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In order to level the playing field in trade between the U.S. and China, U.S. policymakers have called upon China's government to allow the Yuan (China's currency) to float freely, as other world currencies. Through government regulation, China maintains an undervalued currency, which results in: Choose one answer. a. More buying power for Chinese consumers who want to purchase U.S. goods and goods from other countries. b. Maintaining robust Chinese exports and a favorable balance of trade for China. c. Developing better relations with industrialized countries who want to increase the value of their exports. d. Stability and strength of the Chinese Yuan against the U.S. dollar and the euro. b. Maintaining robust Chinese exports and a favorable balance of trade for China. A fast-growing form of foreign direct investment is sovereign wealth funds (SWFs). Why do these investments by governments with surplus cash flows worry trade experts? Choose one answer. a. SWFs invest in high risk start-ups with no proven history of producing goods and services that developing or developed countries need. They may likely undermine the years of development of growing economies. b. SWFs have a greater risk of going bankrupt than other investments because governments are not good at running businesses.

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Page 1: Microeconomics Study Guide2

In order to level the playing field in trade between the U.S. and China, U.S. policymakers have called upon China's government to allow the Yuan (China's currency) to float freely, as other world currencies. Through government regulation, China maintains an undervalued currency, which results in:Choose one answer.

a. More buying power for Chinese consumers who want to purchase U.S. goods and goods from other countries.

b. Maintaining robust Chinese exports and a favorable balance of trade for China.

c. Developing better relations with industrialized countries who want to increase the value of their exports.

d. Stability and strength of the Chinese Yuan against the U.S. dollar and the euro.

b. Maintaining robust Chinese exports and a favorable balance of trade for China.

A fast-growing form of foreign direct investment is sovereign wealth funds (SWFs). Why do these investments by governments with surplus cash flows worry trade experts?Choose one answer.

a. SWFs invest in high risk start-ups with no proven history of producing goods and services that developing or developed countries need. They may likely undermine the years of development of growing economies.

b. SWFs have a greater risk of going bankrupt than other investments because governments are not good at running businesses.

c. Some fear that governments investing their SWFs in large firms may gain control of natural resources, sensitive technologies, and the decision making of management.

d. Some trading experts believe that SWFs are supported by terrorist organizations, and their strategy is an indirect way to undermine the creation of U.S. jobs.

c. Some fear that governments investing their SWFs in large firms may gain control of natural resources, sensitive technologies, and the decision making of management.

Denmark requires foreign companies that sell butter in Denmark to sell it in cubes, not tubs. This type of requirement is known as a:Choose one answer.

a. protective tariff.

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b. revenue tariff.

c. quota.

d. nontariff barrier.

d. nontariff barrier

Mini-Case<br/><br/>Since he was five years old, Rhett Tenna struggled with poor eyesight. He suffered through all the names that went along with wearing eyeglasses for most of his young life. Rhett eventually switched from traditional eyeglasses to contact lens, but he always wondered why glasses were considered to be "ugly" and not fashionable. After graduation from college, Rhett set out on a lifelong goal: to make eye wear synonymous with high fashion. He opened a specialty store called "The Eyes Have It." His marketing plan was to remove the social stigma of wearing glasses, and replace it with a sense of flair and high fashion. From the day he opened his first store, Rhett's plan met with resounding success. Today, "The Eyes Have It" has grown from that single outlet to a medium-sized company with dozens of stores located in six states, and a manufacturing plant that turns out designer frames.<br/>A recent internal audit, however, suggested a problem that Rhett had not anticipated. The study indicated that the U.S. market is just about saturated and growth of "The Eyes Have It" stores will be very limited. The audit concerned Rhett until he recognized an untapped market existed overseas. If people all over the world have the same problem, the global market opportunities are fantastic! All in favor of going global say: "The Eyes Have It"!<br/>&#160;<br/>The company was informed by the Japanese Ministry of Trade that they could only export 1.5 million pairs of eyeglasses to the Japanese market during a given year. The Japanese have imposed a(n):Choose one answer.

a. revenue tariff.

b. embargo.

c. import quota.

d. limit order.

c. import quota.

The value of goods imported into France exceeds the value of French exports. This indicates that France:Choose one answer.

a. Has an exchange rate decrease.

b. Utilizes high tariffs.

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c. Has a budget deficit.

d. Has a trade deficit.

d. Has a trade deficit.

U.S. firms that produce sophisticated military hardware are prohibited from exporting that equipment to "unfriendly" governments, such as Iran. This complete ban on exporting sensitive technology to specific countries is an example of a(n):Choose one answer.

a. import quota.

b. boycott.

c. tariff.

d. embargo.

d. embargo.

The three countries participating in NAFTA are:Choose one answer.

a. Canada, Panama, and the United States.

b. Mexico, Panama, and the United States.

c. Canada, Nicaragua, and Mexico.

d. Canada, Mexico, and the United States.

d. Canada, Mexico, and the United States.

Which of the following is an advantage of offshore outsourcing?Choose one answer.

a. Companies can create efficiencies by hiring low-wage employees.

b. Wages increase in the home country.

c. Product quality improves permitting firms to charge more for their products.

d. Communication between the company and its customers improves.

a. Companies can create efficiencies by hiring low-wage employees.

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A sociological challenge that must be overcome in order to be successful in the global market is:Choose one answer.

a. A lack of cultural understanding.

b. An overly anxious desire to please at all cost.

c. Inequality of global natural resources.

d. Wealth management.

a. A lack of cultural understanding.

Nike _________________ its products in foreign countries, where labor is cheap and production sites are owned by other companies. This strategy allows Nike to experiment in new markets without incurring large start-up costs involved with building their own production facilities.Choose one answer.

a. contract franchises

b. pays governments to market

c. globally licenses

d. contract manufactures

d. contract manufactures

Reviewing the recent experience of the United States in global markets reveals that the U.S has:Choose one answer.

a. a merchandise trade surplus with the rest of the world.

b. a large trade deficit with China.

c. avoided becoming a debtor nation.

d. attracted very little foreign direct investment.

b. a large trade deficit with China.

_____________ is buying products from another country.Choose one answer.

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a. Importing

b. Outsourcing

c. Retailing

a. Importing

Rosa's aunt was taking a cruise to Brazil. She suggested to Rosa that she would be glad to buy her some jewelry while in port in Rio de Janeiro because the exchange rate would be to her benefit. This means:Choose one answer.

a. The currency in Rosa's home country is weak against the Brazilian currency.

b. The currency in Rosa's home country will be almost equal to the Brazilian currency; otherwise it would not be a good exchange.

c. The currency in Rosa's home country is devalued.

d. The currency in Rosa's home country has strength against the Brazilian currency.

d. The currency in Rosa's home country has strength against the Brazilian currency.

As students think about a career in the business world today, which of the following is a good strategic suggestion?Choose one answer.

a. Studying a foreign language.

b. Securing a job with a large multinational corporation.

c. Stay away from franchising due to the saturation of this form of business globally.

d. Avoid spending a lot of time studying fluctuations in currencies because a global currency is eminent.

a. Studying a foreign language.

__________ occurs when a country has a monopoly on producing a product or is able to produce it at a cost well below that of all other countries.Choose one answer.

a. Comparative advantage

b. Absolute advantage

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c. Complete advantage

d. Dumping advantage

b. Absolute advantage

_______ tariffs are designed to raise money for the government.Choose one answer.

a. Regulatory

b. Revenue

c. Price

d. Profit

b. Revenue

A benefit of contracting with export trading companies is:Choose one answer.

a. They are the experts in establishing trading partners abroad, and negotiating all the details in retaining customers.

b. They are experts in staying out of the financial transactions of establishing new markets.

c. They will always assume the risk if your product does not sell to the foreign customer.

d. They keep you legal because they serve as the franchisor and make certain that your products meet ISO requirements.

a. They are the experts in establishing trading partners abroad, and negotiating all the details in retaining customers.

One of the purposes of Export Assistance Centers is to:Choose one answer.

a. help multinational corporations reach agreements with foreign governments.

b. provide subsidies to domestic firms hurt by dumping by foreign firms.

c. provide trade-finance support for small and medium-sized firms involved in direct exporting.

d. encourage domestic firms to become more competitive by forming keiretsu-like organizations, much like those found in Japan.

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c. provide trade-finance support for small and medium-sized firms involved in direct exporting.

One objective of NAFTA is:Choose one answer.

a. increase trade barriers between the countries involved.

b. decrease investment opportunities in the countries involved.

c. promote conditions of fair competition for the three trading partners.

d. improve working conditions in Central America.

c. promote conditions of fair competition for the three trading partners.

Under a system of floating exchange rates, changes in the value of the U.S. dollar relative to other currencies are the result of:Choose one answer.

a. negotiated rate adjustments between the U.S. government and the World Trade Organization.

b. decisions made by the Federal Reserve Board of Governors in order to implement monetary policy.

c. fluctuations in the world price of gold.

d. changes in the supply of and/or demand for dollars in the global currency market.

d. changes in the supply of and/or demand for dollars in the global currency market.

In an effort to promote the importance of a valuable education, the faculty and staff at the local community college are trained to ask each student about their career preferences, rather than suggest courses that may not benefit the student's future goals. Although it would be tempting to suggest courses just to increase the College's enrollment, employees know that it is more important to serve each student well, even if it means suggesting courses and/or degrees offered at other institutions. This approach is consistent with:Choose one answer.

a. an integrity-based ethics code.

b. a compliance-based ethics code.

c. a response to a government mandate.

d. a personal responsibility commitment.

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a. an integrity-based ethics code.

Which of the following terms describes someone who reports illegal or unethical behavior?Choose one answer.

a. whistleblower

b. horn blower

c. watch tower sentinel

d. integrity watchdog

a. whistleblower

Compliance based ethics codes typically:Choose one answer.

a. rely on laws and regulations outside the firm for guidance.

b. have a strong affinity for shared accountability among employees.

c. promote a "do-it-right" climate.

d. enable responsible employee conduct.

a. rely on laws and regulations outside the firm for guidance.

Which of the following indicates that U.S. businesses are demanding socially responsible behavior from their international suppliers?

a. The establishment of the Equal Opportunity Employment Commission

b. The decision of Wal-Mart to open stores globally

c. The decision of Phillips-Van Heusen to cancel orders from suppliers that violate its ethics code

d. The creation of the North American Free Trade Zone (NAFTA) between the U.S., Canada, and Mexico

c. The decision of Phillips-Van Heusen to cancel orders from suppliers that violate its ethics code

Corporate ________ covers issues such as setting minority hiring practices, manufacturing safe products, and minimizing pollution.

a. responsibility

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b. philanthropy

c. diversity

d. structure and strategy

a. responsibility

The boxed material entitled "Reaching Beyond Our Borders" that told the story about Joe, the Motorola engineer, suggests that U.S. firms operating overseas are:

a. Not as flexible on social issues as local employees would like them to be.

b. Exploiting employees by working them long hours at low pay.

c. Complying with the ethical standards of the people they employ, in the countries in which they are operating.

d. Responding to their stockholders desire for profits.

c. Complying with the ethical standards of the people they employ, in the countries in which they are operating.

A(n) _______ -based ethics code defines corporate values; creates a supportive environment, and, stresses shared accountability among employees..

a. social

b. corporate responsibility

c. compliance

d. integrity

d. integrity

Ethical dilemmas in business:.

a. force us to make poor choices.

b. always end up bringing out the best in us.

c. often force us to choose between equally unsatisfactory alternatives.

d. define us as being moral absolutists or moral situationalists.

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c. often force us to choose between equally unsatisfactory alternatives.

Several outside groups regularly monitor the activities of Metro Chemical Corporation. These groups are interested in the firm's involvement and enforcement of their ethical and social responsibility policies. Who of the following is the <u>least likely</u> to be among the "watchdog" groups?.

a. The financial officer of a church with funds invested in the chemical company.

b. Overseers from the World Trade Organization (WTO).

c. A student in environmental engineering attending a local college.

d. The president of the union representing the workers at the chemical company.

b. Overseers from the World Trade Organization (WTO).

Which of the following would be a unique focus of an integrity-based ethics code?.

a. Increased control over employee actions.

b. Shared accountability among employees.

c. Increased penalties for code violators.

d. Improved awareness of the relevant laws.

b. Shared accountability among employees.

Which of the following industries has been deregulated?.

a. Chemicals

b. Agriculture

c. Airlines

d. Steel

c. Airlines

Mini-Case<br/><br/>Brian and Sondra have just opened a new Cajun restaurant on the edge of town, Cajun Cookin' Inc. They own the land and building and have a brand-new kitchen as well as a lovely seating area, filled with mementos from the South. They have a liquor

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license and make wonderful Southern drinks. They are quite pleased that members of the community are helping their business grow by coming in for a meal or a drink after work. They are good businesspeople who pay their bills on time and as a result have great relationships with the vendors that supply them food.<br/>&#160;<br/>One day as Brian was speaking with one of his customers a shriek went up from the other side of the restaurant. When he rushed over, he found that one of his customers had spilled hot tea on her arm. If this customer was so inclined, she could __________ and the court would likely find in her favor..

a. sue Brian for breach of contract

b. sue the restaurant for negligence

c. sue the restaurant under statutory law

d. She can do nothing about this except not go to the restaurant ever again.

b. sue the restaurant for negligence

A government policy aimed at reducing the purchase of a specific good through increased taxes has been most often applied to:.

a. beer.

b. sports cars.

c. white bread.

d. diet soft drinks.

a. beer.

Allison is concerned that she is not getting full disclosure of information from a mortgage broker who is hoping to refinance the mortgage on her house. Having recently studied business law, you suggest to Allison that she contact the ________________________ that was formed after the Dodd-Frank Wallstreet Reform and Consumer Protection Act became law..

a. Federal Trade Commission (FTC)

b. Consumer Financial Protection Bureau (CFPB)

c. Due Diligence Agency (DDA)

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d. Financial Fairness Consortium (FFC)

b. Consumer Financial Protection Bureau (CFPB)

The number of personal bankruptcies has:.

a. significantly decreased as a result of the Bankruptcy Reform Act.

b. increased.

c. nearly reached the level of business bankruptcies.

d. remained unchanged.

b. increased.

Your 15-year-old brother comes home with the great news that he has decided to buy his first car and has just agreed to give $10,000 to a complete stranger. He signed the contract and just needs to pay the stranger and pick up the car. Your dad is upset and calls the stranger to tell him your brother will not be buying the car. The stranger can:.

a. sue your brother for breach of contract.

b. sue your dad for breach of contract.

c. sue your brother for specific performance.

d. do nothing.

d. do nothing.

Some economists advocate a ____________ on the consumption of such products as gasoline, liquor, cigarettes, and even soda pop, in the hope that consumers will think about how their purchases are having negative impacts on themselves and their environment..

a. progressive tax

b. sin tax

c. flat tax

d. tax credit

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b. sin tax

A(n) __________ occurs when one party fails to follow the terms of a contract..

a. breach of contract

b. discharge of obligation

c. obligation failure of enforcement

d. infringement of contract

a. breach of contract

You and your boss agree to terminate your employment contract because you want to devote more time to school. This breach of contract would likely be resolved by:.

a. a specific performance requirement.

b. the payment of damages.

c. a judge.

d. a discharge of obligation.

d. a discharge of obligation.

The body of law created by court decisions rendered by judges is called __________ law..

a. precedent

b. statutory

c. common

d. tort

c. common

Naomi is planning to invest in a new online franchise - the Novel Artist, Inc. The franchisor provides proprietary software and training for designing invitations and cards for special occasions such as weddings, graduations, and birth announcements. The franchisee is obligated to pay a monthly fee to the franchisor. Naomi will use the software to create her own special designs that she will ultimately feature on her website. She also has chat

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availability so she can accommodate customers with special requests. Order turn-around time must be fast. She can only take on as many clients as she can make good on delivery. An advantage of Naomi's online franchise is:.

a. She has a limited territory.

b. She has a narrow product offering.

c. She does not need name recognition or marketing assistance.

d. She has an unlimited territory.

d. She has an unlimited territory.

In the Legal Briefcase box, "Virtual Companies,".

a. The box discusses the Vermont Teddy Bear Company and the difficulty the company experienced when transitioning from an S-Corporation to a C-Corporation.

b. The box talks about a newly created LLC in Vermont called the Virtual Company, where all official filing is electronic, and members contribute their skills through electronic communication.

c. The box discusses how the state of Vermont wants to attract business, yet refuses to permit the electronic submission of filing for any form of business ownership.

d. The box talks about the Vermont maple syrup industry and how due to the fact that it is a seasonal business, it cannot exist virtually. The labor intensive business requires the expertise of experienced tree tappers.

b. The box talks about a newly created LLC in Vermont called the Virtual Company, where all official filing is electronic, and members contribute their skills through electronic communication.

