Module 3 Practice Exam and Glossary – V14
Term
Definition
Advertising
A form of non-price competition. Uses fears, emotions, social values, and rituals to ap
to potential buyers.
An Wang
Chinese-American computer scientist who held more than 35 patents developments t
were critical to advancing digital information technology that we depend on today.
Anderson, Tom
Assets
He co-founded MySpace™ with Chris DeWolfe. He focused on the creative energy beh
MySpace™--developing features and the look of the website.
Valuable physical goods.
Capital goods
The tools humans create to make the business more efficient— financial, and physica
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 comp
system.
Collusion
He reshaped the American South from a society heavily focused on cotton agriculture
one that grew diverse crops and utilized crop rotation and discovered many different
for peanut butter.
Making agreements, often in secret. For example: two dominant firms work together
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 f
nothing to a website boasting millions of users and millions of dollars in income.
Emotional - Advertisement
Technique
Entrepreneur
Makes you sad or makes you laugh to try to get you to buy their product. Example: Ad
pet shelters or raising money for hungry children.
A person who takes financial risk to try new business ideas.
Carver, George Washington
Factors of Production
Intelligence, imagination, and ability to take the risks that are needed to start up and
maintain a business, a component of labor.
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. Exa
Use Ultra Max Deodorant! Don't be the stinky kid at the lunch table!
Financial capital
Fixed Costs
Horizontal Merger
The funds to pay for all other resources in a business.
Costs that do not change from month to month. For example rent.
When a company buys it's competition. Example: If Publix bought Winn-Dixie
Jackley, Jessica
Labor
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.
The human work that goes into the business—physical and mental skills.
Entrepreneurship
Land (factors of production)
All the natural physical resources necessary to your product or service – water, wood,
etc.
Law of Diminishing Returns
At some point, adding resources will result in less output per additional unit of produc
costs less to produce something up to a certain point). This is the reason for the oddly
shaped curve.
Limited Liability Company
Marginal
A type of corporation; no worry to have to use personal assets to pay-off debts; no pr
of double taxation.
Means additional
Marginal Cost
Is computed by finding the difference of previous two quantities for total cost (total c
pair #2 - #1).
Is computed by finding the difference of the previous two quantities (total revenue of
Marginal Revenue
Market Types
#2 - #1).
Monopoly, Oligopoly, Monopolistic Competition, Purely Competitive. Least competiti
most--monopoly, oligopoly, monopolistic competition, and pure competition.
Mergers
Producing where marginal cost is closest to marginal revenue without exceeding it wi
maximize the firm’s profits.
Occurs when two businesses form into one. Ways firms attempt to gain more control
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
the price, many producers compete actively against one another to gain consumers. P
Consumers have more choices. Cons: Difficult for firms to present their products as un
Monopoly
Market structure where a single business dominates a product or service. The least
business competition. Monopolies are least beneficial for consumers. Most beneficial
owners. It has high barriers to entry, meaning it is difficult to become and stay the sol
producer of a good or service. Pros: Firm has price-setting ability. Cons: Consumers ha
only one option.
Morse, Samuel F.B.
He patented the telegraph in 1849 and paved the way for long-distance communicati
reshaping America literally in terms of westward expansion, railroad safety, and busin
efficiency.
Non-price Competition
The goal of non-price competition is to get buyers to notice and purchase your produ
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: F
can work together to control market. Cons: Very difficult for non-dominant firms to g
and compete.
Partnership
Two or more owners. Shared responsibility and profits. Each partner is liable for all th
business’s debts. Partners increase the resources available for the business and allow
opportunity for dividing the work.
Maximum profit
Penney, James Cash
Perfectly Elastic Demand
He launched the first chain of department stores in the United States, commonly know
―Penney’s.
The demand curve is horizontal, meaning people will only demand a good at a specific
level.
Profit or Loss
Total Revenue – Total Cost
Purely Competitive
Market structure where many businesses produce a standardized product. This marke
easy to get into and get out of as a business owner. Most beneficial for consumers. Le
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, squas
Ritual - Advertisement
Technique
Buy it because it is the way things should always be done. Example: Easter isn’t comp
without a Coco-bunny Easter egg!
