Chapter 2

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  1. America's business success is largely due to an economic and social climate that allows businesses to operate freely.

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Understanding business

322 Terms

1
  1. America's business success is largely due to an economic and social climate that allows businesses to operate freely.

True

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2
  1. Global economics and politics have no significant influence on businesses in the United States.

False

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3
  1. The study of how society chooses to employ resources to produce goods and services and to distribute them for consumption among various competing groups and individuals is known as sociology.

False

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4
  1. Economists study how people use resources to produce and distribute goods and services for consumption among competing groups and individuals.

True

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5
  1. Macroeconomics is the economic perspective that looks at the operation of a nation's economy as a whole.

True

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6
  1. Microeconomics focuses on the decisions and behavior of people and organizations in particular markets.

True

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7
  1. Resource development is concerned with finding the best way to utilize the fixed amount of resources a society has available.

False

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8
  1. Resource development is the study of how to increase resources and to create the conditions that will make better use of those resources.

True

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9
  1. Peace and prosperity will flourish if we can find the one best way to divide existing resources among nations.

False

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10
  1. Thomas Malthus believed that overpopulation was a major cause of poverty.

True

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11
  1. In developing nations of the world, population has leveled off and is not expected to increase dramatically in the future.

False

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12
  1. Studies about the effects of population growth on the economy are part of macroeconomics.

True

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13
  1. Economic progress can occur when business owners provide jobs and economic growth for their employees, their communities, and themselves.

True

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14
  1. Economist Adam Smith's important contribution was an inquiry as to why some nations are wealthy, while others remain poor.

True

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15
  1. Adam Smith believed the self-interest of businesspeople would lead them to create needed goods, services, and jobs.

True

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16
  1. The "invisible hand" in Adam Smith's theory turns self-directed gain into social and economic benefits for all.

True

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17
  1. According to Adam Smith, the "invisible hand" refers to the government's effort to always keep a check on the wealth creation of individuals, so that no one business would control a market for a particular good or service.

False

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18
  1. A contemporary economic challenge is creating profitable businesses by selling goods and services that contribute toward a healthier environment.

True

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19
  1. An economist is examining how consumers in the automobile market have responded to recent price increases by car manufacturers. He is examining a microeconomic situation.

True

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20
  1. Macroeconomics looks at long run economic problems while microeconomics examines short run economic problems.

False

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21
  1. Thomas Malthus believed that people in most countries would never be able to achieve high standards of living unless the problems of overpopulation were addressed.

True

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22
  1. Adam Smith believed that since businesspeople are motivated to improve their own prosperity, their actions are unlikely to benefit society as a whole.

False

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23
  1. Adam Smith believed that an economic system couldn't truly prosper unless people were taught to value the welfare of others above their own personal gain.

False

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24
  1. The concept of the invisible hand begins with the assumption that the primary motivation of entrepreneurs is that they will prosper from their own hard work.

True

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25
  1. Adam Smith's research focused on determining the best way to distribute a fixed amount of resources, rather than on how to create more wealth.

False

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26
  1. Large educated populations can contribute to an economy by offering knowledge and entrepreneurship.

True

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27
  1. Adam Smith believed that incentives to seek personal gain would create wealth, but that the government must then step in to make sure that this wealth is equitably distributed.

False

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28
  1. As indicated by the Making Ethical Decisions box, activities that lead to corruption can destroy free economic opportunities because they interfere with the right to freely compete.

True

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29
  1. In capitalist countries, the government decides what to produce and how the goods and services will be produced.

False

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30
  1. Capitalism is the foundation of the U.S. economic system.

True

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31
  1. The most fundamental of all rights in capitalism is the right to private property.

True

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32
  1. Under capitalism, the government prohibits people and businesses from competing with each other.

False

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33
  1. A basic right under capitalism is the right of businesses to receive government funding.

False

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34
  1. Free-market capitalism has made it more difficult for individuals to gain wealth.

False

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35
  1. Due to the fundamental rights afforded to us by a free-market capitalistic system; persons are more willing to take calculated risks.

True

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36
  1. A free-market economic system is one in which the market of buyers and sellers decides what is produced, how much is produced, and how it is distributed.

True

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37
  1. Under the basic principle of supply, as the price goes down, manufacturers and suppliers of a product tend to supply less of the product to the market.

True

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38
  1. Demand refers to the quantity of a good that consumers are willing and able to buy at different prices at a specific time.

True

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39
  1. At the equilibrium price, the quantity consumers desire to buy equals the quantity sellers desire to sell.

True

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40
  1. If the quantity supplied in a market exceeds the quantity demanded, a shortage will exist.

False

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41
  1. If a shortage exists in a market for a good, the price of that good will tend to fall.

