Solution Manual for Computer Accounting with Sage 50 Complete Accounting 2013, 17th Edition
Solution Manual for Computer Accounting with Sage 50 Complete Accounting 2013, 17th Edition helps you reinforce learning with in-depth, accurate solutions.
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1
Managerial Economics and Strategy (Perloff/Brander)
Chapter 1 Introduction
1.1 Managerial Decision Making
1) Microeconomics studies the allocation of
A) decision makers.
B) scarce resources.
C) models.
D) unlimited resources.
Answer: B
Difficulty: Analytical
AACSB: Analytic Skills
Status: Old
2) Society faces trade-offs because of
A) government regulations.
B) profit motive.
C) price setting by firms.
D) scarcity.
Answer: D
Difficulty: Analytical
AACSB: Analytic Skills
Status: New
3) Managerial economics
A) describes how pay for managers is set.
B) ensures managers always make good decisions.
C) helps managers make decisions in the face of scarcity.
D) explains which products consumers will buy.
Answer: C
Difficulty: Analytical
AACSB: Analytic Skills
Status: New
4) CEOs should focus on
A) beating their competitors.
B) maximizing firm profits.
C) getting the best pay package for the senior management team.
D) minimizing costs.
Answer: B
Difficulty: Analytical
AACSB: Analytic Skills
Status: New
Managerial Economics and Strategy (Perloff/Brander)
Chapter 1 Introduction
1.1 Managerial Decision Making
1) Microeconomics studies the allocation of
A) decision makers.
B) scarce resources.
C) models.
D) unlimited resources.
Answer: B
Difficulty: Analytical
AACSB: Analytic Skills
Status: Old
2) Society faces trade-offs because of
A) government regulations.
B) profit motive.
C) price setting by firms.
D) scarcity.
Answer: D
Difficulty: Analytical
AACSB: Analytic Skills
Status: New
3) Managerial economics
A) describes how pay for managers is set.
B) ensures managers always make good decisions.
C) helps managers make decisions in the face of scarcity.
D) explains which products consumers will buy.
Answer: C
Difficulty: Analytical
AACSB: Analytic Skills
Status: New
4) CEOs should focus on
A) beating their competitors.
B) maximizing firm profits.
C) getting the best pay package for the senior management team.
D) minimizing costs.
Answer: B
Difficulty: Analytical
AACSB: Analytic Skills
Status: New
1
Managerial Economics and Strategy (Perloff/Brander)
Chapter 1 Introduction
1.1 Managerial Decision Making
1) Microeconomics studies the allocation of
A) decision makers.
B) scarce resources.
C) models.
D) unlimited resources.
Answer: B
Difficulty: Analytical
AACSB: Analytic Skills
Status: Old
2) Society faces trade-offs because of
A) government regulations.
B) profit motive.
C) price setting by firms.
D) scarcity.
Answer: D
Difficulty: Analytical
AACSB: Analytic Skills
Status: New
3) Managerial economics
A) describes how pay for managers is set.
B) ensures managers always make good decisions.
C) helps managers make decisions in the face of scarcity.
D) explains which products consumers will buy.
Answer: C
Difficulty: Analytical
AACSB: Analytic Skills
Status: New
4) CEOs should focus on
A) beating their competitors.
B) maximizing firm profits.
C) getting the best pay package for the senior management team.
D) minimizing costs.
Answer: B
Difficulty: Analytical
AACSB: Analytic Skills
Status: New
Managerial Economics and Strategy (Perloff/Brander)
Chapter 1 Introduction
1.1 Managerial Decision Making
1) Microeconomics studies the allocation of
A) decision makers.
B) scarce resources.
C) models.
D) unlimited resources.
Answer: B
Difficulty: Analytical
AACSB: Analytic Skills
Status: Old
2) Society faces trade-offs because of
A) government regulations.
B) profit motive.
C) price setting by firms.
D) scarcity.
Answer: D
Difficulty: Analytical
AACSB: Analytic Skills
Status: New
3) Managerial economics
A) describes how pay for managers is set.
B) ensures managers always make good decisions.
C) helps managers make decisions in the face of scarcity.
D) explains which products consumers will buy.
Answer: C
Difficulty: Analytical
AACSB: Analytic Skills
Status: New
4) CEOs should focus on
A) beating their competitors.
B) maximizing firm profits.
C) getting the best pay package for the senior management team.
D) minimizing costs.
Answer: B
Difficulty: Analytical
AACSB: Analytic Skills
Status: New
2
5) Profit is
A) maximized when the marketing department coordinates with the production department.
B) maximized when revenue is maximized.
C) used to beat a company's rivals.
D) the difference between a firm's revenues and its costs.
Answer: D
Difficulty: Analytical
AACSB: Analytic Skills
Status: New
6) Firms face tradeoffs because
A) managers don't know which inputs to use.
B) inputs are scarce.
C) markets set prices of goods they sell.
D) marginal reasoning leads to uncertainty.
Answer: B
Difficulty: Analytical
AACSB: Analytic Skills
Status: New
7) A firm's managers are constrained by
A) consumers.
B) workers.
C) government.
D) All of the above.
Answer: D
Difficulty: Conceptual
AACSB: Analytic Skills
Status: New
8) A market
A) always involves the personal exchange of goods for money.
B) allows interactions between consumers and firms.
C) always takes place at a physical location.
D) has no influence on prices.
Answer: B
Difficulty: Analytical
AACSB: Analytic Skills
Status: Old
5) Profit is
A) maximized when the marketing department coordinates with the production department.
B) maximized when revenue is maximized.
C) used to beat a company's rivals.
D) the difference between a firm's revenues and its costs.
Answer: D
Difficulty: Analytical
AACSB: Analytic Skills
Status: New
6) Firms face tradeoffs because
A) managers don't know which inputs to use.
B) inputs are scarce.
C) markets set prices of goods they sell.
D) marginal reasoning leads to uncertainty.
Answer: B
Difficulty: Analytical
AACSB: Analytic Skills
Status: New
7) A firm's managers are constrained by
A) consumers.
B) workers.
C) government.
D) All of the above.
Answer: D
Difficulty: Conceptual
AACSB: Analytic Skills
Status: New
8) A market
A) always involves the personal exchange of goods for money.
B) allows interactions between consumers and firms.
C) always takes place at a physical location.
D) has no influence on prices.
Answer: B
Difficulty: Analytical
AACSB: Analytic Skills
Status: Old
2
5) Profit is
A) maximized when the marketing department coordinates with the production department.
B) maximized when revenue is maximized.
C) used to beat a company's rivals.
D) the difference between a firm's revenues and its costs.
Answer: D
Difficulty: Analytical
AACSB: Analytic Skills
Status: New
6) Firms face tradeoffs because
A) managers don't know which inputs to use.
B) inputs are scarce.
C) markets set prices of goods they sell.
D) marginal reasoning leads to uncertainty.
Answer: B
Difficulty: Analytical
AACSB: Analytic Skills
Status: New
7) A firm's managers are constrained by
A) consumers.
B) workers.
C) government.
D) All of the above.
Answer: D
Difficulty: Conceptual
AACSB: Analytic Skills
Status: New
8) A market
A) always involves the personal exchange of goods for money.
B) allows interactions between consumers and firms.
C) always takes place at a physical location.
D) has no influence on prices.
Answer: B
Difficulty: Analytical
AACSB: Analytic Skills
Status: Old
5) Profit is
A) maximized when the marketing department coordinates with the production department.
B) maximized when revenue is maximized.
C) used to beat a company's rivals.
D) the difference between a firm's revenues and its costs.
Answer: D
Difficulty: Analytical
AACSB: Analytic Skills
Status: New
6) Firms face tradeoffs because
A) managers don't know which inputs to use.
B) inputs are scarce.
C) markets set prices of goods they sell.
D) marginal reasoning leads to uncertainty.
Answer: B
Difficulty: Analytical
AACSB: Analytic Skills
Status: New
7) A firm's managers are constrained by
A) consumers.
B) workers.
C) government.
D) All of the above.
Answer: D
Difficulty: Conceptual
AACSB: Analytic Skills
Status: New
8) A market
A) always involves the personal exchange of goods for money.
B) allows interactions between consumers and firms.
C) always takes place at a physical location.
D) has no influence on prices.
Answer: B
Difficulty: Analytical
AACSB: Analytic Skills
Status: Old
3
9) In a market
A) the primary participants are consumers and firms.
B) government policies play a very small part.
C) decision makers always maximize.
D) the goods sold are always closely related.
Answer: A
Difficulty: Definition
AACSB: Analytic Skills
Status: New
10) Which of the following would NOT be considered part of a firm's strategy?
A) production levels
B) which inputs to use
C) sales strategy
D) None of the above - all are part of a firm's strategy.
Answer: D
Difficulty: Analytical
AACSB: Analytic Skills
Status: New
11) What is the purpose of having a strategy?
Answer: A strategy defines for a manager the actions to be taken to maximize the firm's profits.
Difficulty: Conceptual
AACSB: Communication
Status: New
12) Explain what the statement "We can't have everything we want" means.
Answer: Because resources are scarce, we face tradeoffs. For example, a baker cannot use a
piece of dough she has for both pizza and a croissant, so she has to decide which to make.
Difficulty: Conceptual
AACSB: Reflective Thinking
Status: New
13) What is profit?
Answer: Profit is the difference between a firm's revenue or income and its costs or expenses.
Difficulty: Definition
AACSB: Communication
Status: New
14) Give an example of a tradeoff a pizza restaurant might face.