Marco is a franchisee with Daggies, a chain of sandwich shops. His business was doing well until several Daggies franchisees got in trouble and were forced to close their shops. Soon afterward, Marco's business deteriorated and he too was forced to close. This is an example of:.

a. An economic shakeout at work.

b. The coattail effect.

c. The law of diminishing returns.

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d. Management by exception.

b. The coattail effect.

In the Thinking Green box titled, "Play Ball but Play Green", The Washington Nationals baseball team is featured as a franchised business that demonstrates environmental stewardship by:.

a. Replacing all sod in the stadium with astro-turf to conserve water.

b. Building a LEED certified building and initiating recycling programs.

c. Joining several other baseball franchises and only washing uniforms in phosphate-free detergents because the run-off eventually ends up in our drinking water supply.

d. Painting the steel beams and seats in the stadium "green" and continuously flashing the words "green" on the display monitors to remind everyone to use the waste cans and to clean around their seats before departing the stadium.

b. Building a LEED certified building and initiating recycling programs.

A(n) _________ occurs when one company buys the property and obligations of another company..

a. cooperative

b. hostile takeover

c. leveraged buyout

d. acquisition

d. acquisition

Compared to partnerships and sole proprietorships, a major <u>advantage</u> of the C (conventional) corporation as a form of business ownership is that it:.

a. Has the ability to raise more money.

b. Is easier and less expensive to form.

c. Qualifies for simplified tax treatment.

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d. Creates unlimited liability for its owners.

a. Has the ability to raise more money.

Mel, Tim, and Bill agreed to partner in a small rehab business. Initially, they were enthusiastic contributors until their first project took more work than Mel initially estimated; Tim wanted morning meetings and long lunch hours; and, Bill decided to go on vacation even though the project was not complete and ready to sell. As the Spotlight on Small Business box, titled, "The Ties That Bind" indicates,.

a. It's smart to begin the partnership with honest communication of what each partner expects to give and get from the partnership.

b. Organize the business as a limited liability company to reduce the financial risks that put pressure on members of the partnership.

c. Designate one of the partners as the primary partner with final authority to call all the shots.

d. Enter into partnerships with people who have similar educational and cultural backgrounds and similar personalities.

a. It's smart to begin the partnership with honest communication of what each partner expects to give and get from the partnership.

Several years ago, Regis Corporation, a very large hair styling salon company purchased 60 "Your Father's Mustache" salons. Although this was initially an acquisition, the merging of these two businesses was a(n) ___________. Regis went on to purchase several hair care product companies. Joining forces with hair care product companies would represent a ____________..

a. conglomerate merger; horizontal merger

b. vertical merger; horizontal merger

c. horizontal merger; vertical merger

d. conglomerate merger; conglomerate merger

c. horizontal merger; vertical merger

When a sole proprietor dies:.

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a. The sole proprietor's heirs have the option of taking over the business.

b. The business is sold to a larger corporation.

c. The company continues to function as it always has.

d. The company always closes down.

a. The sole proprietor's heirs have the option of taking over the business.

_____________ are companies that are similar to S Corporations but are not restricted with similar eligibility requirements..

a. Regulated equity companies

b. Corporate cooperatives

c. Limited liability companies

d. Private drawing companies

c. Limited liability companies

A firm or individual providing financial capital to small businesses in exchange for an ownership stake in the company is called a:.

a. corporate raider.

b. takeover specialist.

c. financial capitalist.

d. venture capitalist.

d. venture capitalist.

Located on Monsanto's world headquarters campus, the Nidus Center is a unique ___________ facility. The tenants are biotechnology companies who are at various stages of product development. The agricultural giant, Monsanto, the Danforth Foundation, Washington University St. Louis, St. Louis University, and several venture capital firms contribute seed money for these small start-up ventures that receive approval to further develop their ideas at the Nidus Center..

a. incubator

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b. Intrapreneurial

c. enterprise zone

d. micropreneurial

a. incubator

As a result of corporate downsizing, Alex lost his job as an information systems manager for a large telecommunications company. A bonafide computer geek in his own right, Alex knew that several of his past company contacts often outsourced their computer problems. He decided it was a good time to test the waters and see if he could secure enough computer clients to be in business for himself. His success demonstrated that:.

a. starting your own business can quickly provide security and profits.

b. people always tend to hire people they know from past associations.

c. the service sector is not an area of significant growth.

d. successful big businesses often create profitable opportunities for small businesses.

d. successful big businesses often create profitable opportunities for small businesses.

The U.S. government's Immigration Act of 1990:.

a. encouraged entrepreneurs to come to the U.S. through "investor visas".

b. established a government program to teach American workers displaced by immigration how to start their own businesses.

c. established guidelines to help entrepreneurs recruit legal aliens as a source of low cost labor.

d. proposed an exchange program for American and European entrepreneurs to temporarily live internationally in order to open up foreign branches for their businesses.

a. encouraged entrepreneurs to come to the U.S. through "investor visas".

A successful web-based strategy that helps a business spread the word about its web site and products is called _____________..

a. wildfire marketing

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b. "its all about the buzz"

c. social marketing

d. affiliate marketing

d. affiliate marketing

One of the challenges of running a home-based business is:.

a. an increase in business risk.

b. managing the extra time on your hands.

c. keeping work and family tasks separate.

d. burdensome tax laws.

c. keeping work and family tasks separate.

Peppy knows a lot about marketing, but not much about the legal or financial aspects of starting a new business. He wants to consult with a lawyer and accountant, but his budget is tight with all of the expenses involved in getting Peppy's Pizzazzeria up and running. Peppy should:.

a. delay talking with a lawyer and accountant until the business has established a positive cash flow for at least one year.

b. trust his basic instincts and try to put it together without the advice of lawyers and accountants.

c. consult with a lawyer and accountant even though the budget is tight.

d. immediately hire full time lawyers and accountants for his staff.

c. consult with a lawyer and accountant even though the budget is tight.

According to SBA guidelines, a manufacturing firm with 1,000 employees:.

a. would be classified as a large firm in the industrial sector.

b. may be classified as a small business depending upon the size of other firms in the industry.

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c. is too small to achieve the efficiencies of large scale production.

d. is classified as an S corporation.

b. may be classified as a small business depending upon the size of other firms in the industry.

Small businesses are important to the U.S. economy because:.

a. they fill-in the gaps when large businesses want to let workers go on vacation; or when large businesses want to temporarily cease production

b. banks and other financial services companies would not have borrowing customers, because small businesses borrow more than large businesses

c. they pay most of the tax revenue collected by the U.S. government

d. they create over 60% of new jobs each year and generate over 50% of the U.S. GDP

d. they create over 60% of new jobs each year and generate over 50% of the U.S. GDP

Successful entrepreneurs are self-nurturing. This means they:.

a. look to others for strength and encouragement.

b. self-finance their business with no assistance from others.

c. perform all business operations by themselves.

d. believe in themselves and their ideas.

d. believe in themselves and their ideas.

How are managers today different from managers in the past?.

a. Managers today are more likely to reprimand workers

b. Managers in the past would use praise and gentle suggestions

c. Managers in the past were less loyal to their employer

d. Managers today emphasize teamwork

d. Managers today emphasize teamwork

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The revolution in management that is currently underway suggests that the most effective managers of the future will:.

a. be very strict in their treatment of workers.

b. emphasize individual initiative rather than teamwork.

c. specialize in performing one of the four management functions.

d. emphasize team work.

d. emphasize team work.

__________ planning determines the major goals of an organization and lays the foundation for obtaining and using resources to achieve those goals..

a. Strategic

b. Contingency

c. Central

d. Tactical

a. Strategic

One difference between managers and leaders is that:.

a. managers are found in businesses while leaders operate in nonprofit organizations.

b. mangers work to achieve stability while leaders embrace change.

c. managers use an autocratic approach while leaders embrace a democratic style.

d. all employees can manage, but only top managers can lead.

b. mangers work to achieve stability while leaders embrace change.

Which of the following is involved in setting work standards and schedules needed to implement the firm's tactical objectives?.

a. Mission statement

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b. Tactical planning

c. Operational planning

d. Contingency planning

c. Operational planning

A(n) __________ is used by an organization to show who is accountable for the completion of specific work and who reports to whom..

a. balance sheet

b. Venn diagram

c. stakeholder outline

d. organization chart

d. organization chart

___________ skills involve a manager's ability to picture the organization as a whole and the relationship among its various parts..

a. Creative

b. Technical

c. Conceptual

d. Autonomic

c. Conceptual

When we think of successful music entertainment groups of the past sixty years, the Beatles&#153; almost always appear in the top 5! In the early days, the entertainment group's life cycle could have ended as so many other rock groups do - here today, gone tomorrow. The four musicians were definitely creative and passionate about their craft and genre of music. As the informal leader of the group, John Lennon _____________ the others to make important compositional contributions. All four members had the opportunity to create musical compositions and receive copyright credit for their contributions..

a. transformed

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b. enabled

c. empowered

d. commanded

c. empowered

Jamal is part of a management group that is examining whether his company, State Engineering, should offer some important new services that would broaden its business by appealing to a different group of potential clients. Jamal's group is involved with:.

a. contingency planning.

b. operational planning.

c. strategic planning.

d. tactical planning.

c. strategic planning.

By completing the courses needed to obtain a college major in accounting, marketing, or some other field, a student can go a long way toward acquiring the _________ skills managers need to rise through the ranks of their area of specialization..

a. autocratic

b. technical

c. human relations

d. secondary

b. technical

Mini-Case<br/><br/>Angelica Canizales is the CEO of Mucho Dinero Enterprises. Sales have declined for four consecutive years and the firm's accountants have reported net losses in each of the last two years. Employees appear demoralized and frustrated. Recently, Angelica met with managers from marketing, production, and finance to listen to their views regarding the company's problems. The managers unanimously agreed that the main problem was a lack of communication between the several functional areas of the business. Each manager felt that the firm could increase quality and customer satisfaction with better interdepartmental communication. Angelica also met with marketing and production employees to get their respective opinions on the problems of the firm. One employee from

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the production department observed that, "We have so many layers of management that it takes forever to make decisions." An employee from marketing complained that, "This place is so bogged down with rules and regulations that there is no opportunity to be creative." Several employees shared their opinions regarding their bosses. Specifically, one employee expressed "My boss never pays attention to my ideas. He just issues orders and expects me to obey them." Angelica decided, after listening to many comments from employees, suppliers, and customers, that the only way to end Mucho Dinero's slide was to completely rethink the firm's structure and to make radical changes in its organization. She presented her ideas to the board of directors, promising to voluntarily resign if her efforts to reorganize did not return the firm to profitability.<br/>&#160;<br/>Angelica's decision to completely redesign Mucho Dinero's organization indicates that she believes the best approach to her firm's problems is:.

a. competitive benchmarking.

b. flexible departmentalization.

c. restructuring.

d. organizational therapy.

c. restructuring.

Multinational pharmaceutical companies who during the past 20 years preferred to contract with companies in India and other places with cheap labor are turning back to the U.S. to produce their products. The recent popularity of _______________ is due to compliance issues and legal issues, as well as the quality of output..

a. market transition

b. market transformation

c. outsourcing

d. insourcing

d. insourcing

In recent years, large organizations have tried to improve their efficiency in communication and decision making by:.

a. creating specific rules for everyone to follow.

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b. eliminating several layers of management.

c. restructuring into a bureaucratic organization.

d. reducing the span of control for managers.

b. eliminating several layers of management.

During the past six years, the marketing department manager at Creative Concepts International made a strong push to hire mover/shaker professionals that had superior performance records prior to joining this company. It didn't take long for these enthusiastic marketers to recognize the many talents within their department. They marveled at how much they were like each other and how they seemed to agree with each other's work styles and ideas. After a while, it became difficult for others in the organization to present to this group. If the idea did not originate within the marketing department, marketers did not give it much credence. Management counselors would describe this phenomenon as _____..

a. departmentalization clique

b. inter-office competition

c. forward thinking friction

d. groupthink

d. groupthink

In open organizations the informal organization can be:.

a. a hindrance to effective management.

b. an asset that promotes harmony among workers.

c. a roadblock to the corporate culture.

d. part of the formal organization.

d. part of the formal organization.

Carlos is the person to see in the welding department if you are a new employee. While he is not a manager, he is the person that most of the others in the department look to for advice and assistance. Carlos is an important member of the firm's:.

a. supervisory management.

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b. participatory control.

c. informal organization.

d. closet cabinet.

c. informal organization.

Heather works as a sales representative for the Westerly Company. She really enjoys working for Westerly, because the company treats her and other sales representatives as highly valued employees. Sales reps at Westerly are given freedom and flexibility in their relationships with customers. While there are only a few layers of management at Westerly, Heather has found that these managers try their best to support and assist her efforts. Based on Heather's experience, it appears that Westerly is a(n):.

a. bureaucratic organization.

b. inverted organization.

c. tall organization.

d. casual organization.

b. inverted organization.

Max Weber favored which of the following?.

a. Inverted organizations

b. Worker participation in decision making

c. Staffing and promotions based on qualifications

d. Flat organizations

c. Staffing and promotions based on qualifications

Which of the following is an advantage of a line organization in a large business?.

a. It does not require specialists to advise people along the line

b. Responsibility and authority are clearly defined

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c. Each worker has several supervisors

d. It is very flexible

b. Responsibility and authority are clearly defined

Which of the following is considered to be an advantage of functional departmentalization?.

a. Employees begin to identify with their department and its goals rather than with the goals of the entire organization

b. People in the same department tend to think very differently

c. Departments are isolated from one another

d. Employee skills can be developed in depth

d. Employee skills can be developed in depth

Production management is the traditional term used to describe all the activities managers do to help their firms create:.

a. resources.

b. goods.

c. services.

d. equities.

b. goods.

Experts in operations management for service industry type businesses stress:.

a. using records from accounting to determine what business to go after.

b. relying on one's individual operation as opposed to developing partnerships.

c. training employees on quality management.

d. training employees to always adhere to only one way of doing things.

c. training employees on quality management.

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Contemporary operations management planning is an <i>interfirm</i> process. This means:.

a. the process must integrate all of the functional units of a firm's operation, including production, marketing, finance, and logistics.

b. the process is a confidential plan that is not shared with suppliers or customers. It stays within the firm.

c. it is a process where several firms work closely together to produce goods and services, and anticipate a changing environment.

d. it is a process that seeks stability by adhering to top down management.

c. it is a process where several firms work closely together to produce goods and services, and anticipate a changing environment.

SitRite Furniture Company uses labor and machinery to transform wood, plastic, metal and cloth into comfortable chairs, sofas, and love seats. This process creates:.

a. form utility.

b. place utility.

c. use facility.

d. intangible productivity.

a. form utility.

For most service businesses the quality standard has become:.

a. providing prompt and predictable service.

b. providing a competitive level of service at the lowest cost.

c. delighting customers by anticipating their needs.

d. less important than it is for manufacturing businesses.

b. providing a competitive level of service at the lowest cost.

Initially, ATM's (automated teller machines) were introduced so that customers could make withdrawals from their bank accounts, day or night. As the technology improved, the machines offered a variety of services including the acceptance of deposits, the ability to get

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credit card advances, check your bank account balances, and even purchase prepaid cell phone credit. ATMs now offer:.

a. flexible manufacturing for its customers.

b. lean services because it only needs to keep a certain amount of cash in each machine.

c. technology similar to CAD.

d. faster service and mass customization.

d. faster service and mass customization.

Operations management in the service sector is focused on creating:.

a. good experiences for those who use the service.

b. jobs for the local community.

c. additional customer expectations.

d. inexpensive ways to get things done.

a. good experiences for those who use the service.

____________ examines statistical samples of product components at each stage of the production process and plots the results on a graph in order to spot and any variances from desired quality levels..

a. CAD/CAM

b. Econometrics

c. Analysis of variance

d. Statistical process control

d. Statistical process control

A PERT network consists of activities linked by arrows. Suppose two of the activities on the network are labeled "A" and "B". An arrow from "A" to "B" indicates that:.

a. the same resources used to complete "A" are also used to complete "B".

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b. "A" and "B" can be completed at the same time.

c. "A" takes longer to complete than "B".

d. "A" must be completed before "B" can begin.

d. "A" must be completed before "B" can begin.

