now worth more j. Wealth is neither created nor destroyed since the total amount of resources stay the same d. None of the above *ANSWER:* b *TOPICS:* Section 1: Capitalism and Wealth 28. Government can k. Create wealth by not interfering in the markets in any way what so ever l. Not affect wealth in the markets m. Create wealth by enforcing property rights and contracts n. Create wealth by making choice decisions for the market *ANSWER:* c *TOPICS:* Section 1: Capitalism and Wealth 29. Technological advancement creates unemployment in firms that shut down or labor that is laid off. Wealth in this case is o. Destroyed, since firms are shutting down and production of certain goods and services decreasing p. Created, since the dislocated labor and resources are absorbed by new firms created through the technological innovation, moving them to higher value use q. Destroyed, since technological progress is leading to higher unemployment d. None of the above *ANSWER:* b *TOPICS:* Section 1: Capitalism and Wealth 30. You are sick and tired of your old wardrobe. You decide to donate it to a charity of your choice. Your action r. Creates wealth by moving the clothes from lower value use to higher value use s. Destroys wealth since you lose your clothes t. Creates wealth by making you feel richer u. All of the above *ANSWER:* a *TOPICS:* Section 1: Capitalism and Wealth 31. Your cellular phone contract is due for renewal and the company offers you a new free phone. Since you want to use your new phone, you decide to recycle your old phone. Your action v. Creates wealth by moving the phone from lower value use to higher value use w. Destroys wealth since you lose your phone x. Creates wealth by making you feel richer y. All of the above *ANSWER:* a *TOPICS:* Section 1: Capitalism and Wealth 32. When the market is in equilibrium, with no government intervention, z. Total surplus is minimized a. Total surplus is maximized b. Government maximizes total revenue c. None of the above *ANSWER:* b *TOPICS:* Section 2: Does the Government Create Wealth? 33. Price ceilings are primarily intended to help d. No one e. Consumers f. Producers g. Government *ANSWER:* b *TOPICS:* Section 2: Does the Government Create Wealth? 34. Government can intervene in the market through h. Price floors i. Price ceilings j. Taxes k. All the above *ANSWER:* d *TOPICS:* Section 2: Does the Government Create Wealth? 35. Government intervention l. can provide incentives to conduct business in an illegal black market m. plays no role in generating wealth n. is the best way to eliminate poverty o. does not enforce property rights *ANSWER:* a *TOPICS:* Section 2: Does the Government Create Wealth? 36. Wealth creating transactions are more likely to occur p. With private property rights q. With contract enforcement r. Both a and b s. None of the above *ANSWER:* c *TOPICS:* Section 2: Does the Government Create Wealth? 37. Price floors are primarily intended to help t. No one u. Consumers v. Producers w. Government *ANSWER:* c *TOPICS:* Section 2: Does the Government Create Wealth? 38. Rent controls x. are an example of price floors. y. are an example of price ceilings. z. destroy wealth by preventing the movement of apartments to higher-valued use. d. Both b and c *ANSWER:* d *TOPICS:* Section 2: Does the Government Create Wealth? 39. Price gouging a. Outlaw trade at prices above a certain price level b. Outlaw trade at prices below a certain price level c. Is an act of charging a high price to take advantage of shortages created by natural disasters d. None of the above *ANSWER:* c *TOPICS:* Section 2: Does the Government Create Wealth? 40. Taxes cause: d. Market distortions e. A reduction in incentives to work f. A decrease in wealth creating transactions g. All of the above *ANSWER:* d *TOPICS:* Section 3 Why Economics is Useful to Business 41. Economic reasoning is based on the premise that: h. all decisions or actions are costless. i. only non-economic decisions or actions have a cost associated with them. j. only economic decisions or actions have a cost associated with them. k. all decisions and actions have a cost associated with them. *ANSWER:* d *TOPICS:* Section 3 Why Economics is Useful to Business 42. Subsidies can destroy wealth because l. subsidies move assets from lower- to higher- valued uses m. subsidies move assets from higher- to lower- valued uses n. subsidies help producers