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Chapter 01 The Dynamics of Business and Economics True / False Questions 1. Products have only tangible attributes. True False 2. The primary goal of business activities is profit. True False 3. Nonprofit organizations such as Habitat for Humanity do not engage in management, marketing, or finance activities. True False 4. Profit is what it costs to make and sell a product. True False 5. Businesses have the right to keep and use their profits as they choose, without limitations. True False 6. Finance refers to all activities concerned with obtaining money and using it effectively. True False 7. Owners have little responsibility to provide funds for the operation of the business. True False 8. Managers coordinate resources to achieve the firm's goals. True False 9. The focus of all marketing activities is customer satisfaction. True False Source:MBusiness5thedition 10. Owners always manage their businesses. True False 11. A central issue of economics is how to fulfill an unlimited demand for goods and services in a world with limited resources. True False 12. Capitalism is an economic system in which the government owns and operates basic industries while individuals own most other businesses. True False 13. Most socialist nations are democratic. True False 14. In a free-market system, the government regulates business. True False 15. Free-market capitalism and laissez-faire capitalism are essentially the same thing. True False 16. Demand is the quantity of goods and services that consumers are willing to buy at different prices at a specific time. True False 17. The equilibrium price is represented by the point where a product's supply and demand curves intersect. True False 18. Monopolistic competition exists when there is only one producer of a product in a given market. True False 19. An oligopoly exists when there are many small businesses selling one standardized product. True False 20. A product's equilibrium price is constantly changing in response to changes in economic conditions, availability of resources, and degree of competition. True False Source:MBusiness5thedition 21. The standard of living rises when people have less money to spend. True False 22. A severe recession may turn into a depression. True False 23. Gross domestic product is the sum of all goods and services produced in a country during a year. True False 24. When a nation takes more from taxes than it spends, it has a budget deficit. True False 25. After World War II, the United States became an agricultural economy. True False M ultiple Choice Questions 26. ____ is the primary goal of business. A. Charity B. Profit C. B ureaucracy D. Q uality E. Strategy 27. Businesses differ from nonprofit organizations in that a business's focus is on: A. profit. B. goods. C. p rice. D. c harity. E. fund raising. Source:MBusiness5thedition 28. Which of the following is NOT a product? A. A Dell personal computer B. A veterinarian's treatment of a pet's injuries C. A lawyer's advice in a divorce case D. A checkup by a doctor E. A business profit 29. Which of the following is an example of an intangible product? A. A movie DVD B. A sandwich C. A sports car D. A music concert E. Jewelry 30. Which of the following statements is true about businesses and profits? A. Profit making is a business activity that seldom requires risk taking. B. Businesses do not have the right to use their profits the way they choose. C. P rofit-making businesses often weaken the economy of a country. D. E arning profits contributes to society by providing employment. E. Businesses have found that the best way to make profits is by ignoring the interests of stakeholders. 31. Which of the following is a similarity between businesses and nonprofit organizations? A. Both do not have to abide by government regulations. B. Both are unaffected by political or social change. C. B oth of them engage in management and finance activities. D. B oth of them do not need to adapt to technological changes. E. Both aim to maximize financial returns for their owners. 32. All the groups that have an interest in an organization's success and outcomes are known as the organization's ____. A. agencies B. stakeholders C. o wners D. investors E. shareholders Source:MBusiness5thedition 33. Which of the following is a force within an organization's control that has an impact on the business's daily operations? A. Employees B. Regulatory environment C. C ompetition D. P olitical environment E. Technology 34. Which of the following is true of the responsibilities of the people involved in a business? A. Finance is concerned with acquiring, developing, and using human effectively and efficiently. B. Marketing refers to all activities concerned with obtaining money for the firm and using it effectively. C. N onprofit organizations include all the functions that businesses do, except for the marketing function. D. M anagement is not involved in the day-to-day functions of production and manufacturing. E. It is the primary responsibility of the owners to provide financial resources for the operation of the business. 35. The functions of organizing, staffing, planning, and controlling are most closely associated with: A. managers. B. assembly line workers. C. investment advisors. D. s tockbrokers. E. direct sales executives. 