Chapter 1 Understanding the Canadian Business System 1) In the story "Voisey's Bay", Inco bought controlling interest in the site upon discovery of one of the world's richest nickel finds. There were delays in development of the site because: A) of a time-consuming and expensive environmental review process, along with difficult negotiations with the government of Newfoundland B) Inco found a richer nickel mine in Malaysia C) the company could not make a profit D) Inco didn't have enough capital E) Inco closed its Newfoundland office Answer: A Diff: 2
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2) Examples of businesses include the following, except: A) large corporations like Canadian Pacific or Alcan Aluminum B) local supermarkets C) non-profit organizations D) one-person businesses, like barbershops E) farms Answer: C Diff: 1
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3) Deborah wants to set up a business, but also wants to be aware of the roles business should take. Which of the following would Deborah not consider to be a role of business firms in the Canadian economy? A) regulate the marketplace with trade barriers B) provide employment for citizens C) provide community leadership D) provide profit incentive for business owners E) support charitable organizations Answer: A Diff: 2
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4) Profit is: A) the level of expenses B) the amount of sales C) what remains after business expenses are subtracted from business revenues D) the value of shares in a company E) the taxes a company pays Answer: C Diff: 1
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5) This week, Mary's Variety had sales of $4 000, employees were paid$1 000, cost of goods was $1 500, and rent was $500. Profit for the week was: A) $3 000 B) $4 000 C) $1 000 D) $1 500 E) $2 000 Answer: C Diff: 2
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6) Most of the goods and services consumed in Canada are produced by: A) the Canadian government B) overseas firms C) business firms D) countries of the Pacific Rim E) the U.S. economy Answer: C Diff: 1
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7) An economic system is: A) the way in which a nation allocates its resources among its citizens B) a government decree that requires certain goods and services to be provided C) a large government department that oversees how the economy is running D) a long standing agreement between citizens and governments on how an economy is run E) an agreement between countries that deal with free trade Answer: A Diff: 2
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8) Jose is from Guatemala. He is unsure about the nature of business in Canada. You point out that a typical business in Canada operates the same as a typical business in: A) Japan B) England C) Peru D) France E) People's Republic of China Answer: B Diff: 1
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9) All of the following are factors of production except: A) technology B) natural resources C) capital D) entrepreneurs E) labour Answer: A Diff: 2
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10) Natural resources, as a factor of production for mining, is a practical consideration when a mining company considers: A) the amount of capital required to build the mine B) the ease with which ore could be mined C) the number of miners available to mine the ore D) the number of customers who want to buy ore E) the profit that could be made from mining the ore Answer: B Diff: 3
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11) Natural resources include: A) land, water, and gasoline B) the funds needed to start and operate a business C) land, water, and mineral deposits D) a large number of people with entrepreneurial tendencies E) the mental and physical capabilities of people Answer: C Diff: 1
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12) Labour includes: A) everyone in the business B) only non-unionized employees C) only workers who do physical work D) only managers E) only unionized employees Answer: A Diff: 2
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13) A factor that contributes directly to improving labour as a factor of production is: A) creation of more manual-labouring jobs B) better education for more of the population C) free tuition at post-secondary educational institutions D) increased purchasing power by employees E) programs that decrease unemployment Answer: B Diff: 3
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14) Susan wants to set up a small business. She should know that a major source of capital for most businesses, especially small businesses, is: A) business revenue B) loans from banks C) investors D) personal investment E) short-term loans Answer: D Diff: 1
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15) Marie owns a small restaurant and is thinking of expanding it to another location. She is best described as a(n): A) capitalist B) administrator C) entrepreneur D) venture capitalist E) employee Answer: C Diff: 1
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16) Entrepreneurs are important because they: A) are good at making decisions B) make lots of money C) take risks to start new businesses D) are rich E) are good managers Answer: C Diff: 3
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17) Bruce is wondering if he has the characteristics to be a good entrepreneur. You indicate that all of the following are characteristics of entrepreneurs except: A) an initiator B) a profit seeker C) a calculated risk taker D) a desire for a low-risk job E) someone who seeks opportunity Answer: D Diff: 2
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18) An individual who organizes the resources to produce goods and services to earn a profit, but also runs the risk of failure refers to: A) natural resources B) capitalism C) entrepreneurs D) communism E) socialism Answer: C Diff: 2
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19) A command economy is: A) one in which the government controls all or most factors of production B) one where there is a mix of government regulation and free enterprise C) one in which the market directs what is made and in what quantity D) the type of economy found in Russia E) one in which customers demand what new products are to be made Answer: A Diff: 1
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20) The economic system in which producers and consumers control production and allocation decisions through supply and demand is called: A) socialism B) communism C) centrally planned economy D) market economy E) privatization Answer: D Diff: 1
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21) You are involved in a debate about communism. You must know that a major drawback to communism as an economic system is that: A) communism is becoming less attractive B) government operated enterprises are inefficient because of political considerations C) individuals contribute according to their ability D) government control of the factors of production is only temporary E) individuals receive economic benefits according to their needs Answer: B Diff: 2
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22) Command economies are most likely to be found in: A) Japan B) communist and socialist nations C) capitalistic societies D) western Europe E) the newly emerging Asian countries Answer: B Diff: 2
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23) Which of the following is not true in the communist economic system? A) the government owns and operates all the industries B) communist nations often expand their overall production rapidly because of centralized planning C) there is limited or no free enterprise D) most government-operated enterprises are inefficient E) centralized planning emphasis on capital equipment and military hardware has caused shortages of consumer goods Answer: B Diff: 3
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24) Stanislav lives in a country where all the sources of production are owned by the government. The economy system in his country is most likely: A) fascism B) socialism C) privatization D) mixed market E) communism Answer: E Diff: 2
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25) Which of the following is not true? A) No country in the world has a purely communistic economy. B) The United States is not a purely capitalistic economy. C) No country in the world has a purely capitalistic economy. D) The People's Republic of China and Cuba are purely communistic economies today. E) No country in the world has a purely socialistic economy. Answer: D Diff: 3
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26) What do the nations of Cuba, North Korea, Vietnam, and the People's Republic of China have in common? A) socialism B) mercantilism C) mixed economy D) market economy E) communism Answer: E Diff: 1
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27) An economic system that permits private ownership and control of small businesses but where the government is in control of large critical industries is known as: A) a mixed economy B) socialism C) mercantilism D) communism E) capitalism Answer: B Diff: 1
