High-school athletes who skip college to become


Question 1

The superstar effect is that
A. the supply of superstars is more elastic than that for average players.
B. the labor market cannot create equilibrium wages for the best players.
C. the demand for a few players is relatively greater than the demand for most other players.
D. none of these choices.

Question 2
Daniel Pink reports that rewards and punishments
A. can have a negative effect on solving novel problems
B. help us become more creative
C. are necessary in modern organizations
D. none of the above

Question 3
A focus on quality means:
A. An inability to actually produce anything.
B. The firm will definitely be successful.
C. A firm must decide whether an additional focus on quality is worth the cost.
D. A firm does nothing but produce the highest quality product. E. Consumers will not be willing to purchase the product.

Question 4
Which of the following best describes the concept of spontaneous order?
A. The results of human action but not of human design.
B. The underlying rationality of even whimsical actions.
C. A phenomenon that has properties irreducible to its elements.
D. A bill passed by Congress.

Question 5
By being responsible for their actions
A. moral hazard becomes asymmetric information.
B. employees find it easier to free ride on the performance of others.
C. employees are being given a property right.
D. the stock market is selling the claims of agents.

Question 6
The idea of spontaneous order first rose to prominence through the ideas of:
A. Milton Friedman
B. F.
A. Hayek
C. Paul Krugman
D. John Maynard Keynes E. None of the above

Question 7
"People who have dental insurance don't floss often enough." This is an example of
A. bad parenting.
B. asymmetric information.
C. risk adverse behavior
D. moral hazar
D.

Question 8
Dioxin emission that results from the production of paper is a good example of a negative externality because
A. self-interested paper producers will not consider the full cost of the dioxin pollution they create.
B. there are fines for producing too much dioxin.
C. toxic emissions are the best example of an externality.
D. self-interested paper firms are generally unaware of environmental regulations.

Question 9
Suppose that the country of Xenophobia chose to isolate itself from the rest of the worl
D. Its ruler proclaimed that Xenophobia should become self-sufficient, so it would not engage in foreign trade. From an economic perspective, this idea would
A. make sense if Xenophobia had an absolute advantage in all goods.
B. not make sense as long as Xenophobia had an absolute advantage in at least half the goods that could be trade
D.
C. not make sense as long as Xenophobia had a comparative advantage in some goo
D.
D. make sense if Xenophobia had no absolute advantages in any goo
D.

Question 10
Which of the following is an example of moral hazard?
A. After employees sign up for the company health plan that covers all doctors' visits, they start going to the doctor every time they get a col
D.
B. Retail stores located in high-crime areas tend to buy theft insurance more often than stores located in low-crime areas.
C. Reckless drivers are the ones most likely to buy automobile insurance.
D. Drivers who have many accidents prefer to buy cars with air bags.

Question 11
Which of the following best describes the two kinds of externalities?
A. Positive externalities are beneficial. Negative externalities are destructive or undesirable.
B. Positive externalities are imposing a cost on another, while negative externalities are imposing a cost on you.
C. Negative externalities cannot conflict with each other, while positive externalities can.
D. Positive externalities can be stopped, while negative externalities cannot. E. None of the above

Question 12
A basketball manufacturer is considering a number of options for its new factory. Given the following costs and benefits of the four different factory configurations, what are the marginal costs and benefits of the Extra Large configuration relative to the Large configuration? Total Cost Total Benefit Configuration A (Small) $45,000 70,000 Configuration B (Medium) 120,000 170,000 Configuration C (Large) 240,000 300,000 Configuration D (Extra Large) 400,000 420,000
A. Marginal cost of $120,000 and marginal benefit of $120,000.
B. Marginal cost of $160,000 and marginal benefit of $120,000.
C. Marginal cost of $160,000 and marginal benefit of $220,000.
D. Marginal cost of $400,000 and marginal benefit of $420,000.

Question 13
Principal-agent problems
A. occur when firm managers have more incentive to maximize profits than shareholders do.
B. would not arise if firm owners had complete information about the actions of the firm's managers.
C. are increased as more information is shared between the parties.
D. help explain why equity investments are an important financing source for firms.

