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Business in Action Understanding Basic Economics 1) Economics is the study of how a society uses its scarce resources to produce and distribute goods and services to its citizens. Answer: TRUE Explanation: Economics is the study of how a society uses its scarce resources to produce and distribute goods and services to its citizens. 2) Macroeconomics studies economic behavior among consumers, businesses, and industries that collectively determine the quantity of goods and services demanded and supplied at different prices. Answer: FALSE Explanation: The study of a country's larger economic issues, such as how firms compete, the effect of government policies, and how an economy maintains and allocates its scarce resources, is termed macroeconomics. 3) Capital includes land and minerals that a business needs in order to produce goods and services. Answer: FALSE Explanation: Capital includes money, computers, machines, tools, and buildings that a business needs in order to produce goods and services. 4) Capital is the collective intelligence of an organization. Answer: FALSE Explanation: Capital includes money, computers, machines, tools, and buildings that a business needs in order to produce goods and services. 5) Scarcity creates competition for resources, and forces trade- offs on the part of every participant in the economy. Answer: TRUE Explanation: Scarcity has two powerful effects: It creates competition for resources, and it forces trade-offs on the part of every participant in the economy.

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Page 1: Behind The Scenes - Pages Persos Chez.comsophiasapiens.chez.com/economie/Business-Finance-Ex…  · Web viewBusiness in Action. Understanding Basic Economics. 1) Economics is the

Business in ActionUnderstanding Basic Economics

1) Economics is the study of how a society uses its scarce resources to produce and distribute goods and services to its citizens.Answer: TRUEExplanation: Economics is the study of how a society uses its scarce resources to produce and distribute goods and services to its citizens.

2) Macroeconomics studies economic behavior among consumers, businesses, and industries that collectively determine the quantity of goods and services demanded and supplied at different prices.Answer: FALSEExplanation: The study of a country's larger economic issues, such as how firms compete, the effect of government policies, and how an economy maintains and allocates its scarce resources, is termed macroeconomics.

3) Capital includes land and minerals that a business needs in order to produce goods and services.Answer: FALSEExplanation: Capital includes money, computers, machines, tools, and buildings that a business needs in order to produce goods and services.

4) Capital is the collective intelligence of an organization.Answer: FALSEExplanation: Capital includes money, computers, machines, tools, and buildings that a business needs in order to produce goods and services.

5) Scarcity creates competition for resources, and forces trade-offs on the part of every participant in the economy.Answer: TRUEExplanation: Scarcity has two powerful effects: It creates competition for resources, and it forces trade-offs on the part of every participant in the economy.

6) Deciding how much money to spend on new manufacturing equipment versus launching a new advertising campaign is described as opportunity cost.Answer: FALSEExplanation: Opportunity cost refers to the value of the most appealing alternative from all those that weren't chosen. In other words, opportunity cost is a way to measure the value of what you gave up when you pursued a different opportunity.

7) Capitalism is a term used to describe the free-market system, one in which private parties own and operate the majority of businesses and where competition, supply, and demand determine which goods and services are produced.Answer: TRUEExplanation: Capitalism is a term used to describe the free-market system, one in which private parties own and operate the majority of businesses and where competition, supply, and demand determine which goods and services are produced.

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8) In practice, no economy is truly a free-market economy.Answer: TRUEExplanation: Free market economy is a situation in which so many buyers and sellers exist that no single buyer or seller can individually influence market prices. In practice, no economy is truly a free-market economy.

9) As social equality is a major goal of planned systems, private enterprise and the pursuit of private gain are encouraged.Answer: FALSEExplanation: In a planned system, governments largely control the allocation of resources and limit freedom of choice in order to accomplish government goals. Private enterprise and the pursuit of private gain are not encouraged in such a system.

10) Global economists use the terms capitalism and private enterprise to describe centrally planned economic systems.Answer: FALSEExplanation: The terms capitalism and private enterprise are often used to describe free-market systems.

11) Demand refers to the quantities of a good or service that producers will provide on a particular date at various prices.Answer: FALSEExplanation: Demand refers to buyers' willingness and ability to purchase products at various price points.

12) The demand curve will shift to the left if the price of substitute products increases.Answer: FALSEExplanation: The demand curve will shift to the right if the price of substitute products increases.

13) Movement along the supply curve typically slopes upward.Answer: TRUEExplanation: Movement along the supply curve typically slopes upward: As prices rise, the quantity that sellers are willing to supply also rises. Similarly, as prices decline, the quantity that sellers are willing to supply declines.

14) The supply curve of a firm will shift to the right if technology increases the firm's production costs.Answer: FALSEExplanation: The supply curve of a firm will shift to the left if technology increases the firm's production costs.

15) The equilibrium point is the point at which quantity of a good or service equals the quantity demanded.Answer: TRUEExplanation: The point at which quantity of a good or service equals the quantity demanded is known as the equilibrium point.

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16) The situation in which one supplier thoroughly dominates a market and essentially shuts out other competitors is called monopoly.Answer: TRUEExplanation: The situation in which one supplier thoroughly dominates a market and essentially shuts out other competitors is called monopoly.

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17) A deep and prolonged recession can be considered as a depression.Answer: TRUEExplanation: A deep and prolonged recession can be considered a depression, which doesn't have an official definition but is generally considered to involve a catastrophic collapse of financial markets.

18) Frictional unemployment is caused by economic fluctuations.Answer: FALSEExplanation: Frictional unemployment refers to the natural flow of workers into and out of jobs, such as when a person leaves one job without first lining up a new job.

19) Deflation is an economic condition in which prices fall steadily throughout the economy.Answer: TRUEExplanation: Deflation is an economic condition in which prices fall steadily throughout the economy.

20) Cyclical unemployment is caused by a mismatch between workers' skills and current employer needs.Answer: FALSEExplanation: Cyclical unemployment refers to seasonal unemployment caused by economic fluctuations. When demand for goods and services drops, businesses reduce production, thereby requiring fewer workers.

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21) Economic development zones, established by governments, offer a variety of financial incentives to businesses that meet specific job creation and local investment criteria.Answer: TRUEExplanation: Economic development zones, established by governments, offer a variety of financial incentives to businesses that meet specific job creation and local investment criteria.

22) Monetary policy involves changes in the government's revenues and expenditures to stimulate a slow economy or dampen a growing economy that is in danger of overheating and causing inflation.Answer: FALSEExplanation: Monetary policy involves adjusting the nation's money supply, the amount of "spendable" money in the economy at any given time, by increasing or decreasing interest rates.

23) Sales taxes are the government's largest single source of revenue.Answer: FALSEExplanation: Income taxes are the government's largest single source of revenue.

24) Leading economic indicators suggest changes that may happen in the economy in the future.Answer: TRUEExplanation: Leading economic indicators suggest changes that may happen in the economy in the future.

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25) GDP considers who is responsible for the production; GNP considers where the production occurs.Answer: FALSEExplanation: GNP considers who is responsible for the production; GDP considers where the production occurs.

26) ________ is the study of how a society uses its scarce resources to produce and distribute goods and services.A) AnthropologyB) EconomicsC) ProxemicsD) EntrepreneurshipE) SociologyAnswer: BExplanation: A) Economics is the study of how a society uses its scarce resources to produce and distribute goods and services.B) Economics is the study of how a society uses its scarce resources to produce and distribute goods and services.C) Economics is the study of how a society uses its scarce resources to produce and distribute goods and services.D) Economics is the study of how a society uses its scarce resources to produce and distribute goods and services.E) Economics is the study of how a society uses its scarce resources to produce and distribute goods and services.

27) Microeconomics is the study of ________.A) the costs of production as a means of stimulating the economy and policies that raise capital and labor output by increasing the incentive to produceB) economic and financial data of the country by the application of mathematics and statisticsC) the overall working of an economy in the society including its monetary and fiscal policiesD) economic behavior among consumers, businesses, and industries that collectively determine the quantity of goods and services demanded and supplied at different pricesE) a nation's economic issues, such as the effect of government policies and the ownership of factors of productionAnswer: DExplanation: A) The study of economic behavior among consumers, businesses, and industries that collectively determine the quantity of goods and services demanded and supplied at different prices is termed microeconomics.B) The study of economic behavior among consumers, businesses, and industries that collectively determine the quantity of goods and services demanded and supplied at different prices is termed microeconomics.C) The study of economic behavior among consumers, businesses, and industries that collectively determine the quantity of goods and services demanded and supplied at different prices is termed microeconomics.D) The study of economic behavior among consumers, businesses, and industries that collectively determine the quantity of goods and services demanded and supplied at different prices is termed microeconomics.E) The study of economic behavior among consumers, businesses, and industries that collectively determine the quantity of goods and services demanded and supplied at different prices is termed microeconomics.

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28) The study of a country's larger economic issues, such as how firms compete, the effect of government policies, and how an economy maintains and allocates its scarce resources, is known as ________.A) capitalismB) entrepreneurshipC) microeconomicsD) socialismE) macroeconomicsAnswer: EExplanation: A) The study of a country's larger economic issues, such as how firms compete, the effect of government policies, and how an economy maintains and allocates its scarce resources, is termed macroeconomics.B) The study of a country's larger economic issues, such as how firms compete, the effect of government policies, and how an economy maintains and allocates its scarce resources, is termed macroeconomics.C) The study of a country's larger economic issues, such as how firms compete, the effect of government policies, and how an economy maintains and allocates its scarce resources, is termed macroeconomics.D) The study of a country's larger economic issues, such as how firms compete, the effect of government policies, and how an economy maintains and allocates its scarce resources, is termed macroeconomics.E) The study of a country's larger economic issues, such as how firms compete, the effect of government policies, and how an economy maintains and allocates its scarce resources, is termed macroeconomics.

29) Which of the following refers to people and their individual talents and capacities?A) natural resourcesB) knowledgeC) capital investmentsD) human resourcesE) entrepreneurshipAnswer: DExplanation: A) Human resources are people and their individual talents and capacities.B) Human resources are people and their individual talents and capacities.C) Human resources are people and their individual talents and capacities.D) Human resources are people and their individual talents and capacities.E) Human resources are people and their individual talents and capacities.

30) The money, computers, machines, tools, and buildings that a business needs in order to produce its goods and services are called ________.A) natural resourcesB) human resources

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C) capitalD) knowledgeE) entrepreneurshipAnswer: CExplanation: A) Capital includes money, computers, machines, tools, and buildings that a business needs in order to produce goods and services.B) Capital includes money, computers, machines, tools, and buildings that a business needs in order to produce goods and services.C) Capital includes money, computers, machines, tools, and buildings that a business needs in order to produce goods and services.D) Capital includes money, computers, machines, tools, and buildings that a business needs in order to produce goods and services.E) Capital includes money, computers, machines, tools, and buildings that a business needs in order to produce goods and services.

31) ________ is the spirit of innovation, the initiative, and the willingness to take the risks involved in creating and operating businesses. A) CapitalizationB) SocializationC) MerchandizingD) AutomationE) EntrepreneurshipAnswer: EExplanation: A) Entrepreneurship is the spirit of innovation, the initiative, and the willingness to take the risks involved in creating and operating businesses.B) Entrepreneurship is the spirit of innovation, the initiative, and the willingness to take the risks involved in creating and operating businesses.C) Entrepreneurship is the spirit of innovation, the initiative, and the willingness to take the risks involved in creating and operating businesses.D) Entrepreneurship is the spirit of innovation, the initiative, and the willingness to take the risks involved in creating and operating businesses.E) Entrepreneurship is the spirit of innovation, the initiative, and the willingness to take the risks involved in creating and operating businesses.

32) ________ is a concept that refers to the finite supply of resources.A) RedundancyB) ScarcityC) DeficitD) StringencyE) ShortageAnswer: BExplanation: A) Scarcity doesn't mean a shortage of a particular resource; rather, it means that

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the resource has a finite supply.B) Scarcity doesn't mean a shortage of a particular resource; rather, it means that the resource has a finite supply.C) Scarcity doesn't mean a shortage of a particular resource; rather, it means that the resource has a finite supply.D) Scarcity doesn't mean a shortage of a particular resource; rather, it means that the resource has a finite supply.E) Scarcity doesn't mean a shortage of a particular resource; rather, it means that the resource has a finite supply.

