Exam 2: Understanding Economics and How It Affects Business

A depression is a severe recession that is often accompanied by deflation.

In the boxed material "Making Ethical Decisions," the textbook describes corruption practices in nations such as Mexico and the United States. These practices include payoffs to government officials in order to get an edge on competing better in one's industry. Which of the following statements best describes the ethical message of this boxed material?

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

Fourteen years ago, Sergio noticed that a lot of people who bought personal computers did not know much about how to use them and frequently suffered system crashes and other aggravations. He decided he could earn a nice profit by starting a consulting business to help other people overcome their computer woes. Although the business struggled at first, it has experienced a good deal of success for the past five years. Sergio has many satisfied customers, and the business has grown to the point where he now employs several workers. Sergio's experience is an example of:

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

looks at the behavior of individual people and organizations in specific markets.

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.

Although changes in the CPI provide interesting insights into the overall performance of the economy, these changes have little practical impact on the lives of ordinary people.

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.

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.

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

The next wave of marketable innovations may involve new ways to produce and conserve energy. If we can turn new technology into marketable products and services that produce energy to run our businesses and homes, the U.S. could see a surge in output of goods and services. The Department of Economic Development would document this surge by measuring the .

One reason the CPI is monitored very closely by government, businesses, and workers is that:

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.

In the service sector of the economy, the influx of machinery such as computers increases output per worker, but does little to improve the quality of services.

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

Adam Smith believed that countries would prosper if businesspeople were free to start and run their own businesses. Businesspeople would make a profit by providing the goods, services and ideas that others in the economy wanted, and they would hire others to help increase those profits, leading to social and economics benefits for many. This idea was called the .

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

To jump-start the economy, the FED is likely to lower interest rates, in order to encourage individuals and businesses to spend money.

is a condition in which the average level of prices is actually falling.