Question 14
Firms exist because of
A. incomplete contracts.
B. team production.
C. the incentive to free ride.
D. all of these choices.

Question 15
When are parties likely to engage in transactions?
A. If they both gain from the transaction
B. If the sale price is above the seller's value and below the buyer's value
C. When the total gains from trade are greater than zero
D. All of the above

Question 16
Government rules and regulations can, at times,
A. improve the function of property rights.
B. limit free-riders.
C. reduce negative externalities.
D. all of these choices.

Question 17
Free riding is a problem
A. if an individual's contribution is to a team is easily measure
D.
B. when team members are altruisti
C.
C. when monitoring is costless.
D. if an individual's contribution to a team is not easily measure
D.

Question 18
A piecework wage compensation may be used if productivity
A. can be related to the supply chain.
B. is backloade
D.
C. is difficult to observe.
D. is easy to measure.

Question 19
Firms would not exist if
A. contracts were complete.
B. residual income equaled normal profit.
C. contracts were incomplete.
D. income was spontaneously earne
D.

Question 20
Clayton Christensen believes that Jensen and Meckling's theory:
A. cannot explain many choices that individuals make
B. is a stroke of pure brilliance
C. is a complete and robust theory
D. is better than Einstein's theory

Question 21
Globalization does not mean:
A. when one product or one brand is sold in many different international markets.
B. the homogenizing of markets.
C. the establishment of manufacturing plants in more than one nation.
D. the purchase of supplies from foreign firms. E. the increase in trade among nations.

Question 22
Matt Ridley believes that over the past 50 years:
A. the poor of the world have become poorer
B. starvation has increased
C. the rich have got richer, but the poor have done even better
D. none of the above

Question 23
Honey producers provide a positive externality to orchards because
A. the honey producers get more honey.
B. the orchard owner does not have to purchase bees to pollinate his flowers.
C. the orchard owner frequently gets stung by the honey producer's bees.
D. the honey producers have to rent access to the orchard grounds.

Question 24
Business success is largely dependent on
A. being a first mover.
B. dynamic management.
C. many different things.
D. quality products. E. a global focus.

Question 25
The authors of Crucial Conversations believe that behind every successful conversation is
A. two equals in authority
B. a good employee handbook
C. the free flow of information
D. none of the above

Question 26
Which of the following is not an example of a process designed to combat moral hazard problems?
A. Employers regularly monitor employee performance.
B. Universities have students complete evaluations of professor performance at the end of a class.
C. Banks include restrictive covenants in loan agreements.
D. Insurance companies require applicants to provide medical history information as part of the application process.

Question 27
According to the text, economics offers the business person
A. a replacement for the personnel department.
B. a substitute for the accounting department.
C. an approach to thinking.
D. a substitute for the marketing department. E. a way to forecast deman
D.

Question 28
Your notebook computer's hard drive recently crashed, and you decide to take it to a local repair technician to have it fixe
D. In this relationship,
A. you are the agent.
B. the technician is the agent.
C. the technician is the principal.
D. no principal-agent relationship exists.

Question 29
Principal-agent relationships
A. occur because managers have good information about employees.
B. reduce monitoring costs.
C. are not related to asymmetric information.
D. are subject to moral hazard problems.

Question 30
Why do elephants face the threat of extinction while cows do not?
A. Cattle are a valuable source of income for many people, while elephants have no market value.
B. There are still lots of cattle that roam free, while all elephants live in zoos.
C. There is a high demand for products that come from cows, whereas there is no demand for products that come from elephants.
D. Cattle are owned by ranchers, while elephants are owned by no one.

Question 31
Christine has purchased five bananas and is considering the purchase of a sixth. It is likely she will purchase the sixth banana if
A. the marginal value she gets from the sixth banana is lower than its price.
B. the average value of the sixth bananas exceeds the price.
C. the marginal benefit of the sixth banana exceeds its price.
D. the total personal value of six bananas exceeds the total expenditure to purchase six bananas.

