Midterm Practice Exam

An illustrative island nation lets private firms own most factories and stores and set prices through buying and selling, while its government funds public schools, enforces workplace rules, and runs the postal service. Which economic system describes it?

Select one.

• A command economy, because the government runs some services
• A market economy, because private firms own most of the factories
• A mixed economy, because markets and a government role operate together
• Socialism, because the government pays for the public schools

An illustrative bakery buys all of its specialty flour from one mill, and a late flour shipment can halt the morning bake. In a five forces analysis of the bakery's industry, which force describes this dependence?

Select one.

• The bargaining power of suppliers
• The threat of new entrants
• Rivalry among existing competitors
• The threat of substitute products or services

An illustrative electronics store learns that a phone case it sold to about 150 customers cracks much sooner than buyers would expect. No rule requires the store to contact those buyers. Which statement best describes the store's choice to say nothing?

Select one.

• It is legal, but whether it is right remains a separate ethical question
• It is illegal, since anything unethical also breaks the law
• It is legal, so the law has already settled whether it is right
• It is ethical, because the law sets the highest standard a store can meet

An illustrative food truck needs 54,000 dollars to open. The owner puts in 39,000 dollars, and an equipment loan of 15,000 dollars covers the rest at 8 percent a year. What is the first year's interest on the loan?

Select one.

• 4,320 dollars
• 3,120 dollars
• 1,200 dollars
• 120 dollars

An illustrative food truck's launch-month Gantt chart, described in words: get the health permit first; then buy the kitchen equipment and design the menu side by side; run a test service after both of those end; open last. If the equipment purchase runs late, which tasks slide?

Select one.

• Getting the health permit, because it is the first bar on the chart
• Designing the menu, because that task runs beside the equipment purchase
• Running the test service and opening, because they wait on the equipment
• Nothing, because a Gantt chart is finished once it is drawn

An illustrative landscaping company's office manager receives a text that appears to come from the company's bank, warning that the account will be frozen unless the manager signs in through an enclosed link. Which statement names the threat and a fitting protection?

Select one.

• Ransomware; pay quickly so that the account is released
• A lost device; replace the office phone right away
• Phishing; recognize it, do not click the link, and report it
• Malicious software; leave it for an IT department to handle

An illustrative dog-grooming business is funded with 12,000 dollars of the owner's money and a 6,000-dollar loan, and it runs as a sole proprietorship. If it fails and nothing from the business repays the loan, what is the owner's worst-case personal loss?

Select one.

• 6,000 dollars, the amount of the loan
• 12,000 dollars, the money the owner put in
• 18,000 dollars, the money put in plus the loan
• 24,000 dollars, the money put in plus the loan counted twice

An illustrative sneaker company builds every pair on the same standard sole and frame, and each buyer picks the colors and the name stitched on the heel. Which kind of production is that?

Select one.

• Mass production
• Mass customization
• Customization
• A continuous process

An illustrative nail salon competes with many other salons in town, each offering a slightly different style of service, and a new salon can open with modest equipment and a license. Which market structure fits the salon?

Select one.

• Perfect competition, because there are many salons
• Monopolistic competition
• Oligopoly, because a few chains operate nearby
• Monopoly, because each salon's style is its own

At an illustrative concert, T-shirts priced at 12 dollars sell out in the first hour while a long line is still waiting. A fan says the vendor must have packed too few boxes. Which explanation fits the supply-and-demand model better?

Select one.

• The price sits below equilibrium, so buyers want more shirts than the vendor offers
• The price sits above equilibrium, so the vendor offers more shirts than buyers want
• The vendor packed too few boxes, and the price plays no part in a sellout
• Buyers want fewer shirts when the price is low, so the sellout is a surprise

Under Friedman's shareholder position, for whom does a corporate executive work, and what limits apply?

Select one.

• For everyone who can affect the firm or is affected by it, with no limits
• For the owners who employ the executive, within the law and ethical custom
• For the owners who employ the executive, with no limits as long as profits rise
• For the government that regulates the firm, within the firm's own code of ethics

An illustrative bike-repair shop faces rising prices from the only distributor that sells it replacement parts. How does this fact appear in the shop's SWOT and in a five forces analysis of its industry?

Select one.

