Module 3 Glossary

Term Definition

Advertising A form of non-price competition. Uses fears, emotions, social values, and rituals to appeal to potential buyers.

An Wang Chinese-American computer scientist who held more than 35 patents developments that were critical to advancing digital information technology that we depend on today.

Anderson, Tom He co-founded MySpace™ with Chris DeWolfe. He focused on the creative energy behind MySpace™--developing features and the look of the website.

Assets Valuable physical goods.

Capital goods The tools humans create to make the business more efficient— financial, and physical. For a bakery this would include the oven, delivery truck, mixing bowls, building, etc.

Capital Investment Investments meant to increase productivity. Example: training sessions or a new computer system.

Carver, George Washington

He reshaped the American South from a society heavily focused on cotton agriculture to one that grew diverse crops and utilized crop rotation and discovered many different uses for peanut butter.

Collusion Making agreements, often in secret. For example: two dominant firms work together to set prices in an oligopoly.

Corporation Type of business with stockholders and bondholders; easy to get more money and to expand; hard to start and stop. Most expensive of the four business types to start up.

DeWolfe, Chris He co-founded MySpace™ with Tom Anderson. Under his leadership, MySpace grew from nothing to a website boasting millions of users and millions of dollars in income.

Emotional - Advertisement Technique

Makes you sad or makes you laugh to try to get you to buy their product. Example: Adds for pet shelters or raising money for hungry children.

Entrepreneur A person who takes financial risk to try new business ideas.

Entrepreneurship Intelligence, imagination, and ability to take the risks that are needed to start up and maintain a business, a component of labor.

Factors of Production All the resources necessary to create a good or service - land, labor, capital, and entrepreneurship.

Fear - Advertisement Technique

Makes you scared something bad will happen if you do not purchase this product. Example: Use Ultra Max Deodorant! Don't be the stinky kid at the lunch table!

Financial capital The funds to pay for all other resources in a business.

Fixed Costs Costs that do not change from month to month. For example rent.

Horizontal Merger When a company buys it's competition. Example: If Publix bought Winn-Dixie

Jackley, Jessica She is the cofounder of kiva.org site. This business allows people to give microloans to people in developing nations to help them start or expand a business.

Labor The human work that goes into the business—physical and mental skills.

Land (factors of production)

All the natural physical resources necessary to your product or service – water, wood, oil, etc.

Law of Diminishing Returns

At some point, adding resources will result in less output per additional unit of product (it costs less to produce something up to a certain point). This is the reason for the oddly shaped curve.

Limited Liability Company

A type of corporation; no worry to have to use personal assets to pay-off debts; no problem of double taxation.

Marginal Means additional

Marginal Cost Is computed by finding the difference of previous two quantities for total cost (total cost of pair #2 - #1).

Marginal Revenue Is computed by finding the difference of the previous two quantities (total revenue of pair #2 - #1).

Market Types Monopoly, Oligopoly, Monopolistic Competition, Purely Competitive. Least competitive to most--monopoly, oligopoly, monopolistic competition, and pure competition.

Maximum profit Producing where marginal cost is closest to marginal revenue without exceeding it will maximize the firm’s profits.

Mergers Occurs when two businesses form into one. Ways firms attempt to gain more control of the product market. Can be horizontal or vertical.

Monopolistic Competition

Market structures where many businesses produce similar but not exactly the same products. This market has relatively few barriers to entry. Rather than work together to set the price, many producers compete actively against one another to gain consumers. Pros: Consumers have more choices. Cons: Difficult for firms to present their products as unique.

Monopoly

Market structure where a single business dominates a product or service. The least business competition. Monopolies are least beneficial for consumers. Most beneficial to owners. It has high barriers to entry, meaning it is difficult to become and stay the sole producer of a good or service. Pros: Firm has price-setting ability. Cons: Consumers have only one option.

Morse, Samuel F.B.

He patented the telegraph in 1849 and paved the way for long-distance communication, reshaping America literally in terms of westward expansion, railroad safety, and business efficiency.

Non-price Competition

The goal of non-price competition is to get buyers to notice and purchase your product over other similar products regardless of price.

Oligopoly

The market is dominated by few firms who can exert control over the market for their products, often working together to determine price and production quantity. Pros: Firms can work together to control market. Cons: Very difficult for non-dominant firms to grow and compete.

