Snapshot Unit Review – Flashcards
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Communist command economies are most likely to experience which of the following problems: A) High income taxes B) Surplus of consumer goods C) Poor quality products D) Shortage of capital investment
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C) Poor quality products Most communist governments pay their workers based on the quantity, not the quality, of what the workers produce. As a result, workers focus on producing as many products as possible, even if that means that their products are poorly made and inferior in quality.
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The government controls the economic system and does not allow private ownership of the means ofproduction and distribution in a __________ economy. A) market B) traditional C) communist command D) socialist command
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C) communist command In a communist command economy, the government controls the economic system and does not allow private ownership of the means of production and distribution. The government does all of the economic planning and makes all economic decisions. A traditional economic system is one in which people produce only what they must have to exist, and all economic decisions are based on habit and tradition. A market economic system is one in which the means of production and distribution are owned and controlled by individuals and businesses. In a socialist command economy, the government owns part of the means of production, but there is private ownership of business as well.
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The most common medium of exchange in modern economic systems is A) credit B) money C) barter D) capital
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B) money The most common medium of exchange in most parts of the world is money. Capital is all the assets of a business. Credit is the ability to obtain products or money based on a promise to pay later. Barter is trading or exchanging one item for another. It is used in underdeveloped nations and does not involve money.
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During the Industrial Revolution, the factory system caused A) raw material costs to increase. B) an increased focus on farming. C) a decrease in production levels. D) production costs to decrease.
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D) production costs to decrease. During the Industrial Revolution, the mass production of standardized goods (usually in factories) became common. The result: production in larger volumes of more standardized products in less time and less expensively than would be possible in multiple locations. As a result, production costs decreased, production levels increased, the nation's focus shifted from farming to industry, and raw materials were purchased in bulk at lower costs.
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The way in which an economic system answers the basic economic questions depends upon the country's A) supply. B) government. C) demand. D) resources.
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B) government. Each economic system must operate within the laws of the country. In some countries, government not only runs the country but also makes economic decisions. In other countries, government runs the country and allows the people to make their own economic decisions. Supply, demand, and resources aid in determining the answers to economic questions but only within the laws of the country.
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In a socialist economic system, who tends to answer the question of how products will be produced? A) Business and individuals B) Government and individuals C) Government and businesses D) Tradition and government
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C) Government and businesses In a socialist economy, government decides how certain basic products are produced. Other production decisions are made by private businesses. Individuals and tradition tend not to play a large role in determining how to produce products in a socialist economic system.
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Which of the following statements best describes the way that the U.S. economic system functions: A) Individuals are the primary decision makers, while businesses are the regulators. B) The government is the primary decision maker, and occasionally it becomes the regulator. C) Individuals and businesses are the primary decision makers, and there is no regulator. D) Individuals and businesses are the primary decision makers, while the government is the regulator.
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D) Individuals and businesses are the primary decision makers, while the government is the regulator. The private enterprise system in the United States is not a pure private enterprise system because there is limited government control. The government's primary purpose is to protect its citizens. However, the role of government has expanded as life has become more complex. Government acts as a referee and regulates the system, not businesses.
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Which of the following types of economic systems adopts the fewest new ideas or improvements A) Command B) Socialist command C) Traditional D) Market
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C) Traditional One of the characteristics of a traditional economic system is that decisions in this kind of system are based on custom, traditions, and beliefs. People live at a subsistence level, and very few new ideas or improvements are adopted. Only a few countries use the traditional system. All of the other alternatives are economic systems that are more progressive.
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Individuals and businesses own the means of production and distribution with limited government regulation in a __________ economy. A) market B) socialist C) communist D) traditional
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A) market A market economic system is one in which individuals and businesses own and control the means of production and distribution with limited government regulation. An economic system in which people produce only what they must have to exist and all economic decisions are based on habit and tradition is a traditional economy. In a socialist economy, the government owns part of the means of production, but there is some private ownership of business. In a communist economy, the government owns and controls all of the means of production and distribution.
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In the late 1800s, market domination by a small number of extremely large, powerful companies led to the A) specialization of labor. B) development of labor unions. C) passage of antitrust laws. D) popularity of laissez-faire.
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C) passage of antitrust laws. In the late 1800s, the nation followed a laissez-faire system of governance. This means that the government did not interfere with the economy. As a result, a small number of extremely large, powerful companies took over the market—controlling product prices and preventing other businesses from competing with them. Consumers and smaller businesses protested against the laissez-faire system that allowed these monopolies to develop. In response, the government passed antitrust laws to prevent people and companies from taking any actions to restrain free trade and competition in the marketplace.
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Government owns the basic means of production, but there is some private ownership of businesses sunder A) entrepreneurship. B) capitalism. C) communism. D) socialism.
