Solano Community College



Chapter 3Economic Challenges Facing Contemporary BusinessLearning Objective 3.1: Distinguish between microeconomics and macroeconomics. Explain the factors that drive demand and supply.True or False1. ___Macroeconomics deals with large issues that affect a country’s overall economy.Ans: TLearning Objective 3.1: Distinguish between microeconomics and macroeconomics. Explain the factors that drive demand and supply.Concept Module: Microeconomics: The Forces of Demand and Supply2. ___Microeconomics is concerned with the economic activities of an individual or a firm.Ans: TLearning Objective 3.1: Distinguish between microeconomics and macroeconomics. Explain the factors that drive demand and supply.Concept Module: Microeconomics: The Forces of Demand and Supply3. ___Government policy that impacts the overall economy is a good example of a microeconomic issue.Ans: FLearning Objective 3.1: Distinguish between microeconomics and macroeconomics. Explain the factors that drive demand and supply.Concept Module: Microeconomics: The Forces of Demand and Supply4. ___While macroeconomics looks at economic policies within individual nations, it has no application in understanding the overall world economy.Ans: FLearning Objective 3.1: Distinguish between microeconomics and macroeconomics. Explain the factors that drive demand and supply.Concept Module: Microeconomics: The Forces of Demand and SupplyShort Answer5.List and define the factors that collectively determine demand.a.b.c.d.e.f.Ans: The factors that collectively determine demand are:a.customer preference: if customers have increased or decreased preference for the product or service offered.b.number of buyers: if the number of buyers for a product or service increase or decrease.c.buyer’s incomes: if buyer’s incomes increase or decrease.d.prices of substitute goods: where substitute goods have an increase or decrease in price, the demand for the good will be affected.e.prices of complimentary goods: where complimentary good increase or decrease in price, the demand for the original good or service will be affected.f.future expectations: when they become more optimistic, demand increase, while as they become more pessimistic, demand will decline.Learning Objective 3.1: Distinguish between microeconomics and macroeconomics. Explain the factors that drive demand and supply.Concept Module: Microeconomics: The Forces of Demand and Supply6.List and define the factors that collectively determine supply.a.b.c.d.Ans: The factors that collectively determine supply are:a.costs of inputs: changes in the costs of factors of production, such as natural resources, capital, human resources and entrepreneurship, affect the amount of supply offered.b.costs of technologies: changes in the costs of new technologies can affect the supply of products or services using that technology.c.taxes: an increase or decrease in taxes levied will impact suppliers’ willingness to supply the product or service.d.number of suppliers: where more suppliers enter the market the supply curve shifts right. The opposite occurs if the number of suppliers decreases.Learning Objective 3.1: Distinguish between microeconomics and macroeconomics. Explain the factors that drive demand and supply.Concept Module: Microeconomics: The Forces of Demand and SupplyLearning Objective 3.2: Describe each of the four different types of market structures in a private enterprise system and compare the three major types of economic systems.Listing. List the four basic types of competition.1. ____________________________The industry is made up of many firms of similar size whose products are indistinguishable.Ans: pure competitionLearning Objective 3.2: Describe each of the four different types of market structures in a private enterprise system and compare the three major types of economic systems.Concept Module: Macroeconomics: Issues for the Entire Economy2. ____________________________Producers are able to differentiate their products.Ans: monopolistic competitionLearning Objective 3.2: Describe each of the four different types of market structures in a private enterprise system and compare the three major types of economic systems.Concept Module: Macroeconomics: Issues for the Entire Economy3. ____________________________There is only one seller in the industry.Ans: monopolyLearning Objective 3.2: Describe each of the four different types of market structures in a private enterprise system and compare the three major types of economic systems.Concept Module: Macroeconomics: Issues for the Entire Economy4. ____________________________Because the industries require large capital investment, there are very few producers.Ans: oligopolyLearning Objective 3.2: Describe each of the four different types of market structures in a private enterprise system and compare the three major types of economic systems.Concept Module: Macroeconomics: Issues for the Entire EconomyTrue or False5. ___Socialism is an economic system in which the government owns all the nation’s productive capacity.Ans: FLearning Objective 3.2: Describe each of the four different types of market structures in a private enterprise system and compare the three major types of economic systems.Concept Module: Macroeconomics: Issues for the Entire Economy6. ___Most modern economies blend free enterprise with some degree of government regulation and are known as mixed market economies.Ans: TLearning Objective 3.2: Describe each of the four different types of market structures in a private enterprise system and compare the three major types of economic systems.Concept Module: Macroeconomics: Issues for the Entire Economy7. ___Karl Marx is credited with developing the communist theory.Ans: TLearning Objective 3.2: Describe each of the four different types of market structures in a private enterprise system and compare the three major types of economic systems.Concept Module: Macroeconomics: Issues for the Entire Economy8. ___Under communism, the government owns and operates only the basic industries.Ans: FLearning Objective 3.2: Describe each of the four different types of market structures in a private enterprise system and compare the three major types of economic systems.Concept Module: Macroeconomics: Issues for the Entire Economy9. ___Communism and socialism are both planned economies in which government controls determine economic goals and economic allocations.Ans: TLearning Objective 3.2: Describe each of the four different types of market structures in a private enterprise system and compare the three major types of economic systems.Concept