Chapter 1

Question 1

How do businesses make profit?

Answer 1

Producing/selling products

Question 2

Profit equation

Answer 2

Profit = revenues - expenses

Question 3

What is an NPO? + ex.

Answer 3

Organization providing goods/services and not seeking profit; school, hospital, etc

Question 4

List the 5 factors of production

Answer 4

1. Natural resources 2. Capital ($) 3. Human Resources (labour) 4. Entrepreneurs5. Info. Resources

Question 5

List the 4 economic systems worldwide, grouped by economy type

Answer 5

Capitalism + mixed economy (market type); socialism + communism (command type)

Question 6

Define communism (economy)

Answer 6

Industries all operated/ owned by gov,t; makes resource distribution decisions; command type

Question 7

Define socialism (economy)

Answer 7

Critical industries (utilities, major institutions) owned and operated by government; individuals own non-critical businesses; command type

Question 8

Define market type economies

Answer 8

Economic basis = supply and demand; political basis = capitalism; anyone can own factors of production; buyers and sellers have freedom of choice: market serves as mechanism for exchange of foods and services

Question 9

Input vs output market

Answer 9

Input =firm buys resources from households; output = households buy goods/services from companies

Question 10

Define capitalism (economy)

Answer 10

Encourages entrepreneurship, private ownership of factors of production; profit used as incentive; operates under supply and demand

Question 11

Define a mixed market economy

Answer 11

Combines command and market economies; no country can be pure everything

Question 12

Define privatization

Answer 12

Converting govt firm into privately-owned company

Question 13

Define nationalization

Answer 13

Converting private firm into gov t owned firm

Question 14

Define deregulation

Answer 14

Reducing laws, govt intervention

Question 15

List 6 people involved in interactions between businesses and govt

Answer 15

1. Customer 2. Competitor 3. Regulator 4. Taxation agent 5. Incentive provider 6. Essential service provider

Question 16

How does the gov’t work as a regulator?

Answer 16

• Regulates through admin. boards, tribunals, commissions
• Promotes healthy comp. between businesses
• Protects consumers
• Achieves social goals
• Protects environment

Question 17

How does the gov’t work as a taxation agent?

Answer 17

• Revenue tax
• Progression revenue tax
• Regressive revenue tax
• Restrictive tax

Question 18

How does the gov’t work as a provider of incentives?

Answer 18

• Provides aid and financial assistance
• Provides incentives to stimulate growth (revenues and employment)

Question 19

How does the gov’t (all three levels) work as a provider of essential services (8)?

Answer 19

Highways, postal service, money, military, education, health services, sewer and sanitation, emergency services

Question 19

Explain demand and supply

Answer 19

low price = high demand = low supply bc low investment $$ (supply curve up)
high price = low demand = high supply (supply curve down)
supply = demand (equilibrium, supply curves meet), profit-maximizing

Question 20

How does shortage affect price?

Answer 20

Drives price up because more people demand a product that has less supply

Question 21

How does a surplus affect price?

Answer 21

Drives price down because less people demand a product that has too much supply

Question 22

Define a private enterprise

Answer 22

Possible in market economy with little gov’t restriction, individuals can
- own property
- have freedom of choice
- have freedom to earn profits
- have freedom to compete

Question 23

Define competition

Answer 23

Occurs when businesses compete for the same resources for customers in a particular market/industry, motivates business to operate efficiently, forces them to make products better/cheaper

Question 24

What are the degrees of competition?

Answer 24

• Perfect
• Monopolistic
• Oligopoly
• Monopoly

Question 25

Define perfect competition

Answer 25

• Many sellers (product is basically identical)
• Relatively easy to enter the industry
• Individual firms have no control over price

Question 26

Define a monopolistic competition

Answer 26

• Few to many sellers, product is seen as unique by some
• Differentiated brands have some (minor) control over pricing

Question 27

Define an oligopoly

Answer 27

• Few large suppliers dominate
• High barriers to entry
• Products are seen as similar
• Prices gravitate towards a common market price

Question 28

Define a monopoly

Answer 28

• One producer, one supply source
• Unique product
• Complete control over price
• No competitors