Business Midterm Review
Chapter 1 Key Terms
Business – the exchange of goods, services, or money for mutual benefit or profit.
Capitalism – A type of economic system characterized by private ownership of capital,
competition among businesses seeking a profit, and consumers’ freedom of choice.
Capital resources – Goods produced for the purpose of making other types of goods and services;
includes current assets (short-lived like fuel, raw materials, and paper) and fixed capital (long-
lived like factory buildings, computers, and railroad cars).
Consumer – A person who purchases a good or service for personal use.
Economic system – The accepted process by which labor, capital, and natural resources are
organized to produce and distribute goods and services in a society.
Economics – The study of how a society chooses to use scarce resources to produce goods and
services and distribute them to people for consumption.
Entrepreneurs – People who take the risks necessary to organize and manage a business and
receive the financial profits and nonmonetary rewards.
Free enterprise – A system in which private businesses are able to start and do business
competitively to earn profits, with a minimal degree of government regulation.
Gross domestic product (GDP) – A measure of the economic activity within the physical borders
of a country.
Labor resources – The human talent, skills, and competence available in a nation.
Macroeconomics – The study of inflation, unemployment, business cycles, and growth focusing
on the aggregate relationships in a society.
Microeconomics – The study of household decision making on what to buy, business pricing
decisions, and how markets allocate resources among alternatives.
Mixed economy – An economy in which both the government and private business enterprises
produce and distribute goods and services.
Natural resources – Resources that nature provides in limited amounts, including crude oil,
natural gas, minerals, timber, and water.
Planned economy – An economy in which the government owns the productive resources,
financial enterprises, retail stores, and banks.