Deck 2: Understanding Economics and How It Affects Business

Question 1

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

Answer 1

True

Question 2

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.

Answer 2

False

Question 3

The IMF has recently proposed a one-time global wealth tax to help bring the debt of nations closer to pre-recession levels.

Answer 3

True

Question 4

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

Question 5

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

Question 6

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

Question 7

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

Question 8

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

Question 9

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

Question 10

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

Question 11

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

Question 12

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

Question 13

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

Question 14

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.

Question 15

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

Question 16

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

Question 17

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.

Question 18

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

Question 19

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

Question 20

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

Question 21

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.

Question 22

Due to the fundamental rights afforded to us by a free-market capitalistic system, people are more willing to take calculated risks.

Question 23

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

Question 24

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

Question 25

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.

Question 26

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

Question 27

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

Question 28

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.

Question 29

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

Question 30

State capitalism is the combination of free markets and government control.

Question 31

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

Question 32

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.

Question 33

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.

Question 34

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.

Question 35

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

Question 36

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.

Question 37

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

Question 38

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

Question 39

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.

Question 40

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

Question 41

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

Question 42

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

Question 43

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

Question 44

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

Question 45

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

Question 46

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.

Question 47

Product differentiation is a key to success in monopolistic competition.

Question 48

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

Question 49

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

Question 50

Glamour 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. Glamour Gal clearly operates in an oligopolistic environment.

Question 51

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

Question 52

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

Question 53

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.

Question 54

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

Question 55

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

Question 56

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

Question 57

Sarah owns a bakery that specializes in cupcakes. Until recently, she charged a price of $5 for each treat. At this price Sarah's customers bought an average of 384 cupcakes each week. For the last few weeks, she has reduced her price to $3.95 per cake, and her customers have purchased an average of 596 cupcakes each week. These results are consistent with the economic concept of demand.

Question 58

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

Question 59

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.

Question 60

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.

Question 61

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.

Question 62

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.

Question 63

Glamour 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.

Question 64

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

Question 65

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

Question 66

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.

Question 67

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

Question 68

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 "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.

Question 69

Brain drain is the loss of the best and brightest people to other countries.

Question 70

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

Question 71

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

Question 72

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

Question 73

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.

Question 74

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

Question 75

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.

Question 76

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

Question 77

Roundland is a nation with an economic system that closely approximates pure capitalism. While Roundland'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.

Question 78

Most communist countries today are suffering from severe economic problems.

Question 79

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

Question 80

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.