ECONOMICS CHAPTER 3 TEST
True/False
Indicate whether the statement is true or false.
____
1. Limited liability is one characteristic of the corporate form of business organization.
____
2. One advantage of a corporation is the ease of obtaining a charter.
____
3. One disadvantage of a general partnership is each partners' responsibility for the acts of all other partners.
____
4. Many schools, medical care facilities, and churches operate as nonprofit organizations.
____
5. Cooperatives can be organized to help consumers, provide services, or help producers.
____
6. Sole proprietorships must request a charter from the state in which they are organized.
____
7. People form partnerships because it often improves a business's management and can usually attract capital
more easily than proprietorships.
____
8. Investors in corporations have unlimited liability for the company's debts.
____
9. The dividends of stockholders in a corporation are subject to double taxation.
____ 10. One of the principal reasons that companies merge is to diversify their product lines.
____ 11. A consumer cooperative can offer members prices that are lower than those charged by regular businesses.
Multiple Choice
Identify the choice that best completes the statement or answers the question.
____ 12. A merger of corporations involved in different steps of manufacturing or marketing is known as a
a. multinational merger.
c. vertical merger.
b. horizontal merger.
d. conglomerate.
____ 13. Non-profit organizations may
a. issue stock.
b. pay dividends.
c. provide goods and services to members.
d. pay income taxes.
____ 14. An advantage of a corporation is that
a. owners pay fewer taxes than owners of other forms of business.
b. the business is subject to little government regulation.
c. owners have limited liability for debt.
d. owners have direct and immediate control over daily management of the business.
____ 15.
According to the illustration, what is the least common form of business organization in the United
States?
a. proprietorships
c. corporations
b. partnerships
d. joint ventures
____ 16.
What form of business organization does this organizational chart depict?
a. partnership
c. corporation
b. proprietorship
d. joint venture
____ 17.
What type of merger created Mega Corporation in the illustration?
a. horizontal merger
c. diagonal merger
b. vertical merger
d. conglomerate merger
____ 18.
What type of merger does the illustration depict?
a. horizontal merger
c. diagonal merger
b. vertical merger
d. conglomerate merger
____ 19.
What type of merger does the illustration show?
a. horizontal merger
c. diagonal merger
b. vertical merger
d. conglomerate merger
Largest American-Owned Multinationals
Revenue
Rank/Company
1. Exxon
2. Ford Motor
3. IBM
4. General Motors
5. Texaco
6. General Electric
7. Citigroup
8. Wal-Mart Stores
9. Chevron
10. Hewlett-Packard
Foreign
($mil)
143,044
51,691
51,180
48,233
43,146
42,390
37,396
32,100
31,374
27,230
Total
($mil)
206,083
170,064
88,396
184,632
60,220
129,853
111,826
191,329
69,058
48,782
Assets
Foreign
as % of
Total
69.4
30.4
57.9
26.1
71.554
32.6
33.4
16.8
45.4
55.8
Foreign
($mil)
56,742
19,874
14,348
12,578
7,879
159,367
269,837
25,742
27,126
2,244
Total
($mil)
89,829
45,804
35,797
35,376
15,897
437,006
741,114
78,130
50,832
4,500
Foreign
as % of
Total
63.2
43.4
40.1
35.6
49.6
36.5
36.4
32.9
53.4
49.9
Source: Forbes, July 23, 2001.
____ 20.
Which multinational shown in the table received the largest portion of its income from foreign sources?
a. Exxon
c. Texaco
b. Hewlett-Packard
d. Wal-Mart Stores
____ 21.
According to the table, more than half of the assets of which company or companies are located outside
of the United States?
a. Exxon
b. Exxon, IBM, Texaco, Hewlett-Packard
c. all of them
d. Chevron, Exxon
Grocery store giant Kroger Co. agreed Monday to purchase rival Fred Meyer Co. in a $12.8 billion deal that
will enable Kroger to reclaim its status as the nation’s largest supermarket company.... [Analysts say] the
merger is a good deal for both companies, one that should create the economies of scale necessary to remain
competitive in the tough supermarket industry.
