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Questions and Answers
What is the primary focus of microeconomics?
Which of the following best describes a mixed economy?
What does the term 'invisible hand' refer to in economics?
What is the primary purpose of the Sarbanes-Oxley Act of 2002?
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Which resource is defined as the people who furnish their labor to a business?
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What does the term 'caveat emptor' mean?
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What is a primary advantage of a sole proprietorship?
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What defines a limited partner in a business partnership?
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In a command economy, who decides how goods and services will be produced?
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Which type of corporation has stock that is not sold to the general public?
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Which of the following is primarily considered an economic stakeholder?
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What is one consequence of high inflation in an economy?
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Which of the following best describes common stock?
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What does business ethics primarily refer to?
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What role does the SBA provide for small businesses?
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Which of the following measures changes in prices of consumer goods?
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What does SWOT analysis help organizations to identify?
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What type of plan outlines alternative actions if an organization's original plans fail?
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What is the main goal of an entrepreneur?
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Which leadership style involves team members in decision-making processes?
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Which term describes the organized effort of individuals to produce and sell goods for a profit through the internet?
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What is defined as a severe recession lasting longer than usual?
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What is a primary responsibility of a first-line manager?
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What is the purpose of a proxy in a corporate context?
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Which of the following is NOT an advantage of small businesses?
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What type of stock is typically issued with no voting rights but has priority in dividend claims?
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Which of the following describes a transformational leadership style?
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What is the main goal of the socioeconomic model of social responsibility?
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Which right is NOT considered a basic right of consumers?
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What is the primary purpose of an affirmative action program?
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What does the balance of trade measure?
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What distinguishes absolute advantage from comparative advantage?
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Which of the following is a potential advantage of franchising for the franchisor?
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What does dumping refer to in international trade?
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Which entity is responsible for investigating employment discrimination complaints?
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What is the main focus of green marketing?
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What is a common feature of joint ventures?
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What does the Export-Import Bank of the United States primarily do?
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What is an economic community designed to do?
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What describes a nontariff barrier?
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Study Notes
Free Enterprise System
- Individuals are free to choose what to produce, how to produce it, and at what price to sell it
- Goods and services are sold for profit to satisfy societal needs
- Essential resources include material, human, financial, and informational resources
- E-business leverages the internet for producing and selling goods and services
- Profit represents the difference between sales revenue and business expenses
- Stakeholders are all parties affected by a company's actions, policies, and decisions
Laissez-Faire Capitalism
- Adam Smith's principles:
- Right to create wealth
- Right to own private property
- Right to economic freedom and competition
- Right to limited government intervention
Economic Systems
- Mixed Economy: Blends elements of capitalism and socialism
- Command Economy: Government controls all aspects of production and distribution
- Market Economy: Businesses and individuals make production and consumption decisions, with prices influenced by market forces
Economic Indicators
- Consumer Price Index (CPI): Tracks price changes for consumer goods in urban areas
- Producer Price Index (PPI): Measures prices received by producers for finished goods
Business Ethics
- Study of right and wrong in business decisions
- Sarbanes-Oxley Act protects whistle-blowers who report corporate misconduct
- Codes of ethics provide organizations with guidelines for ethical behavior
Social Responsibility
- Recognizing the impact of business on society and incorporating that impact into decision-making
- Caveat Emptor ("Buyer Beware"): Previously the dominant consumer protection model
- Economic model of social responsibility emphasizes profit maximization.
- Socioeconomic model of social responsibility balances profits with societal impact
Consumerism
- Movement dedicated to protecting consumer rights
- Major consumer rights include safety, information, choice, being heard, education, and service
International Business
- Includes all transactions across national boundaries
- Absolute advantage: Producing a product more efficiently than any other country
- Comparative advantage: Producing a product more efficiently than any other product within the country
International Trade
- Exporting: Selling and shipping goods to other countries
- Importing: Purchasing goods from other countries
- Balance of Trade: Difference between a nation's exports and imports
- Trade Deficit: Negative balance of trade
- Balance of Payments: Total flow of money into a country minus the total flow of money out
International Business Strategies
- Licensing: Allowing another firm to produce and market a product.