Question 32
Hernando de Soto believes that that property rights enable society to achieve:
A. An end to the antagonisms between individuals.
B. A perfectly just society.
C. Prosperity.
D. A society that promotes virtue. E. All of the above

Question 33
Property rights need to be secure
A. to promote economic development.
B. to encourage environmentalism.
C. to promote an equal distribution of income.
D. all of the choices.

Question 34
The CEO and stockholders are not necessarily the same people. This gives rise to
A. a control over moral hazar
D.
B. a principal-agent problem.
C. complete contracts.
D. upstream and downstream contracts.

Question 35
According to the text, economic decision making refers to:
A. rejecting wish-driven strategies.
B. ensuring that wants and needs are matche
D.
C. analyzing demand and supply.
D. forecasting. E. comparing costs and benefits.

Question 36
Gary Hamel believes
A. a lattice structure can have real advantages over a hierarchy
B. a hierarchy is necessary to get real work done
C. a lattice structure wastes too much time
D. none of the above

Question 37
According to the text, the essence of good management is:
A. to determine when a free lunch is actually free.
B. to determine whether the implementation of a practice increases the value that a firm adds.
C. to ensure that the reputation of the firm remains high.
D. to be sure there are not "too many chefs stirring the broth." E. to ensure that the stock price remains high.

Question 38
Sophia is planning her activities for a hot summer day. She would like to go to the local swim-ming pool and see the latest blockbuster movie, but because she can only get tickets to the movie for the same time that the pool is open she can only choose one activity. This illustrates the basic prin-ciple that
A. people face tradeoffs.
B. rational people think at the margin.
C. people respond to incentives.
D. improvements in efficiency sometimes come at the expense of equality.

Question 39
A retailer has to pay $10 per hour to hire 13 workers. If the retailer only needs to hire twelve workers, a wage rate of $7 per hour is sufficient. What is the marginal cost of the 13th worker?
A. $84.
B. $9.
C. $46.
D. $33.

Question 40
Nicky makes $20,000 a year as a sales clerk. He then decides to quit his job to enter an MBA program full-time (assume Nicky does not work in the summer or hold any part-time jobs). His tuition, books, living expenses, and fees total $15,000 a year. Given this information, the annual total cost of Nicky's MBA studies is
A. $35,000.
B. $15,000.
C. $40,000.
D. $25,000. E. $10,000.

Question 41
A basic principle of economics is:
A. demand equals supply.
B. size and market share are important goals for a business.
C. equilibrium is beneficial.
D. there are costs involved in any action or decision. E. knowing your customer means understanding their income.

Question 42
In 1981, in San Francisco Solano, Argentina, about 1,800 families took over a piece of wastelan
D. The resulting houses varied greatly, based on whether the residents received title. Those who received title also behaved differently, having fewer children, and the children experienced more education and better health. This is an example of (the results from)
A. Economic freedom
B. Scarcity
C. Quality of life
D. Private property rights E. Economic growth

Question 43
There is no free lunch means
A. each action has a cost.
B. if you get your lunch paid for by someone else, it is free, but if you have to pay, it is not free.
C. if you are invited to lunch by someone, you are not expected to pay for it.
D. each decision has elements of free goods in it. E. each choice involves a free item.

Question 44
The 1990s saw
A. a heightening of organizations.
B. an increase in bureaucratic forms of business.
C. a return to family businesses.
D. a flattening of organizations.

Question 45
After people buy insurance, they are more likely to build a beach house out of wood framing rather than concrete block. This is an example of
A. risk neutrality.
B. free riding in teams.
C. moral hazar
D.
D. risk aversion.

Question 46
If government intervention in the market creates market inefficiencies then
A. there is government failure.
B. market failure.
C. the economy must be democrati
C.
D. network externalities.

Question 47
To avoid wage compression,
A. employees need to speak to their supervisors.
B. managers need to pay above the minimum wage.
C. employees probably need to change companies.
D. employees need to sign a deferred compensation contract.