Answer: Whether to make pepperoni or combination pizzas.
Difficulty: Definition
AACSB: Analytic Skills
Status: New
9) In a market
A) the primary participants are consumers and firms.
B) government policies play a very small part.
C) decision makers always maximize.
D) the goods sold are always closely related.
Answer: A
Difficulty: Definition
AACSB: Analytic Skills
Status: New
10) Which of the following would NOT be considered part of a firm's strategy?
A) production levels
B) which inputs to use
C) sales strategy
D) None of the above - all are part of a firm's strategy.
Answer: D
Difficulty: Analytical
AACSB: Analytic Skills
Status: New
11) What is the purpose of having a strategy?
Answer: A strategy defines for a manager the actions to be taken to maximize the firm's profits.
Difficulty: Conceptual
AACSB: Communication
Status: New
12) Explain what the statement "We can't have everything we want" means.
Answer: Because resources are scarce, we face tradeoffs. For example, a baker cannot use a
piece of dough she has for both pizza and a croissant, so she has to decide which to make.
Difficulty: Conceptual
AACSB: Reflective Thinking
Status: New
13) What is profit?
Answer: Profit is the difference between a firm's revenue or income and its costs or expenses.
Difficulty: Definition
AACSB: Communication
Status: New
14) Give an example of a tradeoff a pizza restaurant might face.
Answer: Whether to make pepperoni or combination pizzas.
Difficulty: Definition
AACSB: Analytic Skills
Status: New
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4
15) Why might raising the price of a good by a dollar lead to lower profits?
Answer: If the extra profit margin made on the units sold does not cover the lost profit from
selling fewer units, then profits will actually decrease if the price is raised.
Difficulty: Analytical
AACSB: Analytic Skills
Status: New
16) Why might raising the price of a good by a dollar lead to higher profits?
Answer: If the extra profit margin made on the units sold covers the profit lost from selling
fewer units, then profits will increase if the price is raised.
Difficulty: Analytical
AACSB: Analytic Skills
Status: New
17) Raising the price of a good by one dollar
A) increases profits.
B) decreases profits.
C) leaves profits unchanged.
D) leads to an indeterminant change in profits.
Answer: D
Difficulty: Analytical
AACSB: Analytic Skills
Status: New
18) All private firms seek to
A) maximize revenue.
B) maximize profit.
C) minimize headcount.
D) maximize employee salaries.
Answer: B
Difficulty: Analytical
AACSB: Analytic Skills
Status: New
19) Behavioral economics
A) studies why people choose not to maximize.
B) studies why people maximize.
C) studies why people sometimes don't maximize.
D) studies why people behave badly when buying and selling.
Answer: C
Difficulty: Definition
AACSB: Analytic Skills
Status: New
15) Why might raising the price of a good by a dollar lead to lower profits?
Answer: If the extra profit margin made on the units sold does not cover the lost profit from
selling fewer units, then profits will actually decrease if the price is raised.
Difficulty: Analytical
AACSB: Analytic Skills
Status: New
16) Why might raising the price of a good by a dollar lead to higher profits?
Answer: If the extra profit margin made on the units sold covers the profit lost from selling
fewer units, then profits will increase if the price is raised.
Difficulty: Analytical
AACSB: Analytic Skills
Status: New
17) Raising the price of a good by one dollar
A) increases profits.
B) decreases profits.
C) leaves profits unchanged.
D) leads to an indeterminant change in profits.
Answer: D
Difficulty: Analytical
AACSB: Analytic Skills
Status: New
18) All private firms seek to
A) maximize revenue.
B) maximize profit.
C) minimize headcount.
D) maximize employee salaries.
Answer: B
Difficulty: Analytical
AACSB: Analytic Skills
Status: New
19) Behavioral economics
A) studies why people choose not to maximize.
B) studies why people maximize.
C) studies why people sometimes don't maximize.
D) studies why people behave badly when buying and selling.
Answer: C
Difficulty: Definition
AACSB: Analytic Skills
Status: New
Loading page 5...
5
For the following, please answer "True" or "False" and explain why.
20) Managers have to understand the decision making of others.
Answer: True. Other entities such as governments and rivals may undertake actions that
constrain a firm. Consumers and workers make decisions on how to spend their scarce resources,
such as budgets and time. To maximize profits, the manager must understand how these other
entities will behave.
Difficulty: Conceptual
AACSB: Analytic Skills
Status: New
1.2 Economic Models
1) The purpose of making assumptions in economic model building is to
A) force the model to yield the correct answer.
B) minimize the amount of work an economist must do.
C) simplify the model while keeping important details.
D) express the relationship mathematically.
Answer: C
Difficulty: Analytical
AACSB: Analytic Skills
Status: Old
2) Einstein was quoted saying "Everything should be made as simple as possible, but not
simpler." When it comes to economic models this means that
A) models shouldn't be too complex.
B) models shouldn't be too simple.
C) models should have a level of abstraction appropriate to the topic investigated.
D) All of the above.
Answer: D
Difficulty: Analytical
AACSB: Analytic Skills
Status: Old
3) If a model's predictions are correct, then
A) its assumptions must have been correct.
B) it is proven to be correct.
C) Both A and B above.
D) None of the above.
Answer: D
Difficulty: Analytical
AACSB: Analytic Skills
Status: Old
For the following, please answer "True" or "False" and explain why.
20) Managers have to understand the decision making of others.
Answer: True. Other entities such as governments and rivals may undertake actions that
constrain a firm. Consumers and workers make decisions on how to spend their scarce resources,
such as budgets and time. To maximize profits, the manager must understand how these other
entities will behave.
Difficulty: Conceptual
AACSB: Analytic Skills
Status: New
1.2 Economic Models
1) The purpose of making assumptions in economic model building is to
A) force the model to yield the correct answer.
B) minimize the amount of work an economist must do.
C) simplify the model while keeping important details.
D) express the relationship mathematically.
Answer: C
Difficulty: Analytical
AACSB: Analytic Skills
Status: Old
2) Einstein was quoted saying "Everything should be made as simple as possible, but not
simpler." When it comes to economic models this means that
A) models shouldn't be too complex.
B) models shouldn't be too simple.
C) models should have a level of abstraction appropriate to the topic investigated.
D) All of the above.
Answer: D
Difficulty: Analytical
AACSB: Analytic Skills
Status: Old
3) If a model's predictions are correct, then
A) its assumptions must have been correct.
B) it is proven to be correct.
C) Both A and B above.
D) None of the above.
Answer: D
Difficulty: Analytical
AACSB: Analytic Skills
Status: Old
Loading page 6...
6
4) Economists tend to judge a model based upon
A) the reality of its assumptions.
B) the accuracy of its predictions.
C) its simplicity.
D) its complexity.
Answer: B
Difficulty: Analytical
AACSB: Analytic Skills
Status: Old
5) Which of the following is an example of a normative statement?
A) A higher price for a good causes people to want to buy less of that good.
B) A lower price for a good causes people to want to buy more of that good.
C) To make the good available to more people, a lower price should be set.
D) If you consume this good, you will be better off.
Answer: C
Difficulty: Analytical
AACSB: Analytic Skills
Status: Old
6) Which of the following is an example of a normative statement?
A) Since this food is bad for you, you should not consume it.
B) This food has negative health effects.
C) If you consume this food, you will get sick.
D) People usually get sick after consuming this food.
Answer: A
Difficulty: Analytical
AACSB: Analytic Skills
Status: New
7) Which of the following is an example of a positive statement?
A) Since this food is bad for you, you should not consume it.
B) If this food is bad for you, you should not consume it.
C) If you consume this food, you will get sick.
D) None of the above.
Answer: C
Difficulty: Analytical
AACSB: Analytic Skills
Status: New
4) Economists tend to judge a model based upon
A) the reality of its assumptions.
B) the accuracy of its predictions.
C) its simplicity.
D) its complexity.
Answer: B
Difficulty: Analytical
AACSB: Analytic Skills
Status: Old
5) Which of the following is an example of a normative statement?
A) A higher price for a good causes people to want to buy less of that good.
B) A lower price for a good causes people to want to buy more of that good.
C) To make the good available to more people, a lower price should be set.
D) If you consume this good, you will be better off.
Answer: C
Difficulty: Analytical
AACSB: Analytic Skills
Status: Old
6) Which of the following is an example of a normative statement?
A) Since this food is bad for you, you should not consume it.
B) This food has negative health effects.
C) If you consume this food, you will get sick.
D) People usually get sick after consuming this food.
Answer: A
Difficulty: Analytical
AACSB: Analytic Skills
Status: New
7) Which of the following is an example of a positive statement?
A) Since this food is bad for you, you should not consume it.
B) If this food is bad for you, you should not consume it.
C) If you consume this food, you will get sick.
D) None of the above.
Answer: C
Difficulty: Analytical
AACSB: Analytic Skills
Status: New
Loading page 7...
7
8) If an important assumption is omitted from an economic model
A) the model's predictions will be accurate 50% of the time.
B) the model's predictions will be inaccurate.
C) the model will not predict anything.
D) the model will be rejected by other economists.
Answer: B
Difficulty: Analytical
AACSB: Analytic Skills
Status: Old
9) Economic models are most useful in
A) explaining outcomes resulting from management decisions.
B) predicting the direction of the stock market.
C) explaining the future with the past.
D) generating untestable hypotheses.
