Economics 252 – Review Questions Chapter 5
Use
Figures 1 and 2 to answer questions (1), (2), (3):
(1) In the above diagrams for a
hypothetical economy, Figure 1 shows the:
(a) personal
distribution of income.
(b) microeconomic
distribution of income.
(c) functional
distribution of income. income.
(d) international
distribution of income.
(2) In the above diagrams for a hypothetical
economy, Figure 2 shows the:
(a) personal distribution of income.
(b) microeconomic distribution of income.
(c) functional distribution of income.
(d) rate of poverty in the
(3) In the above
diagrams for a hypothetical economy, from Figure 2 we can conclude that:
(a) income is quite
equally distributed.
(b) wages are the main
source of income.
(c) the distribution of
income has become more unequal over time.
(d) the top one-fifth of
all income receivers get about eight times as much income as the lowest
one-fifth.
(4) Listed in descending order of relative
size, households divide their total incomes among:
(a) consumption
expenditures, saving, and taxes.
(b) consumption
expenditures, taxes, and saving.
(c) taxes,
consumption expenditures, and saving.
(d) savings,
consumption expenditures, and taxes.
(5) If the aggregate income of households is
$300 billion, consumption is $210 billion, and personal taxes are $60 billion,
then personal saving:
(a) is $70 billion.
(b) is $30 billion.
(c) is $40 billion.
(d) cannot be determined
from the information given.
(6) An industry is best defined as a group
of firms that:
(a) compete for labor.
(b) use identical production techniques.
(c) produce identical or
similar products.
(d) are located in the
same city or geographic area.
(7) Which of the following is numerically
the dominant type of business in the
(a) corporations (b)
proprietorships (c) partnerships (d)
cooperatives
(8) Which form of
business enterprise accounts for the largest proportion of total output?
(a) corporations (b)
proprietorships (c) partnerships (d)
cooperatives
(9) . 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.
(10) The separation of ownership and control in
a corporation means that:
(a) hired managers play a
larger role in determining company policy than do a corporation's legal owners.
(b) the ownership of
corporations is becoming increasingly concentrated in the hands of a few common
stockholders.
(c) a firm's board of
directors has no power over hired managers.
(d) stockholders have
lost their voting privileges.
(11) Limited liability means that:
(a) creditors have no
legal claim on the personal assets of a proprietor.
(b) corporations cannot be
sued.
(c) creditors have no
legal claim on the personal assets of a corporate stockholder.
(d) corporations have a
legal life independent of their owners and managers.
(12) Double taxation means that:
(a) payroll taxes that
finance social security are levied on both workers and employers.
(b) taxes levied on
wholesale products also apply at the retail level.
(c) the part of corporate
earnings paid as dividends is taxed as corporate profits and also as income to
stockholders.
(d) corporate tax rates are twice as high as those on the
incomes of incorporated businesses.
(13) Which of the following is a shortcoming of
the market system?
(a) It leads to firms that are too large to
achieve productive efficiency.
(b) Certain goods will not be produced because
there is no way of excluding nonpaying ("free-rider") individuals
from the associated benefits.
(c) The resulting distribution of personal incomes
might be too equal to maintain incentives.
(d) It is controlled by a handful of
multinational corporations.
(14) The U.S. Food Stamp program, which
provides coupons that allow low-income individuals to buy food, is an
illustration of:
(a) public provision of a
suitable legal framework for the market system.
(b) the redistributional function of government.
(c) a government action designed
to enhance competition.
(d) the stabilization
function of government.
(15) Spillover
costs 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 being compelled to pay for their full costs.
(d)
only in capitalistic societies.
(16) When
spillovers cause substantial positive benefits for third parties, a competitive
market:
(a) underallocates
resources to the production of the good.
(b) overallocates
resources to the production of the good.
(c) is allocatively efficient.
(d)
compensates people for the value of the benefits that
third parties receive.
(17) For which of the following goods or services
would a government subsidy be most likely to improve the allocation of
resources?
(a) wheat (b)
newspaper publishing (c) cancer research (d)
toys
(18) The Federal
government requires automobile manufacturers to install pollution control
equipment. This is an illustration of the:
(a) intrusion problem.
(b) internalization of external benefits.
(c)
internalization of external costs.
(d)
the principal-agent problem.
(19) Which of the following is an example of a
public good?
(a) a fireworks
display. (b) a hotdog (b) a
haircut (d) a personal computer
(20) The free-rider problem is that:
(a) free public
transportation is overcrowded.
(b) people will not
voluntarily pay for something that they can obtain without paying.
(c) government supplies
goods at no charge to people who can afford to pay for them.
(d) public goods often
create large spillover costs.
(21) The stabilization
function of government involves government's efforts to:
(a) alter the output of
specific goods when external costs or benefits are present.
(b) reduce the after-tax
incomes of the rich and increase the after-tax incomes of the poor.
(c) deal with the
problems of substantial unemployment and rapid inflation.
(d) provide the socially
desired output of public goods.
Utilize
Table 1 to answer Questions (22), (23), and (24).
Table
1
(22) The tax represented
in Table 1 is:
(a) optimal. (b) proportional.
(c) regressive. (d) progressive.
(23) In Table 1, if your taxable
income is $4000, your average tax rate will be:
(a) 20 percent.
(b) 15 percent. (c)
10 percent. (d) 5 percent.
(24) In Table 1, if your
taxable income increases from $4000 to $5000, you will encounter a marginal tax
rate of:
(a) 40 percent.
(b) 25 percent. (c)
15 percent. (d) 10 percent.
(25) The most
important source of Federal tax revenue is:
(a) sales
taxes. (b) personal income
taxes. (c) corporate income
taxes. (d) payroll taxes.