False

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42
  1. The point of intersection between the supply and demand curves is called the stress point.

False

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43
  1. In the long run, the market price tends to adjust toward the equilibrium point.

True

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44
  1. Countries that rely on a free market system are plagued by persistent shortages or surpluses of goods and services.

False

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45
  1. One of the drawbacks of free markets is the fact that competition in such markets undermines the ability of price to adjust to its equilibrium value in the long run.

False

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46
  1. In perfect competition, each firm produces a product that is clearly differentiated from the products of other firms in the same market.

False

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47
  1. A monopoly occurs when there is a single seller for a product or service.

True

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48
  1. Economists refer to a market in which a few sellers dominate the supply side as monopolistic competition.

False

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49
  1. Product differentiation is a key to success in monopolistic competition.

True

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50
  1. In the United States, laws prohibit the creation of most types of monopolies.

True

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51
  1. One strength of a free-market economic system is that it emphasizes the fair and humane treatment of the less fortunate in society.

False

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52
  1. The greed of businesspeople represents one of the greatest dangers to the operation of a free market system.

True

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53
  1. Fetna resides in a country where the economic system is primarily based on free market capitalism. Fetna is likely to have the freedom to buy and sell property.

True

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54
  1. A surplus currently exists for a product called widgets. In a free market system, the government must step in and buy any widgets that consumers do not buy in order to eliminate the surplus and establish equilibrium.

False

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55
  1. In a free market economic system, the lack of government control and regulation means that businesses find it easy to take advantage of customers by offering poor quality products at high prices.

False

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56
  1. History shows that free-market capitalism leads to a fair and equitable distribution of wealth.

False

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57
  1. Jill owns a bakery that specializes in cheesecakes. Until recently, Jill charged a price of $12 for each cheesecake. At this price Jill's customers bought an average of 84 cheesecakes each week. For the last few weeks, she has reduced her price to $10.50 per cheesecake, and her customers have purchased an average of 96 cheesecakes each week. These results are consistent with the economic concept of demand.

True

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58
  1. Monica notices that just a few big companies produce the vast majority of soft drinks. She would be correct in describing the soft drink industry as an oligopoly.

True

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59
  1. GLAMOR GAL, a popular women's cosmetics company is gaining popularity among younger women. Differentiating itself from the sea of companies that compete for the same business, it focuses on products for sensitive, youthful skin. GLAMOR GAL clearly operates in an oligopolistic environment.

False

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60
  1. GLAMOR GAL is a popular cosmetics company. Although it is gaining in popularity among younger women, its promotional strategy continues to focus on the shadow-free finish that it produces on almost any skin type. Due to the fact that its industry faces monopolistic competition, the company knows that it must continue to differentiate itself from the competition.

True

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61
  1. As you drive to school in the morning, you will probably flip through several radio stations before deciding to settle on one for the duration of the drive. For instance: you can listen to a "fair and balanced" talk show; an "intelligent talk" program; an interactive "call-in" talk show; a "right-wing" political talk show; a "self-improvement" talk show; and, even an "all sports" talk show. With so much monopolistic competition in radio programming, radio stations focus on offering you something just a little different.

True

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62
  1. Roland is a nation with an economic system that closely approximates pure capitalism. While Roland's economy is likely to generate a great deal of wealth, it may do a poor job of providing an acceptable level of income for the elderly or disabled.

True

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63
  1. In the newspaper this morning, you read about the downfall of a multi-national entertainment business, and a report that the company's CEO enjoyed a 9% increase in his salary during the same year that the company's profits were down 35%. As you read further, you learn that the company's board of directors approved undeserved salary increases. Clearly, this is an example of how inequality and greed can infiltrate the free- market economic system.

True

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64
  1. As you scan the national news online, you read about the BXY Utility Company's latest problems. The story describes an expansive retaining wall that collapsed during a flood last week, spewing toxic coal ash, burying homes, and causing a few fatalities. An editorial claims that the company will not be held accountable to the same standards as the asbestos companies of a few years back that paid severe fines and even went out of business due to their lack of attention to environmental clean-up. You agree with the writer because you recently studied about the various competitive markets and utility companies clearly fall under monopolistic competition.

False

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65
  1. The PowerHouse Utility Company recently built a nuclear power plant in a southern state and started competing against BXY Utility Company that has served customers in that region for 65 years. Due to deregulation, consumers now have a choice among utility companies in this area. Although PowerHouse has made a sizeable capital investment, if it successfully grows market share, eventually prices for electricity may stabilize or fall.

True

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66
  1. Socialists believe that the primary economic function of the government is to promote rapid economic growth.

False

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67
  1. In socialist economies, the government owns some, if not most basic businesses such as telecommunications systems and utilities.

