Understanding Business Chapter 2: Economics and Business
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Questions and Answers

What is true about population growth in developing nations?

  • It has decreased significantly in the past decade.
  • It has leveled off and is not expected to increase. (correct)
  • It is unaffected by economic growth.
  • It is expected to increase dramatically in the future.

    • What is the primary role of business owners in economic growth?

  • To distribute wealth equally among all citizens.
  • To create monopolies and dominate markets.
  • To provide jobs and economic growth for their communities. (correct)
  • To regulate the economy and set prices.

    • What was Adam Smith's important contribution to economics?

  • He developed the concept of socialism.
  • He created the concept of the 'invisible hand'.
  • He discovered the law of supply and demand.
  • He inquired into why some nations are wealthy, while others remain poor. (correct)

    • What does the 'invisible hand' refer to in Adam Smith's theory?

    <p>The self-interest of businesspeople leading to social benefits.</p> Signup and view all the answers

    What is true about the economic system in the United States?

    <p>It is a capitalist economy with a free market.</p> Signup and view all the answers

    What is the most fundamental right in capitalism?

    <p>The right to private property.</p> Signup and view all the answers

    What occurs when the quantity supplied exceeds the quantity demanded in a market?

    <p>A surplus exists.</p> Signup and view all the answers

    What is the point at which the supply and demand curves intersect?

    <p>The equilibrium point.</p> Signup and view all the answers

    What is true about monopolistic competition?

    <p>It is a market with a few sellers producing differentiated products.</p> Signup and view all the answers

    What is true about laws in the United States?

    <p>They prohibit the creation of most types of monopolies.</p> Signup and view all the answers

    What is the primary reason for America's business success?

    <p>An economic and social climate that allows businesses to operate freely</p> Signup and view all the answers

    What do economists study?

    <p>How people use resources to produce and distribute goods and services</p> Signup and view all the answers

    What is the focus of microeconomics?

    <p>The decisions and behavior of people and organizations in particular markets</p> Signup and view all the answers

    What is the goal of resource development?

    <p>The study of how to increase resources and to create the conditions that will make better use of those resources</p> Signup and view all the answers

    What did Thomas Malthus believe was a major cause of poverty?

    <p>Overpopulation</p> Signup and view all the answers

    What is the study of how society chooses to employ resources to produce goods and services and to distribute them for consumption among various competing groups and individuals known as?

    <p>Economics</p> Signup and view all the answers

    What is the primary economic function of the government in socialist economies?

    <p>To promote rapid economic growth</p> Signup and view all the answers

    What is true about the ownership of businesses in socialist economies?

    <p>The government owns some, if not most, basic businesses</p> Signup and view all the answers

    What is true about the top tax rate on personal income in socialist economies?

    <p>It is usually higher than in capitalist economies</p> Signup and view all the answers

    What is a major benefit of socialism?

    <p>It promotes wealth distribution</p> Signup and view all the answers

    What is true about workers in socialist countries?

    <p>They get longer vacations and more social benefits</p> Signup and view all the answers

    What is a drawback of socialism?

    <p>It may result in a reduction in the individual's incentive to work hard</p> Signup and view all the answers

    What is brain drain?

    <p>The loss of the best and brightest people from their home countries to other countries</p> Signup and view all the answers

    What is communism?

    <p>An economic and political system in which the state makes almost all economic decisions and owns almost all the major factors of production</p> Signup and view all the answers

    What is the gross domestic product (GDP)?

    <p>The total value of a country's output of final goods and services in a given year</p> Signup and view all the answers

    What is inflation?

    <p>A general rise in the prices of goods and services over time</p> Signup and view all the answers

    What is disinflation?

    <p>A situation where prices continue to rise, but not at the rate they were rising previously</p> Signup and view all the answers

    What does the Consumer Price Index (CPI) measure?

    <p>The pace of deflation or inflation</p> Signup and view all the answers

    What is true about core inflation figures?

    <p>They exclude both healthcare and energy prices</p> Signup and view all the answers

    What is the effect of an increase in productivity?

    <p>The cost of producing goods and services decreases</p> Signup and view all the answers

    What is a recession?

    <p>A period of economic decline for two or more consecutive quarters</p> Signup and view all the answers

    What is fiscal policy?

    <p>The federal government's efforts to stabilize the economy by increasing or decreasing taxes and/or government spending</p> Signup and view all the answers

    What is the role of the Federal Reserve Bank?

    <p>To control the money supply</p> Signup and view all the answers

    What is the definition of economics?

    <p>The study of how a society employs resources to produce goods and services</p> Signup and view all the answers

    What is macroeconomics?

