CH-1 The Canadian Business System – Business Essentials : Exam Guide

Chapter 1 The Canadian Business System MULTIPLE CHOICE QUESTIONS. Choose the one alternative that best completes the statement or answers the question. 1) Which of the following statements is correct with regard to the opening case entitled “Opportunities and Challenges in the Mobile Phone Market"? A) RIM has been very successful so far, but there are big potential problems on the horizon. B) There is now a general consensus among industry experts that RIM is going to be the leading company in the mobile phone market. C) To date competition is not tough in the mobile phone market. D) The "bring your own device" trend has just about run its course. E) Unlike other phone makers, RIM has not been plagued with patent infringement lawsuits. Answer: A 2) Profit is A) what remains after business expenses are subtracted from business revenues. B) equal to the market value of shares in a company. C) equal to total revenue minus cash expenses. D) the amount of sales minus 50 percent. E) double the amount the company pays in taxes. Answer: A 3) This week, Jessica's Variety Store had sales of $4,000, employees were paid $1,000, the cost of goods was $1,500, and rent was $500. Profit for the week was A) $3,000. B) $1,000. C) $4,000. D) $2,000. E) $1,500. Answer: B 4) How are provincial universities in Canada different from business firms? A) They do not seek to make a profit B) They are not affected by the global environment C) Their organizational boundaries are narrower than normal D) They do not produce goods or services E) They are more important to society than business firms Answer: A 5) __________ is the difference between a business firm's revenues and its expenses. A) Cost of goods sold B) Productivity C) Sales D) Debt E) Profit Answer: E 6) Profit is A) the market value of shares of stock in a company. B) the level of expenses divided by the firm’s assets. C) what remains after business expenses are subtracted from business revenues. D) gross revenue minus taxes a company pays. E) gross sales minus taxes a company pays. Answer: C 7) Examples of businesses include all of the following except A) local supermarkets. B) one-person businesses, like barbershops. C) non-profit organizations. D) large corporations like Canadian Pacific or Alcan Aluminum. E) farms. Answer: C 8) Most of the goods and services consumed in Canada are produced by A) countries in the European Union. B) businesses in the U.S. C) countries of the Pacific Rim. D) the Canadian government. E) business firms. Answer: E 9) Not-for-profit organizations A) are content with small profits, whereas business firms want large profits B) are more important than business firms. C) use the funds they generate from government grants or the sale of goods or services to provide service to the public. D) do not sell goods or services. E) are not allowed to operate in the manufacturing sector. Answer: C 10) Generally speaking, which one of the factors of production is most important? A) Land B) Labour C) Capital D) Entrepreneurship E) None of these Answer: E 11) The key difference between economic systems is the different ways in which they manage A) the factors of production. B) the transportation of goods within their borders. C) government rules and regulations. D) the payment of workers. E) none of these answers is accurate. Answer: A 12) An economic system is A) an agreement between countries that deal with free trade. B) the way in which a nation allocates its resources among its citizens. C) a government decree that requires certain goods and services to be provided. D) a long standing agreement between citizens and governments on how an economy is run. E) a large government department that oversees how the economy is running. Answer: B 13) The key difference between economic systems is A) the structure of government. B) the management of capital and labour. C) the management of the factors of production. D) who controls the banks. E) who controls large industries like steel and auto manufacturing. Answer: C 14) In a command economy, the central government A) supports free enterprise in every way possible B) allocates all or most factors of production C) encourages citizens to buy shares of stock in small companies D) keeps its control activities to a minimum E) buys surpluses from private sector companies to keep prices from falling Answer: B 15) A nation's economic system is its way of A) allocating resources among its citizens. B) collecting taxes. C) managing the money supply. D) regulating business firms by government laws. E) supplementing low-income families. Answer: A 16) In terms of factors of production, Imperial Oil’s crude oil reserves are an example of _______, while market forecasts are an example of ________. A) labour; entrepreneurs B) information; labour C) capital; information D) natural resources; information E) information; natural resources Answer: C 17) All of the following are factors of production except A) natural resources. B) labour. C) capital. D) entrepreneurs. E) technology. Answer: E 18) Entrepreneurs are important because they A) make lots of money. B) are good at making decisions. C) take risks to start new businesses. D) are good managers. E) are rich. Answer: C 19) Which of the following is an example of a natural resource? A) Computer software B) The mental and physical capabilities of people C) Land, water, and mineral deposits D) Money E) Trained engineers Answer: C 20) Elizabeth wants to set up a consulting business that specializes in mathematical problem solving. Which of the following factors of production would she require? A) Capital B) Labour C) Information resources D) Natural resources E) All of these Answer: E 21) Which factor of production is Imperial Oil trying to increase when it spends large sums of money in an attempt to find new oil fields? A) Information B) Entrepreneurship C) Labour D) Capital E) Natural resources Answer: E 22) "Embrace the opportunities and accept the risks" is a phrase that best characterizes the __________ attitude. A) entrepreneurial B) capitalist C) communist D) socialist E) mixed market Answer: A 23) Something that would contribute directly to improving labour as a factor of production would be A) finding new oil reserves. B) better education for more of the population. C) increasing the purchasing power of employees. D) programs designed to decrease unemployment. E) finding more efficient ways to produce products. Answer: B 24) Labour includes A) everyone in a business. B) only non-unionized employees. C) only unionized employees. D) only managers. E) only workers who do physical work. Answer: A 25) A factor that contributes directly to improving labour as a factor of production is A) free tuition at post-secondary educational institutions. B) increased purchasing power by employees. C) better education for more of the population. D) programs that decrease unemployment. E) creation of more manual-labour jobs. Answer: C 26) Natural resources, as a factor of production for mining, are a practical consideration when a mining company considers A) the ease with which ore could be mined. B) the number of miners available to mine the ore. C) the amount of capital required to build the mine. D) the profit that could be made from mining the ore. E) the number of customers who want to buy ore. Answer: A 27) Which of the following is correct with regard to the Entrepreneurship and New Ventures box entitled “A Shrine to Wine”? A) Genu wine Cellars has very little competition for its products B) Genu wine has resisted moving some of its operations to lower-cost countries C) Genu wine found that government agencies were not very helpful with advice on how to succeed D) Genu wine started by focusing on building wine cellars, but now most of its business is the actual production of wine E) All these are correct Answer: A 28) What is the difference between a command economy and a market economy? A) A command economy is found only in communist countries, while a market economy is found only in capitalist countries B) A command economy is more efficient than a market economy C) A market economy gives greater “life satisfaction” to people D) A command economy relies on centralized government control of the factors of production, while in a market economy supply and demand determine production and allocation decisions E) There really are no significant differences between a command economy and a market economy Answer: D 29) A command economy is A) one where there is a mix of government regulation and free enterprise. B) one in which the market directs what is made and in what quantity. C) the type of economy found in Australia and New Zealand. D) one in which the government controls all or most factors of production. E) one in which customers demand what new products are to be made. Answer: D 30) The economic system in which producers and consumers control production and allocation decisions through supply and demand is called A) a centrally planned economy. B) privatization. C) a market economy. D) communism. E) socialism. Answer: C 31) Which country has a command economy? A) Australia B) Japan C) Canada D) Germany E) Cuba Answer: E 32) Which of the following is correct with regard to the communist economic system? A) The centralized planning emphasis on capital equipment and military hardware has caused declines in the prices of consumer goods B) Government ownership of the means of production is only temporary C) Most government-operated enterprises are very efficient because of central planning D) Overall production expands rapidly because of central planning E) The government owns and operates all sources of production Answer: E 33) Stanislav lives in a country where all the factors of production are owned by the government. The economic system in his country is A) communism. B) capitalism. C) mixed