Rousseau, Margaret Hutchison
She designed the first commercial penicillin production plant. Her work made it possib
produce and distribute penicillin widely, expanding Americans' access to the antibioti
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 America
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 w
Chucko-bucko shoes - so should you!
Sole Proprietorship
Total Cost
Total Revenue
Types of Businesses
Everything is controlled by the single owner. The owner makes all the profits and mak
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 expen
and easiest of the four business types to start up.
Fixed Cost + Variable Cost
Quantity x Price
Limited liability corporation, sole proprietorship, partnership, corporation
Unanue, Joseph A.
His father founded Goya Foods®, distributor of Hispanic foods. Under Joseph’s directi
Goya Foods® became the largest U.S. Hispanic-owned food distribution company in th
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 comp
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 entreprene
the beauty industry.
Module 3 Practice Exam V14
1. What do J. C. Penney and Madame C. J. Walker have in common?
A: They launched major department stores.
B: They were African American entrepreneurs.
C: They were early entrepreneurs in their industries.
D: They were women entrepreneurs.
2. Which of the following are shared by a typical corporation and a limited liability corporation? A.
Easy to start and stop and have shared debt liability
B. Are incorporated and have limited liability
C. Have shareholders and are easy to start and stop
D. Protect personal assets and can sell stock to the public
3. A benefit of a purely competitive market is
A. equal product information for buyers and sellers
B. government sets the product prices to be competitive C.
sellers may set their own prices
D. sellers use advertising to attract buyers
4. "Show your sweetheart how much you love her on Valentine's Day. We're having a sale on all
chocolate!" This advertisement targets your
A. fears
B. senses
C. emotions
D. social values
5.
The slope of curve 1 first decreases then increases because of the Law of
A. Marginal Analysis
B. the Slope of Supply
C. the Slope of Demand
D. Diminishing Marginal Returns
6.
This is Pete's PPC curve for staying in touch with friends via phone vs. his weblog during one
week. Which of the following is a true statement?
A. Pete uses weblog entries more than phone calls.
B. Pete calls friends more often than he writes weblog entries.
C. When Pete makes six phone calls he has time for four weblog entries.
D. When Pete writes one weblog entry he has time for six phone calls.
7.
A country needs to decide if it will defend itself ("guns") or feed its population ("butter"). Look
at the graph. Construct a plan to help the country attain Point X.
A.
B.
C.
D.
Add more gunmakers to the labor force and decrease the number of butter makers
Streamline production of butter and begin assembly-line manufacturing of guns
Decrease the quality of guns and increase the demand for butter
Increase the quality of the butter and create more demand for guns
8.
Use this image to answer the following question. The ice cream shop needs five pounds of
strawberries for every gallon of strawberry ice cream. The shop chose to produce four gallons of
chocolate ice cream. How many pounds of strawberries should the shop purchase?
A. 24
B. 30
C. 40
D. 60
9. Which of the following is the least profitable investment for a cell phone company earning $10
per plan contract?
A. Offering free $10 gift for every new plan, generating 40 new plans per day
B. Opening a new store location with $200 daily operating cost, generating 30 new plans per
day
C. Redesigning website at $50 daily operating cost, generating 10 new plans per day
D. Creating television commercial at $25 daily operating cost, generating 15 new plans per day
10. Which of the following is an example of capital in a pizza shop?
A. Dough
B. Pizza Oven
C. Workers
D. Tomatoes
11. Your friends opened a restaurant. A necessary labor resource would be?
A. Servers
B. Building
C. Oven
D. Tables and chairs
12. You would like to direct all activities in a business that you start. What would be the best option
for you?
A. Partnership
B. Limited Liability Company
C. Sole Proprietorship
D. Corporation
13. Differentiate between land resources and labor resources that a business would need.
A. Land resources include items that have to come from land such as oil, gold, water, and
paper, but labor resources include human beings in their specific employee role.
