Chapter 2. Understanding Economics and How it Affects Business

Question 1

Economics

Answer 1

how society chooses to employ resources to produce goods and services, & distribute them among various competing groups and individuals

Question 2

macroeconomics

Answer 2

big scale;
looks at the nations operation of a nation’s economy as a whole

Question 3

microeconomics

Answer 3

small scale;
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 conditions that will make better use of those resources

eg. new energy sources, new ways of growing food, nanotechnology, 3d printing

Question 5

The Dismal Science

Answer 5

the science behind creating a wealthy economy – equal wealth so resources don’t run out

Question 6

Adam Smith & The Creation of Wealth

Answer 6

• freedom is vital to the economy’s survival
• freedom to own land & keep profits of a business
• people will work hard if there is a reward

Question 7

Invisible Hand

Answer 7

The process that turns self-directed gain into social and economic benefits for all

Question 8

Capitalism

Answer 8

An economic system in which all or most of the factors of production and distribution are privately owned and operated for profit

Question 9

State Capitalism

Answer 9

a combination of freer markets and some government control

Question 10

Four Basic Rights + Roosevelt’s Four Additional Freedoms

Answer 10

1. The right to own private property
2. The right to own a business and keep all that business’s profits
3. The right to freedom of competition
4. The right to freedom of choice
5. Freedom of speech and expression
6. Freedom to worship in your own way
7. Freedom from want
8. Freedom from fear

Question 11

Free Market

Answer 11

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

Question 12

Supply

Answer 12

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

Question 13

Demand

Answer 13

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

Question 14

Market Price

Answer 14

• equilibrium point
• the price determined by supply and demand

Question 15

Perfect Competition

Answer 15

many sellers but none is large enough to dictate the price of a product

Question 16

Monopolistic competition

Answer 16

Large numbers of sellers produce very similar products that buyers nevertheless perceive as different

Question 17

Oligopoly

Answer 17

A few sellers dominate a market

Question 18

Monopoly

Answer 18

one seller controls the total supply or a product or service, and sets the price

Question 19

Socialism

Answer 19

An economic system based on the premise that some, if not most, basic business should be owned by the government so that profits can be more evenly distributed among the people

Question 20

Brain Drain

Answer 20

the loss of the best and brightest people to other countries

Question 21

Communism

Answer 21

An economic and political system in which the government makes almost all economic decisions and owns almost all the major factors of production

Question 22

Free Market Economies

Answer 22

Economic systems in which the market largely determines what goods and services get produces, who gets them, and how the economy grows

Question 23

Command Economies

Answer 23

Economic systems in which the government largely decides what goods and services will be produced, who will get them, and how the economy will grow

Question 24

Mixed Economies

Answer 24

economic systems in which some allocation of resources is made by the market and some by the government

Question 25

Gross Domestic Product (GDP)

Answer 25

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

Question 26

Gross Output (GO)

Answer 26

a measure of total sales volume at all stages of production

Question 27

Unemployment Rate

Answer 27

the number of civilians at least 16 years old who are unemployed and tried to find a job within the prior four weeks

Question 28

Frictional Unemployment

Answer 28

those who have quit because they didn’t like the job, the boss, or the working conditions and haven’t yet found a new job

Question 29

Structural Unemployment

Answer 29

unemployment caused by restructuring of firms

Question 30

Cyclical Unemployment

Answer 30

occurs because of a recession or a similar downturn in the business cycle

Question 31

Seasonal Unemployment

Answer 31

when demand for labor varies over the year, as with the harvesting of crops

Question 32

Inflation

Answer 32

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

Question 33

Disinflation

Answer 33

a situation in which the price increases are slowing

Question 34

deflation

Answer 34

a situation in which prices are declining

Question 35

Consumer Price Index (CPI)

Answer 35

monthly stats that measure the pace of inflation or deflation

Question 36

Producer Price Index (PPI)

Answer 36

An index that measures the change in prices at the wholesale level

Question 37

Business Cycles

Answer 37

the periodic rises and falls that occur in economies over time

Question 38

recession

Answer 38

two or more consecutive quarters of decline in the GDP

Question 39

depression

Answer 39

a severe recession, usually accompanied by deflation

Question 40

Fiscal Policy

Answer 40

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

Question 41

Keynesian economic theory

Answer 41

theory that a givernment policy of increasing spending and cutting taxes could stimulate the economy in a recession

Question 42

National debt

Answer 42

the sum of government deficits over time

Question 43

Monetary Policy

Answer 43

the management of the money supply and interest rates by the Federal reserve Bank