True

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68
  1. The top tax rate on personal income in most socialist economies is usually lower than the top tax rate on personal income in capitalist economies.

False

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69
  1. The major benefit of socialism is that it creates strong incentives to work hard and take the risks associated with starting and operating a business.

False

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70
  1. Socialists believe that wealth should be more evenly distributed than what actually occurs in a free-market capitalistic system.

True

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71
  1. Workers in socialist countries often get longer vacations and more social benefits than workers in free market economies.

True

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72
  1. Over the past decade, socialist economies have proven to be more successful at creating wealth and jobs than capitalist economies.

False

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73
  1. One drawback of socialism is that it may result in a reduction in the individual's incentive to work hard.

True

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74

and How It Affects Business 74. Brain drain is the loss of the best and brightest people to other countries.

True

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75
  1. High tax rates in socialist countries is a major reason these nations have experienced a brain drain.

True

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76
  1. Incentive to own and operate businesses is high in nations whose governments are proponents of socialistic practices.

False

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77
  1. One of the benefits of communism is that it allows individuals a great deal of freedom to make their own economic decisions.

False

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78
  1. Communism is an economic and political system in which the state makes almost all economic decisions and owns almost all the major factors of production.

True

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79
  1. Most communist countries today are suffering from severe economic problems.

True

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80
  1. A major distinction between capitalism and socialism concerns the distribution of income.

True

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81
  1. Countries that wish to avoid shortages and surpluses of goods should adopt a communist system.

False

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82
  1. Workers in nations who are strong proponents of communism work much harder and longer hours.

False

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83
  1. In the small nation of Equalia, the government owns several of the key businesses and provides a wide range of social services. The government places a great deal of emphasis on eliminating large disparities in people's incomes. These features of Equalia's economy are consistent with a socialist economic system.

True

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84
  1. Abby left her native land in Eastern Europe in order to become a nanny for a family in a western suburb of Chicago, Illinois. One of the benefits of her arrangement was that she could attend the community college near her family's residence. When she arrived at her new job, she experienced the differences from a predominately socialist nation and a capitalist nation. Abby noted that public transportation in northern Illinois was limited and expensive, making it difficult to get to school. For a negligible fee, the government in her native country provided public transportation for everyone. Abby's native country's economic system was more characteristic of socialism.

True

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85
  1. Socialism and communism are both variations of a free-market economy.

False

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86
  1. In command economies, the government plays a major role in deciding which goods are produced and who will get them.

True

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87
  1. Governments that were predominantly capitalistic are moving toward socialism, while governments that were predominantly socialistic are moving toward capitalism.

True

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88
  1. Like most nations, the United States has a mixed economy.

True

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89
  1. Most countries throughout the world can be classified as either purely capitalist or purely socialist.

False

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90
  1. There is general agreement in the United States on the degree to which the government should be involved in the economy.

False

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91
  1. Subtle differences such as the right to one's religious preference make the command economic system known as communism more like a mixed economy than a socialistic system.

False

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92
  1. In the past, socialist nations have realized that some of the government run businesses do not grow as quickly as businesses that operate for a profit.

True

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93
  1. Although mixed economies tend to improve economic conditions, moral values prevent communist nations such as China and Vietnam from progressing in this direction. Overall, economic progress continues to be very slow in these nations.

False

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94
  1. In a mixed economy, the government's goal is to grow the economy and maintain some measure of social equality.

True

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95
  1. Sweetland is a nation that publicly supports a free market economy with private ownership of businesses. Over time, the government of Sweetland has developed policies designed to help the needy and reduce the level of income inequality. It pays for these programs by levying relatively high taxes on businesses and workers. These arrangements suggest that the economy of Sweetland is trending toward pure capitalism.

False

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96
  1. Deanne is a vocal critic of socialism. She likes to point out that in recent years the governments in many socialistic nations have cut back on government services and have reduced taxes. Deanne believes that this trend will ultimately result in all nations adopting pure capitalistic ideals. Recent evidence suggests that Deanne's views are essentially correct.

False

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97
  1. Recently, Hugo Chavez, the Prime Minister of Venezuela announced that he is standing behind the concept of state owned utilities and public schools in his nation. Although not all industry is owned and managed by the government, his ideas would lead one to believe that he has a preference for socialism.

True

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98
  1. Most nations recognize that private enterprise is detrimental to business growth and what is best for consumers. Recently, a nation had the opportunity to sell its government-owned telecommunication system to a private firm. Instead it realized that it would be better off if it raised taxes so that it could maintain the status quo.

False

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99
  1. We use indicators such as (1) the gross domestic product (GDP), (2) the interest rate, and (3) the price indexes to measure the health of our economy.

False

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100
  1. The total value of a country's output of final goods and services in a given year is known as the gross domestic product (GDP).

True

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