Question 48
Data suggest that which of the following are necessary for high rates of economic growth?
A. private property rights.
B. free markets.
C. clear incentives.
D. all of these choices.

Question 49
Consider the following problems: Overcrowded public highways, overfishing in the ocean, polluted air, and the near-extinction of the wild rhinoceros. What do these problems have in common?
A. Private markets could easily solve them if governments left the markets alone.
B. They would all go away if the government sponsored an intensive public-information campaign.
C. They are all the result of a failure of corrective taxes.
D. They are all the result of a failure to establish clear property rights over something of value.

Question 50
Decentralization of decision-making authority is supported by which of the following?
A. Shrinking costs of computing bandwidth, which allows information to be inexpensively aggregated from geographically diverse business units
B. Reduction in the use of incentive compensation
C. A trend of stronger, more active CEOs
D. Development of microcomputing resources at the corporate, division, and employee level

Question 51
If large, dominant firms tend to be more successful and last longer than small, non-dominant firms, it would be because:
A. the large firm can dictate what it wants to consumers and to its suppliers.
B. the large, dominant firm is able to offer more products at lower prices.
C. the large, dominant firm has an advantage in its costs or in being able to meet customer wants.
D. the small firm can never compete with the large firm. E. the small firm is a risk-taker and typically is not around for long.

Question 52
A basketball manufacturer is considering a number of options for its new factory. Given the following costs and benefits of the four different factory configurations, which Configuration should they select? Total Cost Total Benefit Configuration A (Small) $45,000 90,000 Configuration B (Medium) 120,000 180,000 Configuration C (Large) 240,000 310,000 Configuration D (Extra Large) 400,000 420,000
A. Configuration
A.
B. Configuration
B.
C. Configuration
C.
D. None of the Configurations.

Question 53
A problem associated with the principal-agent relationship is
A. imperfect information.
B. perfect information.
C. the low costs of monitoring behavior.
D. none of these choices.

Question 54
All the costs of a transaction are referred to as
A. marketing expenditures.
B. accounting costs.
C. transactions costs.
D. transfer costs.

Question 55
According to the text, tradeoffs
A. lie at the heart of the executive's jo
B.
B. lie at the heart of costs and benefits.
C. involve giving up something in order to get more of it later.
D. are unethical. E. have nothing to do with successful management.

Question 56
The cost of a choice is
A. all of the opportunities given up.
B. the price of the product selecte
D.
C. the next best opportunity.
D. the price of the product not selecte
D.

Question 57
In which of the following cases is bargaining likely to reduce or eliminate the externality?
A. Industrialization around the world is causing global warming.
B. Polluted water runoff from farms is making residents of a nearby town sick.
C. Chemicals from manufacturing plants in the Midwest are causing acid rain in Canad
A.
D. Ed is allergic to his roommate's cat.

Question 58
Firm governance must enhance
A. efficiency.
B. government regulation.
C. wages.
D. control by stockholders.

Question 59
When a home in Baltimore went up for sale, the person interested in buying a home wanted to have the house inspecte
D. The person selling the home encouraged the buyer to inspect the house before the sale is final. Which statement is true?
A. The buyer is signaling
B. The seller is screening
C. The buyer is trying to solve the problem of adverse selection
D. None of the above

Question 60
Dan Ariely believes that
A. Yerkes and Dodson's experiment should make us wonder about the real relationship between payment, motivation, and performance.
B. Yerkes and Dodson's experiment should make us wonder about the real relationship between payment, motivation, and firm size.
C. Yerkes and Dodson's experiment should make us wonder about the real relationship between payment, motivation, and the number of employees.
D. all of the above

Question 61
You own a retail establishment run by a store manager who receives a flat salary of $80,000. If you set up another store as a franchise with incentive compensation to the franchisee, what would be a reasonable total compensation range that the franchisee could earn?
A. $80,000-$100,000
B. $40,000-$80,000
C. $80,000
D. $60,000-$100,000

Question 62
The fundamental economic problem faced by individuals is
A. fair allocations of goods and services.
B. comparative advantage.
C. randomness in the distribution of income.
D. scarcity.

