Chapter 1 Review Questions In Detail

Front 1

The 5 parts of the business environment are:

Back 1

* The economic and legal environment
* The technological environment
* The competitive environment
* The social environment
* The global business environment

Front 2

3. Define Return on Investment (ROI).

Back 2

Return on Investment (ROI) is the money gained from taking a business venture risk; in addition to money, investment of time is also an important consideration. (Page 14)

Front 3

ROI involves t and m

Back 3

Return on Investment:
time and money investments

Front 4

* The economic and legal environment

Back 4

* If people feel that the risk is acceptable, because they are willing to take the risk of starting a business
* Entrepreneurs seek an acceptable return on investment (ROI)
* Governments can lessen the risks by passing laws that let business-people write contracts that are enforceable in court, establishing tradable currency, minimizing corruption, and enforcing the Universal Commercial Code (UCC).

Front 5

The technological environment

Back 5

* Technology, especially the Internet, increases effectiveness, efficiency, and productivity.
* Buying and selling are easier, both Business to Consumer (B to C) and Business to Business (B to B).
* Technology can be used to improve customer responsiveness.
* Reliance on technology could prove costly without appropriate back-ups.

Front 6

The competitive environment

Back 6

* High quality product must be accompanied by high-quality service at competitive prices.
* Organizations that are consumer-oriented (that listen to the needs and wants of consumers and respond quickly) are more successful than those that are not.
* Employee empowerment helps retain quality talent, which ensures that a company's high standards of service and production are met.

Front 7

The social environment

Back 7

* A diverse workforce brings fresh, new ideas and reflects the changing U.S. population.
* Managers must frequently deal with vastly different generational attitudes across their workforce. However, the number of Baby Boomers aging out of the workforce could create employment unbalances
* Catering to the Baby Boomers allows companies to target the richest and fastest growing segment of the U.S. population.
* Employers wishing to maintain quality employees should take into consideration work-life balance. This may require flexible work schedules, cafeteria-style benefits packages, telecommuting, and other family-friendly programs.

Front 8

The global business environment

Back 8

o The growth of free trade and international competition means that companies must compete against manufacturers that pay low-wages overseas.
o However, businesses of all sizes can compete in the global marketplace, so globalization represents an opportunity as well as a threat.
o International current events, such as the threat of terrorism, the war in Iraq, and the threat of nuclear power in North Korea, have an impact on businesses everywhere-both positive and negative.

(Pages 13-29)

Front 9

5. Describe the laws of supply and demand. Supply is

Back 9

Supply is the willingness and ability of producers to offer a good or service.

Front 10

5. Describe the laws of supply and demand. Demand is

Back 10

Demand is the willingness and ability of buyers to purchase a product (a good or service).

Front 11

How does each law affect the prices of goods and services?
(Demand)

Back 11

The law of demand states that buyers will purchase more of a product as its price drops and less as its price increases.
x.Mercedez car vs. Eggs

Front 12

How does each law affect the prices of goods and services?
(Supply)

Back 12

The law of supply states that producers will offer more of a product for sale as the price rises and less as its price drops. (Pages 44-47)

Front 13

6. What is the equilibrium price in supply and demand?

Back 13

The equilibrium price is the point at which the amount of goods sought by buyers is equal to the amount of goods produced by suppliers.

Front 14

How is equilibrium price shown in the Supply and Demand graph?

Back 14

At the equilibrium price, the supply and demand curves cross, and the quantity demanded equals the quantity supplied. (Pages 44-47)

Front 15

A Supply and Demand graph shows the ________ price.

Back 15

Equilibrium Price

Front 16

7. Name the four major economic systems

Back 16

The four major economic systems are
free-market capitalism,
socialism,
communism, and
mixed economy.

Front 17

Explain Free-market Capitalism

Back 17

# Free-market capitalism

* Decisions about what to produce and in what quantities are driven by market demands, which means that scarcity or oversupply is quickly controlled.
* Businesses and land are owned privately. Because profits are reaped, owners are motivated to work harder.
* Competition exists in different degrees, ranging from perfect to nonexistent.
* The government does not control markets or international trade. Social freedoms include speech, press, assembly, religion, and elections.

Front 18

Explain Socialism

Back 18

# Socialism

* An economic system based on the premise that some, if not most, basic businesses should be owned by the government so that profits can be distributed among the people.
* Government typically controls education, health care, media, and other basic services. There are some capitalist-style incentives in place in private businesses, but are limited by Government control of wages.
* Some markets are controlled by the government, and there are some international trade restrictions. There are some restrictions on social freedoms, including job choice, education levels, and international movement.

