Business Development

Q: (p. 48) The CPI is based on the prices of a carefully selected market basket of goods, all of which consumers can purchase at a typical supermarket.

Q: (p. 48, figure 2.7) The CPI has 211 item categories, which are used to compute basic indexes.

Q: (p. 48) The consumer price index (CPI) measures what is happening to prices at the wholesale level.

Q: (p. 47) Deflation is a situation in which prices are declining.

Q: (p. 47) Disinflation refers to a situation in which the overall level of prices in an economy is steadily falling.

Q: (p. 47) Inflation refers to a general rise in the prices of goods and services over time.

Q: (p. 47, figure 2.6) Structural unemployment refers to unemployment caused by the restructuring of firms or by a mismatch between the skills or location of job seekers and the requirements or location of available jobs.

Q: (p. 47, figure 2.6) Frictional unemployment occurs because the economy is experiencing a recession.

Q: (p. 46-47) The U.S. unemployment rate dropped significantly throughout 2002 and 2003, reaching its lowest level in nearly two decades.

Q: (p. 46) To be classified as unemployed, a person must be at least 16 years old and must have tried to find a job within the past four weeks.

Q: (p. 46) GDP figures do not include the value of illegal activities.

Q: (p. 46) Any output produced by U.S. firms is included in the value of U.S. GDP, even if the output was produced in a foreign country.

Q: (p. 46) In the early 2000s, GDP in the United States was over $11 trillion.

Q: (p. 46) The total value of a country's output of final goods and services in a given year is known as the nation's gross domestic product (GDP).

Q: (p. 46) Three major indicators of economic conditions are (1) the gross domestic product (GDP), (2) the interest rate, and (3) the price indexes.

Q: (p. 44) In a mixed economy, the government's goal is to grow the economy and maintain some measure of social equality.

Q: (p. 44) Deanne Beardon is a vocal critic of socialism. She likes to point out that in recent years the governments in many socialist countries have cut back on government services and have reduced taxes. Deanne believes that this trend will ultimately result in all nations adopting pure free-market economies. Recent evidence suggests that Deanne's views are essentially correct.

Q: (p. 44) Skeeden is a nation with an economic system that features free markets with private ownership of businesses. It still relies on those businesses to create most wealth. However, over time the government of Skeeden has developed some programs and policies designed to help the needy and reduce the level of income inequality. It pays for these programs by levying relatively high taxes on businesses and workers. These arrangements suggest that the economy of Skeeden is moving closer to the adoption of pure capitalism.

Q: (p. 44) There is general agreement in the United States on the degree to which the government should be involved in the economy.

Q: (p. 44) Most countries throughout the world can be classified as either purely capitalist or purely socialist.

Q: (p. 44) The government is the largest employer in the United States.

Q: (p. 44) Like most nations, the United States has a mixed economy.

Q: (p. 44) An important economic trend has been for free-market economies to move more toward socialism while socialist economies move more toward free markets.

Q: (p. 43) In command economies, the government plays a major role in deciding which goods will be produced and who will get them.

Q: (p. 43) Socialism and communism are both variations of a free-market economy.

Q: (p. 42) Countries that wish their businesspeople to work hard should adopt communism as a political and economic system.

Q: (p. 42) Countries that wish to avoid shortages and surpluses of goods should adopt a communist economic system.

Q: (p. 41) A major distinction between capitalism and socialism concerns how incomes are distributed among the population.

Q: (p. 41) In the small nation of Equalia, the government owns several of the key businesses and provides a wide range of social services. The government places a great deal of emphasis on eliminating large disparities in people's incomes. These features of Equalia's economy are consistent with a socialist economic system.

Q: (p. 43; Spotlight on Small Business box) The "Spotlight on Small Business" box explains that the share of China's population living in towns and cities is rising because there is a rapid growth of Chinese businesses in the cities.

Q: (p. 42) Most communist countries today are suffering from severe economic problems.

Q: (p. 42) 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.

Q: (p. 42) One of the benefits of communism is that it allows individuals a great deal of freedom to make their own economic decisions.

Q: (p. 42) Communism is an economic system that is gaining in worldwide popularity.

Q: (p. 41) High tax rates in socialist countries is a major reason these nations have experienced a brain drain.

Q: (p. 41) Brain drain is the loss of the best and brightest people to other countries.

Q: (p. 41) One drawback of socialism is that it may result in a reduction in the individual's incentive to work hard.

Q: (p. 41) Over the past decade, socialist economies have proven to be more successful at creating wealth and jobs than capitalist economies.