Question 63
Backloaded compensation encourages
A. employee rollover.
B. principals to be agents.
C. employees to stay with the firm.
D. employee turnover.

Question 64
Property rights
A. need to be universal.
B. do not promote incentives.
C. do not promote efficiency
D. only need to be found in wealthy segments of the population.

Question 65
The textbook argues that democracy:
A. Often tramples on property rights.
B. Leads to large governments.
C. Leads to firms lobbying Congress for policies that benefit that firm.
D. All of the above.

Question 66
Economic freedom and economic prosperity are
A. negatively correlated
B. inconsistent with human rights.
C. positively correlate
D.
D. not correlate
D.

Question 67
To an economist, the word 'marginal' means:
A. total.
B. average.
C. next or additional.
D. sunk. E. none of the choices.

Question 68
Barry Brownstein believes that often more controls
A. lead to less order
B. lead to more order
C. the most successful companies have many rules to cover all situations
D. none of the above

Question 69
A basketball company is considering purchasing a new machine that doubles capacity from 100 to 200 balls per day. The machine will occupy 1,000 square feet of unused space on the factory floor. Which costs are irrelevant in this decision to purchase a machine?
A. Additional electricity required to operate the machine.
B. Additional personnel required to operate the machine.
C. Maintenance cost for routine cleaning of the machine.
D. Rental expense associated with the 20,000 square foot factory.

Question 70
Economic decision making recognizes that
A. benefits are largely free while costs are not.
B. prices do not reflect all information known to managers.
C. costs are controllable but benefits are not measurable.
D. all choices have benefits and costs. E. resources and wants are limite
D.

Question 71
The primary reason to explain why some nations are rich and others poor is
A. A strong judicial system
B. Private ownership
C. A democratic government
D. Access to education E. A stable currency

Question 72
Ronald Coase argued that firms exist due to the presence of
A. transactions costs.
B. transfer costs.
C. easy market transactions.
D. unions.

Question 73
The set of collectively held beliefs, values, and norms among the members of a firm that influence individual behavior is referred to as
A. network values.
B. corporate culture.
C. horizontal values.
D. implicit contracts.

Question 74
Moral hazard means that a borrower would be more likely to use loan proceeds to invest in which of the following?
A. A blue chip stock
B. A mutual fund
C. A corporate bond fund
D. A startup biotechnology company

Question 75
On average each year, about 7 percent of all firms in the United States are new, and 1 percent go out of business. According to the text, which of the following is not true?
A. A firm that globalizes may find that it fails.
B. Being a first mover may be a reason for failure.
C. A focus on quality may have a role in a firm's performance.
D. Size may be an important factor of success. E. Luck never plays a role in a firm's performance.

Question 76
If a firm is wondering whether or not it should "buy or make,"
A. it is exploring the boundaries of its network.
B. it is exploring its vertical boundaries.
C. it is exploring its horizontal boundaries.
D. it is considering a "winner-take-all" event.

Question 77
According to the text, success requires:
A. an emphasis on efficiency.
B. a visionary leader.
C. a customer-orientation.
D. a focus on quality. E. there is no secret formula that guarantees success.

Question 78
The Prime Directive says look to
A. the market.
B. the government.
C. competitors.
D. all of these choices.

Question 79
Chickens are not endangered because
A. they are free and not owned by anyone.
B. government regulates chicken processors.
C. there are clear property rights to them.
D. there are positive externalities.

Question 80
Geoff Colvin believes that the primary determiner of success is
A. your grades in school
B. how high you score on a IQ test
C. your home environment
D. how much you practice E. all of the above

Question 81
The board of directors and the CEO
A. do not have a principal/agent relationship.
B. are one in the same for small corporations.
C. are agent and principal, respectively.
D. are principal and agent, respectively.

Question 82
Approximately what percentage of the world's organizations face tradeoffs?
A. 25%
B. 100%
C. 50%
D. 75%

Question 83
To say that something is scarce means that
A. it must be conserved at any cost.
B. not enough is available to satisfy people's wants at a zero price.
C. even the government cannot supply it.
D. sufficient amounts of it are available only at full employment and inflated prices. E. it is no longer available in stores.