Answer: A
Difficulty: Analytical
AACSB: Analytic Skills
Status: New
10) Economic models are most useful in
A) predicting changes in one variable due to a change in one or more other variables.
B) predicting the direction of the stock market.
C) explaining the future with the past.
D) generating untestable hypotheses.
Answer: A
Difficulty: Analytical
AACSB: Analytic Skills
Status: Old
11) Economic models are most often tested
A) using computer simulations.
B) using data from the distant past.
C) using data from the real world.
D) using logic alone.
Answer: C
Difficulty: Analytical
AACSB: Analytic Skills
Status: Old
8) If an important assumption is omitted from an economic model
A) the model's predictions will be accurate 50% of the time.
B) the model's predictions will be inaccurate.
C) the model will not predict anything.
D) the model will be rejected by other economists.
Answer: B
Difficulty: Analytical
AACSB: Analytic Skills
Status: Old
9) Economic models are most useful in
A) explaining outcomes resulting from management decisions.
B) predicting the direction of the stock market.
C) explaining the future with the past.
D) generating untestable hypotheses.
Answer: A
Difficulty: Analytical
AACSB: Analytic Skills
Status: New
10) Economic models are most useful in
A) predicting changes in one variable due to a change in one or more other variables.
B) predicting the direction of the stock market.
C) explaining the future with the past.
D) generating untestable hypotheses.
Answer: A
Difficulty: Analytical
AACSB: Analytic Skills
Status: Old
11) Economic models are most often tested
A) using computer simulations.
B) using data from the distant past.
C) using data from the real world.
D) using logic alone.
Answer: C
Difficulty: Analytical
AACSB: Analytic Skills
Status: Old
Loading page 8...
8
12) A microeconomic model CANNOT be used to
A) evaluate the impact of a price change on a firm's revenue.
B) predict the impact of an increase in the minimum wage on unemployment.
C) evaluate the fairness of a proposal to nationalize health insurance.
D) evaluate the effect of an increase in stadium size on the price of a sport team's tickets.
Answer: C
Difficulty: Analytical
AACSB: Analytic Skills
Status: Old
13) Economic models are only useful in analyzing government policy.
A) True, individuals are irrational and therefore economic models are useless.
B) False, economic models can be used to predict individual and firm behavior.
C) True, economists only model those questions for which they are hired.
D) False, economic models are not even useful in analyzing government policy.
Answer: B
Difficulty: Analytical
AACSB: Analytic Skills
Status: Old
14) Microeconomic models are used to
A) make predictions.
B) explain real-life phenomena.
C) evaluate production alternatives.
D) All of the above.
Answer: D
Difficulty: Analytical
AACSB: Analytic Skills
Status: New
15) If a theory's predictions are incorrect
A) then economists always reject it.
B) then the data used was clearly faulty.
C) then economists will likely reduce their confidence in the theory.
D) then the model must be too simple.
Answer: C
Difficulty: Analytical
AACSB: Analytic Skills
Status: New
12) A microeconomic model CANNOT be used to
A) evaluate the impact of a price change on a firm's revenue.
B) predict the impact of an increase in the minimum wage on unemployment.
C) evaluate the fairness of a proposal to nationalize health insurance.
D) evaluate the effect of an increase in stadium size on the price of a sport team's tickets.
Answer: C
Difficulty: Analytical
AACSB: Analytic Skills
Status: Old
13) Economic models are only useful in analyzing government policy.
A) True, individuals are irrational and therefore economic models are useless.
B) False, economic models can be used to predict individual and firm behavior.
C) True, economists only model those questions for which they are hired.
D) False, economic models are not even useful in analyzing government policy.
Answer: B
Difficulty: Analytical
AACSB: Analytic Skills
Status: Old
14) Microeconomic models are used to
A) make predictions.
B) explain real-life phenomena.
C) evaluate production alternatives.
D) All of the above.
Answer: D
Difficulty: Analytical
AACSB: Analytic Skills
Status: New
15) If a theory's predictions are incorrect
A) then economists always reject it.
B) then the data used was clearly faulty.
C) then economists will likely reduce their confidence in the theory.
D) then the model must be too simple.
Answer: C
Difficulty: Analytical
AACSB: Analytic Skills
Status: New
Loading page 9...
9
16) Legislators argue that a minimum wage law is instituted to help poor people. Economists can
attack the minimum wage law on two fronts. First, some argue that government should not help
the poor. Second, some argue that minimum wage laws actually hurt the poor because it creates
unemployment. Which argument is normative and which is positive?
Answer: An opinion about the role of government is a normative statement. An observation
about the impact of a law is a positive statement.
Difficulty: Analytical
AACSB: Analytic Skills
Status: Old
17) Explain why a model that delivers good enough approximations is a good model.
Answer: Models make simplifying assumptions in order to make them less complex and
complicated and therefore usable. But when we simplify, we do leave out parts of the real world
that have an impact on the results. If a model gives predictions or approximations that are close
to reality, then the model is useful.
Difficulty: Analytical
AACSB: Analytic Skills
Status: New
18) Explain why economists might disagree on the content of a model.
Answer: Economists might have different theories or might make different simplifying
assumptions.
Difficulty: Conceptual
AACSB: Analytic Skills
Status: New
For the following, please answer "True" or "False" and explain why.
19) Normative analysis offers decision makers the most valuable information when choosing
among alternatives.
Answer: False. Normative analysis states subjective goals but not how those goals can be
achieved. To choose among alternatives a decision maker uses positive analysis.
Difficulty: Analytical
AACSB: Analytic Skills
Status: Old
20) If a model fits reality but doesn't generate testable predictions, it is of little value to
economists.
Answer: True. If the model doesn't deliver testable predictions it cannot be tested against
competing models.
Difficulty: Analytical
AACSB: Analytic Skills
Status: Old
16) Legislators argue that a minimum wage law is instituted to help poor people. Economists can
attack the minimum wage law on two fronts. First, some argue that government should not help
the poor. Second, some argue that minimum wage laws actually hurt the poor because it creates
unemployment. Which argument is normative and which is positive?
Answer: An opinion about the role of government is a normative statement. An observation
about the impact of a law is a positive statement.
Difficulty: Analytical
AACSB: Analytic Skills
Status: Old
17) Explain why a model that delivers good enough approximations is a good model.
Answer: Models make simplifying assumptions in order to make them less complex and
complicated and therefore usable. But when we simplify, we do leave out parts of the real world
that have an impact on the results. If a model gives predictions or approximations that are close
to reality, then the model is useful.
Difficulty: Analytical
AACSB: Analytic Skills
Status: New
18) Explain why economists might disagree on the content of a model.
Answer: Economists might have different theories or might make different simplifying
assumptions.
Difficulty: Conceptual
AACSB: Analytic Skills
Status: New
For the following, please answer "True" or "False" and explain why.
19) Normative analysis offers decision makers the most valuable information when choosing
among alternatives.
Answer: False. Normative analysis states subjective goals but not how those goals can be
achieved. To choose among alternatives a decision maker uses positive analysis.
Difficulty: Analytical
AACSB: Analytic Skills
Status: Old
20) If a model fits reality but doesn't generate testable predictions, it is of little value to
economists.
Answer: True. If the model doesn't deliver testable predictions it cannot be tested against
competing models.
Difficulty: Analytical
AACSB: Analytic Skills
Status: Old
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10
21) If actual experience supports two competing theories, then both theories are proven to be
true.
Answer: False. Neither theory can be rejected but if they are competing, then the test is
inconclusive.
Difficulty: Analytical
AACSB: Analytic Skills
Status: Old
21) If actual experience supports two competing theories, then both theories are proven to be
true.
Answer: False. Neither theory can be rejected but if they are competing, then the test is
inconclusive.
Difficulty: Analytical
AACSB: Analytic Skills
Status: Old
Loading page 11...
1
Managerial Economics and Strategy (Perloff/Brander)
Chapter 2 Supply and Demand
2.1 Demand
1) An increase in consumer incomes will lead to
A) a rightward shift of the demand curve for plasma TVs.
B) a movement upward along the demand curve for plasma TVs.
C) a rightward shift of the supply curve for plasma TVs.
D) no change of the demand curve for plasma TVs.
Answer: A
Difficulty: Analytical
AACSB: Analytic Skills
Status: Old
2) If the price of automobiles were to increase substantially, the demand curve for gasoline
would most likely
A) shift leftward.
B) shift rightward.
C) remain unchanged.
D) become steeper.
Answer: A
Difficulty: Analytical
AACSB: Analytic Skills
Status: Old
3) If the price of automobiles were to decrease substantially, the demand curve for public
transportation would most likely
A) shift rightward.
B) shift leftward.
C) remain unchanged.
D) remain unchanged while quantity demanded would change.
Answer: B
Difficulty: Analytical
AACSB: Analytic Skills
Status: Old
4) If the price of automobiles were to decrease substantially, the demand curve for pizza would
most likely
A) shift rightward.
B) shift leftward.
C) remain unchanged.
D) remain unchanged while quantity demanded would change.
Answer: C
Difficulty: Analytical
AACSB: Analytic Skills
Status: New
Managerial Economics and Strategy (Perloff/Brander)
Chapter 2 Supply and Demand
2.1 Demand
1) An increase in consumer incomes will lead to
A) a rightward shift of the demand curve for plasma TVs.
B) a movement upward along the demand curve for plasma TVs.
C) a rightward shift of the supply curve for plasma TVs.
D) no change of the demand curve for plasma TVs.