    <p>The study of the operation of a nation's economy as a whole</p> Signup and view all the answers

    What is the national debt?

    <p>The sum of government deficits over time</p> Signup and view all the answers

    What is the study of how to increase the amount of available resources and create conditions that will make better use of these resources known as?

    <p>Resource Development</p> Signup and view all the answers

    Who is considered by some to be the father of modern economics?

    <p>Adam Smith</p> Signup and view all the answers

    What is the name of a free-market economic system in which most of the factors of production and distribution are owned by individuals?

    <p>Capitalism</p> Signup and view all the answers

    Under capitalism, what is primarily owned and operated for profit?

    <p>Means of production and distribution</p> Signup and view all the answers

    What is a basic right under capitalism?

    <p>The right to compete</p> Signup and view all the answers

    Freedom of people to decide where they want to work and live, and what they want to buy or sell are basic capitalist rights under

    <p>Freedom of choice</p> Signup and view all the answers

    The freedom for people to buy, sell, and use land, buildings, machinery, and inventions are basic capitalist rights under

    <p>The right to own private property</p> Signup and view all the answers

    In a free-market economic system, what is the key determinant used to signal to producers what to produce and how much to produce?

    <p>Price</p> Signup and view all the answers

    What shows the quantity of a good or service that producers are willing to sell at different prices during a specific time period?

    <p>Supply of that product or service</p> Signup and view all the answers

    A simple supply curve shows that an increase in the price of a good will cause the quantity supplied to

    <p>Increase</p> Signup and view all the answers

    What is the term used to describe a general rise in the price level of goods and services over time?

    <p>Inflation</p> Signup and view all the answers

    Which of the following measures is used to report price changes at the wholesale level?

    <p>Producer Price Index (PPI)</p> Signup and view all the answers

    What is the term used to describe a condition in which the average level of prices is actually falling?

    <p>Deflation</p> Signup and view all the answers

    What is the role of the Federal Reserve Bank in the United States?

    <p>Managing the money supply and interest rates</p> Signup and view all the answers

    What is the result of a government's collection of tax revenues being less than its spending in a given year?

    <p>A national deficit</p> Signup and view all the answers

    What is the term used to describe the efforts of the federal government to keep the economy stable by increasing or decreasing taxes and/or government spending?

    <p>Fiscal policy</p> Signup and view all the answers

    In a communist economic and political system, who makes almost all of the major economic decisions?

    <p>The government</p> Signup and view all the answers

    What is the economic system in which the government owns almost all the major factors of production called?

    <p>Communism</p> Signup and view all the answers

    What is the term for the total value of final goods and services produced within a nation's borders in a given year?

    <p>Gross Domestic Product (GDP)</p> Signup and view all the answers

    What is the term for unemployment caused by the restructuring of firms or by a mismatch between the skills of job seekers and the requirements of available jobs?

    <p>Structural unemployment</p> Signup and view all the answers

    What is the term for the pace of inflation or deflation?

    <p>Consumer Price Index (CPI)</p> Signup and view all the answers

    What is the term for unemployment caused by a recession or a similar downturn in the economy?

    <p>Cyclical unemployment</p> Signup and view all the answers

    What is the term for the economic system in which private enterprise and government activity coexist?

    <p>Mixed economy</p> Signup and view all the answers

    What is the term for unemployment that occurs when people are transitioning between jobs?

    <p>Frictional unemployment</p> Signup and view all the answers

    What is the term for the economic system in which individual consumers make all economic decisions?

    <p>Market economy</p> Signup and view all the answers

    What is the term for unemployment that occurs due to changes in the demand for labor during the year?

    <p>Seasonal unemployment</p> Signup and view all the answers

    What is the relationship between the price of a good and the quantity of that good people are willing and able to buy in a given time period?

    <p>Demand curve</p> Signup and view all the answers

    What is the point where the supply curve and demand curve for a particular good intersect?

    <p>Equilibrium price of the good</p> Signup and view all the answers

    What happens to the price of a good when there is a shortage in a free-market economy?

    <p>The price of the good will rise</p> Signup and view all the answers

    What is the market situation in which there are many sellers and no seller is large enough to dictate the price of a product?

    <p>Perfect competition</p> Signup and view all the answers

    What is the market situation in which a large number of firms produce goods that are similar but customers believe there is a difference?

    <p>Monopolistic competition</p> Signup and view all the answers

    What is the market situation in which the entire supply of a good is controlled by a single seller?

    <p>A monopoly</p> Signup and view all the answers

    What is the primary goal of a socialist system?