A firm that is certified as meeting both ISO 9000 and ISO 14000 standards has demonstrated:.

a. world-class management of both quality and environmental standards.

b. sound financial and marketing practices.

c. ethical treatment of both customers and employees.

d. that its recruitment and training programs for employees protect and promote basic human rights.

a. world-class management of both quality and environmental standards.

__________ involves computers directly in the production process..

a. CAD

b. CAM

c. AMDA

d. AMCAP

b. CAM

In ___________, materials are physically or chemically changed to produce a product..

a. process manufacturing

b. assembly processes

c. utilitarian production

d. diffusive manufacturing

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a. process manufacturing

Efforts to redesign and rebuild America's manufacturing base are likely to:. a. fade in importance as foreign manufacturers continue to gain control of important markets.

b. continue to be an important issue in the near future.

c. focus on government efforts to foster performance in a few key industries.

d. give way to an intense effort to convert the U.S. to an entirely service-based economy.

b. continue to be an important issue in the near future.

The Ritz-Carlton hotel offers restaurants with the finest service, elevators that run smoothly, and a front desk that processes people quickly. Many times fresh-cut flowers are in the lobbies and dishes of fruit are in each room. __________ is responsible for implementing these customer benefits..

a. Human resources management

b. The management staff

c. Operations management

d. Production management

c. Operations management

Most new manufacturing facilities use:.

a. continuous processes.

b. intermittent processes.

c. traditional processes.

d. synthetic processes.

b. intermittent processes.

Which of the following statements best reflects the approach state and local governments take to influence the location decisions of businesses? State and local governments:.

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a. often engage in fierce competition to attract businesses, including the offer of tax breaks, zoning changes, and financial aid

b. try to avoid competition with other areas, because such competition usually backfires and creates ill-will

c. no longer pursue new businesses, because they have found that attempts to attract businesses are usually too expensive to justify the results

d. work primarily through the federal government and the Small Business Administration to obtain financial assistance for firms seeking to locate in their area

a. often engage in fierce competition to attract businesses, including the offer of tax breaks, zoning changes, and financial aid

Cooltreet, Inc., combines sugar, cream, eggs, and flavorings, then churns and cools the resulting mixture to a very low temperature until it freezes, creating ice cream. The method Cooltreet uses is an example of:.

a. an analytic production system.

b. a process manufacturing.

c. an assembly process.

d. a symbiotic process.

b. a process manufacturing.

___________ utility is the value added by the creation of finished goods and services using raw materials, components, and other inputs..

a. Manufacturing

b. Marginal

c. Consumption

d. Form

d. Form

Courtney was planning a new product launch. She knew that the art department was ready to work on the promotional pieces now, but they couldn't start until the strategy group

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established the price point and the purchasing group obtained the paper needed to make the promotional piece. Establishing price points would take about a week and was dependent on manufacturing getting the costs to the strategy group. This was expected a week from today. The purchasing group indicated the paper could be obtained locally the same day it was requested. Assuming things go as planned and based on this information, when will the art department be able to begin work on the promotional pieces?.

a. Immediately

b. 1 week

c. 2 weeks

d. 1 month

c. 2 weeks

Operations management is a specialized area in management that converts resources into:.

a. services, rather than goods.

b. goods, rather than services.

c. both goods and services.

d. financial data.

c. both goods and services.

___________ is the characteristic of work concerned with the degree of freedom, independence and discretion an employee has in scheduling work and determining procedures..

a. Autonomy

b. Interdependence

c. Feedback

d. Task significance

a. Autonomy

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Matt works for a sports marketing firm. He feels that he has been treated unfairly by the organization. He helped three other employees organize a series of successful street hockey tournaments in different regions of the country. While the other employees were given a bonus and corporate recognition, his efforts were ignored. According to equity theory, Matt is likely to respond by:.

a. ignoring the perceived inequity.

b. reaching the conclusion that his treatment is not related to the treatment of others.

c. reducing his efforts on future projects.

d. threatening the boss.

c. reducing his efforts on future projects.

_________ is the term William Ouchi used to refer to the management approach typically used by firms in the United States..

a. Type A

b. Type Z

c. Theory Q

d. Theory J

a. Type A

Maslow placed _________ needs at the highest level of his hierarchy..

a. self-actualization

b. esteem

c. deferred

d. social

a. self-actualization

Which of the following is <u>not</u> considered one of Herzberg's strategies for creating enthusiasm at work?.

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a. Focus on making the job interesting

b. Similar pay and benefits for a similar job

c. Company and management support in achieving employee objectives

d. Provide opportunities for advancement and added responsibility

b. Similar pay and benefits for a similar job

A strength of Generation X managers is likely to be their:.

a. loyalty to the firm.

b. individualistic approach to problem solving.

c. ability to provide feedback to employees.

d. willingness to sacrifice other aspects of their lives to achieve success in the workplace.

c. ability to provide feedback to employees.

Herzberg's research indicated that employees are motivated by job content. Contemporary managers focus on _____________ by increasing the significance of the job, and even providing the employee with important feedback..

a. rotating the job

b. enriching the job

c. simplifying the job

d. reducing the responsibilities in the job

b. enriching the job

Douglas McGregor described two very different sets of managerial attitudes about employees, which he called:.

a. the positive view and the negative view.

b. the macro perspective and the micro perspective.

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c. Theory X and Theory Y.

d. individualism and collectivism.

c. Theory X and Theory Y.

According to Herzberg, a sense of achievement, earned recognition, and interest in the work itself were all:.

a. important motivators.

b. hygiene factors.

c. ways for employees to meet their social needs.

d. consistent with his Theory X approach to motivation.

a. important motivators.

__________ is the degree to which a job requires doing a task with a visible outcome from beginning to end..

a. Task significance

b. Autonomous responsibility

c. Job specification

d. Task identity

d. Task identity

Probably the most controversial program enforced by the Equal Employment Opportunity Commission concerns:.

a. mandatory retirement.

b. affirmative action.

c. equal pay reporting.

d. green card requirements for illegal aliens.

b. affirmative action.

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Mario's business was growing at a steady rate, but he knew he could do better! In order to capture more business, he would have to hire a few more sales professionals to sell into new markets. As he pondered his staffing needs, his sister who worked in HR informed him that he needed to do a <i>job analysis</i> before hiring. Which of the following would be a logical part of a job analysis for a sales position?.

a. Asking the current sales reps to create a log of their daily and weekly activities

b. Asking the HR specialist to create an online application for the position(s)

c. Training new recruits

d. Determining how many sales reps other companies typically have on staff

a. Asking the current sales reps to create a log of their daily and weekly activities

Which of the following statements about home-based work and telecommuting is most accurate?.

a. Although home-based work may become very popular in the future, only a small percentage of workers currently work at home on a regular basis.

b. Telecommuting offers big advantages for many workers, but is likely to increase costs for employers significantly.

c. Home-based work tends to increase the productivity of almost all workers, since people tend to be more productive when they are comfortable and can work flexible hours.

d. Home-based work allows workers to choose their own hours and interrupt work for child care and other tasks, but this freedom and flexibility can create problems for some workers.

d. Home-based work allows workers to choose their own hours and interrupt work for child care and other tasks, but this freedom and flexibility can create problems for some workers.

The Creative Director at Image First Promotion Company got word yesterday that the firm lost the Hottie Potatee account. As its second best customer, the Director must quickly perform damage control and unfortunately dismiss two creative writers and one web development content provider. As he prepares to call each of them to his office and perform the dismissals, he decides to make one final call to the company HR manager to make certain that he is doing and saying the right things. The HR manager will <u>disagree</u> with which of the following statements?.

a. He will offer each employee a three-month severance package, as long as they agree to sign a non-compete agreement for that time period.

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b. He will be consistent in his remarks to the three employees.

c. He will create a story that their jobs are being eliminated due to new technology since revealing that the firm lost a major account could tarnish the image of the firm.

d. Assure each employee that they can count on him for future job references and that he will be honest with anyone inquiring as to why they were dismissed.

c. He will create a story that their jobs are being eliminated due to new technology since revealing that the firm lost a major account could tarnish the image of the firm.

One of the most important responsibilities for professionals in the human resources field is:.

a. understanding the ethical perspective of each employee.

b. filing employee medical claims.

c. to always "right past wrongs."

d. staying current with employment-related legislation.

d. staying current with employment-related legislation.

Which of the following workers would be the best example of a contingent worker?.

a. an assembly line worker who belongs to a union and has 17 years of seniority

b. an accountant hired to help during the busy tax season

c. an elementary school teacher who just received tenure

d. an electrical engineer who frequently travels out of the country to the various manufacturing facilities owned and operated by his firm

b. an accountant hired to help during the busy tax season

A firm would implement a policy of holding exit interviews if it wanted to:.

a. find out why so many of its good employees were quitting.

b. implement a golden handshake policy.

c. allow immediate supervisors one more chance to convince retiring workers to stay on the

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job.

d. make sure workers who agreed to telecommute understood their new responsibilities.

a. find out why so many of its good employees were quitting.

Corporate managers who supervise, coach, and guide lower-level employees and serve as their organizational sponsors are called:.

a. networkers.

b. role models.

c. mentors.

d. corporate guides.

c. mentors.

As an important step in the human resource selection process, which of the following will expedite the process of conducting background investigations and promises to get suitable results?.

a. Hiring services such as LexisNexis to conduct criminal checks and driving records.

b. Dedicating one human resource expert to making personal calls and doing all the background checks.

c. Minimalizing the types of questions the company asks at this juncture.

d. If there is a need to skip one of the selection process steps, most companies have found that this one can be eliminated.

a. Hiring services such as LexisNexis to conduct criminal checks and driving records.

Which of the following is a challenge that is facing the human resource managers of today?.

a. too many unemployed scientists and computer engineers

b. an increasing number of Gen Yers in the workforce

c. a shift in employee attitudes toward work

d. an increased demand for uniformity in benefits offered to employees

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c. a shift in employee attitudes toward work

Almost overnight, several police persons, all members of the police force of the growing suburb of Mayberry called in sick. As the dispatcher took those calls - one right after the other, she speculated that there could be more to this story than she was hearing. In fact, she thought it might be related to the emotional banter she heard the night before in the locker room as several members of the force were leaving their shifts. The group was not happy with the recent changes in scheduling, the excessive over-time hours, and, management's reluctance to begin negotiations on a new benefits package. She heard one person saying, "It's time for a mental health day!" Although it is illegal for police to strike, they may be claiming to have _______..

a. Saturday nite fever

b. the blue flu

c. a lockout

d. a shutterbug

b. the blue flu

A labor dispute between the AFL-CIO and Gainesville Brewery is into its eighth month. The AFL-CIO has called on its membership and the general public to refuse to purchase Gainesville products. The AFL-CIO is calling for a:.

a. general boycott.

b. secondary boycott.

c. primary boycott.

d. public boycott.

c. primary boycott.

The leadership of _____________ was instrumental in bringing about the merger between the American Federation of Labor and the Congress of Industrial Organizations in 1955..

a. George Meany

b. Terence K. Powderly

c. Ronald Reagan

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d. Samuel Gompers

d. Samuel Gompers

A key difference between a mediator and an arbitrator is that:.

a. a mediator is appointed by labor and management, while an arbitrator is appointed by the federal government under terms set forth in the Taft-Hartley Act.

b. a mediator is an unpaid volunteer, while an arbitrator is a paid professional.

c. an arbitrator can settle a labor-management dispute by rendering a binding decision, while a mediator can only make suggestions and encourage the two sides in a dispute to continue negotiating.

d. a mediator is a lawyer who represents either labor or management in a labor dispute, while an arbitrator is an impartial advisor who listens to both sides of the dispute and offers suggestions that help the two parties reach a mutually acceptable agreement.

c. an arbitrator can settle a labor-management dispute by rendering a binding decision, while a mediator can only make suggestions and encourage the two sides in a dispute to continue negotiating.

Closed shops were declared illegal by the:.

a. Taft-Hartley Act.

b. Norris-LaGuardia Act.

c. National Labor Relations Board in 1929.

d. U.S. Supreme Court in 1946.

a. Taft-Hartley Act.

In a(n) _______, all of the members are skilled specialists in a particular trade..

a. ESOP

b. craft union

c. industrial union

d. trade federation

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b. craft union

If management and union officials cannot resolve a grievance, a(n) _________ is asked to listen to the arguments of each side and to make a decision that both sides will have to comply with..

a. confirmer

b. counselor

c. arbitrator

d. mediator

c. arbitrator

The justification for dues or fees paid by nonunion members to the union in a(n) _________ shop is that the union represents all workers in collective bargaining, not just those who belong to the union..

a. closed

b. agency

c. fee simple

d. union

b. agency

During the first decade of the 21<sup>st</sup> century, the AFL-CIO saw its membership significantly decline when ___________________________________..

a. Seven of its member unions split to form a new union, the CtW [Change to Win].

b. Its large representation decided to merge with the manufacturers and craft unions.

c. Members looking for a better bargain with respect to membership dues elected to form independent unions.

d. The stronger member unions refused to acknowledge international member groups, and essentially voted them out of the union.

a. Seven of its member unions split to form a new union, the CtW [Change to Win].

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Under a(n) ___________ shop agreement, workers must belong to the union before they are hired..

a. open

b. union

c. agency

d. closed

d. closed

The __________ was set up as a federation of many separate craft unions..

a. Knights of Labor

b. Committee of Industrial Organizations

c. League of Unions

d. American Federation of Labor (AFL)

d. American Federation of Labor (AFL)

The first federal minimum wage was established by the:.

a. Fair Labor Standards Act.

b. Wagner Act.

c. Minimum Compensation Act.

d. Pay Equity Act.

a. Fair Labor Standards Act.

The Industrial Revolution was characterized by a(n):.

a. increased emphasis on production, resulting in longer hours and less job security for most workers.

b. migration of manufacturing jobs from the Midwest and Northeast to the South as firms

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began locating in areas where labor costs were lower.

c. rapid improvement in the wages and working conditions of most workers, resulting in a decline in the need for labor unions.

d. movement away from scientific management, and a greater acceptance of the ideas of Herzberg and Maslow.

a. increased emphasis on production, resulting in longer hours and less job security for most workers.

Drug problems among workers is costing the U.S. economy upwards of ______ in lost work, health care costs, and even crime and accidents..

a. $100 million

b. $50 billion

c. $414 billion

d. $50 thousand

c. $414 billion

One strategy unions must adapt in order to grow in the future is to:.

a. find ways to appeal to white-collar, female, and foreign-born workers.

b. find ways to prevent foreign companies from entering the U.S. market.

c. go back to the old methods of aggressive tactics and confrontation that were used successfully in the past.

d. emphasize recruiting efforts in the manufacturing sector of the economy.

a. find ways to appeal to white-collar, female, and foreign-born workers.

The _________ Act established the National Labor Relations Board..

a. Wagner

b. Taft-Hartley

c. Norris-LaGuardia

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d. Fair Labor Standards

a. Wagner

Bob believes that management is treating him unfairly because of his efforts to organize a vote for union representation. Which organization should Bob contact to report his concerns?.

a. Federal Board of Labor Rights

b. National Labor Relations Board

c. Federal Trade Commission

d. Federal Commission on Unfair Labor Practices

b. National Labor Relations Board

Mini-Case<br/><br/>The workers at Endrun Corporation are not affiliated with a union. Until recently, the workers felt they were well paid and treated fairly by the company, so they had little interest in seeking union representation. However, worker morale at Endrun has declined steadily since the board of directors fired the old CEO last year and replaced him with Ty Runt, a no-nonsense, autocratic manager with a reputation for cutting costs. As soon as he took over, Ty fired other members of the old top management team and replaced them with people who shared his views. Together, the new management team made a series of moves that did not sit well with Endrun's workers. First, they announced changes in work procedures designed to speed up the production line. Many workers complained that the new methods cut corners and were unsafe, but management refused to listen. A few months after changing work methods, the company told workers that it was reducing their health benefits. This led to even greater worker unrest. Finally, just a few weeks ago, workers received word that the wages of all production line employees would be cut by 6 percent. Many employees felt this was the last straw, especially since the company's board of directors recently approved big salary increases and more lucrative stock option plans for Ty and his management team. A spokesperson for the board explained that the raises were justified because of the management team's "outstanding efforts to reduce costs, increase productivity, and improve the company's profits."<br/><br/>Several disgruntled employees, led by Ima Striker and Boyd Cotter, now believe it is time to obtain union representation. Top managers at the company have hinted that workers who actively participate in the union campaign may be among the first workers laid off if the company decides to downsize. Ima and Boyd are not intimidated by these management threats. "I wish we didn't have to do this," Ima recently told many of her fellow workers at the plant. "But someone has to stop Ty Runt and his team from ruining our jobs."<br/>&#160;<br/>After gaining union representation, any workers with complaints regarding promotions, layoffs, and job assignments will file a(n) ________ with their shop steward..

