1. Who is most likely to value a used Honda Mini Van?

a)A financially comfortable construction manager who tends to tow heavy trailers

b)A college student getting ready to move and who worries about their image

c)A wealthy Fortune 500 executive for a major US car company

d)A recent college graduate with a new child

2. Which of the following is not an example of the government's role in helping create wealth?

a) Maintaining order on streets

b) Recording property transactions

c) Providing federal courts to adjudicate contract disputes

d) Assigning street addresses

e) Providing tax subsidies to purchase expensive and poor performing electric vehicles.

3. When are parties likely to NOT engage in transactions?

a) If they both gain from the transaction

b) When the total gains from trade are greater than zero

c) If the sale price is below the seller's value and above the buyer's value

d) All of the above

e) None of the above

4. The existence of underemployed assets:

a) is inefficient because not all assets are being put to their highest use

b) implies the potential for money-making opportunities

c) provides the opportunity for wealth-creating transactions

d) All of the above

5. In a transaction for a good valued at $10,000 by a buyer and $9,800 by a seller, what amount of tax would result in an unconsummated transaction (i.e. a transaction that does not occur)?

a) Any tax amount would result in an unconsummated transaction

b) A tax of $201

c) A tax of $181

d) It depends on how much the parties are willing to pay (and accept) for the good

6.When the pilgrims settled in America they attempted to create a socialistic type society where people produced goods and services for the good of the society.The experiment was not successful.The next year the governor allocated land to each family to produce corn for their own good.This was successful.Why?

a) With individual ownership of property, owners keep the value they create by moving assets to higher-valued uses thereby creating an incentive to engage in such transactions.

b) With common ownership of property, the community keeps the value created by moving assets to higher-valued uses thereby creating an incentive for the community to engage in such transactions.

c) With individual ownership of property, there is no link between the good of society and the good of the individual property owner.

d) With individual ownership of property, owners often attempt to shirk responsibility because there is an incentive to do nothing because they only receive a fraction of what they produce.

7.The owners of a small manufacturing company hired a manager to run the company with the expectation that they will buy the company after five years.Compensation of the new vice president is a flat salary plus 10% of the first $150,000 of cash flow, and then 75% of the cash flow over $150,000.Purchase price for the company is set as 4.5 times cash flow, computed as average annual cash flow over the next five years.Does this contract align the incentives of the new vice president with the goals of the owners to increase cash flow?

a)No.Both the purchase price and the profit sharing create incentives.The VP keeps $0.10 of each dollar earned up to $150,000, but $0.75 of each dollar earned after $150K.The VP is being compensated more for the increased effort required to earn more.But for every dollar the VP earns raises the price that he will eventually pay for the company by $4.50, effectively penalizing him for increasing company profitability.

b)Yes.Both the purchase price and the profit sharing create incentives.The VP keeps $0.10 of each dollar earned up to $150,000, but $0.75 of each dollar earned after $150K.The VP is being compensated more for the increased effort required to earn more.But for every dollar the VP earns raises the price that he will eventually pay for the company by $4.50, effectively penalizing him for increasing company profitability.

c)Yes and NO.Both the purchase price and the profit sharing create incentives.The VP keeps $0.10 of each dollar earned up to $150,000, but $0.75 of each dollar earned after $150K.The VP is being compensated more for the increased effort required to earn more.But for every dollar the VP earns raises the price that he will eventually pay for the company by $4.50, effectively penalizing him for increasing company profitability.

d)None of the above are correct.

8.Many times investors attempt to circumvent or use existing regulations to transfer wealth.In the past the government offered a subsidy for installation of new energy efficient air conditioners with no preconditions (i.e. there are no conditions regarding what unit can be replaced).Suppose a heating and air contractor decides to upgrade their system for their own home (which is virtually new) with an equivalent system.They then sell the used system to cover all costs and make a small profit.(This is based on a real example).Is society better or worse off, why?

a)Society is better off transferring wealth to the heating and air contractor.

b) Society is better off because the heating and air contractor bought a new unit which created work for others.

c)Society is less well off because the heating and air contractor diverted wealth from assets with higher returns.

d) All of the above is true

e)a and c are both true

9.Defenders of price supports may point out that consumers pay lower prices for certain goods because the government subsidizes the production of those goods (for example in the United States the following goods are subsidized - corn/soybeans/milk/homeownership/education/automobile ownership).Cite ways consumers may be "paying" for these goods.

a.Higher Taxes

b.Opportunity costs of not being able to buy alternative products

c.Increased Pollution

d.All of the above

10.Consider a seller who values land at $5000 an acre and a buyer who values the same land at $5500 an acre.What total surplus will result from a transaction between the two when the seller is faced with a tax rate of 5% (assume the tax base is $5000).

a.$50

b.$100

c.$750

d.$250

e.None of the above.