36. _____ gather information and conduct research to determine what customers want. They also plan and develop products and make decisions about how much to charge for their products and when and where to make them available. A. Accountants B. Engineers C. M arketers D. S upervisors E. Stock brokers Source:MBusiness5thedition 37. Advertising, personal selling, coupons, and sweepstakes are forms of the _____ aspect of marketing activities. A. finance B. promotion C. p roduction D. fund raising E. social responsibility 38. When a business fails or does not make a profit, _____ have the most to lose in terms of finances. A. consumers B. media agencies C. g overnment bodies D. o wners E. market experts 39. _____ refers to all activities concerned with obtaining and managing money and using it effectively. A. Public relations B. Marketing C. P roduction D. A dvertising E. Finance 40. _____ is the study of how resources are distributed for the production of goods and services within a social system. A. Public relations B. Sociology C. D emographics D. P sychographics E. Economics 41. A firm's _____ resources are also known as labor. A. economic B. human C. intangible D. financial E. natural Source:MBusiness5thedition 42. Financial resources are also known as ____. A. capital B. labor C. b arter D. n atural resources E. exchange 43. All the following are factors of production used to make goods and services, EXCEPT: A. natural resources. B. human resources. C. c ustomers. D. c apital. E. financial resources. 44. Which of the following is a factor of production for a firm? A. Advertising media B. Legal consultants C. C ustomers D. N atural resources E. Company reputation 45. Which of the following statements is true about communism? A. It is characterized by the government owning and operating most businesses. B. It relies on supply and demand to make decisions about pricing and production of goods. C. It encourages private ownership of the means of production. D. It encourages free market and competition. E. It provides scope for the production of a large variety of goods and services. 46. In a socialist economic system: A. individuals own and operate all businesses. B. very few people work for government organizations. C. c ompetition is restricted in major industries. D. there is no concept of small businesses owned by individuals. E. demand and supply have no role to play in the pricing of products and services. Source:MBusiness5thedition 47. In a capitalist economic system: A. the government owns and operates all businesses. B. there is little scope for competition. C. c onsumers have a limited choice of goods and services. D. the majority of people possesses government jobs. E. prices of goods and services are determined by demand and supply. 48. ____ is often called the father of capitalism. A. Karl Marx B. George Washington C. B enjamin Franklin D. A lan Greenspan E. Adam Smith 49. Egalitarianism refers to the: A. exemption of taxes for successful businesses. B. restrictions on taking up non-government jobs. C. e qual distribution of income and social services. D. c oncept of the rich getting richer and the poor getting poorer. E. restriction of competition in small businesses by government regulations. 50. _____ relates to the number of goods and services that consumers are willing to buy at different prices at a specific time. A. Demand B. Supply C. E lasticity D. B alance of payments E. Deficit 51. The _____ is the price at which the number of products that businesses are willing to supply equals the number of products consumers are willing to purchase at a point in time. A. bundled price B. equilibrium price C. d iscount price D. c ompetitive price E. maximum retail price Source:MBusiness5thedition 52. Generally, when a retailer announces a discount sale on all its products: A. consumers will not demand more than normal. B. the store will not supply more products than it normally does. C. c onsumers will demand more products. D. the manufacturer will halt production. E. consumers will demand fewer products than normal. 53. In which of the following markets is there most likely to be a monopoly? A. Agricultural commodities B. Lifestyle gadgets C. A irlines D. E lectricity supply E. Sports utility vehicles 54. Using the supply and demand curves shown in the graph that follows, what is the equilibrium price for soft drinks? A. 35 cents B. 45 cents C. 5 0 cents D. 5 5 cents E. 75 cents Source:MBusiness5thedition 55. When different businesses can promote similar products based on different features, and consumers are willing to pay more for products containing the features they desire, the competitive environment is most likely to be: A. monopolistic competition. B. pure competition. C. a n oligopoly. D. a monopoly. E. socialist. 56. The market for corn in Brazil has a large number of sellers, and there is no difference in the products sold by each seller. As there are also a large number of buyers for the corn, the actions of a single seller or buyer cannot affect the price. The market for corn can be described as ____. A. a monopoly B. monopolistic competition C. p ure competition D. a n oligopoly E. modified competition 57. _____ exists when there are many small businesses selling one standardized product. A. Monopolistic competition B. Oligopoly C. P ure competition D. M onopoly E. Monopsony 58. When there is only one business providing a product in a given market, there exists: A. an oligopoly. B. modified competition. C. p ure competition. D. m onopolistic competition. E. a monopoly. Source:MBusiness5thedition 59. Following a bad harvest, the prices of agricultural commodities in Urbania have increased dramatically, as have the prices of products manufactured from agricultural commodities. Government intervention has failed to arrest the rising prices. Based on this information, Urbania is undergoing ____. A. deflation B. stagflation C. c ontraction D. d epression E. inflation 60. Economic expansion occurs when: A. fewer goods and services are produced than consumer demand. B. an economy is growing and people are spending more money. C. a nation's standard of living drops dramatically. D. e mployment levels decline over time. E. prices begin to rise and incomes begin to fall. 61. A condition characterized by continuing rise in prices over a period of time refers to: A. inflation. B. economic expansion. C. a recession. D. e conomic contraction. E. deflation. 