Chapter 1 The U.S. Business Environment
1) The customs, values, and demographic characteristics of the society in which an
organization functions are the principal elements of the political-legal environment.
Answer: FALSE
Explanation: These are the main considerations of the sociocultural environment. The
political-legal environment reflects the relationship between business and government,
usually in the form of government regulation of business.
2) Physical resources include the data and other information used by businesses.
Answer: FALSE
Explanation: Physical resources are the tangible resources that organizations use to
conduct their business such as natural resources, raw materials, offices, storage and
production facilities, parts and supplies, computers and peripherals, and a variety of
other equipment.
3) Economic systems differ in how factors of production are used.
Answer: TRUE
Explanation: Different types of economic systems manage the factors of production
differently. In capitalism, for instance, they are managed by private individuals with
capital resources, while in a command economy the government manages the factors of
production.
,4) The point at which the supply curve and the demand curve intersect is the market
price.
Answer: TRUE
Explanation: When demand and supply curves are plotted on the same graph, the point
at which they intersect is the point at which demand matches supply, which determines
the market price.
5) Aggregate output refers to a company's annual production of goods or services.
Answer: FALSE
Explanation: Aggregate output is the total quantity of goods and services produced by
an economic system during a given period.
6) The United States government manages the collection and spending of its revenues
through monetary policy.
Answer: FALSE
Explanation: The United States government manages the collection and spending of its
revenues through fiscal policy.
7) The pursuit of profits is how a business differs from organizations such as most
universities, hospitals, and government agencies.
Answer: TRUE
Explanation: The pursuit of profits distinguishes a business from those organizations
such as most universities, hospitals, and government agencies—that run in much the
same way but that generally don't seek profits.
,8) The technological environment includes only electronics and telecommunications
used to perform business activities.
Answer: FALSE
Explanation: Technology includes human knowledge, work methods, physical
equipment, electronics and telecommunications, and various processing systems that
are used to perform business activities.
9) One of the four elements that are necessary for private enterprise to be carried out is
reasonable prices.
Answer: FALSE
Explanation: The four elements that must be present in private enterprise are private
property rights, freedom of choice, profits, and competition.
10) In typical modern oligopolies, the large capital investment necessary to enter the
market discourages new competitors.
Answer: TRUE
Explanation: A major factor discouraging new competitors in current oligopolistic
industries such as automobiles and large commercial aircraft is the huge capital
investment that would be needed to start a new company.
11) Natural monopolies exist partly because duplication of effort and resources would
be wasteful in some cases.
Answer: TRUE
Explanation: Many electric companies, for example, are natural monopolies because
they can supply all the power needed in a local area.
, 12) Economic indicators help to assess the performance of an economy.
Answer: TRUE
Explanation: Specifically, economic growth is measured via aggregate output, standard
of living, gross domestic product, and productivity; stability is reflected through levels of
inflation and unemployment.
13) The primary measure of growth in the business cycle is inflation.
Answer: FALSE
Explanation: The primary measure of growth in the business cycle is aggregate output.
14) Gross domestic product (GDP) refers to the total value of goods and services
produced by a national economy within a given period regardless of where the factors
of production are located.
Answer: FALSE
Explanation: GDP refers to the total value of all goods and services produced within a
given period by a national economy through domestic factors of production.
15) Inflation results in increased purchasing power for the consumer.
Answer: FALSE
Explanation: Inflation occurs when the amount of money injected into an economy
exceeds the increase in actual output. When this happens, people will have more money
to spend, but there will still be the same quantity of products available for them to buy.
As they compete to buy available products, prices go up.
1) The customs, values, and demographic characteristics of the society in which an
organization functions are the principal elements of the political-legal environment.
Answer: FALSE
Explanation: These are the main considerations of the sociocultural environment. The
political-legal environment reflects the relationship between business and government,
usually in the form of government regulation of business.
2) Physical resources include the data and other information used by businesses.
Answer: FALSE
Explanation: Physical resources are the tangible resources that organizations use to
conduct their business such as natural resources, raw materials, offices, storage and
production facilities, parts and supplies, computers and peripherals, and a variety of
other equipment.
3) Economic systems differ in how factors of production are used.
Answer: TRUE
Explanation: Different types of economic systems manage the factors of production
differently. In capitalism, for instance, they are managed by private individuals with
capital resources, while in a command economy the government manages the factors of
production.
,4) The point at which the supply curve and the demand curve intersect is the market
price.
Answer: TRUE
Explanation: When demand and supply curves are plotted on the same graph, the point
at which they intersect is the point at which demand matches supply, which determines
the market price.
5) Aggregate output refers to a company's annual production of goods or services.
Answer: FALSE
Explanation: Aggregate output is the total quantity of goods and services produced by
an economic system during a given period.
6) The United States government manages the collection and spending of its revenues
through monetary policy.
Answer: FALSE
Explanation: The United States government manages the collection and spending of its
revenues through fiscal policy.
7) The pursuit of profits is how a business differs from organizations such as most
universities, hospitals, and government agencies.
Answer: TRUE
Explanation: The pursuit of profits distinguishes a business from those organizations
such as most universities, hospitals, and government agencies—that run in much the
same way but that generally don't seek profits.
,8) The technological environment includes only electronics and telecommunications
used to perform business activities.
Answer: FALSE
Explanation: Technology includes human knowledge, work methods, physical
equipment, electronics and telecommunications, and various processing systems that
are used to perform business activities.
9) One of the four elements that are necessary for private enterprise to be carried out is
reasonable prices.
Answer: FALSE
Explanation: The four elements that must be present in private enterprise are private
property rights, freedom of choice, profits, and competition.
10) In typical modern oligopolies, the large capital investment necessary to enter the
market discourages new competitors.
Answer: TRUE
Explanation: A major factor discouraging new competitors in current oligopolistic
industries such as automobiles and large commercial aircraft is the huge capital
investment that would be needed to start a new company.
11) Natural monopolies exist partly because duplication of effort and resources would
be wasteful in some cases.
Answer: TRUE
Explanation: Many electric companies, for example, are natural monopolies because
they can supply all the power needed in a local area.
, 12) Economic indicators help to assess the performance of an economy.
Answer: TRUE
Explanation: Specifically, economic growth is measured via aggregate output, standard
of living, gross domestic product, and productivity; stability is reflected through levels of
inflation and unemployment.
13) The primary measure of growth in the business cycle is inflation.
Answer: FALSE
Explanation: The primary measure of growth in the business cycle is aggregate output.
14) Gross domestic product (GDP) refers to the total value of goods and services
produced by a national economy within a given period regardless of where the factors
of production are located.
Answer: FALSE
Explanation: GDP refers to the total value of all goods and services produced within a
given period by a national economy through domestic factors of production.
15) Inflation results in increased purchasing power for the consumer.
Answer: FALSE
Explanation: Inflation occurs when the amount of money injected into an economy
exceeds the increase in actual output. When this happens, people will have more money
to spend, but there will still be the same quantity of products available for them to buy.
As they compete to buy available products, prices go up.