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33) A business owner has to decide whether the company should purchase new manufacturing equipment, open a new retail store in another city, or invest in a major advertising campaign. This decision to give up something to get something else is referred to as ________.A) resource development analysisB) an arbitrageC) demand/supply determinationD) a trade-offE) factor analysisAnswer: DExplanation: A) Given the universal scarcity of resources, consumers, companies, and governments are constantly forced to make trade-offs, meaning they have to give up something to get something else. B) Given the universal scarcity of resources, consumers, companies, and governments are constantly forced to make trade-offs, meaning they have to give up something to get something else. C) Given the universal scarcity of resources, consumers, companies, and governments are constantly forced to make trade-offs, meaning they have to give up something to get something else. D) Given the universal scarcity of resources, consumers, companies, and governments are constantly forced to make trade-offs, meaning they have to give up something to get something else. E) Given the universal scarcity of resources, consumers, companies, and governments are constantly forced to make trade-offs, meaning they have to give up something to get something else.

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34) A business owner has to decide whether the company should purchase new manufacturing equipment, open a new retail store in another city, or invest in a major advertising campaign. The value of the most appealing alternative that the business owner did not choose is its ________.A) break-even valueB) decisional valueC) opportunity costD) factor analysis determinationE) resource valueAnswer: CExplanation: A) Opportunity cost refers to the value of the most appealing alternative from all those you didn't choose. In other words, opportunity cost is a way to measure the value of what you gave up when you pursued a different opportunity.B) Opportunity cost refers to the value of the most appealing alternative from all those you didn't choose. In other words, opportunity cost is a way to measure the value of what you gave up when you pursued a different opportunity.C) Opportunity cost refers to the value of the most appealing alternative from all those you didn't choose. In other words, opportunity cost is a way to measure the value of what you gave up when you pursued a different opportunity.D) Opportunity cost refers to the value of the most appealing alternative from all those you didn't choose. In other words, opportunity cost is a way to measure the value of what you gave up when you pursued a different opportunity.E) Opportunity cost refers to the value of the most appealing alternative from all those you didn't choose. In other words, opportunity cost is a way to measure the value of what you gave up when you pursued a different opportunity.

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35) A ________ is an economic system in which individuals and companies are largely free to decide what products to produce, how to produce them, whom to sell them to, and at what price to sell them.A) planned systemB) regulated economyC) socialist economyD) free-market systemE) communist economyAnswer: DExplanation: A) In a free-market system, individuals and companies are largely free to decide what products to produce, how to produce them, whom to sell them to, and at what price to sell them. In other words, they have the chance to succeed—or to fail—by their own efforts.B) In a free-market system, individuals and companies are largely free to decide what products to produce, how to produce them, whom to sell them to, and at what price to sell them. In other words, they have the chance to succeed—or to fail—by their own efforts.C) In a free-market system, individuals and companies are largely free to decide what products to produce, how to produce them, whom to sell them to, and at what price to sell them. In other words, they have the chance to succeed—or to fail—by their own efforts.D) In a free-market system, individuals and companies are largely free to decide what products to produce, how to produce them, whom to sell them to, and at what price to sell them. In other words, they have the chance to succeed—or to fail—by their own efforts.E) In a free-market system, individuals and companies are largely free to decide what products to produce, how to produce them, whom to sell them to, and at what price to sell them. In other words, they have the chance to succeed—or to fail—by their own efforts.

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36) The economic system of the U.S. is such that individuals own and operate the majority of businesses with limited economic intervention by the government. This is characteristic of a ________ economy.A) mixedB) plannedC) capitalistD) free-marketE) communistAnswer: AExplanation: A) The practice of limited intervention is characteristic of a mixed economy or mixed capitalism, which is the economic system of the United States and most other countries. For example, government bodies intervene in the U.S. economy in a variety of ways, such as influencing particular allocations of resources through tax incentives, prohibiting or restricting the sale of certain goods and services, or setting price controls. B) The practice of limited intervention is characteristic of a mixed economy or mixed capitalism, which is the economic system of the United States and most other countries. For example, government bodies intervene in the U.S. economy in a variety of ways, such as influencing particular allocations of resources through tax incentives, prohibiting or restricting the sale of certain goods and services, or setting price controls. C) The practice of limited intervention is characteristic of a mixed economy or mixed capitalism, which is the economic system of the United States and most other countries. For example, government bodies intervene in the U.S. economy in a variety of ways, such as influencing particular allocations of resources through tax incentives, prohibiting or restricting the sale of certain goods and services, or setting price controls. D) The practice of limited intervention is characteristic of a mixed economy or mixed capitalism, which is the economic system of the United States and most other countries. For example, government bodies intervene in the U.S. economy in a variety of ways, such as influencing particular allocations of resources through tax incentives, prohibiting or restricting the sale of certain goods and services, or setting price controls. E) The practice of limited intervention is characteristic of a mixed economy or mixed capitalism, which is the economic system of the United States and most other countries. For example, government bodies intervene in the U.S. economy in a variety of ways, such as influencing particular allocations of resources through tax incentives, prohibiting or restricting the sale of certain goods and services, or setting price controls.

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37) Which of the following is characteristic of a country with a planned economic system?A) The economy relies chiefly on market forces to allocate goods and resources and to determine prices.B) The economic system combines private and state enterprises with limited intervention from the government.C) The economy subscribes to capitalistic competition, where private parties own and operate the majority of businesses.D) The economic system is primarily capitalistic but there is some degree of government ownership of the means of production.E) The economy is largely controlled by the government and freedom of choice is limited in order to accomplish government goals.Answer: EExplanation: A) In a planned system, governments largely control the allocation of resources and limit freedom of choice in order to accomplish government goals. Because social equality is a major goal of planned systems, private enterprise and the pursuit of private gain are generally regarded as wasteful and exploitive.B) In a planned system, governments largely control the allocation of resources and limit freedom of choice in order to accomplish government goals. Because social equality is a major goal of planned systems, private enterprise and the pursuit of private gain are generally regarded as wasteful and exploitive.C) In a planned system, governments largely control the allocation of resources and limit freedom of choice in order to accomplish government goals. Because social equality is a major goal of planned systems, private enterprise and the pursuit of private gain are generally regarded as wasteful and exploitive.D) In a planned system, governments largely control the allocation of resources and limit freedom of choice in order to accomplish government goals. Because social equality is a major goal of planned systems, private enterprise and the pursuit of private gain are generally regarded as wasteful and exploitive.E) In a planned system, governments largely control the allocation of resources and limit freedom of choice in order to accomplish government goals. Because social equality is a major goal of planned systems, private enterprise and the pursuit of private gain are generally regarded as wasteful and exploitive.

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38) The economic system that allows individuals the least degree of economic freedom is ________.A) socialismB) communismC) capitalismD) authoritarianismE) mixed capitalismAnswer: BExplanation: A) The planned economic system that allows individuals the least degree of economic freedom is communism, which still exists in a few countries, most notably North Korea and China. B) The planned economic system that allows individuals the least degree of economic freedom is communism, which still exists in a few countries, most notably North Korea and China. C) The planned economic system that allows individuals the least degree of economic freedom is communism, which still exists in a few countries, most notably North Korea and China. D) The planned economic system that allows individuals the least degree of economic freedom is communism, which still exists in a few countries, most notably North Korea and China. E) The planned economic system that allows individuals the least degree of economic freedom is communism, which still exists in a few countries, most notably North Korea and China.

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39) In a country, the state owns all major productive resources from electricity to transportation. The country has very few opportunities for entrepreneurship and the economic classes are absent. The economy of this country is characterized by which of the following economic systems?A) anarchismB) communismC) capitalismD) socialismE) mixedAnswer: BExplanation: A) In communism, the state owns all the major productive resources. Economic classes are absent and there are few opportunities for entrepreneurship.B) In communism, the state owns all the major productive resources. Economic classes are absent and there are few opportunities for entrepreneurship.C) In communism, the state owns all the major productive resources. Economic classes are absent and there are few opportunities for entrepreneurship.D) In communism, the state owns all the major productive resources. Economic classes are absent and there are few opportunities for entrepreneurship.E) In communism, the state owns all the major productive resources. Economic classes are absent and there are few opportunities for entrepreneurship.

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40) ________ lies somewhere between capitalism and communism, with a fairly high degree of government planning and some government ownership of capital resources.A) TotalitarianismB) LiberalismC) AuthoritarianismD) SocialismE) AnarchismAnswer: DExplanation: A) Socialism lies somewhere between capitalism and communism, with a fairly high degree of government planning and some government ownership of capital resources.B) Socialism lies somewhere between capitalism and communism, with a fairly high degree of government planning and some government ownership of capital resources.C) Socialism lies somewhere between capitalism and communism, with a fairly high degree of government planning and some government ownership of capital resources.D) Socialism lies somewhere between capitalism and communism, with a fairly high degree of government planning and some government ownership of capital resources.E) Socialism lies somewhere between capitalism and communism, with a fairly high degree of government planning and some government ownership of capital resources.

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41) In a country, the government owns many of the key industrial sectors, such as transportation, health care, and communications. Private ownership, however, is allowed in other industries. What type of economic system does this country have?A) communismB) capitalismC) free-market economyD) socialismE) totalitarianismAnswer: DExplanation: A) Socialism lies somewhere between capitalism and communism, with a fairly high degree of government planning and some government ownership of capital resources. However, government ownership tends to be focused in industries considered vital to the common welfare, such as transportation, health care, and communications. Private ownership is permitted in other industries.B) Socialism lies somewhere between capitalism and communism, with a fairly high degree of government planning and some government ownership of capital resources. However, government ownership tends to be focused in industries considered vital to the common welfare, such as transportation, health care, and communications. Private ownership is permitted in other industries.C) Socialism lies somewhere between capitalism and communism, with a fairly high degree of government planning and some government ownership of capital resources. However, government ownership tends to be focused in industries considered vital to the common welfare, such as transportation, health care, and communications. Private ownership is permitted in other industries.D) Socialism lies somewhere between capitalism and communism, with a fairly high degree of government planning and some government ownership of capital resources. However, government ownership tends to be focused in industries considered vital to the common welfare, such as transportation, health care, and communications. Private ownership is permitted in other industries.E) Socialism lies somewhere between capitalism and communism, with a fairly high degree of government planning and some government ownership of capital resources. However, government ownership tends to be focused in industries considered vital to the common welfare, such as transportation, health care, and communications. Private ownership is permitted in other industries.

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42) The term ________ is used to characterize the fluctuations in an economy's rate of growth over a period of several years.A) microeconomicsB) competitive pressuresC) cyclical machinationsD) business cyclesE) economic repercussionsAnswer: DExplanation: A) Business cycles are fluctuations in the rate of growth that an economy experiences over a period of several years. B) Business cycles are fluctuations in the rate of growth that an economy experiences over a period of several years. C) Business cycles are fluctuations in the rate of growth that an economy experiences over a period of several years. D) Business cycles are fluctuations in the rate of growth that an economy experiences over a period of several years. E) Business cycles are fluctuations in the rate of growth that an economy experiences over a period of several years.

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43) Which of the following actions of the government indicates the privatization of an industry?A) allowing private businesses to operate in an industry that was previously operated by the governmentB) discouraging private business to operate in an industry that is critical for the growth of the economy C) acquiring the market leader to gain control of the industry and its resourcesD) imposing taxes on scarce raw materials to discourage unfair pricing by its suppliersE) imposing regulations on multinational businesses to protect local businessesAnswer: AExplanation: A) Governments can change the structure of the economy by nationalizing—assuming ownership of—selected companies or, in extreme cases, even entire industries. They can also move in the opposite direction, privatizing services once performed by the government by allowing private businesses to perform them instead.B) Governments can change the structure of the economy by nationalizing—assuming ownership of—selected companies or, in extreme cases, even entire industries. They can also move in the opposite direction, privatizing services once performed by the government by allowing private businesses to perform them instead.C) Governments can change the structure of the economy by nationalizing—assuming ownership of—selected companies or, in extreme cases, even entire industries. They can also move in the opposite direction, privatizing services once performed by the government by allowing private businesses to perform them instead.D) Governments can change the structure of the economy by nationalizing—assuming ownership of—selected companies or, in extreme cases, even entire industries. They can also move in the opposite direction, privatizing services once performed by the government by allowing private businesses to perform them instead.E) Governments can change the structure of the economy by nationalizing—assuming ownership of—selected companies or, in extreme cases, even entire industries. They can also move in the opposite direction, privatizing services once performed by the government by allowing private businesses to perform them instead.

