BE answers
62) Discuss each of the four principles of private enterprise systems.
pursue their own interests with minimal government restriction. In turn, private enterprise requires the presence of four elements: private property rights, freedom of choice, profits, and competition. Ownership of the resources used to create wealth is in the hands of individuals. You can sell your labor to any employer you choose. You can also choose which products to buy, and producers can choose whom to hire and what to produce. The lure of profits (and freedom) leads some people to abandon the security of working for someone else and to assume the risks of entrepreneurship. Anticipated profits also influence individuals' choices of which goods or services to produce. If profits motivate individuals to start a business, competition motivates them to operate those businesses efficiently. Competition occurs when two or more businesses vie for the same resources or customers.
81) Which of the following BEST describes nominal GDP?
B) Total value of all goods and services produced within a given period by a national economy through domestic factors of production, measured in current dollars or with all components valued at current prices
98) The government can influence the availability of capital through the use of the Federal Reserve System.
Answer: TRUE
99) Stabilization policy is made up of both monetary and fiscal policy.
Answer: TRUE
74) Which term refers to the total quantity and quality of goods and services that people living in an economic system can purchase?
C) Standard of living
45) What is needed to gain a competitive advantage over competitors?
C) The ability to produce goods or services efficiently and at a reasonable profit
12) What term denotes a nation's basis for allocating its resources among its citizens?
B) Economic system
15) Who is the person who accepts the risks and opportunities inherent in a new business opportunity?
B) Entrepreneurs
77) What does productivity measure?
B) How much a system produces with the resources needed to produce it
78) What is the economic condition characterized by widespread increased prices without increased purchasing power?
B) Inflation
20) What type of economy is the United States reflective of?
B) Mixed
82) Which is the BEST explanation for why standard of living only increases through productivity?
B) More goods are available without having to come by additional resources.
48) What is created when one company is able to supply all the goods or services needed by the marketplace?
B) Natural monopolies
52) In an oligopoly, when one firm reduces its prices, how do other sellers react?
B) Other firms reduce their prices also, usually quite quickly.
43) Which of the following represents the ownership of resources used in a private enterprise system?
B) Private property rights
13) What is the process for converting government enterprises into individually owned firms known as?
B) Privatization
44) Which of the following would lead some to become an entrepreneur and influence the choice of goods or services to produce?
B) Profit
71) Which of the following BEST describes what the consumer price index is used to indicate?
C) The changes in the cost of consumer products over time
35) What is the price at which the quantity of goods demanded and the quantity of goods supplied are equal?
C) The market price
50) In perfect competition, which of the following conditions must prevail?
E) All firms in a given industry must be small.
18) The idea that individuals would contribute according to their abilities and receive benefits according to their needs supports which type of economy?
E) Communist based economy
2) What is profit?
E) Difference between revenues and expenses
41) Graphically, what has been achieved when price of goods demanded is equal to the quantity of goods supplied?
E) Equilibrium price
87) When economists measure gross national product, what is being measured within a specific time period, regardless of location?
E) The total value of all goods and services
79) What is the condition in an economic system in which the amount of money available and the number of goods and services produced are growing at about the same rate?
B) Stability
38) What is the willingness and ability of producers to offer a good for sale referred to as?
B) Supply
56) Economic systems differ in how factors of production are used.
Answer: TRUE
57) The point at which the supply curve and the demand curve intersect is the market price.
Answer: TRUE
59) Product differentiation is common in a market characterized by monopolistic competition.
Answer: TRUE
60) In a natural monopoly, prices tend to be government regulated.
Answer: TRUE
94) Economic indicators help to assess the performance of an economy.
Answer: TRUE
97) Tax increases and decreases are a form of fiscal policy.
Answer: TRUE
86) When gross domestic product increases, what is the outcome for economic growth?
A) Aggregate output will increase
67) What term do economists use for the pattern of short-term expansions and contractions in the economy?
A) Business cycle
34) What is the point at which the supply curve and the demand curve intersect on a graph?
A) Equilibrium price
88) Why is gross national product (GNP) considered to be a less valuable indicator of domestic economic performance than gross domestic product (GDP)?
A) GNP does not consider where the economic performance was located.
4) Factors such as international trade agreements, economic conditions, and political unrest will have the greatest impact on what type of business environment?
A) Global business environment
85) Which of the following is an indication of national economic growth, shown by measuring aggregate output?
A) Gross domestic product
14) What is the term for the physical and intellectual contributions of people while engaged in the production of goods and services?
