Chapter One And 2 Assessment Questions

Name: Steven Sanderson Date: 5/30/06 Class: Intro to Business BA11 5040 Professor: McNamara Chapter One Progress Assessment Questions. Questions from page 8 What is the Difference between revenue and profit? Revenue is the total amount of money a business brings in and the profit is the monies leftover when you subtract total expenses from revenue. What is the difference between Standard Of Living and Quality of Life? Standard of living is the amount of goods that can be obtained from a given amount of money and Quality of Life refers to the general well being of a particular society in terms of political freedom, a clean natural environment, education, health care, safety, free time and so on. What is risk, and how is it related top profit? Risk is defined as the chance an entrepreneur takes of losing time and money on a business that may not prove to be profitable. Sometimes companies that take the most risk may end up making the most profit yet that is not always the case. What does the term stakeholder mean? Stakeholders are defined as all of the people and organizations that stand to gain of lose by the policies and activities of a business. Questions from page 11 What are some advantages for working for others? Some advantages for working for others would be that someone else is taking the risk; you get paid vacation, health benefits, ECT. Why is the US the land of opportunity? Some of the reasons that the United States is labeled the land of opportunity are because that it provides all 5 factors of production which is directly related to the creation of wealth. The 5 factors are as follows: 1. Land (natural resources) 1. Labor (workers) 3. Capital (This includes machines, tools, buildings, ECT. This however does not include money; money is used to buy the factors of production) 4. Entrepreneurship 5. Knowledge What are the five factors of Production?

Land Labor Capital Entrepreneurship Knowledge Questions from page 21 What are four ways the government can foster entrepreneurship? Four ways that the government can help entrepreneurship is by allowing the freedom of ownership, eliminating corruption and minimizing taxes and regulations on business. What is Productivity and how does technology enhance it? Productivity is defined as: The amount of you generate given the amount of input (e.g. hours worked). A simple example of this would be as follows: Company A produces 15 autos per hour and Company B produces 20 autos per hour. How can companies compete with speed? There are a variety of ways that a company can compete with speed. They can do so if they wish on a price level alone if they want, although I personally do not think that this would be the best strategy due to the fact that when prices come down so do margins which do not allow companies to invest money back into the company to stay current with the times. Companies that use price in conjunction with other strategies are most likely to be the ones to succeed. Companies can also enhance the way their shoppers do business with them by providing updated technology which will allow the stores to carry those items that a specific demographic seems to buy which would make it easier on the customer, being that they would not have to travel as far to buy something. Another key place that business can compete with speed and perhaps the most important one is through customer service. Questions from page 28 What are some of the diverse groups of people that managers must manage? Some of the people that managers now have to manage are quite different than they used to be even 50 years ago. Today there are many women and people of different races in the work place today. Companies that are hiring diverse work forces are gaining perspectives from peoples with different cultures and ways of life that may not have been experienced inside of the company before. What are the factors that have lead to two-income families? Some of the factors that have led to the two-income families are the high cost of living and maintaining a comfortable lifestyle. From my own perspective I can say that this is quite true, my family is a dual income family and many of my friend’s homes were and still are dual income homes. Some other factors that have led to a dual income home are the fact that many women are looking for careers outside of the home. One of the most notable reasons for a dual income family today is the emphasis on having it all which