Answer: A
Difficulty: Analytical
AACSB: Analytic Skills
Status: Old
2) If the price of automobiles were to increase substantially, the demand curve for gasoline
would most likely
A) shift leftward.
B) shift rightward.
C) remain unchanged.
D) become steeper.
Answer: A
Difficulty: Analytical
AACSB: Analytic Skills
Status: Old
3) If the price of automobiles were to decrease substantially, the demand curve for public
transportation would most likely
A) shift rightward.
B) shift leftward.
C) remain unchanged.
D) remain unchanged while quantity demanded would change.
Answer: B
Difficulty: Analytical
AACSB: Analytic Skills
Status: Old
4) If the price of automobiles were to decrease substantially, the demand curve for pizza would
most likely
A) shift rightward.
B) shift leftward.
C) remain unchanged.
D) remain unchanged while quantity demanded would change.
Answer: C
Difficulty: Analytical
AACSB: Analytic Skills
Status: New
Loading page 12...
2
5) Consumers have been buying fewer CDs as downloadable music has become easier to
purchase and use. We would represent this as
A) a leftward shift of the demand curve for CDs.
B) a rightward shift of the demand curve for CDs.
C) a change in the price of CDs.
D) a leftward shift of the supply curve for downloadable music.
Answer: A
Difficulty: Analytical
AACSB: Analytic Skills
Status: New
6) As people have become more health-conscious and decided to eat food that is better for them
A) the demand curve for scooters has shifted to the right.
B) the demand curve for cupcakes has shifted to the right.
C) the demand curve for oranges and apples has shifted to the right.
D) None of the above.
Answer: C
Difficulty: Analytical
AACSB: Analytic Skills
Status: New
7) If a yet-to-be released video game receives a positive review in a popular gaming magazine,
what happens to the demand curve for the video game?
A) The demand curve is expected to shift to the right.
B) The demand curve is expected to shift to the left.
C) The demand curve is not expected to change.
D) For those who read the review, demand shifts to the left. For those who don't read the review,
demand shifts to the right.
Answer: A
Difficulty: Analytical
AACSB: Analytic Skills
Status: New
8) Which of the following cultural events likely increased the demand for the product highlighted
in the event?
A) the banning of cigarette advertising on television
B) the inclusion of Reese's Pieces in the movie E.T.
C) increased environmental awareness about the impacts of sport utility vehicles (SUVs)
D) concerns over "Mad Cow" disease in beef
Answer: B
Difficulty: Analytical
AACSB: Analytic Skills
Status: New
5) Consumers have been buying fewer CDs as downloadable music has become easier to
purchase and use. We would represent this as
A) a leftward shift of the demand curve for CDs.
B) a rightward shift of the demand curve for CDs.
C) a change in the price of CDs.
D) a leftward shift of the supply curve for downloadable music.
Answer: A
Difficulty: Analytical
AACSB: Analytic Skills
Status: New
6) As people have become more health-conscious and decided to eat food that is better for them
A) the demand curve for scooters has shifted to the right.
B) the demand curve for cupcakes has shifted to the right.
C) the demand curve for oranges and apples has shifted to the right.
D) None of the above.
Answer: C
Difficulty: Analytical
AACSB: Analytic Skills
Status: New
7) If a yet-to-be released video game receives a positive review in a popular gaming magazine,
what happens to the demand curve for the video game?
A) The demand curve is expected to shift to the right.
B) The demand curve is expected to shift to the left.
C) The demand curve is not expected to change.
D) For those who read the review, demand shifts to the left. For those who don't read the review,
demand shifts to the right.
Answer: A
Difficulty: Analytical
AACSB: Analytic Skills
Status: New
8) Which of the following cultural events likely increased the demand for the product highlighted
in the event?
A) the banning of cigarette advertising on television
B) the inclusion of Reese's Pieces in the movie E.T.
C) increased environmental awareness about the impacts of sport utility vehicles (SUVs)
D) concerns over "Mad Cow" disease in beef
Answer: B
Difficulty: Analytical
AACSB: Analytic Skills
Status: New
Loading page 13...
3
9) Recently, many cities have attempted to pass laws taxing the sale of sugary drinks such as
soda pop. If one of these laws passes, we would expect
A) the supply curve for soda pop to shift to the right.
B) the supply curve for soda pop to become more vertical.
C) the demand curve for soda pop to shift to the right.
D) the demand curve for soda pop to shift to the left.
Answer: D
Difficulty: Analytical
AACSB: Analytic Skills
Status: New
10) If a city were to ban the use of automobiles within its city limits, we would expect
A) the demand curve for automobiles to shift to the left.
B) people to move to another city.
C) the demand curve bicycles to shift to the left.
D) the demand curve for automobiles to remain the same.
Answer: A
Difficulty: Analytical
AACSB: Analytic Skills
Status: New
11) The CB radio was very popular in the 1970s and 1980s for communicating while driving,
and people bought them because other drivers had them too and they could therefore talk with
many others on their trips. This illustrates
A) that the demand curve for CB radios was inelastic.
B) the network effect.
C) that CB radios and gasoline are complementary goods.
D) the effects of mobile phones on the demand curve for CB radios.
Answer: B
Difficulty: Conceptual
AACSB: Analytic Skills
Status: New
12) The quantity demanded for a good
A) must equal the quantity actually sold.
B) can be less than the quantity actually sold.
C) can be greater than the quantity actually sold.
D) is always greater than the quantity actually sold.
Answer: C
Difficulty: Conceptual
AACSB: Analytic Skills
Status: New
9) Recently, many cities have attempted to pass laws taxing the sale of sugary drinks such as
soda pop. If one of these laws passes, we would expect
A) the supply curve for soda pop to shift to the right.
B) the supply curve for soda pop to become more vertical.
C) the demand curve for soda pop to shift to the right.
D) the demand curve for soda pop to shift to the left.
Answer: D
Difficulty: Analytical
AACSB: Analytic Skills
Status: New
10) If a city were to ban the use of automobiles within its city limits, we would expect
A) the demand curve for automobiles to shift to the left.
B) people to move to another city.
C) the demand curve bicycles to shift to the left.
D) the demand curve for automobiles to remain the same.
Answer: A
Difficulty: Analytical
AACSB: Analytic Skills
Status: New
11) The CB radio was very popular in the 1970s and 1980s for communicating while driving,
and people bought them because other drivers had them too and they could therefore talk with
many others on their trips. This illustrates
A) that the demand curve for CB radios was inelastic.
B) the network effect.
C) that CB radios and gasoline are complementary goods.
D) the effects of mobile phones on the demand curve for CB radios.
Answer: B
Difficulty: Conceptual
AACSB: Analytic Skills
Status: New
12) The quantity demanded for a good
A) must equal the quantity actually sold.
B) can be less than the quantity actually sold.
C) can be greater than the quantity actually sold.
D) is always greater than the quantity actually sold.
Answer: C
Difficulty: Conceptual
AACSB: Analytic Skills
Status: New
Loading page 14...
4
13) An individual who is only willing to pay a relatively low amount for a particular good
A) would fall in the upper portion of the demand curve.
B) would fall in the middle portion of the demand curve.
C) would fall in the lower portion of the demand curve.
D) would not be considered part of the demand curve.
Answer: C
Difficulty: Analytical
AACSB: Analytic Skills
Status: Old
14) Assume Joe is only willing to pay $5 for a Ferrari sports car.
A) Joe is not considered part of the demand for Ferraris.
B) Joe won't be sold a Ferrari.
C) Joe is not considered rational.
D) Joe's willingness to pay is not indicative of how much he values the Ferrari.
Answer: B
Difficulty: Analytical
AACSB: Analytic Skills
Status: Old
15) A downward sloping demand curve indicates that
A) individuals all have the same valuation of the same product.
B) individuals have different valuations of the same product.
C) individuals have no valuations of a particular product.
D) certain individuals are uninformed about certain aspects of the product.
Answer: B
Difficulty: Conceptual
AACSB: Analytic Skills
Status: Old
16) If the price is $5 and the quantity demanded is 100 units, then at a price of $10, the quantity
demanded will be
A) less than or equal to 100 units.
B) greater than or equal to 100 units.
C) less than or equal to 1000 units.
D) equal to 100 units.
Answer: A
Difficulty: Analytical
AACSB: Analytic Skills
Status: Old
13) An individual who is only willing to pay a relatively low amount for a particular good
A) would fall in the upper portion of the demand curve.
B) would fall in the middle portion of the demand curve.
C) would fall in the lower portion of the demand curve.
D) would not be considered part of the demand curve.
Answer: C
Difficulty: Analytical
AACSB: Analytic Skills
Status: Old
14) Assume Joe is only willing to pay $5 for a Ferrari sports car.
A) Joe is not considered part of the demand for Ferraris.
B) Joe won't be sold a Ferrari.
C) Joe is not considered rational.
D) Joe's willingness to pay is not indicative of how much he values the Ferrari.
Answer: B
Difficulty: Analytical
AACSB: Analytic Skills
Status: Old
15) A downward sloping demand curve indicates that
A) individuals all have the same valuation of the same product.
B) individuals have different valuations of the same product.
C) individuals have no valuations of a particular product.
D) certain individuals are uninformed about certain aspects of the product.
Answer: B
Difficulty: Conceptual
AACSB: Analytic Skills
Status: Old
16) If the price is $5 and the quantity demanded is 100 units, then at a price of $10, the quantity
demanded will be
A) less than or equal to 100 units.
B) greater than or equal to 100 units.
C) less than or equal to 1000 units.
D) equal to 100 units.
