978-0134728391 Chapter 1 Part 2

can function as fiscal policies. Monetary policies focus on controlling the size of the

nation’s money supply; the government can influence banks to lend money and can influence

the supply of money through stimulus packages. Stabilization policy is made up of both

fiscal and monetary policies; the goal is to smooth out fluctuations in output and

unemployment and to stabilize prices.

KEY TEACHING TIPS

 Make sure that students understand that gross domestic product includes only the value

of products produced within a nation’s borders; the figure includes the value of products

produced by both domestic and foreign companies within those borders.

 Reinforce that gross national product includes the value of products produced by a

country regardless of where they are produced; this figure does not include the value of

products produced within the country by a foreign company.

 Emphasize that the government regulates the money supply and interest rates through

monetary policy; the government influences money supply via taxation and spending

through fiscal policy.

 Make sure students understand that inflation occurs when overall price levels go up

because too much money is floating around; as a result, purchasing power declines.

HOMEWORK

Interview a Business Owner

Now is a good time to assign Application Exercise 10 from the end-of-chapter materials in the

textbook. This assignment asks students to interview a business owner or senior manager and ask

them how demand and supply affect their business, what essential factors of production are most

central to the firm’s operations, and how fluctuations in economic indicators affect their

business.

At-Home Completion Time: 1–2 hours

Learning Catalytics is a “bring your own device” student engagement, assessment, and classroom

intelligence system. It allows instructors to engage students in class with realtime diagnostics.

Students can use any modern, web-enabled device (smartphone, tablet, or laptop) to access it.

For more information on using Learning Catalytics in your course, contact your

Pearson Representative.

IN-CLASS ACTIVITIES

In-Class Activity 1: Ice-Breaker: What Do You Know About Business?

Activity Overview:

This activity helps students assess their level of knowledge about business and set their own

learning goals for the class.

Time Limit: 20 minutes

What to Do:

1. Ask each student to take out a piece of paper and divide it into two columns. In the first

column, students should write the most important four or five things they currently know

frustrate them. (5 minutes)

2. Divide students into groups of three to five people and ask them to share their lists with each

other. As they listen, they can delete or add anything that seems relevant. (5 minutes)

3. Ask them to switch groups, so that they are with all new people, and repeat the process of

sharing their lists. (5 minutes)

4. Ask students to switch to a third group of all new people. With this group, the goal is to

synthesize their lists into one big idea of what they know, and one big idea of what they want

to learn. (5 minutes)

Don’t Forget:

This activity allows students to get to know each other as well as set expectations for the course.

The underlying agenda is to get them talking to each other, setting the stage for active

participation throughout the class.

Wrap-Up:

Wrap up the discussion by having each group report back to the class. You may want to record

their responses and post them in the room for reference as you move through the course.

In-Class Activity 2: Small Group Discussion: Scanning the Environment

Activity Overview:

This activity asks students to consider how various parts of the external environment affect

businesses and industries.

Time Limit: 25 minutes

What to Do:

1. For larger groups, divide the class into four–member groups; for smaller groups, divide the

class into two-member groups.

2. Assign each group a specific industry (for example: automotive, airline, fast food, computer,

apparel, or restaurant).

3. Ask each group to consider what variables from the technological, political–legal,

sociocultural, and economic environments affect their assigned industry. (15 minutes)

4. Ask a spokesperson from each group to share their input. (10 minutes)

Don’t Forget:

Remind students that external environmental elements can change dramatically, affecting

specific industries differently over time. Remind them that changes can occur quickly or slowly.

Wrap-Up:

Wrap up the discussion by making sure that students understand that the nature of a specific

business within an industry and the types and quantities of products/services produced can

influence the impact of external environmental variables.

In-Class Activity 3: Up for Debate: Comparing Economic Systems

Activity Overview:

This activity gets students talking about how similar and different the U.S. economic system is to

other systems.

Time Limit: 30 minutes

What to Do:

1. Divide the class into small groups. Ask the groups to assume they have just overheard a

classmate say, “The United States is becoming more socialist everyday—with all the

government control.” Have each group list reasons why the statement could be true and

reasons why the statement could be false. (15 minutes)

2. Reassemble the class and discuss each group’s thoughts. (15 minutes)

Don’t Forget:

often work fewer hours, have longer vacations, and receive more health, education, and child–

care benefits than do workers in capitalist economies. On the other hand, the federal government

does control some basic services in the United States as well as various aspects of the market

through agencies such as the Food and Drug Administration and the Federal Communication

Commission.

ANSWERS FOR END OF CHAPTER ACTIVITIES

QUESTIONS FOR REVIEW

1-1. What are the benefits of businesses? Can a business negatively affect society? Give one

1-2. What are the factors of production? Is one factor more important than the others? If so,

which one? Why?

The five factors of production are labor, capital, entrepreneurs, physical resources, and

1-3. What is a demand curve? A supply curve? How are they related?

The curve that describes the range of possible prices that a buyer will pay for a range of

1-4. Why is inflation both good and bad? How does the government try to control demand and

supply curves?

Inflation is both good and bad because it can lead to a spiral of rising wages chasing rising

QUESTIONS FOR ANALYSIS

1-5. Identify and describe at least three factors in the external environment that affect college

enrollment. Explain how each trend affects colleges and universities. Explain how each

factor may affect college and university enrollment, either by bolstering it or reducing it.

1-6. Give an example of a situation in which a surplus of a product led to decreased prices.

