2.05 Key Terms

Question 1

Avoidance

Answer 1

A risk-response strategy that involves choosing not to do something that is considered risky

Question 2

Business Risk

Answer 2

The possibility of loss (failure) or gain (success) inherent in conducting business

Question 3

Competition

Answer 3

The rivalry between two or more businesses to attract scarce customer dollars

Question 4

Cost of Goods

Answer 4

The amount of money a business pays for the products it sells or for the raw materials from which it produces goods to sell; the amount of money a business pays for the products (or for any part of the products) it sells

Question 5

Direct competition

Answer 5

Rivalry between or among businesses that offer similar types of goods or services

Question 6

Economic risks

Answer 6

The possibility of loss or failure that occurs as a result of the economy

Question 7

Expenses

Answer 7

The money that a business spends

Question 8

Gross Profit

Answer 8

Money left after the cost-of-goods expense is subtracted from total income (income from sales-cost of goods=gross profit)

Question 9

Human risks

Answer 9

The possibility of loss or failure from human error

Question 10

Income

Answer 10

The money received by resource owners and by producers for supplying goods and services to customers

Question 11

Indirect competition

Answer 11

The rivalry between or among businesses that offer different goods or services

Question 12

Market structure

Answer 12

The type of market, or environment, in which businesses operate

Question 13

Monopoly

Answer 13

A type of market structure in which a market is controlled by one supplier, and there are no substitute goods or services readily available

Question 14

Natural Risks

Answer 14

The possibility of loss or failure from nature

Question 15

Net profit

Answer 15

Money left after the cost-of-goods expense and the operating expense are each subtracted from the total income (gross profit-operating expense=net profit)

Question 16

Nonprice competition

Answer 16

A type of rivalry between or among businesses that involves factors other than price

Question 17

Oligopoly

Answer 17

A market structure in which there are relatively few sellers, and industry leaders usually determine prices

Question 18

Operating expenses

Answer 18

All of the expenses involved in running a business

Question 19

Perfect competition

Answer 19

A market structure in which there are many businesses selling a lot of identical products for about the same price to many buyers; also known as pure competition

Question 20

Price competition

Answer 20

A type of rivalry between or among businesses that focuses on the use of price to attract scarce customer dollars

Question 21

Profit

Answer 21

Monetary reward a business owner receives for taking the risk involved in investing in a business; income left once all expenses are paid (income-expense=profit)

Question 22

Profit Motive

Answer 22

The desire to make a profit, which moves people to invest in business

Question 23

Pure risks

Answer 23

Chances of loss that carry with them the possibility of loss or no loss

Question 24

reduction

Answer 24

A risk-response strategy that involves trying to reduce the chance of loss or severity of loss

Question 25

regulated monopolies

Answer 25

A monopoly that the government allows to exist legally under controlled conditions

Question 26

retention

Answer 26

A risk-response strategy that involves assuming responsibility for the risk rather than transferring it

Question 27

speculative risks

Answer 27

Chances of loss that may result in loss, no change, or gain

Question 28

transfer

Answer 28

A risk-response strategy that involves moving the impact of a risk to someone or something else