- Franchising: A license to operate a business as part of a chain.
- Outsourcing: Contracting manufacturing or other activities to foreign firms.
- Joint venture: Partnership to achieve a specific goal.
- Multinational corporation: Operates globally with no ties to a specific nation.
Trade Barriers
- Tariff: Tax on imported goods
- Dumping: Exporting large quantities of a product at below market prices
- Non-tariff barriers: Measures that favor domestic suppliers over foreign ones
- Embargo: Complete halt to trading with a specific nation or product
- Currency devaluation: Reducing a currency’s value relative to other currencies
- Exchange control: Restrictions on buying or selling foreign currencies
International Organizations and Agreements
- General Agreement on Tariffs and Trade (GATT): Organization established to reduce trade barriers.
- Economic Community: Organization promoting free movement of resources among member nations
Government Agencies
- Export-Import Bank of the United States: Agency providing financial assistance to American exporters.
Financing Exports
- The government assists in financing the exports of American firms.
- Multilateral Development Banks (MDBs) are internationally supported banks that provide loans to developing countries to help them grow.
- The International Monetary Fund (IMF) is an international bank that makes short-term loans to developing countries experiencing balance-of-payment deficits.
Sole Proprietorship
- A sole proprietorship is a business owned and usually operated by one person.
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Advantages of a sole proprietorship:
- Ease of start-up and closure
- Pride of ownership
- Retention of all profits
- No special taxes
- Being your own boss
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Disadvantages of a sole proprietorship:
- Unlimited liability
- Lack of continuity
- Lack of money
- Limited management skills
- Difficulty hiring employees
Partnerships
- General partner: A person who assumes full or shared responsibility for operating a business.
- Limited partner: A person who invests money in a business but has no management responsibility or liability for losses beyond the amount they invested.
Corporations
- Stock: Shares of ownership of a corporation.
- Stockholder: A person who owns a corporation’s stock.
- Closed corporation: A corporation whose stock is owned by relatively few people and is not sold to the general public.
- Open corporation: A corporation whose stock can be bought and sold by any individual.
- Foreign corporation: A corporation in any state in which it does business except the one in which it is incorporated.
- Alien corporation: A corporation chartered by a foreign government and conducting business in the United States.
- Articles of incorporation (corporate charter): A contract between a corporation and the state in which the state recognizes the formation of the artificial person that is the corporation.
- Common stock: The most basic form of corporate ownership, owners can vote on corporate policies.
- Preferred stock: Stock owned by individuals or firms who usually do not have voting rights, but whose claims on dividends are paid before those of common-stock owners.
- Dividend: A distribution of earnings to the stockholders of a corporation.
- Proxy: A legal form listing issues to be decided at a stockholders’ meeting and enabling stockholders to transfer their voting rights to some other individual.
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Merger: The combining of two corporations or other business entities to form one business.
- Hostile takeover: A situation in which the management and board of directors of a firm targeted for acquisition disapprove of the merger.
- Acquisition: Essentially the same thing as a merger, but the term generally references a large corporation’s purchases of other corporations.
Small Businesses
- A small business is independently owned and operated for profit and is not dominant in its field.
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Importance of small businesses:
- Providing competition: Small businesses challenge larger, established firms to become more efficient and more responsive to consumer needs.
- Filling the needs of society and other businesses: Small firms provide a variety of goods and services to consumers, to each other, and to much larger firms.
SBA Management Assistance
- The Small Business Administration (SBA) provides management assistance to small businesses, which includes:
- Free individual counseling
- Courses
- Conferences
- Workshops
- Publications
- Management courses and workshops cover all the functions, duties, and roles of managers.
- Small business institutes (SBIs): Groups of senior and graduate students in business administration who provide management counseling to small businesses.
- Small business development centers (SBDCs): University based groups that provide individual counseling and practical training to owners of small businesses.