Answer: A
Difficulty: Analytical
AACSB: Analytic Skills
Status: Old
Loading page 15...
5
17) According to the Law of Demand, the demand curve for a good will
A) shift leftward when the price of the good increases.
B) shift rightward when the price of the good increases.
C) slope downward.
D) slope upward.
Answer: C
Difficulty: Conceptual
AACSB: Analytic Skills
Status: Old
18) The law of demand
A) was passed by the 102nd U.S. Congress.
B) is a natural law, much like the law of gravity.
C) is considered a "law" in economics because of the overwhelming empirical evidence that
supports its logic.
D) is considered a "law" in economics in order to force economic models to operate fully.
Answer: C
Difficulty: Conceptual
AACSB: Analytic Skills
Status: Old
19) Which of the following would NOT change demand?
A) the price of the product
B) information about the product's health effects
C) the income of the consumers
D) the price of related products
Answer: A
AACSB: Analytic Skills
Status: Old
20) If a demand curve shifts left, it implies
A) as a group, consumers are willing and able to pay less for the product.
B) as a group, consumers are willing and able to pay more for the product.
C) government has regulated how many people can purchase the product.
D) the profit motive of the firms is making the price too high.
Answer: A
Difficulty: Conceptual
AACSB: Analytic Skills
Status: Old
17) According to the Law of Demand, the demand curve for a good will
A) shift leftward when the price of the good increases.
B) shift rightward when the price of the good increases.
C) slope downward.
D) slope upward.
Answer: C
Difficulty: Conceptual
AACSB: Analytic Skills
Status: Old
18) The law of demand
A) was passed by the 102nd U.S. Congress.
B) is a natural law, much like the law of gravity.
C) is considered a "law" in economics because of the overwhelming empirical evidence that
supports its logic.
D) is considered a "law" in economics in order to force economic models to operate fully.
Answer: C
Difficulty: Conceptual
AACSB: Analytic Skills
Status: Old
19) Which of the following would NOT change demand?
A) the price of the product
B) information about the product's health effects
C) the income of the consumers
D) the price of related products
Answer: A
AACSB: Analytic Skills
Status: Old
20) If a demand curve shifts left, it implies
A) as a group, consumers are willing and able to pay less for the product.
B) as a group, consumers are willing and able to pay more for the product.
C) government has regulated how many people can purchase the product.
D) the profit motive of the firms is making the price too high.
Answer: A
Difficulty: Conceptual
AACSB: Analytic Skills
Status: Old
Loading page 16...
6
21) An increase in the price of pork will lead to
A) a movement up along the demand curve.
B) a movement down along the demand curve.
C) a rightward shift of the demand curve.
D) a leftward shift of the demand curve.
Answer: A
Difficulty: Conceptual
AACSB: Analytic Skills
Status: Old
22) Holding all other factors constant, consumers demand more of a good the
A) higher its price.
B) lower its price.
C) steeper the downward slope of the demand curve.
D) steeper the upward slope of the demand curve.
Answer: B
AACSB: Analytic Skills
Status: Old
23) As the price of a good increases, the change in the quantity demanded can be shown by
A) shifting the demand curve leftward.
B) shifting the demand curve rightward.
C) moving down along the same demand curve.
D) moving up along the same demand curve.
Answer: D
AACSB: Analytic Skills
Status: Old
24) A increase in quantity demanded as a result of a change in price
A) is a rightward shift of the demand curve.
B) is a leftward shift of the demand curve.
C) leaves the demand curve unchanged.
D) is not possible.
Answer: C
Difficulty: Conceptual
AACSB: Analytic Skills
Status: New
21) An increase in the price of pork will lead to
A) a movement up along the demand curve.
B) a movement down along the demand curve.
C) a rightward shift of the demand curve.
D) a leftward shift of the demand curve.
Answer: A
Difficulty: Conceptual
AACSB: Analytic Skills
Status: Old
22) Holding all other factors constant, consumers demand more of a good the
A) higher its price.
B) lower its price.
C) steeper the downward slope of the demand curve.
D) steeper the upward slope of the demand curve.
Answer: B
AACSB: Analytic Skills
Status: Old
23) As the price of a good increases, the change in the quantity demanded can be shown by
A) shifting the demand curve leftward.
B) shifting the demand curve rightward.
C) moving down along the same demand curve.
D) moving up along the same demand curve.
Answer: D
AACSB: Analytic Skills
Status: Old
24) A increase in quantity demanded as a result of a change in price
A) is a rightward shift of the demand curve.
B) is a leftward shift of the demand curve.
C) leaves the demand curve unchanged.
D) is not possible.
Answer: C
Difficulty: Conceptual
AACSB: Analytic Skills
Status: New
Loading page 17...
7
25) If the price of automobiles were to increase substantially, the demand curve for automobiles
would most likely
A) shift rightward.
B) shift leftward.
C) remain unchanged.
D) become steeper.
Answer: C
Difficulty: Conceptual
AACSB: Analytic Skills
Status: New
26) If the price of a pizza were to increase to $50, many people would give up eating pizza while
others would continue to eat it. This would indicate
A) those who are buying pizza value it at least $50 per pizza.
B) those who are not buying pizza value it more than $50 per pizza.
C) only those who are extremely wealthy are buying pizza.
D) the price of pizza needs to be regulated by the federal government.
Answer: A
Difficulty: Analytical
AACSB: Analytic Skills
Status: New
27) Which of the following is NOT possible according to the law of demand?
A) A horizontal demand curve
B) A vertical demand curve
C) A downward-sloping supply curve
D) An upward-sloping demand curve
Answer: D
Difficulty: Conceptual
AACSB: Analytic Skills
Status: New
28) A change in a relevant factor other than the price of the good itself causes a ________ the
demand curve, and a change in a good's own price causes a ________ the demand curve.
A) shift of; shift of
B) shift of; movement along
C) movement along; shift of
D) movement along; movement along
Answer: B
Difficulty: Analytical
AACSB: Analytic Skills
Status: New
25) If the price of automobiles were to increase substantially, the demand curve for automobiles
would most likely
A) shift rightward.
B) shift leftward.
C) remain unchanged.
D) become steeper.
Answer: C
Difficulty: Conceptual
AACSB: Analytic Skills
Status: New
26) If the price of a pizza were to increase to $50, many people would give up eating pizza while
others would continue to eat it. This would indicate
A) those who are buying pizza value it at least $50 per pizza.
B) those who are not buying pizza value it more than $50 per pizza.
C) only those who are extremely wealthy are buying pizza.
D) the price of pizza needs to be regulated by the federal government.
Answer: A
Difficulty: Analytical
AACSB: Analytic Skills
Status: New
27) Which of the following is NOT possible according to the law of demand?
A) A horizontal demand curve
B) A vertical demand curve
C) A downward-sloping supply curve
D) An upward-sloping demand curve
Answer: D
Difficulty: Conceptual
AACSB: Analytic Skills
Status: New
28) A change in a relevant factor other than the price of the good itself causes a ________ the
demand curve, and a change in a good's own price causes a ________ the demand curve.
A) shift of; shift of
B) shift of; movement along
C) movement along; shift of
D) movement along; movement along
Answer: B
Difficulty: Analytical
AACSB: Analytic Skills
Status: New
Loading page 18...
8
29) The above figure shows a graph of the market for pizzas in a large town. No pizzas will be
demanded unless price is less than
A) $0.
B) $5.
C) $12.
D) $14.
Answer: D
Difficulty: Analytical
AACSB: Analytic Skills
Status: Old
30) The above figure shows a graph of the market for pizzas in a large town. If the price falls
from $10 to $7 per pizza, the quantity of pizzas demanded will
A) increase by 20.
B) decrease by 30.
C) increase by 30.
D) decrease by 10.
Answer: C
Difficulty: Analytical
AACSB: Analytic Skills
Status: Old
31) Assume the price of a movie is $10. Jenna demands 2 movies per week, Sam demands 3
movies per week, and Jordan demands 8 movies per week. From this information we can
conclude that
A) the market quantity demanded at a price of $10 is at least 13 movies per week.
B) Jordan is obviously more wealthy than either Sam or Jeanna.
C) Sam is irrational compared to Jenna or Jordan.
D) the movie industry is unprofitable.
Answer: A
AACSB: Analytic Skills
Status: Old
29) The above figure shows a graph of the market for pizzas in a large town. No pizzas will be
demanded unless price is less than
A) $0.
B) $5.
C) $12.
D) $14.
Answer: D
Difficulty: Analytical
AACSB: Analytic Skills
Status: Old
30) The above figure shows a graph of the market for pizzas in a large town. If the price falls
from $10 to $7 per pizza, the quantity of pizzas demanded will
A) increase by 20.
B) decrease by 30.
C) increase by 30.
D) decrease by 10.
Answer: C
Difficulty: Analytical
AACSB: Analytic Skills
Status: Old
31) Assume the price of a movie is $10. Jenna demands 2 movies per week, Sam demands 3
movies per week, and Jordan demands 8 movies per week. From this information we can
conclude that
A) the market quantity demanded at a price of $10 is at least 13 movies per week.
B) Jordan is obviously more wealthy than either Sam or Jeanna.
C) Sam is irrational compared to Jenna or Jordan.
D) the movie industry is unprofitable.
Answer: A
AACSB: Analytic Skills
Status: Old
Loading page 19...
9
32) To determine the total demand for all consumers, sum the quantity each consumer demands
A) at a given price.
B) at all prices and then sum this amount across all consumers.
