Unit #3 Test Chapter 7, 8, 9, & 10

(Detmers Econ)

Multiple Choice Identify the choice that best completes the statement or answers the question. ____ 1. What kind of market runs most efficiently when one large firm supplies all of the output? a. a natural monopoly c. perfect competition b. a network d. imperfect competition 2. How does a company arrange to sell its products to people who are unwilling to pay the top price for them? a. by allowing rebates to some preferred customers who buy a lot of goods b. by charging each customer the maximum amount they are willing to pay c. by charging different prices according to the group to which the buyer belongs d. by changing the product and selling a lesser one to people who are unwilling to pay for the top product 3. What is monopolistic competition? a. one company selling the identical product under different names b. one company selling several different products under different names c. a very few companies selling identical products d. many companies selling similar but not identical products 4. Which of the following is NOT a form of nonprice competition? a. location c. advertising b. physical characteristics d. discounts 5. What happens to a monopolistically competitive firm that begins to charge an excessive price for its product? a. The firm will go out of business. b. Consumers will substitute a rivals product. c. Consumers will boycott the product. d. The government will regulate the price. 6. When the government deregulates a product or service, what happens to it? a. The product or service is available to more people. b. The product or service becomes cheaper. c. Some government regulations over the industry are eliminated. d. Government control over the industry is stopped. 7. Cartels are difficult to operate for which of the following reasons? a. They work only if members keep to their agreed output. b. They are illegal worldwide. c. Firms in a cartel are likely to lose money. d. The products are perfectly competitive. 8. Why does the government sometimes give monopoly power to a company by issuing a patent? a. The government does not want competition for the product. b. The company makes a product better than anyone elses. c. The company pays the government for the patent. d. The company can then profit from their research without competition.

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9. Which of the following is NOT a condition for perfect competition? a. Many buyers and sellers participate in the market. b. Sellers offer a wide variety of products. c. Buyers and sellers are well informed about products. d. Sellers are able to enter and exit the market freely. ____ 10. How does a natural monopoly function? a. A few firms are in perfect competition. b. Imperfect competition makes it difficult for firms to do business. c. A single firm supplies all the output. d. The government supplies all buyers with the product. ____ 11. Sunshine Island has three large supermarkets that supply most of the groceries for the islands population. A gas station also sells a very small selection of groceries. How would you describe the market for groceries on Seaside Island? a. perfect competition c. oligopoly b. monopolistic competition d. monopoly ____ 12. A monopolist will set its production at a level where marginal cost is equal to a. marginal revenue. c. total revenue. b. the equilibrium market price. d. quantity supplied. ____ 13. Which of the following markets is an example of monopolistic competition? a. water c. bookbags b. oranges d. bus tickets ____ 14. Which of these will NOT lead to a monopoly? a. a franchise c. antitrust laws b. a patent d. a license ____ 15. How much control over price do companies in a perfectly competitive market have? a. none c. some b. very little d. total control ____ 16. Which of the following statements is true about profits in a monopolistically competitive market? a. Most firms will earn substantial profits from year to year. b. Many firms will earn profit in the short term, but they must constantly innovate and compete to earn profits in the long term. c. Profits are rare in monopolistically competitive markets. d. Monopolistically competitive firms are as profitable as monopoly firms. ____ 17. Complete this sentence: In a monopoly market, the market price will probably be _____ the price in a perfectly competitive market. a. greater than c. greater than or less than b. less than d. equal to ____ 18. A joining of two or more businesses that are involved in different stages of producing the same good or service is called which of the following? a. vertical merger c. cooperative b. horizontal merger d. Conglomeration