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D) socialism. Socialism is an economy in which the government owns part of the means of production, but there is some private ownership of business as well. Communism is a command economic system in which the government is in control of the economic system, and there is no private ownership of the means of production and distribution. Capitalism is a free market economic system in which individuals and groups, rather than government, own the means of production and distribution. An entrepreneur is a person who owns and operates his/her own business.
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Which of the following is a benefit of the freedom to own private property: A) It encourages businesses to be cooperative. B) It helps to limit our economic choices. C) It encourages people to save and invest. D) It allows people to do anything they want to do.
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C) It encourages people to save and invest. When people are free to own things that they value, they tend to save and to invest. Individuals and businesses benefit because they are free to decide how to use their private property and when and how to sell it. Society benefits because people pay taxes on their savings and investment income, and this provides the money needed to pay for public services, such as schools and highway construction. Our own choices limit us. If we choose to buy one thing, we may not have enough money to buy another. Freedom to own private property does not ensure cooperation among businesses.
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In a traditional economic system, the question of what to produce is answered by producing A) what consumers need and want. B) what has always been produced. C) what the government chooses. D) what supply dictates.
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B) what has always been produced. A traditional economic system is one in which people produce only what they must have in order to exist. All economic decisions are based on habit and tradition, and the people produce the same things that were produced by their ancestors. Producing what the government decides or dictates answers the question for command economic systems. Producing what consumers need and want answers the question in a market economic system. Both supply and demand affect what is produced.
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What type of economic system is used in the United States? A) Socialist command B) Market C) Traditional D) Communist command
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B) Market The United States has a market economy, a system in which the means of production and distribution are owned and controlled by individuals and businesses. An economic system in which government owns the basic means of production, but there is private ownership of businesses as well, is a socialist command system. Examples of countries with this type of system are Great Britain and Sweden.
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The basic role of the United States government is to A) maintain control of prices. B) limit business startups. C) increase production. D) protect US citizens.
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D) protect US citizens. In the United States, the government should step in only to protect citizens, and it should let them pursue their own goals. As life has become more complex, the role of government has gradually expanded. Government has been asked to solve such problems as inflation, pollution, and unemployment. It does not, however, try to increase production, limit business startups, or maintain control of prices except in what are considered emergency situations.
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Which of the following is a potential problem in market economies: A) Total government control B) Production quotas for businesses C) No competition D) Financial loss
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D) Financial loss In market economies, people are free to go into business or to make any legal product. They also run the risk of financial loss if the company or product is not a success.
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Who answers the basic economic questions in a private enterprise economic system? A) Influential citizens B) Government agencies C) Businesses and individuals D) Entrepreneurs and producers
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C) Businesses and individuals In a private enterprise system, businesses and individuals own or control the economic resources. All citizens play a role in determining what will be produced, how it will be produced, and who will consume it. These decisions are not controlled by government agencies, influential citizens, entrepreneurs, or producers.
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One of the freedoms provided to individuals by the private enterprise system is the freedom to choose A) how much they will be paid. B) which taxes they will pay. C) which laws they will obey. D) where they will work.
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D) where they will work. U.S. citizens are free to choose the kind of work they would like to do to make a living. They are limited by their own interests, abilities, and training. They are not, however, free to choose which taxes to pay, which laws to obey, or how much they will be paid by their employers.
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For which of the following do workers compete in a private enterprise system: A) Benefits B) Skills C) Profits D) Jobs
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D) Jobs In a private enterprise system, competition is an important economic freedom for workers. They compete with each other for such things as jobs, promotions, and commissions. Workers can use their skills to compete. Businesses compete with each other for customers and profits. Benefits include health and disability insurance, sick leave, paid vacation time, etc., provided to workers by businesses.
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Why are entrepreneurs important in a private enterprise system? A) They encourage the development of new products. B) They use resources efficiently. C) They get rid of competition. D) They are responsible for deceptive advertising.
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A) They encourage the development of new products. Entrepreneurs are people who take all the risks and receive the profits from starting their own businesses. Because of the entrepreneurs, the private enterprise system changes, has more new products, and uses resources more efficiently. Government keeps businesses from using deceptive advertising and from limiting competition.
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Alex owns a guitar, several books, and a telescope. Alex's possessions are examples of A) equal distribution. B) private property. C) capital goods. D) economic resources.
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B) private property. Private property is anything of value that people own. It can be business or personal property. Other examples of private property include land, jewelry, buildings, and clothing. Economic resources are the human and natural resources and capital goods used to produce goods and services. Capital goods are manufactured or constructed items that are used to produce goods and services. Equal distribution of goods and services is not possible, even in economic systems set up for that purpose.