The merger also will enable Kroger to [stay] ahead of rival Albertson’s, which otherwise would have eclipsed
Kroger through its $11.7 billion buyout of American Stores Co. in August.... Combined with Meyer, currently
the fifth-largest grocery chain, Kroger will operate 2,200 supermarkets in 31 states, boasting $43 billion in
annual sales.
Source: “Kroger Bags Fred Meyer,” CNNfn, October 19, 1998.
____ 22.
What type of merger does the passage describe?
a. vertical
c. multinational
b. conglomerate
d. horizontal
____ 23.
According to the passage, the merger enabled Kroger to
diversify.
acquire new product lines.
become the industry’s largest company.
acquire a new corporate identity.
a.
b.
c.
d.
Third Quarter Income Statement
Sales of Goods and Services:
less: Cost of goods sold
Wages and salaries
Interest payments
Depreciation
____ 24.
$2,000
650
350
200
200
Earnings Before Tax:
less: Taxes (at 40%)
$600
240
Net Income:
plus: Non-cash charges
$360
200
Cash Flow:
$560
Which expense category shown at the top of the income statement represents a non-cash charge?
a. cost of goods sold
c. interest payments
b. wages and salaries
d. depreciation
____ 25.
On the income statement shown in the illustration, what dollar amount represents the total amount of
new funds the business generated from operations in the third quarter?
a. $560
c. $600
b. $360
d. $2,000
Matching
Match each statement with the correct item below.
a. form of business organization recognized by law as a separate legal entity having all the
rights of an individual
b. corporation that has manufacturing or service operations in a number of countries
c. voluntary association that buys bulk amounts of goods on behalf of its members
d. business owned and run by one person
e. price paid for the use of another's money
f. investor's responsibility for the debts of a business which is limited by the size of his or
her investment in the business
g. organization of workers formed to represent its members' interests in various employment
matters
h. money that is borrowed
i. non-cash charge a firm takes for the general wear and tear on its capital goods
j. stock of finished goods and parts in reserve
____
____
____
____
____
____
____
____
____
____
26.
27.
28.
29.
30.
31.
32.
33.
34.
35.
sole proprietorship
principal
depreciation
limited liability
labor union
inventory
corporation
multinational
interest
consumer cooperative
ECONOMICS CHAPTER 3 TEST
Answer Section
TRUE/FALSE
1. ANS: T
PTS: 1
DIF: Average
REF: Learn more about this question in Economics Principles and Practices, page 64, and in the Reading
Essentials and Study Guide, Chapter 3, Section 1. For additional practice, complete Chapter 3, Section 1, of
the Interactive Tutor Self-Assessment CD-ROM, and visit this book's Online Learning Center at
epp.glencoe.com.
NOT: Page 64
2. ANS: F
PTS: 1
DIF: Average
REF: Learn more about this question in Economics Principles and Practices, page 65, and in the Reading
Essentials and Study Guide, Chapter 3, Section 1. For additional practice, complete Chapter 3, Section 1, of
the Interactive Tutor Self-Assessment CD-ROM, and visit this book's Online Learning Center at
epp.glencoe.com.
NOT: Page 65
3. ANS: T
PTS: 1
DIF: Easy
REF: Learn more about this question in Economics Principles and Practices, page 62, and in the Reading
Essentials and Study Guide, Chapter 3, Section 1. For additional practice, complete Chapter 3, Section 1, of
the Interactive Tutor Self-Assessment CD-ROM, and visit this book's Online Learning Center at
epp.glencoe.com.
NOT: Page 62
4. ANS: T
PTS: 1
DIF: Easy
REF: Learn more about this question in Economics Principles and Practices, page 75, and in the Reading
Essentials and Study Guide, Chapter 3, Section 3. For additional practice, complete Chapter 3, Section 3, of
the Interactive Tutor Self-Assessment CD-ROM, and visit this book's Online Learning Center at
epp.glencoe.com.
NOT: Page 75
5. ANS: T
PTS: 1
DIF: Average
REF: Learn more about this question in Economics Principles and Practices, page 76, and in the Reading
Essentials and Study Guide, Chapter 3, Section 3. For additional practice, complete Chapter 3, Section 3, of
the Interactive Tutor Self-Assessment CD-ROM, and visit this book's Online Learning Center at
epp.glencoe.com.
