chapter 1

Question 1

What is a free enterprise?

Answer 1

Where businesses are free from government control, they choose what to produce, how to produce it, and what price to sell it at.

Question 2

Why should you study business?

Answer 2

1. To learn how to start your own business.
2. To improve your managerial skills.
3. To be a better informed consumer or investor.
4. For better help in choosing your career.
5. To be a successful employee.

Question 3

Who makes the most money? (High school graduate, some college but no degree, associates degree, bachelors degree or higher).

Answer 3

Bachelors degree or higher.

Question 4

What is the definition of a business?

Answer 4

A combined effort to produce and sell goods or services for a profit, goods and services that satisfy the societies needs.

Question 5

whats meant by cultural/workplace diversity

Answer 5

differences among people in a workforce owing to race, ethnicity, and gender

Question 6

whats an e-business

Answer 6

the organized effort of individuals to produce and sell, for a profit, the goods and services that satisfy society’s needs through the facilities available on the internet

Question 7

what is profit

Answer 7

what remains after all business expenses have been deducted from sales revenue

A negative profit, which results when a firm’s
expenses are greater than its sales revenue, is called
a loss

▪ Profit is the reward business owners receive for
producing goods and services that customers
want.
▪ Profit is also the payment that business owners
receive for assuming the considerable risks of
ownership.
* The risk of not being paid
* The risk of losing whatever they have invested into
the business

Question 8

stakeholders?

Answer 8

all the different people or groups of people who are affected by an organization’s policies, decisions, and activities

Question 9

what is economics

Answer 9

the study of how wealth is created and distributed

Question 10

microeconomics?

Answer 10

the study of the decisions made by individuals and businesses

Question 11

macroeconomics?

Answer 11

the study of the national economy and the global economy

Question 12

economy?

Answer 12

the way in which people deal with the creation and distribution of wealth

Question 12

factors of production

Answer 12

resources used to produce goods and services

land, labor, capital, entrepreneurship

Question 13

entrepreneur

Answer 13

a person who risks time, effort, and money to start and operate a business

Question 14

capitalism

Answer 14

an economic system in which individuals own and operate the majority of businesses that provide goods and services

private ownership, main goal is to generate profit

Question 15

invisible hand

Answer 15

a term created by Adam Smith to describe how an individual’s personal gain benefits others and a nation’s economy

Question 16

market economy

Answer 16

an economic system in which businesses and individuals decide what to produce and buy, and the market determines quantities sold and prices

Question 17

mixed economy

Answer 17

an economy that exhibits elements of both capitalism and socialism

In a mixed economy, the four basic economic
questions (what, how, for whom, and who) are
answered through the interaction of:
▪ Households
▪ Businesses
▪ Governments

Question 18

command economy

Answer 18

an economic system in which the government decides what goods and services will be produced, how they will be produced, for whom are they produced, and who owns and controls the major factors of production

Examples of command economies:
* Socialism
* Communism

Question 19

consumer products

Answer 19

goods and services purchased by individuals for personal consumption

Question 20

business cycle

Answer 20

economic fluctuations between periods of expansion and contraction

Generally, the business cycle consists of four phases:

1. The peak (prosperity)
2. Recession
3. The trough
4. Recovery (expansion)

Governments usually intervene during the recession phase.

Question 20

competition

Answer 20

rivalry among businesses for sales to potential customers

Economists recognize four different degrees of
competition:
1. Perfect
2. Monopolistic
3. Oligopoly
4. Monopoly

Question 21

perfect (or pure) competition

Answer 21

the market situation in which there are many buyers and sellers of a product, and no single buyer or seller is powerful enough to affect the price of that product

Conditions for a perfect competition:
* The market is for a single product.
* There are no restrictions on firms entering the industry.
* All sellers offer essentially the same product for sale.
* All buyers and sellers know everything there is to know about the
market.
* The overall market is not affected by the actions of any one
buyer or seller.
▪ Perfect competition is quite rare in today’s world.

Question 21

demand

Answer 21

a consumer’s desire to purchase goods and services and willingness to pay a specific price for them

Question 22

supply

Answer 22

the total amount of a specific good or service that is available to consumers

Question 23

market price

Answer 23

the price at which the quantity demanded is exactly equal to the quantity supplied

Question 24

monopolistic competition

Answer 24

a type of market structure where many companies are present in an industry, and they produce similar but not identical

Question 25

product differentiation

Answer 25

the process of developing and promoting differences between one’s products and all competitive products

Question 26

oligopoly

Answer 26

a market or industry in which there are a few sellers Examples: the automobile, airline, and car rental industries

Question 27

monopoly

Answer 27

- a market structure that consists of a single seller or producer and no close substitutes ▪ Example: public utilities: gas, electric, water, cable TV, and local telephone service companies. - natural monopoly: a type of monopoly in an industry or sector with high barriers to entry and start-up costs that prevent any rivals from competing - legal or limited monopoly: a company that is operating as a monopoly under a government mandate

Question 28

social media

Answer 28

the online interaction that allows people and businesses to communicate and share ideas, personal information, and information about products or services

Question 29

sustainability

Answer 29

the ability to maintain or improve standards of living without damaging or depleting natural resources for present and future generations

Question 29

The way each system answers the following four basic economic questions determines a nation’s economy:

Answer 29

1. What goods and services—and how much of each—will be produced? 2. How will these goods and services be produced? 3. For whom will these goods and services be produced? 4. Who owns and who controls the major factors of production?

Question 30

laissez-faire

Answer 30

▪ The term “laissez-faire” describes Smith’s capitalistic system and implies that there should be no government interference in the economy. ▪ Adam Smith’s laissez-faire capitalism is also based on the concept of a market economy.

Question 31

In today’s competitive business world, all of the following environments affect business:

Answer 31

- The competitive environment - The global environment -The technological environment

Question 32

ultimate objective of every firm?

Answer 32

to satisfy the needs of its customers. When the business understands its customers’ needs and works to satisfy those needs, it is usually successful.

Question 33

what are the fiscal and monetary policies

Answer 33

Fiscal policies is the tax and the government spending. Monetary policies is the action of the central bank, changing the interest rate level.