SBA Financial Assistance
- The SBA offers special financial-assistance programs to finance increased operations during peak selling seasons, to pay for required pollution control equipment, to finance an expansion, or to mop up after a natural disaster.
- Most of the SBA’s business loans are made by private lenders such as banks, but the agency partially guarantees repayment.
Business Plan
- A business plan is a carefully constructed guide for the person starting a business.
Management
- Management: The process of coordinating people and other resources to achieve the goals of an organization.
- Planning: Establishing organizational goals and deciding how to accomplish them.
- Mission statement: A statement of the basic purpose that makes an organization different from others.
- Strategic planning process: The establishment of an organization’s major goals and objectives and the allocation of resources to achieve them.
- Goal: An end result that an organization is expected to achieve over a one- to ten-year period.
- Objective: A specific statement detailing what an organization intends to accomplish over a shorter period of time.
- SWOT analysis: The identification and evaluation of a firm’s strengths, weaknesses, opportunities, and threats.
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Strategic plan: An organization’s broadest plan, developed as a guide for major policy setting and decision making.
- Broad guide for major policy setting
- Designed to achieve long-term goals
- Set by board of directors and top management
- Operational plan: A type of plan designed to implement tactical plans.
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Tactical plan: A smaller-scale plan developed to implement a strategy
- Smaller scale plan to implement strategic plan
- May be updated periodically
- Easier to change than strategic plans
- Contingency plan: A plan that outlines alternative courses of action that may be taken if an organization’s other plans are disrupted or become ineffective.
Organizing
- Organizing: The grouping of resources and activities to accomplish some end result in an efficient and effective manner.
- Top manager: An upper-level executive who guides and controls the overall fortunes of an organization.
- Middle manager: A manager who implements the strategy and major policies developed by top management.
- First-line manager: A manager who coordinates and supervises the activities of operating employees.
Management Skills
- Conceptual skills: The ability to think in abstract terms.
- Analytic skills: The ability to identify problems correctly, generate reasonable alternatives, and select the “best” alternatives to solve problems.
- Interpersonal skills: The ability to deal effectively with other people.
- Technical skills: Specific skills needed to accomplish a specialized activity.
- Communication skills: The ability to speak, listen, and write effectively.
Leadership
- Formal leaders: Have legitimate power of position, as well as authority within an organization to influence others to work toward the organization’s objectives.
- Informal leaders: Do not have authority to influence others to work toward the organization’s objectives and may or may not exert their influence in support of the organization.
- Autocratic leadership: Task-oriented leadership style in which workers are told what to do and how to accomplish it without having a say in the decision-making process.
- Participative leadership: Leadership style in which all members of a team are involved in identifying essential goals and developing strategies to reach those goals.
- Laissez-faire leadership: A hands-off leadership style that provides direction, tools, and resources to employees while delegating responsibility and decision-making authority to them.
- Transformational leadership: Leadership style that focuses on transforming organizations and industries.
- Transactional leadership: Leadership style that emphasizes structure, performance and productivity, and reward systems.
- Charismatic leadership: Personality-dependent leadership style.
Span of Management
- Span of management (or span of control): The number of workers who report directly to one manager.
Delegation
- Delegation: Assigning part of a manager’s work and power to other workers.
- Responsibility: The duty to do a job or perform a task.
- Authority: The power, within an organization, to accomplish an assigned job or task.
- Accountability: The obligation of a worker to accomplish an assigned job or task.
Communications
- Grapevine: The informal communications network within an organization.
Benchmarking
- Benchmarking: A process of comparing the way a firm produces products or services to the methods used by organizations known to be leaders in an industry in order to determine the “best practices” that can be used to improve quality.
Bill of Lading
- Bill of lading: A document issued by a carrier that acknowledges receipt of goods for shipment and contracts for their transport.
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Description
Explore the fundamental concepts of economic systems, including free enterprise and laissez-faire capitalism. This quiz covers the rights and principles laid out by Adam Smith, as well as how mixed, command, and market economies operate. Test your understanding of key economic terms and stakeholders.