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a. grievance

b. arbitration request

c. injunction

d. yellow-dog contract

a. grievance

The steps Ima, Boyd and their fellow workers must take to get the union legally recognized as the authorized bargaining agent are parts of the __________ process..

a. accreditation

b. arbitration

c. certification

d. collective bargaining

c. certification

The Taft-Hartley Act:.

a. established the first minimum wage.

b. allowed individual states to pass right-to-work laws prohibiting compulsory union membership.

c. required management to bargain in good faith with union representatives.

d. set up the process by which unions could be recognized as the exclusive bargaining agents for a group of workers.

b. allowed individual states to pass right-to-work laws prohibiting compulsory union membership.

The significant increase in consumer demand following World War II marked the beginning of the:.

a. production era.

b. selling era.

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c. marketing concept era.

d. customer relationship era.

c. marketing concept era.

Understanding consumers in marketing is considered so important that a whole area of marketing called _____________________ emerged..

a. customer programming

b. consumer behavior

c. individual benchmarking

d. customers competency

b. consumer behavior

A consumer's decision-making process is influenced by his/her _________, consisting of those people who help shape the consumer's beliefs, attitudes, values or behavior..

a. reference group

b. focus group

c. target audience

d. social class

a. reference group

Which of the following describes individuals that want goods and services for personal consumption and have the resources to buy them?.

a. secondary market

b. business-to-business market

c. market segmentation

d. consumer market

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d. consumer market

A comparison of the marketing concept and customer relationship management indicates that customer relationship management:.

a. and the marketing concept are in fact identical.

b. attempts to improve profits by keeping quality high, while the marketing concept attempts to improve profits by a careful design of the promotional mix.

c. turns the marketing concept upside down. The marketing concept emphasized that marketing was the most important function performed by a firm, but customer relationship management views management to be the most important function.

d. extends the marketing concept by calling for the firm to learn more about its customers so that it not only satisfies them, but exceeds their expectations over time.

d. extends the marketing concept by calling for the firm to learn more about its customers so that it not only satisfies them, but exceeds their expectations over time.

People with unsatisfied wants and needs who have both the ability and the willingness to buy are:.

a. a market.

b. stockholders.

c. a profit center.

d. a marketing mix.

a. a market.

A ________ marketing strategy develops products and promotions designed to please large groups of people..

a. volume

b. mass

c. relationship

d. value

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b. mass

____________ is the process of identifying factors that can affect marketing success..

a. Environmental scanning

b. Target marketing

c. Niche marketing

d. Segmentation analysis

a. Environmental scanning

Firms that adopt a relationship marketing strategy attempt to:.

a. develop products that meet the specific requirements of individual customers.

b. maximize their market share by designing products that appeal to large numbers of customers.

c. develop their promotional efforts utilizing mass media such as television, newspapers and radio in order to relate to a large audience.

d. maximize market share by controlling production costs and maintaining low prices.

a. develop products that meet the specific requirements of individual customers.

Type: F Topic: 1 E: 504-505 MI: 260-261

1. Resource pricing is important because:

A) resource prices are a major determinant of money incomes.

B) resource prices allocate scarce resources among alternative uses.

C) resource prices, along with resource productivity, are important to firms in minimizing their costs.

D) of all of the above reasons.

Answer: D

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Type: A Topic: 1 E: 505 MI: 261

2. Which of the following statements best illustrates the concept of derived demand?

A) As income goes up the demand for farm products will increase by a smaller relative amount.

B) A decline in the price of margarine will reduce the demand for butter.

C) A decline in the demand for shoes will cause the demand for leather to decline.

D) When the price of gasoline goes up, the demand for motor oil will decline.

Answer: C

Type: D Topic: 1 E: 505 MI: 261

3. When economists say that the demand for labor is a derived demand, they mean that it is:

A) dependent on government expenditures for public goods and services.

B) related to the demand for the product or service labor is producing.

C) based on the desire of businesses to exploit labor by paying below equilibrium wage rates.

D) based on the assumption that workers are trying to maximize their money incomes.

Answer: B

Type: A Topic: 1 E: 505 MI: 261

4. The demand for airline pilots results from the demand for air travel. This fact is an example of:

A) resource substitutability. C) elasticity of resource demand.

B) rising marginal resource cost. D) the derived demand for labor.

Answer: D

Type: D Topic: 1 E: 505 MI: 261

5. We say that the demand for labor is a derived demand because:

A) labor is a necessary input in the production of every good or service.

B) we demand the product that labor helps produce rather than labor service per se.

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C) the forces of supply and demand do not apply directly to labor markets.

D) labor is hired using the MRP = MRC rule.

Answer: B

Type: A Topic: 1 E: 505 MI: 261

6. The demand for a resource depends primarily on:

A) the supply of that resource.

B) the demand for the product or service that it helps produce.

C) the price of that input.

D) the elasticity of supply of substitute inputs.

Answer: B

Type: A Topic: 1 E: 505 MI: 261

7. The demand for labor is derived from:

A) the demands for other variable inputs.

B) consumer demand for the product or service it is helping to produce.

C) the cost-minimization rule.

D) the supply of related inputs.

Answer: B

Type: A Topic: 1 E: 505 MI: 261

8. In the United States professional football players earn much higher incomes than professional soccer players. This occurs because:

A) most football players are good soccer players while the reverse is not true.

B) consumers have a greater demand for football games than for soccer games.

C) football and soccer games are highly substitutable products for most consumers.

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D) the marginal productivity of soccer players exceeds that of football players.

Answer: B

Resource demand curve; optimal hiring

Type: D Topic: 2 E: 505 MI: 261

9. Marginal revenue product measures the:

A) amount by which the extra production of one more worker increases a firm's total revenue.

B) decline in product price that a firm must accept to sell the extra output of one more worker.

C) increase in total resource cost resulting from the hire of one extra unit of a resource.

D) increase in total revenue resulting from the production of one more unit of a product.

Answer: A

Type: A Topic: 2 E: 506-507 MI: 262-263

10. The marginal revenue product schedule is:

A) the same whether the firm is selling in a purely competitive or imperfectly competitive market.

B) the firm's resource demand schedule.

C) the firm's resource supply schedule.

D) upsloping.

Answer: B

Type: A Topic: 2 E: 507 MI: 263

11. The purely competitive employer of resource A will maximize the profits from A by equating the:

A) price of A with the MRP of A. C) marginal productivity of A with the price of A.

B) marginal productivity of A with the MRC of A. D) price of A with the MRC of A.

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Answer: A

Type: A Topic: 2 E: 506-507 MI: 262-263

12. The MRP curve for labor:

A) intersects the firm's labor demand curve from above.

B) is the firm's labor demand curve.

C) lies below the firm's labor demand curve.

D) lies above the firm's labor demand curve.

Answer: B

Type: D Topic: 2 E: 506 MI: 262

13. Marginal product is:

A) the output of the least skilled worker.

B) the amount an additional worker adds to the firm's total output.

C) a worker's output multiplied by the price at which each unit can be sold.

D) the amount any given worker contributes to the firm's total revenue.

Answer: B

Type: A Topic: 2 E: 506-507 MI: 262-263

14. The labor demand curve of a purely competitive seller:

A) slopes downward because the elasticity of demand is always less than unity.

B) slopes downward because of diminishing marginal productivity.

C) is perfectly elastic at the going wage rate.

D) slopes downward because of diminishing marginal utility.

Answer: B

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Type: A Topic: 2 E: 506 MI: 262

15. Assume labor is the only variable input and that an additional input of labor increases total output from 72 to 78 units. If the product sells for $6 per unit in a purely competitive market, the MRP of this additional worker is:

A) $6. B) $12. C) $36. D) $72.

Answer: C

Type: A Topic: 2 E: 506 MI: 262

16. If one worker can pick $30 worth of grapes and two workers together can pick $50 worth of grapes, the:

A) marginal revenue product of each worker is $25.

B) marginal revenue product of the first worker is $20.

C) marginal revenue product of the second worker is $20.

D) data given do not permit the determination of the marginal revenue product of either worker.

Answer: C

Type: A Topic: 2 E: 506-507 MI: 262-263

17. A competitive employer should hire additional labor as long as:

A) the MRP exceeds the wage rate. C) average product exceeds MP.

B) the wage rate is less than MP. D) MC exceeds MR.

Answer: A

Type: A Topic: 2 E: 506 MI: 262

18. A firm will find it profitable to hire workers up to the point at which their:

A) marginal resource cost equals their wage rate. C) MP is equal to their MRP.

B) wage rate equals product price. D) marginal resource cost is equal to their MRP.

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Answer: D

Type: A Topic: 2 E: 506 MI: 262

19. A profit-maximizing firm employs resources to the point where:

A) MRC = MP. B) Resource price equals product price. C) MRP = MRC. D) MP = product price.

Answer: C

Use the following to answer questions 20-22:

Answer the next question(s) on the basis of the following information: Jones owns a barber shop and charges $6 per haircut. By hiring one barber at $10 per hour the shop can provide 24 haircuts per 8-hour day. By hiring a second barber at the same wage rate the shop can now provide a total of 42 haircuts per day.

Type: A Topic: 2 E: 506 MI: 262

20. Refer to the above information. The MP of the second barber is:

A) $240. B) $108. C) 18. D) 42.

Answer: C

Type: A Topic: 2 E: 506 MI: 262

21. Refer to the above information. The MRP of the second barber:

A) is 18. B) is $108. C) is 42. D) is $24.

Answer: B

Type: A Topic: 2 E: 506 MI: 262

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22. Refer to the above information. Jones should:

A) hire the second barber because he will add $28 to profits.

B) hire the second barber because he will add $108 to profits.

C) not hire the second barber because he is less productive than the first barber.

D) not hire the second barber because he will diminish profits.

Answer: A

Type: A Topic: 2 E: 506-507 MI: 262-263

23. The labor demand schedule is identical with the:

A) marginal product schedule. C) marginal revenue product schedule.

B) marginal resource cost schedule. D) product demand schedule.

Answer: C

Type: A Topic: 2 E: 507 MI: 263

24. Assume the Apex Manufacturing company is purely competitive in both the hire of labor and in the sale of its product. Apex's labor demand curve would be:

A) vertical at the current level of employment. C) upward sloping.

B) horizontal at the "going" wage rate. D) downward sloping.

Answer: D

Type: A Topic: 2 E: 506-507 MI: 262-263

25. The general rule for hiring any input (say, labor) in the profit-maximizing amount is MRC = MRP. This rule takes the special form W = MRP (where W is the wage rate) when the:

A) labor supply curve is upsloping.

B) supply of labor is inelastic.

C) firm is hiring labor under purely competitive conditions.

D) firm is hiring labor under imperfectly competitive conditions.

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Answer: C

Use the following to answer questions 26-30:

Answer the next question(s) on the basis of the following information for Manfred's Shoe Shine Parlor. Assume Manfred hires labor, its only variable input, under purely competitive conditions. Shoe shines are also sold competitively.

Type: T Topic: 2 E: 506 MI: 262

26. Refer to the above data. How many units of output are produced when 2 workers are employed?

A) 4 B) 16 C) 24 D) 10

Answer: C

Type: T Topic: 2 E: 506 MI: 262

27. Refer to the above data. What is the marginal product of the sixth worker?

A) 2 units B) 3 units C) 4 units D) 5 units

Answer: B

Type: T Topic: 2 E: 506-507 MI: 262-263

28. Refer to the above data. At what price does each shoe shine sell?

A) $1 B) $2 C) $3 D) $2.50

Answer: C

Type: T Topic: 2 E: 506-507 MI: 262-263

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29. Refer to the above data. If the wage rate is $11, how many workers will Manfred hire to maximize profits?

A) 1 B) 2 C) 3 D) 5

Answer: D

Type: T Topic: 2 E: 507 MI: 263

30. Refer to the above data. If Manfred's only fixed input is capital, the total cost of which is $30, then what will be his economic profit?

A) $62 B) $42 C) $28 D) $32

Answer: D

Type: A Topic: 2 E: 506-507 MI: 262-263

31. Assume that a restaurant is hiring labor in an amount such that the MRC of the last worker is $16 and her MRP is $12. On the basis of this information we can say that:

A) profits will be increased by hiring additional workers.

B) profits will be increased by hiring fewer workers.

C) marginal revenue product must exceed average revenue product.

D) the restaurant is maximizing profits.

Answer: B

Use the following to answer questions 32-35:

Answer the next question(s) on the basis of the information given in the following table:

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Type: T Topic: 2 E: 506 MI: 262

32. Refer to the above data. This firm is:

A) selling its product in a purely competitive market.

B) selling its product in an imperfectly competitive market.

C) hiring workers in a purely competitive market.

D) hiring workers in an imperfectly competitive market.

Answer: A

Type: T Topic: 2 E: 506-507 MI: 262-263

33. Refer to the above data. If the firm is hiring workers under purely competitive conditions at a wage rate of $22, it will employ:

A) 1 worker. B) 2 workers. C) 3 workers. D) 4 workers.

Answer: C

Type: T Topic: 2 E: 507 MI: 263

34. Refer to the above data. If the firm is hiring workers under purely competitive conditions at a wage rate of $10, it will employ:

A) 2 workers. B) 3 workers. C) 4 workers. D) 5 workers.

Answer: D

Type: T Topic: 2 E: 507 MI: 263

35. Refer to the above data. Which of the following best represents the labor demand schedule for this firm?

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Answer: A

Type: A Topic: 2 E: 507 MI: 263

36. Assuming a firm is selling its output in a purely competitive market, its resource demand curve can be determined by:

A) multiplying total product by product price.

B) multiplying marginal product by product price.

C) dividing total revenue by marginal product.

D) comparing marginal product with various possible input prices.

Answer: B

Type: D Topic: 2 E: 506 MI: 262

37. Marginal resource cost is:

A) the increase in total resource cost associated with the production of one more unit of output.

B) the increase in total resource cost associated with the hire of one more unit of the resource.

C) total resource cost divided by the number of inputs employed.

D) the change in total revenue associated with the employment of one more unit of the resource.

Answer: B

Use the following to answer questions 38-40:

Answer the next question(s) on the basis of the data contained in the following table. Assume that the firm is hiring labor in a purely competitive market.

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Type: T Topic: 2 E: 506-507 MI: 262-263

38. Refer to the above data. If the wage rate is $20, how many workers will the firm choose to employ?

A) 5 B) 4 C) 3 D) 2

Answer: D

Type: T Topic: 2 E: 506-507 MI: 262-263

39. Refer to the above data. If the wage rate is $11, how many workers will the firm choose to employ?

A) 5 B) 4 C) 3 D) 2

Answer: C

Type: T Topic: 2 E: 507-508 MI: 263-264

40. The above data reveal that:

A) the firm is selling its product in a purely competitive market.

B) the firm is selling its product in an imperfectly competitive market.

C) there is no level of output at which this firm can operate at a profit.

D) the law of diminishing returns is not applicable to this firm.

Answer: B

Type: A Topic: 2 E: 507-508 MI: 263-264

41. Other things equal, the resource demand curve of an imperfectly competitive seller will:

A) lie below its marginal revenue product curve.

B) be subject to increasing marginal productivity.

C) be less elastic than that of a purely competitive seller.

D) be more elastic than that of a purely competitive seller.

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Answer: C

Type: A Topic: 2 E: 507 MI: 263

42. The MRP curve is the resource demand curve for:

A) neither the purely competitive nor the imperfectly competitive seller.

B) the imperfectly competitive seller, but not the purely competitive seller.

C) the purely competitive seller, but not the imperfectly competitive seller.

D) both the purely competitive and imperfectly competitive seller.

Answer: D

Type: A Topic: 2 E: 507-508 MI: 263-264

43. The labor demand curve of an imperfectly competitive seller is downward sloping:

A) solely because of diminishing marginal utility.

B) both because of diminishing returns and the necessity to lower price to sell more output.

C) solely because product price must be reduced to sell more output.

D) solely because of diminishing returns.

Answer: B

Type: A Topic: 2 E: 507 MI: 263

44. If a firm is selling in an imperfectly competitive product market, then:

A) average product will be less than marginal product for any number of workers hired.

B) the marginal products of successive workers must be sold at lower prices.

C) the marginal products of successive workers can be sold at higher prices.

D) the marginal products of successive workers can be sold at a constant price.

Answer: B

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Type: A Topic: 2 E: 507-508 MI: 263-264

45. Other things the same, we would expect the labor demand curve of a purely competitive seller to be:

A) of unitary elasticity.