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28) Socialism is best described as: A) a market economy in which markets decide what, when, and how much to produce B) a kind of command economy in which the government owns and operates large critical industries C) an economic system with elements of both a planned economy and a market economy D) an economy that is free from any regulation or planning E) a kind of command economy in which the government owns and operates all industries Answer: B Diff: 2
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29) Socialist economies can stifle economic growth because: A) they are actually command economies B) management positions in state-controlled industries are often filled on the basis of political considerations C) they encourage unionization of employees D) they have too few regulations concerning product safety E) socialist economies actually have the best record, and they do not stifle economic growth Answer: B Diff: 3
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30) Market economies have all of the following characteristics, except that they: A) allow businesses to charge whatever they want for their products and services B) require government intervention in order to prosper C) encourage entrepreneurship by offering profits as an incentive D) allow customers free choice E) rely on markets, not governments, to decide what, when, and for whom to produce Answer: B Diff: 1
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31) Market economies are the best for small businesses because they: A) allow small businesses to fail B) allow the business to do whatever it wants C) provide small businesses with lots of government assistance and protection D) provide a central plan in which small businesses can easily prosper E) protect small businesses from the power of large corporations Answer: B Diff: 1
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32) B2B has become popular in strategic business thinking. Which of the following statements is NOT true about B2B? A) B2B involves businesses joining together to create e-commerce companies. B) B2B stands for business-to-business electronic commerce. C) B2C transactions far exceed B2B transactions in dollar value. D) B2B activity is good news for consumers because it helps to make businesses more efficient, which will allow them to reduce their costs. That, in turn, will allow them to reduce prices. E) B2B transactions exceed $200 billion. Answer: C Diff: 3
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33) Canada is home to a(n) ________ economy. A) command B) mixed C) oligopolistic D) fair E) market Answer: B Diff: 2
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34) The role of government in our economic system includes all of the following except: A) taxation agent B) competitor C) regulator D) customer E) innovator Answer: E Diff: 2
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35) Sandy is responsible for monitoring compliance to regulations in her company. She needs to know that the important areas of regulation are: A) protecting shareholder rights and business law B) protecting social goals, ecological regulations and shareholder rights C) protecting competition, consumer protection, social goals and protecting the environment D) protecting competition, consumer protection and environmental regulations E) protecting competition and environmental regulations Answer: C Diff: 2
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36) John is interested in preserving social goals in Canada. However, he is not certain which goals are subject to regulation. You point out that the social goals that governments regulate are the following except: A) a safe workplace B) employment insurance C) decent pensions D) motor vehicles E) public health-care system with wide access Answer: D Diff: 2
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37) Madeline is responsible for answering questions about what her company can do under the Competition Act. Which one of the following is allowed under the Act? A) pricing products unreasonably low to eliminate competition B) forming a merger or a monopoly that lessens competition C) refusal to sell to a retailer who, in turn, sells the product significantly below the suggested retail price D) giving selective allowances and rebates to cover advertising expenses to specific retailers E) the return of surpluses by credit unions to its members Answer: E Diff: 2
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38) Why are income taxes called progressive taxes? A) the more one makes, the higher the income tax rate that is applied to one's entire income B) because poorer people spend proportionally more on necessities C) the more one makes, a greater proportion of additional amounts is paid in income taxes D) the more one progresses in a company, the more one pays in income taxes E) because it increases total consumption Answer: C Diff: 2
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39) Why are sales taxes called regressive taxes? A) because the more one makes, the lower the rate of sales tax that is applied to one's purchases B) because it applies to sales taxes C) because they discourage the purchase of some products D) because food and drugs are often exempt E) because poorer people pay a higher percentage of income than richer people Answer: E Diff: 2
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40) Incentive programs are designed to: A) create "corporate welfare bums" B) encourage families to have more babies C) encourage businesses to locate in depressed parts of the country D) encourage families to move to depressed parts of the country E) encourage businesses to make unprofitable products Answer: C Diff: 1
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41) The textbook describes three main ways in which business can influence government policy. They are: A) advertising, trade associations, political contributions B) political contributions, letters to the editors of newspapers, advertising C) lobbyists, political contributions, advertising D) trade associations, lobbyists, letters to the editors of newspapers E) advertising, lobbyists, trade associations Answer: E Diff: 1
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42) A semiconductor firm is opening a new manufacturing facility in Canada and is looking for ways to better influence government policy in their industry. It could: A) assure worker safety in business facilities B) obtain a government contract for supplies and equipment C) keep manufacturing plants in Canada D) obtain export business for the new facility E) hire a lobbyist or join a trade association Answer: E Diff: 2
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43) As part of the Lobbyist Registration Act, lobbyists are required to: A) attend 50 percent of all sessions in the House of Commons B) register with the Department of Finance C) register with the Registrar of Lobbyists D) register with the Department of Consumer and Commercial Relations E) register with the Department of Lobbyists Answer: C Diff: 3
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44) The microelectronics manufacturers want to set up a trade association. They need to know that trade associations do all but which one of the following? A) conduct training programs relevant to the industry B) act as an industry lobby to influence legislation C) publish newsletters featuring articles on new products D) allocate markets for their members E) arrange trade shows Answer: D Diff: 3
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45) The economic term "demand" refers to: A) the stock exchange B) the willingness and ability of buyers to purchase a product or service C) the willingness of government to sell goods and services D) the willingness and ability of producers to purchase a product or service E) the willingness of sellers to sell goods Answer: B Diff: 1
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46) The law of demand states: A) buyers will purchase more of a product as the price falls B) producers will offer more of a product as the price rises C) producers will offer more of a product as the price falls D) buyers will purchase more of a product as the price rises E) that demand and supply meet at an equilibrium point Answer: A Diff: 1
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47) The law of supply states: A) producers will offer more of a product as the price rises B) that demand and supply meet at an equilibrium point C) producers will offer more of a product as the price falls D) buyers will purchase more of a product as the price falls E) buyers will purchase more of a product as the price rises Answer: A Diff: 1