B. Land resources will include items that can be used on land such as trucks, trains, and
tractors, but labor resources will include the actual working on the land.
C. Land resources will include all items that will take up land space such as buildings, parking
lots, and barns yet labor resources will include the actual working on the land.
D. Land resources will include items that can be made from land or are taking up land such as
trees, buildings, and stores, but labor resources include human beings in their specific
employee role.
14. A business owner has several competitors in his area. She is not willing to change the price on
her product. She plans to strengthen her competition with them via other routes. Predict one
way in which she will do this:
A. She will lower her price.
B. She will raise her price.
C. She will close her store.
D. She will purchase additional advertising.
15. Tom has been renting a booth at the Flea market for 10 years. They are raising the rental fee to
$10 per hour. He sells pirate coconuts for $5 each. How many pirate coconuts does he need to
sell in one hour to earn a profit?
A.
B.
C.
D.
2
3
4
5
16. You are starting a Tree trimming business. Which of the following would be a needed land
resource?
A. Oil
B. Chainsaw
C. ladder
D. trees
17. Why does Pure competition benefit consumers over producer?
A. Companies control price through demand.
B. Competition is driven by price.
C. Supply influences production more when competition is less.
D. With a small amount of producers they have control of the prices.
18.
Use this image showing the production possibilities curve for hours of gamming and FLVS classes
to answer the following question. Andy needs about 4 hours per week for each FLVS class. If he
decides to do to 8 hours of gamming each week, how many hours will he spend on his classes if
working efficiently?
A. 6
B. 16
C. 4
D. 20
19. You and your best friend open a dog walking business together. Identify how your business will
be classified and the capital you would need for your business
a. Sole proprietor and dogs
b. Sole proprietor and water
c. Partnership and employees
d. Partnership and a dog leach
20. Your dog walking business has become a great success. You and your best friend want to
maintain control of the business, but protect your personal assets/property. Which of the
following would best suit your growth
a. Limited Liability Company
b. Monopoly
c. Corporation
d. Sole Proprietor
21. You and your best friend decide to hire someone to help with the dog walking business. You pay
your new employee $8 an hour and you currently charge $10 for 1 walk a day. Which of the
following would be the most profitable for your business?
a. New employee will work for 2 hours a day and walk 2 dogs
b. New employee will work for 3 hours a day and walk 4 dogs
c. New employee will work for 5 hours a day and walk 6 dogs
d. New employee will work for 7 hours a day and walk 7 dogs
22. Gene decides to open a restaurant, and has plenty of money to put into his venture but has
never actually worked in a restaurant in any capacity. Which would be the most ideal way to
organize his business based on this information?
a) Corporation or sole proprietorship
b) Partnership or limited liability company
c) Limited liability or corporation
d) Sole proprietorship or partnership
23. Use the production possibilities diagram of days spent doing homework and days spent playing
video games to answer the following question. Tina has 3 hours of spare time each day. How
many hours will Tina have for her homework if she spends 6 days playing video games?
a) 1
b) 3
c) 4
d) 10
24. If Bob wants to open a Burger restaurant, which of the following would be necessary capital
resources?
a) Restaurant manager, cash register, water
b) Servers, advertisements, plates
c) A location for the shop, burgers, plates
d) Silverware, cooks, coupons in a local flyer
25. Kalli’s new jewelry store has really started to increase in sales giving Kalli enough money that
she can now start looking at expanding her business to further her success . Keeping in mind
that Kalli is using the business structure of a sole proprietorship, which answer below would be
the best one for her to consider?
A: Offering stock options to potential investors
B: Hiring additional staff
C: Expanding her products to include more sizes and designs
D: Moving the business to a larger location
26. Lucas has been seeing a steady increase in sales with his coffee shop. He is considering some
different types of capital investments that should continue to increase his profit line and
hopefully allow him to open another store. Which investment would be the most benefital to
Lucas’ long term business plan?
A: Hiring more employees
B: Adding additional coffee machines
C: Allowing stock options
D: Increasing his advertising
27. Shirley Marks, a new clothing store in the mall, has just been opened. With new clothing
designs, cheaper prices, and constant sales this new store is a hit! It’s also a major competitor
with the other stores in the mall. In evaluating the competition, which category does Shirley
Marks fit into?