A) Human resources
19) Which of the following best explains the difference between a market economy and a planned economy?
A) In a planned economy, consumers have little choice in where people work or what they purchase or pay. In a market economy, there is more choice in where people work or what they purchase or pay.
55) When a new product has high demand in the market, how should a company react?
A) Increase the supply of the product
37) What is the primary force that determines what a firm buys and sells?
A) Laws of supply and demand
72) Which of the following is a likely cause of increased prices for products, decreased purchasing power, and decreased profit margins?
A) Low unemployment
84) Which of the following business environments includes the customers, mores, values and demographic characteristics of the society where the organization functions?
A) Sociocultural
54) What is the term used to describe a market condition where buyers are able to satisfy the demand of the consumer, yet have some product remain unsold?
A) Surplus
42) What is the basis for a market economy?
A) The ability to pursue an interest with minimal government restriction
24) What marks the key difference between economic systems?
A) The way the factors of production are managed
109) Discuss the balance of trade in the United States and how it affects debt.
Answer: A country's balance of trade is the economic value of all the products that it exports minus the economic value of its imported products. A positive balance of trade results when a country exports (sells to other countries) more than it imports (buys from other countries). A negative balance of trade results when a country imports more than it exports. A negative balance of trade is commonly called a trade deficit. The United States is a debtor nation rather than a creditor nation. Trade deficit affects economic growth because the amount of money spent on foreign products has not been paid in full. Therefore, it is borrowed money and borrowed money costs more in the form of interest. The money that flows out of the country to pay off the deficit can't be used to invest in productive enterprises, either at home or overseas.
104) In the United States, the Federal Reserve System, which is the nation's central bank, can influence the ability and willingness of banks to lend money.
Answer: TRUE
33) Identify the five factors of production and their role in economic systems.
Answer: An economic system is a nation's system for allocating its resources among its citizens, both individuals and organizations. A basic difference between economic systems is the way in which a system manages its factors of production, the resources that a country's businesses use to produce goods and services. Economists have long focused on four factors of production: labor, capital, entrepreneurs, and physical resources. In addition to these traditional four factors, many economists now include information resources. People who work for businesses provide labor. Labor, sometimes called human resources or human capital, includes the physical and intellectual contributions people make while engaged in economic production. Capital includes the financial resources needed to operate a business. An entrepreneur is a person who accepts the risks and opportunities entailed in creating and operating a new business. Physical resources are the tangible things that organizations use to conduct their business. They include natural resources and raw materials, offices, storage and production facilities, parts and supplies, computers and peripherals, and a variety of other equipment.
10) What are the benefits of business for society?
Answer: Businesses produce most of the goods and services we consume, and they employ most working people. They create most innovations and provide a vast range of opportunities for new businesses, which serve as their suppliers. A healthy business climate also contributes to the quality of life and standard of living of people in a society. Business profits enhance the personal incomes of millions of owners and stockholders, and business taxes help to support governments at all levels. Many businesses support charities and provide community leadership.
101) Deflation, an indication that the economy is contracting, is characterized by price stabilization of goods.
Answer: FALSE
102) If productivity increases, prices charged to consumers will tend to increase as well.
Answer: FALSE
25) The customs, values, and demographic characteristics of the society in which an organization functions are the principal elements of the political-legal environment.
Answer: FALSE
26) Physical resources include the data and other information used by businesses.
Answer: FALSE
27) The technological environment includes only electronics and telecommunications used to perform business activities.
Answer: FALSE
28) In a market system, individuals are limited as to what they can buy and in how they can spend their money.
Answer: FALSE
29) China functions as a communistic economy and political system.
Answer: FALSE
30) In a market economy, there is a centralized government that controls factors of production and decision making
Answer: FALSE
58) One of the four elements that are necessary for private enterprise to be carried out is reasonable prices.
Answer: FALSE
92) Aggregate output refers to a company's annual production of goods or services.
Answer: FALSE
93) The United States government manages the collection and spending of its revenues through monetary policy.
Answer: FALSE
95) The primary measure of growth in the business cycle is inflation.
Answer: FALSE
96) Inflation results in increased purchasing power for the consumer.
Answer: FALSE
105) Discuss the fiscal and monetary goals of a stabilization policy.
Answer: Fiscal policy and monetary policy make up stabilization policy—government economic policy in which the goal is to smooth out fluctuations in output and unemployment and to stabilize prices. The various government interventions, such as financial bailouts, represent strategies to restore economic stability.
