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3. Profit is the amount of money a business earns above and beyond what it spends for
salaries and other expenses.
A) TRUE B) FALSE
4. An entrepreneur is a person who risks time and money to start and manage a business.
A) TRUE B) FALSE
6. Profits of a business include the salaries paid to the owners and employees of that
business.
A) TRUE B) FALSE
7. Risk is the chance a manager takes of losing time and money on a business that may not
prove profitable.
A) TRUE B) FALSE
8. Health care availability, a clean environment, and good schools all contribute to a high
quality of life.
A) TRUE B) FALSE
9. Maintaining a high quality of life requires the combined efforts of businesses, nonprofit
organizations, and government agencies.
A) TRUE B) FALSE
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11. Stakeholders are affected by the products, policies, and practices of businesses.
A) TRUE B) FALSE
12. Outsourcing may allow overseas companies to use the information outsourced to produce
competitive products.
A) TRUE B) FALSE
13. Businesses and nonprofit organizations often strive to accomplish the same objectives.
A) TRUE B) FALSE
14. Nonprofit organizations use financial gains to meet stated social or educational goals of
the organization rather than personal profit.
A) TRUE B) FALSE
15. Social entrepreneurs are people who start and manage organizations that are not-for-
profit and help countries with their social issues.
A) TRUE B) FALSE
16. The study of how society chooses to employ resources to produce goods and services and
to distribute them for consumption among various competing groups and individuals is
known as sociology.
A) TRUE B) FALSE
17. Economists study how people use resources to produce and distribute goods and services
for consumption among competing groups and individuals.
A) TRUE B) FALSE
18. Microeconomics focuses on the decisions and behavior of people and organizations in
particular markets.
A) TRUE B) FALSE
19. Adam Smith believed that the key to creating rising standards of living was to limit
population growth.
A) TRUE B) FALSE
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20. In capitalist countries, the government decides what to produce and how the goods and
services will be produced.
A) TRUE B) FALSE
21. In a free market, the price tells producers how much to produce.
A) TRUE B) FALSE
22. Absolute advantage occurs when a country has a monopoly on producing a product or is
able to produce it at a cost below that of all other countries.
A) TRUE B) FALSE
23. Production is the creation of goods and services using the factors of production: land,
labour, capital, entrepreneurship, and knowledge.
A) TRUE B) FALSE
24. Rosmah has started her own Internet consulting firm. While she recognizes the risks
involved in operating a business, she is still willing to invest her time, effort, and money
in hopes of earning a profit. Rosmah is an example of an entrepreneur.
A) TRUE B) FALSE
26. Any activity which seeks to earn a profit by providing a good or service is known as a(n):
A) industry
B) corporation
C) business
D) service
27. The most important difference between businesses and nonprofit organizations is that:
A) businesses do not benefit society.
B) nonprofit organizations do not strive for financial gains.
C) nonprofit organizations focus on social and educational goals.
D) nonprofit organizations do not benefit society.
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29. The standard of living for a nation’s people depends mainly on:
A) the quality of the natural environment.
B) how much political freedom they have.
C) their incomes and the prices of the goods and services they buy.
D) the amount of labor and capital available employed in the manufacturing sector.
32. Which of the following statements about factors of production is the most accurate?
A) The five factors of production are energy, capital, labor, leadership and money.
B) Wealth creation in poor nations is slowed by chronic shortages of labor.
C) Entrepreneurship and knowledge are the most important in creating wealth.
D) Each of the factors of production is equally important in creating wealth.
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34. Because the population is aging, which of the following businesses are likely to be
opportunities in the future?
A) financial services to help clients plan for their education
B) children’s day-care centers
C) home health care businesses
D) educational institutions
35. ___________ is the buying and selling of products and services by businesses and
consumers over the Internet.
A) Telemarketing
B) Entrepreneurship
C) E-commerce
D) I-commerce
37. A ___________ is a business organization that is owned, and usually managed, by one
person.
A) closed corporation
B) subchapter S corporation
C) sole proprietorship
D) limited partnership
38. To many businesspeople, one of the major attractions of a sole proprietorship is:
A) the ability to obtain additional financial resources.
