58. 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.
59. 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.
60. Glamour Gal, a popular women’s cosmetics company is gaining popularity among younger
women. Differentiating itself from the sea of companies that compete for the same business, it
focuses on products for sensitive, youthful skin. Glamour Gal clearly operates in an oligopolistic
environment.
61. Glamour Gal is a popular cosmetics company. Although it is gaining in popularity among
younger women, its promotional strategy continues to focus on the shadow-free finish that it
produces on almost any skin type. Due to the fact that its industry faces monopolistic
competition, the company knows that it must continue to differentiate itself from the
competition.
62. 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.
63. Roundland is a nation with an economic system that closely approximates pure
capitalism. While Roundland’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.
64. In the newspaper this morning, you read about the downfall of a multinational
entertainment business, and a report that the company’s CEO enjoyed a 9% increase in his salary
during the same year that the company’s profits were down 35%. As you read further, you learn
that the company’s board of directors approved undeserved salary increases. Clearly, this is an
example of how inequality and greed can infiltrate the free-market economic system.
65. As you scan the national news online, you read about the BXY Utility Company’s latest
problems. The story describes an expansive retaining wall that collapsed during a flood last
week, spewing toxic coal ash, burying homes, and causing a few fatalities. An editorial claims
that the company will not be held accountable to the same standards as the asbestos companies
of a few years back that paid severe fines and even went out of business due to their lack of
attention to environmental clean-up. You agree with the writer because you recently studied
about the various competitive markets, and utility companies clearly fall under monopolistic
competition.
66. The PowerHouse Utility Company recently built a nuclear power plant in a southern state
and started competing against BXY Utility Company that has served customers in that region for
65 years. Due to deregulation, consumers now have a choice among utility companies in this
area. Although PowerHouse has made a sizeable capital investment, if it successfully grows
market share, eventually prices for electricity may stabilize or fall.
67. Socialists believe that the primary economic function of the government is to promote
rapid economic growth.
68. In socialist economies, the government owns some, if not most, basic businesses such as
telecommunications systems and utilities.
69. 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.
70. 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.
71. Socialists believe that wealth should be more evenly distributed than what actually occurs
in a free-market capitalistic system.
72. Workers in socialist countries often get longer vacations and more social benefits than
workers in free-market economies.
73. Over the past decade, socialist economies have proven to be more successful at creating
wealth and jobs than capitalist economies.
74. One drawback of socialism is that it may result in a reduction in the individual’s incentive
to work hard.
75. Brain drain is the loss of the best and brightest people to other countries.
76. High tax rates in socialist countries is a major reason these nations have experienced a
brain drain.
77. Incentive to own and operate businesses is high in nations whose governments are
proponents of socialistic practices.
78. One of the benefits of communism is that it allows individuals a great deal of freedom to
make their own economic decisions.
79. 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.
80. Most communist countries today are suffering from severe economic problems.
81. A major distinction between capitalism and socialism concerns the distribution of
income.
82. Countries that wish to avoid shortages and surpluses of goods should adopt a communist
system.
83. Workers in nations who are strong proponents of communism work much harder and
longer hours.
84. 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.
85. Marina left her native land in Eastern Europe in order to become a nanny for a family in a
western suburb of Chicago, Illinois. One of the benefits of her arrangement was that she could
attend the community college near her family’s residence. When she arrived at her new job, she
experienced the differences from a predominately socialist nation and a capitalist nation. Marina
noted that public transportation in northern Illinois was limited and expensive, making it difficult
to get to school. For a negligible fee, the government in her native country provided public
transportation for everyone. Marina’s native country’s economic system was more characteristic
of socialism.
86. Socialism and communism are both variations of a free-market economy.
87. In command economies, the government plays a major role in deciding which goods are
produced and who will get them.
88. Governments that were predominantly capitalist are moving toward socialism, while
governments that were predominantly socialist are moving toward capitalism.
89. Like most nations, the United States has a mixed economy.
90. Most countries throughout the world can be classified as either purely capitalist or purely
socialist.
91. There is general agreement in the United States on the degree to which the government
should be involved in the economy.
92. Subtle differences such as the right to one’s religious preference make the command
economic system known as communism more like a mixed economy than a socialistic system.
93. In the past, socialist nations have realized that some of the government-run businesses
do not grow as quickly as businesses that operate for a profit.
94. 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.
95. According to the
Reaching Beyond Our Borders
box, Africa has been one of the fastest-
growing regions in the 21st century.
96. In a mixed economy, the government’s goal is to grow the economy and maintain some
measure of social equality.
97. Sweetland is a nation that publicly supports a free-market economy with private
ownership of businesses. Over time, the government of Sweetland has developed 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 Sweetland is trending toward pure capitalism.
98. Deanne is a vocal critic of socialism. She likes to point out that in recent years the
governments in many socialistic nations have cut back on government services and have reduced
taxes. Deanne believes that this trend will ultimately result in all nations adopting pure
capitalistic ideals. Recent evidence suggests that Deanne’s views are essentially correct.
99. Recently, Juanita Martinez, the Prime Minister of Vuvuzela, announced that she is
standing behind the concept of state-owned utilities and public schools in her nation. Although
not all industry is owned and managed by the government, her ideas would lead one to believe
that she has a preference for socialism.
100. Most nations recognize that private enterprise is detrimental to business growth and
what is best for consumers. Recently, a nation had the opportunity to sell its government-owned
telecommunication system to a private firm. Instead it realized that it would be better off if it
raised taxes so that it could maintain the status quo.
101. We use indicators such as (1) the gross domestic product (GDP), (2) the interest rate, and
(3) the price indexes to measure the health of our economy.
102. The total value of a country’s output of final goods and services in a given year is known
as the gross domestic product (GDP).
103. Any output produced by U.S. firms is included in the value of U.S. GDP, even if the output
was produced in a foreign country.
104. GDP figures do not include the value of illegal activities.