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44) Business and political leaders use ________ such as rates of interest or unemployment to measure and monitor economic performance.A) economic indicatorsB) social indexesC) sustainability ratesD) cost-of-living increasesE) monetary paradigmsAnswer: AExplanation: A) Economic indicators are statistics such as interest rates, unemployment rates, housing data, and industrial productivity that let leaders in business and politics measure and monitor economic performance.B) Economic indicators are statistics such as interest rates, unemployment rates, housing data, and industrial productivity that let leaders in business and politics measure and monitor economic performance.C) Economic indicators are statistics such as interest rates, unemployment rates, housing data, and industrial productivity that let leaders in business and politics measure and monitor economic performance.D) Economic indicators are statistics such as interest rates, unemployment rates, housing data, and industrial productivity that let leaders in business and politics measure and monitor economic performance.E) Economic indicators are statistics such as interest rates, unemployment rates, housing data, and industrial productivity that let leaders in business and politics measure and monitor economic performance.

45) ________ refers to the amount of a good or service that customers will buy at a given time.A) DemandB) UtilityC) EquilibriumD) NecessityE) WantAnswer: AExplanation: A) Demand refers to the amount of a good or service that customers will buy at a given time.B) Demand refers to the amount of a good or service that customers will buy at a given time.C) Demand refers to the amount of a good or service that customers will buy at a given time.D) Demand refers to the amount of a good or service that customers will buy at a given time.E) Demand refers to the amount of a good or service that customers will buy at a given time.

46) ________ refers to the quantities of a good or service that producers will provide on a particular date at various prices.A) NecessityB) Supply

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C) DemandD) UtilityE) WantAnswer: BExplanation: A) Supply refers to the quantities of a good or service that producers will provide on a particular date at various prices.B) Supply refers to the quantities of a good or service that producers will provide on a particular date at various prices.C) Supply refers to the quantities of a good or service that producers will provide on a particular date at various prices.D) Supply refers to the quantities of a good or service that producers will provide on a particular date at various prices.E) Supply refers to the quantities of a good or service that producers will provide on a particular date at various prices.

47) A(n) ________ is a graph showing the relationship between the amount of product that buyers will purchase at various prices, all other factors being equal.A) supply curveB) inflation rateC) demand curveD) deflation rateE) competitive balanceAnswer: CExplanation: A) A demand curve is a graph showing the relationship between the amount of product that buyers will purchase at various prices, all other factors being equal.B) A demand curve is a graph showing the relationship between the amount of product that buyers will purchase at various prices, all other factors being equal.C) A demand curve is a graph showing the relationship between the amount of product that buyers will purchase at various prices, all other factors being equal.D) A demand curve is a graph showing the relationship between the amount of product that buyers will purchase at various prices, all other factors being equal.E) A demand curve is a graph showing the relationship between the amount of product that buyers will purchase at various prices, all other factors being equal.

48) Demand curves typically slope downward. This implies that a(n) ________.A) decrease in price will increase the quantity demandedB) decrease in price will decrease the quantity demandedC) increase in price will increase the quantity demandedD) decrease in price will have no effect on quantity demandedE) increase in price will have no effect on quantity demandedAnswer: AExplanation: A) Demand curves typically slope downward, implying that as price drops, more

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people are willing to buy.B) Demand curves typically slope downward, implying that as price drops, more people are willing to buy.C) Demand curves typically slope downward, implying that as price drops, more people are willing to buy.D) Demand curves typically slope downward, implying that as price drops, more people are willing to buy.E) Demand curves typically slope downward, implying that as price drops, more people are willing to buy.

49) If consumer demand for a product decreases, the demand curve ________.A) moves downwardB) moves upwardC) moves to the rightD) moves to the leftE) remains stationaryAnswer: DExplanation: A) If overall demand for a product decreases, the entire demand curve moves to the left.B) If overall demand for a product decreases, the entire demand curve moves to the left.C) If overall demand for a product decreases, the entire demand curve moves to the left.D) If overall demand for a product decreases, the entire demand curve moves to the left.E) If overall demand for a product decreases, the entire demand curve moves to the left.

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50) The ________ depicts the relationship between prices and quantities that sellers will offer for sale, regardless of demand.A) demand curveB) supply curveC) equilibrium pointD) business cycleE) competitive analysisAnswer: BExplanation: A) The depiction of the relationship between prices and quantities that sellers will offer for sale is called a supply curve.B) The depiction of the relationship between prices and quantities that sellers will offer for sale is called a supply curve.C) The depiction of the relationship between prices and quantities that sellers will offer for sale is called a supply curve.D) The depiction of the relationship between prices and quantities that sellers will offer for sale is called a supply curve.E) The depiction of the relationship between prices and quantities that sellers will offer for sale is called a supply curve.

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51) Movement along the supply curve typically slopes upward because ________.A) the amount of government regulation in an industry rises with increase in demandB) the quantity that the sellers are willing to supply rises with decrease in demandC) the amount of government regulation in an industry rises with increase in priceD) the quantity that the sellers are willing to supply rises with increase in government regulationE) the quantity that the sellers are willing to supply rises with increase in priceAnswer: EExplanation: A) Movement along the supply curve typically slopes upward: as prices rise, the quantity that sellers are willing to supply also rises. Similarly, as prices decline, the quantity that sellers are willing to supply declines.B) Movement along the supply curve typically slopes upward: as prices rise, the quantity that sellers are willing to supply also rises. Similarly, as prices decline, the quantity that sellers are willing to supply declines.C) Movement along the supply curve typically slopes upward: as prices rise, the quantity that sellers are willing to supply also rises. Similarly, as prices decline, the quantity that sellers are willing to supply declines.D) Movement along the supply curve typically slopes upward: as prices rise, the quantity that sellers are willing to supply also rises. Similarly, as prices decline, the quantity that sellers are willing to supply declines.E) Movement along the supply curve typically slopes upward: as prices rise, the quantity that sellers are willing to supply also rises. Similarly, as prices decline, the quantity that sellers are willing to supply declines.

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52) The point at which the demand and supply curves intersect - the point at which the quantity demanded and supplied are equal - is called the ________.A) equilibrium pointB) aggregation pointC) marginal pointD) break-even pointE) distribution pointAnswer: AExplanation: A) The point at which the demand and supply curves intersect—the point at which the quantity demanded and supplied are equal—is the equilibrium point.B) The point at which the demand and supply curves intersect—the point at which the quantity demanded and supplied are equal—is the equilibrium point.C) The point at which the demand and supply curves intersect—the point at which the quantity demanded and supplied are equal—is the equilibrium point.D) The point at which the demand and supply curves intersect—the point at which the quantity demanded and supplied are equal—is the equilibrium point.E) The point at which the demand and supply curves intersect—the point at which the quantity demanded and supplied are equal—is the equilibrium point.

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53) Colonel's Burgers sells 2500 of its flagship burger, Colonel's Treat, each month at a price of $10 each. The customers are willing to buy 2500 Colonel's Treat burgers each month at the same price. Hence, the price of $10 per burger is the ________.A) sunk costB) break-even priceC) equilibrium priceD) opportunity costE) incremental costAnswer: CExplanation: A) The point at which demand and supply are equal is known as the equilibrium point. At the equilibrium price point, customers are willing to buy as many burgers as Colonel's Burgers is willing to sell.B) The point at which demand and supply are equal is known as the equilibrium point. At the equilibrium price point, customers are willing to buy as many burgers as Colonel's Burgers is willing to sell.C) The point at which demand and supply are equal is known as the equilibrium point. At the equilibrium price point, customers are willing to buy as many burgers as Colonel's Burgers is willing to sell.D) The point at which demand and supply are equal is known as the equilibrium point. At the equilibrium price point, customers are willing to buy as many burgers as Colonel's Burgers is willing to sell.E) The point at which demand and supply are equal is known as the equilibrium point. At the equilibrium price point, customers are willing to buy as many burgers as Colonel's Burgers is willing to sell.

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54) ________ is a situation in which no single firm is large enough to influence prices and distort the workings of the free-market system. A) Pure monopolyB) Pure entrepreneurialism C) Pure competitionD) Regulated monopolyE) Stabilized monopolyAnswer: CExplanation: A) Pure competition is a situation in which no single firm is large enough to influence prices and distort the workings of the free-market system. B) Pure competition is a situation in which no single firm is large enough to influence prices and distort the workings of the free-market system. C) Pure competition is a situation in which no single firm is large enough to influence prices and distort the workings of the free-market system. D) Pure competition is a situation in which no single firm is large enough to influence prices and distort the workings of the free-market system. E) Pure competition is a situation in which no single firm is large enough to influence prices and distort the workings of the free-market system.

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55) Which of the following is a distinct characteristic of a pure monopolistic economy?A) many small suppliers, with virtually identical productsB) small number of suppliers with products, which can be distinguished in important waysC) only one supplier, with monopoly granted by government mandateD) only one supplier, with monopoly achieved by innovation and specializationE) few suppliers, with products that can be distinguished but are similar enough to be replacementsAnswer: DExplanation: A) In a pure monopoly, only one supplier is in a given market. Monopoly is achieved without government intervention by innovation, specialization, exclusive contracts, or by a simple lack of competitors. Products are unique, with no direct replacements available. Barriers to entry are extremely high, making the market difficult or impossible to enter.B) In a pure monopoly, only one supplier is in a given market. Monopoly is achieved without government intervention by innovation, specialization, exclusive contracts, or by a simple lack of competitors. Products are unique, with no direct replacements available. Barriers to entry are extremely high, making the market difficult or impossible to enter.C) In a pure monopoly, only one supplier is in a given market. Monopoly is achieved without government intervention by innovation, specialization, exclusive contracts, or by a simple lack of competitors. Products are unique, with no direct replacements available. Barriers to entry are extremely high, making the market difficult or impossible to enter.D) In a pure monopoly, only one supplier is in a given market. Monopoly is achieved without government intervention by innovation, specialization, exclusive contracts, or by a simple lack of competitors. Products are unique, with no direct replacements available. Barriers to entry are extremely high, making the market difficult or impossible to enter.E) In a pure monopoly, only one supplier is in a given market. Monopoly is achieved without government intervention by innovation, specialization, exclusive contracts, or by a simple lack of competitors. Products are unique, with no direct replacements available. Barriers to entry are extremely high, making the market difficult or impossible to enter.

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56) In a regulated monopoly, ________.A) prices are set by government mandateB) no single firm can grow large enough to influence prices across the marketC) firms that excel in one or more aspects can gain some control over pricingD) individual firms can have considerable control over pricingE) suppliers can charge as much as they want, at least until people stop buyingAnswer: AExplanation: A) In a regulated monopoly, the government mandates prices.B) In a regulated monopoly, the government mandates prices.C) In a regulated monopoly, the government mandates prices.D) In a regulated monopoly, the government mandates prices.E) In a regulated monopoly, the government mandates prices.

57) There are 10 pizza restaurants in a city. Each restaurant claims to have the "best pizza in town" and advertises the ways in which its pizza is different and better than its competitors' pizzas. This is an example of a(n) ________.A) regulated monopolyB) controlled oligopolyC) regulated duopolyD) monopolistic competitionE) monopolyAnswer: DExplanation: A) Most of the competition in advanced free-market economies is monopolistic competition, in which a number of sellers offer products that can be distinguished from competing products in at least some small way.B) Most of the competition in advanced free-market economies is monopolistic competition, in which a number of sellers offer products that can be distinguished from competing products in at least some small way.C) Most of the competition in advanced free-market economies is monopolistic competition, in which a number of sellers offer products that can be distinguished from competing products in at least some small way.D) Most of the competition in advanced free-market economies is monopolistic competition, in which a number of sellers offer products that can be distinguished from competing products in at least some small way.E) Most of the competition in advanced free-market economies is monopolistic competition, in which a number of sellers offer products that can be distinguished from competing products in at least some small way.

