Multiple Choice Answers

1) A normative statement is one that
A. is based on the law of averages
B. applies only to microeconomics
C. is based on value judgments
D. applies to macroeconomics

2) Which of the following is a normative statement?
A. The temperature is high today.
B. The humidity is high today.
C. It will cool off later this evening.
D. It is too hot to play tennis today.

3) Assuming an economy has fixed quantities of resources, that economy
A. is more efficient, the larger the amount of goods and services it produces
B. is able to satisfy all consumer wants
C. will produce the same output whether or not resources are used efficiently
D. is able to produce the same amount of output regardless of the production technologies it chooses

4) Productive efficiency refers to
A. the use of the least-cost method of production
B. the production of the product-mix most wanted by society
C. the full employment of all available resources
D. production at some point inside of the production possibilities curve

5) The concept of economic efficiency is primarily concerned with
A. the limited wants-unlimited resources dilemma
B. considerations of equity in the distribution of wealth
C. obtaining the maximum output from available resources
D. the conservation of irreplaceable natural resources

6) When the economist says that economic wants are insatiable, this means that

A. economic resources are valuable only because they can be used to produce consumer goods
B. economic resources—land, labor, capital, and entrepreneurial ability—are scarce
C. the structure of consumer demand varies from time to time and from country to country
D. these wants are virtually unlimited and therefore incapable of complete satisfaction

7) Which of the following is a fundamental characteristic of the market system?
A. Property rights
B. Central planning by government
C. Unselfish behavior
D. Government-set wages and prices

8) The pursuit of self-interest
A. is highly detrimental to the market system
B. means the same as selfishness
C. is reflected in the behavior of firms, but not in the behavior of consumers
D. gives direction to the market system

9) Other things equal, an excise tax on a product will
A. increase its supply
B. increase its price
C. increase the quantity sold
D. increase its demand

10) The price elasticity of demand coefficient measures
A. buyer responsiveness to price changes
B. the extent to which a demand curve shifts as incomes change
C. the slope of the demand curve
D. how far business executives can stretch their fixed costs
1) Suppose that as the price of Y falls from $2.00 to $1.90 the quantity of Y demanded increases from 110 to 118. Then, the price elasticity of demand is

A. 4.00
B. 2.09
C. 1.37
D. 3.94

12) The income effect indicates that
A. a rise in money income will cause consumers to buy smaller quantities of normal goods
B. when the price of a product falls, the lower price will induce the consumer to buy more of that product now that it is relatively cheaper
C. consumers should substitute among various products until the marginal utility from the last unit of each product purchased is the same
D. when the price of a product falls, a consumer will be able to buy more of it with a specific income

13) If the price of normal good X rises, the income
A. and substitution effects will both induce the consumer to buy less of X
B. and substitution effects will both induce the consumer to buy more of X
C. effect will induce the consumer to buy more of X and the substitution effect will induce him to buy less
D. effect will induce the consumer to buy less of X and the substitution will induce him to buy more

14) When budgets are used to measure performance, there is a danger that budgetary slack may occur. This happens when
A. sales budgets are set too high and cost budgets are set too low
B. sales budgets are set too high and cost budgets are set too high
C. sales budgets are set too low and cost budgets are set too low
D. sales budgets are set too low and cost budgets are set too high

15) When evaluating the performance of managers in investment centers, performance metrics should be based on
A. revenue and costs under their control
B. revenues, costs, and investments under their control
C. only investments under their control
D. only costs under their control

16) Agency costs arise when agents fail to act in the best interests of the principals. One example of losses from poor decisions would be
A. prioritizing projects, according to the best interests of the corporation
B. increasing the scope of the audit of the financial statements
C. purchasing inferior material to earn yearly bonus
D. investing additional funds in profitable projects

17) According to the Agency Theory, in a corporation there are two types of information consumers known as
A. vendors and customers
B. customers and agents
C. agents and principals
D. principals and vendors

18) Failure to provide any care in fulfilling a duty owed to another is called
A. breach of contract
B. negligence
C. gross negligence
D. constructive fraud

19) In 2003, FASB and IASB met and established four criteria for establishing revenue recognition. To recognize revenue, which of the following conditions must be present?
A. Payment for the sale must be received prior to recognizing the revenue.
B. A promise to deliver has been established.
C. A change in assets has occurred and can be appropriately measured.
D. The product or deliverable, in the case of a service business, has been received by the customer.

20) When revenue is recognized and shipment has not been made and the criteria for recognizing revenue on bill-and-hold transactions set out in SEC Staff Accounting Bulletin No. 101 have not been met, this is known as
A. postrevenue recognition
B. premature revenue recognition
C. conservative revenue recognition
D. timely revenue recognition

21) ABC Company owes XYZ Enterprises $1 million for goods purchased from XYZ over a year ago. XYZ Enterprises continues to list the $1 million in their accounts receivable balance and does not record any allowance for doubtful accounts. XYZ Enterprises is failing to follow
A. Financial Accounting Standards Board Statement No. 5
B. Financial Accounting Standards Board FAS 157
C. SFAS 169
D. SFAS 101

22) When applying for a bank loan or trade credit, one way a company can appear to be in a healthier financial position would be to
A. undervalue its assets
B. overstate its expenses
C. understate its sales
D. understate its liabilities

23) The bankruptcy of WorldCom in 2002 was due to the company’s actions in
A. failing to record revenues
B. expensing equipment purchases rather than capitalizing these purchases
C. recording fictitious liabilities
D. classifying expenses as assets

24) In 2002, Adelphia Cable filed bankruptcy when it was discovered that
A. bank debt in excess of $2.3 billion was not shown on the financial statements
B. sales in excess of $72 billion were omitted from the financial statements
C. assets on the financial statements were considerably undervalued
D. excess fictitious expenses of $1 million were added to the income statement
25) If a conflict of interest arises prior to entering into a business contract, the parties should
A. determine the type of conflict and if disclosure of the conflict of interest is sufficient to proceed with the contract
B. stop negotiations immediately and contact a mediator to negotiate the terms of the contract
C. cease and desist because all conflicts of interest are irreconcilable
D. commence a cooling-off period until the conflict is removed

26) Many conflicts of interest in business contracts can be remedied ethically by which of the following?
A. Deception and disclosure
B. Camouflage and consent
C. Disclosure and consent
D. Conflicts of interest can never be remedied ethically

27) The EU Privacy Directive presents problems for the United States in that
A. data may not be transferred to a non-EU entity unless guarantees are provided that equal security measures are in place
B. transferred data may not be translated into another language
C. high transfer charges are required to be paid by the recipient in the currency of the country transferring the data
D. several layers of approval are necessary before any data may be transferred to a non-EU entity

28) Tom Donaldson and Tom Dunfee are proponents of ethical guidelines related to technology that are based on differentiating hypernorms from nonhypernorms. This theory is known as
A. Transparent Ethical Dilemma Theory
B. Social Contract Network Theory
C. Integrative Social Contracts Theory
D. Electronic Communications Privacy Theory

29) Four professional general standards and responsibilities for Certified Public Accountants are quality control and assurance, professional judgment, competence, and:
A. knowledge
B. integrity
C. diligence
D. independence

30) Section 55 of the Principles of Professional Conduct of the AICPA states that
A. a member should maintain objectivity and be free of conflicts of interest in discharging professional responsibilities
B. members should accept the obligation to act in a way that will serve the public interest, honor the public trust, and demonstrate commitment to professionalism
C. a member should observe the profession’s technical and ethical standards, strive continually to improve competence and quality of services, and discharge professional responsibility to the best of the member’s ability
D. members should perform all professional responsibilities with the highest sense of integrity