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What are the five factors of production Is one factor more important
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BUSINESS MANAGEMENT: SELF-EVALUATION QUESTIONS)

Answers to Self-Evaluation Questions: Business

Management

CHAPTER 1

QUESTIONS FOR REVIEW

1.

What are the five factors of production? Is one factor more important than the

others? If so, which one? Why?

The five factors of production are labor, capital, entrepreneurs, physical resources, and information

resources. All five factors are crucial. However, their relative importance depends on the product and the

industry. In the software development business, for example, skilled labor and information resources are

especially important, but the business couldn’t survive without capital and physical resources (computers),

and it wouldn’t have been launched without an entrepreneur.

2.

What are input and output markets? How are they related?

Input market: Market in which resources flow to firms from supplier households. Resources include labor,

capital (e.g. some households invest in mutual funds, which in turn purchase stock, which in turn provide

capital for companies), entrepreneurs, information (e.g. consumer buying patterns). Output market: Market

in which firms supply goods and services in response to demand from households.

3.

What is a demand curve? A supply curve? What is the term for the point at

which they intersect?

The curve that describes the range of possible prices that a buyer will pay for a range of

possible quantities demanded by a buyer is the

demand curve

. The curve that describes

the range of price that a seller can charge for a range of quantities supplied by the seller

is called the

supply curve

. The point where the demand curve and the supply curve

intersect is the point at which the intentions of buyers and sellers coincide. The price at

this point is known as the

equilibrium price

.

4.

Explain the differences between the four degrees of competition and give an

example of each. (Do not use the examples given in the text.)

Pure competition

: many competitors, easy entry into the industry, identical or

commodity goods, no control over price on the part of individual firms. Examples:

steel, grain, nails.

Monopolistic competition

: many competitors (but fewer than pure competition),

limited barriers to entry, similar goods and services, some control over price on the

part of individual firms. Examples: cosmetics, fast food.

Oligopoly

: few competitors, high barriers to entry, similar or different goods and

services, some control over price on the part of individual firms. Examples:

personal computers, movie studios.

Monopoly

: no competitors, entry controlled by government, no

directly

competing goods and services, considerable control over price. Examples: mail

delivery, national defense.

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BUSINESS MANAGEMENT: SELF-EVALUATION QUESTIONS)

QUESTIONS FOR ANALYSIS

5.

In recent years, many countries have moved from planned economies to market

economies. Why do you think this has occurred? Can you envision a situation that

would cause a resurgence of planned economies?

The failure of communism—both politically and economically—has led to an increase in the number of

mixed and market economies. Answers will vary as to what would cause a resurgence of planned

economies, but the factors might include a failure of capitalism to effectively distribute society’s resources,

or an unbearable level of crime and corruption.

6.

Cite an instance in which a surplus of a product led to decreased prices. Cite an

instance in which a shortage led to increased prices. What eventually happened in

each case? Why?

Answers will vary. However, the recent Pokemon craze provides a good example of a shortage followed by

a surplus. Three years ago, Pokemon trading cards were bid up to astronomical levels, often 10-20 times

the list price. This year, Pokemon cards and other products are selling for less than half price as stores

attempt to clear out their excess inventory. In fact, any clearance sale illustrates the concept of surplus

driving down prices. The classic example of a shortage driving up prices was the oil shortage of the 70s.

Another example is scalpers selling concert tickets at inflated prices. In all of these cases, the market

eventually determines a price at which all the supply can be sold.

7.

In your opinion, what industries in the United States should be regulated by the

government? Why?

Answers will vary, but students will most likely identify those industries which appear to act as monopolies,

such as the cable industry.

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Available solutions