Quiz 5 & 6

Question 1

What do Fama & Jensen explain in their article?

Answer 1

Separation of Ownership and Control

Question 2

Which of the following assumptions is used in building the ‘textbook’ perfect competition model?

Answer 2

ALL: Homogeneous product, large number of buyers and sellers, zero transaction costs

Question 3

According to Coase, which of the following best explains why firms exist?

Answer 3

Minimization of transaction costs

Question 4

What role does profit perform in a market economy?

Answer 4

1. An Incentive Role: profits reward successful production

2. An informational role: profits give firms the knowledge they need to know if they are producing successfully

Question 5

The best prediction of whether a firm will behave like a monopolist is

Answer 5

If there are legal barriers to entry

Question 6

According to Alchian And Demsetz, which of the following is not part of the explanation as to why firms exist?

Answer 6

Separation of Ownership and Control

Question 7

The governments budget deficit is

Answer 7

The excess of spending over revenue

Question 8

Which of the following is NOT one of Adam Smith’s maxims of Taxation?

Answer 8

Taxes should be flat: directly proportional to wealth, regardless of an individual’s level of wealth

Question 9

Which of the following can result from taxation?

Answer 9

ALL - individuals work less, expend resources trying to avoid the tax, emigrate

Question 10

Which of the following does NOT partly determine a bond’s price?

Answer 10

Interest rate on the bond

Question 11

The chief function of banks is

Answer 11

Financial intermediation

Question 12

All else being equal, 100 today is worth more than $100 a year from now. Why?

Answer 12

Time value of money