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48) Ian, the owner of 5-for-1 Pizza, has noticed that when he increases the price of his pizzas by $2.00, the number of pizzas that he sells drops by 30 percent. Ian has discovered: A) the law of demand B) the law of supply and demand C) the demand curve D) the supply curve E) the law of supply Answer: A Diff: 2
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49) Kristine discovered that when she dropped the price of her paintings, more people were asking her to create paintings for them. Kristine is experiencing: A) economic justice B) market price variations C) mercantilism D) the law of demand E) the law of supply Answer: D Diff: 2
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50) A demand and supply schedule: A) describes the supply for a product B) is the contractual agreement made between the buyer and seller C) describes the demand for a product D) allows one to assess the relationship between different levels of demand and supply at different prices E) is a formula by which one determines market equilibrium Answer: D Diff: 3
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51) Which term is used to identify the willingness and ability of buyers to purchase a product? A) obligation B) prosperity C) demand D) profits E) wealth Answer: C Diff: 1
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52) A major producer of automobile batteries notes that the price of batteries has risen over each of the past three years. The firm decides to expand its battery production. This illustrates: A) the law of market price B) the law of demand C) the law of supply D) the law of supply and demand E) the law of equilibrium Answer: C Diff: 3
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53) In the production of wheat, the law of demand: A) states that buyers will purchase more wheat as the price decreases B) occurs when farmers produce a bumper crop of wheat C) refers to the exchange process between the farmer and the buyer of wheat D) reflects the farmer's desire to offer more wheat as demand increases E) reflects the farmer's desire to increase wheat production Answer: A Diff: 2
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54) A major producer of televisions is experiencing difficulty in selling its products. A corporate decision is made to lower the price, anticipating that sales will increase as a result of the lower price. This illustrates: A) the law of supply and demand B) the law of supply C) the law of market price D) the law of equilibrium E) the law of demand Answer: E Diff: 3
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55) The point at which the quantity of a product or service demanded is the same as the quantity supplied is called: A) the shortage point B) the supply point C) the surplus point D) the demand point E) the equilibrium point Answer: E Diff: 1
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56) On a graph showing the supply curve and the demand curve, the point at which the two curves intersect is called: A) the crossover B) the equilibrium price C) the law of demand D) the junction E) the break-even point Answer: B Diff: 2
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57) At the point where the supply curve crosses the demand curve on a graph, it could be said that: A) no profits will be made B) all products offered for sale will be sold C) no sales will be made D) a surplus will result E) a shortage will result Answer: B Diff: 2
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58) The points on a curve showing the relationship between the price of a good or service and the quantity of that good or service willing to be produced is known as the: A) equilibrium curve B) variable price curve C) demand curve D) balance curve E) supply curve Answer: E Diff: 2
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59) The points on a curve showing the relationship between the price of a good or service and the quantity of that good or service which customers will purchase is known as the: A) variable price curve B) supply curve C) demand curve D) equilibrium curve E) balance curve Answer: C Diff: 2
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60) Equilibrium in the market is attained when: A) the laws of supply and demand interact to set the price and quantity of a product at which buyers and sellers agree B) no single firm has more than 50 percent of the market C) there are no dramatic changes in the market over time D) suppliers are willing to produce the quantity demanded E) consumers are willing to pay the price being charged Answer: A Diff: 2
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61) If the equilibrium point of 5-for-1 Pizza is 2 000 pizzas per week and $10.00 per pizza, and the owner decides to make 2 200 pizzas and sell them at the same price, what is the likely outcome? A) the business will have less expenses and also have greater profit B) the business will have a surplus C) the business will have less expenses D) the business will have shortage E) the business will make more profit Answer: B Diff: 3
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62) 5-for-1 Pizza is operating at the point where the supply curve intersects the demand curve. If the owner decides to increase the price and not change the production level, what will result? A) a shift in the supply curve B) a shortage C) a shift in the demand curve D) a surplus E) more profit Answer: D Diff: 2
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63) The market research department estimated that 5 000 CDs would be purchased at a price of $8.00 each. As it turned out, the demand was 6 000. The company is in a(n) ________ condition. A) shortage B) depression C) surplus D) growth E) inflation Answer: A Diff: 1
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64) If the market for chocolate was at equilibrium point and suddenly half of the chocolate in the world disappeared, what would be the immediate effect? A) there would be no change in either price or demand B) the price would increase due to a surplus C) the price would decrease due to a surplus D) the price would increase due to a shortage E) the price would decrease due to market equilibrium Answer: D Diff: 3
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65) What basic argument did Adam Smith make in his book, The Wealth of Nations? A) national wealth was created fastest by the mercantile system B) government should not interfere in the economy, but should let business function without regulation or restriction C) someone will be more successful in business if he or she is a leader and true entrepreneur D) socialism is the best economic system E) the government should own the means of production Answer: B Diff: 3
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66) Adam Smith, author of The Wealth of Nations, argued that a society's interests would be best served by: A) the political parties B) socialism C) monopolies D) communism E) private enterprise Answer: E Diff: 1
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67) Private enterprise requires four elements: A) the right to product safety, consumer choice, freedom of information, and no government intervention in business B) land, labour, capital, and entrepreneurship C) private property rights, freedom of choice, profits and competition D) supply, demand, equilibrium and monopoly E) communism, capitalism, socialism and privatization Answer: C Diff: 2
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68) The "Wealth of Nations" theory of laissez-faire was proposed by: A) the Disney Institute B) Andrew Carnegie C) Henry Ford D) Adam Smith E) Karl Marx Answer: D Diff: 1
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69) Private enterprise requires all of the following, except: A) competition B) freedom of choice C) private property rights D) a demand and supply schedule E) profits Answer: D Diff: 1
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70) In his book, The Wealth of Nations, Adam Smith maintained that the creation of wealth should be the concern of: A) students B) the government C) heavenly powers D) individuals and firms E) all citizens Answer: D Diff: 3
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71) A few years ago, General Motors decided to develop a new car, the Saturn. Sally checked it out at her local dealership and decided to buy one. We can conclude that: A) neither General Motors nor Sally exercised their freedom of choice B) Sally exercised her freedom of choice C) General Motors exercised its freedom of choice D) this example doesn't relate to freedom of choice E) both General Motors and Sally exercised their freedom of choice Answer: E Diff: 1
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72) The four degrees of competition include all of the following except: A) pure competition B) pure monopolistic competition C) monopolies D) oligopolies E) monopolistic competition Answer: B Diff: 1
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73) An outcome of competition is that business firms: A) have unrestricted access to natural resources B) must operate efficiently C) can easily develop a monopoly D) can drop out of the pricing war unnoticed E) reduce their need for expansion capital Answer: B Diff: 2