may be better known as Keeping up with the Jones’. Since many families have become dual income many business opportunities have now become quite prevalent in the economy. Some examples would be a rise in day cares. Companies are also adjusting to the fact that families are now dual income by offering child care, flexible working schedules and pregnancy benefits just to name a few. What is a major factor that caused people to move from farming to industry and from industry to the service sector? The most outstanding factor that has caused people to move from farming to industry and from industry to the service sector is technology. With the fast improvements in technology production has boomed in any industry it touches. For example one industry that comes to mind is farming. In the 1800’s farming was the mainstay of the economy, then with the invention of the harvester, cotton gin and many other production boosting tools, the amount of people required to do the same amount of work dropped drastically creating a need for another industry. This gave way to manufacturing. In this industry people that used to farm are now producing the machines that replaced them and are also maintaining them. Now the US is primarily a service economy which means it is producing intangible goods. Intangible goods are services such as legal, finance and entertainment just to name a few. Questions from Chapter 2 Questions from page 40 What is the difference between macro and microeconomics? Macroeconomics is the study of an economy as a whole. Some examples of this would be national employment or unemployment rates how many jobs exist and so on. Microeconomics looks specifically at the behavior of people and organizations in particular markets. Such as how many jobs are in the networking sector or how many consumers are in the specialized software markets. To further illustrate macroeconomics would say something to the effect of there are 100,000 jobs available and microeconomics would say there are 25,000 jobs available in networking, 20,000 jobs available in software and 55,000 jobs available in transportation. Why economics was known as “The Dismal Science”? Economics was known as the dismal science in a response to many views that a very few amount of people had all of the wealth and many of the people were peasants and may have seemed like a reasonable conclusion that there would soon be to many people an not enough food and other resources to go around. What is better than teaching a man to fish? One thing that would be better than teaching a man to fish and feed only himself would to show mans how to feed many people. This in my opinion comes mainly from people having a little bit of necessary greed in them. When a man learns how to do something for himself on a grand scale it will eventually help others around him because he will need others to keep up the work with him. This is how prosperity starts in a community.

What does Adam Smith’s term invisible hand mean? How does the invisible hand create wealth for a country? The invisible hand is something that turns self directed gain into social and economic improvements for all. This is how it works. For example a farmer works hard and has enough produce to sell to others. As he keeps doing this and more people want to buy the food he has made available he will need to hire someone else to help with the needed increase in production. This process now makes it so that people are now working and earning a paycheck that they can use to buy other goods and services which in turn helps the economy grow. Questions from page 47 What are the four basic rights that people have under free-market capitalism? The four basic rights people have under free-market capitalism are as follows: The right to private property. This is the most fundamental of al rights under capitalism. It means that individuals can buy, sell and use land, builds, machinery and other forms of property. The can also pass property on to their children. The right to own a business and to keep all of that business’s profits. Profits are defined as revenue minus expenses. The right to freedom of competition. Within certain guidelines established by the government, individuals are free to compete with other individuals or businesses by offering new products and promotions. To survive and grow businesses need laws and regulations. Finally the right to freedom of choice. People are free to choose where they want to work and what career they want to follow. Other freedoms of choice include where to live and what to buy or sell. How do business people know what to produce and in what quantity? Businesses know what to produce and how much to supply by a few factors. One is how prices are determined. Prices are determined by how many units of product a producer is willing to supply at a given price. The way they know how much of a product to supply is determined at what price consumers are willing to pay. How are prices determined? Prices are determined by how much of a product a producer is willing to supply at a given price and by how much product the public is willing to buy at a given price. A seller may want to sell a t-shirt for 50 dollars but the public may only want to pay 20 dollars. A final price is eventually determined by equilibrium of what the public is willing to pay and what the producer is willing to supply. What are some of the limitations of free markets? Some of the limitations of free markets are that businesspeople may let greed take them over. Greed will cause executives to lie to stockholders about the value of the stock only to inflate their personal assets while letting someone else hold the bag so to speak. Some rules are needed to keep businesspeople from becoming to greedy that it causes public disruption.

