MICRO ECONOMICS TEST[20 QUESTIONS]
1.The amortization of bond premium on long-term debt should be presented in a statement of cash flows (using the indirect method for operating activities) as a(n)
A. investing activity.
B. deduction from net income.
C. financing activity.
D. addition to net income.
2.In determining net cash flow from operating activities, a decrease in accounts payable during a period
A. requires an increase adjustment to cost of goods sold under the direct method.
B. requires an addition adjustment to net income under the indirect method.
C. requires a decrease adjustment to cost of goods sold under the direct method.
D. means that income on an accrual basis is less than income on a cash basis.
3.In reporting extraordinary transactions on a statement of cash flows (indirect method), the
A. net of tax amount of an extraordinary gain should be deducted from net income.
B. net of tax amount of an extraordinary gain should be added to net income.
C. gross amount of an extraordinary gain should be added to net income.
D. gross amount of an extraordinary gain should be deducted from net income.
4.Which of the following transactions would require the use of the present value of an annuity due concept in order to calculate the present value of the asset obtained or liability owed at the date of incurrence?
A. A ten-year 8% bond is issued on January 2 with interest payable semiannually on July 1 and January 1 yielding 7%.
B. A capital lease is entered into with the initial lease payment due one month subse-quent to the signing of the lease agreement.
C. A ten-year 8% bond is issued on January 2 with interest payable semiannually on July 1 and January 1 yielding 9%.
D. A capital lease is entered into with the initial lease payment due upon the signing of the lease agreement.
5.Which of the following tables would show the smallest value for an interest rate of 5% for six periods?
A. Future value of an ordinary annuity of 1
B. Present value of 1
C. Present value of an ordinary annuity of 1
D. Future value of 1
6.Which table would show the largest factor for an interest rate of 8% for five periods?
A. Future value of an annuity due of 1
B. Present value of an ordinary annuity of 1
C. Present value of an annuity due of 1
D. Future value of an ordinary annuity of 1
7.If the Herfindahl-Hirschman Index (HHI) for an industry is 900, this market is considered:
a strongly competitive market.
a somewhat competitive market.
8. Oligopolies are industries:
dominated by one seller who shares market power equally with all other sellers.
made up of few firms, each with some market power and therefore aware of their interdependence with the other firms.
composed of many buyer and sellers, all of whom are price-takers.
that are the same as monopolistically competitive industries except that they sell a standardized product.
9.The existence of a buyer with significant buying power in an industry would make a tacit agreement:
more difficult to achieve.
easier to achieve.
have no effect on tacit agreement negotiations.
result in a kinked demand curve.
10.Cartels made up of a large number of firms are unstable because each firm in the cartel:
has a great incentive to cheat.
is producing a relatively homogeneous product in which entry barriers are also low.
does not have to worry about losses.
recognizes that the market is relatively stable in size.
11.Monopolistically competitive firms:
engage in collusive activity in order to maximize profit.
are very similar to perfect competitors in producing at the minimum ATC.
earn a positive economic profit if price is greater than ATC.
will set price where MC > MR.
have some ability to set price.
must accept the price as given and therefore are price-takers.
produce goods that are standardized and hard to differentiate.
eventually produce at their minimum ATC at the profit-maximizing level.
13.In the long run, perfect competitors and monopolistic competitors are similar in that they:
set price where MR produce an output level at which P = ATC.
produce a product that is standardized and hard to differentiate.
earn a positive economic profit.
14.Toby operates a small deli downtown. The deli industry is monopolistically competitive. Toby tells you he is producing the quantity that minimizes his average total cost. Assuming that Toby is maximizing profits, you know Toby’s:
marginal cost is less than his average total cost.
marginal cost is less than his marginal revenue.
price equals his average total cost.
price is more than his average total cost.
15.An emissions tax will:
ensure that the marginal benefit of pollution is equal for all sources of pollution.
set standards to which all producers must adhere regardless of their production costs.
be the same for all polluters.
increase pollution, but not in the most efficient cost-saving method.
16.In order to encourage consumption of a good that generates positive externalities, policymakers would:
impose a tax on the amount currently consumed in order to achieve the socially optimal level.
mandate consumption of the good at the socially optimal level.
provide a subsidy per unit of the good consumed in order to achieve the socially optimal level.
do nothing, since the market will achieve the socially optimal level without government intervention.
17.Marginal social benefit of pollution:
increases as more pollution is emitted.
equals zero when the social optimal quantity of pollution is produced.
equals the marginal social cost of pollution in all markets at equilibrium.
is the benefit to society of one more unit of pollution.
18.The Coase theorem states that in the presence of externalities, a market economy will:
always reach an efficient solution.
never reach an efficient solution.
reach an efficient solution if transaction costs are sufficiently low.
reach an efficient solution only in the case of government regulation.
19.Suppose each person in a community had to pay for his or her own education from kindergarten through high school. One would expect that:
less education would be acquired since society has not considered the positive external benefits of education.
more education would be acquired since society has not considered the positive external benefits of education.
the optimal amount of education would be acquired by community members since they each paid for the amount of education they wanted.
a Pigouvian tax would ensure the optimal amount of education.
20. Which of the following is true concerning the consumer price index (CPI)?
It reports price changes in a representative “basket” of household purchases.
It includes both goods and services, but the “core rate” excludes food and energy prices.
An increase in the CPI indicates a rise in price inflation in the U.S. economy.
All of the above.
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