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74) Which of the following motivates an entrepreneur to operate his or her business efficiently? A) competition B) right to vote C) freedom of choice D) private property rights E) privatization Answer: A Diff: 1
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75) Brown Company wants to create an advantage over its competitors. To gain this advantage it must develop a product that must be either ________ or ________ competition. A) higher priced, equal the quality of B) priced the same, have poorer quality than C) lower priced, have better quality than D) lower priced, equal the quality of E) priced the same, equal the quality of Answer: C Diff: 2
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76) Individual firms must be small and the number of such firms must be large. This describes which degree of competition? A) monopoly B) perfect competition C) selective competition D) oligopoly E) monopolistic competition Answer: B Diff: 1
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77) Bob owns the St. Paul Street one-stop convenience store. He owns one of the 300 convenience stores in his region. Which degree of competition is Bob involved in? A) monopolistic competition B) monopoly C) oligopolistic competition D) perfect competition E) oligopoly Answer: D Diff: 1
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78) In a market with perfect competition: A) products have very few similarities B) there are very few sellers C) buyers and sellers do not know the price structure of the market D) firms are relatively large E) price is set by supply and demand Answer: E Diff: 2
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79) Which one of the following is the best example of perfect competition? A) utility industry B) clothing industry C) automobile industry D) agricultural industry E) soft drink industry Answer: D Diff: 2
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80) Which one of the following is not a characteristic of an oligopoly? A) great product differentiation B) prices differ greatly C) many buyers D) few sellers E) swift response to price changes of a competitor Answer: B Diff: 2
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81) McDonnell Douglas, a manufacturer of large commercial aircraft, raises its prices of aircraft by 10 percent. Boeing, another manufacturer of large commercial aircraft, raises its prices by 9 percent. Airbus, a third manufacturer of large commercial aircraft, follows with an increase of 9.5 percent. Each of these companies is practising a type of pricing strategy characteristic of: A) a monopoly B) an oligopoly C) perfect competition D) controlled competition E) monopolistic competition Answer: B Diff: 2
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82) In a given national market, only five firms make and distribute little red wagons. This illustrates which degree of competition? A) monopoly B) selective competition C) perfect competition D) oligopoly E) monopolistic competition Answer: D Diff: 2
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83) Competition like that between Tide and Cheer, Coke and Pepsi, and Sears and Ralph Lauren is: A) monopoly B) oligopolistic competition C) monopolistic competition D) oligopoly E) perfect competition Answer: C Diff: 2
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84) Which of the following businesses has a natural monopoly? A) Via Rail B) Chapters Bookstore C) Your provincial electric company D) Kleenex E) De Beers Diamonds Answer: C Diff: 1
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85) Bailey Wear manufactures children's clothing. The company is able to set its prices higher than its competitors because of the fine material it uses and the attention it pays to the quality of the sewing. Bailey Wear is operating in a competitive environment of: A) perfect competition B) oligopoly C) oligopolistic competition D) monopoly E) monopolistic competition Answer: E Diff: 2
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86) Competition in which there are many buyers, a lot of product differentiation, and relative ease of entry or exit of the market is known as: A) perfect competition B) oligopolistic competition C) oligopoly D) monopoly E) monopolistic competition Answer: E Diff: 2
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87) The Industrial Revolution refers to: A) fur and fishing industry in Canada in the 1500s B) development of the Internet era C) development of the Entrepreneurial era D) a major change in the production of goods that began in England in the mid 1700s E) none of the above Answer: D Diff: 2
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88) Which of the following is NOT a characteristic of perfect competition? A) Easy to enter and leave the industry. B) Many firms in the industry. C) Firms are small. D) Very difficult for a firm to enter or leave the market. E) Great similarity among products offered by different firms. Answer: D Diff: 2
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89) Which of the following is NOT a characteristic of perfect competition? A) Firms are small. B) Easy entry into the industry. C) Products from different firms are easily differentiated from one another. D) Great similarity among products offered by different firms. E) Many firms in the industry. Answer: C Diff: 2
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90) Which of the following is NOT one of the principles underlying perfect competition? A) Products are perceived as being identical. B) It is easy for firms to enter and leave the market. C) Prices are set by the laws of supply and demand. D) Buyers and sellers know what the current market price is. E) The government will set prices at the optimal level. Answer: E Diff: 2
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91) Which of the following is NOT a characteristic of monopolistic competition? A) Products are similar, but not identical to those of competitors, B) Easy entry to the industry. C) Many sellers, but less than perfect competition. D) Only a few sellers. E) Some control over price by sellers. Answer: D Diff: 2
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92) Of the following, which is a way in which monopolistic competition differs from perfect competition? A) In a perfectly competitive market, products are more dissimilar. B) In a market characterized by monopolistic competition, individual firms have some control over price. C) There are more sellers in a market characterized by monopolistic competition. D) It is easier for sellers to enter a market/industry characterized by monopolistic competition. E) none of the above Answer: B Diff: 2
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93) Which of the following is TRUE concerning monopolistic competition? A) Competitors can enter and leave the market easily. B) Products are differentiated. C) Competitors may be large or small. D) Many competitors in the industry. E) all of the above Answer: E Diff: 2
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94) Which of the following is TRUE concerning monopolistic competition? A) Prices and products are very similar. B) Prices are similar but products can be differentiated. C) Both products and prices differ from one competitor to the next. D) Prices vary from one competitor to the next, but products are very similar. E) none of the above Answer: C Diff: 2
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95) ________ exists when an industry has a handful of sellers, most of which are large. A) An oligopoly B) A monopoly C) Monopolistic competition D) Perfect competition E) none of the above Answer: A Diff: 1
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96) Which of the following is the best definition of an oligopoly? A) An industry with many buyers and many sellers; sellers have some control over price. B) An industry with only a handful of sellers, most of which are large. C) An industry with many buyers, but only one seller. D) An industry with only one buyer, but many sellers. E) An industry with many buyers and many sellers; sellers have no control over price. Answer: B Diff: 2
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97) Competition in which there are a handful of very large sellers, market entry is difficult, and a company can have a major impact on the product price is known as ________. A) perfect competition B) oligopoly C) monopolistic competition D) monopoly E) free market enterprise Answer: B Diff: 2
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98) Which type of competition is best represented by the airline industry, the automobile industry, or the steel industry? A) monopoly B) oligopoly C) monopolistic competition D) free market enterprise E) perfect competition Answer: B Diff: 2
