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Profit is the amount of money a business earns above and beyond what it spends for salaries and other expenses.

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Question 1

Profit is the amount of money a business earns above and beyond what it spends for salaries and other expenses.

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True

False

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The correct answer is ‘True’.

Question 2

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Honda and Toyota have used insourcing for years to produce cars in the United States. Insourcing:

Select one:

  1. helps offset the number of jobs being outsourced.

Companies including Honda, Toyota, and Hyundai have set up design and production facilities in the United States, called insourcing. Insourcing creates many new jobs, and helps offset the number of jobs being outsourced. Because insourcing creates jobs, it actually helps the U.S. economy.

  1. increases the number of jobs being outsourced.
  2. damages the United States economy.
  3. causes jobs to be lost to overseas competitors.

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The correct answer is: helps offset the number of jobs being outsourced.

Question 3

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The term “standard of living” refers to the amount of debt people can incur on a given income.

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True

False

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The correct answer is ‘False’.

Question 4

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Health care availability, a clean environment, and good schools all contribute to a high quality of life.

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True

False

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The correct answer is ‘True’.

Question 5

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The most important difference between for-profit businesses and nonprofit organizations is that:

Select one:

  1. businesses do not benefit society.
  2. nonprofit organizations seek to make a profit for their owners and organizers.
  3. nonprofit organizations do not seek a profit for their owners or organizers.
  4. nonprofit organizations do not file tax returns.

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The correct answer is: nonprofit organizations do not seek a profit for their owners or organizers.

Question 6

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Starting a business always involves ______.

Select one:

  1. profit
  2. loss
  3. revenue
  4. d. risk

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The correct answer is: risk

Question 7

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Outsourcing has caused many complications in many states where jobs have been lost to overseas companies.

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True

False

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The correct answer is ‘True’.

Question 8

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Insourcing refers to the practice of global companies setting up design and production facilities in the United States.

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True

False

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The correct answer is ‘True’.

Question 9

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Maintaining a high quality of life requires the combined efforts of businesses, nonprofit organizations, and government agencies.

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True

False

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The correct answer is ‘True’.

Question 10

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Outsourcing means selling goods and services to people in other countries.

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True

False

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The correct answer is ‘False’.

Question 11

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Adam Smith believed that countries would prosper if businesspeople were free to start and run their own businesses. Businesspeople would make a profit by providing the goods, services and ideas that others in the economy wanted, and they would hire others to help increase those profits, leading to social and economics benefits for many. This idea was called the ________.

Select one:

  1. kinked demand theory
  2. invisible hand

Adam Smith believed that self-interest would lead profit-seeking entrepreneurs to produce goods and services wanted by consumers, and to hire others to grow their businesses. This would prove to be social and economic gain for the entrepreneur and for others.

  1. spending multiplier
  2. demand accelerator

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The correct answer is: invisible hand

Question 12

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Which of the following is a basic right under capitalism?

Select one:

  1. Freedom of collusion.
  2. Freedom from taxation.
  3. The right to vote.
  4. The right to compete.

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The correct answer is: The right to compete.

Question 13

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The quantity of a good or service that producers are willing to sell at different prices during a specific time period is known as the:

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  1. supply of that product or service.
  2. demand for that product or service.
  3. elasticity of that product or service.
  4. utility of that product or service.

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The correct answer is: supply of that product or service.

Question 14

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Economist Adam Smith’s important contribution was an inquiry as to why some nations are wealthy, while others remain poor.

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True

False

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The correct answer is ‘True’.

Question 15

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The main goal of resource development is to find ways to:

Select one:

  1. a. increase the amount of resources and create conditions that will make better use of those resources.

Resource development is the study of how to increase resources and to create the conditions that will make better use of those resources.

  1. allocate existing resources more efficiently among competing uses.
  2. find the right balance between policies that promote economic growth and policies designed to promote other goals such as a fair distribution of income.
  3. promote the central planning of resource utilization so that resources can be allocated to the uses that will benefit society the most.

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The correct answer is: increase the amount of resources and create conditions that will make better use of those resources.

Question 16

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Under capitalism:

Select one:

  1. most of the means of production and distribution are privately owned and operated for profit.
  2. the primary function of the government is to distribute wealth more evenly.
  3. utilities, health care, education, and other important services are operated by the government.
  4. markets operate to carry out the decisions made by central planners.