NOT: Page 76
6. ANS: F
PTS: 1
DIF: Average
REF: Learn more about this question in Economics Principles and Practices, pages 57-58, and in the
Reading Essentials and Study Guide, Chapter 3, Section 1. For additional practice, complete Chapter 3,
Section 1, of the Interactive Tutor Self-Assessment CD-ROM, and visit this book's Online Learning Center at
epp.glencoe.com.
NOT: Pages 57-58
7. ANS: T
PTS: 1
DIF: Average
REF: Learn more about this question in Economics Principles and Practices, page 61, and in the Reading
Essentials and Study Guide, Chapter 3, Section 1. For additional practice, complete Chapter 3, Section 1, of
the Interactive Tutor Self-Assessment CD-ROM, and visit this book's Online Learning Center at
epp.glencoe.com.
NOT: Page 61
8. ANS: F
PTS: 1
DIF: Average
REF: Learn more about this question in Economics Principles and Practices, page 64, and in the Reading
Essentials and Study Guide, Chapter 3, Section 1. For additional practice, complete Chapter 3, Section 1, of
the Interactive Tutor Self-Assessment CD-ROM, and visit this book's Online Learning Center at
epp.glencoe.com.
NOT: Page 64
9. ANS: T
PTS: 1
DIF: Challenging
REF: Learn more about this question in Economics Principles and Practices, page 65, and in the Reading
Essentials and Study Guide, Chapter 3, Section 1. For additional practice, complete Chapter 3, Section 1, of
the Interactive Tutor Self-Assessment CD-ROM, and visit this book's Online Learning Center at
epp.glencoe.com.
NOT: Page 65
10. ANS: T
PTS: 1
DIF: Challenging
REF: Learn more about this question in Economics Principles and Practices, page 70, and in the Reading
Essentials and Study Guide, Chapter 3, Section 2. For additional practice, complete Chapter 3, Section 2, of
the Interactive Tutor Self-Assessment CD-ROM, and visit this book's Online Learning Center at
epp.glencoe.com.
NOT: Page 70
11. ANS: T
PTS: 1
DIF: Easy
REF: Learn more about this question in Economics Principles and Practices, page 76, and in the Reading
Essentials and Study Guide, Chapter 3, Section 3. For additional practice, complete Chapter 3, Section 3, of
the Interactive Tutor Self-Assessment CD-ROM, and visit this book's Online Learning Center at
epp.glencoe.com.
NOT: Page 76
MULTIPLE CHOICE
12. ANS: C
PTS: 1
DIF: Challenging
REF: Learn more about this question in Economics Principles and Practices, page 71, and in the Reading
Essentials and Study Guide, Chapter 3, Section 2. For additional practice, complete Chapter 3, Section 2, of
the Interactive Tutor Self-Assessment CD-ROM, and visit this book's Online Learning Center at
epp.glencoe.com.
NOT: Page 71
13. ANS: C
PTS: 1
DIF: Easy
REF: Learn more about this question in Economics Principles and Practices, page 75, and in the Reading
Essentials and Study Guide, Chapter 3, Section 3. For additional practice, complete Chapter 3, Section 3, of
the Interactive Tutor Self-Assessment CD-ROM, and visit this book's Online Learning Center at
epp.glencoe.com.
NOT: Page 75
14. ANS: C
PTS: 1
DIF: Average
REF: Learn more about this question in Economics Principles and Practices, page 64, and in the Reading
Essentials and Study Guide, Chapter 3, Section 1. For additional practice, complete Chapter 3, Section 1, of
the Interactive Tutor Self-Assessment CD-ROM, and visit this book's Online Learning Center at
epp.glencoe.com.
NOT: Page 64
15. ANS: B
PTS: 1
DIF: Easy
REF: Learn more about this question in Economics Principles and Practices, page 60, and in the Reading
Essentials and Study Guide, Chapter 3, Section 1. For additional practice, complete Chapter 3, Section 1, of
the Interactive Tutor Self-Assessment CD-ROM, and visit this book's Online Learning Center at
epp.glencoe.com.