only o. subsidies help consumers only *ANSWER:* b *TOPICS:* Section 3 Why Economics is Useful to Business 43. A price ceiling can often be viewed as: p. the government setting price above market equilibrium price. q. an implicit tax on producers and an implicit subsidy to consumers. r. the government setting price below market equilibrium price. s. Both b and c. *ANSWER:* d *TOPICS:* Section 3 Why Economics is Useful to Business 44. An example of price floor is t. Minimum wages u. Rent controls in New York v. Both a and b w. None of the above *ANSWER:* a *TOPICS:* Section 3 Why Economics is Useful to Business 45. Price ceilings cause x. Some suppliers to drop out of the market y. A decrease in the total production in the market z. The creation of black markets a. All the above *ANSWER:* d *TOPICS:* Section 3 Why Economics is Useful to Business 46. The illegality of organ sales from willing donors to willing recipients is ineffective because: a. It encourages organ sales b. It discourages wealth creating transactions through the threat of heavy penalty c. It encourages government intervention d. None of the above *ANSWER:* b *TOPICS:* Section 3 Why Economics is Useful to Business 47. The zero sum fallacy refers to b. You gaining only if someone else loses c. The allocation of the pieces of the total economic pie- if you eat the piece, I cannot consume it d. Ignores the possibility of the total pie growing itself e. All of the above *ANSWER:* d *TOPICS:* Section 4: Wealth Creation in Organizations 48. A good policy \_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_ and a bad policy \_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_. f. Moves an asset to higher value use; moves an asset to lower value use g. Moves an asset to lower value use; moves an asset to higher value use h. Refrains from any government intervention; concentrates on government intervention i. Concentrates on government intervention; refrains from government intervention *ANSWER:* a *TOPICS:* Section 4: Wealth Creation in Organizations 49. When taxes are levied on transactions, irrespective of the party they are levied on, j. The government can absorb all the consumer surplus from the transactions as revenue k. The government can absorb all the producer surplus from the transactions as revenue l. The government can absorb some of the surplus, but also creates a social loss since some of the wealth creating transactions are discouraged m. The government can absorb all of the surplus (producer and consumer) *ANSWER:* c *TOPICS:* Section 4: Wealth Creation in Organizations CHAPTER 2 1\) When the market is in equilibrium, a. Total surplus is minimized b. Total surplus is maximized without government intervention c. Government maximizes total revenue d. None of the above ANS: B b. market shortage c. buyer surplus d. seller surplus. ANS: D b. \$65,000 worth of seller surplus and unknown amount of buyer surplus c. \$30,000 worth of buyer surplus and \$35,000 of seller surplus d. \$65,000 worth of buyer surplus and unknown amount of seller surplus ANS: B 4\) Taxes cause: a. Market distortions b. Reduce incentives to work c. Decrease wealth creating transactions d. All of the above ANS: D 5\) A price ceiling is binding when a. the government sets price above market equilibrium price. b. the equivalent of an implicit tax on producers and an implicit subsidy to consumers. c. the government sets price below market equilibrium price. d. Both b and c. ANS: B 6\) Economic reasoning is based on the premise that: a. all decisions or actions are costless. b. only non-economic decisions or actions have a cost associated with them. c. only economic decisions or actions have a cost associated with them. d. all decisions and actions have a cost associated with them. ANS: D 7\) Social forces: a. affect the price mechanism through cultural norms. b. affect the price mechanism through the educational system. c. affect the price mechanism through scarcity. d. do not affect the price mechanism. ANS: A 8\) One lesson of business: a. is tracing the consequences of a policy b. promoting a policy change to eradicate inefficiencies c. buy a low-valued assets and sell it to someone who values it higher. d. None of the above ANS: C ====== 9. The difference between the maximum price the consumer is willing to pay and the price the consumer actually pays for a product is referred to as: a. market surplus