Question 84
A common way used to align the interests of managers with the interests of equity holders is
A. stock options.
B. forwarded loaded pay schemes.
C. piecework pay.
D. insurance.

Question 85
Over time, the hierarchy of firms has tended to move from
A. hierarchical to non-hierarchical.
B. big to small to big again.
C. lateral to parallel.
D. upstream to downstream.

Question 86
Which of the following is not an example of the government's role in helping create wealth?
A. Assessing property taxes
B. Providing federal courts to adjudicate contract disputes
C. Providing protection against criminals
D. Recording property transactions

Question 87
Which of the following is not an example of spontaneous order?
A. the Fed reducing interest rates
B. the development of language
C. the commercial development of the Internet
D. college students walking across a college green and creating a new path

Question 88
If a life insurance company knows that smoking increases the risk of death but is unable to determine which applicants smoke, the problem of __________ refers to __________ being more likely to buy insurance.
A. adverse selection, smokers'
B. screening, smokers'
C. screening, nonsmokers'
D. adverse selection, nonsmokers'

Question 89
Due to the problems associated with ___________, one would expect a doctor to spend _______ time with patients after buying malpractice insurance.
A. moral hazard; less
B. adverse selection; less
C. adverse selection; more
D. moral hazard; more

Question 90
John tells Fred he is irrational for spending $5/gallon on gas when it is $4.50/gallon only 30 minutes down the roa
D. What economic concept is John ignoring?
A. Fred should have freedom of contract to buy gas from whom he pleases.
B. Fred's marginal utility for gas might be higher than John's.
C. The opportunity cost to Fred includes his time.
D. Buying gas from far away could have unintended consequences.

Question 91
A computer manufacturer can produce 5 computers for $4000 and 10 computers for $7500. Based on this information, what is the marginal cost per computer of the 6th through 10th computers?
A. $800
B. $700
C. $500
D. $750

Question 92
Trade between countries is based on
A. absolute advantage only.
B. monopoly power.
C. comparative advantage.
D. none of these choices.

Question 93
The use of government to supplant market outcomes is called
A. market failure.
B. free riding.
C. rent seeking.
D. efficiency.

Question 94
Carol Dweck believes that
A. you are born with a given mindset and there is not too much that you can do about it.
B. a fixed mindset will help you fix your mind on the goal and see you through tough times.
C. mindset is fluid and can be changed through self-awareness
D. none of the above

Question 95
The Ogallala aquifer is a large underground pool of fresh water under several western states in the United States. Any farmer with land above the aquifer can at present pump water out of it. We might expect that
A. state governments have an incentive to insure that their farmers do not overuse the water.
B. over time, the aquifer is likely to be overuse
D.
C. each farmer has a sufficient incentive to conserve the water.
D. resources would be used more efficiently if the government paid for the pumps farmers use to get the water.

Question 96
"Knowing your customer" means:
A. having an understanding of why price goes up or down.
B. knowing whether something is a fad or a fashion.
C. knowing that people do not believe advertising.
D. knowing the names of customers. E. knowing what factors affect customer choices.

Question 97
People trade because
A. government regulates the market.
B. they make themselves better off.
C. the must do so.
D. they are able to take advantage of others.

Question 98
A negative externality occurs when
A. benefits are imposed on individuals that are not part of a transactions.
B. costs are imposed on individuals that are not part of a transaction.
C. there is rent-seeking.
D. there is creative destruction.

Question 99
Externalities occur when there is a lack of
A. government regulation.
B. free-riding.
C. market participants.
D. well-defined property rights.

Question 100
High-school athletes who skip college to become professional athletes
A. are not making a rational decision since the marginal benefits of college outweigh the marginal costs of college for high-school athletes.
B. understand that the opportunity cost of attending college is very high for them.
C. obviously do not understand the value of a college education.
D. usually do so because they cannot get into college.

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