    <p>To reduce the inequality in the distribution of wealth</p> Signup and view all the answers

    What is a major benefit of socialism?

    <p>Emphasis on social equality</p> Signup and view all the answers

    Under which economic system is there little incentive to work hard or produce quality goods or services?

    <p>Communist</p> Signup and view all the answers

    What is a reason why many well-respected professionals have left socialistic nations?

    <p>High tax rates on professionals</p> Signup and view all the answers

    Study Notes

    Understanding Economics and How It Affects Business

    • America's business success is largely due to an economic and social climate that allows businesses to operate freely.
    • Global economics and politics have significant influence on businesses in the United States.

    Economics Basics

    • Economics is the study of how society chooses to employ resources to produce goods and services and distribute them for consumption among competing groups and individuals.
    • Microeconomics focuses on the decisions and behavior of people and organizations in particular markets.
    • Macroeconomics studies the operation of a nation's economy as a whole.

    Economic Systems

    • Capitalism: a free-market economic system in which most of the means of production and distribution are privately owned and operated for profit.
      • Key features: private property, freedom of choice, and competition.
      • Examples: United States, Canada.
    • Socialism: an economic system in which the government owns some, if not most, basic businesses.
      • Key features: government control, social welfare, and equality.
      • Examples: Sweden, Norway.
    • Communism: an economic and political system in which the state makes almost all economic decisions and owns almost all major factors of production.
      • Key features: state ownership, no private property, and a planned economy.
      • Examples: Cuba, North Korea.

    Supply and Demand

    • Supply: the quantity of a good or service that producers are willing to sell at different prices during a specific time period.
    • Demand: the quantity of a good or service that consumers are willing and able to buy at different prices during a specific time period.
    • Equilibrium: the point at which the supply and demand curves intersect, where the quantity supplied equals the quantity demanded.

    Market Structures

    • Perfect Competition: a market situation in which there are many sellers and no seller is large enough to dictate the price of a product.
    • Monopolistic Competition: a market situation in which a large number of firms produce goods that are similar but customers believe there is a difference.
    • Oligopoly: a market that is characterized by a few large sellers who dominate the market.
    • Monopoly: a market situation in which the entire supply of a good is controlled by a single seller.

    Economic Indicators

    • Gross Domestic Product (GDP): the total value of a country's output of final goods and services in a given year.
    • Inflation: a general rise in the prices of goods and services over time.
    • Unemployment: the number of people able and willing to work, but unable to find employment.
    • Productivity: the output produced per hour of work.### Economic Systems
    • Socialism aims to create incentives for entrepreneurs to encourage job creation and economic growth, and emphasizes social equality.
    • Communism is an economic system where the government makes almost all major economic decisions, and almost all productive resources are owned by the government.
    • Mixed economies are a combination of socialist and capitalist elements, and are the most common economic system in today's world.

    Incentives and Economic Growth

    • Socialism can lead to a brain drain, as high tax rates on well-respected professionals like doctors can cause them to leave the country.
    • Communism can lack incentives to work hard or produce quality goods and services.

    Economic Indicators

    • Gross Domestic Product (GDP) is the total value of final goods and services produced within a nation's borders in a given year.
    • Important economic indicators in the US include the unemployment rate, price indices, and GDP.

    Unemployment

    • Frictional unemployment refers to people who have quit their jobs and are looking for new ones.
    • Structural unemployment is caused by the restructuring of firms or a mismatch between job seekers' skills and available job requirements.
    • Cyclical unemployment is caused by a recession or economic downturn.
    • Seasonal unemployment occurs when the demand for labor varies during the year.

    Inflation and Deflation

    • The Consumer Price Index (CPI) is a statistic used to measure the pace of inflation or deflation.
    • The Producer Price Index (PPI) measures price changes at the wholesale level.
    • Inflation is a general rise in the price level of goods and services over time.
    • Deflation is a condition where the average level of prices is falling.
    • Disinflation is a condition characterized by slowing price increases.

    Fiscal Policy

    • Fiscal policy refers to the efforts of the federal government to keep the economy stable by increasing or decreasing taxes and/or government spending.
    • Fiscal policy involves changes in government spending and taxes.
    • A national deficit occurs when the federal government's tax revenues are less than its spending in a given year.

    Monetary Policy

    • The Federal Reserve Bank (the Fed) manages the money supply and interest rates.
    • Monetary policy involves efforts to control the money supply and interest rates.
    • The Fed operates as a semi-private organization not under the direct control of the government.

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    Description

    This quiz covers the basics of economics and its impact on business, including the importance of a free market and the influence of global economics and politics.

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