58) Which of the following is TRUE of the pricing in a market of monopolistic competition?A) No single firm can grow large enough to influence prices across the market.B) Firms that excel in one or more aspects can gain some control over pricing.C) All firms have considerable control over pricing.D) Suppliers have total control over the pricing of products.E) Prices are set by government mandate.Answer: B

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Explanation: A) In a market characterized by monopolistic competition, firms that excel in one or more aspects can gain some control over pricing.B) In a market characterized by monopolistic competition, firms that excel in one or more aspects can gain some control over pricing.C) In a market characterized by monopolistic competition, firms that excel in one or more aspects can gain some control over pricing.D) In a market characterized by monopolistic competition, firms that excel in one or more aspects can gain some control over pricing.E) In a market characterized by monopolistic competition, firms that excel in one or more aspects can gain some control over pricing.

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59) When the number of competitors in a market is quite small, a situation known as ________ is created.A) monopolyB) duopolyC) oligopolyD) monopolistic competitionE) pure competitionAnswer: CExplanation: A) When the number of competitors in a market is quite small, a situation known as oligopoly is created. Customers have some choice, unlike in a monopoly, but not as many choices as in monopolistic competition.B) When the number of competitors in a market is quite small, a situation known as oligopoly is created. Customers have some choice, unlike in a monopoly, but not as many choices as in monopolistic competition.C) When the number of competitors in a market is quite small, a situation known as oligopoly is created. Customers have some choice, unlike in a monopoly, but not as many choices as in monopolistic competition.D) When the number of competitors in a market is quite small, a situation known as oligopoly is created. Customers have some choice, unlike in a monopoly, but not as many choices as in monopolistic competition.E) When the number of competitors in a market is quite small, a situation known as oligopoly is created. Customers have some choice, unlike in a monopoly, but not as many choices as in monopolistic competition.

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60) Which of the following is a characteristic feature of economic contraction?A) decreased unemployment ratesB) decreased consumer spendingC) increased incomeD) increased employmentE) increased demandAnswer: BExplanation: A) During an economic contraction, spending declines, employment drops, and the economy as a whole slows down.B) During an economic contraction, spending declines, employment drops, and the economy as a whole slows down.C) During an economic contraction, spending declines, employment drops, and the economy as a whole slows down.D) During an economic contraction, spending declines, employment drops, and the economy as a whole slows down.E) During an economic contraction, spending declines, employment drops, and the economy as a whole slows down.

61) The term ________ is defined as having two consecutive quarters of decline in the country's gross domestic product.A) deflationB) stagnationC) depressionD) stagflationE) recessionAnswer: EExplanation: A) If the period of downward swing is severe, the nation may enter into a recession, traditionally defined as two consecutive quarters of decline in the gross domestic product.B) If the period of downward swing is severe, the nation may enter into a recession, traditionally defined as two consecutive quarters of decline in the gross domestic product.C) If the period of downward swing is severe, the nation may enter into a recession, traditionally defined as two consecutive quarters of decline in the gross domestic product.D) If the period of downward swing is severe, the nation may enter into a recession, traditionally defined as two consecutive quarters of decline in the gross domestic product.E) If the period of downward swing is severe, the nation may enter into a recession, traditionally defined as two consecutive quarters of decline in the gross domestic product.

62) A deep and prolonged recession is known as a(n) ________.A) contractionB) stagnationC) deflation

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D) immobilizationE) depressionAnswer: EExplanation: A) A deep and prolonged recession can be considered a depression, which doesn't have an official definition but is generally considered to involve a catastrophic collapse of financial markets. B) A deep and prolonged recession can be considered a depression, which doesn't have an official definition but is generally considered to involve a catastrophic collapse of financial markets. C) A deep and prolonged recession can be considered a depression, which doesn't have an official definition but is generally considered to involve a catastrophic collapse of financial markets. D) A deep and prolonged recession can be considered a depression, which doesn't have an official definition but is generally considered to involve a catastrophic collapse of financial markets. E) A deep and prolonged recession can be considered a depression, which doesn't have an official definition but is generally considered to involve a catastrophic collapse of financial markets.

63) When a downward swing or recession is over, the economy enters into a period of ________.A) recoveryB) depressionC) contractionD) stagnationE) repercussionAnswer: AExplanation: A) When a downward swing or recession is over, the economy enters into a period of recovery.B) When a downward swing or recession is over, the economy enters into a period of recovery.C) When a downward swing or recession is over, the economy enters into a period of recovery.D) When a downward swing or recession is over, the economy enters into a period of recovery.E) When a downward swing or recession is over, the economy enters into a period of recovery.

64) ________ unemployment is the natural movement of workers into and out of jobs, such as when a person quits one job without first lining up a new job.A) StructuralB) IntrinsicC) FrictionalD) CyclicalE) SeasonalAnswer: CExplanation: A) Frictional unemployment is the natural movement of workers into and out of

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jobs, such as when a person quits one job without first lining up a new one.B) Frictional unemployment is the natural movement of workers into and out of jobs, such as when a person quits one job without first lining up a new one.C) Frictional unemployment is the natural movement of workers into and out of jobs, such as when a person quits one job without first lining up a new one.D) Frictional unemployment is the natural movement of workers into and out of jobs, such as when a person quits one job without first lining up a new one.E) Frictional unemployment is the natural movement of workers into and out of jobs, such as when a person quits one job without first lining up a new one.

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65) When demand for goods and services drops, businesses reduce production, thereby requiring fewer workers. The unemployment resulting because of this phenomenon is known as ________ unemployment.A) intrinsicB) cyclicalC) structuralD) seasonalE) frictionalAnswer: BExplanation: A) When demand for goods and services drops, businesses reduce production, thereby requiring fewer workers. This leads to cyclical unemployment.B) When demand for goods and services drops, businesses reduce production, thereby requiring fewer workers. This leads to cyclical unemployment.C) When demand for goods and services drops, businesses reduce production, thereby requiring fewer workers. This leads to cyclical unemployment.D) When demand for goods and services drops, businesses reduce production, thereby requiring fewer workers. This leads to cyclical unemployment.E) When demand for goods and services drops, businesses reduce production, thereby requiring fewer workers. This leads to cyclical unemployment.

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66) Workers in a country are unable to find jobs that match their qualifications and the employers are unable to find employees with the skills required to perform the job. This has led to ________ unemployment in this country.A) frictionalB) seasonalC) structuralD) cyclicalE) intrinsicAnswer: CExplanation: A) When workers can't find jobs that match their qualifications, and employers can't find employees with the skills their job openings require, it leads to structural unemployment.B) When workers can't find jobs that match their qualifications, and employers can't find employees with the skills their job openings require, it leads to structural unemployment.C) When workers can't find jobs that match their qualifications, and employers can't find employees with the skills their job openings require, it leads to structural unemployment.D) When workers can't find jobs that match their qualifications, and employers can't find employees with the skills their job openings require, it leads to structural unemployment.E) When workers can't find jobs that match their qualifications, and employers can't find employees with the skills their job openings require, it leads to structural unemployment.

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67) Which of the following types of unemployment is common in industries with predictable increases and decreases in customer demand?A) structuralB) frictionalC) intrinsicD) seasonalE) cyclicalAnswer: DExplanation: A) Predictable increases and decreases in the need for workers in industries with seasonal fluctuations in customer demand, lead to seasonal unemployment. It is most common in agriculture, leisure and entertainment, retailing, and accounting services.B) Predictable increases and decreases in the need for workers in industries with seasonal fluctuations in customer demand, lead to seasonal unemployment. It is most common in agriculture, leisure and entertainment, retailing, and accounting services.C) Predictable increases and decreases in the need for workers in industries with seasonal fluctuations in customer demand, lead to seasonal unemployment. It is most common in agriculture, leisure and entertainment, retailing, and accounting services.D) Predictable increases and decreases in the need for workers in industries with seasonal fluctuations in customer demand, lead to seasonal unemployment. It is most common in agriculture, leisure and entertainment, retailing, and accounting services.E) Predictable increases and decreases in the need for workers in industries with seasonal fluctuations in customer demand, lead to seasonal unemployment. It is most common in agriculture, leisure and entertainment, retailing, and accounting services.

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68) ________ is a steady rise in the average prices of goods and services throughout the economy.A) RecessionB) DepressionC) DeflationD) InflationE) ArbitrationAnswer: DExplanation: A) Inflation is a steady rise in the average prices of goods and services throughout the economy. B) Inflation is a steady rise in the average prices of goods and services throughout the economy. C) Inflation is a steady rise in the average prices of goods and services throughout the economy. D) Inflation is a steady rise in the average prices of goods and services throughout the economy. E) Inflation is a steady rise in the average prices of goods and services throughout the economy.

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69) Inflation is a major concern for consumers, businesses, and government leaders because it ________.A) is a precursor to recessionB) decreases the purchasing power of consumersC) decreases the production costsD) increases the demand for commoditiesE) decreases the opportunity cost of holding cash balancesAnswer: BExplanation: A) Inflation is a major concern for consumers, businesses, and government leaders because of its effect on purchasing power, or the amount of a good or service you can buy for a given amount of money. When prices go up, purchasing power goes down. If wages keep pace with prices, inflation is less worrisome, but if prices rise faster than wages, consumers definitely feel the pinch.B) Inflation is a major concern for consumers, businesses, and government leaders because of its effect on purchasing power, or the amount of a good or service you can buy for a given amount of money. When prices go up, purchasing power goes down. If wages keep pace with prices, inflation is less worrisome, but if prices rise faster than wages, consumers definitely feel the pinch.C) Inflation is a major concern for consumers, businesses, and government leaders because of its effect on purchasing power, or the amount of a good or service you can buy for a given amount of money. When prices go up, purchasing power goes down. If wages keep pace with prices, inflation is less worrisome, but if prices rise faster than wages, consumers definitely feel the pinch.D) Inflation is a major concern for consumers, businesses, and government leaders because of its effect on purchasing power, or the amount of a good or service you can buy for a given amount of money. When prices go up, purchasing power goes down. If wages keep pace with prices, inflation is less worrisome, but if prices rise faster than wages, consumers definitely feel the pinch.E) Inflation is a major concern for consumers, businesses, and government leaders because of its effect on purchasing power, or the amount of a good or service you can buy for a given amount of money. When prices go up, purchasing power goes down. If wages keep pace with prices, inflation is less worrisome, but if prices rise faster than wages, consumers definitely feel the pinch.

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70) Which of the following is an example of deregulation?A) lifting redundant restrictions on airline competitionB) banning the sale of tobacco to minors under the age of 18C) lowering the speed limit on an interstate highwayD) approving a proposed merger between Google and MicrosoftE) establishing economic development zones to attract new businessesAnswer: AExplanation: A) Deregulation is the process of removing regulations to allow the market to prevent excesses and correct itself over time. B) Deregulation is the process of removing regulations to allow the market to prevent excesses and correct itself over time. C) Deregulation is the process of removing regulations to allow the market to prevent excesses and correct itself over time. D) Deregulation is the process of removing regulations to allow the market to prevent excesses and correct itself over time. E) Deregulation is the process of removing regulations to allow the market to prevent excesses and correct itself over time.

71) The Federal Trade Commission (FTC) is charged with which of the following duties?A) overseeing communication by telephone, telegraph, radio, and televisionB) regulating and overseeing carriers engaged in interstate transportationC) enforcing laws and regulations to prevent distribution of harmful foods and drugsD) protecting the national transportation infrastructureE) enforcing laws regarding unfair business practices and deceptive advertisingAnswer: EExplanation: A) The Federal Trade Commission (FTC) enforces laws and guidelines regarding unfair business practices and acts to stop false and deceptive advertising and labeling.B) The Federal Trade Commission (FTC) enforces laws and guidelines regarding unfair business practices and acts to stop false and deceptive advertising and labeling.C) The Federal Trade Commission (FTC) enforces laws and guidelines regarding unfair business practices and acts to stop false and deceptive advertising and labeling.D) The Federal Trade Commission (FTC) enforces laws and guidelines regarding unfair business practices and acts to stop false and deceptive advertising and labeling.E) The Federal Trade Commission (FTC) enforces laws and guidelines regarding unfair business practices and acts to stop false and deceptive advertising and labeling.

