Economics 251 – Review Questions Chapter 4

 

(1)           The largest functional share of the national income consists of:

                (a)   wages and salaries.

                (b)   interest and rental income.

                (c)   proprietors' income, that is, the income of unincorporated businesses.

                (d)   corporate profits.

 

(2)           The distribution of income among the owners of land, labor, capital, and entrepreneurial ability is known as:

                (a)   income differentials.                                                         

                (b)   the distribution of income among income groups.

                (c)   the functional distribution of income.

                (d)   the production function.

 

(3)           Economists define durable goods as:

                (a)   goods that last about 3 years or longer.  

                (b)   goods that last a lifetime.          

                (c)   goods that wear out or are consumed quickly.     

                (d)   services that are consumed upon provision.          

 

(4)          In economics, a group of firms that produce identical or similar products is called a(n):

                (a)   industry.  

                (b)   plant.  

                (c)   location.  

                (d)   establishment.

 

(5)         Which form of business enterprise accounts for the largest number of firms in the United States?

                (a)   corporations   

                (b)   proprietorships   

                (c)   partnerships   

                (d)   cooperatives

 

(6)         Which form of business enterprise accounts for the largest proportion of total output?

                (a)   corporations   

                (b)   proprietorships   

                (c)   partnerships   

                (d)   cooperatives

 

(7)         The advantages of the corporate form of business include:

                (a)   the ability to raise financial capital by selling stocks and bonds.

                (b)   the fact that owners are subject to unlimited liability.

                (c)   the elimination of the principal-agent problem.

                (d)   single taxation of corporate earnings.

 

(8)          Stocks are:

                (a)   promises to repay a loan.                                               

                (b)   also known as bonds.

                (c)   issued by sole proprietorships.

                (d)   shares of ownership of a corporation.

 

 

 

 

(9)         Corporate bonds are:

                (a)   promises by a corporation to repay a loan.                

                (b)   also known as stocks.

                (c)   illegal in the United States.

                (d)   shares of ownership of a corporation.

 

(10)        As it relates to corporations, the principal-agent problem is that:

                (a)   the goals of the corporate managers may not match the goals of the corporate owners (the stockholders).

                (b)   the goals of the corporate managers may not match the goals of the federal government.

                (c)   the federal government taxes both corporate profits and the dividends paid to stockholders.

                (d)   the stockholders may want to control the corporation and not allow corporate managers to do their job.

 

(11)       Negative externalities arise:

                (a)   when firms pay more than the opportunity cost of resources.

                (b)   when the demand curve for a product is located too far to the left.

                (c)   when firms "use" resources without having to pay for their full costs.

                (d)   only in capitalistic societies.

 

(12)        Positive externalities refer to:

                (a)   benefits that accrue to parties other than the producer or buyer of a good.

                (b)   the benefits that a firm receives by transferring their costs to another party.

                (c)   the benefit that a consumer receives from buying and consuming a good.

                (d)   the combined benefits that buyer and seller receive from a voluntary market transaction.

 

(13)       A pure market economy over allocates resources to the production of goods (or over-produces goods) that:

                (a)   involve negative externalities in production.              

                (b)   involve positive externalities in production.

                (c)   are private goods with no externalities.

                (d)   are inexpensive to produce.

 

(14)       As it relates to a public good, non excludability means that:

                (a)   free riders cannot be barred from receiving the benefits.

                (b)   there is no need or demand for the good.

                (c)   either the public sector or the public sector can produce the good, but not both.

                (d)   one person's benefit from the good does not reduce the benefit available to others.

 

(15)       Unlike a private good, a public good:

                (a)   produces no external benefits or external costs.

                (b)   has no opportunity costs.

                (c)   has benefits that are available to all, regardless of payment.

                (d)   is characterized by rivalry and excludability.

 

(16)       Which of the following is an example of a public good?

                (a)   a fireworks display  

                (b)   a hotdog  

                (c)   a barbeque grill  

                (d)   a toll road.

 

 

 

 

 

(17)       The major source of tax revenue for the federal government is:

                (a)   personal income taxes.                                                     

                (b)   property taxes.

                (c)   corporate income taxes.

                (d)   sales and excise taxes.

 

(18)       A progressive tax is such that:

                (a)   tax rates are higher the greater one's income.

                (b)   the same tax rate applies to all income receivers, so that the rich pay absolutely more taxes than the poor.

                (c)   entrepreneurial income is exempt from taxation.

                (d)   the revenues it yields are spent on transfer payments.

Table 1

 

 

(19)        Referring to Table 1, if your taxable income is $8,000, your average tax rate is:

                (a)   25 percent and the marginal rate on additional income is also 25 percent.

                (b)   25 percent and the marginal rate on additional income is 50 percent.

                (c)   25 percent and the marginal rate on additional income cannot be determined from the information given.

                (d)   20 percent and the marginal rate on additional income is 30 percent.

 

(20)       With respect to state finance:

                (a)   estate taxes are the major source of revenue and most expenditures are for health services.

                (b)   the corporate income tax is the major source of revenue and natural resource development the major type of expenditure.

                (b)   property taxes are the basic source of revenue and education is the major type of expenditure.

                (d)   sales and excise taxes are the major source of revenue and education is the major type of expenditure.

 

(21)       With respect to local finance:

                (a)   death and gift taxes are the major source of revenue and most expenditures are for hospitals and health services.

                (b)   the corporate income tax is the major source of revenue and natural resource development the major type of expenditure.

                (c)   property taxes are the basic source of revenue and education is the major type of expenditure.

                (d)   sales and excise taxes are the major source of revenue and highway construction and maintenance is the major type of expenditure.

 

(22)         Which of the following is not an example of a productive role of government in the economy?

                (a)           Regulation of monopolies and ensuring competitive markets.

                (b)           The application of tax and transfer policy to assure minimum levels of income.

                (c)           The provision of services such as police and fire protection.

                (d)           The distribution of private goods and services such as automotive repair.