Economics of the Nation & Economics of Business Firms - UNIT TEST

What does unemployment mean?

People are willing to work but can’t find a job

Which of the following is a consequence of unstable prices?

Inflation + deflation

Economic activity slows (as people adapt a wait and see approach → less investing or large purchases)

Extensive economic growth occurs when:

Goods are produced more by acquiring more land, labor, and capital

Intensive economic growth is important because:

More goods are produced using the same resources and with efficiency and innovation

Which of the following is a key question when considering a fair distribution of income?

Should the government be the one to provide a safety net for the less fortunate?

In a command economy, who decides what goods and services a nation will produce?

A powerful leader or committee

What is the key mechanism that helps a market economy balance consumption, saving, and investment?

Market interest rates

Which of the following is a common critique of the market economy?

May create income inequality, encourage self-interest over the common good, and risk of overpopulation or waste when profit is the main motive

In the input question, a labor-intensive firm primarily relies on:

Workers

A capital-intensive firm has which of the following advantages over a labor-intensive firm?

Lower payroll & hidden labor costs

Less risk of union unrest

More stable productivity

How does a market economy typically decide the mix of labor and capital?

Each firm decides its own mix of labor and capital

Critics of the libertarian fairness approach in a market economy (sometimes called "economic Darwinism") argue that it:

Can penalize the poor or disadvantaged while benefitting those already productive (rewarding the industrious, not the idle)

What was the main economic goal of mercantilism?

To accumulate gold and silver

Which of the following was not part of the mercantilist five-point program?

Increasing exports and limiting imports

According to Adam Smith, what truly makes a nation wealthy?

The prosperity of its people through goods and services

What did Adam Smith mean by the "invisible hand"?

Self-interest unintentionally promotes the public good

What are the two fundamental questions that determine whether a nation is more capitalistic or socialistic?

Who owns the factors of production, and who answers the three economic questions?

Which of the following is NOT one of the three main duties of government under classic liberal capitalism, according to Adam Smith?

Control all wages and prices

A nation in which the government provides cradle-to-grave care, funded by very high taxes, would be classified as practicing:

State capitalism (welfare state)

Which type of socialism involves government ownership of major industries such as energy, healthcare, and transportation, while still allowing private ownership of small businesses?

Social democracy

According to Karl Marx, centralized socialism would eventually lead to which "final stage" where government disappears and people share resources equally?

Communism

What percentage of U.S. businesses are sole proprietorships?

75%

Which of the following is an advantage of a sole proprietorship?

Freedom to enter and exit the market easily

What happens to a sole proprietorship if the owner becomes seriously ill or dies?

The business may slow down or cease operations entirely

Why are banks often hesitant to lend money to sole proprietors?

The risk of failure is high due to unlimited liability and limited life

What percentage of U.S. businesses are partnerships?

Less than 10%

Which of the following is an advantage of partnerships compared to sole proprietorships?

Greater management skills from multiple owners

What is one major disadvantage of a general partnership?

Partners face unlimited personal financial liability

In a general partnership, what often causes conflicts between partners?

Differences in opinion over policies, finances, or practices

Which of the following describes a limited partner in a limited partnership?

Shares profits but liability limited to their investment

Which best describes a corporation?

A business created and recognized by law as a separate entity from its owners

Which of the following is an example of a public corporation?

Tennessee Valley Authority (TVA)

What is the greatest disadvantage of corporations compared to other forms of business ownership?

Higher taxes and double taxation of earnings

Why do corporations often move slower than sole proprietorships or partnerships in responding to the market?

Their large size and multiple decision makers cause delays

What does owning shares of stock mean?

Owning a portion of a corporation and can vote with shareholders on company issues

Which of the following best describes common stock?

• True ownership

• Vote on company policies

• Receive public dividends

What is an Initial Public Offering (IPO)?

First sale of stock to the public through investment banks

Why do corporations sell stock?

To raise money for business expansion or research and development

What is the main goal of most stock investors?

• profit / buy low and sell high

• Make dividend payments

What causes the price of a company's stock to rise on the stock market?

Supply and demand

Which of the following is true about the NASDAQ?

Uses electronic network for over the counter trading

What does the Dow Jones Industrial Average (DJIA) measure?

Prices of the 30 major industrial companies in America

What is the main difference between the DJIA and the S&P 500?

S&P tracks more companies and a prouder range of industries

What is speculation in the stock market?

Buying and selling of stocks to profit from short-term price changes

Why was the Securities and Exchange Commission (SEC) created in 1934?

To prevent future crashes

What do economists call a group of businesses that sell similar products, serve similar customers, or produce in similar ways?

An industry

Which of the following industries has a large number of firms competing with one another?

Fast food

What is the main difference between differentiated and undifferentiated products?

Differentiated products

What is a "barrier to entry"?

Any obstacle that prevents new firms from entering an industry

What happens as you move to the left on the continuum of market competition?

The number of firms declines, products differ more, and entry becomes harder

Which of the following is an example of perfect competition?

Soybean or Wheat farming

What is one key feature of imperfect competition?

Firms sell slightly differentiated products and have some control over the price

Which statement best describes an oligopoly?

A few large firms dominate the market and are mutually interdependent

What is a legal monopoly?

A monopoly granted by the government to a single provider for convenience

What did the Sherman Antitrust Act of 1890 make illegal?

Every contract, combination, or conspiracy in restraint of trade

Which of the following was NOT one of the anticompetitive practices prohibited by the Clayton Act of 1914?

Government subsides

The Federal Trade Commission (FTC) was created to:

Enforce the Clayton Act and stop unfair competition

The Robinson-Patman Act of 1936 made it illegal for suppliers to:

Sell goods at unreasonably low prices to harm competition

What was the main goal of all the antitrust laws, including the Sherman, Clayton, and Robinson-Patman Acts?

To promote fair competition and prevent monopolies

Explain what the stock market is and how it works.

Trading network that connects investors looking to buy and sell stocks and their derivatives

List some advantages of the stock market for people and businesses.

List some disadvantages or risks of the stock market.

Give at least one example of a financial crisis caused by problems in the stock market and explain what happened.

Do you think the stock market is mostly good or mostly risky? Explain why.