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1. (p. 30) A major part of America’s business success is due to an economic and social climate that allows
businesses to operate freely.
2. (p. 30) Global economics and politics have no influence on businesses in the United States.
3. (p. 31) The study of how society chooses to employ resources to produce goods and services and to distribute
them for consumption among various competing groups and individuals is known as sociology.
4. (p. 31) The study of how society chooses to employ resources to produce goods and services and to distribute
them for consumption among various competing groups and individuals is known as economics.
5. (p. 31) Economists study how people use resources to produce and distribute goods and services for
consumption among competing groups and individuals.
6. (p. 31) Macroeconomics is the economic perspective that looks at the operation of a nation’s economy as a
whole.
7. (p. 31) Microeconomics focuses on the decisions and behavior of people and organizations in particular
markets.
8. (p. 31) Resource development is concerned with finding the best way to utilize the fixed amount of resources a
society has available.
9. (p. 31) Resource development is the study of how to increase resources and to create the conditions that will
make better use of those resources.
10. (p. 31) The key to economic prosperity is to find the best way to divide existing resources among nations.
11. (p. 31) Thomas Malthus believed that overpopulation was a major cause of poverty.
12. (p. 31) Thomas Malthus called economics the “dismal science.”
13. (p. 31) In the developing world, population has leveled off and is not expected to increase dramatically in the
future.
14. (p. 32) Studies about the effects of population growth on the economy are part of macroeconomics.
15. (p. 32) Some macroeconomists believe that a large population is a problem for countries.
16. (p. 32) The secret to economic development is for business owners to provide jobs and economic growth for
their employees, their communities, and themselves.
17. (p. 32) Adam Smith wrote The Wealth of Nations.
18. (p. 32) Adam Smith believed that the key to creating rising standards of living was to limit population growth.
19. (p. 32) Adam Smith believed the self-interest of businesspeople would lead them to create needed goods,
services, and jobs.
20. (p. 32) Adam Smith is considered by some to be the father of modern economics.
21. (p. 32) The “invisible hand” in Adam Smith’s theory turns self-directed gain into social and economic benefits
for all.
22. (p. 32) The “invisible hand” in Adam Smith’s theory refers to the efforts of the government to control the
operation of markets.
23. (p. 31) Economist Sue Pligh is examining how consumers in the automobile market have responded to recent
price increases by car manufacturers. Sue’s efforts reflect the microeconomic perspective of economics.
24. (p. 31) The primary difference between macroeconomics and microeconomics is that macroeconomics looks at
long run economic problems while microeconomics examines short run economic problems.
25. (p. 31) Didi Manne is very concerned about overpopulation. In Didi’s opinion, people in most countries will
never be able to achieve high standards of living unless population problems are addressed. Didi’s views seem
to be consistent with those developed by Thomas Malthus.
26. (p. 32) Adam Smith believed that since businesspeople are motivated to improve their own prosperity, their
actions are unlikely to benefit society as a whole.
27. (p. 32) Adam Smith believed that an economic system couldn’t truly prosper unless people were taught to
value the welfare of others above their own personal gain.
28. (p. 32–33) The concept of the invisible hand is based on the assumption that the primary motivation of
entrepreneurs is to enjoy the financial rewards of their hard work.
29. (p. 32–33) Adam Smith felt that incentives to seek personal gain would insure the creation of wealth, but that
the government must step in to make sure that this wealth was equitably distributed.
30. (p. 32) Adam Smith’s theories focused on explaining the best way to divide the fixed resources we have
available, rather than on how to create more wealth.
31. (p. 35) In capitalist countries, the government decides what to produce and how the goods and services will be
produced.
32. (p. 35) Capitalism is the foundation of the U.S. economic system.
33. (p. 35) The most fundamental of all rights in capitalism is the right to private property.
34. (p. 36) In capitalism, the government prohibits people and businesses from competing with each other.
35. (p. 35–36) A basic right under capitalism is the right of business to receive funding provided by the
government.
36. (p. 35) Capitalism has had little success in encouraging the creation of wealth.
37. (p. 36) One benefit of the rights of free-market capitalism is that people are willing to take more risks than
they would otherwise.
38. (p. 37) Under the basic principle of supply, as the price goes down, manufacturers and suppliers of a product
tend to supply less of the product to the market.
39. (p. 37) Demand refers to the quantity of a good that consumers are willing and able to buy at different prices at
a specific time.
40. (p. 37) Price is the key factor that determines both quantity supplied and quantity demanded.
41. (p. 39) Adapting to changes in demand is easy for businesses to do.
42. (p. 38, figure 2.3) At the equilibrium price the quantity consumers desire to buy equals the quantity sellers desire
to sell.
43. (p. 38) If the quantity supplied in a market exceeds the quantity demanded, a shortage will exist.
44. (p. 38) If a shortage exists in a market for a good, the price of that good will tend to fall.
45. (p. 38, figure 2.3) If we graph the supply and demand curves for a product at a specific time, the point on the
graph where the two curves intersect is called the stress point.
46. (p. 38, figure 2.3) In the long run, the actual market price tends to adjust toward the equilibrium point.
47. (p. 38) Countries that rely on a free market system often are plagued by persistent shortages or surpluses of
goods and services.
48. (p. 38) One of the drawbacks of free markets is the fact that competition in such markets undermines the
ability of price to adjust to its equilibrium value in the long run.