61) What is required for perfect competition to exist, and what principles must be in place to achieve those conditions?
Answer: For perfect competition to exist, two conditions must prevail: (1) all firms in an industry must be small, and (2) the number of firms in the industry must be large. Under these conditions, no single firm is powerful enough to influence the price of its product. Prices are, therefore, determined by such market forces as supply and demand. There are four principles that support the two conditions. The products of each firm are so similar that buyers view them as identical to those of other firms. Both buyers and sellers know the prices that others are paying and receiving in the marketplace. Because each firm is small, it is easy for firms to enter or leave the market. Going prices are set exclusively by supply and demand and accepted by both sellers and buyers.
9) How do consumer choice and demand affect a capitalistic system?
Answer: In a capitalistic system, such as that in the United States, businesses exist to earn profits for owners. Within certain broad constraints, an owner is free to set up a new business, grow that business, sell it, or even shut it down. But consumers also have freedom of choice. In choosing how to pursue profits, businesses must take into account what consumers want or need. No matter how efficient a business is, it won't survive if there is no demand for its goods or services.
64) Explain the concept of mixed market economies and how they support pure planned and pure market economies.
Answer: In reality, there are really no "pure" planned or "pure" market economies. Most countries rely on some form of mixed market economy that features characteristics of both planned and market economies. Even a market economy that strives to be as free and open as possible, such as the U.S. economy, restricts certain activities. Some products can't be sold legally, others can be sold only to people of a certain age, advertising must be truthful, and so forth. The People's Republic of China, the world's most important planned economy, is increasingly allowing private ownership and entrepreneurship (although with government oversight). When a government is making a change from a planned economy to a market economy, it usually begins to adopt market mechanisms through privatization, the process of converting government enterprises into privately owned companies.
100) The main measure of growth in the business cycle is aggregate output.
Answer: TRUE
103) The consumer price index is expressed as a percentage of prices as compared to a base period.
Answer: TRUE
63) How can price be best determined?
Answer: The demand and supply schedule can be used to construct demand and supply curves. A demand curve shows how many products will be demanded at different prices. A supply curve shows how many of the items will be supplied at different prices. Demand increases as price decreases; supply increases as price increases. When demand and supply curves are plotted on the same graph, the point at which they intersect is the market price (also called the equilibrium price), the price at which the quantity of goods demanded and the quantity of goods supplied are equal.
106) Explain the types of policies used by the U.S. government to manage the U.S. economy.
Answer: The government acts to manage the U.S. economic system through two sets of policies: fiscal and monetary. It manages the collection and spending of its revenues through fiscal policies. Tax rates, for example, can play an important role in fiscal policies helping to manage the economy. Monetary policies focus on controlling the size of the nation's money supply. Working primarily through the Federal Reserve System (the nation's central bank, often referred to simply as "the Fed"), the government can influence the ability and willingness of banks throughout the country to lend money.
32) Describe the role of information resources in business.
Answer: The production of tangible goods once dominated most economic systems. Today, information resources, data and other information used by businesses play a major role. Information resources that businesses rely on include market forecasts, the specialized knowledge of people, and economic data. In turn, much of what businesses do with the information results either in the creation of new information or the repackaging of existing information for new users.
8) Compare a sociocultural environment to an economic environment.
Answer: The sociocultural environment includes the customs, mores, values, and demographic characteristics of the society in which an organization functions. Sociocultural processes also determine the goods and services, as well as the standards of business conduct, that a society is likely to value and accept. The economic environment refers to relevant conditions that exist in the economic system in which a company operates. For example, if an economy is doing well enough that most people have jobs and wages are high, a growing company may find it necessary to pay even higher wages and offer more benefits to attract workers from other companies. But if many people in an economy are looking for jobs, a firm may be able to pay less and offer fewer benefits.
31) Discuss the two forms of planned economies and give examples of each.
Answer: There are two basic forms of planned economies: communism and socialism. Communism is a system in which the government owns and operates all factors of production. Under such a system, the government would assign people to jobs. It would also own all business and control business decisions—what to make, how much to charge, and so forth. Marx proposed that individuals would contribute according to their abilities and receive benefits according to their needs. He also expected government ownership of production factors to be temporary. Once society had matured, government would wither away, and workers would take direct ownership of the factors of production. Today, North Korea, Vietnam, Laos, Cuba and the People's Republic of China are the only nations remaining that are controlled with openly communist systems parties. In the partially planned system called socialism, the government owns and operates selected major industries. In such mixed market economies, the government may control banking, transportation, or industries producing basic goods such as oil and steel. Smaller businesses, such as clothing stores and restaurants are privately owned. Many Western European countries, including England and France, allow free market operations in most economic areas but keep government control of others, such as health care.
