Chapter 1: Managing Within the Dynamic Business Environment:

Taking Risks and Making Profits

Learning goals

After you have read and studied this chapter, you should be able to:

1. Describe how nonprofit organizations add to the quality of life for all.
2. Explain the importance of entrepreneurship to the wealth of an economy, and how
entrepreneurship also may harm the society.
3. examine how the economic environment and taxes affect businesses
4. Illustrate how the technological environment has affected businesses
5. Identify various ways that businesses can meet and beat competition.

Learning the Language

Listed below are important terms found in the chapter. Choose the correct term for each
definition and write it in the space provided.

Business Goods Revenue

Business environment Identity theft Risk
Database Loss Services
Demography Nonprofit organization Stakeholders
e-commerce Outsourcing Standard of living
Empowerment Productivity Technology
Entrepreneur Profit Factors of production
Quality of life

1. The resource businesses use to create wealth are called ________________________ and
include land, labor, capital, entrepreneurship and knowledge.

2. ________________ refers to the general well-being of a society in terms of freedom, clean

natural environment, education, health care, safety, free time, and everything else that leads
to satisfaction and joy

3. An ______________ is the person who risks time and money to start and manage a business.

4. Products that are intangible, such as education, health care, insurance, recreation and travel
and tourism are known as ______________

5. A _____________ is any activity which seeks to provide goods and services to others while
operating at a profit.

6. When a business’s expenses are more than its revenues a _______________ has occurred.

7. Entrepreneurs take a ____________ when they take the chance that they will lose time and
money on a business that may not prove to be profitable.

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8. A society’s _______________________ is the amount of goods and services people can buy
with the money they have.

9. A ________________ is an organization whose goals do not include making a personal profit

for its owners or organizers.

10. Computers, food, clothing, cars, and appliances are tangible products known as __________.

11. _____________is the amount of money a business earns above and beyond what it spends for
salaries and other expenses.

12. The total amount of money a business takes in during a given period by selling goods and
services is called ________________.

13. _____________ is considered to be everything that makes business processes more efficient
and productive, such as phones, copiers, computers, medical imaging devices, personal
digital assistants and various software programs.

14. The surrounding factors of the _________________ either help or hinder the development of
businesses.

15. buying and selling products and service over the internet is known as _____________

16. An electronic storage file where information is kept is known as _______________ and can
be used to store vast amounts of information about consumers.

17. When we study _________________ we are looking at a statistical study of the human
population with regard to its size, density and other characteristics such as age, race, gender
and income.

18. Known as ______________, this means giving frontline workers the responsibility, authority,
and freedom to respond quickly to customer requests.

19. A business’s _______________ are all the people who stand to gain or lose by its policies
and activities.

Multiple Choice – Circle the Best Answer

1. A loss occurs when a company

a. Has revenues greater than expenses
b. Hires too many new workers
c. Has expenses greater than revenues
d. Has taken a risk

2. In general, the ________ the risk, the ________ the profit

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 a. Higher / higher
b. Lower / higher
c. Higher / lower
d. Faster / quicker

3. Taxes would not be used to support which of the following activities?

a. Build a new school
b. Support people in need
c. Keep a clean environment
d. Help run a privately owned day care center

4. A clean environment, safety, free time and health care are elements which contribute
to our:
a. Standard of living
b. Quality of life
c. Economic environment
d. Factors of production

5. The making of steel and machine tools are a apart of the __________
a. Goods producing sector
b. Services sector
c. Agricultural sector
d. Intangible services sector

6. Which of the following is (are) not considered a factor of production?

a. Information
b. Capital
c. Labor
d. Taxes

7. The two factors of production that contribute most to making countries rich are:
a. Land and labor
b. Capital and land
c. Entrepreneurship and use of knowledge
d. Use of knowledge and taxes

8. What must companies do to be competitive in today’s market?

a. Offer high quality products and outstanding service at competitive prices
b. Create innovative and high quality marketing programs
c. Create alliances with competitors
d. Focus on those activities that will create the most profit

9. Among the changes resulting from increased global trade are:

a. Less need for efficient distribution systems
b. Less global competition as companies set up manufacturing systems in foreign
countries
c. Less need for employees to update skills as workers conform to U.S. standards
d. Improved living standards around the world

10. A list of stakeholders of an organization would include:

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 a. Customer
b. Employees
c. Stockholders
d. All of the above are stakeholders

11. In today’s environment, businesses have found they must do all but which of the
following in order to remain competitive?
a. Meet the needs of all stakeholders of the business
b. Meet the needs of employees by supervising them more closely
c. Serve customers by exceeding their expectations
d. Provide good quality products at reasonable prices as quickly as possible

12. To foster entrepreneurial growth governments must

a. Pass laws that enable business people to write contracts that are enforceable in
court
b. Establish a high tax rate to support loans for small businesses
c. Take over ownership of small businesses when they are first getting started
d. Reduce the value of their currency to encourage foreign investment

13. One of the most serious negative results of the increased use of databases by
companies has been:
a. A decrease in the amount of “junk mail” received by consumers
b. An increase in identity theft
c. Increased failure rates by internet companies
d. Changes in the organizational structures of companies leading to loss of jobs

True or False

1. ____ An entrepreneur is an individual who has worked for a nonprofit organization

for their entire career

2. ____ As a potential business owner, you may want to invest your money in a
company with a lot of risk, in order to earn a lot of money quickly

3. ____ Profit refers to the difference between revenue and cost

4. ____ Mariko, who lives in Tokyo, makes the equivalent of approximately $ 35,000
per year, while Donada, living in the United States makes only $25,000. From
this you can assume Mariko has a higher standard of living than Donada

5. ____ Business skills are useful and necessary in non-profit institutions

6. ____ In analyzing factors of production that makes a country “rich” it has been
observed that some relatively poor countries often have plenty of land and
natural resources

7. ____ Workers in high tech industries are sometimes called knowledge workers

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8. ____ Governments can reduce the risk of starting businesses and increasing
entrepreneurship by keeping taxes and regulations to a minimum

9. ____ Corrupt and illegal activities in one company rarely have an effect on other
companies