____ 19. What is the major difference between a corporation and other kinds of businesses? a. A corporation is much larger than other kinds of businesses. b. A corporation is not responsible for its debts if it fails. c. A corporation has a separate entity apart from that of the owners and workers. d. A corporation has officers who are responsible for the business. ____ 20. What are the money and other valuables that belong to a corporation or partnership called? a. liabilities c. ownership b. assets d. liens ____ 21. If a general partnership fails, who is responsible for the debts? a. no one b. anyone who works for the partnership c. only the most senior general partner d. all of the partners ____ 22. The family-owned Italian restaurant in your neighborhood is probably an example of a a. multinational corporation. c. consumer cooperative. b. franchise. d. general partnership. ____ 23. In a publicly held corporation a. stockholders rarely trade their stocks. b. a large number of stockholders can buy and sell stock. c. stocks are not usually traded at stock exchanges. d. family members are excluded from holding stock. ____ 24. Dr. Ruiz shares equal responsibility and liability with her colleagues in their medical practice. Her practice is a a. general partnership. c. limited liability partnership. b. limited partnership. d. sole proprietorship. ____ 25. Your Nike shoes were designed in the United States but assembled in Asia by 10 year olds. Nike is a a. general partnership. c. multinational corporation. b. trade association. d. producer cooperative. ____ 26. You own a successful bicycle repair business. You are considering incorporating in order to a. avoid double taxation. b. raise money more easily. c. avoid government regulations. d. acquire greater control in managing the business. ____ 27. You are part-owner of a corporation because you a. own the companys stock. b. have created a corporate charter for the company. c. have purchased company bonds. d. attend the companys annual meetings. ____ 28. According to your text, approximately what percentage of U.S. workers belong to labor unions? a. 0 5 percent; almost none c. 35 - 40 percent; nearly half b. 10 -15 percent; little d. Over 70 percent; the majority

____ 29. What is collective bargaining? a. union and company representatives meeting to negotiate a new labor contract b. an organization of workers representing several different occupations c. an agreement to allow everyone to be part of the labor negotiating process d. a situation in which the rights of labor have been set aside ____ 30. How are wages for a particular job determined? a. By advertisements in the newspaper or on line. b. By the equilibrium between the supply and demand for workers for that job. c. By the amount of inflation in the economy. d. By the Federal Wage and Hour Department. ____ 31. Which of the following is an example of using physical capital instead of human capital to get a job done? a. furniture made by hand c. an automatic teller machine b. a server in a fast-food restaurant d. a licensed practical nurse ____ 32. Which of the following jobs are expected to grow significantly? a. computer-related jobs c. police and fire fighters jobs b. manufacturing jobs d. agricultural workers jobs ____ 33. Mark is switching from his desk job answering phones in an office to a job running a saw at a paper mill. One reason his wages will increase significantly in his new job is that a. the demand for steel mill workers and for data entry clerks is about the same. b. the supply of steel mill workers is high. c. it is more dangerous to work in a steel mill than in an office. d. the demand for data entry clerks is low. ____ 34. When your grandfather and his friends entered the work force in 1950, they were likely to have jobs in a. factories producing electronics. b. agriculture. c. the service sector. d. companies such as Standard Oil or Carnegie Steel. ____ 35. Current labor market trends include a. an increase in the number of people employed. b. an increase in demand for low-skilled American labor. c. an increase in service jobs accompanied by a decrease in manufacturing jobs. d. all of the above. ____ 36. The equilibrium wage for doctors is high because the a. demand for doctors equals the supply. b. supply of doctors is relatively low and the demand is relatively high. c. demand for doctors tends to be lower relative to supply. d. supply of doctors is relatively high and the demand is relatively low. ____ 37. The strength of labor unions has declined in recent years because a. the number of white collar jobs is increasing. b. the number of blue collar jobs is decreasing. c. some manufacturers have relocated to countries where labor is cheaper or to the American South. d. all of the above ____ 38. Which of the following is the main disadvantage of using shells as money instead of coins? a. Not durabile c. Not uniform b. Not portable d. Not acceptable

____ 39. Which of the following is an example of representative money? a. a fur coat c. gold earrings b. diamonds d. an IOU note ____ 40. What is the purpose of the Federal Deposit Insurance Corporation (FDIC)? a. to make sure that banks do not fail b. to make sure that customers do not lose money if a bank fails c. to make sure that banks charge a fair amount of interest on loans d. to make sure that the government has enough gold to cover its expenses ____ 41. What did the Federalists believe about banking? a. They believed that the banking system already in existence was sufficient. b. They believed an international banking system would be best. c. They believed that a centralized banking system was necessary. d. They believed that state governments should own and run the nations banks. ____ 42. What is a mortgage used to purchase? a. car c. college tuition b. real estate d. business expenses ____ 43. Which of the following is NOT an example of a liquid asset? a. cash c. a savings account b. travelers checks d. a checking account ____ 44. What happens during a bank run? a. The government orders a bank to close. b. States charter more banks than needed. c. The price of gold suddenly increases. d. More customers withdraw money than the bank has on hand. ____ 45. What condition is necessary for a fiat money system to work? a. Money must always be paper. b. The government must control the money supply. c. Banks must hold sufficient gold to cover any paper money they give out. d. Customers with checking accounts cannot earn interest on those accounts. ____ 46. What happens when you make a purchase using a credit card? a. The credit card issuer pays the store. b. The money is immediately deducted from your account. c. The amount of the purchase is deducted from a prepaid account. d. The place where you made the purchase receives the money within 24 hours. ____ 47. Which of the following is NOT an example of M1 money? a. currency c. travelers checks b. near money d. a checking account ____ 48. You need a new computer, and you will need a loan in order to buy one. Which lender is most likely to charge you the highest interest rate on your loan? a. savings and loan association c. credit union b. savings bank d. finance company