B) the protection of limited liability.
C) an unlimited lifespan.
D) the chance to be their own boss.
39. The __________ is usually the easiest form of business to start and end.
A) sole proprietorship
B) limited partnership
C) corporation
D) cooperative
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46. Any debts or damages incurred by a firm organized as a sole proprietorship are:
A) the sole responsibility of the owner.
B) limited to the amount the owner has invested in the firm.
C) paid for out of a reserve contingency fund that sole proprietors are required by
law to set up.
D) normally covered by liability insurance.
48. Harris wants to start his own business. Harris would be most likely to favor organizing
his new company as a sole proprietorship if he:
A) expects rapid growth and want to be able to raise a large sum of money.
B) wants to make it easy to attract qualified employees.
C) has a strong desire to be his own boss.
D) wants to minimize the financial risk he must accept as the owner of a business.
49. Kok Diang is the sole proprietor of a gift shop in a small shopping center. Because he is a
sole proprietor, any profit Kok Diang's business earns is:
A) totally tax-free.
B) taxed only as Elroy's personal income.
C) taxed twice, once as business income, then again as Elroy's personal income.
D) taxed only if and when it is distributed to investors.
50. Which of the following statements is the most accurate? Sole proprietorships:
A) are well suited for people who want to own a business and share in its profits
without taking an active role in management.
B) are easy to start and end.
C) are the least risky form of business ownership.
D) must receive a state charter before they can legally conduct business.
51. A partner who invests money in a business, but does not take an active role in
management or assume unlimited liability for the firm's losses is known as a(n):
A) implied partner.
B) limited partner.
C) partial partner.
D) corporate partner.
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52. The limited liability provided to limited partners means that they are not responsible for
the debts of the business beyond:
A) the firm's total assets.
B) the amount they have invested in the company.
C) the percentage of profits they are entitled to earn.
D) their total personal assets.
55. In Malaysia, a government-registered legal entity with limited partnership but with
authority to act and to have liability separate from its owners is also known as
A) Enterprise
B) Berhad
C) Sendirian Berhad
D) Kooperasi
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58. When two companies in completely unrelated industries combine, the result is called
a(n):
A) vertical merger.
B) joint venture.
C) conglomerate merger.
D) horizontal merger.
60. Which of the following positions in a firm would be classified as a staff position?
A) an assembly line worker for a major auto manufacturer
B) the chief executive officer of a small corporation
C) a sales manager for a chain of clothing stores
D) a lawyer employed in the legal department of a manufacturing corporation
61. The concept of ____________ suggests that as a firm produces more, the average cost of
goods goes down.
A) natural growth
B) survival of the fittest
C) cost enhancement
D) economies of scale
62. The line of authority that moves from the top of a hierarchy to the lowest level is called
the:
A) chain of logic.
B) chain of command.
C) organizational design.
D) delegation of contingent authority.
63. Which of the following determines the degree of decentralization a firm might use?
A) the degree to which lower level management is empowered to make decisions
B) the chain of command used to follow the flow of authority from top of the
hierarchy to the lowest levels
C) the geographical area served by the firm’s operations
D) the degree of product standardization desired by the marketplace
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64. The optimum number of subordinates a manager can supervise is referred to as the:
A) manager-subordinate ratio.
B) chain of command.
C) employee quota.
D) span of control.
66. The ________ an organization’s structure, the ________ the span of control.
A) flatter; broader
B) flatter; narrower
C) taller; broader
D) taller; flatter
67. In recent years, large organizations have tried to improve their efficiency in
communication and decision making by:
A) creating specific rules for everyone to follow.
B) eliminating several layers of management.
C) restructuring into a bureaucratic organization.
D) reducing the span of control for managers.
69. A ___________ is an organization that is owned and controlled by the people who use
it—producers, consumers and workers with similar needs who pool their resources for
mutual gain.
A) corporation
B) limited partnership
C) mutual fund
D) cooperative
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70. Ceria, a cosmetology trade publication, utilizes people and resources from other
organizations as needed. Business relationships are temporary and flexible. Ceria is a
networked organization made up of replaceable firms that join the network and leave it
as needed. This unique organization is an example of:
A) competitive benchmarking.