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72) ________ laws limit what businesses can and cannot do to ensure that all competitors have an equal chance of succeeding.A) Fiscal B) DiscriminationC) AntitrustD) StabilizationE) EquilibriumAnswer: CExplanation: A) Antitrust laws limit what businesses can and cannot do to ensure that all competitors have an equal chance of succeeding.B) Antitrust laws limit what businesses can and cannot do to ensure that all competitors have an equal chance of succeeding.C) Antitrust laws limit what businesses can and cannot do to ensure that all competitors have an equal chance of succeeding.D) Antitrust laws limit what businesses can and cannot do to ensure that all competitors have an equal chance of succeeding.E) Antitrust laws limit what businesses can and cannot do to ensure that all competitors have an equal chance of succeeding.

73) ________ policy involves adjusting the nation's money supply by increasing or decreasing interest rates.A) FiscalB) TaxationC) CyclicalD) AntitrustE) MonetaryAnswer: EExplanation: A) Monetary policy involves adjusting the nation's money supply, the amount of "spendable" money in the economy at any given time, by increasing or decreasing interest rates.B) Monetary policy involves adjusting the nation's money supply, the amount of "spendable" money in the economy at any given time, by increasing or decreasing interest rates.C) Monetary policy involves adjusting the nation's money supply, the amount of "spendable" money in the economy at any given time, by increasing or decreasing interest rates.D) Monetary policy involves adjusting the nation's money supply, the amount of "spendable" money in the economy at any given time, by increasing or decreasing interest rates.E) Monetary policy involves adjusting the nation's money supply, the amount of "spendable" money in the economy at any given time, by increasing or decreasing interest rates.

74) ________ policy involves changes in the government's revenues and expenditures to stimulate a slow economy or dampen a growing economy that is in danger of overheating and causing inflation.A) Fiscal

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B) TaxationC) CyclicalD) AntitrustE) MonetaryAnswer: AExplanation: A) Fiscal policy involves changes in the government's revenues and expenditures to stimulate a slow economy or dampen a growing economy that is in danger of overheating and causing inflation.B) Fiscal policy involves changes in the government's revenues and expenditures to stimulate a slow economy or dampen a growing economy that is in danger of overheating and causing inflation.C) Fiscal policy involves changes in the government's revenues and expenditures to stimulate a slow economy or dampen a growing economy that is in danger of overheating and causing inflation.D) Fiscal policy involves changes in the government's revenues and expenditures to stimulate a slow economy or dampen a growing economy that is in danger of overheating and causing inflation.E) Fiscal policy involves changes in the government's revenues and expenditures to stimulate a slow economy or dampen a growing economy that is in danger of overheating and causing inflation.

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75) ________ taxes, levied on the earnings of individuals and businesses, are the government's largest single source of revenue.A) IncomeB) PropertyC) SalesD) ExciseE) PayrollAnswer: AExplanation: A) Income taxes are levied on the income earned by individuals and businesses. They are the government's largest single source of revenue.B) Income taxes are levied on the income earned by individuals and businesses. They are the government's largest single source of revenue.C) Income taxes are levied on the income earned by individuals and businesses. They are the government's largest single source of revenue.D) Income taxes are levied on the income earned by individuals and businesses. They are the government's largest single source of revenue.E) Income taxes are levied on the income earned by individuals and businesses. They are the government's largest single source of revenue.

76) ________ taxes, levied on retail purchases made by customers, are collected by retail businesses at the time of the sale and then forwarded to state governments.A) IncomeB) PropertyC) SalesD) ExciseE) PayrollAnswer: CExplanation: A) Sales taxes are levied on retail purchases made by customers. Sales taxes are collected by retail businesses at the time of the sale and then forwarded to state governments.B) Sales taxes are levied on retail purchases made by customers. Sales taxes are collected by retail businesses at the time of the sale and then forwarded to state governments.C) Sales taxes are levied on retail purchases made by customers. Sales taxes are collected by retail businesses at the time of the sale and then forwarded to state governments.D) Sales taxes are levied on retail purchases made by customers. Sales taxes are collected by retail businesses at the time of the sale and then forwarded to state governments.E) Sales taxes are levied on retail purchases made by customers. Sales taxes are collected by retail businesses at the time of the sale and then forwarded to state governments.

77) ________ taxes are implemented, in part, to help control potentially harmful practices, on selected items such as gasoline, tobacco, and liquor.A) IncomeB) Property

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C) SalesD) ExciseE) PayrollAnswer: DExplanation: A) Often referred to as "sin" taxes, excise taxes are implemented, in part, to help control potentially harmful practices, on selected items such as gasoline, tobacco, and liquor. B) Often referred to as "sin" taxes, excise taxes are implemented, in part, to help control potentially harmful practices, on selected items such as gasoline, tobacco, and liquor. C) Often referred to as "sin" taxes, excise taxes are implemented, in part, to help control potentially harmful practices, on selected items such as gasoline, tobacco, and liquor. D) Often referred to as "sin" taxes, excise taxes are implemented, in part, to help control potentially harmful practices, on selected items such as gasoline, tobacco, and liquor. E) Often referred to as "sin" taxes, excise taxes are implemented, in part, to help control potentially harmful practices, on selected items such as gasoline, tobacco, and liquor.

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78) ________ taxes are levied on earnings of individuals to help fund Social Security, Medicare, and unemployment compensation.A) ExciseB) PayrollC) SalesD) IncomeE) PropertyAnswer: BExplanation: A) Payroll taxes are levied on earnings of individuals to help fund Social Security, Medicare, and unemployment compensation. Also, corporations must match employee contributions.B) Payroll taxes are levied on earnings of individuals to help fund Social Security, Medicare, and unemployment compensation. Also, corporations must match employee contributions.C) Payroll taxes are levied on earnings of individuals to help fund Social Security, Medicare, and unemployment compensation. Also, corporations must match employee contributions.D) Payroll taxes are levied on earnings of individuals to help fund Social Security, Medicare, and unemployment compensation. Also, corporations must match employee contributions.E) Payroll taxes are levied on earnings of individuals to help fund Social Security, Medicare, and unemployment compensation. Also, corporations must match employee contributions.

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79) Retail sales, on the day after Thanksgiving, are usually a good indicator of overall retail sales for the Christmas season. This is an example of a ________ indicator.A) leadingB) conversionaryC) laggingD) currentE) latentAnswer: AExplanation: A) Leading indicators suggest changes that may happen to the economy in the future and are, therefore, valuable for planning. B) Leading indicators suggest changes that may happen to the economy in the future and are, therefore, valuable for planning. C) Leading indicators suggest changes that may happen to the economy in the future and are, therefore, valuable for planning. D) Leading indicators suggest changes that may happen to the economy in the future and are, therefore, valuable for planning. E) Leading indicators suggest changes that may happen to the economy in the future and are, therefore, valuable for planning.

80) In early December, it was reported that housing rates in October 2010 were at its 6-month low, which resulted in increased home purchases. This is an example of a ________.A) leading indicatorB) conversionary indicatorC) lagging indicatorD) current indicatorE) latent indicatorAnswer: CExplanation: A) Lagging indicators provide confirmation that something has occurred in the past.B) Lagging indicators provide confirmation that something has occurred in the past.C) Lagging indicators provide confirmation that something has occurred in the past.D) Lagging indicators provide confirmation that something has occurred in the past.E) Lagging indicators provide confirmation that something has occurred in the past.

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81) The ________ measures the rate of inflation by comparing changes in the prices of a representative basket of goods and services such as clothing, food, housing, and utilities.A) gross domestic product (GDP)B) producer price index (PPI)C) inflationary stability index (ISI)D) consumer price index (CPI)E) economic stimulus index (ESI)Answer: DExplanation: A) The consumer price index (CPI) measures the rate of inflation by comparing the change in prices of a representative "basket" of consumer goods and services, such as clothing, food, housing, and transportation.B) The consumer price index (CPI) measures the rate of inflation by comparing the change in prices of a representative "basket" of consumer goods and services, such as clothing, food, housing, and transportation.C) The consumer price index (CPI) measures the rate of inflation by comparing the change in prices of a representative "basket" of consumer goods and services, such as clothing, food, housing, and transportation.D) The consumer price index (CPI) measures the rate of inflation by comparing the change in prices of a representative "basket" of consumer goods and services, such as clothing, food, housing, and transportation.E) The consumer price index (CPI) measures the rate of inflation by comparing the change in prices of a representative "basket" of consumer goods and services, such as clothing, food, housing, and transportation.

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82) The ________ measures price at the producer or wholesaler level, reflecting what businesses are paying for the products they need.A) gross domestic product (GDP)B) producer price index (PPI)C) inflationary stability index (ISI)D) consumer price index (CPI)E) economic stimulus index (ESI)Answer: BExplanation: A) The producer price index (PPI) measures price at the producer or wholesaler level, reflecting what businesses are paying for the products they need. Like the CPI, the PPI is often referred to as a single index, but it is actually a family of more than 600 industry-specific indexes.B) The producer price index (PPI) measures price at the producer or wholesaler level, reflecting what businesses are paying for the products they need. Like the CPI, the PPI is often referred to as a single index, but it is actually a family of more than 600 industry-specific indexes.C) The producer price index (PPI) measures price at the producer or wholesaler level, reflecting what businesses are paying for the products they need. Like the CPI, the PPI is often referred to as a single index, but it is actually a family of more than 600 industry-specific indexes.D) The producer price index (PPI) measures price at the producer or wholesaler level, reflecting what businesses are paying for the products they need. Like the CPI, the PPI is often referred to as a single index, but it is actually a family of more than 600 industry-specific indexes.E) The producer price index (PPI) measures price at the producer or wholesaler level, reflecting what businesses are paying for the products they need. Like the CPI, the PPI is often referred to as a single index, but it is actually a family of more than 600 industry-specific indexes.

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83) The ________ measures a country's output—its production, distribution, and use of goods and services—by computing the sum of all goods and services produced for final use in a country during a specified period.A) gross domestic product (GDP)B) producer price index (PPI)C) gross national product (GNP)D) consumer price index (CPI)E) economic stability index (ESI)Answer: AExplanation: A) The broadest measure of an economy's health is the gross domestic product (GDP). The GDP measures a country's output—its production, distribution, and use of goods and services—by computing the sum of all goods and services produced for final use in a country during a specified period (usually a year).B) The broadest measure of an economy's health is the gross domestic product (GDP). The GDP measures a country's output—its production, distribution, and use of goods and services—by computing the sum of all goods and services produced for final use in a country during a specified period (usually a year).C) The broadest measure of an economy's health is the gross domestic product (GDP). The GDP measures a country's output—its production, distribution, and use of goods and services—by computing the sum of all goods and services produced for final use in a country during a specified period (usually a year).D) The broadest measure of an economy's health is the gross domestic product (GDP). The GDP measures a country's output—its production, distribution, and use of goods and services—by computing the sum of all goods and services produced for final use in a country during a specified period (usually a year).E) The broadest measure of an economy's health is the gross domestic product (GDP). The GDP measures a country's output—its production, distribution, and use of goods and services—by computing the sum of all goods and services produced for final use in a country during a specified period (usually a year).

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84) While gross domestic product (GDP) considers where the production occurs, ________ considers who is responsible for the production.A) human development index (HDI)B) producer price index (PPI)C) gross national product (GNP)D) consumer price index (CPI)E) economic stability index (ESI)Answer: CExplanation: A) GDP has largely replaced an earlier measure called the gross national product (GNP), which excludes the value of production from foreign-owned businesses within a nation's boundaries and includes receipts from the overseas operations of domestic companies. GNP considers who is responsible for the production; GDP considers where the production occurs.B) GDP has largely replaced an earlier measure called the gross national product (GNP), which excludes the value of production from foreign-owned businesses within a nation's boundaries and includes receipts from the overseas operations of domestic companies. GNP considers who is responsible for the production; GDP considers where the production occurs.C) GDP has largely replaced an earlier measure called the gross national product (GNP), which excludes the value of production from foreign-owned businesses within a nation's boundaries and includes receipts from the overseas operations of domestic companies. GNP considers who is responsible for the production; GDP considers where the production occurs.D) GDP has largely replaced an earlier measure called the gross national product (GNP), which excludes the value of production from foreign-owned businesses within a nation's boundaries and includes receipts from the overseas operations of domestic companies. GNP considers who is responsible for the production; GDP considers where the production occurs.E) GDP has largely replaced an earlier measure called the gross national product (GNP), which excludes the value of production from foreign-owned businesses within a nation's boundaries and includes receipts from the overseas operations of domestic companies. GNP considers who is responsible for the production; GDP considers where the production occurs.