market. D) socialism. E) it is not possible to tell with the information provided. Answer: A 34) John lives in a country where producers and consumers control production, and where allocation decisions are made through the mechanism of supply and demand. John lives in a country with a _________ economy. A) privatized B) socialist C) communist D) market E) it is not possible to tell with the information given Answer: D 35) A Globe Scan poll showed that the highest support for the free market economy was found in A) Japan. B) China. C) U.S. D) Canada. E) Brazil. Answer: B 36) What is the major source of capital for small businesses? A) Bank loans B) Sale of shares of stock C) Personal investment by owners D) Venture capital firms E) It is not known what the major source of capital is Answer: C 37) A major drawback to communism as an economic system is that A) government control of the factors of production is only temporary. B) people don’t like communism. C) individuals contribute according to their ability. D) individuals receive economic benefits according to their needs. E) production of goods and services is inefficient because of the lack of a profit incentive. Answer: E 38) Olga lives in a country where the government owns and operates selected major industries. The economic system in her country is most likely to be A) privatization. B) mixed market. C) deregulation. D) communism. E) socialism. Answer: E 39) Command economies are most likely to be found in A) the newly emerging economies of southeast Asia. B) communist and socialist nations. C) western European countries. D) Japan. E) Canada and the U.S. Answer: B 40) An economy that has a strong central government that controls labour, capital, and natural resources and has few entrepreneurs is a A) market economy. B) command economy. C) free-enterprise economy. D) capitalist economy. E) oligopolistic economy. Answer: B 41) Communism and socialism are A) basic forms of market economies. B) becoming more popular. C) extreme opposites. D) basic forms of command economies. E) identical forms. Answer: D 42) Sara lives in an economy where the government restricts the number of children she can give birth to. Sara lives in a ________ economy. A) communist B) backward C) mixed market D) market E) capitalist Answer: A 43) Mexico allows producers and consumers to make production and allocation decisions through the mechanism of supply and demand. Such a system is called A) socialism. B) communism. C) privatization. D) nationalization. E) a market economy. Answer: E 44) Cuba, North Korea, and Vietnam are all ___________ economies. A) market B) socialist C) mercantile D) mixed E) communist Answer: E 45) Socialist economies may stifle economic growth because A) management positions in state-controlled industries are often filled on the basis of political considerations. B) they have too few regulations concerning product safety. C) they are found in countries where people don’t have many skills. D) they are usually found in countries with cold climates. E) they encourage excessive unionization of employees. Answer: A 46) An economic system that permits private ownership and control of small businesses but where the government controls large critical industries is known as A) a mixed economy. B) socialism. C) communism. D) capitalism. E) mercantilism. Answer: B 47) Which of the following statements is correct? A) Sweden is the best example of a country with a pure socialist economy B) A Globe Scan poll found that the greatest support for the free market economy was found among the citizens of India C) The United States is a pure capitalist economy D) Many countries in the world have a purely communist economy E) Under socialism, smaller businesses are often privately owned Answer: E 48) Socialism is best described as A) a kind of command economy in which the government owns and operates all industries. B) a kind of command economy in which the government owns and operates large critical industries. C) an economy that is free from any regulation or planning. D) a market economy in which markets decide what, when, and how much to produce. E) an economic system with elements of market economy, but not a planned economy. Answer: B 49) Socialism is best described as: A) an economic system with elements of both a planned economy and a market economy B) a kind of command economy in which the government owns and operates large critical industries C) a market economy in which markets decide what, when, and how much to produce D) a kind of command economy in which the government owns and operates all industries E) none of these Answer: B 50) 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) encourage entrepreneurship by offering profits as an incentive. C) require government intervention in order to prosper. D) rely on markets, not governments, to decide what, when, and for whom to produce. E) allow customers free choice. Answer: C 51) Canada is home to a(n) ________ economy. A) mixed market B) oligopolistic C) socialist D) market E) command Answer: A 52) Market economies are considered beneficial for small businesses because they A) provide small businesses with lots of government assistance and protection. B) provide a central economic plan within which small businesses can easily prosper. C) protect small businesses from the power of large corporations. D) allow small businesses to fail. E) allow the business to do whatever it wants as long as it doesn’t break the law. Answer: E 53) In which economic system will profit motivate entrepreneurs to use resources efficiently and to produce goods that consumers want? A) A centrally planned economy B) Communism C) A market economy D) Socialism E) A barter economy Answer: C 54) 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) The People's Republic of China. B) Poland. C) Peru. D) England. E) Japan. Answer: D 55) Which of the following is correct with respect to input and output markets? A) In the input market, firms supply goods and services in response to demand on the part of households B) In the output market, firms buy resources from households, which then supply those resources C) Consumer buying patterns provide information that helps companies decide which products to produce D) Consumers are restricted in the companies they can work for E) Input and output markets exist only in communist countries Answer: C 56) Which of the following is correct with respect to mixed market economies? A) They have features that are not found in either command or market economies B) As a result of the financial crisis of 2008, there is a trend toward increased government regulation of business in mixed market economies C) Very few countries have this type of system D) There is a trend toward increased government ownership of business in mixed market economies E) The mixed market economy is the best type of economic system Answer: B 57) The process of converting government-owned enterprises into enterprises owned by individuals or profit seeking firms is known as A) entrepreneurship. B) deregulation. C) privatization. D) socialism. E) marketing. Answer: C 58) The federal government sold the Lester B. Pearson International Airport in Toronto to a group of entrepreneurs, which then set up the Greater Toronto Airports Authority. This sale is an example of A) socialism. B) freedom of choice. C) entrepreneurship. D) deregulation. E) privatization. Answer: E 59) Which of the following is correct with respect to privatization? A) The TNT Post Group in the Netherlands has been converted from private to government ownership B) Privatization is most likely to occur in communist countries C) Privatization has been a general trend during the last decade, but some countries are going in the opposite direction and pursuing nationalization instead D) Several companies have been nationalized in Canada in recent years E) The recession of 2008 accelerated the trend toward privatization Answer: C 60) The process by which control of a company is shifted from government to business is called A) government bailouts. B) nationalization. C) socialism. D) mercantilism. E) privatization. Answer: E 61) The role of government in our economic system includes all of the following except A) customers. B) innovators. C) competitors. D) regulators. E) taxation agents. Answer: B 62) Sandy is responsible for monitoring compliance with regulations in her company. She needs to know that the important areas of government regulation are A) protecting competition and upholding environmental regulations. B) protecting social goals, upholding environmental regulations, and protecting shareholder rights. C) protecting competition, protecting consumers, and upholding environmental regulations. D) protecting competition, protecting consumers, protecting social goals, and protecting the environment. E) protecting shareholder rights, and following business law. Answer: D 63) 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) The return of surpluses by credit unions to their members B) Pricing products unreasonably low to eliminate competition C) Forming a merger or a monopoly that lessens competition D) Refusal to sell to a retailer who, in turn, sells the product significantly below the suggested retail price E) Giving selective allowances and rebates to cover advertising expenses to specific retailers Answer: A 64) Which of the following is correct regarding the Competition Act? A) The Act prohibits agreements between companies that reduce competition B) The government has to prove that agreements between companies actually reduce competition C) Recent changes to the Act have reduced fines for misleading marketing practices because it has been shown that these fines don't have any effect D) Surveys of business executives show that they think the Competition Bureau is actually quite quick in approving or denying merger requests E) All of these