49. (p. 39) In perfect competition, each firm produces a product that is clearly differentiated from the products of
other firms in the same market.
50. (p. 40) A monopoly occurs when there is a single seller for a product or service.
51. (p. 39) Economists refer to a market in which a few sellers dominate the supply side as monopolistic
competition.
52. (p. 39) Product differentiation is a key to success in monopolistic competition.
53. (p. 40) In the United States, laws prohibit the creation of most types of monopolies.
54. (p. 40) One strength of a free-market economic system is that it emphasizes the fair and humane treatment of
the less fortunate in society.
55. (p. 40) The greed of businesspeople represents the greatest danger to the operation of a free market system.
56. (p. 35) Fatma is a citizen of a country that has an economic system that is primarily based on free market
capitalism. Fatma is likely to have the freedom to buy and sell property.
57. (p. 37–38) A surplus currently exists in the market for whatzits. In a free market system, the government must
step in and buy any whatzits that consumers do not buy in order to eliminate the surplus and establish
equilibrium.
58. (p. 36) In free markets, 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.
59. (p. 37) Jill owns a bakery that specializes in cheesecakes. Until recently, Jill charged a price of $12 for each
cheesecake. At this price Jill’s customers bought an average of 84 cheesecakes each week. For the last few
weeks, she has reduced her price to $10.50 per cheesecake, and her customers have purchased an average of 96
cheesecakes each week. These results are consistent with the economic concept of demand.
60. (p. 39) Monica notices that just a few big companies produce the vast majority of soft drinks. She would be
correct in describing the soft drink industry as an oligopoly.
61. (p. 39) Harry Cutter is the owner of Harry’s Hairy Business, one of a large number of barbershops that
compete against each other in the city where Harry lives. Harry has tried to attract more customers by staying
open longer hours than most barbershops, and by advertising heavily on local radio to convince people that he
offers the best haircuts in town. Harry appears to be operating in an oligopolistic market.
62. (p. 40) Permany is a nation with an economic system that closely approximates pure capitalism. While
Permany’s economy is likely to generate a great deal of wealth, it may do a poor job of providing an acceptable
level of income for the elderly or disabled.
63. (p. 40) History shows that free-market capitalism leads to a fair and equitable distribution of wealth.
64. (p. 41) Socialists believe that the primary economic function of the government is to promote rapid economic
growth.
65. (p. 41) In socialist economies, the government owns some, if not most, basic businesses such as coal mines
and utilities.
66. (p. 41) The top tax rate on personal income in most socialist economies is usually lower than the top tax rate
on personal income in capitalist economies.
67. (p. 41) The major benefit of socialism is that it creates strong incentives to work hard and take the risks
associated with starting and operating a business.
68. (p. 41) Workers in socialist countries often get longer vacations and more social benefits than workers in free
market economies.
69. (p. 41) Over the past decade, socialist economies have proven to be more successful at creating wealth and
jobs than capitalist economies.
70. (p. 41) One drawback of socialism is that it may result in a reduction in the individual’s incentive to work
hard.
71. (p. 41) Brain drain is the loss of the best and brightest people to other countries.
72. (p. 41) High tax rates in socialist countries is a major reason these nations have experienced a brain drain.
73. (p. 42) Communism is an economic system that is gaining in worldwide popularity.
74. (p. 42) One of the benefits of communism is that it allows individuals a great deal of freedom to make their
own economic decisions.
75. (p. 42) Communism is an economic and political system in which the state makes almost all economic
decisions and owns almost all the major factors of production.
76. (p. 42) Most communist countries today are suffering from severe economic problems.
77. (p. 43; Spotlight on Small Business box) The “Spotlight on Small Business” box explains that the share of China’s
population living in towns and cities is rising because there is a rapid growth of Chinese businesses in the
cities.
78. (p. 41) In the small nation of Equalia, the government owns several of the key businesses and provides a wide
range of social services. The government places a great deal of emphasis on eliminating large disparities in
people’s incomes. These features of Equalia’s economy are consistent with a socialist economic system.
79. (p. 41) A major distinction between capitalism and socialism concerns how incomes are distributed among the
population.
80. (p. 42) Countries that wish to avoid shortages and surpluses of goods should adopt a communist economic
system.
81. (p. 42) Countries that wish their businesspeople to work hard should adopt communism as a political and
economic system.
82. (p. 43) Socialism and communism are both variations of a free-market economy.
83. (p. 43) In command economies, the government plays a major role in deciding which goods will be produced
and who will get them.
84. (p. 44) An important economic trend has been for free-market economies to move more toward socialism
while socialist economies move more toward free markets.
85. (p. 44) Like most nations, the United States has a mixed economy.
86. (p. 44) The government is the largest employer in the United States.
87. (p. 44) Most countries throughout the world can be classified as either purely capitalist or purely socialist.
88. (p. 44) There is general agreement in the United States on the degree to which the government should be
involved in the economy.
89. (p. 44) Skeeden is a nation with an economic system that features free markets with private ownership of
businesses. It still relies on those businesses to create most wealth. However, over time the government of
Skeeden has developed some programs and policies designed to help the needy and reduce the level of income
inequality. It pays for these programs by levying relatively high taxes on businesses and workers. These
arrangements suggest that the economy of Skeeden is moving closer to the adoption of pure capitalism.