____ 49. Near money includes a. expensive art or items for barter. b. credit cards and debit cards. c. travelers checks and deposits in checking accounts. d. deposits in savings accounts and money market mutual funds. ____ 50. Penny is an artist, and John is a carpenter. Penny agrees to paint a portrait of Johns family in exchange for a handmade table created by John. How did Penny and John pay for the goods in their transaction? a. using a store of value c. through bartering b. with money d. with currency ____ 51. Why is representative money more useful than commodity money? a. Representative money can be used for other things besides currency. For example, gems can be made into jewelry, and cotton can be made into clothing. b. Representative money has value because the government has decreed that it is an acceptable means to pay debts. Commodity money had value only to people who believed it had value. c. Representative money exists in unlimited supply, allowing many more people to make use of it. d. Representative money is portable, durable, divisible, and acceptable. It can also be exchanged for something else of value. ____ 52. American leaders in the early United States wanted to establish a stable banking system in order to a. provide competition for merchant lenders. b. promote international trade and economic growth. c. help all Americans build wealth through savings accounts. d. allow individual merchants to charge fees for loans and other services. ____ 53. What is one reason why many people distrusted the banking system during the free banking era of the first half of the 1800s? a. Many banks did not have enough gold or silver to back the paper money they issued. b. Many banks refused to accept deposits from ordinary people, preferring instead to have only wealthy customers. c. Many banks used depositors money to make unwise overseas investments that resulted in great losses. d. Many banks reported deposits to the Internal Revenue Service, which would force depositors to pay taxes on the interest they earned. ____ 54. You decide to open a savings account, and you notice a sign in your bank that indicates deposits are FDIC insured. What protection does that give you? a. If the bank fails, your deposits are protected up to $100,000 (250k in 08). b. If you accidentally injure someone, they cannot claim any of the first $100,000 (250k in 08) of your bank deposits as compensation. c. Your deposits are guaranteed a certain rate of interest if you have at least $100,000 (250k in 08) in the bank. d. If you accidentally withdraw more money that you have in your account, you will not have to pay a penalty.

____ 55. Senior Detmers makes a deposit of $10,000 into his PNC Bank savings account. PNC Bank 20% of his deposit, then lends the remaining $8,000 to yo mama to buy a new car. This practice of retaining only a portion of deposits on hand is called a. the gold standard. c. the Federal Reserve system. b. fractional reserve banking. d. representative money. Matching Identifying Key Terms Match each term with the correct statement below. a. economies of scale (ab). b. trust (ac). c. franchise (ad). d. oligopoly (ae). e. barrier to entry (bc). ____ ____ ____ ____ ____ ____ ____ ____ 56. 57. 58. 59. 60. 61. 62. 63.

price war antitrust laws market power differentiation perfect competition

a market structure in which a few large firms dominate a market a market structure in which a large number of firms all produce the same product a series of competitive price cuts that lowers the market price below the cost of production factors that cause a producers average cost per unit to fall as output rises an illegal grouping of companies that discourages competition the right to sell a good or service within an exclusive market making a product unlike other products any factor that makes it difficult for a new firm to become part of a market Identifying Key Terms Match each term with the correct statement below. a. assets (ab). b. business organization (ac). c. trade association (ad). d. limited partnership (ae). e. sole proprietorship (bc).

professional association business license corporation cooperative bond

____ 64. an establishment owned by two or more persons in which only one person has unlimited personal liability for the business ____ 65. nonprofit association that promotes the interests of a particular industry ____ 66. a business organization owned and operated by a group of individuals for their mutual benefit ____ 67. a legal entity owned by individual stockholders ____ 68. an establishment formed to carry on commercial enterprise