Answer: A 65) Why are income taxes called progressive taxes? A) Because poorer people spend proportionally more on necessities B) Because the more one makes, a greater proportion of additional amounts is paid in income taxes C) Because the more one makes, the higher the income tax rate that is applied to one's entire income D) Because they increase total consumption E) Because the more one progresses in a company, the more one pays in income taxes Answer: B 66) Why are sales taxes called regressive taxes? A) Because food and drugs are often exempt B) Because the more one makes, the lower the rate of sales tax that is applied to one's purchases C) Because poorer people pay a higher percentage of their income than richer people D) Because it applies to sales taxes E) Because they discourage the purchase of some products Answer: C 67) Incentive programs are designed to A) encourage families to have more babies. B) encourage businesses to locate in economically depressed parts of the country. C) create "corporate welfare bums." D) encourage families to move to depressed parts of the country. E) reimburse businesses for making unprofitable but necessary products. Answer: B 68) Which law forbids most monopolies in Canada? A) Consumer Protection Act B) Lobbying Act C) Fair Trade Act D) Competition Act E) Environmental Contaminants Act Answer: D 69) When the government of Canada prevented the merger of the Royal Bank and the Bank of Montreal, this was an application of the ________ Act. A) Fair Trade B) Consumer Protection C) CRTC D) Competition E) Bank Act Answer: D 70) Nutrition labeling and claims are intended to provide consumers with information to aid them in the selection of a healthy diet aimed at reducing risk of premature illness and death due to diet-related chronic diseases. Insufficient labeling is violation of which act? A) Food and Drug Act B) Weights and Measures Act C) Advertising and Packaging Act D) Textile Labeling Act E) Consumer Protection Act Answer: A 71) Which of the following statements is most correct with respect to government in its role as regulator? A) Business complains that the Competition Bureau is too slow in approving or denying merger plans B) The government really has very little power in its role as regulator C) because of the move toward deregulation, federal and provincial governments have become less and less involved in regulating business activity D) The main areas of government regulation of business are achieving social goals, protecting consumers, and providing assistance to small business firms E) Studies have shown that government regulation reduces the effectiveness of business firms Answer: A 72) Which Act prohibits cigarette advertising on billboards? A) Environmental Contaminants Act B) Hazardous Products Act C) Fair Advertising Act D) Tobacco Act E) Food and Drug Act Answer: D 73) When Labatt Brewing sales representatives gave money to store operators who agreed to not lower prices on some brands of beer, the company was prosecuted for engaging in _________ A) bait-and-switch advertising. B) resale price maintenance. C) a pyramid scheme. D) selling mislabeled products. E) a violation of the Beer Act. Answer: B 74) Which of the following is correct with respect to the issue of government taxation? A) Progressive revenue taxes are harder on low-income people than on high-income people B) Revenue taxes are designed primarily to encourage people to buy certain kinds of goods and avoid buying other kinds C) Restrictive taxes prevent businesses from expanding D) Regressive revenue taxes are levied at the same rate regardless of a person’s income E) All of the statements are correct Answer: D 75) John has just received a rather handsome increase in salary, but he is upset because he feels that he should not be charged a higher rate of tax on this extra money. John is being taxed by a ________ tax system. A) provincial B) federal C) progressive D) restrictive E) regressive Answer: C 76) The GST is considered a regressive tax because A) food and drugs are often exempt. B) the more a person makes, the lower the rate of sales tax that is applied to that person’s purchase. C) it is unfair. D) poorer people pay a higher percentage of their income than richer people. E) it is designed to discourage the purchase of certain products. Answer: D 77) The three main ways in which business can influence government policy are A) advertising, lobbyists, trade associations. B) political contributions, letters to the editors of newspapers, advertising. C) advertising, trade associations, political contributions. D) trade associations, lobbyists, letters to the editors of newspapers. E) lobbyists, political contributions, advertising. Answer: A 78) If 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) hire a lobbyist or join a trade association. B) obtain a government contract for supplies and equipment. C) ensure worker safety in its business facilities. D) keep its manufacturing plants in Canada. E) obtain export business for the new facility. Answer: A 79) The federal Lobbying Act requires lobbyists to A) register with the Department of Consumer and Commercial Relations. B) contribute a minimum of $10,000 to political campaigns. C) attend at least two sessions in the House of Commons each year. D) report on their communications with designated public office holders. E) meet with members of Parliament on a regular basis. Answer: D 80) Suppose that several microelectronics manufacturers want to set up a trade association. They need to know that trade associations are allowed to do all of the following except A) allocate markets for their members. B) influence the kind of legislation that is passed. C) conduct training programs relevant to the industry. D) arrange trade shows. E) publish newsletters featuring articles on new products. Answer: A 81) The price at which the quantity of goods demanded and the quantity of goods supplied are equal is referred to as A) the going rate. B) the point-of-no-return price. C) the market price. D) the better price. E) the best price. Answer: A 82) The term "demand" refers to A) the stock exchange. B) the willingness and ability of buyers to purchase a product or service. C) the willingness and ability of businesses to sell a product or service. D) the willingness of buyers to accept high prices for high quality goods. E) the willingness of government to sell goods and services. Answer: B 83) The law of demand states that A) producers will offer more of a product as the price falls. B) demand and supply meet at an equilibrium point. C) buyers will purchase more of a product as the price falls. D) producers will offer more of a product as the price rises. E) buyers will purchase more of a product as the price rises. Answer: C 84) Which of the following is correct with regard to the box entitled "Virtual Goods: An Emerging E-Market"? A) Consumers have shown a reluctance to spend money on virtual goods B) The traditional definition of a "market" also applies to the virtual world as well C) Facebook's strategy is to not charge anything for virtual game props D) Revenue from virtual products is very uncertain E) All of these statements are correct Answer: B 85) The law of supply states that A) buyers will purchase more of a product as the price falls. B) demand and supply meet at an equilibrium point. C) producers will offer more of a product as the price rises. D) producers will offer more of a product as the price falls. E) buyers will purchase more of a product as the price rises. Answer: C 86) 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 supply and demand. B) the supply curve. C) the demand curve. D) the law of supply. E) the law of demand. Answer: E 87) 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) the law of supply and demand. B) market price variations. C) the law of supply. D) economic justice. E) the law of demand. Answer: E 88) A demand and supply schedule A) allows assessment of the relationship between different levels of demand and supply at different prices. B) describes the supply for a product. C) describes the demand for a product. D) is a formula by which one determines market equilibrium. E) is the contractual agreement made between the buyer and seller. Answer: A 89) Which term is used to identify the willingness and ability of buyers to purchase a product? A) Obligation B) Demand C) Wealth D) Profits E) Prosperity Answer: B 90) A 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 supply. B) the law of market price. C) the law of equilibrium. D) the law of demand. E) the law of supply and demand. Answer: A 91) A producer of automobile batteries notes that the price of batteries has risen in each of the past three years. The firm decides to expand its battery production. This illustrates A) equilibrium pricing in the marketplace. B) the law of supply. C) price gouging by the manufacturer. D) economic activity in a planned economy. E) the law of demand. Answer: B 92) A 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 demand. E) the law of equilibrium. Answer: D 93) The point at which the quantity of a product or service demanded is the same as the quantity supplied is called A) the surplus point. B) the equilibrium point. C) the supply point. D) the profit point. E) the demand point. Answer: B 94) On a graph showing the supply curve and the demand curve, the point at which the two curves intersect is called A) the equilibrium price. B) the profit point. C) the break-even point. D) the law of demand. E) the crossover. Answer: A 95) 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) a shortage will result if the price is too low. D) no sales will be made. E) a surplus will result if the price is too low. Answer: B 96) 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) demand curve. C) balance curve. D) variable price curve. E) supply curve. Answer: E 97) 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) equilibrium curve. C) demand curve. D) supply curve. E) balance curve. Answer: C 98) 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) there are no dramatic changes in the market over time. C) suppliers are willing to produce the quantity demanded. D) no single firm has more than 50 percent of the market. E) consumers are willing to pay the price being charged. Answer: A 99) On a graph showing the supply curve and the demand curve, the point at which the two curves intersect is referred to as A) the supply point. B) the demand point. C) the equilibrium price. D) the break-even point. E) the answer cannot be determined given the information provided. Answer: C 100) The price at which the quantity of a product willing to be purchased by customers and the quantity of product willing to be made by a producer are equal is known as A) the break-even price. B) the oligopoly price. C) the balanced price D) the elastic price. E) either the market price or the equilibrium price. Answer: E 101) 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 shortage C) The business will make more profit D) The business will have a surplus E) The business will have less expenses but no more profit Answer: D 102) 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 shortage B) A surplus C) More profit D) A shift in the supply curve E) A shift in the demand curve Answer: B 103) The market research department of BSX Corp. 