C) Both A and B will generate the same total demand.
D) None of the above.
Answer: A
AACSB: Analytic Skills
Status: Old
For the following, please answer "True" or "False" and explain why.
33) If a good is not produced, then there is no demand for it.
Answer: False. The demand for a product is independent of its supply. It is possible that people
want to buy some of the product but at prices that are below what sellers would require to begin
production.
Difficulty: Conceptual
AACSB: Analytic Skills
Status: Old
34) The quantity of a good that consumers demand depends only on the price of the good.
Answer: False. The quantity of a good demanded depends on many factors including: its own
price, consumers' incomes, and the price of related goods.
Difficulty: Conceptual
AACSB: Analytic Skills
Status: Old
35) Suppose the demand for a particular product can be expressed as Q = 100/p. Calculate the
total amount spent on this good when p = 10, 20, and 50. Can you make a generalization about
the mathematical form of this demand curve and consumer behavior in this market?
Answer: In all cases, total expenditure equals 100 (since p * Q = 100). In general, a nonlinear
demand curve of the form Q = A/p means that consumers wish to spend a total of A on this good
regardless of its price.
Difficulty: Analytical
AACSB: Analytic Skills
Status: Old
32) To determine the total demand for all consumers, sum the quantity each consumer demands
A) at a given price.
B) at all prices and then sum this amount across all consumers.
C) Both A and B will generate the same total demand.
D) None of the above.
Answer: A
AACSB: Analytic Skills
Status: Old
For the following, please answer "True" or "False" and explain why.
33) If a good is not produced, then there is no demand for it.
Answer: False. The demand for a product is independent of its supply. It is possible that people
want to buy some of the product but at prices that are below what sellers would require to begin
production.
Difficulty: Conceptual
AACSB: Analytic Skills
Status: Old
34) The quantity of a good that consumers demand depends only on the price of the good.
Answer: False. The quantity of a good demanded depends on many factors including: its own
price, consumers' incomes, and the price of related goods.
Difficulty: Conceptual
AACSB: Analytic Skills
Status: Old
35) Suppose the demand for a particular product can be expressed as Q = 100/p. Calculate the
total amount spent on this good when p = 10, 20, and 50. Can you make a generalization about
the mathematical form of this demand curve and consumer behavior in this market?
Answer: In all cases, total expenditure equals 100 (since p * Q = 100). In general, a nonlinear
demand curve of the form Q = A/p means that consumers wish to spend a total of A on this good
regardless of its price.
Difficulty: Analytical
AACSB: Analytic Skills
Status: Old
Loading page 20...
10
2.2 Supply
1) Technological innovation in the production of computers has led to
A) a decrease in the quantity demanded for computers.
B) a rightward shift of the supply curve for computers.
C) a decrease in the quantity supplied of computers.
D) None of the above.
Answer: B
Difficulty: Conceptual
AACSB: Analytic Skills
Status: Old
2) The supply curve is influenced by
A) the income of consumers.
B) the number of customers in the market.
C) the prices of the inputs required to produce the product.
D) whether the economy is free-market or command.
Answer: C
AACSB: Analytic Skills
Status: Old
3) The price of crude oil rose to over $100 per barrel in early 2013. What would we expect to see
happen to the supply of plastic, which is produced using crude oil?
A) The supply of plastic will increase.
B) The supply of plastic will decrease.
C) The supply of plastic will stay the same because the government requires plastic producers to
meet statutory minimum production levels.
D) The supply of plastic will stay the same because of the profit motives of plastic producers.
Answer: B
Difficulty: Analytical
AACSB: Analytic Skills
Status: New
4) Government regulations
A) have no impact on supply.
B) only change the quantity supplied, not the supply curve.
C) are generally ineffective due to lobbying by suppliers.
D) can change both quantity supplied as well as the supply curve.
Answer: D
Difficulty: Conceptual
AACSB: Analytic Skills
Status: New
2.2 Supply
1) Technological innovation in the production of computers has led to
A) a decrease in the quantity demanded for computers.
B) a rightward shift of the supply curve for computers.
C) a decrease in the quantity supplied of computers.
D) None of the above.
Answer: B
Difficulty: Conceptual
AACSB: Analytic Skills
Status: Old
2) The supply curve is influenced by
A) the income of consumers.
B) the number of customers in the market.
C) the prices of the inputs required to produce the product.
D) whether the economy is free-market or command.
Answer: C
AACSB: Analytic Skills
Status: Old
3) The price of crude oil rose to over $100 per barrel in early 2013. What would we expect to see
happen to the supply of plastic, which is produced using crude oil?
A) The supply of plastic will increase.
B) The supply of plastic will decrease.
C) The supply of plastic will stay the same because the government requires plastic producers to
meet statutory minimum production levels.
D) The supply of plastic will stay the same because of the profit motives of plastic producers.
Answer: B
Difficulty: Analytical
AACSB: Analytic Skills
Status: New
4) Government regulations
A) have no impact on supply.
B) only change the quantity supplied, not the supply curve.
C) are generally ineffective due to lobbying by suppliers.
D) can change both quantity supplied as well as the supply curve.
Answer: D
Difficulty: Conceptual
AACSB: Analytic Skills
Status: New
Loading page 21...
11
5) The supply curve
A) represents the quantity supplied at any given price.
B) represents the quantity actually sold at any given price.
C) is the opposite of the demand curve.
D) always intersects the demand curve.
Answer: A
Difficulty: Conceptual
AACSB: Analytic Skills
Status: New
6) Suppose the demand curve for a good shifts rightward, causing the equilibrium price to
increase. This increase in the price of the good results in
A) a rightward shift of the supply curve.
B) an increase in quantity supplied.
C) a leftward shift of the supply curve.
D) a downward movement along the supply curve.
Answer: B
Difficulty: Analytical
AACSB: Analytic Skills
Status: Old
7) An increase in the price of oil will
A) shift the supply curve of oil to the left.
B) shift the supply curve of oil to the right.
C) leave the supply curve of oil unchanged.
D) Not enough information to answer the question.
Answer: C
Difficulty: Analytical
AACSB: Analytic Skills
Status: Old
8) The expression "increase in quantity supplied" is illustrated graphically as a
A) leftward shift in the supply curve.
B) rightward shift in the supply curve.
C) movement up along the supply curve.
D) movement down along the supply curve.
Answer: C
Difficulty: Conceptual
AACSB: Analytic Skills
Status: Old
5) The supply curve
A) represents the quantity supplied at any given price.
B) represents the quantity actually sold at any given price.
C) is the opposite of the demand curve.
D) always intersects the demand curve.
Answer: A
Difficulty: Conceptual
AACSB: Analytic Skills
Status: New
6) Suppose the demand curve for a good shifts rightward, causing the equilibrium price to
increase. This increase in the price of the good results in
A) a rightward shift of the supply curve.
B) an increase in quantity supplied.
C) a leftward shift of the supply curve.
D) a downward movement along the supply curve.
Answer: B
Difficulty: Analytical
AACSB: Analytic Skills
Status: Old
7) An increase in the price of oil will
A) shift the supply curve of oil to the left.
B) shift the supply curve of oil to the right.
C) leave the supply curve of oil unchanged.
D) Not enough information to answer the question.
Answer: C
Difficulty: Analytical
AACSB: Analytic Skills
Status: Old
8) The expression "increase in quantity supplied" is illustrated graphically as a
A) leftward shift in the supply curve.
B) rightward shift in the supply curve.
C) movement up along the supply curve.
D) movement down along the supply curve.
Answer: C
Difficulty: Conceptual
AACSB: Analytic Skills
Status: Old
Loading page 22...
12
9) The Law of Supply states
A) that supply curves slope upward.
B) that supply curves can be vertical or horizontal.
C) Both A and B
D) None of the above.
Answer: D
Difficulty: Conceptual
AACSB: Analytic Skills
Status: New
10) Supply curves
A) slope upward.
B) slope downward.
C) are horizontal.
D) can have many shapes.
Answer: D
Difficulty: Conceptual
AACSB: Analytic Skills
Status: Old
11) If the supply curve of a product changes so that sellers are now willing to sell 2 additional
units at any given price, the supply curve will
A) shift leftward by 2 units.
B) shift rightward by 2 units.
C) shift vertically up by 2 units.
D) shift vertically down by 2 units.
Answer: B
Difficulty: Analytical
AACSB: Analytic Skills
Status: Old
9) The Law of Supply states
A) that supply curves slope upward.
B) that supply curves can be vertical or horizontal.
C) Both A and B
D) None of the above.
Answer: D
Difficulty: Conceptual
AACSB: Analytic Skills
Status: New
10) Supply curves
A) slope upward.
B) slope downward.
C) are horizontal.
D) can have many shapes.
Answer: D
Difficulty: Conceptual
AACSB: Analytic Skills
Status: Old
11) If the supply curve of a product changes so that sellers are now willing to sell 2 additional
units at any given price, the supply curve will
A) shift leftward by 2 units.
B) shift rightward by 2 units.
C) shift vertically up by 2 units.
D) shift vertically down by 2 units.
Answer: B
Difficulty: Analytical
AACSB: Analytic Skills
Status: Old
Loading page 23...
13
12) The above figure shows a graph of the market for pizzas in a large town. No pizzas will be
supplied unless the price is above
A) $0.
B) $5.
C) $12.
D) $14.