MSC: Document Based Question
NOT: Page 60
16. ANS: C
PTS: 1
DIF: Average
REF: Learn more about this question in Economics Principles and Practices, pages 62-64, and in the
Reading Essentials and Study Guide, Chapter 3, Section 1. For additional practice, complete Chapter 3,
Section 1, of the Interactive Tutor Self-Assessment CD-ROM, and visit this book's Online Learning Center at
epp.glencoe.com.
MSC: Document Based Question
NOT: Pages 62-64
17. ANS: B
PTS: 1
DIF: Average
REF: Learn more about this question in Economics Principles and Practices, page 71, and in the Reading
Essentials and Study Guide, Chapter 3, Section 2. For additional practice, complete Chapter 3, Section 2, of
the Interactive Tutor Self-Assessment CD-ROM, and visit this book's Online Learning Center at
epp.glencoe.com.
MSC: Document Based Question
NOT: Page 71
18. ANS: D
PTS: 1
DIF: Average
REF: Learn more about this question in Economics Principles and Practices, pages 71-72, and in the
Reading Essentials and Study Guide, Chapter 3, Section 2. For additional practice, complete Chapter 3,
Section 2, of the Interactive Tutor Self-Assessment CD-ROM, and visit this book's Online Learning Center at
epp.glencoe.com.
MSC: Document Based Question
NOT: Pages 71-72
19. ANS: A
PTS: 1
DIF: Average
REF: Learn more about this question in Economics Principles and Practices, page 71, and in the Reading
Essentials and Study Guide, Chapter 3, Section 2. For additional practice, complete Chapter 3, Section 2, of
the Interactive Tutor Self-Assessment CD-ROM, and visit this book's Online Learning Center at
epp.glencoe.com.
MSC: Document Based Question
NOT: Page 71
20. ANS: C
PTS: 1
DIF: Easy
REF: Learn more about this question in Economics Principles and Practices, pages 72-73, and in the
Reading Essentials and Study Guide, Chapter 3, Section 2. For additional practice, complete Chapter 3,
Section 2, of the Interactive Tutor Self-Assessment CD-ROM, and visit this book's Online Learning Center at
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MSC: Document Based Question
NOT: Pages 72-73
21. ANS: D
PTS: 1
DIF: Easy
REF: Learn more about this question in Economics Principles and Practices, pages 72-73, and in the
Reading Essentials and Study Guide, Chapter 3, Section 2. For additional practice, complete Chapter 3,
Section 2, of the Interactive Tutor Self-Assessment CD-ROM, and visit this book's Online Learning Center at
epp.glencoe.com.
MSC: Document Based Question
NOT: Pages 72-73
22. ANS: D
PTS: 1
DIF: Average
REF: Learn more about this question in Economics Principles and Practices, pages 71-72, and in the
Reading Essentials and Study Guide, Chapter 3, Section 2. For additional practice, complete Chapter 3,
Section 2, of the Interactive Tutor Self-Assessment CD-ROM, and visit this book's Online Learning Center at
epp.glencoe.com.
MSC: Document Based Question
NOT: Pages 71-72
23. ANS: C
PTS: 1
DIF: Easy
REF: Learn more about this question in Economics Principles and Practices, pages 71-72, and in the
Reading Essentials and Study Guide, Chapter 3, Section 2. For additional practice, complete Chapter 3,
Section 2, of the Interactive Tutor Self-Assessment CD-ROM, and visit this book's Online Learning Center at
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MSC: Document Based Question
NOT: Pages 71-72
24. ANS: D
PTS: 1
DIF: Average
REF: Learn more about this question in Economics Principles and Practices, page 69, and in the Reading
Essentials and Study Guide, Chapter 3, Section 2. For additional practice, complete Chapter 3, Section 2, of
the Interactive Tutor Self-Assessment CD-ROM, and visit this book's Online Learning Center at
epp.glencoe.com.