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) growth C) inflation D) surplus E) depression Answer: A 104) If the market for chocolate was at the equilibrium point and suddenly half of the chocolate in the world disappeared, what would be the immediate effect? A) The price would increase due to a shortage B) The price would decrease due to market equilibrium C) The price would increase due to a surplus D) The price would decrease due to a surplus E) There would be no change in either price or demand Answer: A 105) Which of the following is correct with respect to the issue of supply and demand? A) A demand curve shows that consumers usually demand products of higher quality B) A supply curve shows that businesses will supply more units of a product, but will lower the level of product quality C) It is difficult to achieve an equilibrium price D) When the quantity demanded exceeds the amount supplied, businesses shut down E) None of the statements are correct Answer: E 106) An exchange process between buyers and sellers of a particular good or service is known as A) a market. B) economic trade. C) mercantilism. D) supply utility. E) bartering. Answer: A 107) Tim won $50 000 on a Lotto 649 ticket and now he wants to buy a Harley Davidson. The term used to identify his willingness and ability to purchase the motorcycle is A) money supply. B) demand. C) obligation. D) windfall profits. E) unanticipated wealth. Answer: B 108) What is “demand”? A) The idea that buyers will purchase more of a product as the price drops B) The price and quantity of a product at which the quantity demanded is equal to the quantity supplied C) The idea that producers will offer more of a product as the price rises D) The willingness and ability of buyers to purchase a product E) None of these Answer: D 109) What is “supply”? A) The idea that sellers will sell more of a product as the price increases B) The price and quantity of a product at which the quantity demanded is equal to the quantity supplied C) The idea that buyers will want less of a product as the price increases D) The willingness and ability of producers to offer a good or service for sale E) None of these Answer: D 110) In the production of wheat, the law of demand A) states that buyers will purchase more wheat as the price decreases. B) reflects the farmer's desire to increase wheat production. C) comes into play when farmers produce a bumper crop of wheat. D) refers to the exchange process between the farmer and the buyer of wheat. E) states that at very high prices, there will be no supply. Answer: A 111) In economic terms, a "market" is A) available in capitalist nations, but not in communist nations. B) located where buyers can most easily access it. C) the physical location (for example, a grocery store) where exchanges take place between buyers and sellers. D) an exchange process between sellers and buyers. E) all of these Answer: D 112) What is likely to happen when demand for a commodity is high? A) consumers will try to find substitutes for the commodity B) the price of the commodity will rise C) criminal behaviour increases with regard to the commodity (e.g., stealing) D) the price of substitute commodities will increase E) all of these statements are correct Answer: E 113) Tom, a real estate agent, wants to convince a potential customer where the price should be set to sell their home. Tom could use a A) variable cost curve. B) demand and supply schedule. C) supply curve. D) demand curve. E) property analysis. Answer: B 114) A demand and supply schedule A) allows a person to assess the relationship between different levels of demand and supply at different prices. B) is the contractual agreement made between a buyer and a seller. C) describes the demand for a product. D) is a formula used to determines the market equilibrium price. E) all of the statements are correct. Answer: A 115) A new sales tax has the effect of shifting the supply curve upward. This will generally move the equilibrium point A) down and to the left. B) up and to the right. C) down and to the right. D) up and to the left. E) it has no effect on the equilibrium point. Answer: D 116) Which of the following statements is correct with regard to the Management in Turbulent Times box entitled “The High Price of High Prices”? A) Consumers are reluctant to try substitutes for a commodity, even when the price of that commodity increases B) When the price of a commodity rises, criminal behaviour increases (e.g., stealing) C) The increased emphasis on biofuels has relieved the world’s food shortage problem D) When the price of a commodity increases, the price of substitute commodities will decrease E) All of these statements are correct Answer: B 117) Private enterprise requires which four elements to function effectively? A) Communism, capitalism, socialism and privatization B) The right to product safety, consumer choice, freedom of information, and no government intervention in business C) Land, labour, capital, and entrepreneurship D) Supply, demand, equilibrium and monopoly E) Private property rights, freedom of choice, profits, and competition Answer: E 118) After checking out a new car deal at her local GM Canada dealership, Sally decided to buy one. We can conclude that A) Sally exercised her freedom of choice. B) General Motors exercised its freedom of choice. C) both General Motors and Sally exercised their freedom of choice. D) this example doesn't relate to freedom of choice. E) neither General Motors nor Sally exercised their freedom of choice. Answer: C 119) Market economies that rely on a private enterprise system maintain that the creation of wealth should be the concern of A) business firms. B) labour unions. C) the government. D) work teams. E) individuals. Answer: E 120) ________ must be present if companies are going to be motivated to offer consumers lower prices. A) Government regulations B) Freedom of choice C) Competition D) Profits E) Freedom of choice and competition Answer: C 121) A motive to start a business is ________, while ________ creates the need to run the business efficiently. A) profit; government B) money; government C) profit; pride D) profit; competition E) competition; profit Answer: D 122) Individual ownership of property is a key element in A) the private enterprise system. B) a planned economy. C) socialism. D) the factors of production. E) communism. Answer: A 123) One outcome of competition is that business firms A) usually develop a monopoly. B) can ignore "price wars". C) have unrestricted access to natural resources. D) must operate efficiently. E) reduce their need for expansion capital. Answer: D 124) What provides the motivation for an entrepreneur to operate his or her business efficiently? A) The right to vote B) Private property rights C) Competition D) Privatization E) Freedom of choice Answer: C 125) The four degrees of competition include all of the following except A) pure competition. B) monopolistic competition. C) monopolies. D) oligopolies. E) pure monopolistic competition. Answer: E 126) Natural cork lost its __________ when a new technology allowed wine bottles to be sealed with plastic corks. A) perfect competition B) product differentiation C) monopoly D) monopolistic competition E) oligopoly Answer: C 127) An outcome of competition is that business firms A) must operate efficiently. B) have unrestricted access to natural resources. C) reduce their need for expansion capital. D) develop a monopoly. E) can drop out of the pricing war unnoticed. Answer: A 128) Which of the following motivates an entrepreneur to operate his or her business efficiently? A) Freedom of choice B) Private property rights C) Privatization D) The right to vote E) Competition Answer: E 129) Brown Company wants to have an advantage over its competitors. To gain this advantage it must develop a product that is either ________ or of ________ than that of the competition. A) lower priced; equal quality B) lower priced; higher quality C) priced the same; equal quality D) priced the same; lower quality E) higher priced; equal quality Answer: B 130) When individual firms are small and the number of firms is large, this describes which degree of competition? A) Selective competition B) Monopolistic competition C) Monopoly D) Perfect competition E) Oligopoly Answer: D 131) Bob owns the St. Paul Street one-stop convenience store, one of 70 convenience stores in his region. Which degree of competition is