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99) General Motors lowers its price of cars by 10%. Ford matches GM's price decrease. Each of these companies is practicing a type of pricing strategy characteristic of ________. A) a monopoly B) controlled competition C) perfect competition D) monopolistic competition E) an oligopoly Answer: E Diff: 3
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100) In the market for breakfast cereals, a few large producers, such as General Mills, Post, Quaker, and Kellogg, dominate the market. This best describes which of the following? A) perfect competition B) oligopoly C) limited cartel D) monopolistic competition E) monopoly Answer: B Diff: 3
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101) Which of the following is NOT true of an oligopoly? A) Entry into the industry is difficult. B) Prices differ greatly among sellers. C) The actions of one firm will significantly affect the sales of other firms. D) There are a few sellers. E) Competing firms have very similar prices for products. Answer: B Diff: 2
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102) Which of the following industries would not be considered an oligopoly? A) appliance B) steel C) agriculture D) airlines E) automobiles Answer: C Diff: 2
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103) In an oligopoly, when one firm reduces its prices, how do the other firms of the industry react? A) Others may reduce there prices too, but very gradually over time. B) Others reduce theirs also?usually quite quickly. C) There is no reaction by any of the other firms. D) Other firms are not even aware that a change in price has taken place. E) none of the above Answer: B Diff: 2
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104) An industry in which one firm can most efficiently supply all the demand is ________. A) an illegal monopoly B) a controlled monopoly C) a legal oligopoly D) a natural monopoly E) a natural oligopoly Answer: D Diff: 1
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105) Of the following periods, which came first? A) Global Era B) Production Era C) Entrepreneurial Era D) Marketing Era E) Industrial Revolution Answer: E Diff: 2
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106) Which of the following most accurately reflects the history of business in Canada, from earliest to most recent? A) Marketing Era, Entrepreneurial Era, Industrial Revolution, Marketing Era, Global Era, Internet Era B) Production Era, Industrial Revolution, Entrepreneurial Era, Marketing Era, Global Era, Internet Era C) Entrepreneurial Era, Industrial Revolution, Global Era, Marketing Era, Internet Era, Production Era D) Industrial Revolution, Production Era, Entrepreneurial Era, Marketing Era, Internet Era, Global Era E) Industrial Revolution, Entrepreneurial Era, Production Era, Marketing Era, Global Era, Internet Era Answer: E Diff: 3
Page Ref: 25-28
107) Which of the following is a NOT a characteristic of mass production? A) Reduce the cost of raw materials. B) Reduce duplication of equipment. C) Each worker performs a specialized task. D) Replace craftsmen with semiskilled workers. E) Allow producers to buy smaller quantities of raw materials. Answer: E Diff: 2
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108) The ________ philosophy says that the government should not interfere in the economy, but should instead let business function without regulation according to its own "natural" laws. A) invisible hand B) market economy C) entrepreneurship D) laissez-faire E) natural selection Answer: D Diff: 2
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109) During the Entrepreneurial Era, businesses were allowed to run without regulation under the philosophy of ________. A) socialism B) laissez-faire C) specialization of labor D) antitrust E) mass production Answer: B Diff: 2
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110) Scientific management practices focus on A) increasing employee satisfaction. B) increasing efficiency. C) developing several ways of doing the same task. D) increasing job quality by adding flexibility. E) reducing absenteeism. Answer: B Diff: 2
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111) Scientific management was given impetus when ________ introduced the moving assembly line and ushered in the production era. A) Andrew Carnegie B) Frederick Taylor C) Henry Ford D) Eli Whitney E) Cyrus McCormick Answer: C Diff: 2
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112) Who is MOST closely associated with the Production Era? A) Henry Ford B) Andrew Carnegie C) John D. Rockefeller D) Andrew Mellon E) J.P. Morgan Answer: A Diff: 2
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113) Which of the following eras was prompted by increased consumer demand after World War II? A) Production Era B) Industrial Revolution C) Entrepreneurial Era D) Global Era E) Marketing Era Answer: E Diff: 2
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114) Which of the following eras is tied to the prosperity of the 1950s and 1960s? A) Marketing Era B) Production Era C) Entrepreneurial Era D) Internet Era E) Industrial Revolution Answer: A Diff: 2
Page Ref: 27
115) During the ________ Era, businesses became less focused on production and sales and more focused on consumers. A) Global B) Consumer C) Marketing D) Internet E) Sales Answer: C Diff: 2
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116) One of the most critical elements in the Global Era is the A) reduction in the dependence upon outsourcing. B) producers' expansion to a wider range of activities. C) importance of technology. D) willingness of companies to make more items in-house. E) All the items on this list are critical elements in the Global Era. Answer: C Diff: 2
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117) Technological advances, improved communication, and more efficient transportation networks contributed to the emergence of the A) Global Era. B) Production Era. C) Industrial Revolution. D) Entrepreneurial Era. E) Marketing Era. Answer: A Diff: 2
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118) The early years of business in Canada were motivated by: A) profits from logging B) profits from fishing C) profits from mining D) a desire to find a way to China E) a desire to settle in the Prairies Answer: B Diff: 1
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119) Why was Canadian manufacturing slow to develop in the 16th and 17th centuries? A) too few manufacturing managers B) policy of mercantilism C) most people were involved in trading of furs D) most people were involved in farming E) too few buyers of manufactured goods Answer: B Diff: 2
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120) Which government(s) supported the mercantilism philosophy? A) English and French B) Canadian C) no governments supported it D) Asian and North American E) English and Asian Answer: A Diff: 3
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121) All of the following is true about the Industrial Revolution except: A) it led to the decline of cottage industries B) it led to the development of the factory system C) it led to wide use of semi-skilled employees D) it enabled mass production E) it discouraged specialization of labour Answer: E Diff: 1
Page Ref: 25
122) During which period did mass production reduce duplication of equipment and allow firms to purchase raw materials at better prices? A) the marketing era B) colonial period C) Industrial Revolution D) entrepreneurial era E) the production era Answer: C Diff: 1
Page Ref: 25
123) Which of the following best illustrates specialization of labour? A) workers who learn new, specialized skills are rewarded with higher pay B) highly skilled craftspeople who can do all the tasks required to make an item C) semiskilled workers are trained to perform only one task D) raw materials were provided to England in return for finished goods E) each labour union represents only one type of worker Answer: C Diff: 3
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124) Which of the following occurred when the factory system began? A) factory workers became owners through ESOPs B) the size and economic power of some firms meant that other businesses had difficulty competing against them C) it produced captains of industry who were interested in meeting the needs of the customer D) a laissez-faire management process developed E) all the materials and labour required to produce items in massive quantities were brought to one place Answer: E Diff: 3
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125) Which item in the following list was NOT typical of the entrepreneurial era? A) laissez-faire attitude by government B) increased number of monopolies C) growing competition D) price-fixing E) some individuals became immensely wealthy through their aggressive business dealings Answer: C Diff: 2