A: Monopoly
B: Pure Competition
C: Monopolistically Competitive
D: Oligopoly
28. If you were to start your own restaurant, which of the following would be an example of capital?
a. The workers hired to cook and serve
b. The risk taken to open a business
c. The stoves, ovens, tables, and chairs
d. The food needed to cook and serve to paying customers
29. David is looking to open his own business. He has a significant amount of start-up cash but doesn’t want to put
his personal assets that he has worked so hard to acquire, at risk if the business was to fail. What would be
the best way to structure his business and why?
a. a sole-proprietorship because it is the easiest and most widely used business structure
b. an LLC because it will differentiate between personal and business assets
c. a corporation because it will allow him to raise capital and only put the money he has invested
into the business at risk
d. a partnership because it will split the risk between him and another person
30. Florida Power and Lights is the only electrical provider in a particular area giving it a theoretical advantage of
being able to set prices as it wants without having to worry about competition. This is an example of which
type of industry structure?
a. monopoly
b. oligopoly
c. monopolistic competition
d. pure competition
31. Which of the companies below would be an example of a natural monopoly?
a. Hillsborough County Utilities (provides water/sewage)
b. Wal-Mart
c. Innerlight Surf Shop (only surf shop on the beach)
d. Comast (provides cable, internet, phone services
32. Starbucks Coffee has been in Panama City for 10 years. Caribou Coffee now opens it first shop in Panama City
and offers similar products at similar prices but also includes free Wi-Fi and an internet station for patrons
without laptops. How would you characterize this scenario?
a. price competition in a purely competitive market
b. price competition in a monopolistically competitive market
c. non-price competition in a purely competitive market
d. non-price competition is a monopolistically competitive market
33. Use the chart below, determine which of the following statements are true:
a.
b.
c.
d.
city utility workers and accountants require the most education/training
accountants and teachers have the least amount of training
accountants are in high demand
fast-food cashiers are in high demand
34.
(Use the marginal cost analysis graph) What point on the graph represents a situation where David is just starting
out in his new business and is burdened by high initial start-up costs with very little profit in return?
a.
Point 1
b.
Point 2
c.
Point 3
d.
Point 4
35.
(Use the marginal cost analysis graph) What point on the graph represents a situation where David has been
operating his business for a few years and has become extremely efficient and is now maximizing his profits?
a.
b.
c.
d.
Point 1
Point 2
Point 3
Point 4
36. David finds that he has 3 employees that have been stealing food from his restaurant. He fires these 3
employees and hires two new employees with very good resumes and proven work experience. This is an
example of what?
a. entrepreneurship
b. labor
c. capital
d. land
37. Use the chart below to answer the question.
David and his one employee can normally produce around 50 hamburgers an hour. He decides to hire one
additional worker to help increase production. Which day probably represents that start date of the new
untrained employee?
a. Day 1
b. Day 3
c. Day 5
d. Day 7
Module 3 Practice Exam V 14 Answer Key
1. C: Both were one of the first entrepreneurs in their industries.
2. B: Both have their personal assets protected from lawsuits and are incorporated.
3. A: In a purely competitive market both the buyers and sellers are knowledgeable about the product
and have equal information. An example of a purely competitive market would be the market for
squash, oranges, or grapes.
4. C: Love is a strong emotion that they are using to convince people to buy their chocolate.
5. D: The law of diminishing returns says that it costs less to produce something up to a certain point.
6. D: When reading a productions possibility curve, follow the line from 1 weblog entry to point C. Then
down from point C to 6 conversations with friends.
7. B: To move the production possibilities curve to the right, they must increase production with the
resources they already have.
8. D: When reading a productions possibility curve, follow the line from 4 chocolates to point C. Then
down from point C to 12 strawberries. Each gallon of strawberry ice cream needs 5 pounds of
strawberries. Multiply 12 gallons x 12 pounds to get 60.