• A threat in the SWOT, because it comes from outside the shop; the bargaining power of suppliers in the five forces
• A weakness in the SWOT, because it hurts the shop; rivalry among existing competitors in the five forces
• An opportunity in the SWOT, because it comes from outside the shop; the bargaining power of customers in the five forces
• A strength in the SWOT, because the shop buys parts; the threat of new entrants in the five forces

An illustrative movie theater groups some of its buyers as people who come to the first showing of every new release. Which segmentation base defines that group?

Select one.

• Demographic, because moviegoing habits are a measurable trait like age or income
• Geographic, because the members all attend the same theater
• Psychographic, because the members value being first in line
• Behavioral, because the group is defined by when and how its members buy

An illustrative owner pays an upfront fee and ongoing royalties to operate a fitness studio under a national fitness brand within an assigned territory. Which statement describes the arrangement?

Select one.

• The owner is the franchisor and now owns the fitness brand
• The owner bought the fitness brand outright with the upfront fee
• The owner is a franchisee who uses the brand without owning it
• The owner became a stockholder of the brand's company by paying royalties

An illustrative bank branch has a written code requiring two people to count every cash drawer, and every teller has been trained on it. On a busy afternoon, the branch manager counts a drawer alone while the tellers watch. Which of the four tools that shape conduct is missing?

Select one.

• A code of ethics
• Ethics training
• Leadership by example
• A bonus for every drawer counted correctly

A manager weighing a decision runs a quick ethical-reasoning check before acting. Which set of three questions makes up that check?

Select one.

• Is it profitable this year; will customers notice the change; can it be undone later on
• Is it legal; does it save the firm money; would the owners and the board approve
• Is it legal; is it fair to everyone it touches; would I be comfortable if it were public
• Is it required by the boss; is it popular with staff; can it be done quickly

True or false: at an illustrative smoothie stand, the monthly rent on its kiosk rises with every smoothie sold, so the rent is a variable cost.

True or false.

• True
• False

In a five forces analysis of an illustrative movie theater's industry, many viewers stay home and stream films instead of buying a ticket. Which force does this show?

Select one.

• The threat of new entrants
• Rivalry among existing competitors
• The bargaining power of suppliers
• The threat of substitute products or services

An illustrative outdoor-gear company chooses to publish a yearly report on its profit, its people, and its effect on the planet. True or false: every firm is legally required to publish such a report, because the triple bottom line is an official accounting standard.

True or false.

• True
• False

On an illustrative farm-stand peach schedule, a widely shared news story about the health value of peaches leads buyers to want 100 more baskets at every price. This change is a shift of demand.

True or false.

• True
• False

An illustrative college student notices classmates hunting for affordable used lab coats, buys a batch from graduating seniors, and starts reselling them each term with no guarantee that anyone will buy. Which statement fits the description of an entrepreneur?

Select one.

• The student counts as an entrepreneur only after passing a fixed checklist of traits
• The student starts and runs a venture and bears its risk; the habits shown are tendencies
• The student is not an entrepreneur, because reselling lab coats is too small to be a venture
• The student is an entrepreneur because the resale plan is certain to earn a profit

An illustrative laundromat has a slow month. Before spending anything on ads, it surveys its customers, learns that many want to drop off laundry on the way to work, and adds a drop-off service. Which idea does that change show?

Select one.

• Advertising, because the laundromat wants more people to hear about its new service
• The marketing concept: deliver what customers want better than rivals, at a profit
• Price skimming, because drop-off is a premium service sold to the most eager buyers
• Mass production, because the laundromat now washes more loads the same way

An illustrative dog-grooming business runs as a sole proprietorship and closes with a 6,000-dollar van loan still unpaid. Which stakeholder can look to the owner's personal savings to collect what it is owed?

Select one.

• The lender, because a sole proprietor answers personally for every business debt
• The customers, because they paid for grooming before the business closed
• The neighbors, because the grooming van parked on a public street
• No stakeholder, because the business's trade name keeps the debt with the business

An illustrative medical-supply distributor is a corporation whose shares are held by stockholders. Which statement correctly describes who owns it?

Select one.

• Its warehouse workers, because their work moves the products
• Its stockholders, because they hold its shares
• The city, because the company's payroll affects it
• Its customers, because they buy its products

Two illustrative friends run a food truck as a general partnership, and it fails owing 8,000 dollars on an equipment loan. Which statement describes each partner's liability for that loan?

Select one.

• Each partner owes at most half the loan, because they split the profit equally
• Only the partner who signed for the loan can be asked to repay any of it
• Neither partner is liable, because a partnership is a separate legal person
• Both partners carry unlimited personal liability, so neither is capped at half