Chapter 2

Question 1

needs

Answer 1

things that are necessary for survival

Question 2

wants

Answer 2

things you think you must have in order to be satisfied; add comfort and pleasure to your life

Question 3

economic resources

Answer 3

the means through which goods and services are produced

Question 4

capitalism

Answer 4

an economic and political system in which a country’s trade and industry are controlled by private owners for profit, rather than by states

Question 5

profit

Answer 5

the difference between the revenues taken in by a business and the costs of operating the business

Question 6

economic decision making

Answer 6

the process of choosing which wants and needs you will satisfy using the resources you have

Question 7

scarcity

Answer 7

occurs when people’s needs and wants are unlimited and the resources to produce the goods and services to meet them are limited

Question 8

opportunity cost

Answer 8

the value of the next-best alternate — the one you pass up

Question 9

supply

Answer 9

how much of a good or service a producer is willing to produce at different prices

Question 10

demand

Answer 10

an individual’s need or desire for a product or service at a given price

Question 11

equilibrium price and quantity

Answer 11

point at which supply and demand curves meet; supply equals demand

Question 12

fixed costs

Answer 12

costs that must be paid regardless of how much of a good or service is produced

Question 13

variable costs

Answer 13

costs that go up and down depending on the quantity of the good or service produced

Question 14

marginal benefit

Answer 14

measures the advantages or producing one additional unit of a good or service

Question 15

marginal cost

Answer 15

measures the disadvantages of producing one additional unit of a good or service

Question 16

What is the role of business?

Answer 16

to produce and distribute goods and services that people need and want

Question 17

Maslow’s hierarchy

Answer 17

physiological, security, social, esteem, self-actualization

Question 18

economic wants

Answer 18

a desire for material goods and services; the basis of an economy; clothing, housing

Question 19

noneconomic wants

Answer 19

nonmaterial things; sunshine, fresh air, happiness

Question 20

Three types of economic resources

Answer 20

natural, human, capital

Question 21

natural resources

Answer 21

raw materials supplied by nature

Question 22

human resources

Answer 22

the people who create goods and services

Question 23

capital resources

Answer 23

the assets invested in the production of goods and services

Question 24

How do entrepreneurs contribute to their local communities?

Answer 24

investment and job creation

Question 25

Three basic questions regarding goods and services

Answer 25

Which ones will be produced?; How will they be produced?; What needs and wants will they satisfy?

Question 26

Command economy

Answer 26

production decisions are made by the government; few choices exist in the marketplace

Question 27

Market economy

Answer 27

production decisions are made by individuals and businesses; ample choices exist in the marketplace; entrepreneurship thrives in a market economy

Question 28

Traditional economy

Answer 28

production occurs the way it has always occurred; most production is consumed; leftover production is sold or traded; countries with traditional economies are not participating in the global economy

Question 29

Mixed economy

Answer 29

contain elements of command and market economies; sometimes occur bc a country is shifting from either a command or traditional economy toward a market economy

Question 30

Communism

Answer 30

command economic system; government-led plans direct resources toward economic growth

Question 31

four economic principles of the US

Answer 31

private property, freedom of choice, profit, competition

Question 32

private property

Answer 32

you may own whatever you want as long as you operate within the law

Question 33

freedom of choice

Answer 33

government intervention occurs only when individual decisions will bring harm to others

Question 34

competition

Answer 34

the rivalry among businesses to sell their goods and services

Question 35

production

Answer 35

create or obtain products or services

Question 36

marketing

Answer 36

the goal of marketing is to attract as many consumers as possible; 4 P’s

Question 37

What are the 4 P’s of marketing?

Answer 37

product, place, price, promotion

Question 38

Duties of management

Answer 38

setting goals, deciding on responses to competition, solving problems, managing employees, evaluating business activities

Question 39

Financial duties

Answer 39

determining capital requirements and resources, managing the financial aspects of the business

Question 40

demand elasticity

Answer 40

when the demand of a product is affected by its price

Question 41

elastic demand

Answer 41

when a change in price creates a change in demand

Question 42

inelastic demand

Answer 42

when a change in price creates very little change in demand

Question 43

characteristics of perfect competition

Answer 43

very large number of businesses, nearly identical products, many well-informed buyers, difficult to raise prices, consumers have more control over the market, businesses can leave or enter the market easily

Question 44

characteristics of monopolistic competition

Answer 44

large number of independent businesses, goods and services are somewhat different, each business has a small share of the market, prices are determined competitively, differentiating products is important, businesses can easily enter or leave the market

Question 45

characteristic of an oligopoly

Answer 45

small number of businesses that obtain the majority of total sales revenues, goods are similar and are close substitutes, businesses can influence prices, hard to enter the market

Question 46

characteristics of a monopoly

Answer 46

single provider of a product or service, complete price control, if prices get too high consumers may elect to do without the product or service, entry barriers exist that inhibit competition