Similarly, give an example of a situation in which a shortage led to increased prices. What

eventually happened in each case? Why?

1-7. Explain how current economic indicators, such as inflation and unemployment, affect you

personally. Explain how they may affect you as a manager.

Answers will vary, but all students should include prices paid for consumer goods and the

1-8. How are the overall economic goals of stability and growth related? Can they be

reconciled to each other? If so, how?

A nation’s economic growth can be measured through its aggregate output, resulting standard

APPLICATION EXERCISES

1-9. Visit a Local Shopping Mall: Visit a local shopping mall or shopping area. List each store

that you see and determine what degree of competition it faces in its immediate environment.

For example, if only one store in the mall sells shoes, that store represents a “local”

monopoly. Note businesses that have direct competitors (for instance, two gas stations right

next to each other) and show how they compete with one another. Also consider why they

might have located right next to each other.

Answers will vary, but students should focus on the criteria for competition discussed in the

1-10. Interview a Business Owner: Interview a business owner or senior manager. Ask this

individual to describe for you the following things: (1) how demand and supply affect the

business, (2) what essential factors of production are most central to the firm’s operations,

and (3) how fluctuations in economic indicators affect his or her business.

Answers will vary, but students should recognize that demand and supply affect every

BUILDING A BUSINESS: CONTINUING TEAM EXERCISE 1-11 TO 1-14

(Learning Objectives 2 and 3 – AACSB – interpersonal relations and teamwork, analytical

thinking, application of knowledge)

Groups should consider domestic business environment, global business environment,

technological environment, political-legal environment, sociocultural environment, and

economic environment when identifying three trends that will create business opportunities.

The student should answer the following questions:

 What is my product or service?

 Where are my customers located?

 Is my business idea easily copied?

 If there are substitutes for my product or service, how can I make my product/service

stand out from competitors’ offerings?

 How can having competition benefit me?

TEAM EXERCISE: COMPETITION IN THE NEW MOBILE ECONOMY 1-15 TO 1-18

(Learning Objective 3 – AACSB – interpersonal relations and teamwork, analytical

thinking, application of knowledge)

1-15. What form of competition best characterizes this market? What characteristics did you

identify that led you to that conclusion?

This market is best characterized as monopolistic competition: many sellers, many buyers,

1-16. Develop specific pricing strategies based on each of the following situations:

• The average cup of coffee sells for $3 in your area. Right now you are selling 10,000 cups of

• The big chain store around the corner reduced their average sales price per cup to $2.80. As a

result, your business falls off by 25 percent.

Scenario 1: Students should point out that the shop is running at break even, and that a price

make up the drop in volume.

1-17. Discuss the role that various inducements other than price might play in affecting demand

and supply in this market.

Inducements will not directly increase overall demand. However, the initiative to take online

1-18. Is it always in a company’s best interest to feature the lowest prices?

It is definitely not always in a company’s best interest to feature the lowest price. If that is

EXERCISING YOUR ETHICS: GETTING CAUGHT OUT IN THE COLD

(Learning Objective 2 and 3 – AACSB – ethical understanding and reasoning, reflective

thinking)

1-19. What are the roles of supply and demand in this scenario?

Huma anticipates that the supply of heating oil will be higher this winter, resulting in the

1-20. What are the underlying ethical issues?

Underlying ethical issues revolve around generating maximum pricing versus generating an

1-21. What would you do if you were actually faced with this situation?

CASES:

DOING BUSINESS IN THE GLOBAL MARKETPLACE

(Learning Objectives 3 and 4 – AACSB – application of knowledge, reflective thinking)

1-22. What is the difference between a market economy and a planned economy?

In a market economy, individual producers and consumers control production and allocation

1-23. Explain how managers of Alibaba, eBay, Amazon.com, and other online retailers might

view the concepts of supply and demand.

Supply is the willingness and ability of producers to offer a good or service for sale. Demand

1-24. What economic indicators would a business owner be most likely to watch, and why?

impact the purchasing power of people; inflation can cause wages to rise, but can also lead to

increased prices, resulting in a decline in purchasing power.

1-25. Does Jack Ma’s success increase or decrease your confidence in a capitalistic system based

on private enterprise?

Since China currently is more of a mixed-market economy than a planned economy, it

1-26. Should there be more government intervention in the markets and business dealings? Why

or why not?

What role would the government play in regulating various industries and markets? There

GAME THEORY IN THE VIDEO GAME CONSOLE INDUSTRY

(Learning Objectives 1 and 3 – AACSB – application of knowledge, reflective thinking)

1-27. Is it surprising that innovations, breakthroughs, and pricing strategies in the game console

market seem to be coordinated? Why, or why not?

1-28. How hard would it be for a new company to get started in the game console industry? Has

anyone tried, and if so, what was the result? What are the barriers to entry?

The information provided indicates that it will be very difficult for a new company to

1-29. In terms of degrees of competition, how would you describe the market for game

consoles? Do you think that this will change in the next five years? If so, how?

what alternatives may become available in the future. For example, can online game

competition become a viable competitor? What about virtual reality?

1-30. In 2006, Nintendo broke new ground in the video industry with the introduction of the

Wii. Sony recently unveiled a virtual reality version of the PS4. If you were a member of the

Microsoft marketing and R&D (research and development) team, what advice would you be

giving your teammates?

1-31. Do you think that having only three manufacturers in this industry is positive or

negative? Why?

Since these three manufacturers have controlled the market for so many years, students may

1-32. Which game console do you think is superior? Why?