107) What is the difference between an economic recession and an economic depression?
Answer: To determine whether an economy is going through a recession, start by measuring aggregate output. This is the function of real GDP which is found by making necessary adjustments to the total value of all goods and services produced within a given period by a national economy through domestic factors of production. A recession is more precisely defined as a period during which aggregate output, as measured by real GDP, declines. Most economists agree that the U.S. economy went into recession in 2008. Most also agree that we were gradually emerging from that recession in 2011. A prolonged and deep recession is a depression.
108) How does unemployment affect economic stability?
Answer: Unemployment is the level of joblessness among people actively seeking work in an economic system. When unemployment is low, there is a shortage of labor available for businesses to hire. As businesses compete with one another for the available supply of labor, they raise the wages they are willing to pay. Higher labor costs eat into profit margins; they raise the prices of their products. Although consumers have more money to inject into the economy, this increase is often undone by higher prices, so purchasing power declines.
68) Which indicator refers to the total quantity of goods and services produced by an economic system during a given period?
B) Aggregate output
73) Which term refers to the pattern of short-term ups and downs in an economy?
B) Business cycle
21) What does a planned economy rely on a centralized government to do?
B) Determine how to allocate all or most factors of production
89) The amount of money that a government owes its creditors is referred to as that country's
B) national debt.
83) Why would a government MOST likely be concerned about its country carrying a trade deficit?
C) A trade deficit ties up money that could be used for economic growth.
70) How would supply affect the aggregate output of an economy?
C) Aggregate output would grow as supply grows
22) Which economic system emphasizes the private ownership of most factors of production?
C) Capitalism
53) Which of the following is the MOST likely pricing approach for a monopoly?
C) Charge a price that will not cause consumer demand to drop
46) Which of the following does NOT fall into the degrees of competition continuum?
C) Competitive advantage
76) Which of the following measures indicates the prices of typical products purchased by American consumers living in urban areas?
C) Consumer price index
3) What is the environment where a firm conducts its operations and derives its revenues known as?
C) Domestic business environment
65) Which of the following offers experts statistical information on the strength and performance of an economy?
C) Economic indicators
75) Which term refers to the total value of all goods and services produced within a given period by a national economy through domestic factors of production?
C) Gross domestic product
66) National economies, regardless of industry, are measured through what?
C) Gross national product
16) What factor of production is used to generate forecasts based on specialized knowledge and economic data?
C) Information resources
39) Which of the following is proven when buyers purchase more of a product when the price drops and less when the price increases?
C) Laws of demand
23) In which type of economy do the individual producer and consumer control production through supply and demand?
C) Market
90) Which of the following supports the idea that the prices of similar products in different countries should be about the same?
C) Purchasing power parity
69) What type of policy is made up of fiscal and monetary policy?
C) Stabilization
40) What can be used to determine relationships among different levels of demand and supply, based on price?
D) Demand and supply curves
11) What is the general term for resources used by a business to produce a good or service referred to as?
D) Factors of production
51) How does monopolistic competition differ from perfect competition?
D) In a market characterized by monopolistic competition, individual firms have some control over price.
91) Why is it important to calculate purchasing power parity in the global market?
D) It helps companies determine standards of living across the globe.
17) When making decisions about production and allocation, which type of system depends on individual producers and consumers to create a combination of supply and demand?
D) Market economy
47) When there are many small firms in a specific industry, what is likely to occur?
D) Perfect competition
36) What occurs when the quantity demanded exceeds the quantity supplied?
D) Shortage
5) Changes in which type of business environment can reduce or replace the need for traditional working methods, physical equipment, and other platforms needed to conduct business?
D) Technological environment
1) Which environment is NOT an important dimension of a business organization's external environment?
D) The corporate cultural environment
49) Which of the following is one of the elements required in private enterprise?
D) The right to ownership of property
80) Which of the following BEST gives the meaning of the term gross domestic product?
D) Total value of all goods and services produced within a given period by a national economy through domestic factors of production
6) The pursuit of profits is how a business differs from organizations such as public universities, public hospitals, and government agencies.
True
7) An organization's external environment consists of everything outside of the organization that might affect it.
True