b. market shortage c. buyer surplus d. seller surplus. ANS: C 10. If you are willing to sell your car business for \$500,000 and someone offers you \$420,000 for it, this transaction will generate: a. There is no surplus created b. \$80,000 worth of seller surplus and unknown amount of buyer surplus c. \$40,000 worth of buyer surplus and \$40,000 of seller surplus d. \$80,000 worth of buyer surplus and unknown amount of seller surplus ANS: A 11. If you are willing to purchase a house for \$300,000 and you purchase the house for \$275,000, this transaction will generate: a. There is no surplus created b. \$25,000 worth of seller surplus and unknown amount of buyer surplus c. \$10,000 worth of buyer surplus and \$15,000 of seller surplus d. \$25,000 worth of buyer surplus and unknown amount of seller surplus ANS: D 12. If you are willing to purchase a house for \$500,000 and you purchase the house for \$500,000 , this transaction will generate: e. There is no surplus created f. \$0 worth of seller surplus and unknown amount of buyer surplus g. \$0 worth of buyer surplus and unknown amount of seller surplus h. Not information provided ANS: C 13. Total surplus or gains created from trade equal i. Seller surplus j. Buyer surplus k. The summation of seller and buyer surplus l. Profits earned by a firm ANS: C 14. The biggest advantage of capitalism is that a. It generates wealth with the help of government intervention b. Prices hinder in moving assets from high-value to low-value uses c. It forces involuntary exchanges d. It creates wealth by letting a person follow his or her own self-interest ANS: D 15. The authors feel subsidies destroy wealth because m. subsidies move assets from lower- to higher- valued uses n. subsidies move assets from higher- to lower- valued uses o. subsidies help producers only p. subsidies help consumers only ANS: B 16. Government can intervene in the market through q. Price floors r. Price ceilings s. Taxes t. All the above ANS: D 17. Government intervention a. provides incentives to conduct business in an illegal black market b. plays no role in generating wealth c. is the best way to eliminate poverty d. does not enforce property rights ANS: A 18. Wealth creating transactions are less likely to occur a. Without private property rights b. Without contract enforcement c. Both a and b d. None of the above ANS: D 19. An example of price floor is a) Minimum wages b. Rent controls in New York c. Both a and b d. None of the above ANS: A a. Some suppliers to drop out of the market as they cannot charge the price they were earlier b. A reduction in the quality of the product c. The creation of black markets d. All the above ANS: D a. No surplus b. \$4,000 worth of seller surplus and unknown amount of buyer surplus c. \$6,000 worth of buyer surplus and \$4,000 of seller surplus d. \$6,000 worth of buyer surplus and unknown amount of seller surplus ANS: C a. The tax is equal to the seller surplus b. The tax is smaller than the total surplus c. The tax is larger than the total surplus d. The tax is smaller than the buyer surplus ANS: C a\) 0% b) 25% ------ c) 20% ------ d) 40% ------ ANS: D a. No surplus b. \$25,000 worth of seller surplus and unknown amount of buyer surplus c. \$15,000 worth of buyer surplus and \$25,000 of seller surplus d. \$25,000 worth of buyer surplus and unknown amount of seller surplus ANS: C a. A tax of \$9,000 b. A tax of \$14,000 c. A tax of \$15,000 d. A tax of \$18,000 ANS: D a) 1% ===== b) 5% ===== c) 3% ===== d) 2% ===== ANS: B 27. A consumer values a car at \$525,000 and a producer values the same car at \$485,000. If sales tax is 8% and is levied on the seller, then the sellers bottom line price is a. \$527,000 b. \$523,800 c. \$525,000 d. \$500,000 ANS: B 28. A consumer values a car at \$525,000 and a producer values the same car at \$485,000. If sales tax is 8% and is levied on the buyer, then the buyers top dollar price is a. \$525,000 b. \$523,800 c. \$485,000 d. \$486,111 ANS: D 29. Some critics of capitalism argue that a. There is too much government intervention in the economy b. Involuntary trade generates no wealth c. If one person makes money, someone else must be losing it d. Voluntary trade ensures gains for both consumers and producers ANS: C 30. Price ceilings are primarily targeted to help a. No one b. Consumers c. Producers d. Government ANS: B a. No one b. Consumers c. Producers d. Government