B) more elastic than that of an imperfectly competitive seller.

C) less elastic than that of an imperfectly competitive seller.

D) perfectly elastic.

Answer: D

Type: A Topic: 2 E: 508 MI: 264

46. Other things equal, we would expect the labor demand curve of a monopolistic seller to:

A) decline more rapidly than that of a purely competitive seller.

B) decline less rapidly than that of a purely competitive seller.

C) decline at the same rate as that of a purely competitive seller.

D) be more elastic than that of a purely competitive seller.

Answer: A

Type: D Topic: 2 E: 506 MI: 262

47. The change in a firm's total revenue that results from the hire of an additional worker is measured by:

A) marginal product. C) marginal revenue product.

B) marginal revenue. D) average revenue product.

Answer: C

Type: A Topic: 2 E: 507 MI: 263

48. The labor demand curve of a purely competitive seller:

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A) slopes downward because the firm must lower price to sell more output.

B) slopes downward because labor productivity increases as successive workers are hired.

C) is perfectly elastic because the firm is hiring an insignificant portion of the total labor supply.

D) slopes downward because the marginal product of successive workers declines.

Answer: D

Type: A Topic: 2 E: 507 MI: 263

49. The MRP curve for labor:

A) is downsloping and shows the relationship between wage rates and the quantity of labor demanded.

B) is perfectly elastic if the firm is selling its output competitively.

C) is upsloping and lies above the labor supply curve.

D) will shift location when the wage rate changes.

Answer: A

Type: A Topic: 2 E: 507 MI: 263

50. If the wage rate increases:

A) a purely competitive producer will hire less labor, but an imperfectly competitive producer will not.

B) an imperfectly competitive producer will hire less labor, but a purely competitive producer will not.

C) a purely competitive and an imperfectly competitive producer will both hire less labor.

D) an imperfectly competitive producer may find it profitable to hire either more or less labor.

Answer: C

Type: A Topic: 2 E: 506 MI: 262

51. The marginal revenue product of any input is the:

A) cost of an additional unit of that input.

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B) added profits resulting from the use of one more unit of that input.

C) additional output resulting from the use of one more unit of that input.

D) additional revenue resulting from the use of one more unit of that input.

Answer: D

Use the following to answer questions 52-55:

Answer the next question(s) on the basis of the following information.

A farmer who has fixed amounts of land and capital finds that total product is 24 for the first worker hired; 32 when two workers are hired; 37 when three are hired; and 40 when four are hired. The farmer's product sells for $3 per unit and the wage rate is $13 per worker.

Type: A Topic: 2 E: 505-506 MI: 261-262

52. Refer to the above information. The marginal product of the second worker is:

A) 24. B) 8. C) 5. D) 1.

Answer: B

Type: A Topic: 2 E: 506 MI: 262

53. Refer to the above information. The marginal revenue product of the second worker is:

A) $24. B) $8. C) $15. D) $9.

Answer: A

Type: A Topic: 2 E: 507 MI: 263

54. Refer to the above information. How many workers should the farmer hire?

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A) 1 B) 2 C) 3 D) 4

Answer: C

Type: A Topic: 2 E: 506 MI: 262

55. Refer to the above information. What is the farmer's profit-maximizing output?

A) 20 B) 32 C) 37 D) 40

Answer: C

Type: A Topic: 2 E: 506 MI: 262

56. A competitive employer is using labor in such an amount that labor's MRP is $10 and its wage rate is $8. This firm:

A) should hire more labor because this will increase profits.

B) should hire more labor, although this may either increase or decrease profits.

C) is currently hiring the profit-maximizing amount of labor.

D) is selling its product in an imperfectly competitive market.

Answer: A

Type: A Topic: 2 E: 506 MI: 262

57. A firm is hiring the profit-maximizing amount of an input when:

A) AVC = MC. B) MP = MRC. C) MRC = MR. D) MRP = MRC.

Answer: D

Type: A Topic: 2 E: 506 MI: 262 Status: New

58. For a firm selling its product in a purely competitive market, the marginal revenue product of labor can be found by:

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A) adding marginal product to total product as one more unit of labor is employed.

B) adding marginal revenue to total product as one more unit of labor is employed.

C) multiplying marginal product by product price.

D) dividing marginal product by product price.

Answer: C

Type: A Topic: 2 E: 506 MI: 262 Status: New

59. For a firm selling its product in an imperfectly competitive market, the marginal revenue product of labor can be found by:

A) adding marginal product to total product as one more unit of labor is employed.

B) adding marginal revenue to total product as one more unit of labor is employed.

C) multiplying marginal product by product price.

D) multiplying marginal product by marginal revenue.

Answer: D

Determinants of resource demand

Use the following to answer questions 60-67:

Type: G Topic: 3 E: 509 MI: 265

60. Refer to the above graph. An increase in the quantity of labor demanded (as distinct from an increase in demand) is shown by the:

A) shift from labor demand curve D1 to D2. C) move from a to b along labor demand curve D1.

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B) shift from labor demand curve D3 to D2. D) move from b to a along labor demand curve D1.

Answer: C

Type: G Topic: 3 E: 509 MI: 265

61. Refer to the above graph. An increase in labor demand (as distinct from an increase in the quantity of labor demanded) is shown by the:

A) shift from labor demand curve D1 to D2. C) move from a to b along labor demand curve D1.

B) shift from labor demand curve D3 to D2. D) move from b to a along labor demand curve D1.

Answer: A

Type: G Topic: 3 E: 509 MI: 265

62. Refer to the above graph. A move from b to a along labor demand curve D1 would result from:

A) a decrease in the price of a substitute resource, assuming that the substitution effect exceeds the output effect.

B) an increase in the wage rate.

C) a decrease in the wage rate.

D) an increase in the demand for the product that this labor is helping to produce.

Answer: B

Type: G Topic: 3 E: 507 MI: 263

63. Refer to the above graph. Each of the three labor demand curves shown slopes downward because of the:

A) law of diminishing marginal utility. C) principal-agent problem.

B) law of increasing opportunity costs. D) law of diminishing returns.

Answer: D

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Type: G Topic: 3 E: 509-510 MI: 265-266

64. Refer to the above graph. Other things equal, an increase in labor productivity would cause a(n):

A) move from a to b on D1. C) shift from D3 to D2.

B) shift from D2 to D3. D) move from b to a on D1.

Answer: B

Type: G Topic: 3 E: 510 MI: 266

65. Refer to the above graph. Other things equal, an increase in the price of a complementary resource would cause a(n):

A) move from a to b on D1. C) shift from D3 to D2.

B) shift from D2 to D3. D) move from b to a on D1.

Answer: C

Type: G Topic: 3 E: 510 MI: 266

66. Refer to the above graph. Other things equal, a decrease in the price of a substitute resource would cause a(n):

A) move from a to b on D1.

B) shift from D2 to D3 assuming the output effect exceeds the substitution effect.

C) shift from D3 to D2 assuming the output effect exceeds the substitution effect.

D) move from b to a on D1.

Answer: B

Type: G Topic: 3 E: 510 MI: 266

67. Refer to the above graph. Other things equal, an increase in the price of substitute resource would cause a(n):

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A) shift from D2 to D3 assuming the substitution effect exceeds the output effect.

B) move from a to b on D1.

C) move from b to a on D1.

D) shift from D3 to D2 assuming the substitution effect exceeds the output effect.

Answer: A

Type: A Topic: 3 E: 509 MI: 265

68. Suppose the demand for strawberries rises sharply, resulting in an increased price of strawberries. As it relates to strawberry pickers, we could expect the:

A) MRP curve to shift to the right. C) MRC curve to shift downward.

B) MRP curve to shift to the left. D) MP curve to shift downward.

Answer: A

Type: A Topic: 3 E: 511 MI: 267

69. Which of the following will not cause a shift in the demand for resource X?

A) a decline in the price of resource X

B) an increase in the price of the product resource X is producing

C) a decrease in the price of substitute resource Y

D) an increase in the productivity of resource X

Answer: A

Type: A Topic: 3 E: 511 MI: 267

70. A decline in the price of resource A will:

A) increase the demand for complementary resource B.

B) shift the demand curve for A to the left.

C) shift the demand curve for A to the right.

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D) reduce the demand for complementary resource B.

Answer: A

Type: A Topic: 3 E: 510 MI: 266

71. Assume the price of capital falls relative to the price of labor and, as a result, the demand for labor increases. Therefore:

A) the output effect is greater than the substitution effect.

B) capital is very highly substitutable for labor.

C) the income effect is greater than the output effect.

D) the substitution effect is greater than the output effect.

Answer: A

Type: A Topic: 3 E: 511 MI: 267

72. The labor demand curve of a firm:

A) will shift to the left if the price of the product the labor is producing falls.

B) is perfectly elastic if the firm is selling its product in a purely competitive market.

C) reflects a direct relationship between the number of workers hired and the money wage rate.

D) is the same as its marginal product curve.

Answer: A

Type: A Topic: 3 E: 511 MI: 267

73. Which of the following will not shift the demand curve for labor?

A) the use of a larger stock of capital with the labor force

B) a change in the wage rate

C) an increase in the price of the product which labor is helping to produce

D) the adoption of a more efficient method of combining labor and capital in the production process

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Answer: B

Type: A Topic: 3 E: 509-510 MI: 265-266

74. Employers will hire more units of a resource if:

A) the price of the resource increases. C) the price of the good being produced declines.

B) the productivity of the resource increases. D) the price of a complementary resource rises.

Answer: B

Type: A Topic: 3 E: 510 MI: 266

75. Assume that a firm's production technique is such that varying combinations of labor and capital can be used to produce output. If the price of labor falls relative to the price of capital and the firm decides to use more labor in the production process, this decision is:

A) solely the result of the substitution effect.

B) solely the result of the output effect.

C) probably the result of both the substitution and output effects.

D) the result of neither the substitution nor the output effect.

Answer: C

Type: A Topic: 3 E: 510 MI: 266

76. If technology dictates that labor and capital must be used in fixed proportions, an increase in the price of capital will cause a firm to use:

A) more labor as a consequence of the substitution effect.

B) more labor as a consequence of the output effect.

C) less labor as a consequence of the substitution effect.

D) less labor as a consequence of the output effect.

Answer: D

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Type: A Topic: 3 E: 510 MI: 266

77. If resources A and B are complementary and employed in fixed proportions:

A) a change in the price of A will have no effect on the quantity of B employed.

B) an increase in the price of A may either increase or decrease the demand for B.

C) an increase in the price of A will increase the demand for B.

D) an increase in the price of A will decrease the demand for B.

Answer: D

Type: A Topic: 3 E: 510 MI: 266

78. If two resources are highly substitutable for one another:

A) a decrease in the price of one will increase unit costs of production.

B) an increase in the price of one will increase the demand for the other.

C) an increase in the price of one will reduce the demand for the other.

D) a decline in the price of one will increase the demand for the other.

Answer: B

Type: A Topic: 3 E: 510 MI: 266

79. The output effect occurs:

A) only when wage elasticity of demand is greater than 1.

B) because a change in the price of a resource will alter costs and therefore the equilibrium output.

C) only when the inputs being employed are substitutes.

D) only when the inputs being employed are complementary.

Answer: B

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Type: A Topic: 3 E: 510-511 MI: 266-267

80. Suppose complementary inputs A and B are being used by a firm in the profit-maximizing amounts. If the price of A now increases, the firm should use:

A) more of B, provided the substitution effect exceeds the output effect.

B) more of B because of the substitution effect.

C) less of B because of the substitution effect.

D) less of B because of the output effect.

Answer: D

Type: D Topic: 3 E: 510 MI: 266

81. The substitution effect indicates that a profit-seeking firm will use:

A) more of an input whose price has fallen and less of other inputs in producing a given output.

B) more of all inputs if production costs fall.

C) more of those inputs whose marginal productivity is the greatest.

D) less of an input whose price has fallen and more of other inputs in producing a given output.

Answer: A

Type: A Topic: 3 E: 510-511 MI: 266-267

82. Suppose capital and labor are used in fixed proportions so that each machine requires only one worker. If a decline in the price of capital occurs, then the demand for labor will:

A) decline solely because of the substitution effect.

B) increase solely because of the substitution effect.

C) increase solely because of the output effect.

D) decrease solely because of the output effect.

Answer: C

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Type: A Topic: 3 E: 510 MI: 266

83. Assume the price of capital doubles and, as a result, firms make no change in the relative quantities of capital and labor they employ. This implies that:

A) labor is not readily substitutable for capital. C) the firms are producing an inferior good.

B) the law of diminishing returns is not applicable. D) the demand for capital is highly price elastic.

Answer: A

Type: A Topic: 3 E: 509-510 MI: 265-266

84. The demand curve for labor would shift leftward as the result of:

A) an increase in the price of the product labor is producing.

B) a decrease in the productivity of labor.

C) an increase in the price of labor.

D) a decrease in the price of capital, provided the output effect exceeds the substitution effect.

Answer: B

Type: A Topic: 3 E: 510 MI: 266

85. A firm will employ more of an input whose relative price has fallen and, conversely, will use less of an input whose relative price has risen. Thus a fall in the price of capital will increase the relative price of labor and thereby reduce the demand for labor. This describes the:

A) output effect. B) substitution effect. C) idea of derived demand. D) law of diminishing returns.

Answer: B

Type: A Topic: 3 E: 510 MI: 266

86. A change in an input price will alter both production costs and the profit-maximizing output. Thus a decline in the price of capital will reduce production costs, increase the profit-maximizing output, and thereby increase the demand for labor. This describes the:

A) output effect. B) substitution effect. C) idea of derived demand. D) law of diminishing returns.

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Answer: A

Type: A Topic: 3 E: 510 MI: 266

87. Capital and labor:

A) are always complementary. C) may be either complementary or substitutable.

B) are always substitutable. D) are both normal inputs.

Answer: C

Type: C Topic: 3 E: 510-511 MI: 266-267

88. If the price of capital declines, the consequent output effect would be:

A) greater, the more elastic the demand for the product.

B) greater, the less elastic the demand for the product.

C) negative.

D) of consequence only if capital and labor are used in fixed proportions.

Answer: A

Type: C Topic: 3 E: 511 MI: 267

89. Suppose the productivity of labor increases and at the same time the price of capital, which is complementary to labor, increases. As a result, the demand for labor:

A) will increase. B) will decrease. C) may either increase or decrease. D) will not change.

Answer: C

Type: A Topic: 3 E: 510 MI: 266

90. A change in the price of an input will usually:

A) shift a firm's cost curves.

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B) cause the firm to alter the combination of inputs it employs.

C) induce the firm to change its level of output.

D) do all of the above.

Answer: D

Type: C Topic: 3 E: 509 MI: 265

91. Suppose a technological improvement increases the productivity of a firm's capital and, simultaneously, its workers' union negotiates a wage increase. We can predict that:

A) the firm will use relatively more capital and relatively less labor.

B) the firm will use relatively more labor and relatively less capital.

C) inputs of capital and labor will be unchanged.

D) the firm's equilibrium output will necessarily increase.

Answer: A

Type: A Topic: 3 E: 510 MI: 266

92. A manufacturer using both capital and labor decides to use more labor and less capital because of an increase in the price of capital. This is likely the result of:

A) capital and labor being complementary inputs.

B) capital and labor being substitute inputs.

C) the output effect being greater than the substitution effect.

D) diminishing returns being applicable to capital but not to labor.

Answer: B

Type: C Topic: 3 E: 510 MI: 266

93. Suppose the price of the product that labor is producing increases and simultaneously the price of capital, which is substitutable for labor, decreases. Assuming that the substitution effect is greater than the output effect, the demand for labor:

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A) will increase. B) will decrease. C) may either increase or decrease. D) will not change.

Answer: C

Type: C Topic: 3 E: 509-510 MI: 265-266

94. Suppose there is a decline in the demand for the product labor is producing. Furthermore, the price of capital, which is complementary to labor, increases. Thus the demand for labor:

A) will increase. B) will decrease. C) may either increase or decrease. D) will not change.

Answer: B

Type: A Topic: 3 E: 510 MI: 266

95. Suppose that the price of capital increases relative to the wage rate and, as a result, the demand for labor increases. This means that:

A) the substitution effect is greater than the output effect.

B) labor and capital are complementary resources.

C) it is impossible to substitute labor for capital.

D) the output effect is greater than the substitution effect.

Answer: A

Type: F Topic: 3 E: 512 MI: 268 Status: New

96. Which of the following occupations is not among the ten projected fastest growing U.S. occupations in terms of percentage increases?