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85) What is economics? Compare and contrast between microeconomics and macroeconomics.Answer: Economics is the study of how a society uses its scarce resources to produce and distribute goods and services.Economics is divided into a small-scale perspective and a large-scale perspective. The study of economic behavior among consumers, businesses, and industries that collectively determine the quantity of goods and services demanded and supplied at different prices is termed microeconomics. The study of a country's larger economic issues, such as how firms compete, the effect of government policies, and how an economy maintains and allocates its scarce resources, is termed macroeconomics. While microeconomics looks at the small picture and macroeconomics looks at the big picture, understanding the economy at either scale requires an understanding of how the small and large forces interact. For instance, a number of macro forces and policies determine whether homeowners can afford to install solar energy systems. In turn, the aggregate behavior of all those homeowners at the micro level affects the vitality and direction of the overall economy.

86) Explain the different factors of production.Answer: Natural resources are things that are useful in their natural state, such as land, forests, minerals, and water. Human resources are people and their individual talents and capacities. Capital includes money, computers, machines, tools, and buildings that a business needs in order to produce goods and services. Entrepreneurship is the spirit of innovation, the initiative, and the willingness to take the risks involved in creating and operating businesses. Knowledge is the collective intelligence of an organization.

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87) Compare and contrast between trade-offs and opportunity costs.Answer: Due to universal scarcity of resources, consumers, companies, and governments are constantly forced to make trade-offs, meaning they have to give up something to get something else. You have to decide how to spend the 24 hours you have every day, and every choice involves a trade-off—the more time you spend on one activity means less time for every other activity you could possibly pursue. Businesses must make similar trade-offs, such as deciding how much money to spend on advertising a new product versus how much to spend on the materials used to make it, or deciding how many employees to have in sales versus customer support.Opportunity cost refers to the value of the most appealing alternative from all those you didn't choose. In other words, opportunity cost is a way to measure the value of what you gave up when you pursued a different opportunity.

88) Compare and contrast between free-market systems and planned systems.Answer: In a free-market system, individuals and companies are largely free to decide what products to produce, how to produce them, whom to sell them to, and at what price to sell them. In other words, they have the chance to succeed—or to fail—by their own efforts. Capitalism and private enterprise are the terms most often used to describe the free-market system, one in which private parties (individuals, partnerships, or corporations) own and operate the majority of businesses and where competition, supply, and demand determine which goods and services are produced.In a planned system, governments largely control the allocation of resources and limit freedom of choice in order to accomplish government goals. Because social equality is a major goal of planned systems, private enterprise and the pursuit of private gain are generally regarded as wasteful and exploitive. The planned system that allows individuals the least degree of economic freedom is communism.

89) Is there such a thing as a "free" economy? Explain and support your views.Answer: In practice, no economy is truly "free." Local, state, national, and even international governments, such as the European Community, intervene in the economy to accomplish goals that leaders deem socially or economically desirable. This practice of limited intervention is characteristic of a mixed economy or mixed capitalism, which is the economic system of the United States and most other countries. For example, government bodies intervene in the U.S. economy in a variety of ways, such as influencing particular allocations of resources through tax incentives, prohibiting or restricting the sale of certain goods and services, or setting price controls. Price controls can involve maximum allowable prices (such as limiting rent increases) and minimum allowable prices (such as supplementing the prices of agricultural goods to ensure producers a minimum level of income or establishing minimum wage levels).

90) What type of economic system lies between capitalism and communism? Explain why it is more effective than other economic systems.Answer: Socialism is an economic system with a fairly high degree of government planning and

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some government ownership of capital resources. In a socialist economy, government ownership tends to be focused in industries considered vital to the common welfare, such as transportation, health care, and communications. Private ownership is permitted in other industries. Many European countries, including France and Germany, incorporate varying degrees of socialism.

91) Explain, with the help of an example, why socialism and capitalism are not mutually exclusive.Answer: While free-market capitalism remains the foundation of the U.S. economy, some important elements of the U.S. economy are socialized and have been for many years. Public schools, the postal service, much of the transportation infrastructure, various local and regional utilities, and several major health care programs all fit the economic definition of socialism. Socialism and capitalism are competing philosophies, but they are not mutually exclusive, and each approach has strengths and weaknesses, which is why most modern economies combine aspects of both.

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92) What are economic indicators?Answer: Economic indicators are statistics such as interest rates, unemployment rates, housing data, and industrial productivity that let business and political leaders measure and monitor economic performance. Leading indicators (such as durable-goods orders) suggest changes that may happen to the economy in the future, so they are valuable for planning. In contrast, lagging indicators (such as rates of unemployment) provide confirmation that something has occurred in the past.

93) List the major factors that affect the overall demand of a product.Answer: The effects of some of the major factors that can cause overall demand to increase or decrease:∙ customer income∙ customer preferences toward the product (fears regarding airline safety, for example)∙ the price of substitute products (products that can be purchased instead of air travel, including rail tickets, automobile travel, or web conferencing)∙ the price of complementary products (such as hotel accommodations or restaurant dining for the airline industry)∙ marketing expenditures (for advertising and other promotional efforts)∙ customer expectations about future prices and their own financial well-being

94) "As the supply and demand curves are dynamic, so is the equilibrium point." Explain this statement with an example.Answer: As variables affecting supply and demand change, so will the equilibrium price. For example, increased concerns about airline safety could encourage some travelers to choose alternatives such as automobile travel or web conferencing, thus reducing the demand for air travel at every price and moving the equilibrium point as well. Suppliers might respond to such a reduction in demand by either cutting the number of flights offered or lowering ticket prices in order to restore the equilibrium level.

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95) How does capitalism promote monopolistic competition in the market?Answer: Most of the competition in advanced free-market economies is monopolistic competition, in which a number of sellers offer products that can be distinguished from competing products in at least some small way. The risk/reward nature of capitalism promotes constant innovation in pursuit of competitive advantage, rewarding companies that do the best job of satisfying customers.

96) Differentiate between structural and cyclical unemployment.Answer: Structural unemployment occurs due to a mismatch between the skills of workers and the needs of employers. Workers can't find jobs that match their qualifications, and employers can't find employees with the skills their job openings require. Structural unemployment is an ongoing concern because changes in the external environments of business make some skills obsolete and create demand for new skills.Cyclical unemployment is caused by economic fluctuations. When demand for goods and services drops, businesses reduce production, thereby requiring fewer workers. Then, an increasing number of people who want to work can't find jobs. During catastrophic depressions, cyclical unemployment can run as high as 20 or 25 percent.

97) Compare and contrast between monetary and fiscal policies.Answer: Monetary policy involves adjusting the nation's money supply, the amount of "spendable" money in the economy at any given time, by increasing or decreasing interest rates. In the United States, monetary policy is controlled primarily by the Federal Reserve Board (often called "the Fed"), a group of government officials who oversee the country's central banking system. Fiscal policy involves changes in the government's revenues and expenditures to stimulate a slow economy or dampen a growing economy that is in danger of overheating and causing inflation. On the revenue side, governments can adjust the revenue they bring in by changing tax rates and various fees collected from individuals and businesses. When the federal government lowers the income tax rate, for instance, it does so with the hope that consumers and businesses will spend and invest the money they save by paying lower taxes.

98) Explain the meaning of a leading indicator with the help of an example.Answer: Leading indicators suggest changes that may happen to the economy in the future and are therefore valuable for planning. Housing starts, for example, are a leading indicator that shows where several industries are headed. When housing starts drop, the construction industry contracts, and the effect soon ripples through other sectors of the economy, from the manufacture of plumbing fixtures, carpet, and appliances to a variety of services, including furniture retailing, real estate sales, and other areas dependent on housing-related transactions. Another key leading indicator is durable-goods orders, or orders for goods that typically last more than three years (which can mean everything from desk chairs to airplanes). A rise in durable-goods orders is a positive indicator that business spending is turning around. In addition to all these indicators, economists closely monitor several price indexes and the nation's economic output to get a sense of how well the economy is working.

99) Explain three commonly known price indexes.Answer: Government statisticians compute a huge variety of price indexes, each designed to monitor a particular aspect of economic activity. The best known of these, the consumer price index (CPI), measures the rate of inflation by comparing the change in prices of a representative

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"basket" of consumer goods and services, such as clothing, food, housing, and transportation. In contrast to the CPI, the producer price index (PPI) measures price at the producer or wholesaler level, reflecting what businesses are paying for the products they need. In addition to monitoring economic activity, PPIs have a number of managerial uses, from helping companies place an accurate value on inventories to protecting buyers and sellers with price-escalation clauses in long-term purchasing contracts. The broadest measure of an economy's health is the gross domestic product (GDP). The GDP measures a country's output—its production, distribution, and use of goods and services—by computing the sum of all goods and services produced for final use in a country during a specified period (usually a year). The products may be produced by either domestic or foreign companies as long as the production takes place within a nation's boundaries.

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100) Define and discuss the term business cycles.Answer: The economy is always in a state of change, expanding or contracting in response to the combined effects of factors such as technological breakthroughs, changes in investment patterns, shifts in consumer attitudes, world events, and basic economic forces. Business cycles represent the fluctuations in the rate of growth that an economy experiences over a period of several years. These cycles include economic expansion, when the economy is growing and consumers are spending more money, which stimulates higher employment and wages, which then stimulate more consumer purchases. The cycles include economic contraction, when spending declines, employment drops, and the economy as a whole slows down. Even though experts call these up-and-down swings business cycles, this term is somewhat misleading, because real economies do not expand and contract in regular and predictable "cycles." More accurately, the behavior of an economy can be characterized as economic fluctuations.

UNDERSTANDING BASIC ECONOMICS

This chapter introduces important micro- and macroeconomic concepts such as demand versus supply, competition, monetary and fiscal policies, inflation, and economic indicators. It distinguishes among major economic systems and discusses ways of measuring economic activity. It also covers the debate over deregulation and identifies key roles that government play in the economy.

I. What Is This Thing Called the Economy?

A. The economy is the sum total of all the economic activity within a given region

B. Economics is the study of how a society uses its scarce resources to produce and distribute goods and services

1. Microeconomics is the study of economic behavior among consumers, businesses, and industries that collectively determine the quantity of goods and services demanded and supplied at different prices

2. Macroeconomics is the study of a country’s larger economic issues, such as competition, government policies, and how an economy maintains and allocates its scarce resources

C. Each society must decide how to use its economic resources or factors of production

1. Natural resources – things that are useful in their natural state (land, forests, minerals, and water)

2. Human resources – people and their individual talents and capacities

3. Capital – money, computers, machines, tools, and buildings

Chapter Overview

Chapter Outline

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4. Entrepreneurship – the spirit of innovation, the initiative and the willingness to take on risks involved in creating/operating a business

5. Knowledge – the collective intelligence of an organization

C. The supply of these factors of production is limited

1. Scarcity creates competition for resources

2. Scarcity forces consumers, companies and governments to make trade-offs

a. Opportunity cost is the value of the most attractive option not selected when making a trade-off

II. Economic Systems

A. An economic system is the basic set of rules for allocating a society’s resources to satisfy its citizens’ needs

1. Free-market system – individuals and companies decide what products to produce, how to produce them, to whom to sell them, and at what price

a. Referred to as capitalism – private parties own/operate the majority of businesses and competition, supply, and demand determine goods/services produced

b. No economy is without limited intervention by government, creating a mixed economy or mixed capitalism

2. Planned system – governments largely control allocation of resources

a. Communism is the economic system that allows individuals the least degree of economic freedom

b. Socialism has a high degree of government planning, some government ownership of capital resources but private ownership is permitted in some industries

3. Governments change structure of economy in two ways:

a. Nationalizing – assuming ownership of selected companies or industries

b. Privatizing – allowing private businesses to perform services once performed by the government

III. The Forces of Demand and Supply

A. Demand – buyers’ willingness and ability to purchase products at various price points

1. The demand curve shows the relationship between price and demand – as price decreases, demand increases (i.e., more people are willing to buy)

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B. Supply – the quantities of a good/service that producers will provide on a particular date at various prices

1. The supply curve shows the relationship between supply and demand – as price increases, the quantity that sellers are willing to supply increases

C. Demand and supply curves intersect at equilibrium point – the point at which quantity supplied equals quantity demanded