Bob involved in? A) Monopolistic competition B) Oligopoly C) Perfect competition D) Oligopolistic competition E) Monopoly Answer: C 132) In a market with perfect competition A) buyers and sellers do not know the price structure of the market. B) price is set by supply and demand. C) there are very few sellers. D) firms are relatively large. E) products have very few similarities. Answer: B 133) Which one of the following is the best example of perfect competition? A) Agricultural industry B) Automobile industry C) Utility industry D) Clothing industry E) Soft drink industry Answer: A 134) 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 practicing a type of pricing strategy characteristic of A) controlled competition. B) monopolistic competition. C) an oligopoly. D) perfect competition. E) a monopoly. Answer: C 135) 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) Oligopoly D) Monopolistic competition E) Perfect competition Answer: C 136) Competition like that between Tide and Cheer, Coke and Pepsi, and Sears and Ralph Lauren is A) oligopolistic competition. B) monopolistic competition. C) oligopoly. D) perfect competition. E) monopoly. Answer: B 137) Which of the following businesses has a natural monopoly? A) Your provincial electric company B) Via Rail C) A Chapters bookstore D) Pepsi E) De Beers Diamonds Answer: A 138) 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) monopolistic competition. B) perfect competition. C) oligopolistic competition. D) oligopoly. E) monopoly. Answer: A 139) 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) monopoly. B) oligopolistic competition. C) oligopoly. D) perfect competition. E) monopolistic competition. Answer: E 140) How does monopolistic competition differ from perfect competition? A) In a market characterized by monopolistic competition, individual firms have some control over price. B) In a perfectly competitive market, products are more dissimilar. C) Monopolistic competition is found mostly in communist countries. D) There are more sellers in a market characterized by monopolistic competition. E) None of these statements are correct Answer: A 141) Which of the following is correct regarding monopolistic competition? A) There are many competitors in the industry B) Products are differentiated C) Competitors can enter and leave the market easily D) Competitors may be large or small E) All of these statements are correct Answer: E 142) Which of the following is correct regarding monopolistic competition? A) Prices are similar but products can be differentiated B) Prices and products are very similar 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 these Answer: C 143) ________ exists when an industry has a handful of sellers, most of which are large. A) Perfect competition B) A monopoly C) Monopolistic competition D) An oligopoly E) A natural monopoly Answer: D 144) When there are a handful of very large sellers, market entry is difficult, and a company can have a major impact on the product price, this is a situation known as A) perfect competition. B) monopoly. C) oligopoly. D) monopolistic competition. E) free market enterprise. Answer: C 145) 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) an oligopoly. C) perfect competition. D) monopolistic competition. E) controlled competition. Answer: B 146) 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) Monopolistic competition C) Limited cartel D) Monopoly E) Oligopoly Answer: E 147) In a(n) ___________ situation, individual firms are small and the number of such firms is large. A) mixed market B) oligopoly C) perfect competition D) monopoly E) monopolistic competition Answer: C 148) Computers B Us is a manufacturer of customized microcomputers. They are able to set their prices higher than competitors because they can assemble a computer to a customer's exact specifications. Computers B Us is operating in a competitive environment of A) oligopolistic competition. B) perfect competition. C) monopolistic competition. D) monopoly. E) oligopoly. Answer: C 149) In a market with pure competition A) price is set by supply and demand. B) there are very few sellers. C) products have very few similarities. D) firms are relatively large. E) the buyers and sellers do not know the price structure of the other party. Answer: A 150) Ontario Hydro operates in a situation of A) monopolistic competition. B) pure competition. C) oligopoly. D) fair competition. E) monopoly. Answer: E 151) A situation where there are many buyers, a lot of product differentiation, and relative ease of entry or exit of the market is known as A) oligopolistic competition. B) monopoly. C) pure competition. D) monopolistic competition. E) oligopoly. Answer: D 152) Harcourt Corporation is one of only five firms that make and distribute playground equipment. This illustrates which degree of competition? A) Monopolistic competition B) Pure competition C) Oligopoly D) Monopoly E) Selective competition Answer: C 153) The Gap makes their products appear to be slightly different from those of their competitors by tactics such as brand names. Their degree of competition is A) pure competition. B) oligopoly. C) monopoly. D) monopolistic competition. E) none of these. Answer: D 154) How does monopolistic competition differ from perfect competition? A) There are more sellers in a market characterized by monopolistic competition. B) It is easier for sellers to enter a market/industry characterized by monopolistic competition. C) In a perfectly competitive market, it is easier to make a profit D) In a market characterized by monopolistic competition, individual firms have more control over price E) In monopolistic competition, small producers have a harder time making a profit Answer: D 155) Which of the following seems the most likely pricing approach for a monopoly? A) Charge customers whatever you please B) Give customers a real bargain by charging a low price C) Charge a price that will not cause consumer demand to drop D) Undercut the prices charged by competitors E) Agree with competitors to fix prices so that profit margins can be maintained Answer: C 156) Great Lakes Power is the only company that supplies power to rural areas. What situation would the company be in? A) Oligopoly B) Pure competition C) Monopolistic competition D) Monopoly E) None of these Answer: D 157) Tide, Pepsi, Guess, and Body Shop are all corporations involved in which type of competition? A) Pure competition B) Oligopoly C) Monopolistic competition D) Equilibrium E) None of these Answer: C 158) What are the conditions for an oligopoly? A) All firms must be small and the number of firms small B) All firms must be large and the number of firms small C) All firms in a given industry must be small and the number of firms large D) All firms must be large and the number of firms large E) There is no such condition as oligopoly Answer: B 159) What is a "natural" monopoly? A) One that occurs without any business firm trying to achieve it, i.e., it just happens because the business does things right B) A situation where one company can most efficiently supply all the product or service that is needed by consumers C) One where government finds it “natural” to grant monopoly powers to certain business firms D) One that occurs when a business firm sets out to achieve a monopoly and no other firm tries to stop it E) There is no such thing as a natural monopoly Answer: B 160) The Industrial Revolution refers to A) fur and fishing industry in Canada in the 1500s. B) a major change in the production of goods that began in England in the mid 1700s. C) development of the Entrepreneurial era. D) development of the Internet era. E) none of the above. Answer: B 161) Which of the following came first? A) Global Era B) Production Era C) Entrepreneurial Era D) Industrial Revolution E) Marketing Era Answer: D 162) In his book, The Wealth of Nations, Adam Smith maintained that the creation of wealth should be the concern of A) students. B) heavenly powers. C) individuals and firms. D) the government. E) all citizens. Answer: C 163) What basic argument did Adam Smith make in his book, The Wealth of Nations? A) Someone will be more successful in business if he or she is a leader and true entrepreneur B) Socialism is the best economic system C) National wealth was created fastest by the mercantile system D) Government should not interfere in the economy, but should let businesses function without regulation or restriction E) The government should own the means of production Answer: D 164) Adam Smith, author of The Wealth of Nations, argued that a society's interests would be best served by A) socialism. B) communism. C) private enterprise. D) monopolies. E) the political parties. Answer: C 165) Which of the following arrangements of eras 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) Entrepreneurial Era, Industrial Revolution, Global Era, Marketing Era, Internet Era, Production Era C) Industrial Revolution, Entrepreneurial Era, Production Era, Marketing Era, Global Era, Internet Era D) Production Era, Industrial Revolution, Entrepreneurial Era, Marketing Era, Global Era, Internet Era E) Industrial Revolution, Production Era, Entrepreneurial Era, Marketing Era, Internet Era, Global Era Answer: C 166) 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) market economy B) natural selection C) laissez-faire D) invisible hand E) entrepreneurship Answer: C 167) During the Entrepreneurial Era, businesses were allowed to run without regulation under the philosophy of ________ A) antitrust. B) socialism. C) laissez-faire. D) specialization of labor. E) mass production. Answer: C 168) Scientific management practices focus on A) reducing absenteeism. B) increasing efficiency. C) increasing employee satisfaction. D) developing several ways of doing the same task. E) increasing job quality by adding flexibility. Answer: B 169) Scientific management was given