Module: Macroeconomics: Issues for the Entire EconomyLearning Objective 3.3: Identify and describe the four stages of the business cycle. Explain how productivity, price-level changes, and employment levels affect the stability of a nation’s economy.Multiple Choice1.The stage characterized by low unemployment and strong consumer confidence is called:a.prosperity.c.recovery.b.recession.d.depression.Ans: aLearning Objective 3.3: Identify and describe the four stages of the business cycle. Explain how productivity, price-level changes, and employment levels affect the stability of a nation’s economy.Concept Module: Evaluating Economic Performance2.A contraction in the gross domestic product (GDP) that lasts six months or more is called:a.prosperity.c.recovery.b.recession.d.depression.Ans: bLearning Objective 3.3: Identify and describe the four stages of the business cycle. Explain how productivity, price-level changes, and employment levels affect the stability of a nation’s economy.Concept Module: Evaluating Economic Performance3.When an economic slowdown continues in a downward spiral over a long period of time, we have:a.prosperity.c.recovery.b.recession.d.depression.Ans: dLearning Objective 3.3: Identify and describe the four stages of the business cycle. Explain how productivity, price-level changes, and employment levels affect the stability of a nation’s economy.Concept Module: Evaluating Economic Performance4.After an economic downturn, when consumer spending begins to increase and business activity accelerates, the country is in:a.prosperity.c.recovery.b.recession.d.depression.Ans: cLearning Objective 3.3: Identify and describe the four stages of the business cycle. Explain how productivity, price-level changes, and employment levels affect the stability of a nation’s economy.Concept Module: Evaluating Economic PerformanceTrue or False5.______A general decline in the prices of goods and services is known as inflation.Ans: FLearning Objective 3.3: Identify and describe the four stages of the business cycle. Explain how productivity, price-level changes, and employment levels affect the stability of a nation’s economy.Concept Module: Evaluating Economic Performance6.______The most important measure of a company or nation’s efficiency and competitiveness is its level of productivity.Ans: TLearning Objective 3.3: Identify and describe the four stages of the business cycle. Explain how productivity, price-level changes, and employment levels affect the stability of a nation’s economy.Concept Module: Evaluating Economic Performance7.______Unemployment is a level of productivity.Ans: FLearning Objective 3.3: Identify and describe the four stages of the business cycle. Explain how productivity, price-level changes, and employment levels affect the stability of a nation’s economy.Concept Module: Evaluating Economic Performance8.______Inflation can result from the shortages created by excess demand and/or the increased costs of production.Ans: TLearning Objective 3.3: Identify and describe the four stages of the business cycle. Explain how productivity, price-level changes, and employment levels affect the stability of a nation’s economy.Concept Module: Evaluating Economic Performance9. ______A rise in the cost of materials or labor can produce cost-push inflation.Ans: TLearning Objective 3.3: Identify and describe the four stages of the business cycle. Explain how productivity, price-level changes, and employment levels affect the stability of a nation’s economy.Concept Module: Evaluating Economic Performance10. ______The most widely used measure of inflation in the United States is the Consumer Price Index (CPI)Ans: TLearning Objective 3.3: Identify and describe the four stages of the business cycle. Explain how productivity, price-level changes, and employment levels affect the stability of a nation’s economy.Concept Module: Evaluating Economic PerformanceLearning Objective 3.4: Discuss how monetary policy and fiscal policy are used to manage an economy’s performance.Short Answer1.Define monetary policy.Ans: Monetary policy refers to government policies and actions concerning regulation of the money supply.Learning Objective 3.4: Discuss how monetary policy and fiscal policy are used to manage an economy’s performance.Concept Module: Managing the Economy’s Performance2.Define fiscal policy.Ans: Fiscal policy refers to governmental actions concerning tax revenues and expenditures of public funds.Learning Objective 3.4: Discuss how monetary policy and fiscal policy are used to manage an economy’s performance.Concept Module: Managing the Economy’s Performance3.Give examples of how monetary and fiscal policy can be used to combat inflation and unemployment.Ans: Examples of how monetary and fiscal policy are used to combat inflation and unemployment include:a.An expansionary monetary policy puts more money into circulation making business borrowing easier and often lowers interest rates. As businesses increase activity, more jobs may be created, thus decreasing the employment rate.b.A restrictive monetary policy reduces the money in circulation and could help reduce inflation.c.A fiscal policy that increases taxes will pull money out of circulation and could help reduce inflation.d.A fiscal policy that decreases taxes will increases business activity and overall economic activity.Learning Objective 3.4: Discuss how monetary policy and fiscal policy are used to manage an economy’s performance.Concept Module: Managing the Economy’s PerformanceLearning Objective 3.5: Describe the major global economic challenges of the 21st century.Short AnswerThere are five interrelated areas on which American businesses should concentrate to meet the global economic challenges of the 21st century. Briefly list and explain each.1.2.3.4.5.Ans: The five interrelated areas are:1.The threat of international terrorism.2.A shift to a global information economy that enable businesses to enhance the effectiveness of their use, management, and control of information. These technologies will necessitate a more highly trained workforce.3.The world’s population is aging, and both business and governments must be prepared to meet the needs of these older people.4.The growth of China and India, which compete for resources.5. Firms doing business in different countries must enhance the competitiveness of every countries workforce.Learning Objective 3.5: Describe the major global economic challenges of the 21st century.Concept Module: Global Economic Challenges of the 21st Century ................
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