Partnership

Two or more owners. Shared responsibility and profits. Each partner is liable for all the business’s debts. Partners increase the resources available for the business and allow the opportunity for dividing the work.

Penney, James Cash He launched the first chain of department stores in the United States, commonly known as ―Penney’s.

Perfectly Elastic Demand

The demand curve is horizontal, meaning people will only demand a good at a specific price level.

Profit or Loss Total Revenue – Total Cost

Purely Competitive

Market structure where many businesses produce a standardized product. This market is easy to get into and get out of as a business owner. Most beneficial for consumers. Least beneficial for owners. Pros: Consumers have plenty of knowledge of similar products. Cons: Firms have little to no control of the market. Example: Oranges, peanuts, squash, etc.

Ritual - Advertisement Technique

Buy it because it is the way things should always be done. Example: Easter isn’t complete without a Coco-bunny Easter egg!

Rousseau, Margaret Hutchison

She designed the first commercial penicillin production plant. Her work made it possible to produce and distribute penicillin widely, expanding Americans' access to the antibiotic drug that can cure many formerly life-threatening bacterial illnesses.

Schultz, Howard His drive and marketing skills have made the café latte a daily habit for many Americans; it is because of him that Starbucks® has over 6,000 stores worldwide today.

Social Values - Advertisement Technique

Makes you want to do something because everyone else is. Example: All cool teens wear Chucko-bucko shoes - so should you!

Sole Proprietorship

Everything is controlled by the single owner. The owner makes all the profits and makes all the choices. However, the owner is also the single person responsible for debts and challenges. Everything about the company belongs to the sole proprietor. Least expensive and easiest of the four business types to start up.

Total Cost Fixed Cost + Variable Cost

Total Revenue Quantity x Price

Types of Businesses Limited liability corporation, sole proprietorship, partnership, corporation

Unanue, Joseph A.

His father founded Goya Foods®, distributor of Hispanic foods. Under Joseph’s direction Goya Foods® became the largest U.S. Hispanic-owned food distribution company in the United States.

Variable Costs Costs that change from month to month. For example the electric bill, water bills, and employee wages.

Vertical Merger When a business buys the products it sells to lower costs (ex: Lowe’s buying the companies that produce lumber, paint, and/or lawn mowers).

Walker, Madame C. J. One of the first self-made African-American millionaires who was an early entrepreneur in the beauty industry.

Economics Module 3 Practice Exam

1. You are starting a window washing business. Which of the following would be a needed land resource?

A. windows

B. soap

C. rags

D. water

2. Your friend wants to open a pet shop. A necessary capital resource is:

A. A place to open the shop

B. A veterinarian.

C. Water

D. Magazine advertisements

3. Your friend wants to open a beauty salon. A necessary entrepreneurial resource is

A. Hair dryers.

B. Hair cutting skills.

C. Nail polishing table.

D. Shampoo.

4. Choosing a new hotel’s location is an example of

A. Land.

B. Labor.

C. Capital.

D. Entrepreneurship.

5. A Florida Virtual School teacher-training workshop is an example of

A. Land.

B. Labor.

C. Capital.

D. Entrepreneurship.

6. Which resource has a fixed cost?

A. Rent

B. Electricity

C. Repairs

D. Water

7. What kind of business would best fit a person who likes to direct all the activities of his business?

A. Corporation.

B. Partnership.

C. Limited Liability Company.

D. Sole proprietorship.

8. What type of business organization would be the easiest to expand into multiple locations?

A. Limited liability Company.

B. Sole proprietorship.

C. Corporation.

D. Partnership

9. Two donut shop owners may choose to create a partnership, most likely, to be able to

A. Enable each partner to have time off.

B. Increase the owner’s work hours.

C. Sell stock shares in their donuts.

D. Hire more employees.

10. What is one reason a business owner might choose to create a limited liability company rather than a sole

proprietorship?