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What action do consumers take that determines what will be produced in a market economy? A) Produce products B) Apply for jobs C) Cast economic votes D) Comparison shop
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C) Cast economic votes An economic vote is the term used to describe consumer approval of products expressed by the purchase of those products. Consumers decide what will be produced by casting economic votes through their purchases in the marketplace. Consumers are purchasers rather than producers of products. Applying for jobs and comparison shopping would not determine what businesses will produce.
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The amount of money spent for raw materials and products sold is called A) net profit. B) cost of goods. C) operating expenses. D) gross profit.
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B) cost of goods. The amount of money paid for raw materials and products sold is cost of goods. Operating expenses are all of the expenses involved in running a business. Gross profit and net profit are received, not paid.
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Best Buy and Wendy's are examples of A) direct competitors. B) indirect competitors. C) dissimilar firms. D) natural monopolies.
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B) indirect competitors. Indirect competition occurs when businesses compete for scarce customer dollars that might be spent on goods or services different from their own.
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Net profit is A) money left over after all expenses are deducted. B) gross profit plus operating expenses. C) the cost of materials to make goods to be sold. D) the difference between what is spent and what is made.
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A) money left over after all expenses are deducted. Net profit is the money left after the cost-of-goods expense and the operating expense are each subtracted from the total income.
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When manufacturers give back part of the purchase price of an item to the customer, they are engaging in A) offering rebates. B) price fixing. C) nonprice competition. D) clearance sales.
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A) offering rebates. Rebates are a type of price competition because they do, in fact, lower the price of a product. Nonprice competition involves businesses' competing on factors other than price, such as customer services, pleasant facilities, and trained personnel. Clearance sales are promotion events in which a business discounts product prices in order to move goods and decrease inventory. Giving back part of the purchase price to customers is not price fixing.
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The auto industry, pharmaceuticals, and oil industry are examples of A) perfect competition. B) oligopolies. C) monopolistic competition. D) market structures.
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B) oligopolies. The automobile industry, the pharmaceutical industry, and the oil industry are all examples of oligopolies. Each contains a limited number of players who have a lot of control over what is produced and how much the consumer must pay for the products.
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Gross profit shows business owners the difference between what they've A) spent and received. B) received and billed. C) estimated and invoiced. D) paid and risked.
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A) spent and received. Gross profit shows business owners the difference between what they've spent and received. It does not show the difference between what they've paid and risked, received and billed, or estimated and invoiced.
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Offering high quality, large assortments, and free shipping are examples of A) price fixing. B) price competition. C) nonprice competition. D) rebates.
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C) nonprice competition. These are all examples of a business's attempting to compete on a basis other than price. Rebates are part of price competition, while price fixing is an illegal practice that results in high prices. Price competition is a type of rivalry between or among businesses that focuses on the use of price to attract scarce customer dollars.
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Which of the following is NOT a way to decrease expenses? A) Eliminate free services B) Avoid extra payroll expenses C) Get best rates on advertising D) Decrease worker efficiency
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D) Decrease worker efficiency When employees are working faster or better, they are increasing their efficiency. They may increase their value to the firm in the process—and perhaps their wages and benefits, too. But their efficiency is directly tied to how fast and how well they do their work.
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Each purchase strengthens the economy by encouraging ________. A) competition B) investment C) expansion D) trade
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D) trade Each purchase strengthens the economy by encouraging trade. Purchases do not necessarily encourage expansion, investment, or competition. Expansion is an action an individual firm might take to increase sales—or purchases. Either individuals or firms may invest at any time, whether or not customers buy products. As the struggle to lead a market, competition can encourage customers to buy products.
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Which activities are likely to increase a firm's profit? A) Increasing sales and decreasing expenses B) Decreasing sales and increasing expenses C) Increasing supplies and decreasing production D) Decreasing supplies and increasing production
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A) Increasing sales and decreasing expenses Increasing sales and decreasing expenses are two activities likely to increase a firm's profit. Supplies are materials needed to produce a product—not an activity for increasing profit. Production is the process of producing the product. Increasing production may help to increase profit, but only if sales of the product increase.
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Having well-planned buildings and providing effective employee training are ways that a business can ___________ business risks. A) prevent or control B) transfer C) insure against D) retain
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A) prevent or control Both of the examples (having well-planned buildings and providing effective employee training) involve planning that can help to prevent or control risk.
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When a business keeps a risk because management is unaware of it, the business is _____________ the risk. A) retaining B) avoiding C) preventing or controlling D) transferring
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A) retaining Sometimes management is unaware of a risk and keeps the risk—doing nothing about it. Since management is unaware of the risk, it is not avoiding, preventing/controlling, or transferring the risk.