MSC: Document Based Question
NOT: Page 69
25. ANS: A
PTS: 1
DIF: Average
REF: Learn more about this question in Economics Principles and Practices, page 69, and in the Reading
Essentials and Study Guide, Chapter 3, Section 2. For additional practice, complete Chapter 3, Section 2, of
the Interactive Tutor Self-Assessment CD-ROM, and visit this book's Online Learning Center at
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MSC: Document Based Question
NOT: Page 69
MATCHING
26. ANS: D
PTS: 1
DIF: Easy
REF: Learn more about this question in Economics Principles and Practices, page 57, and in the Reading
Essentials and Study Guide, Chapter 3, Section 1. For additional practice, complete Chapter 3, Section 1, of
the Interactive Tutor Self-Assessment CD-ROM, and visit this book's Online Learning Center at
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NOT: Page 57
27. ANS: H
PTS: 1
DIF: Average
REF: Learn more about this question in Economics Principles and Practices, page 64, and in the Reading
Essentials and Study Guide, Chapter 3, Section 1. For additional practice, complete Chapter 3, Section 1, of
the Interactive Tutor Self-Assessment CD-ROM, and visit this book's Online Learning Center at
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NOT: Page 64
28. ANS: I
PTS: 1
DIF: Average
29.
30.
31.
32.
33.
34.
35.
REF: Learn more about this question in Economics Principles and Practices, page 69, and in the Reading
Essentials and Study Guide, Chapter 3, Section 2. For additional practice, complete Chapter 3, Section 2, of
the Interactive Tutor Self-Assessment CD-ROM, and visit this book's Online Learning Center at
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NOT: Page 69
ANS: F
PTS: 1
DIF: Average
REF: Learn more about this question in Economics Principles and Practices, page 64, and in the Reading
Essentials and Study Guide, Chapter 3, Section 1. For additional practice, complete Chapter 3, Section 1, of
the Interactive Tutor Self-Assessment CD-ROM, and visit this book's Online Learning Center at
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NOT: Page 64
ANS: G
PTS: 1
DIF: Easy
REF: Learn more about this question in Economics Principles and Practices, pages 76-77, and in the
Reading Essentials and Study Guide, Chapter 3, Section 3. For additional practice, complete Chapter 3,
Section 3, of the Interactive Tutor Self-Assessment CD-ROM, and visit this book's Online Learning Center at
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NOT: Pages 76-77
ANS: J
PTS: 1
DIF: Average
REF: Learn more about this question in Economics Principles and Practices, page 59, and in the Reading
Essentials and Study Guide, Chapter 3, Section 1. For additional practice, complete Chapter 3, Section 1, of
the Interactive Tutor Self-Assessment CD-ROM, and visit this book's Online Learning Center at
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NOT: Page 59
ANS: A
PTS: 1
DIF: Average
REF: Learn more about this question in Economics Principles and Practices, page 62, and in the Reading
Essentials and Study Guide, Chapter 3, Section 1. For additional practice, complete Chapter 3, Section 1, of
the Interactive Tutor Self-Assessment CD-ROM, and visit this book's Online Learning Center at
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NOT: Page 62
ANS: B
PTS: 1
DIF: Easy
REF: Learn more about this question in Economics Principles and Practices, page 72, and in the Reading
Essentials and Study Guide, Chapter 3, Section 2. For additional practice, complete Chapter 3, Section 2, of
the Interactive Tutor Self-Assessment CD-ROM, and visit this book's Online Learning Center at
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NOT: Page 72
ANS: E
PTS: 1
DIF: Average
REF: Learn more about this question in Economics Principles and Practices, page 64, and in the Reading
Essentials and Study Guide, Chapter 3, Section 1. For additional practice, complete Chapter 3, Section 1, of
the Interactive Tutor Self-Assessment CD-ROM, and visit this book's Online Learning Center at
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NOT: Page 64
ANS: C
PTS: 1
DIF: Average
REF: Learn more about this question in Economics Principles and Practices, page 76, and in the Reading
Essentials and Study Guide, Chapter 3, Section 3. For additional practice, complete Chapter 3, Section 3, of
the Interactive Tutor Self-Assessment CD-ROM, and visit this book's Online Learning Center at
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NOT: Page 76