A) school teachers C) computer support specialists

B) computer software engineers D) personal and home care aides

Answer: A

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Type: F Topic: 3 E: 512 MI: 268 Status: New

97. Which of the following occupations is not among the ten projected fastest growing U.S. occupations in terms of percentage increases?

A) medical assistants B) computer systems administrators C) desktop publishers D) loan interviewers

Answer: D

Elasticity of resource demand

Type: D Topic: 4 E: 513 MI: 269 Status: New

98. Elasticity of resource demand is measured by the:

A) absolute change in resource quantity demanded divided by the absolute change in resource price.

B) percentage change in resource quantity demanded divided by the percentage change in resource price.

C) absolute change in resource price divided by the absolute change in resource quantity demanded.

D) percentage change in resource price divided by the percentage change in resource quantity demanded.

Answer: B

Type: F Topic: 4 E: 513 MI: 269 Status: New

99. When the elasticity coefficient for resource demand is greater than one, resource demand is:

A) inelastic. B) elastic. C) unit elastic. D) perfectly inelastic.

Answer: B

Type: F Topic: 4 E: 513 MI: 269 Status: New

100. When the elasticity coefficient for resource demand is less than one, resource demand is:

A) inelastic. B) elastic. C) unit elastic. D) infinitely elastic.

Answer: A

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Type: A Topic: 4 E: 513 MI: 269 Status: New

101. Suppose that a union successfully negotiated a 10 percent wage increase and the quantity of labor demanded increased by 10 percent. We can conclude that:

A) the labor demand curve must have independently shifted to the right.

B) labor demand is highly elastic.

C) the coefficient of labor demand elasticity is less than 1.

D) labor demand is unit-elastic.

Answer: A

Type: A Topic: 4 E: 513 MI: 269 Status: New

102. Suppose that a union successfully negotiated a 10 percent wage increase and the quantity of labor demanded decreased by 10 percent. Given a fixed labor demand curve, we can conclude that:

A) the labor demand curve is upward sloping.

B) labor demand is elastic.

C) labor demand is unit-elastic.

D) the coefficient of elasticity of labor demand is less than 1.

Answer: C

Type: A Topic: 4 E: 513 MI: 269 Status: New

103. Resource X has many close substitutes whereas resource Y has no close substitutes. Other things equal, we would expect:

A) the demand for resource Y to be more elastic than the demand for resource X.

B) resources X and Y to be close substitutes.

C) resource X to be more expensive than resource Y.

D) the demand for resource X to be more elastic than the demand for resource Y.

Answer: D

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Type: D Topic: 4 E: 513 MI: 269

104. The elasticity of resource demand measures the:

A) responsiveness of workers to changes in wage rates.

B) responsiveness of producers to changes in resource prices.

C) ratio of marginal revenue product to resource price.

D) sensitivity of marginal revenue product to changes in product price.

Answer: B

Use the following to answer questions 105-106:

Type: T Topic: 4 E: 513 MI: 269

105. Refer to the above data. For the $16 to $14 range of wage rates, labor demand is:

A) perfectly elastic. B) elastic. C) perfectly inelastic. D) inelastic.

Answer: B

Type: T Topic: 4 E: 513 MI: 269

106. Refer to the above data. Over the $10 to $8 range of wage rates, the demand for labor is:

A) perfectly elastic. B) elastic. C) unit elastic. D) inelastic.

Answer: C

Type: A Topic: 4 E: 513 MI: 269

107. The elasticity of resource demand will be greater the:

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A) smaller the portion of the product's total costs accounted for by the resource.

B) less the elasticity of demand for the product it is producing.

C) larger the number of good substitute resources that are available.

D) greater the elasticity of resource supply.

Answer: C

Type: A Topic: 4 E: 513 MI: 269

108. The relationship between the elasticity of product demand and the elasticity of demand for labor employed in its production is such that, other things being equal:

A) the more elastic the demand for the product, the less elastic the demand for labor.

B) the more elastic the demand for the product, the more elastic the demand for labor.

C) the elasticity of product demand only affects the elasticity of labor demand when the product market is purely competitive.

D) if product demand is perfectly elastic, labor demand will be perfectly inelastic.

Answer: B

Type: A Topic: 4 E: 513 MI: 269

109. Other things equal, the relationship between the relative importance of a given type of labor in a firm's total costs and the elasticity of demand for that labor is such that the:

A) demand for labor will be elastic only if labor accounts for less than 50 percent of total costs.

B) demand for labor will be elastic only if labor accounts for 50 percent or more of total costs.

C) larger the labor cost-total cost ratio, the smaller will be the elasticity of labor demand.

D) larger the labor cost-total cost ratio, the greater will be the elasticity of labor demand.

Answer: D

Type: A Topic: 4 E: 513 MI: 269

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110. Other things equal, if wage rates increase by 20 percent, the greatest decline in employment will occur when labor costs are a:

A) large proportion of total costs and product demand is elastic.

B) small proportion of total costs and product demand is elastic.

C) large proportion of total costs and product demand is inelastic.

D) small proportion of total costs and product demand is inelastic.

Answer: A

Type: A Topic: 4 E: 513 MI: 269

111. If a 10 percent wage increase in a particular labor market results in a 5 percent decline in employment in that market, labor demand is:

A) unit elastic. B) elastic. C) inelastic. D) perfectly elastic.

Answer: C

Type: A Topic: 4 E: 513 MI: 269

112. Assume that the coefficient of elasticity of product demand is .5 in industry A and is 3.2 in industry B. Other things equal, labor demand will be:

A) more elastic in industry A than in B. C) more elastic in industry B than in A.

B) unit elastic in both industry A and B. D) relatively inelastic in both industry A and B.

Answer: C

Type: A Topic: 4 E: 513 MI: 269

113. Suppose that the labor cost-total cost ratio in industry A is 82 percent while in industry B it is 21 percent. Other things equal, labor demand will be:

A) more elastic in industry A than in B. C) more elastic in industry B than in A.

B) unit elastic in both industry A and B. D) relatively elastic in both industry A and B.

Answer: A

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Type: A Topic: 4 E: 513 MI: 269 Status: New

114. Which of the following statements is true? Other things equal, the demand for labor will be less elastic the:

A) the easier it is to substitute capital for labor. C) greater the elasticity of product demand.

B) greater the elasticity of resource supply.D) smaller the ratio of labor costs to total costs.

Answer: D

Optimal combination of resources

Type: A Topic: 5 E: 514 MI: 270

115. Assuming a competitive resource market, a firm is hiring several resources in the profit-maximizing amounts when the:

A) firm's total outlay on resources is minimized.

B) marginal revenue product of each resource is equal to its price.

C) price of each resource employed is the same.

D) marginal revenue product of the last unit of each resource hired is the same.

Answer: B

Type: A Topic: 5 E: 514 MI: 270

116. Assume that an appliance manufacturer is employing variable resources X and Y in such amounts that the MRPs of the last units of X and Y employed are $100 and $60 respectively. Resource X can be hired at $50 per unit and resource Y at $20 per unit. The firm:

A) should hire more of both X and Y.

B) should hire more of Y and less of X.

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C) is producing with the least-costly combination of X and Y, but could increase its profits by employing more of X and less of Y.

D) is using the least-cost combination of X and Y, but could increase its profits by employing less of both X and Y.

Answer: A

Type: A Topic: 5 E: 515 MI: 271

117. A firm is hiring resources X, Y, and Z in the profit-maximizing amounts when:

A) MRPx/Px equals MRPy/Py equals MRPz/Pz equals 1.

B) the sum of the MRPs of the three resources is at a minimum.

C) the marginal revenue productivity of all three resources is the same.

D) the marginal revenue product of the last dollar spent on each of the three resources is the same.

Answer: A

Use the following to answer questions 118-121:

Answer the next question(s) on the basis of the following marginal product data for resources a and b. The output of these independent resources sells in a purely competitive market at $1 per unit.

Type: T Topic: 5 E: 514 MI: 270

118. Refer to the above data. Assuming the prices of resources a and b are $5 and $8 respectively, what is the least costly combination of resources for the firm to employ in producing 192 units of output?

A) 2 of a and 6 of b B) 6 of a and 2 of b C) 4 of a and 3 of b D) 3 of a and 4 of b

Answer: D

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Type: T Topic: 5 E: 514-515 MI: 270-271

119. Refer to the above data. Assuming the prices of resources a and b are $5 and $8 respectively, what is the profit-maximizing combination of resources?

A) 7 of a and 7 of b B) 6 of a and 4 of b C) 5 of a and 7 of b D) 4 of a and 4 of b

Answer: C

Type: T Topic: 5 E: 515 MI: 271

120. Refer to the above data. When the firm hires the profit-maximizing combination of resources, its economic profit will be:

A) $170 B) $76 C) $145 D) $138

Answer: A

Type: T Topic: 5 E: 515-516 MI: 271-272

121. Refer to the above data. Assume now that the prices of a and b rise to $15 and $20 respectively. To maximize profits what combination of a and b should the employer hire?

A) 3 of a and 5 of b B) 5 of a and 7 of b C) 7 of a and 7 of b D) 6 of a and 2 of b

Answer: A

Type: A Topic: 5 E: 515 MI: 271

122. The equation MPL/PL = MPC/PC:

A) designates the MR = MC level of output.

B) assumes imperfect competition in the hiring of labor and capital.

C) is a sufficient condition for the maximization of profits.

D) is a necessary, but not sufficient, condition for the maximization of profits.

Answer: D

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Type: A Topic: 5 E: 514-515 MI: 270-271

123. Assume a firm purchases resources a and b under purely competitive conditions and combines these resources to produce X. Product X is sold in a purely competitive market. The MP of a and b are 6 and 3 respectively and the prices of a and b are $12 and $6 respectively. If equilibrium exists, the price of X will be:

A) $1. B) $.50. C) $2. D) $5.

Answer: C

Type: A Topic: 5 E: 515 MI: 271

124. Which of the following statements is correct?

A) If the profit-maximizing rule is fulfilled, it necessarily follows that the cost-minimization rule is being fulfilled.

B) The profit-maximizing and the cost-minimizing rules are such that the fulfilling of one has no bearing on the fulfilling of the other.

C) If the profit-maximizing rule is fulfilled, the cost-minimization rule may or may not be fulfilled.

D) If the cost-minimization rule is fulfilled, it necessarily follows that the profit-maximizing rule is being fulfilled.

Answer: A

Type: A Topic: 5 E: 514-515 MI: 270-271

125. If MPa/Pa = MPb/Pb and MRPa/Pa = MRPb/Pb>1, this firm is:

A) producing its output with the least costly combination of resources, but is not producing the profit-maximizing output.

B) maximizing profits, but failing to minimize costs.

C) neither maximizing profits nor minimizing costs.

D) combining resources a and b so as to minimize costs and maximize profits.

Answer: A

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Type: A Topic: 5 E: 514 MI: 270

126. A firm that is motivated by self interest should:

A) employ the combination of resources that will produce the profit-maximizing output at the minimum cost.

B) hire each input so the productivity of each is equal at the margin.

C) always use large amounts of the most productive inputs and small amounts of the least productive inputs in producing its output.

D) always use large amounts of cheap inputs and small amounts of expensive inputs in producing its output.

Answer: A

Type: A Topic: 5 E: 515 MI: 271

127. Assuming pure competition, which of the following are equivalents?

A) MRPL/PL = MRPC/PC and Px = 1/MC. C) Px = MC and MRPL/PL = MRPC/PC = 1.

B) MRPL/PL = MRPC/PC and Px = AVC. D) Px = MC and MPL/PL = MPC/PC.

Answer: C

Type: A Topic: 5 E: 514 MI: 270

128. Suppose a firm is hiring resources l and m under purely competitive conditions to produce product Y that sells for $2 in a purely competitive market. The prices of l and m are $10 and $4 respectively. In equilibrium the MPs of l and m, respectively, are:

A) 1 and 1. B) 2 and 5. C) 10 and 4. D) 5 and 2.

Answer: D

Type: A Topic: 5 E: 514-515 MI: 270-271

129. If a firm is employing quantities of resources J and K so that MRPJ/PJ = MRPK/PK = 1, then:

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A) MPJ/PJ may either exceed or be less than MPK/PK.

B) MPJ/PJ will be less than MPK/PK.

C) MPJ/PJ will exceed MPK/PK.

D) MPJ/PJ = MPK/PK.

Answer: D

Type: C Topic: 5 E: 514 MI: 270

130. If a firm is hiring variable resources D and F in perfectly competitive input markets, it will minimize the cost of producing any level of output by employing D and F in such amounts that:

A) the price of each input equals its MP. C) MPD/PD = MPF/PF.

B) MPD = MPF. D) MPD/PF = MPF/PD.

Answer: C

Type: A Topic: 5 E: 515 MI: 271

131. Suppose a firm is employing all its inputs so that the MRP per dollar spent on each is the same. This suggests that the:

A) amount of each resource employed will depend on both its price and its productivity.

B) price of each input must be identical.

C) firm is using the same quantity of each input.

D) total expenditure on each input is identical.

Answer: A

Type: A Topic: 5 E: 515-516 MI: 271-272

132. Assume a pencil manufacturer is employing resources C and D in such quantities that the MRPs of the last units hired are $80 and $50 respectively. The price of resource C is $90 and the price of D is $35. This firm:

A) should hire less of C and more of D. C) should hire less of both C and D.

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B) should hire more of both C and D. D) is using the least-cost combination of C and D.

Answer: A

Use the following to answer questions 133-138:

Answer the next question(s) on the basis of the following data:

Type: T Topic: 5 E: 515 MI: 271

133. Refer to the above data. This firm is selling its product in:

A) an imperfectly competitive market at prices that decline as sales increase.

B) a purely competitive market at $3 per unit.

C) a purely competitive market at $2 per unit.

D) an imperfectly competitive market at $3 per unit.

Answer: B

Type: T Topic: 5 E: 515-516 MI: 271-272

134. Refer to the above data. If the prices of labor and capital are $9 and $15 respectively, the firm will hire:

A) 5 units of labor and 3 of capital. C) 4 units of labor and 4 of capital.

B) 5 units of labor and 2 of capital. D) 3 units of labor and 4 of capital.

Answer: A

Type: T Topic: 5 E: 516 MI: 272

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135. Refer to the above data. The firm's total output will be:

A) 38 units. B) 60 units. C) 64 units. D) 27 units.

Answer: C

Type: T Topic: 5 E: 515-516 MI: 271-272

136. Refer to the above data. The firm's total revenue will be:

A) $114. B) $180. C) $129. D) $192.

Answer: D

Type: T Topic: 5 E: 515-516 MI: 271-272

137. Refer to the above data. If labor and capital are the only inputs, the firm's total costs will be:

A) $106. B) $126. C) $47. D) $90.

Answer: D

Type: T Topic: 5 E: 516 MI: 272

138. Refer to the above data. Assuming labor and capital are the only inputs, the firm's economic profits will be:

A) $102. B) $82. C) $67. D) $28.

Answer: A

Type: A Topic: 5 E: 515 MI: 271

139. The profit-maximizing and the least-cost combination of inputs are:

A) the result of unrelated decisions.

B) always identical.

C) such that the minimization of costs always results in profit maximization.

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D) such that the maximization of profits always entails the least-cost combination of inputs.

Answer: D

Use the following to answer questions 140-142:

Answer the next question(s) on the basis of the following information:

Suppose a firm hires both labor (L) and capital (C) under purely competitive conditions. The price of labor is PL and that of capital is PC. The marginal product of labor is MPL and that of capital is MPC. The firm sells its product competitively at a price of PX.

Type: A Topic: 5 E: 514 MI: 270

140. Refer to the above information. Which of the following must pertain if the firm is to minimize the cost of producing any output?

A) MPC = MPL = PX. C) MPC/PC = MPL/PL.

B) MPC = PC and MPL = PL. D) MPC/PX = MPL/PX.

Answer: C

Type: A Topic: 5 E: 514 MI: 270

141. Refer to the above information. If MPC/PC > MPL/PL, the firm:

A) may be maximizing profits, but it is not minimizing costs.

B) may be minimizing costs, but it is not maximizing profits.

C) is neither minimizing costs nor maximizing profits.

D) is minimizing costs and maximizing profits.

Answer: C

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Type: A Topic: 5 E: 514 MI: 270

142. Refer to the above information. In competitive labor markets, the marginal cost of an additional unit of labor:

A) is equal to PL × MPL.

B) is equal to MPL/PL.

C) is equal to PL.

D) cannot be determined from the information given.

Answer: C

Use the following to answer questions 143-145:

Type: G Topic: 5 E: 514 MI: 270

143. Refer to the above diagram. If a firm produces output Q1 at a unit cost of c, then the:

A) firm is operating in a purely competitive industry.

