Chapter 1

Question 1

business

Answer 1

organization that provides goods or services to earn profit

Question 2

profits

Answer 2

difference between a business’ revenues and its expenses; lure of profits leads some people to abandon the security of working for someone else and assumes the risks of entrepreneurship

Question 3

dimensions of the external environment

Answer 3

economic, technological, socio-cultural, domestic business, global business, political-legal

Question 4

external environment

Answer 4

everything outside an organization’s boundaries that might affect it

Question 5

economic system

Answer 5

a nation’s system for allocating its resources among citizens, both individuals and organizations

Question 6

factors of production

Answer 6

resources that a country’s businesses use to produce goods and services (e.g. labor, capital, entrepreneurs, physical resources, information resources)

Question 7

planned economy

Answer 7

economy that relies on a centralized government to control all or most factors of productions and to make all or most production and allocation decisions; communism, socialism

Question 8

market economy

Answer 8

individual producers and consumers control production and allocation by creating combinations of supply and demand

Question 9

mixed market economy

Answer 9

has characteristics of both market and planned economies

Question 10

privatization

Answer 10

process of converting government enterprises into privately owned companies

Question 11

demand

Answer 11

willingness and ability of buyers to purchase a product

Question 12

supply

Answer 12

willingness and ability of producers to offer a good service for sale

Question 13

private enterprise system

Answer 13

allows individuals to pursue their own interests with minimal government restrictions; private property rights, freedom of choice, profits, and competitions

Question 14

private property rights

Answer 14

ownership of resources used to create wealth relies on individuals

Question 15

freedom of choice

Answer 15

you can sell your labor to any employer you choose

Question 16

competition

Answer 16

occurs when two or more businesses vie for the same resources or customers

Question 17

for perfect competition to exist:

Answer 17

• all firms must be small

- number of firms in the industry must be large

Question 18

monopolistic competition

Answer 18

market or industry characterized by numerous buyers and relatively numerous sellers trying to differentiate their products from those competitors

Question 19

oligopoly

Answer 19

market or industry characterized by a handful of sellers with the power to influence the prices of their products

Question 20

monopoly

Answer 20

market or industry in which there is only one producer that can therefore set the prices of its products

Question 21

natural monopoly

Answer 21

industry in which one company can most efficiently supply all needed goods or services

Question 22

economic indicators

Answer 22

stats that show whether an economic system is strengthening, weakening, or remaining stable; help assess performance of a company

Question 23

business cycle

Answer 23

pattern of short-term ups and downs in an economy

Question 24

aggregate output

Answer 24

total quantity of goods and services produced by an economic system during a given period; primary measure of growth in business cycle

Question 25

standard of living

Answer 25

total quantity and quality of goods and services that they can purchase with the currency used in the economic system

Question 26

gross domestic product (GDP)

Answer 26

refers to the total value of all goods and services produced within a given period by a national economy through domestic factors of production; measure of aggregate output

Question 27

gross national product (GNP)

Answer 27

refers to the total value of goods and services produced by a national economy within a given period regardless of where the factors of production are located

Question 28

purchasing power parity

Answer 28

principle that exchange rates are set so that the prices of similar products in different countries are about the same

Question 29

productivity

Answer 29

measure of economic growth that compares how much a system produces with the resources needed to produce it

Question 30

balance of trade

Answer 30

economic value of all products that a country exports minus the economic value of its imported products

Question 31

national debt

Answer 31

amount of money the government owes its creditors

Question 32

stability

Answer 32

condition in which the amount of money available in an economic system and the quantity of goods and services produced in it are growing at about the same rate

Question 33

inflation

Answer 33

occurs when widespread price increases occur throughout an economic system

Question 34

unemployment

Answer 34

level of joblessness among people actively seeking work in an economic system

Question 35

recession

Answer 35

a period in which aggregate output declines

Question 36

depression

Answer 36

prolonged and deep recession

Question 37

fiscal policies

Answer 37

policies used by the government regarding how it collects and spends revenue

Question 38

monetary policies

Answer 38

policies used by a government regarding how it collects and spends revenue

Question 39

stabilization policy

Answer 39

government economic policy intended to smooth out fluctuations in output and unemployment and to stabilize prices