Mid Term Business Principles

How does capitalism differ from socialism and communism?

Capitalism is a market economy (sometimes referred to as a free-market economy). The basic economic questions are answered by private business owners who control the factors of production. Socialism and communism, on the other hand, are controlled by government planning and government ownership. Decisions are made by government planners and, in many cases, the wants and needs of the government are more important than those of consumers.

Is competition good for business? Is it good for consumers?

Business competition is essentially a rivalry among businesses for sales to potential customers. In a capitalistic economy, competition ensures that a firm will survive only if it serve its customers well by providing products and services that meet needs. Competition is good for business because it promotes the development of new and better product offerings. It is good for consumers because it generally results in better service and lower prices.

What is the difference between a manufacturing business, a service business, and a marketing intermediary?

Manufacturing businesses process various materials into tangible goods. Service businesses produce services. Marketing intermediaries buy products from manufacturers and then resell them.

Explain the relationship among profit, business risk, and the satisfaction of customers' needs.

The business that is able to successfully satisfy customers' needs is said to be the business that will realize the greatest profit potential. Profit is also the payment that business owners receive for assuming the risks of ownership. These risks include not being paid and losing whatever they have invested into the business.

What are the four basic economic questions? How are they answered in a capitalist economy?

The four basic economic questions are (1) what goods and services and how much of each to produce, (2) how to produce, (3) for whom to produce, and (4) who owns and controls the factors of production. In a capitalist economy, the first question is answered by consumers as they spend their money. The second question is answered by producers as they compete for sales and profits. The third question is answered by those who have the money to buy the product. The fourth question is answered by who provides the land and natural resources, labor, capital, and/or entrepreneurship. The distribution of goods and services, therefore, depends on the current prices of economic resources, goods, and services and who can afford to buy them.

Compare the four forms of competition (ESSAY QUESTION)

The four forms of competition are pure competition, monopolistic competition, oligopoly, and monopoly. Under pure competition, there are many buyers and sellers of a product, and no single buyer or seller is powerful enough to affect the price of that product. Under monopolistic competition, there are many buyers and a relatively large number of sellers who differentiate their products from the products of competitors. An oligopoly is a market situation in which there are few sellers, so the market actions of each seller have a strong effect on competitors' sales. A monopoly is a market with only one supplier of the product.

What are the four phases in the typical business cycle?

The four phases in a typical business cycle are the peak (sometimes called prosperity), recession, trough, and recovery (sometimes called expansion).

Describe the four resources that must be combined to organize and operate a business.

The four resources are (1) material resources, which include raw materials used in the manufacturing process as well as buildings and machinery; (2) human resources, who are the people that furnish their labor to the business in return for wages; (3) financial resources, which is money used to pay employees, purchase materials, and keep the business operating; and (4) information, which tells the managers of the business how effectively the other resources are being combined and used. Economists refer to the factors of production as the resources used to produce goods and services. They are land and natural resources, labor, capital, and entrepreneurship.

What reasons would you give if you were advising someone to study business?

There are five compelling reasons for studying business described in this chapter. a. To help you choose a career. b. To help you be a successful employee. c. To help you improve your management skills. d. To help you start your own business. e. To help you become a better informed consumer and investor

Describe the four basic assumptions required for a laissez-faire capitalist economy.

a. The creation of wealth is the concern of private individuals, not of government. b. Private individuals must own the resources used to create wealth and should be free to determine how these resources are used. c. The existence of competitive markets gives sellers and buyers the right to make decisions about what to produce and what to buy, and the market determines how much is sold and at what prices. d. Government's role should be limited to providing defense against foreign enemies, ensuring internal order, and furnishing public works and education.