IV. The Macro View: Understanding How an Economy Operates

A. Competition is rivalry among businesses for the same customers.

B. There are different degrees of competition

1. Pure competition – the market situation in which there are so many buyers and sellers that no single buyer or seller can individually influence market price

2. Monopoly – the market situation in which one company dominates the market and can control prices

3. Monopolistic competition – the market situation in which there are many sellers who differentiate their products from those of competitors in at least some small way

4. Oligopoly – the market situation in which a very small number of suppliers, sometimes only two, provide a particular good or service

C. Economic activity changes in response to factors such as investment patterns, shifts in consumer attitudes, world events and basic economic forces – called economic fluctuation or business cycles

1. Economic expansion – when the economy is growing and consumers are spending more money

2. Economic contraction – when spending declines, employment drops and the economy slows down

a. A recession is two consecutive quarters of decline in gross domestic product

b. A deep and prolonged recession can be considered a depression, a catastrophic collapse of financial markets

D. Unemployment rate – the percentage of labor force currently without employment

1. Four types of unemployment – frictional, structural, cyclical, and seasonal

E. Inflation – the steady rise in the average prices of goods and services throughout the economy

1. Deflation is the sustained fall in average prices

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V. Government’s Role in a Free-Market System

A. There is considerable debate over the key roles that governments play in the economy

1. Regulation involves relying more on laws and policies than on market forces to govern economic activity

2. Deregulation involves removing laws and regulations to allow the market to prevent excesses and correct itself over time

B. The government plays a role in the economy in four major areas:

1. Protecting stakeholders through numerous regulatory agencies

2. Fostering competition through prevention of monopolies

a. Antitrust legislation

b. Merger and acquisition approval

3. Encouraging innovation and economic development

4. Stabilizing and stimulating the economy through use of monetary policy and fiscal policy

a. Monetary policy involves adjusting the nation’s money supply by increasing or decreasing interest rates. It is administered by the Federal Reserve Board

b. Fiscal policy involves changes in the government’s revenues (taxation) and expenditures

VI. Economic Measures and Monitors

A. Economic indicators are statistics such as interest rates, unemployment rates, housing data and industrial productivity

1. Leading indicators (such as housing starts and durable-goods orders) suggest changes that may happen to the economy in the future

2. Lagging indicators (such as the unemployment rate) provide confirmation that something has happened in the past

B. Price indexes offer a way to monitor inflation or deflation

1. The consumer price index (CPI) measures rate of inflation by comparing change in prices of a representative “basket” of consumer goods and services

2. The producer price index (PPI) is a statistical measure of price trends at the producer and wholesaler levels

C. The gross domestic product (GDP) is the value of all the final goods and services produced by businesses located within a nation’s borders.

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Break-out Group Discussion: Capitalism vs. Socialism

Goal: Ask students to discuss the pros and cons of both capitalism and socialism and to come away with the understanding that each system has its own benefits and shortcomings.

Time Limit: 15 minutes.

Details:

1. Break students into groups of five. (2 minutes)2. Ask each group to come up with the top pros and cons of capitalism or socialism. Sample list

items include capitalism’s efficient self-adjusting market mechanism via “demand vs. supply”, encouragement of hard work and entrepreneurship, lower taxes, higher income disparity, and generally poorer records in the public sector such as education, healthcare and social welfare, and socialism’s generally better records in education, healthcare and social welfare, lower income disparity, higher taxes and less incentive for hard work and entrepreneurship. Use examples of countries and regions to illustrate such differences, e.g. U.S. and Hong Kong for capitalism, and France and Canada for socialism (10 minutes)

3. Ask representatives/speakers from each group to present their results to the whole class, either verbally or written (on the blackboard). (3 minutes)

Summary: Instructor summarizes the top pros and cons for both capitalism and socialism, and concludes that the best system tends to be a mixed system that incorporates the beneficial elements of both systems.

In-Class Activity: GDP vs. GNP

Goal: Help students differentiate between Gross Domestic Product (GDP) and Gross National Product (GNP).

Time Limit: 10 minutes.

Classroom Activities

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Details:

1. Draw a table with three columns and four rows on the blackboard with the following column headings respectively: “Scenarios”, “Which Country’s GDP” and “Which Country’s GNP”.

2. Lists the following three scenarios under the column heading “Scenarios”.a. An American banker working in Londonb. A Chinese factory worker in a Coca Cola bottling plant in Shanghai c. An Australian volunteer in South Africa

3. Ask students to pair up and recreate the content of the blackboard in their notebooks. They then need to populate the rest of the table by listing the names of countries under the two column headings corresponding to GDP and GNP.

4. Make it clear to students that the main difference between GDP and GNP is that GDP considers where the production occurs and GNP considers who is responsible for the production. For instance, in Scenario A, the goods and services produced by an American banker in London should be classified as the GDP of United Kingdom (UK) and the GNP of United States (US).

Hint: GNP excludes the value of production from foreign-owned businesses within a nation’s boundaries (Scenario B). Volunteering is not a component of GDP or GNP (Scenario C).

Behind The ScenesThe Push for Grid Parity at Suntech Power

Critical Thinking Questions2-1.What effect are feed-in tariffs likely to have on electricity users who don’t adopt solar? Is this

outcome fair? Why or why not?Feed-in tariffs will likely raise the electricity rates in the short term for users who don’t adopt solar because individual suppliers are often paid above-market rates for their power by some governments. This outcome is fair because feed-in tariffs are intended to spur the growth of solar in the short term. Over the long run, high adoption rates of solar, combined with technical advances and production efficiencies will drive down the cost of solar energy. (LO: 5, AACSB: Ethical understanding and reasoning)

2-2.If a particular government believes that solar is a more desirable energy source than nonrenewables such as coal and gas, why wouldn’t it simply grant solar energy utilities monopoly rights?Because monopoly typically has the effect of reducing competition and raising prices. (LO: 4, AACSB: Analytical thinking)

End-of-Chapter

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2.3 Why could it make sense for a company to acquire one or more competitors during an industry shakeout, if there isn’t enough business to sustain al the suppliers in the market?It would make sense for Suntech to acquire ailing competitors if it can structure an all-stock deal and conserve much needed cash during a recession. Another advantage of acquiring during a deep recession is the lower-than-usual acquisition price. (LO: 4, AACSB: Analytical thinking)

Learn More OnlineStudents’ responses will depend, in large part, on the material currently posted on the website. (LO: 4, AACSB: Analytical thinking).

Test Your Knowledge

Questions for Review2-4.Why is the economic concept of scarcity a crucial concept for businesspeople to understand?

The economic concept of scarcity is a crucial concept for businesspeople to understand because scarcity creates competition for resources and forces trade-offs on the part of every participant in the economy. First, businesses and industries compete with each other for the resources they need, including materials, employees and customers. Second, given this universal scarcity of resources, businesses are constantly forced to make trade-offs, such as deciding how much money to spend on advertising a new product versus how much to spend on the materials used to make it, or deciding how many employees to have in sales versus customer support. (LO: 1)

2-5. How does macroeconomics differ from microeconomics?Macroeconomics looks at the study of an economy as a whole. It is the “bigger picture” view. It examines factors such as changes in unemployment, national income, rate of the economy’s growth, the nation’s gross domestic product, and inflation and price levels. Microeconomics looks at the smaller picture. It focuses more on consumers, businesses and industries. Microeconomics examines factors such as supply and demand and the determination of price and output in markets. (LO: 1)

2-6.Does the United States have a purely free-market economy or a mixed economy?The U.S. has a mixed economy. (LO: 2)

2-7.Why is government spending an important factor in economic stability?In an attempt to foster economic stability, the government can levy new taxes or adjust the current tax rates, raise or lower interest rates, and regulate the total amount of money circulating in our economy. These government actions have two facets: monetary policy and fiscal policy. Monetary policy involves adjusting the nation’s money supply by increasing or decreasing interest rates to help control inflation. Fiscal policy involves changes in the government’s revenues and expenditures to stimulate or dampen the economy. Government spending is indeed an important factor in U.S. economic stability. For one thing, the U.S. federal and state governments are responsible for supplying and maintaining such public goods and services as the highways, military, public water works, fire and police protection, and so on. The U.S. government gets money to provide such public goods by collecting a variety of taxes. (LO: 5)

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2-8.Why might a government agency seek to block a merger or acquisition?To preserve competition, a government agency may stipulate requirements companies must meet to gain approval of a proposed merger or acquisition. If the governmental agency thinks a proposed merger or acquisition might restrain competition, it may deny approval altogether. (LO: 5, AACSB: Ethical understanding and reasoning)

Questions for Analysis2-9. Why do governments intervene in the free-market system?

Governments intervene in free-market systems to influence prices and wages or to change the way resources are allocated. This practice of limited intervention is called mixed capitalism, which is the economic system of the United States. Under mixed capitalism, the pursuit of private gain is regarded as a worthwhile goal that ultimately benefits society as a whole. (LO: 2)

2-10. How do countries know if their economic systems are working?Economic indicators are statistics such as interest rates, unemployment rates, and housing data, GNP, GDP, CPI, etc. A country’s professional economists sort and interpret these data to monitor and measure the country’s economic performance and predict its future performance. (LO: 6)

2-11. Are the fluctuations in the business cycle predictable?No, such fluctuations are rarely predictable. (LO: 4)

2-12. Is pure competition better for customers than monopolistic competition? Why or why not?Monopolistic competition is better for buyers. In pure competition, there are many small

suppliers with virtually identical products. In monopolistic competition, many sellers differentiate their products from those of competitors in at least some small way. (LO: 4, AACSB: Analytical thinking)

2-13. Ethical Considerations. The risk of failure is an inherent part of free enterprise. Does society have an obligation to come to the aid of entrepreneurs who try but fail? Why or why not?

Students’ answers will vary, but may reflect some of the following concerns:

Entrepreneurs willing to face risks of failure are a vital force in capitalist economies Such entrepreneurs will be rewarded handsomely when they become successful Many such entrepreneurs are involved in multiple ventures and may use earnings from

successful ventures to fund, develop or improve ventures that are less successful (LO: 5, AACSB: Ethical understanding and reasoning)

Questions For Application2-14.How might government and education leaders work with business to minimize structural

unemployment?

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Government and education leaders might work with businesses to provide educational opportunities and training programs that would best match workers’ skills with the current needs of employers in an effort to minimize structural unemployment. (LO: 6, AACSB: Analytical thinking)

2-15. How would a decrease in Social Security benefits to retired persons affect the economy? First it would lower government spending and perhaps reduce the national debt. While many might see this as an economic boost, all things being equal, a decrease in government spending would also reduce the amount of money in the economy. For example, because of the circular flow, the elderly would have less money to spend so businesses that cater to the needs of the elderly might be hurt and the employees of those businesses might lose their jobs and so on. In order for the economy to stay balanced, the decrease in money spent by the government on Social Security would have to be substituted by an infusion of money into the economy from another source. Plus the multiplier effect of that change would have to be analyzed. (LO: 6, AACSB: Analytical thinking)

2-16.If you wanted to increase demand for your restaurant but are unable to lower prices or increase advertising, what steps might you take?

Applying the law of demand vs. supply, you may want to relocate your restaurant to a neighborhood/area where there are not as many other restaurants, i.e. where there is less supply. There will be less competition and you may even be able to raise your price slightly without driving customers away. (LO: 3, AACSB: Analytical thinking)

2-17.Concept Integration. What effect might the technological environment, discussed on page 10 in Chapter 1, have on the equilibrium point in a given market?

Student answers may vary; however, the following provides a possible scenario: Technological advances may help reduce the cost of producing goods and services and therefore

increasing the supply for a given market at every price, thus moving the equilibrium point as well. (LO: 3, AACSB: Information technology)

Expand Your Knowledge

Discovering Career OpportunitiesThinking about a career in economics? Find out what economists do by reviewing the Occupational Outlook Handbook in your library or online at www.bls.gov/oco/. This is an authoritative resource for information about all kinds of occupations. Search for “economists” then answer these questions:

2-18.Briefly describe what economists do and their typical working conditions.Economists study the production and distribution of resources, goods, and services by collecting and analyzing data, researching trends, and evaluating economic issues. Economists typically research and analyze economic issues, conduct surveys and collect data, analyze data using mathematical models and statistical techniques, and prepare reports, tables, and charts that present research results. They also interpret and forecast market trends, advise businesses, governments, and individuals on economic topics, design policies or make recommendations for solving economic problems, and write articles for publication in academic journals and other media sources.

