Define the term business. What must a business risk in order to become profitable?
A business is an organization that provides goods or services to earn a profit. A profit is the diference between the business' revenue and its expenses. In order to earn a profit, a business risks its money and time.-(page 4-6)
What are the five parts of the business environment?
The business environment is the surrounding factors that either help or hinder the development of business; the elements of the business environment the following:
*Economic and leagal environment
*Global business environment
Business people must be aware of all th environments in which they operate.-(page 13)
Define Return on Investment (ROI). What types of investment must be considered when calculating ROI?
Return on Investment (ROI) is th money gained from taking a business venture risk; investment of time is also an important consideration.-(page 14)
Describe how each of the five parts of the business enviroment help or hinder the operation of a business.
Each of the five parts of the business environment helps or hinders the operation of a business in the following ways:
*The economic and legal environment.
-If people feel that the risk is acceptable, they are willing to take the risk of starting businesses.
-Entrepreneuers seek an acceptable return on investment (ROI), the money gained from taking a business venture risk.
-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).
*The technological environment.
-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 backups.
*The competitive environment
-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 successfulthan those that are not.
-Employee empowerment helps retain quality talent, which ensures that a company's high standards of service and production are met.
*The social environment
-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, caferteria-stle benefits packages, telecommuting, and other family-friendly programs.
*The global business environment
-The growth of free trade and international competition means that companies must compete against manufacturers in low-wagecompanies overseas.
-However, businesses of all sizes can compete in the global marketplace, so globalization represents an opportunity as well as a threat.
-International current events, such as the threat of terrorism, the war in Iraq, and th threat of nuclear power in North Korea, have an impact on businesses everywhere -- both positive and negative. -(pages 13-29)
Describe the laws of supply and demand. How does each law affect the prices of goods and services?
Supply is the willingsness and ability of producers to offer a good or service. Demand is the willingness and ability of buyers to purchase a product (a good or service). The law of demand states that buyers will purchase more of a product as its price drops and less as its price increases. 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)
What is the equilibrium price in supply and demand? How is it shown in the Supply and Demand graph?
The equilibrium price is the point at which the amount of goods sought by buyers is equal to the amount of goods produced by its suppliers. At the equilibrium price, the supply and demand curves cross, and the quantity demanded equals the quantity supplied. -(pages 44-47)
Name the four major economic systems and explain how they differ.
The four major economic systems are free-market capitalism, socialism, communism, and mixed economy. Characteristics that differentiate the systems include the following:
-Decisions about what to produce and in what quantites are driven by marke demands, which means that scarcity or oversupply is quickly controlled.
-Businesses and land are owned privately. Because profits are eaped, 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.
-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-stle 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.
-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 health are, and social freedoms are very limited.
-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.
-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.
-Government controls some trades, markts, 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 page 55)
Why is the U.S. economy described as a mixed market economy?
The U.S. Economy is a mixed market economy because, although it strives to be as free and open as possible, certain activites are restricted. For example, some proucts cannot be sold legally. Additional restrictions limit the sale of certain products by age group or require advertising to be truthful. -(page 54)
What are the five economic indicators? give a short definition of each, including any subsets of the indicators.
Economic indicators include the following:
*Gross Domestic Product (GDP) - The total value of goods and services produced in a country in a given year.
*Unemployment rate - The number of civilians at least 16 years old who are unemployed and tried to find a job within the prior four weeks.
*Price indexes - 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.
-Inflation refers to a general rise in the prices of goods and services over time.
-Hyperinflation occurs when inflation increases beyond 50% in a given time period.
-Stagflation occurs when unemployment and inflation rates are high.
-Deflation is a situation in which prices are actually declining, occurring when countries produce so many goods that people cannot afford to buy thme all.
*Fiscal policy - Refers to the federal government's efforts to keep the economy stable by increasing or decreasing taxes or spending.
*Monetary policy - The The management of the monetary supply and interest rates. -(pages 57-63)
Describe the two methods used by the federal government to manage and stabilize the U.S. economy.
The government acts to manage the U.S. economic system using two methods. The first method is through influencing fiscal policie. 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. 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. The Federal Reserve System can make more money available to businesses to grow the economy, or reduce it to slow the economy. By altering the interst 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)
Which of the following is one of the five elements of the business enviroment?
C. The economic environment
Diversity has come to mean more than recruiting and keeping minorities and women. Diversity groups:
D. also include the disabled, homosexuals, atheists, extroverts, introverts, and the devout.
States and cities in the United States that have high taxes and restrictive regulations tend to:
C. drive entrepreneurs out
To stay competitive in world markets, companies must:
D. offer both high-quality products and outstanding service at competitive prices.
The money gained from taking a business-venture risk is called:
__________ is the chance an individual or organization takes of losing time and money on a business that may not prove profitable.
A key characteristic of entrepreneurship is that it:
A. usually involves taking a persoal financial risk.
Last year, Smithston Enterprises had total revenues of $35 million while its total expenses were $20 million. Based on this information, Smithston:
C. earned a profit of $15 million.
Which of the following is NOT a major indicator of econmic conditions?
D. Trading tariffs
Which of the following statemnts about fiscal policy is NOT true?
D. It controls the size of the U.S. money supply.
Which of the following statements about monetary policy is NOT true?
B. Monetary policy includes increasing and/or decreasing taxes.
A ___________ is one in which decisions about what to produce and in what quantities are made by the market.
A. free market
Which of the following economic systems is based on the premise that some, if not most, basic businesses should be owned by the government so that profits can be evenly distributed among all the people?
In which of the following economic systems does the state make almost all economic decisions and own almost all the major factors of production, including housing for its people?
A __________ economy exists where some allocation of resources is made by the market and some by the government.
Which of the following is NOT an example of distribution of profits under socialism?
C. Choice of jobs
_______ refers to the quantity of products that manufacturers or owners are willing to sell at different prices at a specific time.
_________ refers to the quantity of products that people are willing and able to buy at different prices at a specific time.
Generally the quantity demanded will ________ as the price increases.