Questions on page 50 What led to the emergence of socialism? Socialism came around because it helps the people of a country all live at a general well standard of living. The government is responsible for healthcare and education retirement benefits and so forth. Socialism keeps an economy from having a vast difference in the amount of wealth that is distributed among its citizens. It also keeps the amount of people living in poverty at a minimum. What are the benefits and drawbacks of socialism? Some of the benefits of socialism are that everyone in society is supposed to be equal. This is made possible due to the fact that there is a more even distribution of wealth among the citizens. In socialism everyone has healthcare and education available this is something that a free market economy does not provide. Some of the drawbacks of a socialistic economy are that there is a lack of incentive for people to create wealth due to the fact that it is going to get distributed evenly among everyone. Say company A creates 1,000,000 dollars and company B creates 500,000 dollars. The government would take 250,000 dollars from A and give it to B which gives A less incentive to create more wealth. Another drawback of socialism is what is called brain drain. Since the taxes in these communities are so high the brightest and best will leave and go somewhere else to create their wealth so they can keep most of it. What countries still practice communism? Some countries that still practice communism are North Korea, Cuba parts of Russia. Theses countries are suffering economically because the governments do not know how to effectively create supply and demand for the economy. What are the characteristics of a mixed economy? The characteristics of a mixed economy would be where some allocation of resources is made by the market and some by the government. The United States is a mixed economy for example. The market place allocates the resources but the government has laws and regulations on how to allocate the resources. Questions from page 59 Name the three economic indicators and describe how well the United Sates is doing based on each indicator. The three economic indicators are as follows Gross domestic Product, the unemployment rate and the price indexes. The US is doing well in the area of GDP. The US used to use GNP which was the amount of product produced by American companies no matter where the facilities were located. Other countries were using GDP so the US went along which makes it easier for countries to compare statistics about their economies. In the early 2000’s US GDP was around 10 trillion dollars. The unemployment rate refers to the number of civilians at least 16 years old who are unemployed and tried to find a job within the prior four weeks. In 2000 the U.S. unemployment rate reached its lowest in over 30 years with a rate of 3.9 percent, but the rate rose rapidly to over 6 percent as a

result of the economic slowdown of 2002-2003. Finally the third factor is the price indexes. The price indexes help to measure the health of the economy by measuring the levels of inflation, disinflation, deflation and stagflation. Inflation refers to a general rise in the prices of goods and services over time. Rapid inflation is quite scary due to the fact that people are able to purchase less with the money the have. Disinflation describes a condition where price increases are slowing down. From looking at the graph on page 54 it shows a direct correlation between disinflation and employment. Since the U.S. was in a period of disinflation for most of the 1990’s unemployment fell. Now deflation is where prices of goods and services actually drop. It occurs when there are so many goods and services produced that people cannot afford them all. The consumer price index CPI consists of monthly statistics that measure the pace of inflation or deflation. Costs of about 400 goods and services including housing, food and apparel are part of the figure. Lastly you have the producer price index PPI. This measures prices at the wholesale level. What is the difference between recession and depression? Recession is defined as two or more consecutive quarters of decline in GDP. In a recession prices fall, people purchase fewer goods and businesses fail. A depression is a sever recession usually accompanied by deflation. Business cycles rarely go through a depression phase. How does the government manage the economy using fiscal policy? First of all fiscal policy refers to the governments efforts to keep the economy stable by increasing or decreasing taxes or government spending. The first half of fiscal policy deals with taxation. Theoretically high taxes tend to slow the economy because they draw money away from the private sector. The second half of fiscal policy refers to government spending. The government spends money on highways, social programs, education and defense just to name a few. Sometimes the government spends more than it takes in which creates a deficit which in my opinion the government is pretty good at doing since the national debt has been on the rise for as long as I have been alive. One way to lessen the debt would to be to cut the amount of spending the government does another would be to raise taxes. What does the term monetary policy mean? What organization is responsible for the monetary policy? Monetary policy refers to the management of the money supply and interest rates. The policy is controlled by the Federal Reserve System. The most obvious role of the Federal Reserve is the raising and lowering of interest rates. When the economy is booming the Fed will raise interest rates making money more expensive to borrow which will slow the boom down. The Fed also controls money supply. A simple explanation is that the more money the Fed makes available to businesspeople and others, the faster the economy grows. The slow the economy the Fed lowers the money supply.