Answer: B
Difficulty: Analytical
AACSB: Analytic Skills
Status: Old
13) Suppose there are 100 identical firms in the rag industry, and each firm is willing to supply
10 rags at any price. The market supply curve will be a
A) vertical line where Q = 10.
B) vertical line where Q = 100.
C) vertical line where Q = 1000.
D) horizontal line where Q = 1000.
Answer: C
Difficulty: Conceptual
AACSB: Analytic Skills
Status: Old
14) The market supply curve is found by
A) horizontally summing all individual supply curves at a price.
B) vertically summing all individual supply curves at a quantity.
C) either A or B above since they both give the same answer.
D) None of the above.
Answer: A
Difficulty: Analytical
AACSB: Analytic Skills
Status: New
12) The above figure shows a graph of the market for pizzas in a large town. No pizzas will be
supplied unless the price is above
A) $0.
B) $5.
C) $12.
D) $14.
Answer: B
Difficulty: Analytical
AACSB: Analytic Skills
Status: Old
13) Suppose there are 100 identical firms in the rag industry, and each firm is willing to supply
10 rags at any price. The market supply curve will be a
A) vertical line where Q = 10.
B) vertical line where Q = 100.
C) vertical line where Q = 1000.
D) horizontal line where Q = 1000.
Answer: C
Difficulty: Conceptual
AACSB: Analytic Skills
Status: Old
14) The market supply curve is found by
A) horizontally summing all individual supply curves at a price.
B) vertically summing all individual supply curves at a quantity.
C) either A or B above since they both give the same answer.
D) None of the above.
Answer: A
Difficulty: Analytical
AACSB: Analytic Skills
Status: New
Loading page 24...
14
15) Suppose the following information is known about a market:
1. Sellers will not sell at all below a price of $2.
2. At a price of $10, any given seller will sell 10 units.
3. There are 100 identical sellers in the market.
Assuming a linear supply curve, use this information to derive the market supply curve.
Answer: First, Q = 100q since all firms are identical. This gives two points: (p = 2, Q = 0) and (p
= 10, Q = 1000). From the first point, it is known that p = 2 + bQ. When Q = 1000, 10 = 2 +
b(1000). Solving for b yields b = .008. Rearranging to solve for Q yields: Q = -250 + 125p or P=
2 + .008Q.
Difficulty: Analytical
AACSB: Analytic Skills
Status: Old
2.3 Market Equilibrium
1) Equilibrium is defined as a situation in which
A) neither buyers nor sellers want to change their behavior.
B) no government regulations exist.
C) demand curves are perfectly horizontal.
D) suppliers will supply any amount that buyers wish to buy.
Answer: A
Difficulty: Conceptual
AACSB: Analytic Skills
Status: Old
2) Once an equilibrium is achieved, it can persist indefinitely because
A) shocks that shift the demand curve or the supply curve cannot occur.
B) shocks to the demand curve are always exactly offset by shocks to the supply curve.
C) the government never intervenes in markets at equilibrium.
D) in the absence of supply/demand shocks no one applies pressure to change the price.
Answer: D
Difficulty: Conceptual
AACSB: Analytic Skills
Status: Old
3) A market equilibrium occurs
A) only with government regulation.
B) only because of the profit motive of firms.
C) only because of the complacency of consumers.
D) through the interaction of self-interested consumers and producers.
Answer: D
AACSB: Analytic Skills
Status: Old
15) Suppose the following information is known about a market:
1. Sellers will not sell at all below a price of $2.
2. At a price of $10, any given seller will sell 10 units.
3. There are 100 identical sellers in the market.
Assuming a linear supply curve, use this information to derive the market supply curve.
Answer: First, Q = 100q since all firms are identical. This gives two points: (p = 2, Q = 0) and (p
= 10, Q = 1000). From the first point, it is known that p = 2 + bQ. When Q = 1000, 10 = 2 +
b(1000). Solving for b yields b = .008. Rearranging to solve for Q yields: Q = -250 + 125p or P=
2 + .008Q.
Difficulty: Analytical
AACSB: Analytic Skills
Status: Old
2.3 Market Equilibrium
1) Equilibrium is defined as a situation in which
A) neither buyers nor sellers want to change their behavior.
B) no government regulations exist.
C) demand curves are perfectly horizontal.
D) suppliers will supply any amount that buyers wish to buy.
Answer: A
Difficulty: Conceptual
AACSB: Analytic Skills
Status: Old
2) Once an equilibrium is achieved, it can persist indefinitely because
A) shocks that shift the demand curve or the supply curve cannot occur.
B) shocks to the demand curve are always exactly offset by shocks to the supply curve.
C) the government never intervenes in markets at equilibrium.
D) in the absence of supply/demand shocks no one applies pressure to change the price.
Answer: D
Difficulty: Conceptual
AACSB: Analytic Skills
Status: Old
3) A market equilibrium occurs
A) only with government regulation.
B) only because of the profit motive of firms.
C) only because of the complacency of consumers.
D) through the interaction of self-interested consumers and producers.
Answer: D
AACSB: Analytic Skills
Status: Old
Loading page 25...
15
4) A market is said to "clear" when
A) sellers give up selling their goods because they can't find any buyers.
B) buyers and sellers are able to buy and sell as much as they want at the market price.
C) the government decides to shut it down.
D) sellers run out of goods to sell.
Answer: B
Difficulty: Conceptual
AACSB: Analytic Skills
Status: New
5) At equilibrium, quantity sold equals the quantity bought. This implies that
A) to sell more, producers require more in payment than consumers are willing to pay.
B) government regulation is necessary.
C) to sell less would require a lower price but would yield greater profit.
D) those who don't buy have been treated unfairly.
Answer: A
Difficulty: Conceptual
AACSB: Analytic Skills
Status: Old
6) The above figure shows a graph of the market for pizzas in a large town. At a price of $14,
there will be
A) no pizzas supplied.
B) equilibrium.
C) excess supply.
D) excess demand.
Answer: C
AACSB: Analytic Skills
Status: Old
4) A market is said to "clear" when
A) sellers give up selling their goods because they can't find any buyers.
B) buyers and sellers are able to buy and sell as much as they want at the market price.
C) the government decides to shut it down.
D) sellers run out of goods to sell.
Answer: B
Difficulty: Conceptual
AACSB: Analytic Skills
Status: New
5) At equilibrium, quantity sold equals the quantity bought. This implies that
A) to sell more, producers require more in payment than consumers are willing to pay.
B) government regulation is necessary.
C) to sell less would require a lower price but would yield greater profit.
D) those who don't buy have been treated unfairly.
Answer: A
Difficulty: Conceptual
AACSB: Analytic Skills
Status: Old
6) The above figure shows a graph of the market for pizzas in a large town. At a price of $14,
there will be
A) no pizzas supplied.
B) equilibrium.
C) excess supply.
D) excess demand.
Answer: C
AACSB: Analytic Skills
Status: Old
Loading page 26...
16
7) The above figure shows a graph of the market for pizzas in a large town. At a price of $5,
there will be
A) excess demand.
B) excess supply.
C) equilibrium.
D) zero demand.
Answer: A
AACSB: Analytic Skills
Status: Old
8) The above figure shows a graph of the market for pizzas in a large town. What are the
equilibrium price and quantity?
A) p = 8, Q = 60
B) p = 7, Q = 40
C) p = 7, Q = 70
D) p = 10, Q = 40
Answer: A
AACSB: Analytic Skills
Status: Old
9) The figure above shows a graph of the market for pizzas in a large town. What characterizes
the equilibrium in this market?
A) There is excess supply at the equilibrium price of $7.
B) The government has selected the appropriate price for pizzas.
C) The quantity supplied equals the quantity demanded.
D) Supply equals demand.
Answer: C
AACSB: Analytic Skills
Status: Old
10) The above figure shows a graph of a market for pizzas in a large town. At a price of $7, what
is the amount of excess demand?
A) 0; there is excess supply at $7.
B) 20 units
C) 30 units
D) 10 units
Answer: C
AACSB: Analytic Skills
Status: Old
7) The above figure shows a graph of the market for pizzas in a large town. At a price of $5,
there will be
A) excess demand.
B) excess supply.
C) equilibrium.
D) zero demand.
Answer: A
AACSB: Analytic Skills
Status: Old
8) The above figure shows a graph of the market for pizzas in a large town. What are the
equilibrium price and quantity?
A) p = 8, Q = 60
B) p = 7, Q = 40
C) p = 7, Q = 70
D) p = 10, Q = 40
Answer: A
AACSB: Analytic Skills
Status: Old
9) The figure above shows a graph of the market for pizzas in a large town. What characterizes
the equilibrium in this market?
A) There is excess supply at the equilibrium price of $7.
B) The government has selected the appropriate price for pizzas.
C) The quantity supplied equals the quantity demanded.
D) Supply equals demand.
Answer: C
AACSB: Analytic Skills
Status: Old
10) The above figure shows a graph of a market for pizzas in a large town. At a price of $7, what
is the amount of excess demand?
A) 0; there is excess supply at $7.
B) 20 units
C) 30 units
D) 10 units
Answer: C
AACSB: Analytic Skills
Status: Old
Loading page 27...
17
11) The above figure shows a graph of a market for pizzas in a large town. At a price of $10, the
market
A) is not in equilibrium.
B) has excess supply.
C) does not have excess demand.
D) All of the above.
Answer: D
AACSB: Analytic Skills
Status: Old
12) If Qs = -20 + 10p, and Qd = 400 - 20p, what is the equilibrium price?
