Chapter 1: the dynamics of business and economics

1. What is the primary goal of business? (A) Service (B) Profit (C) Innovation (D) Quality (E) Strategy.

2. Which statement 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) Profit-making businesses often
weaken the economy of a country. (D) Earning profits contributes to society by creating resources that support social
institutions and government. (E) Ignoring the interests of stakeholders is the best way for a business to be profitable.

3. Which of the following is an example of an intangible product? (A) a movie DVD (B) a kitten (C) perfume (D) a music
concert (E) jewelry.

4. Which of the following is NOT an accurate statement regarding nonprofit organizations? (A) They may provide goods and
services. (B) They engage in fund-raising. (C) They have the fundamental goal of earning profits. (D) They utilize skills
related to management, marketing, and finance. (E) They include charities and social causes.

5. 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) owners (D) investors (E) shareholders.
6. The focus of all marketing activity is to (A) promote products better than the competition. (B) transform resources into
goods and services. (C) provide financial resources for the operation of the business. (D) satisfy the needs and wants of
consumers. (E) coordinate employees' actions to achieve the firm's goals.
7. What is true regarding the responsibilities of the people involved in a business? (A) The finance department is concerned
with acquiring, developing, and using human resources effectively and efficiently. (B) The marketing team handles all
activities concerned with obtaining money for the firm and using it effectively. (C) The managers of nonprofit organizations
conduct all kinds of business operations except collecting funds. (D) The managers of a business are not involved in the
day-to-day functions of production and manufacturing. (E) The primary responsibility of providing financial resources for
the operation of the business lies with the business owners.
8. Ronan works for a custom furniture manufacturer. His job is to oversee the process of taking raw materials—lumber, fabric,
and metal components—and ensure that they are transformed to the customer's exact specifications. Ronan's job falls under
the business activity known as (A) operations. (B) advertising. (C) sales promotion. (D) finance. (E) marketing.
9. ________ 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) Marketers (D) Supervisors (E) Operations Managers.

10. The factors of production are the (A) systems and processes used to make goods and services. (B) means of distributing
wealth within a country. (C) obstacles present in a competitive environment that limit production. (D) land, labor, capital,
and enterprise used to produce goods and services. (E) management, marketing, and finance activities of a business.

11. Which of the following is a natural resource? (A) minerals (B) people (C) capital (D) money (E) labor.

12. Which of the following is an intangible resource? (A) physical and mental abilities of people (B) forests and minerals (C)
economic capital (D) financial assets (E) company reputation.

13. ________ describe(s) how a particular society distributes its resources to produce goods and services. (A) A labor system
(B) An economic system (C) A political ideology (D) A legal framework (E) The factors of production

14. Which of the following is a characteristic of communist economies in reality? (A) critical shortages of consumer goods (B)
high standards of living (C) low prices (D) excessive freedom (E) absence of corruption.

15. Which communist country was the first to make strong economic gains by adopting capitalist approaches to business? (A)
Singapore (B) India (C) Thailand (D) China (E) Japan.

16. What is true in a socialist economy? (A) The government owns all businesses, large and small. (B) Everyone works for
government organizations. (C) Competition is restricted in basic industries. (D) Consumers have a wide choice of goods
and services. (E) Demand and supply have no role to play in the pricing of products and services.

17. What is true of a free-market system? (A) Laissez-faire capitalism is absent. (B) Most businesses are owned and operated
by the government. (C) Egalitarianism is the norm. (D) All economic decisions are made without government intervention.
(E) Central government planning determines what goods and services satisfy citizens' needs.

18. What is true of a capitalist economic system? (A) The government owns and operates all businesses. (B) There is little scope
for competition. (C) Consumers have a limited choice of goods and services. (D) The majority of people possess government
 jobs. (E) Prices of goods and services are determined by supply and demand.

19. ________ is often called the father of capitalism. (A) Karl Marx (B) George Washington (C) Benjamin Franklin (D)
Alexander Hamilton (E) Adam Smith

20. A county encourages individuals to own and operate the majority of businesses, but its government passes laws to enforce
fair business practices such as labor laws, antitrust legislation, and laws against deceptive advertising. This is an example of
(A) modified capitalism. (B) pure capitalism. (C) laissez-faire capitalism. (D) communism. (E) socialism.

