Chapter 2: Understanding Business and How it Affects Business

Question 1

Economics

Answer 1

Study of how resources are allocated to produce goods and services

Question 2

mirco vs macro econ

Answer 2

-small vs large markets

Question 3

resource development

Answer 3

-how to increase resources and create better conditions for producing goods

Question 4

dismal science from Carlyle

Answer 4

Thomas Malthus belied if the rich had most of the resources and the poor has almost none, resources would run out

Question 5

Adam Smith and the Creation of Wealth

Answer 5

-freedom (land, labor, capital, and little government intervention) is vital to the success of an economy (Book: Wealth of Nations)

Question 6

Invisible hand

Answer 6

-how consumer interest guide a market’s decisions

Question 7

capitalism

Answer 7

economic system where the resources/factors of production are owned privately

Question 8

state capitalism

Answer 8

-combination of freedom of ownership and state government control

Question 9

4 rights of free-market capitalism

Answer 9

1) right to own private property
2) right to own a business and all of the business profits
3) right to freedom of competition
4) right to freedom of choice

Question 10

4 degrees of competition

Answer 10

-perfect, monopolistic, oligopoly, monopoly

Question 11

Perfect competition

Answer 11

large number of sellers in a market and none is large enough to dictate the price of a product

Question 12

monopolistic competition

Answer 12

large number of sellers produce similar products that consumers perceive as different (produce)

Question 13

oligopoly

Answer 13

when few sellers dominate the price of the goods (gas, tobacco)

Question 14

monopoly

Answer 14

when 1 seller controls the supply of a product and determines its price

Question 15

free market

Answer 15

decisions about what and how much to produce are made by the market

Question 16

benefits and limitations of a free market

Answer 16

A: open competition/poor people can escape poverty
D: creates a wealth/competition gap and unfair to some demographic (those who maybe don’t have large sums of money to start up a company)

Question 17

market price

Answer 17

-equilibrium price of supply and demand

Question 18

socialism vs communism

Answer 18

S: economic system where the government controls all business markets, wages are evenly distributed (entrepreneurs run smaller businesses/citizens are highly taxed, government protects the poor)
C: economic and political system where the government makes almost all economic decisions and owns the major factors of production

Question 19

Advantages and Disadvantages to Socialism

Answer 19

A: social equality, free education, free health care, free child care, longer vacations/shorter work weeks, generous sick leave
D: few incentives for innovation, business risk taking, brain drain (losing the best people due to little capital gain), higher taxes

Question 20

command economies

Answer 20

-communism and socialism are examples of this: government decides what goods and services are produced, who gets them, how the economy will grow

Question 21

Trend towards mixed economies

Answer 21

-free market and command economies are not sound economies by themselves

Question 22

GDP

Answer 22

Gross domestic product: what is being produced in a given country (including foreign owned) in a given year

Question 23

GO (gross output)

Answer 23

measure of the total sales volume at all stages of the production

Question 24

unemployment rate

Answer 24

of people in a country that are at least 16 who are currently seeking a job within the prior four weeks

Question 25

real unemployment rate

Answer 25

includes discouraged workers, underemployed, and marginally attached

Question 26

Frictional unemployment

Answer 26

-normal people who enter the workforce or are between jobs

Question 27

structural unemployment

Answer 27

-company reorganizes and employees are no longer eligible to work there due to lacking necessary skills

Question 28

cyclical unemployment

Answer 28

business cycle determines the employment needs

Question 29

seasonal unemployment

Answer 29

-work needed during certain seasons of the year

Question 30

inflation

Answer 30

rate at which the prices of goods and services are increasing at

Question 31

disinflation

Answer 31

inflation of goods and services are slowing

Question 32

deflation

Answer 32

prices of goods and services are declining

Question 33

stagflation

Answer 33

when the prices of goods are increasing while the economy is slowing

Question 34

hyperinflation

Answer 34

inflation is rising by 50%

Question 35

consumer price index (CPI)

Answer 35

measures the change of inflation/deflation

Question 36

producer price index (PPI)

Answer 36

index that measure the changes in price at the wholesale level (price it takes to get from a producer to seller)

Question 37

Business Cycle

Answer 37

Economic boom-good
Recession- GDP is falling for two or more consecutive quarters
Depression-a severe recession usually accompanied with deflation
Recovery- economy stabilizes and starts to lead of an economic boom

Question 38

fiscal policy

Answer 38

government efforts to keep the economy stable by increasing government spending (spending and taxes)

Question 39

monetary policy

Answer 39

management of money supply and interest rates (Federal Reserve)

Question 40

keynesian economic theory

Answer 40

government spending and taxation can stimulate an economy during a recession