A) 14
B) 42
C) 12.67
D) 38
Answer: A
Difficulty: Analytical
AACSB: Analytic Skills
Status: New
13) If Qs = -20 + 10p, and Qd = 400 - 20p, what is the equilibrium quantity?
A) 440
B) 146.6
C) 360
D) 120
Answer: A
Difficulty: Analytical
AACSB: Analytic Skills
Status: New
14) After tickets for a major sporting event are purchased at the official box office price, a
market often develops whereby these tickets sell at prices well above the official box office
price. Which of the following scenarios would NOT be able to explain this result?
A) The official price was below equilibrium from the moment the tickets were available.
B) Increased publicity causes the demand curve for the event to shift rightward.
C) The event was not a sellout.
D) Not everyone who wanted a ticket was able to buy one at the box office.
Answer: C
Difficulty: Analytical
AACSB: Analytic Skills
Status: Old
11) The above figure shows a graph of a market for pizzas in a large town. At a price of $10, the
market
A) is not in equilibrium.
B) has excess supply.
C) does not have excess demand.
D) All of the above.
Answer: D
AACSB: Analytic Skills
Status: Old
12) If Qs = -20 + 10p, and Qd = 400 - 20p, what is the equilibrium price?
A) 14
B) 42
C) 12.67
D) 38
Answer: A
Difficulty: Analytical
AACSB: Analytic Skills
Status: New
13) If Qs = -20 + 10p, and Qd = 400 - 20p, what is the equilibrium quantity?
A) 440
B) 146.6
C) 360
D) 120
Answer: A
Difficulty: Analytical
AACSB: Analytic Skills
Status: New
14) After tickets for a major sporting event are purchased at the official box office price, a
market often develops whereby these tickets sell at prices well above the official box office
price. Which of the following scenarios would NOT be able to explain this result?
A) The official price was below equilibrium from the moment the tickets were available.
B) Increased publicity causes the demand curve for the event to shift rightward.
C) The event was not a sellout.
D) Not everyone who wanted a ticket was able to buy one at the box office.
Answer: C
Difficulty: Analytical
AACSB: Analytic Skills
Status: Old
Loading page 28...
18
15) At equilibrium, quantity sold equals the quantity bought. This implies that
A) to sell more, producers require more in payment than consumers are willing to pay.
B) government regulation is necessary.
C) to sell less would require a lower price but would yield greater profit.
D) those who don't buy have been treated unfairly.
Answer: A
Difficulty: Conceptual
AACSB: Analytic Skills
Status: Old
16) According to Adam Smith's invisible hand
A) markets need the government to intervene.
B) forces are constantly pushing markets out of equilibrium
C) people coordinate their activities, resulting in equilibrium in the market.
D) there is an invisible glove that restricts what markets can do.
Answer: C
Difficulty: Conceptual
AACSB: Analytic Skills
Status: New
17) A competitive equilibrium is described by
A) a price only.
B) a quantity only.
C) the excess supply minus the excess demand.
D) a price and a quantity.
Answer: D
Difficulty: Conceptual
AACSB: Analytic Skills
Status: Old
18) If price is initially above the equilibrium level
A) the supply curve will shift rightward.
B) the supply curve will shift leftward.
C) excess supply exists.
D) all firms can sell as much as they want.
Answer: C
Difficulty: Analytical
AACSB: Analytic Skills
Status: Old
15) At equilibrium, quantity sold equals the quantity bought. This implies that
A) to sell more, producers require more in payment than consumers are willing to pay.
B) government regulation is necessary.
C) to sell less would require a lower price but would yield greater profit.
D) those who don't buy have been treated unfairly.
Answer: A
Difficulty: Conceptual
AACSB: Analytic Skills
Status: Old
16) According to Adam Smith's invisible hand
A) markets need the government to intervene.
B) forces are constantly pushing markets out of equilibrium
C) people coordinate their activities, resulting in equilibrium in the market.
D) there is an invisible glove that restricts what markets can do.
Answer: C
Difficulty: Conceptual
AACSB: Analytic Skills
Status: New
17) A competitive equilibrium is described by
A) a price only.
B) a quantity only.
C) the excess supply minus the excess demand.
D) a price and a quantity.
Answer: D
Difficulty: Conceptual
AACSB: Analytic Skills
Status: Old
18) If price is initially above the equilibrium level
A) the supply curve will shift rightward.
B) the supply curve will shift leftward.
C) excess supply exists.
D) all firms can sell as much as they want.
Answer: C
Difficulty: Analytical
AACSB: Analytic Skills
Status: Old
Loading page 29...
19
19) If the price of a good is initially below the equilibrium level
A) the supply curve will shift leftward.
B) the supply curve will shift rightward.
C) firms supply none of the good.
D) excess demand exists.
Answer: D
Difficulty: Analytical
AACSB: Analytic Skills
Status: New
20) In some markets, ________ act to adjust the price to bring the market into equilibrium.
A) bulls
B) regulators
C) market makers
D) web sites
Answer: C
Difficulty: Conceptual
AACSB: Analytic Skills
Status: New
For the following, please answer "True" or "False" and explain why.
21) When a market is in disequilibrium consumers and producers change their behavior. As a
result the market reaches equilibrium.
Answer: True. For example, when a shortage exists at a given price consumers bid up the price
and firms increase production until the equilibrium is reached.
Difficulty: Conceptual
AACSB: Analytic Skills
Status: Old
22) Explain why the equilibrium price is called the market clearing price.
Answer: At the equilibrium price, sellers want to sell the exact amount consumers want to buy.
There is no excess demand or excess supply. The market is exactly cleared of all goods.
Difficulty: Conceptual
AACSB: Analytic Skills
Status: Old
19) If the price of a good is initially below the equilibrium level
A) the supply curve will shift leftward.
B) the supply curve will shift rightward.
C) firms supply none of the good.
D) excess demand exists.
Answer: D
Difficulty: Analytical
AACSB: Analytic Skills
Status: New
20) In some markets, ________ act to adjust the price to bring the market into equilibrium.
A) bulls
B) regulators
C) market makers
D) web sites
Answer: C
Difficulty: Conceptual
AACSB: Analytic Skills
Status: New
For the following, please answer "True" or "False" and explain why.
21) When a market is in disequilibrium consumers and producers change their behavior. As a
result the market reaches equilibrium.
Answer: True. For example, when a shortage exists at a given price consumers bid up the price
and firms increase production until the equilibrium is reached.
Difficulty: Conceptual
AACSB: Analytic Skills
Status: Old
22) Explain why the equilibrium price is called the market clearing price.
Answer: At the equilibrium price, sellers want to sell the exact amount consumers want to buy.
There is no excess demand or excess supply. The market is exactly cleared of all goods.
Difficulty: Conceptual
AACSB: Analytic Skills
Status: Old
Loading page 30...
20
2.4 Shocks to the Equilibrium
1) From the 1970s through the 1990s, the relative price of a college education has increased
greatly. During the same time period, college enrollment has also increased. This evidence
suggests that during this time period
A) the demand curve for a college education has shifted leftward.
B) the demand curve for a college education has shifted rightward.
C) the supply curve for a college education has shifted leftward.
D) the supply curve for a college education has shifted rightward.
Answer: B
Difficulty: Analytical
AACSB: Analytic Skills
Status: Old
2) Suppose a market were currently at equilibrium. A rightward shift of the demand curve would
cause
A) an increase in price but a decrease in quantity.
B) a decrease in price but an increase in quantity.
C) an increase in both price and quantity.
D) a decrease in both price and quantity.
Answer: C
Difficulty: Conceptual
AACSB: Analytic Skills
Status: Old
3) A rightward shift of the demand curve will lead to a(n)
A) increase in equilibrium price.
B) excess demand at the old equilibrium price.
C) increase in quantity supplied.
D) All of the above.
Answer: D
Difficulty: Conceptual
AACSB: Analytic Skills
Status: Old
4) A leftward shift of the demand curve will lead to a(n)
A) decrease in equilibrium price.
B) excess supply at the old equilibrium price.
C) decreased in quantity supplied.
D) All of the above.
Answer: D
Difficulty: Conceptual
AACSB: Analytic Skills
Status: New
2.4 Shocks to the Equilibrium
1) From the 1970s through the 1990s, the relative price of a college education has increased
greatly. During the same time period, college enrollment has also increased. This evidence
suggests that during this time period
A) the demand curve for a college education has shifted leftward.
B) the demand curve for a college education has shifted rightward.
C) the supply curve for a college education has shifted leftward.
D) the supply curve for a college education has shifted rightward.
Answer: B
Difficulty: Analytical
AACSB: Analytic Skills
Status: Old
2) Suppose a market were currently at equilibrium. A rightward shift of the demand curve would
cause
A) an increase in price but a decrease in quantity.
B) a decrease in price but an increase in quantity.
C) an increase in both price and quantity.
D) a decrease in both price and quantity.
Answer: C
Difficulty: Conceptual
AACSB: Analytic Skills
Status: Old
3) A rightward shift of the demand curve will lead to a(n)
A) increase in equilibrium price.
B) excess demand at the old equilibrium price.
C) increase in quantity supplied.
D) All of the above.
Answer: D
Difficulty: Conceptual
AACSB: Analytic Skills
Status: Old
4) A leftward shift of the demand curve will lead to a(n)
A) decrease in equilibrium price.
B) excess supply at the old equilibrium price.
C) decreased in quantity supplied.
D) All of the above.
Answer: D
Difficulty: Conceptual
AACSB: Analytic Skills
Status: New
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Subject
Accounting