G202 Exam 1: Topic 3

Question 1

Explicit costs

Answer 1

When monetary payment is made

Question 2

Implicit costs

Answer 2

Involve the firm’s resources, but do not have a monetary payment (opportunity costs of investment)

Question 3

Economic Profit

Answer 3

Economic Profit = Revenues - Explicit costs - Implicit costs

Question 4

Normal rate of return

Answer 4

What firms could get by investing in businesses with similar risk

Question 5

What indicates a company is being outperformed by the market?

Answer 5

If Accounting Profit < Normal Rate of Return

Question 6

Entrepreneur

Answer 6

Someone who tries to exploit opportunities that exist within markets

Question 7

Intrepreneur:

Answer 7

An entrepreneurial individual that is employed by a firm

Question 8

Economic freedom

Answer 8

Highest with low taxes, low regulation, secure property, and consistent legal structure

Question 9

Creative destruction

Answer 9

When entrepreneurial change makes older industries or technologies become obsolete

Question 10

Conflict of Interest

Answer 10

When a professional individual has a private interest sufficient enough to influence the pursuit of their official duties

Question 11

Key elements of a conflict of interests

Answer 11

• Professional
• Private or Personal interest
• Official duty

Question 12

Self- dealing

Answer 12

Using your position to secure personal benefits

Question 13

Influence peddling

Answer 13

Use your position to secure benefits for a third party

Question 14

Accepting benefits

Answer 14

Receiving bribes or non-monetary gifts

Question 15

Misuse of inside information

Answer 15

Misusing confidential information (i.e., insider trading)

Question 16

Misuse of employer’s property

Answer 16

Personally gaining from employer’s property without consent (i.e., using company credit card to buy more food than you need so you’ll have leftovers)

Question 17

Outside employment or moonlighting

Answer 17

Holding multiple employment positions at one time, which biases professional behavior (2 income streams at once)

Question 18

Post-employment Bias

Answer 18

Holding a sequence of employment positions where you carry a bias from one job to the next

Question 19

Corruption

Answer 19

Abuse of entrusted power for private gain

Question 20

Petty corruption

Answer 20

Decisions made by low-level bureaucrats (local/regional regulations, licenses, or discretionary spending)

Question 21

Grand corruption

Answer 21

Decisions made by high-level politicians (national policy formation, infrastructure decisions, military equipment procurement, allocation of subsidies)

Question 22

FCPA

Answer 22

• Foreign Corruption Practices Act

- An American citizen/resident/corporation/entity registered in the US cannot engage in corruption anywhere in the world

Question 23

“Sand on wheels of business” perception of corruption

Answer 23

1. Reduced GDP growth
2. Reduced FDI
3. Increased income inequality
4. Misallocation of government property

Question 24

“Oil on wheels of business” perception of corruption

Answer 24

Speeds up commerce in environment controlled by heavy bureaucracy and excessive regulation