The Faculty of Management Sciences
Introduction to Business (BUS102)
In-class learning activities
Chapter 2
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Fall 2022
Chapter 2: How Economics Affects Business: The Creation and
Distribution of Wealth
Learning goals
After you have read and studied this chapter, you should be able to:
1. Compare between free market economies and command economies.
2. Explain the nature of capitalism and how free markets work
3. Discuss the major differences between capitalism and communism
4. Explain the trend toward mixed economies
5. Explain the key economic indicators
Learning the Language
Listed below are important terms found in the chapter. Choose the correct term for each
definition and write it in the space provided.
Capitalism Free market economies Supply
Command economies Microeconomics Unemployment rate
Consumer price index Inflation Recession
Economics Demand
1. The quantity of products that manufacturers or owners are willing to sell at different prices at
a specific time is known as ________________________
2. The part of economic study that looks at the behavior of people and organizations in
particular markets is called _________________
3. The country is in a ________________ when GDP has declined for two consecutive quarters
4. The economic system known as ______________ is one in which all or most of the factors of
production and distribution are privately owned and operated for profit
5. ______________is the quantity of products that people are willing to buy at different prices
at a specific time
6. We define the _____________ as the number of citizens who are unemployed and tried to
find a job within a certain period of time
7. In economic systems considered ____Free Market Economies____ the market largely
determines what goods and services get produced, who gets them, and how the economy
grows.
8. The ____________ consists of monthly statistics that measure the pace of inflation or
deflation.
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9. A course in ________________ will teach us how society chooses to employ resources to
produce goods and services and to distribute them for consumption among various competing
groups and individuals.
10. Government economists keep a close watch on _______________ which is the general rise
in the price level of goods and services over time
11. One key economic indicator is _________________ the total value of goods and services in a
country in a given year.
12. Some countries operate under ______________, economic systems in which the government
largely decides what goods and services will be produced, who will get them, and how the
economy will grow.
13. _____________is a situation in which price increases are slowing.
14. A severe recession is known as a (n) _______________
15. ________________is an economic system based on the premise that some, if not most basic
businesses should be owned by the government so that profits can be evenly distributed
among the people
Multiple Choice – Circle the Best Answer
1. _________ is the study of how to increase resources and to create conditions that will
make better use of those resources
a. Economics
b. Macroeconomics
c. Microeconomics
d. Resource development
2. Adam Smith’s theory of the “invisible hand” means that
a. People should work in order to provide funding for charitable causes
b. Through working for their own prosperity, people will actually help the
economy grow and prosper
c. Governments should own major businesses so that resources are equally distributed
d. The government manages the economy through monitoring government taxes
and government spending
3. One of the problems with ____________ is that it naturally leads to unequal
distribution of wealth
a. Communism
b. Socialism
c. A command economy
d. Capitalism
4. Which is the following is not one of the four basic rights of a capitalist system?
a. The right to have a job
b. The right to private property
c. The right to compete
d. The right to freedom of choice
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5. Typically, the quantity of products the manufacturers are willing to supply will _____
when prices ________
a. Increase/increase
b. Decrease/increase
c. Stay the same/increase
d. Increase/stay the same
6. One holiday season a few years ago, there was a toy called Tickle My Elbow that was
all rage. Demand for this toy was so high, that stores couldn’t keep them on the shelf.
There was quite a shortage of Tickle My Elbow that year. When a shortage such as
this exists, what generally happens?
a. The price goes up
b. The price stays the same, and mothers everywhere fight for the last toy
c. The government intervenes, and forces the manufacturer to make more of the toy
d. When customers realize they can’t get the toy, they give up and the price goes
down
7. A (n) ___________ shows the amount people are willing to buy at the prices at which
sellers are willing to sell
a. Supply curve
b. Demand curve
c. Marginal revenue point
d. Equilibrium point
8. What’s going on here? As soon as Dewey Cheatum and Howe motors increases the
prices on their sport utility vehicle, then so does their only competitor, You Becha
Motors! Their prices are basically the same for similar vehicles, although their
advertising says their products are really very different. What kind of competition
exists here?
a. Perfect competition
b. Monopoly
c. Oligopoly
d. Monopolistic competition
9. Citizens of socialist nations can rely on the government to provide all of the following
except:
a. Education
b. Health care
c. Unemployment and retirement benefits
d. Money to start a business
10. What kind of a system exists when the government largely determines what goods
and services get produced, who gets them and how the economy grows
a. Capitalist economy
b. Socialist economy
c. Free market economy
d. Communist economy
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Assessment Check
Learning goal 1
How Economic conditions affect businesses
1. How is macroeconomics different from microeconomics?
2. How can businesses contribute to the economy through resource development?
3. What did Adam Smith believe was vital to the survival of any economy?