B) a virtual corporation.
C) core competency ranking.
D) real time transparency.
71. When the supply curve and demand curve for a particular good are on a single graph, the
point at which the two curves intersect identifies the:
A) total profit earned by producers.
B) total amount of labor that will be employed in that market.
C) amount of time it takes to bring together the buyers and sellers of the good.
D) equilibrium price of the good.
72. Which of the following people would tend to favor a socialist economy?
A) John wants to live in a country with low marginal tax rates.
B) Ali wants to live in a country that encourages rapid economic growth.
C) Liza wants to live in a country with limited government regulation.
D) Munir prefers to live in a country that promotes social equality.
74. Fourteen years ago, Murray noticed that a lot of people who bought personal computers
really did not know much about how to use them and frequently suffered system crashes
and other aggravations. He decided he could earn a nice profit by starting a consulting
business to help other people overcome their computer woes. Although the business
struggled at first, it has been quite successful for the last five years. Murray has many
satisfied customers, and the business has grown to the point he now employs several
workers. Murray's experience is an example of:
A) socialism at work.
B) the principle of comparative advantage.
C) the invisible hand.
D) the multiplier principle.
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75. Your local NGO newspaper has a story in its business section that reports that
government spending will again exceed tax revenues. This means that the:
A) national debt will increase.
B) balance of payments will experience yet another deficit.
C) rate of inflation is likely to fall.
D) monetary policies pursued by the Fed have been too loose.
Gig Abite is a bright, hard-working engineer who once owned a successful engineering
consulting firm in his native country of Frinezia. Gig became discouraged by the high tax rates
in Frinezia, so he immigrated to Malaysia eleven years ago. Soon after moving to Malaysia, Gig
again started his own business, which he named Giganeers Consulting. The company struggled
at first, and almost went under midway through its second year. However, Gig never lost faith,
the company survived, and it soon developed a growing reputation for quality work at a
reasonable cost. Giganeers began experiencing sustained growth early in its fourth year. In fact,
Gig frequently had to hire additional employees over the next few years to keep up with the
increasing workload. His company, which started with only Gig and 2 other full time workers,
now provides jobs for 43 full-time employees as well as many part time workers.
Despite these past successes, some clouds are on the horizon. The company recently suffered its
first drop in business since its very early years. Gig is convinced that the problem is not with his
company, but rather is due to a downturn in Malaysia economy. He read a news story last week
that reported that the value of the total output of final goods and services in Malaysia declined
over the last quarter. The article also stated that many economists believed that this downward
trend is likely to continue for several more months. Gig is concerned that he will have to lay off
some of his employees if the economy doesn’t improve. This is something he does not want to
do. He hopes that the government does something soon to put the economy back on track.
76. Gig’s native country of Frinezia was much different from Malaysia. In addition to its
much higher tax rates, the government offered much more extensive social programs that
were designed to redistribute income and reduce inequality. Although small businesses
were privately owned and operated in Frinezia, many basic industries were owned and
operated by the government. Frinezia’s economic system appears to be best classified as:
A) capitalism.
B) socialism.
C) communism.
D) pluralism.
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77. Gig started Giganeers to earn a profit, but by doing so he also created many jobs and
satisfied many customers. This is an example of the ______________ concept.
A) circular flow
B) invisible hand
C) equitable income
D) social dividend
78. The newspaper article that reported a decline in total output for Malaysia probably focused
mainly on the economic measure known as the:
A) GDP
B) CPI
C) federal deficit
D) balance of payments
79. The newspaper article cited forecasts that national output might continue to fall in the
future. If total output does fall for another quarter, the economy would be in a:
A) depression.
B) retraction.
C) period of stagflation.
D) recession.
80. Giganeers faces competition from many other companies that also provide engineering
consulting services. In order to gain more business, Gig has tried to convince potential
clients that his company offers better service than the competition. He has advertised
heavily in professional magazines, often quoting some of his highly satisfied clients. The
market Giganeers operates in is an example of:
A) perfectly competition.
B) monopoly.
C) oligopoly.
D) monopolistic competition.
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