Chapter 1

Question 1

business

Answer 1

an organization that strives for a profit by providing goods and services desired by its customers

Question 2

goods

Answer 2

tangible items manufactured by businesses, such as laptops

Question 3

services

Answer 3

intangible offerings of businesses that can’t be held, touched, or stored, such as a haircut

Question 4

standard of living

Answer 4

a measure of the output of goods and services people can buy with the money they have

Question 5

quality of life

Answer 5

general level of human happiness based on such things as life expectancy, educational standards, health, sanitation, and leisure time

Question 6

risk

Answer 6

the potential to lose time and money or otherwise not be able to accomplish an organization’s goals

Question 7

revenue

Answer 7

the money a company receives by providing services or selling goods to customers

Question 8

costs

Answer 8

expenses such as rent, salaries, supplies, and transportation that the company incurs from creating and selling goods and services

Question 9

profit

Answer 9

the money that is left over when you subtract costs from revenue (when negative, it is a loss)

Question 10

not-for-profit organization

Answer 10

an organization, such as a charity, that exists to achieve some goal other than the usual business goal of profit

Question 11

natural resources

Answer 11

one of the four factors of production that includes farmland, forests, mineral and oil deposits, and water

Question 12

labor

Answer 12

one of the four factors of production that consists of the economic contributions of the human resources working with their minds and muscles

Question 13

capital

Answer 13

one of the four factors of production that includes the tools, machinery, equipment, and buildings used to produce goods and services

Question 14

entrepreneurs

Answer 14

one of the four factors of production that consists of the people who combine the inputs of natural resources, labor, and capital to produce goods and services

Question 15

knowledge

Answer 15

the new, fifth factor of production that refers to the combined talents and skills of the workforce

Question 16

demography

Answer 16

the study of people’s vital statistics, such as their age, gender, race, ethnicity, and location

Question 17

productivity

Answer 17

the amount of goods and services one worker can produce

Question 18

economics

Answer 18

the study of how a society uses scarce resources to produce and distribute goods and services

Question 19

capitalism

Answer 19

an economic system based on competition in the marketplace and private ownership of the factors of production (resources)

Question 20

communism

Answer 20

an economic system in which the government owns virtually all resources and controls all markets

Question 21

socialism

Answer 21

an economic system in which the basic industries are owned by the government or by the private sector under strong government control

Question 22

mixed economies

Answer 22

societies that use more than one economic system (e.g. blending together socialism and capitalism)

Question 23

macroeconomics

Answer 23

the study of the economy as a whole

Question 24

microeconomics

Answer 24

the study of individual parts of the economy, such as households or companies

Question 25

gross domestic product (GDP)

Answer 25

the total market value of all final goods and services produced within a nation’s borders each year; represents the most basic measure of economic growth

Question 26

recession

Answer 26

a decline in GDP that lasts for two consecutive quarters

Question 27

inflation

Answer 27

when the average of all prices of goods and services is rising

Question 28

purchasing power

Answer 28

the value of what money can buy, which is reduced by inflation

Question 29

demand-pull inflation

Answer 29

when the demand for goods and services is greater than the supply

Question 30

cost-push inflation

Answer 30

when increases in production costs (such as expenses for materials and wages) causes an increase in prices of final goods and services

Question 31

consumer price index (CPI)

Answer 31

an index of the prices of a “market basket” of goods and services purchased by typical urban consumers

Question 32

producer price index (PPI)

Answer 32

measures the prices paid by producers and wholesalers for various commodities

Question 33

monetary policy

Answer 33

a government’s programs for controlling the amount of money circulating in the economy and interest rates

Question 34

Federal Reserve System

Answer 34

also known as “the Fed”; the central banking system of the United States that prints money and controls how much of it will be in circulation

Question 35

contractionary policy

Answer 35

a type of monetary policy in which the Fed restricts the money supply by selling government securities or raising interest rates

Question 36

expansionary policy

Answer 36

a type of monetary policy in which the Fed increases growth in the money supply and lowers interest rates

Question 37

fiscal policy

Answer 37

a government’s programs for taxation and spending

Question 38

federal budget deficit

Answer 38

when the government spends more for programs, such as social services, education, and defense, than it collects in taxes

Question 39

demand

Answer 39

the quantity of a good or service that people are willing to buy at various prices; slopes downward because higher price means lower quantity demanded

Question 40

supply

Answer 40

the quantity of a good or service that business will make available at various prices; slopes upward because higher price means higher quantity supplied

Question 41

equilibrium

Answer 41

the point at which there is balance between the quantity consumers will buy and the quantity suppliers make available

Question 42

barriers to entry

Answer 42

factors that prevent new firms from competing equally with the existing firm

Question 43

perfect competition

Answer 43

a market structure in which there are a large number of small firms in the market that sell similar products; price is determined by supply and demand; there are no barriers to entry

Question 44

pure monopoly

Answer 44

a market structure in which a single firm accounts for all industry sales of a particular good or service; the firm controls the price; there are often very high barriers to entry

Question 45

monopolistic competition

Answer 45

a market structure in which there are many firms in the market that have similar, but differentiated products; price differences result from product differences

Question 46

oligopoly

Answer 46

a few firms produce most or all of a good or service; barriers to entry are many