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Which of the following is one of the main principles of the private enterprise system? A) Price fixing B) Competition C) Monopolies D) Exclusive agreements
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B) Competition Competition is the rivalry among two or more businesses to attract scarce customer dollars. Fair competition is essential if the private enterprise system is to work as it was intended. Monopolies are allowed to exist in a private enterprise economy only if they are regulated. Exclusive agreements and price fixing are illegal.
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What type of market structure is most commonly found in a private enterprise economy, like the one here in the US? A) Monopolistic competition B) Oligopoly C) Perfect competition D) Regulated monopoly
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A) Monopolistic competition This is a type of market structure in which a lot of businesses sell similar products that have only a few differences. It is most commonly found in a private enterprise economy.
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Which of the factors that affect profit are usually able to be controlled? A) Expenses and pricing B) Income and expenses C) Pricing and billing D) Expenses and billing
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A) Expenses and pricing Of the factors that affect profit, expenses and pricing are usually able to be controlled. Income is not a factor that affects profit, although it is required for calculating profit. Billing is not a factor that affects profit.
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Management decides to hold its annual meeting in one US city rather than another because of crime in that city. This is an example of ______ the risk. A) retaining B) avoiding C) preventing or controlling D) transferring
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B) avoiding The business is avoiding the dangers of criminal activity by eliminating the risk.
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What is the study of how to meet unlimited, competing wants with limited resources referred to as? A) consumption B) distribution C) scarcity D) economics
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D) economics
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One way that competition helps to build a prosperous society is by A) creating new jobs. B) increasing the money supply. C) creating government legislation. D) replacing small businesses with large ones.
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A) creating new jobs. Competition helps to create new businesses which make jobs available to a lot of people. Every year, more and more businesses open and employ thousands of people. This leads to a prosperous society in which people have jobs, earn an income, and spend money for more goods and services.
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The act of reducing or removing risks by shifting the risk factor to another person or company is referred to as ___________ risk. A) controlling B) retaining C) transferring D) avoiding
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C) transferring Three ways of transferring risk are through contractual agreements, business organization, and insurance.
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Which of the following are qualities of monopolies? A) Low production and much competition B) High prices and low production C) High prices and much competition D) Low prices and little competition
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B) High prices and low production Monopolies are usually not allowed to exist in a private enterprise system because they can cause many problems, including high prices and low production. When a monopoly exists, there is no competition.
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When businesses use what they charge for their products to attract customers, they are using _________ competition. A) price B) unethical C) sales D) nonprice
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A) price Businesses often reduce their prices in order to attract consumers. This is not unethical as long as the businesses do not attempt to restrict competition unfairly. Nonprice competition occurs when businesses compete on a basis other than price to attract scarce customer dollars. Sales are an example of price competition.
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A hurricane that destroys a business is an example of a(n) ______________ risk. A) hazard B) strategic C) operational D) financial
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A) hazard A hurricane is a natural disaster, which is one kind of hazard risk. Other natural disasters include tornadoes, floods, and blizzards.
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A garden store customer tripped over a plant, fell, and sued the store for damages. This is an example of a(n) _____________ risk. A) hazard B) strategic C) financial D) operational
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A) hazard Hazard risks are potential events or situations that can cause injury or harm to people, property, or the environment. In this case, the plant caused a customer to trip, which led to an injury and a lawsuit.
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Most businesses put their greatest competitive efforts into competing A) with indirect competitors. B) with direct competitors. C) nationally. D) locally.
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B) with direct competitors. Direct competition is competition between or among businesses that offer similar types of goods or services. They are the easiest for a firm to identify. Whether a business puts most of its efforts into competing locally or nationally would depend on the particular business.
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Money spent to run a business is called A) cost of goods. B) operating expense. C) net profit. D) gross profit.
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B) operating expense. An operating expense is the money spent to run a business.
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When a rival's product on the market reduces sales of your company's product, your company is experiencing strategic risk caused by A) changing customer needs. B) obsolescence. C) competition. D) regulatory and political issues.
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C) competition. Competition can be a strategic risk to a business. The company in this situation may be forced to lower its prices or to change its product.
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When employees are working faster or better, they are increasing their A) value. B) wages. C) benefits. D) efficiency.
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D) efficiency. When employees are working faster or better, they are increasing their efficiency. They may increase their value to the firm in the process—and perhaps their wages and benefits, too. But their efficiency is directly tied to how fast and how well they do their work.
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If expenses are greater than income, there's no A) sales B) risk C) guarantee D) reward
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D) reward If expenses are greater than income, there's no reward because profit is what's left over after subtracting expenses from income. Sales, risks, and guarantees are not directly affected by expenses that are greater than income.