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The correct answer is: most of the means of production and distribution are privately owned and operated for profit.

Question 17

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Which of the following statements would a follower of Adam Smith most likely make?

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  1. The federal government should use its ability to spend and tax to guide the decisions of businesses and consumers.
  2. Market economies are flawed because they put too much emphasis on economic growth and not enough on environmental problems.
  3. Overpopulation is the main danger confronting modern economies.
  4. If people are given the freedom to follow their own interests, theoretically their efforts will lead to economic growth that benefits society as a whole.

Adam Smith believed that self-interest could motivate people to work hard and start businesses that created jobs and wealth that benefited society as a whole. This was a basic message of Smith’s famous invisible hand principle.

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The correct answer is: If people are given the freedom to follow their own interests, theoretically their efforts will lead to economic growth that benefits society as a whole.

Question 18

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The study of how society chooses to employ resources to produce goods and services and to distribute them for consumption among various competing groups and individuals is known as sociology.

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True

False 

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The correct answer is ‘False’.

Question 19

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The freedom of people to decide where they want to work and live and what they want to buy or sell are basic capitalist rights under:

Select one:

  1. eminent domain.
  2. freedom of expression.
  3. freedom of choice.
  4. freedom of competition.

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The correct answer is: freedom of choice.

Question 20

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How is it that people working in their own self-interest produce goods, services, and wealth for others?

Select one:

  1. By taking advantage of a vast supply of labor, people working in their own self-interest could hire others at very low wages.
  2. In order to earn money and produce goods that improve lives, self-directed gain would provide jobs, and subsequently wages for others.

The way people can become wealthy by their own efforts is to sell what they produce to others. As the business grows, labor is hired to produce more. This is the “invisible hand” concept that turns self-directed gain into social and economic benefits for all.

  1. The government pays entrepreneurs in the U.S. to produce goods, services, and wealth for others.
  2. Entrepreneurs tend to include themselves in a group of people who need charitable support. A portion of the entrepreneur’s profit (as required by law) goes to the charity of one’s choice to support the less fortunate.

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The correct answer is: In order to earn money and produce goods that improve lives, self-directed gain would provide jobs, and subsequently wages for others.

Question 21

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Which of the following would be a topic emphasized in a macroeconomics course?

Select one:

  1. Factors that determine how fast a nation’s economy is growing. 

Macroeconomics is concerned with the performance of a nation’s economy as a whole.

  1. How a firm decides the amount it will charge for one of its products.
  2. How a consumer chooses which goods to buy.
  3. The determinants of the wage rate for labor in the auto industry.

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The correct answer is: Factors that determine how fast a nation’s economy is growing.

Question 22

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A young couple living in rural west-central Missouri heard about the closing of a local grocery store. Although a small operation, it served a small community that would now have to travel another 20 miles to the nearest grocery store. With help from a local realtor and banker, the couple purchased the store, remodeled it, and re-opened it. As new storeowners, they had to carefully watch cash flow. As their customer base began to grow, they began offering hot food, and hired others to help with the operation. The economic benefit created in this story is called:

Select one:

  1. an economic intervention.
  2. an economic crisis control.
  3. the invisible hand.
  4. the deliberate process.

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The correct answer is: the invisible hand.

Question 23

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A(n) _____________ curve shows the relationship between the price of a good and the quantity of that good people are willing and able to buy in a given time period.

Select one:

  1. demand 
  2. supply
  3. utility
  4. equilibrium

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The correct answer is: demand

Question 24

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Sue is a gifted cook. She plans to open a restaurant in which she will be the head chef. Sue is willing to work long hours because she believes that her culinary talents and hard work will allow her business to succeed and earn her sizeable profits. Sue’s efforts are most consistent with the economic theory developed by:

Select one:

  1. Thomas Malthus.
  2. Karl Marx.
  3. Adam Smith.

In Smith’s view, if businesspeople are allowed to follow their own self-interest, they will be motivated to work hard and provide needed products that increase the wealth of society as a whole. AACSB: Knowledge Application

  1. David Ricardo.

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The correct answer is: Adam Smith.

Question 25

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A free market is one in which decisions about what to produce and in what quantities are made by:

Select one:

  1. the Fed
  2. the community
  3. the market
  4. the Congress

 

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