Learning Goal 1
They're everywhere! McDonald's hamburgers can be purchased in cities and suburbs, on riverfronts, in college football stadiums and in discount stores. There are fast food restaurants at most major road intersections, and billions of dollars are spent annually to advertise everything from fast food frozen yogurt to kid's meals. Grocery stores have even gotten into the act with their own versions of fast food restaurants. Families with sick children can stay in Ronald McDonald houses located close to the hospital where the children are receiving treatment, and businesses routinely come to the aid of disaster victims. How does the founding and growth of entrepreneurial ventures like McDonald's and the resulting growth in other, similar businesses illustrate Adam Smith's invisible hand theory? ________________________________________
Learning Goal 2
There are four basic rights under the capitalist economic system: •
Freedom of choice
Read the situations below and determine which of these is being demonstrated. a.
The owners of Pro Performance, Inc. make a profit for the owners for the first time in their history and decide to pay themselves a dividend. b.
The owners of Pro Performance, Inc. bought a piece of land for investment purposes. c.
Proctor and Gamble spends almost $4 billion a year on advertising. d.
Tom Oswalt decided to take a job as manager of an insurance agency after he graduated from college. e.
Arthur Tower receives a patent for a new method he devised to make metal springs f.
Alfred Rockwood, after he retired, decided to move to northern Michigan and start his own fly-tying business. g.
Microsoft introduces a new, upgraded version of its popular video game, X-Box 360, in order to grab a larger share of the toy market. h.
The Andersens, a young, dual income couple, draw up a will, making their children their beneficiaries of their home, property and other assets.
Plot a supply curve using the information below:
Unit price (dollars)
Amount supplied (units)
On the same graph, plot the demand curve using the information listed below. Unit Price (dollars)
Amount Demanded (units)
What is the equilibrium price?
How many units will be supplied and purchased at that price? ________________________________________
4. Indicate whether the market price of a product will most likely go up or down in the following situations: a.
There is a drought in the Midwest (bushel of wheat)
Strawberries are in season with a bumper crop.
It's the ski season (price of motel rooms in ski areas). d.
A nutrition study indicates that red meat should be eaten only in moderation, if at all. (price of red meat) e.
A major corporation announces that it has to borrow money from the government in order to stay in business. (price of its stock)
5. There are four degrees of competition:
Match the type of competition to the situation described below a.
Murray Barnard takes his soybean crop to the grain elevator in Decatur Illinois. He found that because of government price supports he would make a nice profit this year. b.
Because it is the only provider of electrical service in the area, AmerenUE is carefully regulated by the Missouri Public Service Commission. c.
Cheer cleans in all temperatures. Ivory Snow is gentle enough to launder a baby's clothes and Tide cleans the dirtiest clothes. Procter and Gamble makes these brands, as well as several others, which all appear to be different. Procter and Gamble competes with many other manufacturers and retains control over advertising, branding and packaging. d.
The purchasing agent for a steel specialty products company says that he...
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