Question 1

Which of the following is most likely to be a partnership?

Accepted Answer

The name "Hope and Williams" implies that it is a partnership, whereas "General Motors," "the Toronto Symphony Orchestra," and "Canada Post" are more likely to be corporations or other types of organizations.

Question 2

Which of the following is an advantage of partnerships?

Accepted Answer

Partnerships allow for each partner to specialize in a certain aspect of the business, allowing for greater efficiency and expertise in different areas.

Question 3

Which form of business organization is the most common in Canada?

Accepted Answer

Sole proprietorships are the most common form of business organization in Canada due to their simplicity and ease of setup, allowing individuals to start businesses with minimal regulatory hurdles.

Question 4

What is the primary reason that individuals are willing to pay entrepreneurs to organize production?

Accepted Answer

Entrepreneurs have lower transaction costs than individuals, which means they can organize production more efficiently and at a lower cost. As a result, individuals are willing to pay entrepreneurs to take on this role, as it can lead to lower prices for goods and services and higher overall productivity. Choices A, B, and C are not accurate reasons for why individuals are willing to pay entrepreneurs to organize production.

Question 5

Which of the following is the most common form of business organization in Canada?

Accepted Answer

Sole proprietorship is the most common form of business organization in Canada due to its simplicity and ease of setup, allowing individuals to start businesses with minimal regulatory hurdles.

Question 6

Which statement describes an advantage of the corporate form of business organization in Canada?

Accepted Answer

The corporate form of business organization in Canada provides firm owners with limited liability, which means they are not personally responsible for the debts and liabilities of the business. This protects their personal assets and reduces their risk of financial loss.

Question 7

Which of the following is NOT an example of a business operated by a consumer cooperative?

Accepted Answer

Sunkist is a producer cooperative, not a consumer cooperative, as it is owned and operated by citrus growers rather than consumers.

Question 8

In terms of total sales, what is the dominant form of business firm in the Canadian economy?

Accepted Answer

Corporations are the dominant form of business firm in the Canadian economy in terms of total sales. This is because corporations have the ability to raise large amounts of capital through the sale of stocks and bonds, which allows them to invest in research and development, expansion, and marketing. Sole proprietorships and partnerships, on the other hand, are usually smaller businesses with lower levels of sales, and nonprofit organizations are not focused on generating profit or sales.

Question 9

Which form of business organization comprises the largest number of firms in Canada?

Accepted Answer

Sole proprietorships comprise the largest number of firms in Canada. According to Statistics Canada, in 2018, there were 1.18 million businesses in Canada, and 58.3% of them were classified as unincorporated (sole proprietorships and partnerships). Sole proprietorships, in particular, made up 37.3% of all businesses in Canada, followed by corporations (38.7%), partnerships (18.5%), and other types of firms (5.5%).

Question 10

In terms of the numbers of firms in the Canadian economy, what is the most common type of firm?

Accepted Answer

According to Statistics Canada, in 2018, there were 1.2 million active employer businesses in Canada, and 62.5% of them were sole proprietorships, making it the most common type of firm in the Canadian economy. Corporations accounted for 16.6% of the total, partnerships accounted for 1.6%, and nonprofit organizations accounted for 0.2%.

Question 11

Which form of business organization accounts for the largest proportion of business sales in Canada?

Accepted Answer

Corporations account for the largest proportion of business sales in Canada. This is primarily due to the fact that corporations are able to pool resources through the issuance of shares, which allows them to raise large amounts of capital and grow their businesses rapidly. Additionally, corporations have the benefit of limited liability, which reduces the risk to shareholders and makes it easier to attract investors. Sole proprietorships and partnerships, on the other hand, have limitations in terms of their ability to raise capital and often have unlimited liability, making them less attractive to investors. Nonprofit organizations are not typically engaged in generating sales in the same way that businesses are, so they are not relevant to this question.

Question 12

Which statement describes how shareholders share in the profits of a corporation?

Accepted Answer

Shareholders share in the profits of a corporation in proportion to their ownership of shares. This means that those who own more shares will receive a larger portion of the profits. The other options (A, C, D) are not accurate as they do not reflect how shareholders actually receive profits.

Question 13

Messitt and McNulty spend $50,000 each to form a law partnership.On the first day someone trips over a potted plant that had been place in the lobby by McNulty.The person sues Messitt and McNulty and is awarded $400,000.Which statement explains what liability Messitt and McNulty would face?

Accepted Answer

In a general partnership, each partner is personally liable for the debts of the partnership. If one partner cannot pay, the other partner(s) must cover the full amount.

Question 14

Suppose Karen forms a legal partnership with her best friend Samantha, and then Samantha purchases consulting services for $100,000 without agreement from Karen.Samantha is broke.For how much of this debt is Karen legally liable?

Accepted Answer

In a general partnership, each partner is jointly and severally liable for the debts of the partnership. This means Karen could be held responsible for the entire $100,000, even if she did not agree to the purchase.

Question 15

Which of the following is a disadvantage of the corporation compared to the sole proprietorship?

Accepted Answer

One disadvantage of the corporation compared to the sole proprietorship is that the corporation's income is taxed twice - once at the corporate level and again at the individual level when profits are distributed to shareholders as dividends.

Question 16

How are owners of corporations most frequently referred to?

Accepted Answer

Owners of corporations are most commonly referred to as shareholders, as they own shares of stock in the company. Entrepreneurs are typically associated with starting and running their own businesses, while limited partners are a specific type of investor in partnerships. Managers are employees who are responsible for overseeing the operations of a company.

Question 17

John own shares worth an estimated $1 million in the LPL corporation.In addition, John has personal assets worth another $2 million.LPL becomes insolvent, with debts exceeding assets by $15 million.By what amount will John's personal wealth will decline?

Accepted Answer

John's personal wealth will decline by the value of his shares in LPL, which is $1 million, as shareholders are typically only liable up to the amount they invested in the company. His personal assets are not affected by the company's insolvency.

Question 18

Which form of business organization has their profits taxed twice?

Accepted Answer

Corporations have their profits taxed twice, once at the corporate level and again when profits are distributed to shareholders as dividends, which are also taxed at the individual level.

Question 19

What is a realized capital gain?

Accepted Answer

A realized capital gain is the difference between the selling price and the purchase price of a share of stock. It is considered "realized" because it has been sold and the gain has been actually earned by the investor. Option A refers to depreciation, Option B refers to overall net worth, and Option C refers to a change in the market value of a share of stock, but not necessarily a realized gain.

Question 20

Which of the following is a reason why trade will often NOT occur?

Accepted Answer

If the transaction costs (such as transportation costs, negotiation costs, search costs, etc.) are too high, it may not be worth it for both parties to engage in trade.

Quiz 3: Economic Decision Makers