Economists apply economic analysis to issues within a variety of fields, such as education, health, development, and the environment. Some economists study the cost of products, healthcare, or energy. Others examine employment levels, business cycles, or exchange rates. Still, others analyze the effect of taxes, inflation, or interest rates.

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Economists held about 16,900 jobs in 2012, of which 45 percent were in government. Another 19 percent worked in management, scientific, and professional consulting services. Economists typically work independently in an office. However, many economists collaborate with other economists and statisticians, sometimes working on teams. Some economists work from home, and others may be required to travel as part of their job or to attend conferences. (LO: 5)

2-19. What is the job outlook for economists? What is the average salary for starting economists?Employment of economists is projected to grow 14 percent from 2012 to 2022, about as fast as the average for all occupations.

Businesses and organizations across many industries are increasingly relying on economic analysis and quantitative methods to analyze and forecast business, sales, and other economic trends. Demand for economists should grow as a result of the increasing complexity of the global economy, additional financial regulations, and a more competitive business environment. As a result, demand for economists should be best in private industry, especially in management, scientific, and professional consulting services.

However, employment in the federal government—the largest employer of economists—is projected to decline. As a result, the need for economists in the federal government is likely to be limited.

The median annual wage for economists was $91,860 in May 2012. The median wage is the wage at which half the workers in an occupation earned more than the amount and half earned less. The lowest 10 percent earned less than $51,410, and the top 10 percent earned more than $155,490. (LO: 5, AACSB: Ethical understanding and reasoning)

2-20. What training and qualifications are required for a career as an economist? Are the qualifications different for jobs in the private sector as opposed to those in the government?A master’s degree or Ph.D. is required for most economist jobs. Positions in business, research, or international organizations often require a combination of graduate education and work experience.

Students can pursue an advanced degree in economics with a bachelor’s degree in a number of fields, but a strong background in math is essential. A Ph.D. in economics requires several years of study after earning a bachelor’s degree, including completion of detailed research in a specialty field.

Candidates with a bachelor’s degree qualify for some entry-level economist positions, including jobs with the federal government. An advanced degree is sometimes required for advancement to higher level positions.

Most who complete a bachelor’s degree in economics find jobs outside the economics profession as research assistants, financial analysts, market research analysts, and similar positions in business, finance, and consulting. (LO: 5)

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Improving Your Tech Insights: Data Mining

To find a few ounces of precious gold, you dig through a mountain of earth. To find a few ounces of precious information, you dig through mountains of data, using data mining, a combination of technologies and techniques that extract important customer insights buried within thousands or millions of transaction records. (Data mining has many other uses as well, such as identifying which employees are most valuable to a firm. And a related technology, text mining, applies similar analysis tools to documents.)

Data mining is an essential part of business intelligence because it helps extract trends and insights from millions of pieces of individual data (including demographics, purchase histories, customer service records, and research results). Data mining helps marketers identify who their most profitable customers are, which goods and services are in highest demand in specific markets, how to structure promotional campaigns, where to target upcoming sales efforts, and which customers are likely to be high credit risks, among many other benefits. You may hear the term business analytics and predictive analytics used in this context as well, to describe efforts to extract insights from databases.

Research one of the commercially available data-mining or business analytics systems. The list of member companies of the Data Mining Group (www.dmg.org) is a good place to start. In a brief email message to your instructor, describe how the system you’ve chosen can help companies market their goods and services more effectively.

Student answers will vary depending on the magazines or companies they pick. (LO: 6, Information technology)

Practice Your Skills

Sharpening Your Communication SkillsThe subprime mortgage crisis that helped throw the global economy into a recession in December 2007 bewildered a lot of people. In a brief paragraph (no more than 100 words), explain what a subprime mortgage is and why these loans helped trigger the worst recession since the Great Depression.

Student answers will vary but they should define subprime mortgages, which are home loans for borrowers with low credit scores. They should also address the high risk and high default nature of such loans. Students need to mention that half of subprime mortgages are Adjustable Rate Mortgages, which are especially vulnerable to payment shock when low initial rates expired. (LO: 4, AACSB: Reflective thinking)

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Building Your Team SkillsEconomic indicators help businesses and governments determine where the economy is headed. As part of a team assigned by your instructor, analyze the following newspaper headlines for clues to the direction of the U.S. economy:

“Housing Starts Lowest in Months” “Fed Lowers Discount Rate and Interest Rates Tumble” “Retail Sales Up 4 Percent Over Last Month” “Business Debt Down from Last Year” More Manufacturers Showing Interest in Upgrading Production Equipment” “Local Economy Sinks as Area Unemployment Rate Climbs to 9.2 Percent” “Computer Networking Firm Reports 30-Day Backlog in Installing Business Systems”

Is each item good news or bad news for the economy? Why? What does each news item mean for large and small businesses? Report your team’s findings to the class. Did all the teams come to the same conclusions about each headline? Why or why not? With your team, discuss how these different perspectives might influence the way you interpret economic news in the future. (LO: 6, AACSB: Analytic thinking)

Housing Starts Lowest In MonthsThis indicates that consumers are not very confident about the future, so they are “staying put” rather than building new houses.

Fed Lowers Discount Rate And Interest Rates TumbleThis headline indicates that aggregate demand is slow. In order to boost the economy and encourage firms to invest more, the Fed lowers the discount rate and other interest rates follow.

Retail Sales Up 4 Percent Over Last MonthIncrease in sales indicates a healthy economy with employment rates rising and rising consumer confidence as a result. Some inflationary pressure may result.

Business Debt Down From Last YearThis indicates that business owners are less confident and less willing to take on debt.

More Manufacturers Showing Interest in Upgrading Production EquipmentThis headline indicates that businesses are replacing labor with machines.

Local Economy Sinks as Area Unemployment Rate Climbs to 9.2 PercentThis indicates that high unemployment rate often contributes to lower consumer spending, resulting in a shrinking local economy.

Computer Networking Firm Reports 30-Day Backlog in Installing Business SystemsThis indicates growth in the economy, as businesses are growing.

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Developing Your Research SkillsSome career paths have higher unemployment risks during the ups and downs of economic fluctuations. Research three business careers that should be relatively “recession proof” in the coming years, meaning that employment is unlikely to drop dramatically (or may even increase) during a recession. Summarize your findings in a one-page report.Student answers may vary but three likely such careers are healthcare, education and green technology. (LO: 4)

Assisted-graded Questions

2.21 Why is competition an important element of the free-market system?The need to compete for customers keeps prices down, encourages cost-cutting techniques, and promotes a diversity of goods to cater to diverse and changing consumer preferences. Because competition responds to customer demands, products that are low quality or dangerous will be removed from the market, while products or services that are quality, fairly priced, and meet consumers needs will stay on the market. Because companies will not receive money for goods that the consumer does not find worthwhile, the system is considered to be “self-regulating.” (LO: 4, AACSB: Analytical thinking)

2.22 How might the word “free” affect public and political discussions of free-market systems?There is much debate about how “free” the free market should be. In a broader view, this argument springs from profound philosophical differences over the role government should play in society as a whole. More narrowly, even professional economists don’t always agree on what role the government should play in the economy. Much of the debate is framed as the argument between regulation versus deregulation. (LO: 5, AACSB: Ethical understanding and reasoning)

LEARNING OBJECTIVE 1: Define economics and explain why scarcity is central to economic decision making.

Critical thinking:

(1)Why is entrepreneurship considered a factor of production?

Entrepreneurship is considered a factor of production because it is finite, just like the other four factors of production, in that not everyone has the spirit of innovation, the initiative, and the willingness to take the risks involved in creating and operating businesses. Like the other four factors, entrepreneurship can also be used to satisfy society’s needs.

(2) If you had an unlimited amount of money, would you ever need to make trade-offs again? Why or why not?

CHECKPOINTS

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Students’ responses will vary depending on personal opinions but points to consider include the fact that economics is defined in terms of scarcity, and scarcity makes trade-off a necessity.

It’s your business:

(1) Did you consider opportunity cost when you chose the college or university you are currently attending?

Students’ responses will vary depending on personal experiences.

(2) What trade-offs did you make in order to read this chapter at this exact moment in your life? (Think about the decisions you made to get to a point in your life where you’re taking a business course.)

Students’ responses will vary depending on personal experiences.

LEARNING OBJECTIVE 2: Differentiate among the major types of economic systems.

Critical thinking:

(1) Why are no economies truly free, in the sense of having no controls or restrictions?

Because in all economies, local, state, national and even international governments intervene in the economy to various degrees, to accomplish goals that leaders deem socially or economically desirable. These interventions include taxation and price controls.

(2) What are some possible risks of privatizing basic services such as the transportation infrastructure?

Some possible risks include that the private entities that are in control of transportation infrastructure could sacrifice infrastructure quality and safety to minimize costs and maximize profits. They may also be entities controlled by foreign governments that may not be friendly towards the U.S. or even become hostile both politically and militarily.

It’s your business:

(1) What is your emotional reaction to the terms capitalism and socialism? Explain why you feel the way you do.

Students’ responses will vary depending on personal opinions.

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(2) Would you rather pay lower taxes and accept the fact that you need to pay for many services such as health care and education, or pay higher taxes with the assurance that the government would provide many basic services for you? Why?

Students’ responses will vary depending on personal opinions.

LEARNING OBJECTIVE 3: Explain the interaction between demand and supply.

Critical thinking:

(1) How does the interaction of demand and supply keep a market in balance, at least approximately and temporarily?

The interaction of demand and supply keep a market in balance through the equilibrium point.

(2) If the prices of complementary products for a given product go up, what effect is this increase likely to have on demand for that product?

This increase will likely reduce the demand for that product.

It’s your business:

(1) Are there any products or brands you are so loyal to that you will purchase them at almost any price? Will you accept cheaper substitutes?

Students’ responses will vary depending on personal opinions.

(2) Have you ever purchased something simply because it was on sale? Why?

Students’ responses will vary depending on personal experiences.

LEARNING OBJECTIVE 4: Identify four macroeconomic issues that are essential to understanding the behavior of the economy.

Critical thinking:

(1) Are colleges and universities an example of pure competition or monopolistic competition? Why?

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They are monopolistic competition since they offer products that can be distinguish from competing products in at least some small way, such as strengths in certain majors or facilities.

(2) Are monopolies always harmful to consumers? Why or why not?

Not necessarily. There are some government sanctioned monopolies such as utilities and the U.S. Post Service, which are not really harmful to consumers.

It’s your business:

(1) What state of the business cycle is the economy currently in? Is this influencing your career plans?

Students’ responses will vary depending on personal experiences and opinions.

(2) Have you ever been unemployed (at a time when you were actively looking for work)? Which of the four categories of unemployment would you have fallen under?

Students’ responses will vary depending on personal experiences and opinions.

LEARNING OBJECTIVE 5: Outline the debate over deregulation and identify four key roles that governments play in the economy.

Critical thinking:

(1) Would it be wise for the government to put price controls on college tuition? Why or why not?

Students’ responses will vary depending on personal opinions as well as how much of a role they think government should play in the economy.

(2) Under what conditions, if any, should the federal government step in to rescue failing companies?

Students’ responses will vary depending on how much of a role they think government should play in private industries.

It’s your business:

(1) How do you benefit from competition among the companies that supply you with the goods and services you need?

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Students’ responses will vary depending on personal opinions

(2) Does this competition have any negative impact on your life?

Students’ responses will vary depending on personal opinions

LEARNING OBJECTIVE 6: Identify the major ways of measuring economic activity.

Critical thinking:

(1) Why would anyone bother to monitor lagging indicators?

Lagging indicators are important since they provide confirmation that something (such as a recession) has occurred in the past.

(2) Why is GDP considered a more accurate measure of a country’s economic health than GNP?

GDP is considered a more accurate measure since it includes goods and services produced within a country’s borders, and enables a nation to evaluate its economic policies and to compare its current performance with prior periods or with the performance of other nations.

It’s your business:

(1) In your multiple economic roles as a consumer, employee, and investor, is inflation a good thing, a bad thing, or both? Explain your answer.

Students’ responses will vary depending on personal opinions.

(2) How have increases in college costs affected your educational plans?

Students’ responses will vary depending on personal experiences.

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