3 Answer Section
MULTIPLE CHOICE 1. ANS: OBJ: 2. ANS: OBJ: 3. ANS: OBJ: 4. ANS: OBJ: 5. ANS: OBJ: 6. ANS: OBJ: 7. ANS: OBJ: 8. ANS: OBJ: 9. ANS: OBJ: 10. ANS: OBJ: A 2.7.2.2 C 2.7.2.4 D 2.7.3.1 D 2.7.3.2 B 2.7.3.3 C 2.7.4.3 A 2.7.3.4 D 2.7.2.2 B 2.7.1.1 C 2.7.2.2 PTS: TOP: PTS: TOP: PTS: TOP: PTS: TOP: PTS: TOP: PTS: TOP: PTS: TOP: PTS: TOP: PTS: TOP: PTS: TOP: 1 DIF: Medium natural monopolies 1 DIF: Medium price discrimination 1 DIF: Medium monopolistic competition 1 DIF: Medium nonprice competition 1 DIF: Medium monopolistic competition 1 DIF: Medium deregulation 1 DIF: Medium cartel 1 DIF: Medium patent 1 DIF: Medium perfect competition 1 DIF: Medium natural monopolies DIF: Hard REF: REF: REF: REF: REF: REF: REF: REF: REF: REF: REF: REF: REF: REF: REF: REF: REF: REF: REF: 158 163-164 166-167 167-168 166-168 175-176 171 159 151-152 158 169 161 166 159 154 169 162 199 195-196

11. ANS: C OBJ: 2.7.3.4 12. ANS: OBJ: 13. ANS: OBJ: 14 ANS: OBJ: 15. ANS: OBJ: 16. ANS: OBJ: 17. ANS: OBJ: 18. ANS: OBJ: 19. ANS: OBJ: A 2.7.2.3 C 2.7.3.1 C 2.7.2.2 A 2.7.1.3 B 2.7.3.3 A 2.7.2.3 A 3.8.3.4 C 3.8.3.1

PTS: 1 TOP: oligopoly PTS: TOP: PTS: TOP: PTS: TOP: PTS: TOP: PTS: TOP: PTS: TOP: PTS: TOP: PTS: TOP:

1 DIF: Easy monopoly 1 DIF: Hard monopolistic competition 1 DIF: Easy monopoly 1 DIF: Easy perfect competition 1 DIF: Medium monopolistic competition 1 DIF: monopoly 1 DIF: vertical merger 1 DIF: corporations Medium Medium Medium

20. ANS: OBJ: 21. ANS: OBJ: 22. ANS: OBJ: 23. ANS: OBJ: 24. ANS: OBJ: 25. ANS: OBJ: 26. ANS: OBJ: 27. ANS: OBJ: 28. ANS: OBJ: 29. ANS: OBJ: 30. ANS: OBJ: 31. ANS: OBJ: 32. ANS: OBJ: 33. ANS: OBJ: 34. ANS: OBJ: 35. ANS: OBJ: 36. ANS: OBJ: 37. ANS: OBJ: 38. ANS: OBJ: 39. ANS: OBJ: 40. ANS: OBJ: 41. ANS: OBJ:

B 3.8.2.2 D 3.8.2.1 D 3.8.2.1 B 3.8.3.1 A 3.8.2.1 C 3.8.3.3 B 3.8.3.2 A 3.8.3.1 B 3.9.3.2 A 3.9.3.4 B 3.9.2.1 C 3.9.2.2 A 3.9.1.2 C 3.9.2.4 A 3.9.1.2 C 3.9.1.3 B 3.9.2.2 D 3.9.3.3 C 4.10.1.2 D 4.10.1.3 B 4.10.2.3 C 4.10.2.1

PTS: TOP: PTS: TOP: PTS: TOP: PTS: TOP: PTS: TOP: PTS: TOP: PTS: TOP: PTS: TOP: PTS: TOP: PTS: TOP: PTS: TOP: PTS: TOP: PTS: TOP: PTS: TOP: PTS: TOP: PTS: TOP: PTS: TOP: PTS: TOP: PTS: TOP: PTS: TOP: PTS: TOP: PTS: TOP: PTS:

1 DIF: Medium assets 1 DIF: Medium general partnership 1 DIF: Medium types of partnerships 1 DIF: Medium types of corporations 1 DIF: Medium types of partnerships 1 DIF: Medium multinational corporation 1 DIF: Medium advantages of incorporation 1 DIF: Medium characteristics of corporations 1 DIF: 10 -15 percent; little 1 DIF: collective bargaining 1 DIF: wage equilibrium 1 DIF: blue-collar worker Medium Medium Medium Medium