Front 19

Explain Communism

Back 19

# Communism

* An economic and political system in which the state (the government) makes almost all economic decisions and owns almost all the major factors of production.
* Because almost all business is publicly-owned, workers have little motivation to work hard or produce high-quality goods or services because they do not profit directly from them.
* Government runs education and healthcare, and social freedoms are very limited.

Front 20

Explain Mixed Economy (one of the 4 economic systems)

Back 20

* Mixed Economy
o In this system, the government controls some institutions (such as mail and education), while many businesses are controlled privately and influenced by supply and demand.
o In non-government owned businesses, owners and workers are motivated by realizing profits from higher efficiency and/or quality of goods and services. Government workers may not have this kind of incentive.
o Government controls some trades, markets, and services, but not all. Some government restrictions on social freedoms may include separation of church and state and some controls of assembly.

(Pages 47-55, particularly the table on 55)

Front 21

8. Why is the U.S. economy described as a mixed market economy?

Back 21

The U.S. economy is a mixed market economy because, although it strives to be as free and open as possible, certain activities are restricted. For example, some products cannot be sold legally. Additional restrictions limit the sale of certain products by age group or require advertising to be truthful. (Page 54)

Front 22

9. What are the five economic indicators?

Back 22

-Gross Domestic Product (GDP)
-Unemployment rate
-Price indexes
-Fiscal policy
-Monetary policy

Front 23

Gross Domestic Product (GDP)

Back 23

- The total value of goods and services produced in a country in a given year.

Front 24

Unemployment rate

Back 24

The number of civilians at least 16 years old who are unemployed and tried to find a job within the prior four weeks.

Front 25

Price indexes

Back 25

Indexes of the changes in goods and prices of goods and services based on the prices of the same goods and services from a previous period.

Hint 25

a car cost $5,000 in 1950.
$10,000 in 1980
$20,000 in 1990
$25,000 in 2000
$20,000 in 2010

Front 26

Fiscal policy

Back 26

Refers to the federal government's efforts to keep the economy stable by increasing or decreasing taxes or government spending.

Front 27

-Monetary policy

Back 27

* The management of the monetary supply and interest rates.

(Pages 57-63)

Hint 27

Picture a lake reservoir.. plenty of rain then all is okay... low water means water rationing../ Do not water your grass order. (Or you get a fine!

Front 28

Inflation (Price indexes)

Back 28

Inflation refers to a general rise in the prices of goods and services over time.

Front 29

Hyperinflation (Price indexes)

Back 29

Hyperinflation occurs when inflation increases beyond 50% in a given time period.

Front 30

Stagflation (Price indexes)

Back 30

Stagflation occurs when unemployment rates and inflation rates are high.

Front 31

Deflation (Price indexes)

Back 31

Deflation is a situation in which prices are actually declining, occurring when countries produce so many goods that people cannot afford to buy them all.

Front 32

10. Describe the first of the two methods used by the federal government to manage and stabilize the U.S. economy.

Back 32

The government acts to manage the U.S. economic system using two methods. The first method is through influencing fiscal policies.

Front 33

10. Describe the second of the two methods used by the federal government to manage and stabilize the U.S. economy.

Back 33

The second method is through influencing monetary policies. Tax increases or decreases and controlling government spending function as fiscal policies that serve to manage the economy.

Hint 33

More taxes = people will have less money to spend.

Front 34

Monetary policies involve controlling the size of the _. _ . money ________
through the Federal R_____ S_____.

Back 34

Monetary policies involve controlling the size of the U.S. money supply through the Federal Reserve System, which is the nation's central bank, and raising or lowering interest rates.

Front 35

The Federal R_____ S______ can
Make _______ _________ to grow the economy,
or reduce _______ to slow the economy.

Back 35

The Federal Reserve System can make more money available to businesses to grow the economy, or reduce it to slow the economy.

Front 36

Can the Federal _____ alter the interest rates?

Back 36

By altering the interest rates, the Federal Reserve can impact how much money businesses borrow, and thus influence the economy. Therefore, the government uses a combination of fiscal and monetary policies as a tool to stabilize the U.S. economy. (Pages 60-64)

Front 37

The U. S. government can use a Fiscal policy to stabilize the U.S. economy.
Fiscal means..

Back 37

Tax increases or decreases, and controlling government spending are ways to stabilize the U.S. economy by Fiscal methods.

Front 38

The U.S. government can use a Monetary policy to stabilize the U.S. economy.
Give an Example:

Back 38

an example of a monetary policy that the U.S. government can use to stabilize the U.S. economy is through the Federal Reserve system.. by raising or lowering interest rates.