B) firm is maximizing profits.

C) marginal product per dollar's worth of each resource employed is not the same.

D) firm is fulfilling the least-cost rule in employing resources.

Answer: C

Type: G Topic: 5 E: 514 MI: 270

144. Refer to the above diagram. If a firm produces output Q1 at a unit cost of b, then the:

A) firm is not fulfilling the least-cost rule in employing resources.

B) firm may or may not be maximizing profits.

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C) marginal product per dollar's worth of each resource employed is not the same.

D) firm has achieved minimum efficient scale.

Answer: B

Type: G Topic: 5 E: 514 MI: 270

145. Refer to the above diagram. The production of Q1 units of output at an average cost of a:

A) is not possible, given present technology and resource prices.

B) can be achieved if the firm would hire the optimal mix of resources.

C) would entail X-inefficiency.

D) can be realized if the last dollar spent on each input were equal to its marginal product.

Answer: A

Marginal productivity theory of income distribution

Type: D Topic: 6 E: 516 MI: 272

146. The marginal productivity theory of income distribution suggests that :

A) government should subsidize the most productive workers through a system of transfer payments.

B) each individual should receive income based on his contribution to total output.

C) resource owners should receive income based on the idea of "from each according to his ability, to each according to his wants."

D) resource owners should receive income based upon their needs.

Answer: B

Type: A Topic: 6 E: 516 MI: 272

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147. "Income receivers should be paid in accordance with the value of output each produces." This statement is consistent with the:

A) monopoly theory of income distribution.

B) marginal productivity theory of income distribution.

C) least-cost, but not profit-maximizing, combination of inputs.

D) concept of compensating wage differences.

Answer: B

Type: A Topic: 6 E: 516-517 MI: 272-273

148. The fact that monopoly and monopsony exist in resource markets means that:

A) the marginal productivity theory of income distribution is valid.

B) resource prices need not accurately measure contributions to output.

C) the resulting income distribution is ethically correct.

D) income shares do not exhaust the total output.

Answer: B

Type: A Topic: 6 E: 517 MI: 273

149. The marginal productivity theory of income distribution has been criticized because:

A) the resulting distribution of income is likely to be too equal to maintain production incentives.

B) income from inherited property is inconsistent with the theory.

C) purely competitive conditions characterize most resource markets.

D) it fails to recognize that resource demand is derived from product demand.

Answer: B

Consider This Questions

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Type: A E: 509 MI: 265 Status: New

150. (Consider This) In the market for superstars:

A) earnings reflect pricing power rather than marginal revenue product.

B) small differences in talent get magnified into huge differences in pay.

C) entry and exit rarely occur.

D) product demand is typically highly elastic.

Answer: B

Type: A E: 509 MI: 265 Status: New

151. (Consider This) According to the Consider This box "She's the One," the high pay of superstars reflects:

A) elastic product demand. C) blocked occupational entry.

B) high marginal revenue productivity. D) warped societal values.

Answer: B

Last Word Questions

Type: A E: 517 MI: 273

152. (Last Word) "The Case of ATMs" best illustrates the:

A) law of diminishing marginal utility. C) idea of derived demand.

B) the substitutability of resources. D) principle of unintended side-effects.

Answer: B

Type: A E: 517 MI: 273

153. (Last Word) ATMs and human bank tellers:

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A) are substitute resources.

B) are capital goods.

C) have both declined in number because of bank mergers.

D) are complementary resources.

Answer: A

Type: A E: 517 MI: 273

154. (Last Word) The rapid spread of STMs has:

A) resulted from changes in banking laws. C) reduced the demand for bank tellers.

B) increased the demand for bank tellers. D) increased the hourly wage paid to bank tellers.

Answer: C

True/False Questions

Type: A E: 505 MI: 261

155. The marginal revenue product curve of a purely competitive seller declines solely because of the law of diminishing returns.

Answer: True

Type: A E: 506 MI: 262

156. Producers should hire resources until the total output of each is equal.

Answer: False

Type: A E: 506 MI: 262

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157. It will be profitable for a firm to hire additional units of any resource up to the point at which its MRP is equal to its MRC.

Answer: True

Type: A E: 513 MI: 269

158. The more elastic the demand for a product the less elastic will be the demand for the resources employed in producing it.

Answer: False

Type: A E: 509-510 MI: 265-266

159. The demand for a resource depends on its productivity and the market value of the product it is producing.

Answer: True

Type: A E: 510 MI: 266

160. If two resources are complementary, a decrease in the price of one will reduce the demand for the other.

Answer: False

Type: A E: 513 MI: 269

161. Other things equal, the less competitive the market in which a firm sells its product, the less elastic will be its resource demand curve.

Answer: True

Type: A E: 510 MI: 266

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162. If the substitution effect outweighs the output effect, an increase in the price of a substitute resource will increase the demand for labor.

Answer: True

Type: A E: 505 MI: 261 Status: New

163. The demand for labor is a derived demand whereas the demand for capital is not.

Answer: False

Type: F E: 506-507 MI: 262-263 Status: New

164. The MRP of labor curve is the labor demand curve.

Answer: True

Type: D E: 506 MI: 262 Status: New

165. Marginal revenue product (MRP) is the change in total product (total output) associated with hiring an additional unit of labor.

Answer: False

Type: A E: 506 MI: 262 Status: New

166. A firm should reduce its employment of a resource whose marginal resource cost exceeds its marginal revenue product.

Answer: True

Type: F E: 512 MI: 268 Status: New

167. In percentage terms, many of the 10 most rapidly declining U.S. occupations include jobs for which capital is readily substitutable for labor.

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Answer: True

Type: D E: 513 MI: 269 Status: New

168. Elasticity of resource demand is measured by dividing "percentage change in resource price" by "percentage change in resource quantity."

Answer: False

Type: A E: 510 MI: 266 Status: New

169. An increase in the price of capital will reduce the demand for labor if capital and labor are complementary resources.

Answer: True

Type: F E: 514 MI: 270 Status: New

170. The marginal productivity theory of income distribution holds that all resources are paid according to their marginal contribution to society's output.

Answer: True

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Multiple Choice Questions

1. Refer to the above graph. An increase in the quantity of labor demanded (as distinct from an increase in demand) is shown by the: A. shift from labor demand curve D1 to D2. B. move from a to b along labor demand curve D1. C. shift from labor demand curve D3 to D2. D. move from b to a along labor demand curve D1.

2. A manufacturer using both capital and labor decides to use more labor and less capital because of an increase in the price of capital. This is likely the result of: A. capital and labor being complementary inputs. B. capital and labor being substitute inputs. C. the output effect being greater than the substitution effect. D. diminishing returns being applicable to capital but not to labor.

3. Assume that a restaurant is hiring labor in an amount such that the MRC of the last worker is $16 and her MRP is $12. On the basis of this information we can say that: A. profits will be increased by hiring additional workers. B. profits will be increased by hiring fewer workers. C. marginal revenue product must exceed average revenue product. D. the restaurant is maximizing profits.

4. The MRP curve for labor: A. is downsloping and shows the relationship between wage rates and the quantity of labor demanded. B. is perfectly elastic if the firm is selling its output competitively. C. is upsloping and lies above the labor supply curve. D. will shift location when the wage rate changes.

Prof Keep Econ Pre-Test Chap 25 ed 17

Page 1 of 6

Answer the next question(s) on the basis of the following information: Suppose a firm hires both labor (L) and capital (C) under purely competitive conditions. The price of labor is PL and that of capital is PC. The marginal product of labor is MPL and that of capital is MPC. The firm sells its product competitively at a price of PX.

5. Refer to the above information. In competitive labor markets, the marginal cost of an additional unit of labor: A. is equal to PL × MPL. B. is equal to MPL/PL. C. is equal to PL. D. cannot be determined from the information given.

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6. Which of the following statements best illustrates the concept of derived demand? A. As income goes up the demand for farm products will increase by a smaller relative amount. B. A decline in the price of margarine will reduce the demand for butter. C. A decline in the demand for shoes will cause the demand for leather to decline. D. When the price of gasoline goes up, the demand for motor oil will decline.

7. A change in the price of an input will usually: A. shift a firm's cost curves. B. cause the firm to alter the combination of inputs it employs. C. induce the firm to change its level of output. D. do all of the above.

8. The marginal revenue product of any input is the: A. cost of an additional unit of that input. B. added profits resulting from the use of one more unit of that input. C. additional output resulting from the use of one more unit of that input. D. additional revenue resulting from the use of one more unit of that input.

9. The change in a firm's total revenue that results from the hire of an additional worker is measured by: A. marginal product. B. marginal revenue product. C. marginal revenue. D. average revenue product.

10. Assume that a firm's production technique is such that varying combinations of labor and capital can be used to produce output. If the price of labor falls relative to the price of capital and the firm decides to use more labor in the production process, this decision is: A. solely the result of the substitution effect. B. solely the result of the output effect. C. probably the result of both the substitution and output effects. D. the result of neither the substitution nor the output effect.

Prof Keep Econ Pre-Test Chap 25 ed 17

Page 2 of 6

11. Suppose capital and labor are used in fixed proportions so that each machine requires only one worker. If a decline in the price of capital occurs, then the demand for labor will: A. decline solely because of the substitution effect. B. increase solely because of the substitution effect. C. increase solely because of the output effect. D. decrease solely because of the output effect.

12. (Last Word) ATMs and human bank tellers: A. are substitute resources. B. are capital goods. C. have both declined in number because of bank mergers. D. are complementary resources.

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13. The elasticity of resource demand measures the: A. responsiveness of workers to changes in wage rates. B. responsiveness of producers to changes in resource prices. C. ratio of marginal revenue product to resource price. D. sensitivity of marginal revenue product to changes in product price.

14. Which of the following will not shift the demand curve for labor? A. the use of a larger stock of capital with the labor force. B. a change in the wage rate. C. an increase in the price of the product which labor is helping to produce. D. the adoption of a more efficient method of combining labor and capital in the production process.

15. Refer to the above graph. Each of the three labor demand curves shown slopes downward because of the: A. law of diminishing marginal utility. B. principal-agent problem. C. law of increasing opportunity costs. D. law of diminishing returns.

16. Refer to the above graph. A move from b to a along labor demand curve D1 would result from: A. a decrease in the price of a substitute resource, assuming that the substitution effect exceeds the output effect. B. an increase in the wage rate. C. a decrease in the wage rate. D. an increase in the demand for the product that this labor is helping to produce.

17. If the wage rate increases: A. a purely competitive producer will hire less labor, but an imperfectly competitive producer will not. B. an imperfectly competitive producer will hire less labor, but a purely competitive producer will not. C. a purely competitive and an imperfectly competitive producer will both hire less labor. D. an imperfectly competitive producer may find it profitable to hire either more or less labor.

Prof Keep Econ Pre-Test Chap 25 ed 17

Page 3 of 6

18. When the elasticity coefficient for resource demand is less than one, resource demand is: A. inelastic. B. elastic. C. unit elastic. D. infinitely elastic.

19. (Consider This) According to the Consider This box &quot;She's the One,&quot; the high pay of superstars reflects: A. elastic product demand. B. blocked occupational entry. C. high marginal revenue productivity. D. warped societal values.

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Answer the next question(s) on the basis of the following information for Manfred's Shoe Shine Parlor. Assume Manfred hires labor, its only variable input, under purely competitive conditions. Shoe shines are also sold competitively.

20. Refer to the above data. If Manfred's only fixed input is capital, the total cost of which is $30, then what will be his economic profit? A. $62 B. $42 C. $28 D. $32

21. Suppose that a union successfully negotiated a 10 percent wage increase and the quantity of labor demanded decreased by 10 percent. Given a fixed labor demand curve, we can conclude that: A. the labor demand curve is upward sloping. B. labor demand is elastic. C. labor demand is unit-elastic. D. the coefficient of elasticity of labor demand is less than 1.

22. For a firm selling its product in an imperfectly competitive market, the marginal revenue product of labor can be found by: A. adding marginal product to total product as one more unit of labor is employed. B. adding marginal revenue to total product as one more unit of labor is employed. C. multiplying marginal product by product price. D. multiplying marginal product by marginal revenue.

Prof Keep Econ Pre-Test Chap 25 ed 17

Page 4 of 6

23. A firm will employ more of an input whose relative price has fallen and, conversely, will use less of an input whose relative price has risen. Thus a fall in the price of capital will increase the relative price of labor and thereby reduce the demand for labor. This describes the: A. output effect. B. substitution effect. C. idea of derived demand. D. law of diminishing returns.

Answer the next question(s) on the basis of the following information: Jones owns a barber shop and charges $6 per haircut. By hiring one barber at $10 per hour the shop can provide 24 haircuts per 8-hour day. By hiring a second barber at the same wage rate the shop can now provide a total of 42 haircuts per day.

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24. Refer to the above information. Jones should: A. hire the second barber because he will add $28 to profits. B. hire the second barber because he will add $108 to profits. C. not hire the second barber because he is less productive than the first barber. D. not hire the second barber because he will diminish profits.

25. The fact that monopoly and monopsony exist in resource markets means that: A. the marginal productivity theory of income distribution is valid. B. resource prices need not accurately measure contributions to output. C. the resulting income distribution is ethically correct. D. income shares do not exhaust the total output.

Answer the next question(s) on the basis of the information given in the following table:

26. Refer to the above data. If the firm is hiring workers under purely competitive conditions at a wage rate of $10, it will employ: A. 2 workers. B. 3 workers. C. 4 workers. D. 5 workers.

Prof Keep Econ Pre-Test Chap 25 ed 17

Page 5 of 6

27. Marginal resource cost is: A. the increase in total resource cost associated with the production of one more unit of output. B. the increase in total resource cost associated with the hire of one more unit of the resource. C. total resource cost divided by the number of inputs employed. D. the change in total revenue associated with the employment of one more unit of the resource.

28. If the price of capital declines, the consequent output effect would be: A. greater, the more elastic the demand for the product. B. greater, the less elastic the demand for the product. C. negative. D. of consequence only if capital and labor are used in fixed proportions.

Answer the next question(s) on the basis of the following information. A farmer who has fixed amounts of land and capital finds that total product is 24 for the first worker hired; 32 when two workers are hired; 37 when three are hired; and 40 when four are hired. The farmer's product sells for $3 per unit and the wage rate is $13 per worker.

29. Refer to the above information. The marginal revenue product of the second worker is: A. $24. B. $8. C. $15. D. $9.

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30. Marginal product is: A. the output of the least skilled worker. B. a worker's output multiplied by the price at which each unit can be sold. C. the amount an additional worker adds to the firm's total output. D. the amount any given worker contributes to the firm's total revenue.

Pre-Test Chapter 25 ed17 Key

1. C 2. B 3. B 4. A 5. C 6. C 7. D 8. D 9. C 10. C 11. C 12. A 13. B 14. B 15. D 16. B 17. C 18. A 19. B 20. D 21. C 22. D 23. B 24. A 25. B 26. D 27. B 28. A 29. A 30. C

Prof Keep Econ Pre-Test Chap 25 ed 17

Page 6 of 6

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1

Microeconomics Mid-term

Multiple Choice

Identify the letter of the choice that best completes the statement or answers the question.

Figure 6-3

____ 1. Refer to Figure 6-3. In panel (b), with the price floor in effect, there will be

a. a shortage of wheat.

b. equilibrium in the market.

c. a surplus of wheat.

d. an excess demand for wheat.

____ 2. The positive relationship between price and quantity supplied is called

a. profit.

b. a change in supply.

c. a shift of the supply curve.

d. the law of supply.

____ 3. When quantity demanded decreases at every possible price, we know that the demand curve has

a. shifted to the left.

b. shifted to the right.

c. not shifted; rather, we have moved down the demand curve to a new point on the same

curve.

d. not shifted; rather, the demand curve has become flatter.

____ 4. When the price of a good is $5, the quantity demanded is 100 units per month; when the price is $7, the

quantity demanded is 80 units per month. Using the midpoint method, the price elasticity of demand is about

a. 0.22.

b. 0.67.

c. 1.33.

d. 1.50.

____ 5. Which of these statements about economic models is correct?

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a. For economists, economic models provide insights about the world.

b. Economic models are built with assumptions.

c. Economic models are often composed of equations and diagrams.

d. All of the above are correct.Name: ________________________ ID: B

2

____ 6. The signals that guide the allocation of resources in a market economy are

a. surpluses and shortages.

b. quantities.

c. property rights.

d. prices.

____ 7. Economics is the study of

a. production methods.

b. how society manages its scarce resources.

c. how households decide who performs which tasks.

d. the interaction of business and government.

