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Exam 2: Understanding Economics and How It Affects Business

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Question 91

True/False

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As you drive to school in the morning, you will probably flip through several radio stations before deciding to settle on one for the duration of the drive. For instance: you can listen to a "fair and balanced" talk show; an "intelligent talk" program; an interactive "call-in" talk show; a "self-improvement" talk show; and, even an "all sports" talk show. With so much monopolistic competition in radio programming, radio stations focus on offering you something just a little different.

A) True
B) False

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Question 92

Multiple Choice

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Mini-Case Gig Abite is a bright, hard-working engineer who once owned a successful engineering consulting firm in his native country of Frinezia. Gig became discouraged by the high tax rates in Frinezia, so he immigrated to the United States eleven years ago. Soon after moving to the U.S., Gig again started his own business, which he named Giganeers Consulting. The company struggled at first, and almost went under midway through its second year. However, Gig never lost faith, the company survived, and it soon developed a growing reputation for quality work and dependable service. Giganeers began experiencing sustained growth early in its fourth year. In fact, Gig hired additional employees over the next few years to keep up with the increasing workload. His company, which started with only Gig and 2 other full time workers, now provides jobs for 43 full-time employees as well as many part time workers. Despite these past successes, some clouds are on the horizon. The company recently suffered its first drop in business since its very early years. Gig is convinced that the problem is not with his company, but rather due to a downturn in the U.S. economy. He heard a national broadcast last week reporting that the value of the total output of final goods and services in the U.S. declined over the last quarter. The news anchor went on to state that many economists believe that this downward trend is likely to continue for several more months. Gig is concerned that he will have to lay off some of his employees if the economy doesn't improve. He hopes that the government does something soon to put the economy back on track. -Besides the slowdown in the general economy, Giganeers faces threats of competition from several other companies that provide engineering consulting services. In order to gain more business, Gig tries 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) perfect competition.
B) monopoly.
C) oligopoly.
D) monopolistic competition.

E) B) and D)
F) All of the above

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Question 93

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In a free market economic system, 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.

Which of the following statements would a follower of Adam Smith most likely make?

Sarah owns a bakery that specializes in cupcakes. Until recently, she charged a price of $5 for each treat. At this price Sarah's customers bought an average of 384 cupcakes each week. For the last few weeks, she has reduced her price to $3.95 per cake, and her customers have purchased an average of 596 cupcakes each week. These results are consistent with the economic concept of demand.

Fatima resides in a country where the economic system is primarily based on free market capitalism. Fatima is likely to have the freedom to buy and sell property.

A __________ is a very severe recession that is usually accompanied by deflation.

Sam is a recent college graduate with a lot of firsts: First professional job, first new car, first apartment, and first time making all of his own financial decisions. As he works on his monthly budget, he can't help but wonder why he is barely making ends meet. Each month, it takes his entire paycheck to pay his rent, his car payment, and buy food. Last month, he told his parents, "I'm sure I had more money when I was a starving student!" You recently learned about key economic indicators in your business class. You inform Sam that his problems are caused by severe deflation and lack of demand for products and services.

Communist values are disappearing because:

Although mixed economies tend to improve economic conditions, moral values prevent communist nations such as China and Vietnam from progressing in this direction. Overall, economic progress continues to be very slow in these nations.

Economists study how people use resources to produce and distribute goods and services for consumption among competing groups and individuals.

__________ is the study of how a society employs its limited resources to produce goods and services and how it distributes them among competing groups and individuals.

A major benefit of socialism is the:

Thomas Malthus was pessimistic about the ability of a society to achieve high standards of living for most of its citizens because he believed that:

If businesses are producing at capacity, and the nation is experiencing almost full employment (a very low rate of unemployment - less than 2%) , the Fed may decide to:

The higher the measurement of productivity, the higher the likely costs of production.

Economists refer to a market in which a few sellers dominate the supply side as monopolistic competition.

Identify and describe the 4 basic rights that form the foundation of capitalism.

Emily recently quit her job at a major corporation because she saw little chance for advancement. Although she is still searching for a new position, Emily believes the economy is healthy and she hears that several firms are hiring people with her qualifications. Which of the following statements about Emily's current situation is most accurate? Emily is:

Mini-Case Gig Abite is a bright, hard-working engineer who once owned a successful engineering consulting firm in his native country of Frinezia. Gig became discouraged by the high tax rates in Frinezia, so he immigrated to the United States eleven years ago. Soon after moving to the U.S., Gig again started his own business, which he named Giganeers Consulting. The company struggled at first, and almost went under midway through its second year. However, Gig never lost faith, the company survived, and it soon developed a growing reputation for quality work and dependable service. Giganeers began experiencing sustained growth early in its fourth year. In fact, Gig hired additional employees over the next few years to keep up with the increasing workload. His company, which started with only Gig and 2 other full time workers, now provides jobs for 43 full-time employees as well as many part time workers. Despite these past successes, some clouds are on the horizon. The company recently suffered its first drop in business since its very early years. Gig is convinced that the problem is not with his company, but rather due to a downturn in the U.S. economy. He heard a national broadcast last week reporting that the value of the total output of final goods and services in the U.S. declined over the last quarter. The news anchor went on to state that many economists believe that this downward trend is likely to continue for several more months. Gig is concerned that he will have to lay off some of his employees if the economy doesn't improve. He hopes that the government does something soon to put the economy back on track. -The broadcast cited forecasts that national output might continue to fall in the future. If total output shows decline for two consecutive quarters, economists would classify this as a _____________.