Chapter 1

Question 1

Free enterprise*

Answer 1

The system of business in which individuals are free to decide what to produce, how to produce it, and at what price to sell it

Question 2

Cultural (or workplace) diversity*

Answer 2

A system that recognizes and respects the differences among people because of their age, race, ethnicity, gender, sexual orientation, and ability

Question 3

Business*

Answer 3

The organized effort of individuals to produce and sell, for a profit, the goods and services that satisfy society’s needs

Question 4

The Organized Effort of Individuals

Answer 4

Material resources, human resources, financial resources, and informational resources

Question 5

Today, businesses are organized into three specific types:

Answer 5

Service businesses: Produce services, such as haircuts, legal advice, or tax preparation (Example: H&R Block)
Manufacturing businesses: Process various materials into tangible goods (Example: Intel)
Marketing intermediaries: Buy products from manufacturers and then resell them (Example: Sony Corporation)

Question 6

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

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

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

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 13

Factors of production*

Answer 13

Inputs and resources used to produce goods and services
Land and natural resources
Labor
Capitol
Entrepreneurship

Question 14

Entrepreneur*

Answer 14

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

Question 15

Today two different economic systems exist:

Answer 15

Command economies and Capitalism

Question 16

Command economy*

Answer 16

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

Question 17

Today, two types of economic systems serve as examples of command economies:

Answer 17

Socialism and Communism

Question 18

Capitalism*

Answer 18

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

Question 19

Invisible hand*

Answer 19

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

Question 20

Laissez-faire

Answer 20

Implies that there should be no government interference in the economy

Question 21

Market economy*

Answer 21

An economic system in which businesses and individuals decide what to produce and buy, and the market determines prices and quantities sold (also known as a free-market economy)

Question 22

Mixed economy*

Answer 22

An economy that exhibits elements of both capitalism and socialism - The US is a mixed economy

Question 23

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

Answer 23

Households, businesses, and governments

Question 24

Productivity*

Answer 24

The average level of output per worker per hour

Question 25

Gross domestic product (GDP)*

Answer 25

The total dollar value of all goods and services produced by all people within the boundaries of a country during a specified time period—usually a one-year period

Question 26

Inflation*

Answer 26

A general rise in the level of prices

Question 27

Deflation*

Answer 27

A general decrease in the level of prices

Question 28

Unemployment rate*

Answer 28

The percentage of a nation’s labor force unemployed at any time

Question 29

Consumer price index (CPI)*

Answer 29

A monthly index that measures the changes in prices of a fixed basket of goods purchased by a typical consumer in an urban area

Question 30

Producer price index (PPI)*

Answer 30

A monthly index that measures prices that producers receive for their finished goods

Question 31

Business cycle*

Answer 31

The recurrence of periods of growth and recession in a nation’s economic activity Peak > Recession > Trough > Recovery

Question 32

Recession*

Answer 32

Two or more consecutive three-month periods of decline in a country’s GDP

Question 33

Depression*

Answer 33

A severe recession that lasts longer than a typical recession and has a larger decline in business activity when compared to a recession

Question 34

Monetary policies*

Answer 34

Federal Reserve’s actions to promote maximum employment, stabilize prices, and increase or decrease interest rates

Question 35

Fiscal policy*

Answer 35

Government influence on the amount of savings and expenditures; accomplished by altering the tax structure and by changing the levels of government spending

Question 36

Federal deficit*

Answer 36

A shortfall created when the federal government spends more in a fiscal year than it receives

Question 37

National debt*

Answer 37

The total of all federal deficits

Question 38

Competition*

Answer 38

Rivalry among businesses for sales to potential customers

Question 39

Four different types of Competition

Answer 39

Perfect - Number of Business Firms or Suppliers = Many Monopolistic - Number of Business Firms or Suppliers = Many Oligopoly - Number of Business Firms or Suppliers = Few Monopoly - Number of Business Firms or Suppliers = One

Question 40

Perfect (or pure) competition*

Answer 40

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 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

Question 41

Supply*

Answer 41

The quantity of a product that producers are willing to sell at each of various prices

Question 42

Demand*

Answer 42

The quantity of a product that buyers are willing to purchase at each of various prices

Question 43

Market price*

Answer 43

The price (of any product) at which the quantity demanded is exactly equal to the quantity supplied

Question 44

Monopolistic competition*

Answer 44

A market situation in which there are many buyers along with a relatively large number of sellers who differentiate their products from the products of competitors (Examples: Clothing, shoes, soaps, furniture)

Question 45

Product differentiation*

Answer 45

The process of developing and promoting differences between a company’s products and all competitive products

Question 46

Oligopoly*

Answer 46

A market (or industry) in which there are few sellers (Examples: Automobile, airline, and car rental industries)

Question 47

Monopoly*

Answer 47

A market (or industry) with only one seller, and customers can only buy the product or service from that seller Except for natural monopolies and legal monopolies, federal antitrust laws discourage or prohibit both monopolies and attempts to form monopolies in order to ensure that competitive markets exist and customers have a choice for products they need or want to purchase

Question 48

Natural Monopolies

Answer 48

Public utilities are a prime example, where each utility firm operates in a natural monopoly, an industry that requires a huge investment in capital and within which any duplication of facilities would be wasteful

Question 49

Legal Monopolies

Answer 49

A limited (or legal) monopoly is created when a government entity issues a franchise, license, copyright, patent, or trademark

Question 50

Standard of living*

Answer 50

A loose, subjective measure of how well off an individual or a society is, mainly in terms of want satisfaction through goods and services

Question 51

Domestic system*

Answer 51

A method of manufacturing in which an entrepreneur distributes raw materials to various homes, where families process them into finished goods to be offered for sale by the entrepreneur

Question 52

Factory system*

Answer 52

A system of manufacturing in which all the materials, machinery, and workers required to manufacture a product are assembled in one place

Question 53

Specialization*

Answer 53

The separation of a manufacturing process into distinct tasks and the assignment of different tasks to different individuals

Question 54

Service Economy

Answer 54

An economic system where the primary focus is on providing services to individuals and businesses, rather than producing tangible goods

Question 55

Four Competitive Business Environments

Answer 55

The Competitive Environment, The Global Environment, The Technological Environment, and The Economic Environment

Question 56

Social media*

Answer 56

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

Question 57

Sustainability*

Answer 57

The ability to create and maintain conditions under which present and future generations can exist in productive harmony, and permit fulfilling the social, economic, and other requirements of future and present generations