The role of business in the economy

Which of the following statements relating to a firm is NOT correct?

• Firms can be classified according to legal structure; sole trader, partnership, private company, and public company.

• Businesses contribute to regional development of roads, transport, and community facilities.

• Businesses provide goods and services to satisfy individual and collective wants.

• Only incorporated companies are able to provide goods and services for a profit.

Answer explanation

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Which of the following factors do businesses take into account when determining ‘how to produce’?

• Resource availability and level of technology

• Consumer income and demand

• Consumer preferences and income

• Consumer demand and resources

Answer explanation

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What is the difference between the quaternary industry and quinary industry?

• The quaternary industry includes services traditionally performed in the home, whereas the quinary industry includes information-based services.

• The quaternary industry includes all services, whereas the quinary industry includes services traditionally performed in the home.

• The quaternary industry includes information-based services, whereas the quinary industry includes services traditionally performed in the home.

• The quaternary and quinary industries are the same.

Answer explanation

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How do businesses contribute to economic growth in Australia? 

• Business do not contribute to economic growth in Australia.

• Businesses are an important part of the circular flow of income.

• Business employ resources such as labour.

• Business produce goods and services which contributes to Gross Domestic Product, which is the measure of economic growth.

Answer explanation

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Profit maximisation is when:

• total revenue exceeds total costs.

• the point where there is the greatest positive difference between total revenue and total costs.

• total revenue equals total costs.

• price is multiplied by quantity sold.

Answer explanation

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What is the difference between a merger and an acquisition?

• Mergers are an agreement that unites two existing companies into one new company.

• Mergers create a new company, whereas acquisitions are when one company purchases the majority of another company.

• Mergers can be horizontal and vertical in nature, whereas acquisitions cannot.

• Only mergers exist in the business world.

Answer explanation

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Which goal is achieved when a firm undercuts the prices of their competitors?

• Profit maximisation

• Satisficing

• Increasing market share

• Meeting shareholder expectations

Answer explanation

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How may the goal of meeting shareholder expectations conflict with the other goals of a firm? 

• Shareholders are interested in high share prices and dividend income, which may impact upon increases in market share and long-term growth. 

• Shareholders are only interested in long term growth and profitability. 

• All other goals of a firm are long term, whereas meeting shareholder expectations is a short-term goal.  

• Company directors are appointed to serve the interests of the shareholders of a firm, minimising the conflict between achieving the other goals.  

Answer explanation

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Which of the following statements best summarises the satisficing behaviour of firms?

• Ensuring all goals are achieved equally

• Ensuring profit maximisation is the main priority of firms.

• Ensuring the financial, social, and environmental goals of the firm are achieved.

• Ensuring acceptable levels of performance are achieved across all goals.

Answer explanation

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What is meant by technical efficiency?

• Producing output at minimum cost.

• Producing output to achieving maximum profit

• Producing output to maximise utility.

• Directing resources to adapt to changing consumer preferences.

Answer explanation

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