Contemporary Business Chapter 3 - Review Questions

How do factors of production influence the overall supply of goods and services?

A change in the cost or availability of any of the inputs considered to be factors of production can shift the entire supply curve, either increasing or decreasing the amount available at every price.

Explain demand and supply curves

A demand curve is a graph of the amount of a product that buyers will purchase at different prices. A supply curve shows the relationship between different prices and the quantities that sellers will offer for sale, regardless of demand.

Describe two ways in which global expansion can benefit a U.S. firm.

A firm can benefit from global expansion by attracting more customers and using less expensive labor and production in other parts of the world to produce goods and services.

What is the difference between an expansionary monetary policy and a restrictive monetary policy?

An expansionary monetary policy increases the money supply in an effort to cut the cost of borrowing. A restrictive monetary policy reduces the money supply to curb rising prices, overexpansion, and concerns about overly rapid economic growth by increasing the cost of borrowing.

What are some measures that economists use to determine the health of an economy?

Gross domestic product (GDP), general level of prices, core inflation rate, the Consumer Price Index, and the unemployment rate are all measures used to determine the health of an economy.

Does a balanced budget erase the national debt?

No, a balanced budget does not erase the national debt; it just doesn't increase it.

What is privatization?

Privatization is the conversion of government-owned and operated companies into privately held businesses.

On which economic system is the U.S. economy based?

The U.S. economy is based on the private enterprise system.

What are the three primary sources of government funds?

The U.S. government acquires funds through taxes, fees, and borrowing.

Define microeconomics and macroeconomics

Microeconomics is the study of economic behavior among individual consumers, families, and businesses. Macroeconomics is the study of a nation's overall economic issues and how an economic system maintains and allocates its resources.

Why is virtually no country an economic island these days?

No business or country is an economic island because many goods and services travel across national borders. Companies now are becoming multinational firms.

What is the difference between pure competition and monopolistic competition?

Pure competition is a market structure in which large numbers of buyers and sellers exchange homogeneous products, and no single participant has a significant impact on price. Monopolistic competition is a market structure in which large numbers of buyers and sellers exchange differentiated (heterogenous) products, so each participant has some control over price.

Describe the four stages of the business cycle.

The four stages are prosperity, recession, depression, and recovery. Prosperity is characterized by low unemployment and strong consumer confidence. Recession may include consumers postponing major purchases, layoffs, and decreased household savings. A depression occurs when an economic slowdown continues in a downward spiral over a long period of time. In recovery, consumer spending increases and business activity accelerates.