Profit and Risk
Profit is the difference between what a business earns and what it ______ in producing goods or services.
spends
This type of business is owned and operated by one person who keeps all profits but also bears all debts.
Sole proprietorship
An extra paycheck bonus is an example of what kind of incentive?
Positive financial incentive
Who controls trade and industry in a capitalist system?
True or false: one of the primary functions of the public sector is social support.
True
Name one way profit benefits the economy
Encourages innovation, efficiency, investment, higher wages, or tax revenue
A law firm owned by several partners who share profits and liabilities is an example of what business type?
Partnership
!!!DOUBLE POINTS!!!
A fine for polluting a river is an example of a ______ incentive.
Negative financial incentive
What are the three core principles of capitalism?
Private ownership, free markets/voluntary exchange, and profit motive/competition
The public sector is funded primarily by what source?
Tax revenue
Explain the relationship between profit and risk.
Higher potential profits usually involve greater risks.
In a corporation, who is legally responsible for the company’s debts?
The corporation itself, not the CEO, board, or shareholders
Give an example of a non-financial incentive in the workplace.
Recognition, awards, extra time off, social approval, etc.
How does competition benefit consumers in a market economy?
It drives down prices, improves quality, and increases variety
Name one type of economic institution
Households, businesses, financial institutions, government agencies, labor unions, or nonprofits
The possibility that internal or external factors will negatively impact a company’s profits, operations, or long-term survival is called...?
Risk management
What is a limited liability company?
A business model that combines the limited liability of a corporation with the tax advantages of a partnership.
Give two examples of negative non-financial incentives.
Reprimands, loss of esteem, demotion, etc.
How do firms compete in monopolistic competition?
Brand recognition, service quality, location, etc.
How do institutions emerge in two main ways?
Informally through repeated interactions, or formally through laws and official rules.
Name the four types of risk.
Name four of the six types of businesses
Manufacturing, retail, wholesale, service, green, social
Why don’t incentives always work as intended?
Because people have different morals, values, and motivations.
!!!DOUBLE POINTS!!!
What is it called when competitors cannot extract additional advantage against each other by changing their business strategy (like location)?
Nash equilibrium
List three functions of the public sector that support economic stability
Managing inflation, providing welfare, ensuring law and order, or supplying public goods and services