Exam 2: Understanding Economics and How It Affects Business

An economy is said to be in a recession if GDP declines for two or more consecutive quarters.

When the market price of a good is below the equilibrium price, and all other determinants are unchanged:

system there is very little incentive to work hard or to produce quality goods or services. 44)

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.

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

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

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

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

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.

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

According to the Reaching Beyond our Borders box, "Prospering in Foreign Lands", the success of Yum!Brands' (owner of KFC, Taco Bell, and Pizza Hut) global attempts is mixed. In some cases, opening stores in communist and socialist nations has proven to be profitable; in others, it has proven to be a more costly venture.

The size of the national debt increases when the federal government runs a deficit.

The economic and political system in which the government owns almost all the major factors of production is called:

system the number of choices in the market is directly related to government involvement in markets. 44)

Abby left her native land in Eastern Europe 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 some immediate differences. 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 to everyone. The economic system in Abby's native country was more characteristic of .

Patrick lives in a nation whose government embraces capitalism. He owns his own home and car, as well as his own business and building. Patrick maintains ownership due to:

Robin just graduated from college and is seeking her first job. She received a degree in engineering at a prestigious university. Robin has several leads and has heard that the market for engineers is very strong, so she is convinced that she should locate a good job in the near future. Robin's current situation is an example of structural unemployment.

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

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.

In recent years, U.S. manufacturing has experienced productivity.