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126) How did Adam Smith's ideas outlined in The Wealth of Nations lead to a policy of laissez-faire? A) the book outlined steps that could be taken to improve international trade B) Smith's book was an inspirational book that motivated many entrepreneurs C) there was no connection between Smith's book and a laissez-faire policy D) Smith argued that governments should be actively involved in the economy E) The Wealth of Nations argued that the government should not interfere in the economy, but should let businesses function without regulation or restriction Answer: E Diff: 2
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127) According to the textbook, the first manufacturing in Canada consisted of all of the following except: A) grist mills B) shoemakers' shops C) breweries D) shipbuilding E) sawmills Answer: D Diff: 1
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128) The entrepreneurial era contained all but one of the following: A) the Canadian government adopted a laissez-faire attitude toward business B) the use of the assembly line was introduced C) some businesses had difficulty competing against the size and economic power of some firms D) some business executives made over $25 000 per year in the late 1800s E) some business leaders decided to fix prices and manipulate the market system to their advantage Answer: B Diff: 3
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129) The entrepreneurial era in Canada occurred: A) in the last half of the 19th century B) in the first half of the 19th century C) in the first half of the 20th century D) in the last half of the 18th century E) in the first half of the 18th century Answer: A Diff: 2
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130) The Scientific Management Movement can be best characterized by the phrase: A) "empowerment to employees" B) "progress through technology" C) "cooperation between management and union" D) the "one best way" E) "quality is job 1" Answer: D Diff: 1
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131) Which of the following best completes the following sentence? During the production era: A) Henry Ford introduced the first moving assembly line which brought automobile parts to the worker B) great emphasis was placed upon satisfying the customer C) the factory system brought together in one place all the materials and workers required to produce items in large quantities D) the improved production output resulting from assembly lines was obtained by increasing worker freedom E) the presence of big firms aided individuals who wished to go into business for themselves Answer: A Diff: 3
Page Ref: 26
132) The development of labour unions and collective bargaining agreements were major elements of the: A) industrial revolution B) entrepreneurial era C) production era D) colonial period E) global era Answer: C Diff: 3
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133) The marketing era involved: A) the production of the same type of goods B) the identification of the customer's needs C) the production of items within the existing factories D) the hiring of the right salespeople E) an emphasis on efficiency so that the selling price may be lowered Answer: B Diff: 2
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134) What are the three countervailing powers in today's society? A) consumers, government, business B) government, business, labour C) consumers, government, public opinion D) consumers, business, public opinion E) government, business, public opinion Answer: B Diff: 2
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135) Which era held the philosophy "use market research to determine what customers want and then make it for them"? A) scientific B) production C) sales D) marketing E) finance Answer: D Diff: 2
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136) Why did businesses move from a production orientation to a sales orientation? A) Businesses experienced greater competition. B) Businesses were able to develop niche marketing schemes. C) Businesses were becoming very good at creating new products. D) Businesses were able to keep their production costs low. E) Businesses discovered the power of advertising. Answer: A Diff: 3
Page Ref: 27
137) Why did businesses adopt the marketing approach to business? A) There was pent-up demand after World War II. B) Production costs got to be about as low as they were going to get, thus profit would not improve. C) Mass markets required mass advertising, which is what marketing does. D) Competition between businesses became greater than ever. E) The competition for sales representatives increased as employees became very intense. Answer: D Diff: 2
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138) Able Manufacturing is very good at making kitchen utensils. However, it wants to ensure that its products will always be profitable. What should it do? A) try charging a lot of money for its products in the hope that it will result in snob appeal B) hire the finest sales representatives to sell what it makes C) lower the costs of production so the products are always profitable D) determine customer needs and focus its product lines to fill those needs E) change its product lines to fit what its management thinks customers want Answer: D Diff: 2
Page Ref: 27
139) The 1980s are called the "decade of greed" because: A) a lot of people had extra money that they could spend on themselves B) most people received high wage increases C) a few people enriched themselves through corporate takeovers D) banks had lots of money to spend E) many people did not care for the poor Answer: C Diff: 2
Page Ref: 27
140) A global economy means: A) that Canadian companies can never prosper in a global environment B) individuals cannot buy things from all over the world C) that technological changes will occur more rapidly D) domestic companies now have to compete with other companies located overseas E) that North America is the only place affected by a global economy Answer: D Diff: 2
Page Ref: 27-28
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141) The growth of the Internet affects business in many ways, including: A) the Internet will give a slight boost to trade in selected sectors of the economy B) the Internet will increase the number of dot-coms that go bankrupt C) the Internet holds considerable potential as an effective and efficient networking mechanism among businesses D) the Internet will be dominated by the larger companies E) the growth rate of the Internet will grow to over 900 users per 1000 people by 2005 Answer: C Diff: 2
Page Ref: 28
142) Which of the following are effects of Internet business? A) It will serve to level the playing field between large and small companies. B) It will give a dramatic boost to trade in all sectors of the economy. C) It holds considerable potential as an efficient networking mechanism among businesses. D) all of the above E) none of the above Answer: D Diff: 2
Page Ref: 28
143) Profits from business are used to support government and charities as well as business owners and stockholders. Answer: TRUE Diff: 2
Page Ref: 7
144) A business is an organization that seeks to earn profits by providing goods and services. Answer: TRUE Diff: 1
Page Ref: 6
145) The reward that the owners of a business receive for taking the risks of investing their money and time is called capital. Answer: FALSE Diff: 2
Page Ref: 6
146) The term "business" typically includes large organizations such as General Motors, which seek a profit, but does not include individuals who are self-employed, e.g., a carpenter, or a beautician who operates a shop in her home. Answer: FALSE Diff: 2
Page Ref: 6
147) An economic system allocates a nation's resources among its citizens. Answer: TRUE Diff: 1
Page Ref: 7
148) Labour is a factor of production. Answer: TRUE Diff: 1
Page Ref: 7
149) Capital is needed only to start up a business. Answer: FALSE Diff: 1
Page Ref: 8
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150) Natural resources include land, mineral deposits as well as crops that are grown. Answer: TRUE Diff: 2
Page Ref: 9
151) The natural resources component of the factors of production includes the physical and mental capabilities of people in the work force. Answer: FALSE Diff: 1
Page Ref: 9
152) In a command economy, a centralized government controls all, or most, of the factors of production and makes most decisions involving production of goods and services. Answer: TRUE Diff: 2
Page Ref: 9
153) Communism is an example of a market economy where a central government controls most factors of production. Answer: FALSE Diff: 2
Page Ref: 9
154) Communism and socialism are both types of command economies. Answer: TRUE Diff: 2
Page Ref: 9
155) Although workers in socialist countries are usually allowed to choose their occupations, a large proportion generally work for the government. Answer: TRUE Diff: 2
Page Ref: 11
156) Capitalism relies on the factors of demand and supply in the marketplace to determine what, when, and for whom to produce. Answer: TRUE Diff: 1
Page Ref: 13
157) A mixed market economy has elements of both a command economy and a market economy. Answer: TRUE Diff: 1
Page Ref: 13
158) The government plays several different roles in the Canadian economy, including the roles of customer, competitor and regulator. Answer: TRUE Diff: 1
