Chapter 2: How Economics Affects Business

Question 1

Economics

Answer 1

The study of how society chooses to employ resources to produce goods and services and to distribute then for consumption.

Question 2

Macroeconomics

Answer 2

Looks at the operation of a nation’s economy as a whole

Question 3

Microeconomics

Answer 3

Looks at the behavior of people and organizations in particular markets

Question 4

Resource Development

Answer 4

The study of how to increase resources and to create the conditions that will make better use of those resources

Question 5

“Invisible Hand”

Answer 5

A phrase coined by Adam Smith to describe the process that turns self-directed gain into social and economic benefits for all

Question 6

Capitalism

Answer 6

An economic system in which all or most of the factors of production and distribution (land, factories, railroads, and stores) are privately owned and operate for profit

Question 7

Supply

Answer 7

The quantity of products that manufacturers or owners are willing to sell at different prices at a specific time

Question 8

Demand

Answer 8

The quantity of products that people are willing to buy at different prices at a specific time

Question 9

Market price

Answer 9

The price determined by supply and demand

Question 10

Perfect competition

Answer 10

There are many sellers in a market and no seller is large enough to dictate price

Question 11

Monopolistic competition

Answer 11

A large number of sellers produce products that are very similar but are perceived by buyers as different

Question 12

Oligopoly

Answer 12

Just a few sellers dominate a market

Question 13

Monopoly

Answer 13

There is only one seller of a product or service

Question 14

Brain Drain

Answer 14

The loss of the best and brightest people to other countries

Question 15

Communism

Answer 15

Economic and political system in which the state makes all economic decisions and owns all major factors of production

Question 16

Free market economics

Answer 16

The market largely determines what goods and services get produced, who gets them, and how the economy grows

Question 17

Command economics

Answer 17

The government largely decides what goods and services will be produced, who will get them, and how the economy will grow

Question 18

Mixed economics

Answer 18

Some allocation of resources are made by the government and some by the market

Question 19

Socialism

Answer 19

Based on the premise that some, if not most, basic businesses should be owned by the government so that profits can be evenly distributed among the people.

Question 20

Gross domestic product

Answer 20

Total value of final goods and services produced in a country in a given year

Question 21

Unemployment rate

Answer 21

The number of civilians at least sixteen years old who are unemployed and tried to find a job within the prior four weeks

Question 22

Inflation

Answer 22

A general rise in the prices of goods and services over time

Question 23

Disinflation

Answer 23

Price increases are slowing, or the inflation rate is declining

Question 24

Deflation

Answer 24

Prices are declining

Question 25

Consumer price index

Answer 25

Monthly statistics that measure the pace of inflation or deflation

Question 26

Producer price index

Answer 26

An index that measures prices at the wholesale level

Question 27

Business cycles

Answer 27

The periodic rises and falls that occur in all economies over time

Question 28

Recession

Answer 28

Two or more consecutive quarters of decline in the GDP

Question 29

Depression

Answer 29

A severe recession

Question 30

Fiscal policy

Answer 30

The federal government’s efforts to keep the economy stable by increasing or decreasing taxes or spending

Question 31

National debt

Answer 31

The sum of government deficits over time

Question 32

Monetary policy

Answer 32

Management of the money supply and interest rates