impetus when ________ introduced the moving assembly line and ushered in the production era. A) Andrew Carnegie B) Henry Ford C) Eli Whitney D) Cyrus McCormick E) Frederick Taylor Answer: B 170) Who is most closely associated with the Production Era? A) John D. Rockefeller B) Henry Ford C) Andrew Mellon D) Andrew Carnegie E) J.P. Morgan Answer: B 171) Which of the following eras was prompted by increased consumer demand after World War II? A) Production Era B) Global Era C) Entrepreneurial Era D) Industrial Revolution E) Marketing Era Answer: E 172) Which of the following eras is tied to the prosperity of the 1950s and 1960s? A) Marketing Era B) Industrial Revolution C) Internet Era D) Production Era E) Entrepreneurial Era Answer: A 173) During the ________ Era, businesses became less focused on production and sales and more focused on consumers. A) Consumer B) Internet C) Global D) Marketing E) Sales Answer: D 174) One of the most critical elements in the Global Era is the A) importance of technology. B) producers' expansion to a wider range of activities. C) All the items on this list are critical elements in the Global Era. D) reduction in the dependence upon outsourcing. E) willingness of companies to make more items in-house. Answer: A 175) Technological advances, improved communication, and more efficient transportation networks contributed to the emergence of the A) Global Era B) Marketing Era C) Entrepreneurial Era D) Production Era E) Industrial Revolution Answer: A 176) The early years of business in Canada were motivated by A) a desire to settle in the Prairies. B) profits from fishing. C) profits from mining. D) a desire to find a way to China. E) profits from logging. Answer: B 177) Why was Canadian manufacturing slow to develop in the 16th and 17th centuries? A) Too few manufacturing managers B) Too few buyers of manufactured goods C) Most people were involved in trading of furs D) Most people were involved in farming E) Policy of mercantilism Answer: E 178) Which government(s) supported the mercantilism philosophy? A) English and French B) Asian and North American C) Canadian D) No governments supported it E) English and Asian Answer: A 179) All of the following are true about the Industrial Revolution except A) it led to the development of the factory system. B) it enabled mass production. C) it led to wide use of semi-skilled employees. D) it discouraged specialization of labour. E) it led to the decline of cottage industries. Answer: D 180) During which period did mass production reduce duplication of equipment and allow firms to purchase raw materials at better prices? A) Entrepreneurial era B) Industrial Revolution C) Production era D) Colonial period E) Marketing era Answer: B 181) Which of the following best illustrates specialization of labour? A) Workers who learn new, specialized skills are rewarded with higher pay B) Semiskilled workers are trained to perform only one task C) Each labour union represents only one type of worker D) Highly skilled craftspeople who can do all the tasks required to make an item E) Raw materials were provided to England in return for finished goods Answer: B 182) Which of the following occurred when the factory system began? A) All the materials and labour required to produce items in massive quantities were brought to one place 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 attitude developed E) Factory workers became owners through ESOPs Answer: A 183) How did Adam Smith's ideas outlined in The Wealth of Nations lead to a policy of laissez-faire? A) Smith argued that governments should be actively involved in the economy B) There was no connection between Smith's book and a laissez-faire policy C) The Wealth of Nations argued that the government should not interfere in the economy, but should let businesses function without regulation or restriction D) Smith's book was an inspirational book that motivated many entrepreneurs E) The book outlined steps that could be taken to improve international trade Answer: C 184) The first manufacturing in Canada consisted of all of the following except A) breweries. B) shoemakers' shops. C) shipbuilding. D) sawmills. E) grist mills. Answer: C 185) The entrepreneurial era in Canada occurred A) in the first half of the 20th century. B) in the last half of the 18th century. C) in the first half of the 18th century. D) in the last half of the 19th century. E) in the first half of the 19th century. Answer: D 186) The Scientific Management Movement can be best characterized by the phrase A) "quality is job 1". B) "empowerment to employees". C) "one best way". D) "progress through technology". E) "cooperation between management and unions". Answer: C 187) Which best completes the following sentence? During the production era A) the factory system brought together in one place all the materials and workers required to produce items in large quantities. B) great emphasis was placed upon satisfying the customer. C) the improved production output resulting from assembly lines was obtained by increasing worker freedom. D) the presence of big firms aided individuals who wished to go into business for themselves. E) Henry Ford introduced the first moving assembly line which brought automobile parts to the worker. Answer: E 188) The development of labour unions and collective bargaining agreements were major elements of the A) colonial period. B) production era. C) global era. D) entrepreneurial era. E) industrial revolution. Answer: B 189) The marketing era involved A) the identification of the customer's needs. B) the production of items within the existing factories. C) the production of the same type of goods. D) the hiring of the right salespeople. E) an emphasis on efficiency so that the selling price may be lowered. Answer: A 190) What are the three countervailing powers in today's society? A) Consumers, government, business B) Consumers, business, public opinion C) Government, business, public opinion D) Government, business, labour E) Consumers, government, public opinion Answer: D 191) Which era held the philosophy "use market research to determine what customers want and then make it for them"? A) Sales B) Finance C) Marketing D) Production E) Scientific Answer: C 192) 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 discovered the power of advertising D) Businesses were able to keep their production costs low E) Businesses were becoming very good at creating new products Answer: A 193) Why did businesses adopt the marketing approach? A) Mass markets required mass advertising, which is what marketing does B) There was pent-up demand after World War II C) Competition between businesses became greater than ever D) Production costs got to be about as low as they were going to get, thus profit would not improve E) The competition for sales representatives increased as employees became very intense Answer: C 194) 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) Hire the finest sales representatives to sell what it makes B) Determine customer needs and focus its product lines to fill those needs C) Lower the costs of production so the products are always profitable D) Change its product lines to fit what its management thinks customers want E) Try charging a lot of money for its products in the hope that it will result in snob appeal Answer: B 195) One characteristic of specialization is A) it is more cost effective. B) it requires highly skilled craftspeople. C) it is more expensive. D) it requires firms to spend more money on the purchase of raw materials. E) it requires training all the workers to perform all tasks required to make an item. Answer: A 196) The dominance of big firms in the production era led to the creation of company towns. Such companies included A) forestry firms. B) mining companies. C) railroad companies. D) only forestry and mining companies. E) all of these. Answer: D 197) The finance era is sometimes referred to as the decade of A) efficiency. B) specialization. C) greed. D) laissez-faire. E) mercantilism. Answer: C 198) Which of the following is correct with regard to the factory system and the industrial revolution? A) British manufacturing did not advance rapidly until the middle of the 19th century B) The factory system developed as an alternative to mercantilism C) British laws forbade the export of technology and manufacturing to North America D) Manufacturing activity in Canada rapidly increased in the early 1800s E) Great Britain prevented the development of the factory system in Canada Answer: C 199) The laissez-faire attitude toward the economy as adopted by the Canadian government was a characteristic of the ________ era. A) sales & marketing B) finance C) entrepreneurial D) global E) production Answer: C 200) When were the concepts of specialization and mass production fully refined in Canada? A) 18th century B) Early 19th century C) Late 19th century D) 20th century E) None of these Answer: D 201) The _________ era was the result of the moving assembly line introduced by Henry Ford. A) finance B) production C) global D) entrepreneurial E) sales and marketing Answer: B 202) Which of the following is correct with respect to the production era? A) It began with the invention of the steam engine B) The scientific management movement emphasized the management of people through an understanding of the needs they brought to the workplace C) Mass production increased the available labour pool because many people could be trained to carry out assembly line tasks D) Workers gained more freedom during the production era E) None of these statements are accurate Answer: C 203) How does the Internet affect domestic and global business? A) It offers networking potential to businesses B) It boosts trade in all sectors C) It has made it easier for trade to occur D) It levels the playing field between small and large firms E) All of these statements are accurate Answer: E 204) Which of the following was a characteristic of the sales and marketing eras? A) By the first decade of the 20th century production had resulted in spectacular increases in the amount of goods and services that were available B) During the sales era, much emphasis was placed on market research to find out what customers wanted C) During the marketing era, it was assumed that business profits and business success depended on hiring the right salespeople and advertising heavily D) During the sales era, business firms produced what they were good at producing, rather than what consumers wanted E) None of these statements are accurate Answer: D 205) Which of the following is correct with respect to the global era? A) Most Canadian business firms have been hurt by foreign competition B) The rapid increase in internet usage has facilitated global business activity C) The internet has given a boost to only certain sectors of the economy D) The internet has given larger firms a competitive advantage because they have more to spend on internet development E) None of these statements are correct Answer: E TRUE/FALSE QUESTIONS. Write 'T' if the statement is true and 'F' if the statement is false. 