9. A: The store only earns 10 per new plan, but giving away a $10 gift they will make no profits.
10. B: Remember capital is going to be any of the tools that you will need to run your business
efficiently. In the case above, the pizza oven will help the owner achieve this goal.
11. A: When thinking of labor, remember it is the human work that goes into the business. In the
questions above servers will fall into labor.
12. C: Sole proprietorship would be the correct answer because it is the only option that allows you to
have full say in the business. Remember a sole proprietorship is owned and operated by a single
entrepreneur.
13. A: because all land resources originate from the land such as oil, paper, water, cotton, etc. Labor
resources will be the human resources for the business which includes any and all employees.
14. D: because it is a great example of non-price competition.
15. B: because that would equal $15 in one hour which would mean he could pay his booth rental for
the hour and make a $5 profit.
16. A: In this scenario it may be tempting to pick trees but in this situation the tress are closer to the
customer since you are offering to trim them for a fee. So this would be considered your product. The oil
is the untouched resource and would be the correct answer.
17. B: In this question you are looking for the benefits to the consumer and in a pure competition price
is the biggest difference between the products give the consumer an advantage. There are also many
different sellers competing for your business.
18. B: For this question you have to read the chart and you will see at 8 hours of gamming Andy will be
able to do 4 FLVS classes. Then you have to multiply 4 classed by 4 hours for each class and it will take
him 16 hours each week to do his class.
19. D (You and your friend have entered a partnership. Capital is a tool you would need to run your
business successfully – a leach is a tool to walk the dog).
20. A (a Limited Liability Company reduces personal liability for the owners).
21. C (new employee works for 5 hours a day and is able to walk 6 dogs; 5hours x $8hr = $40; 6 dogs at
$10 a walk = $60. $60 -$40 = $20 in profit).
22. B: Gene has the money to invest, but not the skills needed to understand the business he is opening.
He is also opening a single location and not multiple locations or selling stocks in the business. So this
eliminates sole proprietor (based on his lack of skills in restaurants) and also eliminates corporation.
23. B: Recall that the graph is listing days spent on an activity, and each day Tina has 3 hours to dedicate
to either homework or studying. If she spends 6 days playing video games, that would be 18 hours she
spends on video games. The 6 days of video games correlates to the 1 day of homework, which equals 3
hours spent doing homework.
24. C: Necessary capital are the tools humans create to make the business more efficient—financial and
physical. Therefore a restaurant manager in part a would be labor, and water would be land. Servers
would also fall to labor in part b, and cooks in answer d. The correct answer is c, since all three of these
options are capital resources necessary to start a burger restaurant.
25. C: Since Kalli is using a sole proprietorship, she is able to keep all the profits but must also do all of
the work and pay for all of the expenses. The business is also new. Given these two points, the best
option would be for Kalli to expand her products to appeal to a larger group of consumers. With the
added profit that could occur from this choice, Kalli could then eventually begin looking at attempting
moving or hiring other staff.
26. B: Capital is the factor of production that focuses on those things that help increase the production
of a good. This could be in the form of money or in items/machines such as additional coffee machines.
27. C: Shirley Marks is competing with similar businesses in the mall, making this scenario an example of
Monopolistically Competitive.
28. C – The stoves, ovens, tables, and chairs - Physical Capital is the machinery it takes to run a business
29. B – an LLC because it will differentiate between personal and business assets - “but doesn’t want to
put his personal assets” is key to protection which is what an LLC provides
30. A – monopoly - Market structure where a single business dominates a product or service.
31. A - Hillsborough County Utilities (provides water/sewage) – Natural Monopolies are industries where
produced most efficiently when there is one supplier
32. D. non-price competition is a monopolistically competitive market – similar product and costs/prices
but additional services
33. C. accountants are in high demand – highest wage based on need
34. A. Point 1 – where initial investment begins
35. C. Point 3 – where marginal revenue meets marginal cost
36. A. entrepreneurship – David firing employees is the decision making and running of the company.
37. B. Day 3 – Training of the new employee cuts production until production can get back to normal
standards and then increase above the initial amount