62. Economic contraction is said to have occurred when: A. GDP increases. B. spending declines. C. jobs increase. D. inflation decreases. E. unemployment falls. 63. Increased unemployment can reduce consumer demand for goods and services, leading to: A. economic expansion. B. inflation. C. d eflation. D. b udget surplus. E. recovery. Source:MBusiness5thedition 64. Which of the following statements is true about GDP as a measure of a country's economic health? A. It does not include the services produced in a country. B. It measures only those goods and services made within a country. C. It includes profits from companies' overseas operations. D. It does not include profits earned by foreign companies within the country being measured. E. It essentially takes into account the concept of GDP in relation to population. 65. A budget deficit occurs when a nation: A. reduces its expenditures. B. receives excess taxes. C. h as no national debts. D. s pends more than it takes in from taxes. E. balances taxes and expenditures. 66. _____ measures changes in the prices of goods and services purchased for consumption by typical urban households. A. GDP B. Per capita income C. W orker productivity D. T rade balance E. Consumer price index 67. _____ indicates the income level of "average" Americans. It is useful in determining how much "average" consumers spend and how much money Americans are earning. A. Per capita income B. GDP C. B udget deficit D. C onsumer price index E. Worker productivity 68. Before the Industrial Revolution, the economy of North America under the colonists was characterized by: A. hunting and gathering instead of agriculture. B. the export of manufactured goods to England. C. a scarcity of natural resources. D. d ependence on England for everyday goods. E. the domestic system of manufacture of goods. Source:MBusiness5thedition 69. Which of the following is a change that occurred in the U.S. during the Industrial Revolution? A. Farm production decreased as industrial production increased. B. As work became more localized, productivity decreased. C. T rade within the country decreased as regions became self-sufficient. D. F armers began to move to cities to find jobs in factories. E. Fewer goods were available, and prices of goods increased. 70. In the history of the American economy, the period following the Industrial Revolution was known for an increasing emphasis on: A. services. B. artisanship. C. m anufacturing. D. a griculture. E. information. 71. The entrepreneur has been primarily associated with willingness to: A. change employers frequently. B. work under authority. C. b e conservative. D. p ossess a government job. E. take risks. 72. The American economic system is best described as _____ because the government regulates business to preserve competition and protect consumers and employees. A. socialist B. laissez-faire capitalist C. m odified capitalist D. c ommunist E. Marxist 73. As U.S. consumers get busier and earn more money, they hire others to do tasks such as house cleaning, laundry, and landscaping, resulting in the development of a(n) _____ economy focused on making life easier for busy consumers. A. manufacturing B. service-based C. a gricultural D. technology-based E. marketing Source:MBusiness5thedition 74. All of the following emerged in the U.S. as a result of the manufacturing and marketing economies, EXCEPT: A. buying on credit. B. widespread use of assembly lines. C. a dvertising. D. farming. E. marketing research. 75. What is the primary lesson to be learned from the economic scandals of the early 21st century? A. Ethical conduct and corporate social responsibility are linked to increased profits. B. Businesses do not need to consider social values in the contemporary scenario. C. Investors and retired employees remain unaffected in case of scandals. D. B usinesses' reputations depend solely on their profits. E. Business misconduct is likely to be widely excused if it enhances firms' profits. Essay Questions 76. Briefly describe the goals of a business, especially the primary goal. 77. What are nonprofit organizations? Differentiate between nonprofit organizations and businesses. Source:MBusiness5thedition 78. Describe the relationship between management, marketing, and finance. 79. What are the people and activities of business? Define each group. 80. What are the factors of production? Briefly describe each one. 81. What are the three main questions that all economic systems must answer? Who answers them under a communist system? A socialist system? A capitalist system? Source:MBusiness5thedition 82. Differentiate between communist and capitalist economic systems. 83. What are the basic individual and business rights that must exist for free enterprise to work? 84. Define supply, demand, and equilibrium price, and explain their relationship with each other. 85. Define competition, and describe the different forms it can take. Source:MBusiness5thedition 86. Define economic expansion. What factors are responsible for it? 87. What is an economic contraction, and to what can it lead? 88. How is Gross Domestic Product (GDP) used as a measure of a nation's economic health? 89. Define budget deficit. What are the factors responsible for a budget deficit? Source:MBusiness5thedition 90. Describe the pre-industrial economic phases of the United States. 91. What impact did the Industrial Revolution in the nineteenth century have on the American economy? 92. What is a service economy? What factors led to the United States becoming a service economy? 93. Why are entrepreneurs important to the economy? Source:MBusiness5thedition 94. Describe the role of government in the United States' economy. 95. Describe the role of ethics and social responsibility in business today Source:MBusiness5thedition Source:MBusiness5thedition