206) Profits from business are used to support government as well as business owners and stockholders. Answer: False 207) In 2008, Encana was the most profitable Canadian company. Answer: True 208) Business principles are helpful to non-profit organizations as they try to achieve their service goals. Answer: True 209) A business is an organization that seeks to earn profits by providing goods and services. Answer: True 210) The reward that the owners of a business receive for taking the risks of investing their money and time is called capital. Answer: False 211) 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 212) A charity is classified as a business firm if it provides physical goods, but not if it provides only services. Answer: False 213) A business is an organization that seeks to earn profits by providing one or more of the factors of production. Answer: False 214) The term "business" includes large organizations such as Canadian Pacific, which seek a profit, but does not include smaller companies like the local supermarket. Answer: False 215) An economic system allocates a nation's resources among its citizens. Answer: True 216) A command economy relies on a centralized government to control all or most of the factors of production and to make all or most production and allocation decisions. Answer: True 217) Different economic systems allocate resources in similar ways. Answer: False 218) Labour is a factor of production. Answer: True 219) Human resources are a factor of production. Answer: True 220) Information that a business uses is an example of physical resource. Answer: False 221) Capital is the reward which the owners of a business receive for taking the risks of investing their money and time. Answer: False 222) Natural resources include land, mineral deposits, water, as well as trees. Answer: True 223) Capital is needed only to start up a business. Answer: False 224) Natural resources include land and mineral deposits. Answer: True 225) The natural resources component of the factors of production includes the physical and mental capabilities of people in the work force. Answer: False 226) 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 227) Communism is an example of a market economy where a central government controls most factors of production. Answer: False 228) In the input market, firms supply goods and services in response to demand on the part of households. Answer: False 229) Communism and socialism are both types of command economies. Answer: True 230) Although workers in socialist countries are usually allowed to choose their occupations, a large proportion generally work for the government. Answer: True 231) Capitalism relies on the factors of demand and supply in the marketplace to determine what, when, and for whom to produce. Answer: True 232) A mixed market economy has elements of both a command economy and a market economy. Answer: True 233) There are more command economies in the world now than there were 30 years ago. Answer: False 234) A Globe Scan poll of 20,000 people in 20 different countries showed that the highest support for capitalism was in the U.S. and the lowest level of support was in India. Answer: False 235) China’s constitution has been amended to legitimate private enterprise. Answer: True 236) In Canada, the government does not own and operate any business firms. Answer: False 237) The government plays several different roles in the Canadian economy, including the roles of customer, competitor and regulator. Answer: True 238) Crown corporations exist only at the federal level and account for a significant and wide variety of economic activity in Canada. Answer: False 239) 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 240) Revenue taxes are levied to control certain activities that legislative bodies believe should be controlled. Answer: False 241) Government incentive programs always have the desired effect of stimulating the economy. Answer: False 242) If the Canadian Auto Workers (CAW) want to bring their interests to government officials they could hire a lobbyist. Answer: True 243) The Competition Act prohibits resale price maintenance, which is the refusal of companies to sell their products to discount stores. Answer: False 244) The Hazardous Products Act prohibits the sale of any food that contains harmful substances. Answer: False 245) The four main reasons government regulates business activity are: to encourage importing and exporting, to protect consumers, to protect businesses from foreign competition, and to protect the environment. Answer: False 246) A demand and supply schedule is derived from market research and other systematic studies of the market. Answer: True 247) The law of demand states that buyers will purchase more of a product as its price drops. Answer: True 248) In economic terms, the exchange process between buyers and sellers is called "supply." Answer: False 249) In economic terms, a "market" refers to a specific place like a supermarket. Answer: False 250) The law of supply states that producers will offer more of a product for sale as its price rises. Answer: True 251) 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 252) A demand curve shows the amount of goods and services a producer will create at different prices. Answer: False 253) The point on a demand and supply schedule where supply and demand are equal is known as the break-even point. Answer: False 254) 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: False 255) 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 256) 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 257) The equilibrium price is the profit-maximizing point at which the quantity demanded equals the quantity supplied. Answer: True 258) Private property rights are an essential element of a communist economic system. Answer: False 259) The private enterprise system guarantees a profit for each business firm. Answer: False 260) The concept of freedom of choice applies only to buyers of goods and services. Answer: False 261) One of the four elements that must be present in private enterprise is reasonable prices. Answer: False 262) What a company chooses to produce will, by definition, be affected by the profits it hopes to make. Answer: True 263) The private enterprise system guarantees that competition among business firms will be fair. Answer: False 264) 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 265) As a general rule, in perfect competition there will be very few sellers. Answer: False 266) The market for clothing is best characterized as monopolistic competition. Answer: True 267) Monopolistically competitive businesses may be large or small, and may enter or exit the market easily. Answer: True 268) Coke and Pepsi represent oligopolistic competition. Answer: True 269) A differentiating strategy used in monopolistic competition is to use brand names such as Tide and Cheer. Answer: True 270) In an oligopoly only a handful of sellers compete mainly through product differentiation. Answer: False 271) A natural monopoly exists when a single company can fill the needs of all customers in a specific area. Answer: True 272) The private enterprise system guarantees a profit for each business firm if it provides the right goods and services to consumers. Answer: False 273) People who believe in private enterprise usually argue that a society's interests are best served by a command economy. Answer: False 274) Private enterprise requires the presence of four elements: (1) private property rights, (2) freedom of choice, 3) competition, and (4) no government control. Answer: False 275) Gasoline stations are an example of a type of business involved in perfect competition. Answer: True 276) An oligopoly exists when firms in an industry are so small and numerous that no one is powerful enough to dominate the market. Answer: False 277) A monopoly exists when there is only one firm producing a certain product or providing a certain service. Answer: True 278) Adam Smith argued that a society's interests are best served by a command economy. Answer: False 279) The earliest business activity in Canada involved trapping. Answer: False 280) One of the main advantages of the mass production system in factories was that it avoided costly duplication of machinery. Answer: True 281) In 1800, Canadian exports of manufactured goods were more important than exports of fur. Answer: True 282) In effect, the assembly line increased the supply of labour. Answer: True SHORT ANSWER QUESTIONS. Write the word or phrase that best completes each statement or answers the question. 283) What is a business? Answer: A business is an organization that provides goods or services that are then sold to earn profits. 