Page Ref: 13-14
159) Crown corporations only exist at the federal level and account for a significant and wide variety of economic activity in Canada. Answer: FALSE Diff: 1
Page Ref: 14
160) The reasons why the government regulates many aspects of business activity include: protecting competition, protecting consumers, achieving social goals, and protecting the environment. Answer: TRUE Diff: 1
Page Ref: 14-15
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161) Revenue taxes are levied to control certain activities that legislative bodies believe should be controlled. Answer: FALSE Diff: 2
Page Ref: 15
162) Government incentive programs always have the desired effect of stimulating the economy. Answer: FALSE Diff: 1
Page Ref: 16
163) If the Canadian Auto Workers (CAW) want to bring their interests to government officials they would hire a lobbyist. Answer: TRUE Diff: 1
Page Ref: 16
164) A demand and supply schedule is derived from market research and other systematic studies of the market. Answer: TRUE Diff: 1
Page Ref: 19
165) The law of demand states that buyers will purchase more of a product as its price drops. Answer: TRUE Diff: 2
Page Ref: 18
166) In economic terms, the exchange process between buyers and sellers is called "supply." Answer: FALSE Diff: 2
Page Ref: 18
167) In economic terms, "market" refers to a specific place like a supermarket. Answer: FALSE Diff: 1
Page Ref: 11
168) The economic term "market" refers to a place of trade. Answer: FALSE Diff: 1
Page Ref: 11
169) The law of supply states that producers will offer more of a product for sale as its price rises. Answer: TRUE Diff: 1
Page Ref: 18
170) If the market for diamonds is at equilibrium and De Beers increased its prices, people would still demand the same quantity of diamonds. Answer: FALSE Diff: 2
Page Ref: 19
171) A demand curve shows the amount of goods and services a producer will create at different prices. Answer: FALSE Diff: 2
Page Ref: 19
172) The point on a demand and supply schedule where supply and demand are equal is known as the break-even point. Answer: FALSE Diff: 1
Page Ref: 19
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173) The equilibrium price occurs where the supply of a particular product is equal to the number of customers who wish to purchase that product. Answer: TRUE Diff: 1
Page Ref: 19
174) A surplus in the market is good news for the firm selling a product or service because there are additional customers still trying to purchase the product. Answer: FALSE Diff: 2
Page Ref: 19
175) If a hot dog vendor cooked 14 too many sausages, those 14 sausages would not sell. The excess supply of sausages can also be referred to as surplus. Answer: TRUE Diff: 1
Page Ref: 19
176) Adam Smith argued that a society's interests are best served by a command economy. Answer: FALSE Diff: 1
Page Ref: 26
177) Private property rights are an essential element of a communist economic system. Answer: FALSE Diff: 1
Page Ref: 9
178) The private enterprise system guarantees a profit for each business firm. Answer: FALSE Diff: 2
Page Ref: 21
179) Freedom of choice refers to just buyers of goods and services. Answer: FALSE Diff: 2
Page Ref: 21
180) What a company chooses to produce will, by definition, be affected by the profits it hopes to make. Answer: TRUE Diff: 1
Page Ref: 21
181) The private enterprise system guarantees that competition among business firms will be fair. Answer: FALSE Diff: 2
Page Ref: 21
182) In monopolistic competition, sellers try to make their products at least appear to be slightly different from those of other competitors by tactics such as brand names, design or styling, and advertising. Answer: TRUE Diff: 1
Page Ref: 22
183) Coke and Pepsi represent oligopolistic competition. Answer: FALSE Diff: 2
Page Ref: 23
184) In an oligopoly only a handful of sellers compete mainly through product differentiation. Answer: TRUE Diff: 2
Page Ref: 23
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185) An oligopoly features many sellers and products, which may be similar or different. Answer: FALSE Diff: 2
Page Ref: 23
186) A natural monopoly exists when a single company can fill the needs of all customers in a specific area. Answer: TRUE Diff: 1
Page Ref: 23
187) What are profits and why are they important to the economic system in Canada? Answer: ∙ revenues minus expenses ∙ they are rewards for taking risks ∙ used to support government and charities, pay wages ∙ needed to continue producing goods and services Diff: 2
Page Ref: 5
188) Explain the terms, "command economy" and "market economy." Give an illustration of each. Answer: ∙ command: government dominated, government controls the factors of production, people often work for the government, share the wealth equally, one class society, example - China ∙ market: the people have a say in what the government does, individuals control factors of production, independent wealth, rich/middle class/poor, example - Canada ∙ no economy is purely command or market, even China and Canada Diff: 2
Page Ref: 9-13
189) What are the factors of production? Explain each briefly. Answer: ∙ natural resources: items used in the production of goods and services in their natural state, including land, water, minerals, and trees ∙ labour: the mental and physical training and talents of people; sometimes called human resources ∙ capital: the funds needed to operate an enterprise ∙ entrepreneur: an individual who organizes and manages natural resources, labour, and capital to produce goods and services to earn a profit, but who also runs the risk of failure ∙ newer perspectives tend to broaden the idea of "natural resources" to include all physical resources ∙ while the production of tangible goods once dominated most economic systems, today information resources play a major role-information resources refers to information such as market forecasts, economic data, and specialized knowledge of employees that is useful to a business and that helps it achieve its goals Diff: 1
Page Ref: 7-9
190) What is an entrepreneur? Answer: ∙ an individual who organizes and manages labour, capital and natural resources to produce goods and services to earn a profit, but who also runs the risk of failure ∙ business person ∙ manager ∙ initiator ∙ leader ∙ risk taker Diff: 1
Page Ref: 9
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191) There are three major types of economic systems in existence. Identify and briefly describe them. Answer: ∙ command economies: a type in which the government controls all or most factors of production and makes all or most production decisions ∙ market economies: a type in which individuals control all or most factors of production and make all or most production decisions ∙ mixed economies: a type with elements of both a command economy and a market economy Diff: 1
Page Ref: 8 - 13
192) What is the difference between capitalism and socialism? Answer: ∙ capitalism: an economic system in which markets decide what, when and for whom to produce ∙ capitalist market economy: citizens run businesses, more efficient, choose your own job ∙ socialism: a kind of command economy in which the government owns and operates the main industries, while individuals own and operate less crucial industries ∙ less efficient, large proportion of people end up working for government Diff: 2
Page Ref: 9-13
193) Describe the law of demand. Answer: Buyers will purchase (demand) more of a product as its price drops and less of a product as its price increases. Diff: 2
Page Ref: 18
194) What does the supply curve reflect? Answer: The supply curve shows how much of a product will be supplied at different prices. Diff: 2
Page Ref: 19
195) List the four required elements for a private enterprise system. Answer: Private property, freedom of choice, profits, and competition. Diff: 2
Page Ref: 21
196) List the four degrees of competition that can exist in a private enterprise system. Answer: Perfect competition, monopolistic competition, oligopoly, and monopoly. Diff: 2
Page Ref: 21-23
197) Briefly describe the concept of laissez-faire. Answer: The concept of laissez-faire refers to the idea that the government should not interfere in the economy. Diff: 2
Page Ref: 26
198) Discuss the government's role as: (a) a competitor, (b) a regulator, (c) a taxation agent, and (d) a provider of incentive programs. Answer: ∙ competitor: the government competes with business through Crown corporations (energy, Royal Canadian Mint, St. Lawrence Seaway Authority). ∙ regulator: federal and provincial governments in Canada still regulate many aspects of business activity. Government regulates business through many administrative boards, tribunals or commissions (CRTC, CTC, Canadian Wheat Board). ∙ taxation agent: taxes are imposed to fund government services and programs, and to regulate and control certain activities. There are revenue taxes and restrictive taxes. ∙ provider of incentive programs: through programs like the Industrial Regional Development Program, federal assistance is delivered to industries, particularly those in disadvantaged regions. Other programs include tax and duty rebates. Diff: 2