ANS: C a. Is an example of price floors b. Is an example of price ceilings c. Destroy wealth by preventing the movement of apartments to higher-valued use. d. Both b and c ANS: D a. Outlaw trade at prices above a certain price level b. Outlaw trade at prices below a certain price level c. Is an act of charging a high price to take advantage of shortages created by natural disasters d) None of the above ANS: C 34. An individual's value for a good or service is the a. The amount of money he or she used to pay for a good b. The amount of money he or she is willing to pay for it c. The amount of money he or she has to spend on goods d. None of the above ANS: B 35. The difference between Capitalism and Socialism is that e. Capitalism is concerned more about how to slice up the "pie" f. Socialism is concerned with making the "pie" as large as possible g. Capitalism is concerned with making the "pie" as large as possible h. Both a and B CHAPTER 3 1. You and two partners start a company. However, your partners play no role in running the company. You devote all our time and talent to run your own business rather than working for someone else. You incur an(a): a. explicit cost. b. marginal cost. c. sunk cost d. opportunity cost. ANS: D 2. A business owner makes 1000 items a day. Each day he/she contributes 8 hours to produce those items. If hired, elsewhere he/she could have earned \$250 an hour. The item sells for \$15 each. Production does not stop during weekends. If the explicit costs total \$150,000 for 30 days, the firm's accounting profit for the month equals: e. \$300,000 f. \$60,000 g. \$450,000 h. \$240,000 ANS: A 3. A business owner makes 1000 items a day. Each day he/she contributes 8 hours to produce those items. If hired, elsewhere he/she could have earned \$250 an hour. The item sells for \$15 each. Production does not stop during weekends. If the explicit costs total \$150,000 for 30 days, the economic profit for the month equals: a. \$300,000 b. \$60,000 c. \$450,000 d. \$240,000 ANS: D 4. The opportunity cost of an action: a. is equal to the marginal cost of an action b. is equal to explicit cost c. is equal to the next best alternative forgone d. is the total cost of an action ANS: C 5. Economists argue that: a. accounting costs consider all types of costs including implicit costs b. there is an opportunity cost associated with all decisions. c. economic decisions do not have opportunity costs but other decisions do. d. economic decisions should consider sunk costs ANS: B 6. James used \$250,000 from his savings account that paid an annual interest of 15% to purchase a hardware store. After one year, James sold the business for 320,000. His accountant calculated his profit to be: a. \$320,000 b. \$70,000 c. \$282,500 d. \$32,500 ANS: B 7. James used \$250,000 from his savings account that paid an annual interest of 15% to purchase a hardware store. After one year, James sold the business for 320,000. An economist calculated his profit to be: a. \$320,000 b. \$70,000 c. \$282,500 d. \$32,500 ANS: D 8. Variable costs are a. costs that vary with output b. equal marginal costs c. not considered in decision-making d. equal to total costs ANS: A 9. Economic Value Added helps firms to avoid the hidden-cost fallacy a. by ignoring the opportunity costs to using a capital b. by differentiating between sunk and fixed costs c. by taking all capital costs into account including the cost of equity d. none of the above ANS: C 10. A manager invests \$400,000 in a technology to reduce overall costs of production. The company managed to reduce their cost per unit from \$2 to \$1.85. After a year, the manager has an opportunity to outsource production to another company at a cost per unity of \$1.75. If you are the manager, you a. should consider the \$400,000 as sunk cost and therefore it should not be relevant to the decision. b. should base your decision upon economic profit and not accounting profit c. should avoid the fixed-cost fallacy d. all the above ANS: D 11. Which of the following statements is true? a. Economic profits ignore implicit costs and revenues. b. Although implicit costs do not show up in accounting profits, they nevertheless affect managerial decisions. c. Although explicit costs do not show up in accounting profits, they nevertheless affect managerial decisions. d. Economists consider sunk costs in their decision making ANS: B 12. In