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Chapter 1
| Question | Answer |
|---|---|
| Free enterprise | Individuals are free to decide what to produce, how to produce it, and at what price to sell it. |
| Business | The organized effort of individuals to produce and sell, for a profit, the goods and services that satisfy society’s needs |
| Profit | is what remains after all business expenses have been deducted from sales revenue. |
| Economics | The study of how wealth (anything of value) is created and distributed |
| Microeconomics | The study of the decisions made by individuals and businesses |
| Macroeconomics | The study of the national economy and the global economy |
| Economy | The system through which a society creates and distributes wealth |
| Factors of production | resources used to produce goods and services |
| Entrepreneur | A person who risks time, effort, and money to start and operate a business |
| Capitalism | An economic system in which individuals own and operate the majority of businesses that provide goods and services |
| Command economies | Economic systems in which the government decides what will be produced, how it will be produced, who gets what is produced, and who owns and controls the major factors of production |
| Productivity | The average level of output per worker per hour |
| Gross domestic product (GDP) | The total value of all goods and services produced by all people within the boundaries of a country during a one-year period |
| Inflation | A general rise in the level of prices |
| Deflation | A general decrease in the level of prices |
| Unemployment rate | The percentage of a nation’s labor force unemployed at any time |
| Consumer price index (CPI) | A monthly index that measures the changes in prices of a fixed basket of goods purchased by a typical consumer in an urban area |
| Producer price index (PPI) | An index that measures prices that producers receive for their finished goods |
| Business Cycle | The recurrence of periods of growth and recession in a nation’s economic activity |
| Recession | Two or more consecutive three-month periods of decline in a country’s gross domestic product |
| Depression | A severe recession that lasts longer than a typical recession and has a larger decline in business activity when compared to recession |
| Monetary policies | Federal Reserve decisions that determine the size of the supply of money in the nation and the level of interest rates |
| Fiscal policy | Government influence on the amount of savings and expenditures; accomplished by altering the tax structure and by changing the levels of government spending |
| Federal deficit | A shortfall created when the federal government spends more in a fiscal year than it receives |
| National debt | The total of all federal deficits |
| Competition | rivalry among businesses for sales to potential customers |
| Perfect (or pure) competition | The market situation in which there are many buyers and sellers of a product, and no single buyer or seller is powerful enough to affect the price of that product |
| Supply | The quantity of a product that producers are willing to sell at each of various prices |
| Demand | The quantity of a product that buyers are willing to purchase at each of various prices |
| Market Price (Equilibrium) | The price at which the quantity demanded is exactly equal to the quantity supplied |
| Monopolistic competition | A market situation where there are many buyers along with a relatively larger number of sellers who differentiate their products from the products of competitors |
| Product differentiation | The process of developing and promoting differences between one’s products and all similar products |
| Oligopoly | A market situation (or industry) in which there are few sellers |
| Monopoly | A market (or industry) with only one seller, and there are barriers to keep other firms from entering the industry |
| Natural monopoly | An industry requiring huge investments in capital and within which any duplication of facilities would be wasteful and thus not in the public interest |
| Standard of living | A loose, subjective measure of how well off an individual or a society is mainly in terms of want satisfaction through goods and services |
| Barter system | A system of exchange in which goods or services are traded directly for other goods and/or services without using money |
| Domestic system | A method of manufacturing in which an entrepreneur distributes raw materials to various homes, where families process them into finished goods to be offered for sale by the merchant entrepreneur |
| Factory system | A system of manufacturing in which all the materials, machinery, and workers required to manufacture a product are assembled in one place |
| Specialization | The separation of a manufacturing process into distinct tasks and the assignment of the different tasks to different individuals |
| E-Business | the organized effort of individuals to produce and sell through the Internet, for a profit, products and services that satisfy society’s needs |
| Service economy | an economy in which more effort is devoted to the production of services than to the production of goods |
| Cultural (or workplace) diversity | difference among people in a workplace owing to race, ethnicity, and gender. |
| Stakeholders | all the different people or groups of people who are affected by the policies and decisions made by an organization |
| Invisible hand | a term created by Adam Smith to describe how an individual’s personal gain benefits others and a nation’s economy |
| Market economy | an economic system in which businesses and individuals decide what to produce and buy, and the market determines quantities sold and prices |
| Mixed economy | an economy that exhibits elements of both capitalism and socialism |
| Consumer products | goods and services purchased by individuals for personal consumption. |
| Social media | the online interaction that allows people and businesses to communicate and share ideas, personal information, and information about products or services |
| Sustainability | meeting the needs of the present without compromising the ability of future generations to meet their own needs |
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