21. The quantity of goods and services that consumers are willing to buy at different prices at a specific time is referred to as
(A) demand. (B) supply. (C) the market quantity. (D) the balance of payments. (E) gross domestic product.

22. 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 specific point in time. (A) bundled price (B) equilibrium price (C) discount price (D)
competitive price (E) maximum retail price.

23. Generally, when a retailer announces a discount sale on all its products, what happens? (A) Consumers will not demand
more than usual. (B) The store will not supply more products than it normally does. (C) Consumers will demand more
products. (D) The manufacturer will halt production. (E) Consumers will demand fewer products than usual.

24. Which statement describes the force that drives the distribution of resources (goods and services, labor, and money) in a
free-enterprise economy? (A) Prices for goods and services vary according to the changes in supply and demand. (B) Supply
and demand curves intersect at the point where supply and demand are not equal. (C) Changing the price of a product does
not alter the supply curve. (D) The price at which the number of products that businesses are willing to supply is inversely
proportional to the number of products that consumers are willing to buy at a specific point in time. (E) Businesses are
willing to supply less of a good or service at higher prices because the potential for profits is lower.

25. Which market is most likely to be a monopoly? (A) agricultural commodities (B) lifestyle gadgets (C) airlines (D) electricity
supply (E) sports utility vehicles.

26. 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) 50 cents (D) 55 cents (E) 75 cents.

27. Which of the following exists when there are many small businesses selling one
standardized product, such as agricultural commodities like wheat, corn, and cotton?
(A) pure competition (B) monopolistic rivalry (C) imperfect competition (D) an
oligopoly (E) a monopoly.

28. Following a bad harvest, the prices of agricultural commodities in Brazil 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, Brazil is experiencing
(A) deflation. (B) an economic readjustment. (C) an economic contraction. (D) a depression. (E) inflation.

29. What is a characteristic of economic depression? (A) Unemployment levels are low or almost absent. (B) Consumer
spending is high. (C) Individuals' incomes increase at the same pace as rising prices. (D) Buying power of consumers is
quadrupled. (E) Business output is sharply reduced.

30. Trevor owns a local farm stand. Although he sells fruit and vegetables, like the grocery store chains in the area, he has some
power over the price he charges because he can offer consumers features they want. For instance, his fruit and vegetables
are organic and locally grown. This is an example of (A) monopolistic competition. (B) pure competition. (C) oligopoly.
(D) monopoly. (E) competition.

31. Which of the following exists when there are many small businesses selling one standardized product, such as agricultural
commodities like wheat, corn, and cotton? (A) pure competition (B) monopolistic rivalry (C) imperfect competition (D) an
oligopoly (E) a monopoly.

32. A country experiences a rapid expansion of its economy, which resulted in prices doubling every 12 hours. This is an
example of (A) recession. (B) hyperinflation. (C) deflation. (D) depression. (E) equilibrium.

33. Following a bad harvest, the prices of agricultural commodities in Brazil 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, Brazil is experiencing (A) deflation. (B) an economic readjustment. (C) an economic contraction. (D)
a depression. (E) inflation.
34. 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) employment levels
decline over time. (E) prices begin to rise and incomes begin to fall.

35. Which statement 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.

36. A budget deficit occurs when a nation (A) reduces its expenditures. (B) receives excess taxes. (C) has no national debts. (D)
spends more than it takes in from taxes. (E) balances taxes and expenditures.

37. Which statement 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.

38. What would hinder business activity as it relates to an open economy? (A) too much reliance on technology (B) participating
in international trade (C) a focus on efficiency and productivity (D) a focus on innovation (E) too much regulation of business
activities.

39. An entrepreneur has been primarily associated with the willingness to (A) change employers frequently. (B) work under
authority. (C) be conservative. (D) possess a government job. (E) take risks.

40. What is useful in fighting inflation? (A) raising interest rates (B) lowering the reserve rate of funds banks must hold in
reserve (C) increasing the money supply (D) decreasing the interest rate on loans to member banks (E) buying security.