1. 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.
2. A leftward shift in the supply curve of product X will increase equilibrium price to a greater extent the:
A. more elastic the supply curve.
B. larger the elasticity of demand coefficient.
C. more elastic the demand for the product.
D. more inelastic the demand for the product.
3. The concept of price elasticity of demand measures:
A. the slope of the demand curve.
B. the number of buyers in a market.
C. the extent to which the demand curve shifts as the result of a price decline.
D. the sensitivity of consumer purchases to price changes.
4. If the price of hand calculators falls from $10 to $9 and, as a result, the quantity demanded increases from 100 to 125, then:
A. demand is elastic.
B. demand is inelastic.
C. demand is of unit elasticity.
D. not enough information is given to make a statement about elasticity.
5. When the percentage change in price is greater than the resulting percentage change in quantity demanded:
A. a decrease in price will increase total revenue.
B. demand may be either elastic or inelastic.
C. an increase in price will increase total revenue.
D. demand is elastic.
6. In which of the following cases will total revenue increase?
A. price falls and demand is inelastic
B. price falls and supply is elastic
C. price rises and demand is inelastic
D. price rises and demand is elastic
7. The coefficient of price elasticity is 0.2. Demand is thus:
A. perfectly inelastic.
B. perfectly elastic.
C. relatively inelastic.
D. relatively elastic.
8. The main determinant of elasticity of supply is the:
A. number of close substitutes for the product available to consumers.
B. amount of time the producer has to adjust inputs in response to a price change.
C. urgency of consumer wants for the product.
D. number of uses for the product.
9. We would expect the cross elasticity of demand between Pepsi and Coke to be:
A. positive, indicating normal goods.
B. positive, indicating inferior goods.
C. positive, indicating substitute goods.
D. negative, indicating substitute goods.
10. Consumer surplus:
A. is the difference between the maximum prices consumers are willing to pay for a product and the lower equilibrium price.
B. the difference between the maximum prices consumers are willing to pay for a product and the minimum prices producers are willing to accept.
C. the difference between the minimum prices producers are willing to accept for a product and the higher equilibrium price.
D. rises as equilibrium price rises.
11. Marginal utility can be:
A. positive, but not negative.
B. positive or negative, but not zero.
C. positive, negative, or zero.
D. decreasing, but not negative.
12. The law of diminishing marginal utility states that:
A. total utility is maximized when consumers obtain the same amount of utility per unit of each product consumed.
B. beyond some point additional units of a product will yield less and less extra satisfaction to a consumer.
C. price must be lowered to induce firms to supply more of a product.
D. it will take larger and larger amounts of resources beyond some point to produce successive units of a product.
13. The first Pepsi yields Craig 18 units of utility and the second yields him an additional 12 units of utility. His total utility from three Pepsis is 38 units of utility. The marginal utility of the third Pepsi is:
A. 26 units of utility.
B. 6 units of utility.
C. 8 units of utility.
D. 38 units of utility.
14. Total utility may be determined by:
A. multiplying the marginal utility of the last unit consumed by the number of units consumed.
B. summing the marginal utilities of each unit consumed.
C. multiplying the marginal utility of the last unit consumed by product price.
D. multiplying the marginal utility of the first unit consumed by the number of units consumed.
15. If total utility is increasing, marginal utility:
A. is positive, but may be either increasing or decreasing.
B. must also be increasing.
C. may be either positive or negative.
D. will be increasing at an increasing rate.
16. The theory of consumer behavior assumes that:
A. consumers behave rationally, attempting to maximize their satisfaction.
B. consumers have unlimited money incomes.
C. consumers do not know how much marginal utility they obtain from successive units of various products.
D. marginal utility is constant.
17. Suppose you have a limited money income and you are purchasing products A and B whose prices happen to be the same. To maximize your utility you should purchase A and B in such amounts that:
A. their marginal utilities are the same.
B. their total utilities are the same.
C. their marginal and total utilities are proportionate.
D. the income and substitution effects associated with each are equal.
18. Assume that a consumer purchases products A, B, and C in quantities such that the last dollar spent on each yields the same marginal utility and the consumer’s income is totally spent. We can conclude that:
A. total utility is being minimized.
B. production costs are being minimized.
C. marginal utility exceeds total utility.
D. total utility is being maximized.
19. Suppose that Dave normally orders two tacos, but on seeing they are on sale, decides to buy three. Dave’s decision is best explained by the:
A. law of increasing opportunity costs.
B. law of supply.
C. principle of comparative advantage.
D. the principle of utility maximization.
20. What do the income effect, the substitution effect, and diminishing marginal utility have in common?
A. All are required to explain the utility-maximizing position of a consumer.
B. They are all empirically measurable.
C. They all help explain the upsloping supply curve.
D. They all help explain the downsloping demand curve.
1. The first caption in most income statements in annual reports is:
A. gross sales.
B. net sales.
C. earned revenues.
D. sales, less sales returns and allowances.
2. Gains differ from revenues because gains:
A. are not a result of the entity’s ongoing, central operations.
B. do not have to be realized.
C. are reported as income from operating activities.
D. do not involve any offsetting costs or expenses.
3. Under most circumstances, in order to recognize revenue:
A. cash must have been received.
B. the entity must expect to receive cash in the future.
C. the entity must have paid for all expenses incurred in generating the revenue.
D. the revenue must be realized or realizable, and earned.
4. The concept of matching revenue and expense refers to the fact that:
A. expenses for a period equal the revenues for the period.
B. all costs incurred in the process of earning revenue during a period are recorded as an expense in that period.
C. all cash disbursements during a period are subtracted from all cash receipts during the period.
D. costs incurred in the process of earning revenue during a period are deferred and expensed in a future period.
5. Most entities satisfy the accounting criteria for recognizing revenue when:
A. an order is received from a customer.
B. cash is received from a customer.
C. an unearned revenue account is credited.
D. a product is delivered or a service is provided.
6. Most entities satisfy the accounting criteria for recognizing an expense when:
A. a commitment is made to purchase a product or service.
B. cash is paid to a supplier.
C. a cost is incurred in the revenue generating process.
D. a dividend is paid to stockholders.
7. The gross profit ratio is useful to the manager for each of the following purposes except that:
A. it can be used to determine the selling price to set for an item.
B. it can be used to estimate the amount of inventory lost in a fire.
C. it can be used to determine the amount available from a given amount of revenue to cover operating expenses.
D. it can be used to estimate the amount of operating expenses for a period.
8. Which of the following accounts is not included in the calculation for Gross Profit?
B. Cost of goods sold.
C. Net sales.
D. General and selling expenses.
9. When the periodic inventory system is used:
A. operating profit from the sale of an item from inventory is known when the item is sold.
B. gross profit from the sale of an item from inventory is known when the item is sold.
C. cost of goods sold can be calculated by subtracting the ending inventory amount from the sum of beginning inventory and purchases.
D. a physical inventory must be taken in order to estimate the cost of goods sold.
10. Income from operations is:
A. sometimes called the “bottom line”.
B. sometimes used in the ROI calculation.
C. usually used in the ROE calculation.
D. usually calculated after income tax expense.
11. The earnings per share of common stock calculation:
A. is made by dividing net income by the number of shares of common stock outstanding at the end of the year.
B. is complicated by the declaration of cash dividends during the year.
C. includes gains or losses from treasury stock transactions.
D. is complicated by the presence of preferred stock in the capital structure.
12. An item that cost $90 is sold for $120. The gross profit ratio for this item is:
13. An item that cost $240 is to be sold for a price that will yield a gross profit ratio of 20%. The selling price should be:
14. Recognition of revenue in accrual accounting requires:
A. that cash be received.
B. only that the amount of cash to be received from the sale of a product or service be known.
C. only that a product be delivered or a service be performed.
D. that the revenue be realized or realizable, and earned.
15. The major difference between the indirect and the direct method of a statement of cash flows appears in which the following activities section(s)?
A. The investing activities and financing activities sections.
B. The investing activities section only.
C. The operating activities and financing activities sections.
D. The operating activities section only.
16. Which of the following is an accurate statement regarding a statement of cash flows?
A. Only cash items that affect the income statement are included.
B. Only material cash items that affect the income statement are included.
C. Material non-cash transactions are included.
D. Immaterial financing activities that affect cash do not need to be included.
E. None of the above.
17. In the statement of cash flows, the amount of depreciation and amortization expense is added back to net income because:
A. these expenses do not affect cash, but were subtracted in the determination of net income.
B. these expenses affect investing activities, not operating activities.
C. the cash disbursements for these accrued expenses will be made in a future period.
D. these expenses are recognized for accounting purposes, but they do not represent economic costs.
18. In the statement of cash flows, an increase in the accounts receivable balance from the beginning of the period to the end of the period would:
A. be added to net income because this represents earned revenues that have not been collected.
B. be subtracted from net income because this represents earned revenue provided by operating earnings.
C. be added to net income because this means that revenues were less than cash collected.
D. be subtracted from net income because this means that revenues were more than cash collected.
19. Revenue may be recognized:
A. from the sale of a company’s own common stock.
B. if a company trades inventory at its usual sale value for newspaper advertising.
C. if management believes the market value of land held for future development rises.
D. in 2010 from the sale of subscriptions of a magazine to be published in 2011.
20. The term, “realization,” in revenue recognition refers to which of the following?
A. The entity has completed, or substantially completed, the activities it must perform to be entitled to the revenue benefits.
B. The product or service has been exchanged for cash, claims to cash, or an asset that is readily convertible to a known amount of cash or claims to cash.
C. The entity has received an irrevocable order for goods or services.
D. Cash has been received with an irrevocable order for goods or services.
E. None of the above.