the short-run: a. All costs are variable b. Some costs are fixed and some costs are variable c. There are no fixed inputs d. The firm is not constrained to vary output ANS: B 13. Accountants and Economists differ in their calculations of profits in that the former consider a) sunk costs b. implicit costs only c. explicit costs only d. fixed costs ANS: C 14. A business owner makes 50 items a day. Each day he/she contributes 8 hours to produce those items. If hired, elsewhere he/she could have earned \$10 an hour. The item sells for \$10 each. Production does not stop during weekends. If the explicit costs total \$10,000 for 30 days, the accounting profit for the month equals: a. \$1,760 b. \$2,240 c. \$11,760 d. \$5,000 ANS: D 15. A business owner makes 50 items a day. Each day he/she contributes 8 hours to produce those items. If hired, elsewhere he/she could have earned \$10 an hour. The item sells for \$10 each. Production does not stop during weekends. If the explicit costs total \$10,000 for 30 days, the economic profit for the month equals: a. \$2,600 b. \$2,240 c. \$11,760 d. \$5,000 ANS: A 16. Opportunity costs arise due to a. Resource scarcity b. Interest rates c. Limited wants d. Preferences ANS: A 17. Opportunity cost of an activity a. Is known to all parties b. Can not be measured in dollar terms c. May include both monetary costs and foregone incomes d. Is known with all certainty ANS: C 18. James used \$200,000 from his savings account that paid an annual interest of 10% to purchase a hardware store. After one year, James sold the business for 300,000. His accountant calculated his profit to be: a. \$300,000 b. \$100,000 c. \$80,000 d. \$20,000 ANS: B 19. James used \$200,000 from his savings account that paid an annual interest of 10% to purchase a hardware store. After one year, James sold the business for 300,000. An Economist calculated his profit to be: a. \$300,000 b. \$100,000 c. \$80,000 d. \$20,000 ANS: C 20. After graduating from college, Jim had three choices, listed in order of preference: (1) Move to Florida from Philadelphia, (2) work in a car dealership in Philadelphia, or (3) play soccer for a minor league in Philadelphia. His opportunity cost of moving to Florida includes a. the benefits he could have received from playing soccer b. the income he could have earned at the car dealership c. both a and b d. cannot be determined from the given information ANS: B a. would not be affected b. would increase if he continued to be a car salesman c. of becoming a hardware salesman would increase d. none of the above ANS: C a. \$80 b. \$40 c. \$20 d. \$140 ANS: D a. \$80 b. \$40 c. \$20 d. \$140 ANS: A a. They value the item more than the student b. They like wasting money c. crowded and understaffed discount stores impose higher time costs d. they like to show off ANS: C a. Unlimited resources b. Limited wants c. Opportunity cost d. None of the above ANS: C 26. Susan can bake 200 cookies in an hour or watch her favorite tv show. If she chooses to watch her show, her opportunity cost is a. 200 cookies b. 100 cookies c. 150 cookies d. Need more information ANS: A 27. Fixed costs are a. costs that vary with output b. equal marginal costs c. costs that do not vary with output d. equal to total costs ANS: C 28. A manager invests \$400,000 in a technology to reduce overall costs of production. The company managed to reduce their cost per unit from \$2 to \$1.85. This affects a. Economic profits b. Accounting profits c. Both a and b d. None of the above ANS: C 29. A manager invests \$400,000 in a technology to reduce overall costs of production. The company managed to reduce their cost per unit from \$2 to \$1.85. Ceteris peribus, if the firm continues its production in the same economic environment, the firms accounting profits should e. increase f. decrease g. stay the same h. does not affect profits ANS: A 30. A manager invests \$400,000 in a technology to reduce overall costs of production. The company managed to reduce their cost per unit from \$2 to \$1.85. Ceteris peribus, if the firm continues its production in the same economic environment, the firms economic profits should a) increase b. decrease c. stay the same d. increase as long as the investment does not generate implicit costs that are greater than \$0.15 per unit ANS: D 31. A business incurs the following costs per unit: Labor - \$5/unit; Materials \$3/unit and rent - i. \$5,000 j. \$8,000 k. \$13,000 l. \$10,000 ANS: B 32. A business incurs the following costs per unit: Labor - \$5/unit; Materials \$3/unit and rent - a. \$5,000 b. \$8,000 c. \$13,000 d. \$3,000 ANS: A 33. A business incurs the following costs per unit: Labor - \$5/unit; Materials \$3/unit and rent - a. \$5,000 b. \$8,000 c. \$13,000 d. \$3,000 ANS: C 34. A company currently sells 10,000 units at \$9/unit and makes \$20,000 accounting profit. Variable costs currently stand at \$6 per unit. By how much would variable costs have to increase before the company makes zero accounting profits? e. \$1.00 f. \$2.00 g. \$3.00 h. \$4.00 ANS: B 35. The fixed-cost fallacy occurs when a. A firm considers irrelevant costs b. A firm ignores relevant costs c. A firm considers overhead or depreciation costs to make short-run decisions d. Both a and c ANS: D 36. The hidden-cost fallacy occurs when a. A firm considers irrelevant costs b. A firm ignores relevant costs c. A firm considers overhead or depreciation costs to make short-run decisions d. Both a and c ANS: B 37. When a firm ignores the opportunity cost of capital when making investment or shutdown decisions, this is a case of a. Fixed-cost fallacy b. Sunk-cost fallacy c. Hidden-cost fallacy d. None of the above 38. "Buy now, pay later" or "try it before you buy it" are examples of e. Loss aversion f. Endowment effect g. Confirmation bias h. Anchoring bias 39. All the following are examples of accounting costs, except i. Interest payments on borrowed funds j. Costs paid to suppliers for product ingredients k. Cost of equity l. Depreciation expenses related to investments in buildings and equipment ANS: C 40. A firm wishes to fire an employee. The company will save up to \$3000 per month on his compensation package. It is estimated that the employee contributes around \$4,100 to the company. The firm a. Should not fire the employee because the benefits outweigh the costs b. Should fire the employee if the hidden cost of not firing him is \$500 c. Should fire the employee if the hidden cost of not firing him is \$1500 d. Need more information ANS: C 41. In the long-run, all costs are a. Fixed costs b. Variable costs c. Sunk Costs d. Marginal Costs ANS: B 42. All the following are examples of variable costs, except e. Labor costs f. Cost of raw materials g. Accounting fees h. Electricity costs ANS: C 43. All of the following are examples of fixed costs, except i. Tax accountant fees j. Package designing fees k. Insurance l. Shipping costs ANS: D 44. Total costs equal m. Fixed costs n. Variable costs o. Sunk costs p. Fixed plus variable costs ANS: D 45. If a firm is earning negative economic profits, it implies a. That the firm's accounting profits are zero b. That the firm's accounting profits are positive c. That the firm's accounting profits are negative d. More information is needed to conclude about accounting profits ANS: D 46. If a firm is earning negative accounting profits, it implies a. That the firm's economic profits are zero b. That the firm's economic profits are positive c. That the firm's economic profits are negative d. More information is needed to conclude about economic profits ANS: C 47. A business incurs the following costs per unit: Labor - \$125/unit; Materials \$45/unit and rent - b. \$45Million c. \$1Million d. \$170Million ANS: D 48. A business incurs the following costs per unit: Labor - \$125/unit; Materials \$45/unit and rent - b. \$50,000 c. \$20,500 d. \$30,000 ANS: A 49. A business incurs the following costs per unit: Labor - \$125/unit; Materials \$45/unit and rent - q. \$125,250,000 r. \$170,250,000 s. \$125,050,000 t. \$170,050,000 ANS: B 50. Scott used \$4,000,000 from his savings account that paid an annual interest of 5% to purchase a hardware store. After one year, Scott sold the business for \$4,100,000. His accountant calculated his profit to be: u. \$300,000 v. \$100,000 w. \$80,000 x. \$20,000 ANS: B 51. Scott used \$4,000,000 from his savings account that paid an annual interest of 5% to purchase a hardware store. After one year, Scott sold the business for \$4,100,000. An Economist calculated his profit to be: y. \$300,000 z. \$100,000 a. -\$100,000 b. -\$200,000 ANS: C 52. The idea that having ownership of an item increases the value that a person puts on the item can be explained by a. The endowment effect b. Loss aversion c. Overconfident bias d. Anchoring bias ANS: A