Figure 4-10

____ 8. Refer to Figure 4-10. Graph C shows which of the following?

a. an increase in demand and an increase in quantity supplied

b. an increase in demand and an increase in supply

c. an increase in quantity demanded and an increase in quantity supplied

d. an increase in supply and an increase in quantity demanded

____ 9. Refer to Figure 4-10. Which of the four graphs illustrates a decrease in quantity demanded?

a. A.

b. B.

c. C.

d. D.Name: ________________________ ID: B

3

____ 10. Refer to Figure 4-10. Which of the four graphs illustrates an increase in quantity supplied?

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a. A.

b. B.

c. C.

d. D.

____ 11. Suppose a producer is able to separate customers into two groups, one having an inelastic demand and the

other having an elastic demand. If the producer's objective is to increase total revenue, she should

a. increase the price charged to customers with the elastic demand and decrease the price

charged to customers with the inelastic demand.

b. decrease the price charged to customers with the elastic demand and increase the price

charged to customers with the inelastic demand.

c. charge the same price to both groups of customers.

d. increase the price for both groups of customers.

Figure 5-2

____ 12. Refer to Figure 5-2. If the price decreased from $18 to $6,

a. total revenue would increase by $1,200 and demand is elastic between points A and C.

b. total revenue would increase by $800 and demand is elastic between points A and C.

c. total revenue would decrease by $1,200 and demand is inelastic between points A and C.

d. total revenue would decrease by $800 and demand is inelastic between points A and C.

____ 13. Refer to Figure 5-2. The elasticity of demand between point B and point C, using the midpoint method, is

a. 0.5.

b. 0.75.

c. 1.0.

d. 1.3.Name: ________________________ ID: B

4

Figure 4-7

____ 14. Refer to Figure 4-7. At a price of $35,

a. there would be a shortage of 400 units.

b. there would be a surplus of 200 units.

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c. there would be a surplus of 400 units.

d. there would be an excess supply of 200 units.

____ 15. Refer to Figure 4-7. Equilibrium price and quantity are, respectively,

a. $35 and 200.

b. $35 and 600.

c. $25 and 400.

d. $15 and 200.

____ 16. In markets, prices move toward equilibrium because of

a. the actions of buyers and sellers.

b. government regulations placed on market participants.

c. increased competition among sellers.

d. buyers' ability to affect market outcomes.

____ 17. A decrease in supply will cause the largest increase in price when

a. both supply and demand are inelastic.

b. both supply and demand are elastic.

c. demand is elastic and supply is inelastic.

d. demand is inelastic and supply is elastic.Name: ________________________ ID: B

5

____ 18. During the last few decades in the United States, health officials have argued that eating too much beef might

be harmful to human health. As a result, there has been a significant decrease in the amount of beef produced.

Which of the following best explains the decrease in production?

a. Beef producers, concerned about the health of their customers, decided to produce

relatively less beef.

b. Government officials, concerned about consumer health, ordered beef producers to

produce relatively less beef.

c. Individual consumers, concerned about their own health, decreased their demand for

beef, which lowered the relative price of beef, making it less attractive to produce.

d. Anti-beef protesters have made it difficult for both buyers and sellers of beef to meet in

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the marketplace.

Figure 5-5

____ 19. Refer to Figure 5-5. An increase in price from $20 to $30 would

a. increase total revenue by $2,000.

b. decrease total revenue by $2,000.

c. increase total revenue by $1,000.

d. decrease total revenue by $1,000.

____ 20. A surplus exists in a market if

a. there is an excess demand for the good.

b. the situation is such that the law of supply and demand would predict an increase in the

price of the good from its current level.

c. the current price is above its equilibrium price.

d. None of the above is correct.

____ 21. Which of the following events will definitely cause equilibrium quantity to fall?

a. demand increases and supply decreases

b. demand and supply both decrease

c. demand decreases and supply increases

d. demand and supply both increaseName: ________________________ ID: B

6

____ 22. Workers at a bicycle assembly plant currently earn the mandatory minimum wage. If the federal government

increases the minimum wage by $1.00 an hour it is likely that the

a. demand for bicycle assembly workers will increase.

b. supply of bicycles will shift to the right.

c. supply of bicycles will shift to the left.

d. firm must increase output to maintain profit levels.

____ 23. A decrease in the number of sellers in the market causes

a. the supply curve to shift to the left.

b. the supply curve to shift to the right.

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c. a movement up and to the right along a stationary supply curve.

d. a movement downward and to the left along a stationary supply curve.

____ 24. Which of the following sets of events would most likely cause an increase in the price of a new house?

a. higher wages for carpenters, higher wood prices, increases in consumer incomes, higher

apartment rents, increases in population and expectations of higher house prices in the

future

b. lower wages for carpenters, lower wood prices, increases in consumer incomes, higher

apartment rents, increases in population and expectations of higher house prices in the

future

c. lower wages for carpenters, higher wood prices, decreases in consumer incomes, higher

apartment rents, decreases in population and expectations of higher house prices in the

future

d. higher wages for carpenters, lower wood prices, decreases in consumer incomes, lower

apartment rents, decreases in population and expectations of lower house prices in the

future

____ 25. In a free market system, what coordinates the actions of millions of people with their varying abilities and

desires?

a. producers

b. prices

c. consumers

d. the government

____ 26. For a college student who wishes to calculate the true costs of going to college, the costs of room and board

a. should be counted in full, regardless of the costs of eating and sleeping elsewhere.

b. should be counted only to the extent that they are more expensive at college than

elsewhere.

c. usually exceed the opportunity cost of going to college.

d. plus the cost of tuition, equals the opportunity cost of going to college.

____ 27. A price ceiling is binding when it is set

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a. above the equilibrium price, causing a shortage.

b. above the equilibrium price, causing a surplus.

c. below the equilibrium price, causing a shortage.

d. below the equilibrium price, causing a surplus.

____ 28. Efficiency means that

a. society is conserving resources in order to save them for the future.

b. society's goods and services are distributed equally among society's members.

c. society's goods and services are distributed fairly, though not necessarily equally, among

society's members.

d. society is getting the maximum benefits from its scarce resources.Name: ________________________ ID: B

7

____ 29. A typical society strives to get the most it can from its scarce resources. At the same time, the society

attempts to distribute the benefits of those resources to the members of the society in a fair manner. In other

words, the society faces a tradeoff between

a. guns and butter.

b. efficiency and equity.

c. inflation and unemployment.

d. work and leisure.

____ 30. An example of a price floor is

a. the regulation of gasoline prices in the U.S. in the 1970s.

b. rent control.

c. the minimum wage.

d. any restriction on price that leads to a shortage.

____ 31. The term price takers refers to buyers and sellers in

a. perfectly competitive markets.

b. monopolies.

c. markets that are regulated by government.

d. markets in which buyers cannot buy all they want and/or sellers cannot sell all they want.

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____ 32. Lead is an important input in the production of crystal. If the price of lead decreases, other things equal, we

would expect the supply of

a. crystal to be unaffected.

b. crystal to decrease.

c. crystal to increase.

d. lead to increase.

____ 33. Your younger sister needs $50 to buy a new bike. She has opened a lemonade stand to make the money she

needs. She currently is charging 25 cents per cup, but she wants to adjust her price to earn the $50 faster. If

you know that the demand for lemonade is elastic, what is your advice to her?

a. Leave the price at 25 cents and be patient.

b. Raise the price to increase total revenue.

c. Lower the price to increase total revenue.

d. There isn't enough information given to answer this question.

____ 34. When a society cannot produce all the goods and services people wish to have, it is said that the economy is

experiencing

a. scarcity.

b. shortages.

c. inefficiencies.

d. inequities.

____ 35. Which of the following statements is not valid when supply is perfectly elastic?

a. The elasticity of supply approaches infinity.

b. The supply curve is horizontal.

c. Very small changes in price lead to large changes in quantity supplied.

d. The time period under consideration is more likely a short period rather than a long

period.

____ 36. If the quantity supplied responds only slightly to changes in price, then

a. supply is said to be elastic.

b. supply is said to be inelastic.

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c. an increase in price will not shift the supply curve very much.

d. even a large decrease in demand will change the equilibrium price only slightly.Name: ________________________ ID: B

8

____ 37. The market for ice cream is

a. a monopolistic market.

b. a competitive market.

c. a highly organized market.

d. a market in which there is no connection whatsoever between buyers and sellers.

____ 38. If there is a shortage of farm laborers, we would expect

a. the wages of farm laborers to increase.

b. the wages of farm laborers to decrease.

c. the prices of farm commodities to decrease.

d. a decrease in the demand for substitutes for farm labor.

____ 39. For which of the following types of goods would the income elasticity of demand be positive and relatively

large?

a. all inferior goods

b. all normal goods

c. goods for which there are many good complements

d. luxuries

____ 40. Which of the following events would cause the price of oranges to fall?

a. There is a shortage of oranges.

b. An article is published in which it is claimed that tangerines cause a serious disease, and

oranges and tangerines are substitutes.

c. The price of land throughout Florida decreases, and Florida produces a significant

proportion of the nation’s oranges.

d. All of the above are correct. ID: B

1

Microeconomics Mid-term

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Answer Section

MULTIPLE CHOICE

1. ANS: C DIF: 2 REF: 6-1 TOP: Price floors, Surpluses

MSC: Applicative

2. ANS: D DIF: 1 REF: 4-3 TOP: Law of supply

MSC: Definitional

3. ANS: A DIF: 2 REF: 4-2 TOP: Demand

MSC: Interpretive

4. ANS: B DIF: 1 REF: 5-1 TOP: Price elasticity of demand

MSC: Applicative

5. ANS: D DIF: 1 REF: 2-1 TOP: Economic models

MSC: Definitional

6. ANS: D DIF: 1 REF: 4-5 TOP: Resource allocation, Prices

MSC: Interpretive

7. ANS: B DIF: 1 REF: 1-0 TOP: Economies, Scarcity

MSC: Definitional

8. ANS: D DIF: 2 REF: 4-4 TOP: Supply, Quantity demanded

MSC: Applicative

9. ANS: D DIF: 2 REF: 4-4 TOP: Quantity demanded

MSC: Applicative

10. ANS: A DIF: 2 REF: 4-4 TOP: Quantity supplied

MSC: Applicative

11. ANS: B DIF: 3 REF: 5-1

TOP: Elastic demand, Inelastic demand, Total revenue MSC: Analytical

12. ANS: A DIF: 2 REF: 5-1

TOP: Price elasticity of demand, Total revenue MSC: Applicative

13. ANS: B DIF: 2 REF: 5-1 TOP: Price elasticity of demand

MSC: Applicative

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14. ANS: C DIF: 2 REF: 4-4 TOP: Surpluses

MSC: Interpretive

15. ANS: C DIF: 1 REF: 4-4 TOP: Equilibrium

MSC: Interpretive

16. ANS: A DIF: 2 REF: 4-4 TOP: Equilibrium price

MSC: Interpretive

17. ANS: A DIF: 3 REF: 5-3

TOP: Price elasticity of demand, Price elasticity of supply MSC: Analytical

18. ANS: C DIF: 2 REF: 4-4 TOP: Equilibrium, Demand, Supply

MSC: Applicative

19. ANS: C DIF: 2 REF: 5-1 TOP: Total revenue

MSC: Applicative

20. ANS: C DIF: 2 REF: 4-4 TOP: Surpluses

MSC: Interpretive ID: B

2

21. ANS: B DIF: 2 REF: 4-4 TOP: Equilibrium, Demand, Supply

MSC: Applicative

22. ANS: C DIF: 2 REF: 4-3 TOP: Supply, Inputs

MSC: Applicative

23. ANS: A DIF: 2 REF: 4-3 TOP: Supply

MSC: Interpretive

24. ANS: A DIF: 3 REF: 4-4 TOP: Equilibrium, Demand, Supply

MSC: Analytical

25. ANS: B DIF: 1 REF: 4-5 TOP: Resource allocation, Prices

MSC: Interpretive

26. ANS: B DIF: 2 REF: 1-1 TOP: Opportunity cost

MSC: Applicative

27. ANS: C DIF: 2 REF: 6-1 TOP: Price ceilings, Shortages

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MSC: Interpretive

28. ANS: D DIF: 1 REF: 1-1 TOP: Efficiency

MSC: Definitional

29. ANS: B DIF: 1 REF: 1-1 TOP: Efficiency, Equity

MSC: Interpretive

30. ANS: C DIF: 1 REF: 6-1 TOP: Price ceilings, Price floors

MSC: Definitional

31. ANS: A DIF: 2 REF: 4-1 TOP: Perfect competition

MSC: Interpretive

32. ANS: C DIF: 2 REF: 4-3 TOP: Supply, Inputs

MSC: Applicative

33. ANS: C DIF: 2 REF: 5-1 TOP: Elastic demand, Total revenue

MSC: Applicative

34. ANS: A DIF: 2 REF: 1-0 TOP: Scarcity

MSC: Interpretive

35. ANS: D DIF: 3 REF: 5-2 TOP: Perfectly elastic supply

MSC: Applicative

36. ANS: B DIF: 2 REF: 5-2 TOP: Price elasticity of supply

MSC: Interpretive

37. ANS: B DIF: 1 REF: 4-1 TOP: Markets

MSC: Interpretive

38. ANS: A DIF: 2 REF: 4-4 TOP: Shortages

MSC: Applicative

39. ANS: D DIF: 2 REF: 5-1 TOP: Income elasticity of demand

MSC: Interpretive

40. ANS: C DIF: 2 REF: 4-4 TOP: Equilibrium price

MSC: Applicative

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1

which of the following increases labor demand is due to a change in the product demand?

Tourism increases in popularity, increasing the demand for workers at tourist reports

2

Which of the following increases labor demand is due to a change in the price of a related resource?

A decrease in the price of wood decreases the cost of furniture, thus increasing the demand for furniture workers

3

a college graduate who works at a firm is also working part-time on a master's degree in business and expects to be paid a higher wage after earning the degree. The basic reason for this wage differential is:

Investment in human capital

4

The demand for capital by a firm is based on the demand for the product that the capital produces. this relationship is referred to as:

Derived Demand

5

Which of the following did Joseph Schumpeter believe was a role for an entreprenuer.

Bringing new products to market, bringing new processes to market, and finding new markets

6

Professional sports leagues, like the NFL and the NBA, are good examples of monopsony because:

They are the only employers of professional athletes in their respective sports

7

The supply curve of loanable funds is upsloping because:

households are willing to save more at high interest rates than they are at low interest rates

8

In the market for loanable funds:

an increase in saving will reduce the interest rate

9

Which of the following statements best illustrates the time-value of money concept?

Bob is willing to forgo receiving $100 today in order to receive $110 next month.

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10

Which of the following is the best example of a market failure that would lead a firm to extract resources at a rate that is faster than the rate that would maximize its long-term stream of profits?

Weak property rights create fears that firms will not be allowed to extract in the future

11

The user cost of extracting a non-renewable resource is:

the cost of not being able to extract it in the future if it is extracted and sold in the present.

12

What is most likely to happen when no logger owns the property rights to a forest that is open to logging?

It will be over-logged by loggers

13

graph

ACEG

14

Suppose that a $.75 tax is placed on a product. Under what circumstances will sellers of the product end up shouldering the full burden of the tax?

If supply is upward-sloping and demand is perfectly elastic

15

Which of the above tax schedules is a proportional tax schedule throughout?

C.

16

Rent-seeking behavior in public choice theory refers to:

specific groups appealing to government for special benefits at someone else's expense

17

the situation where politicians make decisions that will raise their chances of reelection, even if those decisions are detrimental to the general public, is referred to as the:

Principal-Agent Problem

18

the term government failure refers to the:

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economically inefficient outcomes caused by the voting programs or incentive structures in government

19

Asymmetric information in a market transaction occurs when there is unequal knowledge possessed by the:

Buyer and seller

20

Which would be considered an example of adverse election?

Those individuals who most need insurance are the ones most likely to buy it

21

Other things being equal, how would the market for personal computers be affected by a large increase in productivity in the computer manufacturing industry?

a decrease in price and a rightward movement along the demand curve

22

Two resource inputs, capital and labor, are complimentary and always used in the same proportions. An increase in the price of capital will:

decrease the demand for labor

23

If the price level rises by 2% in a year and nominal wages increase by 4%, then real wages will:

Increase by 2%

24

The economist Henry George argued for:

a heavy income tax

25

Which one of the following is a correct description of the relationship between the price of oil and the production of alternative energy sources?

As the price of oil rises, the production of alternative energy sources rises.

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