Q: (p. 41) Workers in socialist countries often get longer vacations and more social benefits than workers in free market economies.

Q: (p. 41) 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.

Q: (p. 41) 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.

Q: (p. 41) In socialist economies, the government owns some, if not most, basic businesses such as coal mines and utilities.

Q: (p. 41) Socialists believe that the primary economic function of the government is to promote rapid economic growth.

Q: (p. 40) History shows that free-market capitalism leads to a fair and equitable distribution of wealth.

Q: (p. 40) Permany is a nation with an economic system that closely approximates pure capitalism. While Permany'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.

Q: (p. 39) Harry Cutter is the owner of Harry's Hairy Business, one of a large number of barbershops that compete against each other in the city where Harry lives. Harry has tried to attract more customers by staying open longer hours than most barbershops, and by advertising heavily on local radio to convince people that he offers the best haircuts in town. Harry appears to be operating in an oligopolistic market.

Q: (p. 39) 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.

Q: (p. 37) Jill owns a bakery that specializes in cheesecakes. Until recently, Jill charged a price of $12 for each cheesecake. At this price Jill's customers bought an average of 84 cheesecakes each week. For the last few weeks, she has reduced her price to $10.50 per cheesecake, and her customers have purchased an average of 96 cheesecakes each week. These results are consistent with the economic concept of demand.

Q: (p. 36) In free markets, 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.

Q: (p. 37-38) A surplus currently exists in the market for whatzits. In a free market system, the government must step in and buy any whatzits that consumers do not buy in order to eliminate the surplus and establish equilibrium.

Q: (p. 35) Fatma is a citizen of a country that has an economic system that is primarily based on free market capitalism. Fatma is likely to have the freedom to buy and sell property.

Q: (p. 40) The greed of businesspeople represents the greatest danger to the operation of a free market system.

Q: (p. 40) One strength of a free-market economic system is that it emphasizes the fair and humane treatment of the less fortunate in society.

Q: (p. 40) In the United States, laws prohibit the creation of most types of monopolies.

Q: (p. 39) Product differentiation is a key to success in monopolistic competition.

Q: (p. 39) Economists refer to a market in which a few sellers dominate the supply side as monopolistic competition.

Q: (p. 40) A monopoly occurs when there is a single seller for a product or service.

Q: (p. 39) In perfect competition, each firm produces a product that is clearly differentiated from the products of other firms in the same market.

Q: (p. 38) 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.

Q: (p. 38) Countries that rely on a free market system often are plagued by persistent shortages or surpluses of goods and services.

Q: (p. 38, figure 2.3) In the long run, the actual market price tends to adjust toward the equilibrium point.

Q: (p. 38, figure 2.3) If we graph the supply and demand curves for a product at a specific time, the point on the graph where the two curves intersect is called the stress point.

Q: (p. 38) If a shortage exists in a market for a good, the price of that good will tend to fall.

Q: (p. 38) If the quantity supplied in a market exceeds the quantity demanded, a shortage will exist.

Q: (p. 38, figure 2.3) At the equilibrium price the quantity consumers desire to buy equals the quantity sellers desire to sell.

Q: (p. 39) Adapting to changes in demand is easy for businesses to do.

Q: (p. 37) Price is the key factor that determines both quantity supplied and quantity demanded.

Q: (p. 37) Demand refers to the quantity of a good that consumers are willing and able to buy at different prices at a specific time.

Q: (p. 37) 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.

Q: (p. 36) One benefit of the rights of free-market capitalism is that people are willing to take more risks than they would otherwise.

Q: (p. 35) Capitalism has had little success in encouraging the creation of wealth.

Q: (p. 35-36) A basic right under capitalism is the right of business to receive funding provided by the government.

Q: (p. 36) In capitalism, the government prohibits people and businesses from competing with each other.

Q: (p. 35) The most fundamental of all rights in capitalism is the right to private property.

Q: (p. 39) Giganeers faces competition from many other companies that also provide engineering consulting services. In order to gain more business, Gig has tried to convince potential clients that his company offers better service than the competition. He has advertised heavily in professional magazines, often quoting some of his highly satisfied clients. The market Giganeers operates in is an example of: A. perfectly competition. B. monopoly. C. oligopoly. D. monopolistic competition.

Q: (p. 35) Capitalism is the foundation of the U.S. economic system.

Q: (p. 51) Gig also has heard reports that the Fed has decided to change its policies in order to try to help get the U.S. economy back on track. If the Fed does take action, Gig would be likely to see: A. lower interest rates. B. an increase in the size of the government's budget deficit. C. lower government spending. D. an increase in the minimum wage.

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