A. Concerned about keeping their costs of production at a minimum level.

B. They want an outside company to handle all the business’s finances.

C. They wish to reduce their financial responsibility without incorporation.

D. They expect to eventually grow their company to compete nationally.

11. What market structure has a perfectly elastic demand curve?

A. Monopolistic Competition

B. Oligopoly

C. Monopoly

D. Purely competitive

12. One reason that consumers do not benefit from monopolies are because of

A. Lack of choice.

B. Government control.

C. Tricky advertising.

D. Low quality.

13. What level of competition is best for business owners?

A. Oligopoly.

B. Monopoly.

C. Pure competition.

D. Monopolistic competition.

14. An example of a product with a purely competitive market is

A. A sweater.

B. A bike.

C. Hair gel.

D. An apple.

15. An example of a product with a monopolistically competitive market is

A. A tomato.

B. A plum.

C. Shirts.

D. A government service.

16. Collusion to set prices is most likely to occur in what market structure?

A. An oligopoly.

B. Monopolistically competitive.

C. Purely competitive.

D. A monopoly.

17. You’ll look better in a pair of “Sun-Sational” Sunglasses! This advertisement targets your

A. Emotions.

B. Social values.

C. Fears.

D. Rituals.

18. "It isn’t a good morning without Morning Sunshine Coffee Creamer!" This advertisement targets your

A. Fears.

B. Rituals.

C. Emotions.

D. Social values.

19. Advertisement is a form

A. Non-price competition

B. Collusion.

C. Diversification.

D. Specialization.

20. Non-price competition is most commonly used in what market structure?

A. Monopolistic competition.

B. Pure competition.

C. Monopoly.

D. Oligopoly.

21. If Jerome spends 4 hours playing sports, how many hours can

he efficiently work on schoolwork?

A. 0

B. 4

C. 6

D. 8

22. The Bakery needs about 2 tablespoons of vanilla for each

vanilla cake. If the shop produces 1 chocolate cake, how

many tablespoons of vanilla will it need for the most efficient

production of vanilla cakes?

A. 12

B. 16

C. 24

D. 30

23. Based on this chart of designer shoe production, what is the marginal cost, in dollars, to produce 6 designer

shoes?

A. 92

B. 102

C. 112

D. 122

24. How many designer shoes should the firm produce to earn the most profit?

A. 1

B. 3

C. 5

D. 8

25. If you graph this data, between which two quantities will marginal revenue intersect marginal cost?

A. 2 and 3

B. 3 and 4

C. 4 and 5

D. 5 and 6

Use the Chart Below for Questions 23 -25

26. What statements best describes the graph:

A. Curve 1 is marginal supply and Curve 2 is marginal

demand.

B. Curve 1 is marginal demand and Curve 2 is marginal

supply.

C. Curve 1 is marginal revenue and curve 2 is marginal cost.

D. Curve 1 is marginal cost and curve 2 is marginal revenue.

27. What point on the graph to the right represents the most profitable

price and quantity level?

A. A

B. B

C. C

D. D

28. What theory explains the hook shape in line 1 of the graph to the

right?

A. Law of Marginal Analysis.

B. Slope of Supply

C. Slope of Demand.

D. Law of Diminishing Marginal Returns.

29. Katie sells key lime pies for $12 each and earns $4 profit per pizza. She pays workers $12 per hour. What is the

minimum number of key lime pies a worker should produce per hour to be beneficial to Katie?

A. 2

B. 3

C. 4

D. 5

30. What curve the labor market image shows a shift in demand due

to an anticipation of an increase in business?

A. D1

B. D2

C. P1

D. Q1

31. Which of the following is the least profitable investment for a cable TV company earning $20 per contract?

A. Opening a new store location with $400 daily operating cost, generating 30 new cable TV contracts per

day

B. Redesigning web site at $100 daily operating cost, generating 10 new cable TV contracts per day

C. Creating television commercial at $25 daily operating cost, generating 10 new cable TV contracts per

day.

D. Offering free $10 gift for every new cable TV contract, generating 40 new contracts per day

Answers are on the next

page.

Answer Key

1 – D: Land refers to the factors of production that are natural resources – water, wood, oil, etc.

2 – A: Capital resources are manmade tools (including buildings) created to make the business more efficient— financial,

and physical.

3 – B: Entrepreneurial resources refer to the intelligence, imagination, and ability to take the risks that are needed to

start up and maintain a business, a component of labor.

4 – D: Entrepreneurship also refers to the action steps taken to create/design the business. The building itself would be

capital while CHOOSING the building location is entrepreneurship.

5 – C: Capital refers to the tools created to make the business more efficient. Training sessions make employees more

efficient, thus falling under capital.