Page Ref: 13-16
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199) Discuss the two reasons that the government uses to justify regulation of business activities. Do you believe regulation of business is justified as an owner or manager? As a consumer? Answer: ∙ to encourage and protect competition by seeking to eliminate restrictive trade practices ∙ to provide consumer protection ∙ owner/manager: government regulations create a fair and honest business world in the best interests of everyone ∙ consumer: government creates fair business for corporations and consumers Diff: 2
Page Ref: 14-15
200) Explain how demand and supply work in a capitalistic economy. Answer: ∙ demand is the willingness and ability of buyers to purchase a product or service ∙ supply is the willingness and ability of producers to offer a good or service for sale ∙ supply and demand equilibrate such that buyers pay a fair price and sellers obtain a fair price for their goods and services Diff: 2
Page Ref: 17-18
201) Inaccuracies in forecasting an exact supply-demand schedule create surpluses and shortages. Describe what surpluses and shortages are using the concepts of supply and demand and indicate the probable impact of each upon price. Answer: ∙ surpluses occur when the quantity supplied exceeds the quantity demanded, prices will decrease ∙ shortages occur when the quantity demanded exceeds the quantity supplied, prices will increase Diff: 2
Page Ref: 19
202) Describe the potential impact if a company underestimates demand. Answer: ∙ too few products produced ∙ potential profits lost ∙ angry customers cannot buy what they want ∙ knowledge of the shortage attracts more competition Diff: 2
Page Ref: 19
203) Explain the four essential elements of private enterprise. Answer: ∙ private property: right to buy, own, use, and sell an item ∙ freedom of choice: the right to choose what to buy or sell, including one's labour ∙ profits: we earn what we work for, and thus work hard and efficiently ∙ competition: rivalry between firms in a specific market to best satisfy consumer demands and earn profits Diff: 1
Page Ref: 21
204) Identify and explain the four basic degrees of competition. Provide an example of each. Answer: ∙ perfect competition: a market or industry characterized by a very large number of small firms producing an identical product so that none of the firms has any ability to influence price; completely run by the law of supply/demand, e.g., shoe store ∙ monopolistic competition: a market or industry characterized by a large number of firms supplying products that are similar but distinctive enough from one another to give firms some ability to influence price; severe competition, e.g., soda pop producers ∙ oligopoly: a market or industry characterized by a small number of very large firms that have the power to influence the price of their product and/or resources; slightly competitive, look to differentiation, e.g., breakfast cereals ∙ monopoly: a market or industry with only one producer, who can set the price of its product and/or resources; watched very closely by government, e.g., basic cable service Diff: 2
Page Ref: 21-23
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205) Discuss the reasons why the Canadian government permits certain "natural" monopolies while forbidding attempts by business firms to create a monopoly in other parts of the economy. Answer: ∙ natural monopolies are industries in which one economy can most efficiently supply all the product or service that is needed ∙ natural economies eliminate unnecessary costs and waste ∙ competition, which is the root of why business works so well in capitalistic society ∙ no competition, firm run less efficiently and quality is not as high and society does not benefit as much Diff: 2
Page Ref: 23
206) Discuss the development of business in Canada from the early colonial years to the present day. Answer: ∙ business activity and profit from commercial fishing in the late 1400s motivated European involvement in Canada ∙ French and British adventurers began trading with the native peoples in the 1500s ∙ by the late 1600s coureurs de bois travelled west in search of new sources of furs ∙ European settlers arrived in Canada in the 16th and 17th centuries ∙ Canadian manufacturing slowly developed under mercantilism ∙ industrial revolution brought about mass production ∙ entrepreneurial era saw the emergence of people willing to take risks in hope of profits ∙ production era refined concepts of specialization and mass production ∙ sales and marketing era focused on sales forces, advertising and supply ∙ finance era focused on the buying and selling of business enterprises ∙ global era noted for the emergence of a truly global economy ∙ internet era of business Diff: 2
Page Ref: 23-28
207) Describe perfect competition in terms of the number of competitors, ease of entry into the market, similarity of goods/services offered by competing firms, and level of control over price by individual firms. Give an example of a purely competitive market or industry. Answer: For perfect competition to exist, all of the firms in an industry must be small and the number of the firms in the industry must be large. Under these conditions, no single firm is powerful enough to influence the price of its product. The products of each firm are so similar that buyers will perceive them as identical to those of other firms. Because each firm is small, it is easy for firms to enter or leave the market. U.S. agriculture is a good example of perfect competition. Diff: 3
Page Ref: 22
208) Describe monopolistic competition in terms of the number of competitors, ease of entry into the market, similarity of goods/services offered by competing firms, and level of control over price by individual firms. Give an example of a market or industry characterized by monopolistic competition. Answer: In a market characterized by monopolistic competition, there are fewer sellers than in perfect competition. Sellers will attempt to differentiate their product from those of their competitors. Product differentiation gives sellers some control over prices. While monopolistically competitive businesses can be large or small, they can enter and exit the market easily. There are many examples of monopolistically competitive markets, particularly in the retail market (the market for jeans, the market for laundry detergents, the market for soft drinks, etc.). Diff: 3
Page Ref: 22-23
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209) Describe oligopoly in terms of the number of competitors, ease of entry into the market, similarity of goods/services offered by competing firms, and level of control over price by individual firms. Give an example of a market or industry that is an oligopoly. Answer: When an industry has only a few sellers, an oligopoly exists. While there are only a few sellers, they tend to be large. The entry of new competitors is difficult because of the large capital investment needed. As with monopolistic competition, sellers will attempt to differentiate their product from those of their competitors and each seller will have some control over price. However, when one firm cuts prices, others will tend to do the same. Therefore, the prices of comparable products are usually similar. The automobile, airline, and steel industries are all oligopolies. Diff: 3
Page Ref: 23
210) Describe monopoly in terms of the number of competitors, ease of entry into the market, and level of control over price by individual firms. Give an example of a market or industry that is a monopoly. Answer: A monopoly exists when an industry or market has only one producer. The sole supplier enjoys complete control over the prices of its products. Its only constraint is a decrease in consumer demand due to increased prices. In the United States, the Sherman Antitrust Act and the Clayton Act forbid many monopolies and regulate prices charged by natural monopolies. Diff: 3
Page Ref: 23
211) What was the Industrial Revolution? Answer: The Industrial Revolution began in the middle of the eighteenth century with advances in technology and the development of the factory system. Prior to the Industrial Revolution, cottage workers produced products one item at a time. The factory system brought together materials and workers to produce items in large quantities and the new machines needed for mass production. In turn, mass production reduced duplication of equipment and allowed firms to buy materials at better prices by buying in larger lots. It also encouraged the specialization of labor. Mass production replaced a system of highly skilled craftspeople who performed all the different tasks required to make a single item. Instead, a series of semiskilled workers each trained to perform only one task and aided by specialized equipment, greatly increased output. Diff: 3
Page Ref: 25-26
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