Financial Management

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1. Rational decision making means that:
a. marginal benefits and marginal costs of a decision are always easy to measure.
b. if the marginal benefit of the last unit of an activity exceeds its marginal cost, then more of that activity should be undertaken.
c. one should keep doing an activity until the total benefits are maximized.
d. one should keep doing an activity until the marginal costs are minimized.

2. Which of the following is a macroeconomic concern?
a. The wage rates of electricians in Kansas City.
b. The effects of agricultural price supports on the income of farmers.
c. How profits are maximized by a firm.
d. The causes of unemployment in the United States.

3. Which of the following is a microeconomic concern?
a. Whether Microsoft is a monopoly or not.
b. Whether a new governmental policy is inflationary or not.
c. The effect that a new "police action" such as in Afganistan will have on national income.
d. Whether government can implement a policy that will eliminate unemployment.

4. Positive economics:
a. deals with subjective value judgments about "what ought to be."
b. will make the economy positively better off.
c. is the exact opposite of negative economics.
d. deals with how the economy does in fact work.

5. The opportunity cost of changing your decision on what to major in college is highest
a. before you have earned any of the credits needed to obtain the major you initially chose.
b. after you have officially declared a major.
c. after you have earned ½ of the credits to obtain the major you initially chose.
d. after you have completed your major and received your diploma.

6. Which of the following statements correctly distinguishes capitalism from socialism?
a. In capitalism, "what to produce" is determined by consumer demand; in socialism, by free market forces.
b. In capitalism, "how to produce" is determined by businesspeople's desire to minimize cost and maximize profits; in socialism, it is determined to a much greater degree by government.
c. There is more freedom of enterprise in socialism than in capitalism.
d. Capitalism still exists while socialism does not exist in any form anymore.

7. An increase in demand:
a. causes the demand curve to shift to the left.
b. means consumers are willing and able to buy more at any price.
c. creates a surplus at the original price.
d. could be caused by an increase in the price of a complementary good.
8. Which of the following would cause an increase in the demand for a good?
a. A decrease in price.
b. An increase in consumer tastes for the good.
c. A decrease in the price of a substitute good.
d. Consumers expect the price of the good to fall in the near future.

9. Compared to last year, fewer oranges are being bought and the selling price has decreased. This could have been caused by:
a. an increase in demand.
b. an increase in supply.
c. a decrease in demand.
d. a decrease in supply.

10. Rent control:
a. is an example of a price floor.
b. will cause a shortage of rental-occupied housing.
c. will cause the quantity supplied to exceed the quantity demanded.
d. is a price set above equilibrium by government.

11. As the manager of a hotel, you want to increase occupancies by 6 percent. It has been determined that the price elasticity of demand for rooms in your hotel is 0.5. This information implies:
a. the demand for rooms in your hotel is elastic.
b. if you lower your rates by 12 percent, then you will increase occupancies by 6 percent.
c. if you lower your rates, your total revenue will rise.
d. there must be many ...