REF: REF: REF: REF: REF: REF: REF: REF: REF: REF: REF: REF:

192 192 190 196 190 199-200 196-197 195 231 233 220 225 212-213 223-224 213 212-217 221-222 230-233 246 247 255 250 261

1 DIF: Medium REF: labor force 1 DIF: Medium REF: factors affecting wages 1 DIF: Medium REF: occupational trends 1 DIF: Easy REF: changes in the labor force 1 DIF: Medium REF: wages and skill levels 1 DIF: Easy REF: decline of labor 1 DIF: Medium REF: money 1 DIF: Medium REF: representative money 1 DIF: Medium REF: federal deposit insurance corporation 1 DIF: Medium REF: national bank 1 DIF: Medium REF:

42. ANS: B

43. 44. 45. 46.

OBJ: ANS: OBJ: ANS: OBJ: ANS: OBJ: ANS: OBJ:

4.10.3.2 C 4.10.3.1 D 4.10.2.1 B 4.10.1.3 A 4.10.3.2 B 4.10.3.1 D 4.10.3.3 D 4.10.3.1 C 3.9.3.2 D 4.10.1.3 B 4.10.2.1 A 4.10.2.1

TOP: PTS: TOP: PTS: TOP: PTS: TOP: PTS: TOP: PTS: TOP: PTS: TOP: PTS: TOP: PTS: TOP: PTS: TOP: PTS: TOP: PTS: TOP:

mortgage 1 liquidity 1 bank run 1 fiat money 1 credit card

DIF: DIF: DIF: DIF:

Medium Medium Medium Medium

REF: REF: REF: REF: REF: REF: REF: REF: REF: REF: REF:

258 252 248 261 258 263 258 243 247 250 252

47. ANS: OBJ: 48. ANS: OBJ: 49. ANS: OBJ: 50. ANS: OBJ: 51. ANS: OBJ: 52. ANS: OBJ: 53 ANS: OBJ:

1 DIF: Medium money supply 1 DIF: Medium types of financial institutions 1 DIF: Easy money supply 1 DIF: Medium uses of money 1 DIF: Hard sources of moneys value 1 DIF: Medium pre-civil war banking 1 DIF: Medium pre-civil war banking

54. ANS: A OBJ: 4.10.2.3 55. ANS: B OBJ: 4.10.3.2 MATCHING 56. ANS: OBJ: 57. ANS: OBJ: 58. ANS: OBJ: 59. ANS: OBJ: 60. ANS: OBJ: 61. ANS: OBJ: 62. ANS: D 2.7.3.4 (bc) 2.7.1.1 (ab) 2.7.3.4 A 2.7.2.2 B 2.7.4.2 C 2.7.2.2 (ae)

PTS: 1 DIF: Medium TOP: 20th-century banking | FDIC PTS: 1 DIF: Medium TOP: functions of financial institutions

REF: REF:

255 260

PTS: TOP: PTS: TOP: PTS: TOP: PTS: TOP: PTS: TOP: PTS: TOP: PTS:

1 DIF: oligopoly 1 DIF: perfect competition 1 DIF: price war 1 DIF: economies of scale 1 DIF: trust 1 DIF: franchises 1 DIF:

Easy Easy Easy Easy Easy Easy Easy

REF: REF: REF: REF: REF: REF: REF:

126 169 151 171 157 173 159

OBJ: 2.7.3.1 63. ANS: E OBJ: 2.7.1.2 64. ANS: OBJ: 65. ANS: OBJ: 66. ANS: OBJ: 67. ANS: OBJ: 68. ANS: OBJ: D 3.8.2.1 C 3.8.4.3 (ae) 3.8.4.2 (ad) 3.8.3.1 B 3.8.1.1

TOP: differentiation PTS: 1 DIF: TOP: barriers to entry PTS: TOP: PTS: TOP: PTS: TOP: PTS: TOP: PTS: TOP:

Easy

REF:

167

1 DIF: Easy limited partnership 1 DIF: Easy trade association 1 DIF: Easy cooperative 1 DIF: Easy corporations 1 DIF: Easy business organization

REF: REF: REF: REF: REF:

190 204 202 195 185