6 – A: Rent is a fixed cost. It does not change from month to month.

7 – D: Sole Proprietorship: Everything is controlled by the single owner. The owner makes all the profits, choices, debts

and challenges.

8 – C: Corporation: A business type where it is easy to get more money and to expand to multiple locations, etc.

9 – A: Partnerships enjoy shared responsibilities and shared hours – may lead to reduced hours.

10 – C: LLCs are a type of corporation; there is no worry to have to use personal assets to pay-off debt.

11 – D: Purely competitive markets allow for consumers to have multiple options and firms have little to no control over

pricing.

12 – A: Monopolies are such that the firm can control the price of a good. Consumers have little to no choices.

Monopolies are least beneficial for consumers and the most beneficial for business owners.

13 – B: Monopolies are such that the firm can control the price of a good. Consumers have little to no choices.

Monopolies are least beneficial for consumers and the most beneficial for business owners.

14 – D: Purely Competitive market structure is when many businesses produce a standardized product.

15 – C: Monopolistically competitive markets are market structures where many businesses produce similar but not

exactly the same products.

16 – A: An oligopoly is a market dominated by few firms who can exert control over the market for their products, often

working together to determine price and production quantity.

17 – B: Advertisements targeting social values try to convince people to buy their product to fit in with society or

because “everybody is doing it”.

18 – B: Advertisements targeting rituals try to convince people to buy their product because it must happen the same

way every time.

19 – A: Advertisement is a form of non-price competition. The goal of non-price competition is to get buyers to notice

and purchase your product over other similar products regardless of price.

20 – A: Monopolistically competitive markets are market structures where many businesses produce similar but not

exactly the same products. Non-price competition is used to help distinguish their product over those of other firms.

21 – D: If you find the number of hours he spent on sports (4) and follow the line up to point “D” then to find the hours

spent on school you follow the line across from point “D” to get 8 hours of schoolwork.

22 – C: If they make 1 chocolate cake then they can efficiently create 12 vanilla cakes. They need 2 tablespoons of vanilla

for each cake so: 12 cakes x 2 tablespoons = 24 tablespoons of vanilla.

23 – 25 Formulas and completed Marginal Cost Analysis:

o Total Revenue = Quantity x Price

o Total Cost = Fixed Cost + Variable Cost

o Profit or Loss = Total Revenue – Total Cost

o Marginal Revenue is computed by finding the difference of the previous two quantities (total revenue of pair #2 - #1) o Marginal cost is computed by finding the difference of previous two quantities for total cost (total cost of pair #2 - #1)

23 – B

24 – C

25 – D

26 – D: Curve 1 is marginal cost and curve 2 is marginal revenue.

27 – C: The point where marginal revenue and marginal cost intersect shows the most profitable price and quantity

levels.

28 – D: Law of Diminishing Marginal Returns - less benefit is obtained from producing larger quantities. At this point,

marginal cost begins rising and the slope curves upward again reflecting rising costs.

29 – C: If Katie makes a profit of $4 per pie and pays each worker $12 and hour then each worker would need to make 4

pies per hour to make a profit. 4 pies an hour = $16 profit - $12 worker pay = $4 left for Katie. See chart:

Number of pies Profit ($4 per pie)

Employee pay

Leftover for Katie (profit – employee pay)

1 $4 $12 -$8

2 $8 $12 -$4

3 $12 $12 0

4 $16 $12 $4

30 – A: D1 shows an increase in demand for labor due to the anticipation of increased business.

31 – D: Calculate each option!!!

E. Opening a new store location with $400 daily operating cost, generating 30 new cable TV contracts per

day

(30 new contracts x $20 per new contract = $600 profit. $600 profit - $400 cost = $200)

F. Redesigning web site at $100 daily operating cost, generating 10 new cable TV contracts per day

(10 new contracts x $20 per new contract = $200 profit. $200 profit - $100 cost = $100)

G. Creating television commercial at $25 daily operating cost, generating 10 new cable TV contracts per

day.

(10 new contracts x $20 per new contract = $200 profit. $200 profit - $25 cost = $175)

H. Offering free $10 gift for every new cable TV contract, generating 40 new contracts per day.

($10 gift cards x 40 new contracts = $400 cost. 40 new contracts x $20 per new contract = $800

profit. $800 profit - $400 cost = $400)