284) 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 285) 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 286) 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 287) How does a command economy differ from a market economy? Answer: A command economy relies on a centralized government to control all or most factors of production and to make all or most production and allocation decision. In a market economy, individuals control production and allocation decisions through supply and demand. 288) 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 289) 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 290) 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 291) What is socialism? Answer: Socialism is a less extensive command system in which the government owns and operates selected major industries. The government may control banking, transportation or manufacturing industries, for example. Smaller businesses, such as clothing stores and restaurants, are privately owned. 292) Explain the effects of monopolies on consumers and the economy. Answer: If a company has a monopoly, it can harm consumers by raising prices, cutting output, or stifling innovation. Furthermore, because most monopolies have total control over certain products and prices and the market share for those products, competitors are likely to find it extremely difficult to enter marketers where monopolies exist. Consequently, a number of laws and regulations have been established by the federal government to help prevent individual companies or groups of companies from gaining control of markets in ways that restrain competition or harm consumers. 293) Describe the law of demand. Answer: The law of demand states that buyers will purchase more of a product as its price drops and less of a product as its price increases. 294) Explain what happens when the demand curve intersects with the supply curve. Answer: At this intersection, we have the equilibrium or market price. At this price, there will be neither a shortage nor surplus. Over time, markets tend to price products at the equilibrium price. 295) What does the supply curve reflect? Answer: The supply curve shows how much of a product will be supplied at different prices. 296) List the four elements required in a private enterprise system. Answer: Private property, freedom of choice, profits, and competition. 297) Describe the four degrees of competition that can exist in a private enterprise system. Answer: Perfect competition, monopolistic competition, oligopoly, and monopoly. 298) 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. ESSAY QUESTIONS. Write your answer in the space provided or on a separate sheet of paper. 299) Explain the role of both profit-seeking businesses and non-profit organizations in the overall “meaning of business.” Answer: Businesses are organizations that provide goods and services that are then sold to earn profits. Indeed, the prospect of earning profits—the difference between a business’s revenue and its expenses—is what encourages people to open and expand businesses. After all, profits are the reward owners get for risking their money and time. The right to pursue profits distinguishes a business from non-profit organizations, such as universities, hospitals, and government agencies, that run in much the same way but that generally do not seek profits. Whereas profits may be considered the final reward in profit-seeking businesses, the final reward for non-profit organizations might be operational efficiency, for example. 300) List and describe the five factors of production. Answer: The factors of production are labor, capital, entrepreneurs, physical resources, and information resources. Labor refers to the physical and mental capabilities of people as they contribute to the economic system. Capital refers to the funds needed to create and operate a business enterprise. Entrepreneurs are individuals who embrace the opportunities and accept the risks of setting up and operating businesses. Physical resources are tangible things organizations use in the conduct of their business. Information resources include data and other information used by businesses. 301) Consider the following statement: “A nation’s economic system is its system for allocating its resources among its citizens, both individuals and organizations.” What are a nation’s “resources”, and what important role do they play in a nation’s economic system? Answer: A nation’s resources, often referred to as the factors of production, include four tradition factors: labor, capital, entrepreneurs and physical resources. Recently, information resources were added to the list. An economic system is defined by how it manages and allocates these factors of production. In a planned economy, for example, the factors of production are government-owned and controlled. In a market economy, such as that of the United States, individual producers and consumers control production and allocation by creating combinations of supply and demand. In a mixed-market economy, which features characteristics of both a planned and a market economy, there is some government control of some factors of production—often through the nation’s major industries, such as transportation, communication, and information—alongside some private ownership. 302) Discuss the benefits and drawback of each type of economic system. In which economic system would you prefer to work, and why? Answer: market economy—is most efficient; work for own purposes; command economy-equality/one class, no poor 303) What is socialism? Answer: Socialism is a partially planned system in which the government owns and operates selected major industries. In such mixed market economies, the government may control banking, transportation or manufacturing industries, for example. Smaller businesses, such as clothing stores and restaurants, are privately owned. 304) "All the different economic systems of the world are moving toward a mixed economy with elements of a planned economy and of a market economy." Agree or disagree and support your position. Answer: • Communist countries are adopting deregulation and privatization. • Capitalist countries are continually developing legislation to regulate private enterprise. 305) 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. 306) 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 307) 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 308) 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 309) 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 310) Explain the role of private enterprise in a market economy. Include an explanation of the elements that comprise free enterprise. Answer: Market economies rely on a private enterprise system, one that allows individuals to pursue their own interests with minimal government restriction. Private enterprise requires four elements: private property rights, freedom of choice, profits, and competition. Private property rights allow the ownership of resources used to create wealth to be in the hands of individuals. Freedom of choice allows a number of freedoms in the market, including the freedom for a worker to sell his or her labor to any employer he or she chooses, the freedom to choose which products and brands to buy, and the freedom for producers to choose whom they hire and what they will produce. Profits are the incentives for entrepreneurs to assume the risks of business ownership. Competition occurs when businesses vie for the same resources and customers; competition is a driver of goods and services quality and price levels. All four of these elements are welcomed in a market economy. 311) 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 312) 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 313) 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. 314) 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.). 315) 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. 316) 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. 317) Compare and contrast the four degrees of competition in a private enterprise system. Answer: The four degrees of competition include perfect competition, monopolistic competition, oligopoly, and monopoly. In perfect competition, all firms in an industry are small but the number of firms in the industry is large. No single firm is powerful enough to influence price; therefore, price is determined by such market forces as supply and demand. The products in a perfectly competitive market are so similar that buyers view them as identical to those of other firms. In monopolistic competition, there are many buyers and sellers. Often, sellers attempt to differentiate their products and services from others through design, styling, advertising, or the use of brand names; this often gives sellers some control over prices. Monopolistically competitive businesses face few market entry/exit barriers. In an oligopoly, an industry has only a handful of sellers, who are generally quite large. Market entry is difficult because large capital outlays are needed for new start-ups. In an oligopoly, the actions of one firm tend to affect the actions of all firms; for example, when one firm changes price, all firms tend to change price rather quickly. A monopoly exists when an industry or market has only one producer that dominates the entire market. Though monopolies are illegal in the U.S., natural monopolies—such as utilities companies—are government-regulated; they are allowed to exist since one such company can often efficiently supply all needed goods or services. 318) Briefly trace 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 319) 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. Test Bank for Business Essentials Ronald J. Ebert, Ricky W. Griffin, Frederick A. Starke, George Dracopoulos 9780132479769, 9780134384733