Chapter Questions-1(Fundamentals Of Business And Economics)

Front 1

Why do businesspeople study economics?

Back 1

Businesspeople study economics because it indicates the spending habits of the nation at a
given point of time. By keeping up with economic trends, businesspeople attempt to predict upcoming economic trends by studying carefully the indications apparent in the current
marketplace. By paying attention to economy trends, businesses can plot their actions
according to whether they believe the market will slow down, speed up, or remain steady.

Front 2

Why are the barriers to entry low for most e-commerce companies?

Back 2

Capital-intensive businesses generally have high barriers to entry, which means that conditions
exist that make entry into these businesses extremely difficult. Such conditions include
significant capital requirements, high learning curves, tightly controlled markets, strict
licensing procedures, the need for highly skilled employees, or the use of specialized facilities.
By contrast, the barriers to entry for most companies transacting electronic commerce are low. Just about any company can build a Web site and enter the electronic marketplace

Front 3

Why are knowledge workers the key economic resources?

Back 3

Economists agree that the seven key industries of the next few decades will be
microelectronics, biotechnology, composite materials, telecommunications, civilian aviation,
robotics, and computers. All of these are brainpower industries. Tomorrow’s workers will be
freelancers, contractors, and analysts-for-hire, and their work will be brain intensive instead of
labor intensive. Thus, countries with the greatest supply of knowledge workers and ones with
economic systems that give workers the freedom to pursue their own economic interests will
have the greatest advantage in the global marketplace.

Front 4

Why are planned economies privatizing some of their industries?

Back 4

Although varying degrees of socialism and communism are practiced around the world today,
several socialist and communist economies are moving toward free-market economic systems.
Anxious to unload unprofitable businesses for badly need cash and to experiment with freemarket
capitalism, countries such as Great Britain, Mexico, Argentina, Israel, France, Sweden,
and China are privatizing some of their government-owned enterprises by selling them to
privately held firms. Hopes are high that converting certain industries to private ownership
will enable them to compete more effectively in the global marketplace.

Front 5

What is the definition for the demand curve, the supply curve, and the equilibrium price?

Back 5

The curve that describes the range of possible prices that a buyer will pay for a range of
possible quantities demanded by a buyer is the demand curve. (Demand curves are not
necessarily curved; they may be straight lines.)
The curve that describes the range of price that a seller can charge for a range of
quantities supplied by the seller is called the supply curve. (It also is not necessarily curved.)
The point where the demand curve and the supply curve intersect is the point at which
the intentions of buyers and sellers coincide. The price at this point is known as the
equilibrium price.

Front 6

Why is it often easier to start a service business than a goods-producing business?

Back 6

Goods-producing businesses produce tangible goods by engaging in activities such as
manufacturing, construction, mining, and agriculture. These industries are capital-intensive
businesses. Small companies starting a goods-production need substantial capital for the
equipment needed to build the product, for the raw materials, for the warehouse for raw
materials and finished goods, etc. Also, small companies often lack the resources to buffer
themselves from the competitors who need only a short time to be up and running with
something similar. Few start-up companies are resource rich.

Front 7

Why is knowledge a factor of production?

Back 7

Knowledge is the collective intelligence of an organization. Traditionally, a business was
considering having an advantage if it was located in a country with a plentiful supply of
natural resources, human resources, capital, and entrepreneurs. But in a global economy,
companies can obtain capital from one part of the world, purchase supplies from another, and
locate production facilities in still another. Furthermore, companies can relocate their
operations to wherever they find a steady supply of affordable workers. Thus, economists no longer point to the proximity of these four factors of production as a requirement for success.
Instead, they consider knowledge to be the key economic resource.

Front 8

Why do governments intervene in a free-market system?

Back 8

Governments intervene in free-market systems to influence prices and wages or to change the way resources are allocated. This practice of limited intervention is called mixed capitalism, which is the economic system of the United States. Under mixed capitalism, the pursuit of private gain is regarded as a worthwhile goal that ultimately benefits society as a whole.

Front 9

How do countries know if their economic system is working?

Back 9

Economic indicators are statistics such as interest rates, unemployment rates, and housing data, GNP, GDP, CPI, etc. A country’s professional economists sort and interpret these data to monitor and measure the country’s economic performance and predict its future performance.

Front 10

Why does the new economy operate at a faster pace?

Back 10

Besides compressing distance, the Internet compresses time. In the new economy, the ability
to innovate and get to market faster is a key competitive advantage. Companies today move
quickly and aggressively to develop Internet products and services, find capital, and win Web
customers.

Front 11

How would a decrease in Social Security benefits to the elderly affect the economy?

Back 11

First, it would lower government spending and perhaps reduce the national debt. Although
many might see this as an economic boost, all things being equal, a decrease in government
spending would also reduce the amount of money in the economy. For example, because of
the circular flow, the elderly would have less money to spend so businesses that cater to the
needs of the elderly might be hurt and the employees of those businesses might lose their jobs
and so on. In order for the economy to stay balanced, the decrease in money spent by the
government on Social Security would have to be substituted by an infusion of money into the
economy from another source. Plus the multiplier effect of that change would have to be
analyzed.

Front 12

If you do mark a higher price on the next shipment of wakeboards, what will you tell shoppers who comment on the increase?

Back 12

It would be fair to tell customers that the increased prices reflect the scarcity of the item as well as the difficulty involved in obtaining the wakeboards.

Front 13

How is Internet technology changing the agricultural industry?

Back 13

A consolidation wave is shrinking the local choices for the farmers, and the Internet provides
farmers an alternative to the local monopolies they face. It gives the farmers means to connect
with distant businesses. It also offers convenience, better price, and selection for what farmers
may be shopping for. The Internet is truly changing the agricultural industry from being a
localized industry to a global one.