Name _______________________________________________ Date________________ Period __________

CHAPTER

4 Business in the
Free Enterprise
Part 1: Content Review
Matching
Write the letter of the correct term for each definition on the line provided.

Terms
A. not-for-profit organization F. proprietorship
B. producer G. stock
C. wholesaler H. dividend
D. retailer I. cooperative
E. business market J. partnership

C
________ 1. A business that buys large quantities of products directly from producers and sells the
products in smaller quantities to retailers.
J
________ 2. An association of two or more persons who co-own a business with the objective of
earning a profit.
E
________ 3. A market that consists of customers who buy products for use in a business.
I
________ 4. A business that is owned and operated by those using its services.
D
________ 5. A business that buys products from wholesalers or directly from producers, and sells
them to consumers to make a profit.
G
________ 6. A share of ownership in a corporation.
A
________ 7. An organization that exists to serve some public purpose.
F
________ 8. A business that is owned and often operated by a single individual.
B
________ 9. A business that creates goods and services.
H
________ 10. A portion of a corporation’s earnings distributed to stockholders.

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32 Principles of Business, Marketing, and Finance

Multiple Choice
Place the letter of the correct answer to each question on the line provided.
C
_______ 1. Which of the following is an example of an intermediary?
A. Auto manufacturer
B. Auto parts manufacturer
C. New car dealership
D. Auto repair shop
B
_______ 2. _____ is a numeric system to classify businesses and collect economic statistics.
A. B2B
B. NAICS
C. LLC
D. B2C
C
_______ 3. Which is not an example of a not-for-profit organization?
A. United Way
B. American Cancer Society
C. Microsoft
D. American Red Cross
C
_______ 4. An accounting firm that prepares taxes for an advertising agency operates in the
_____ market.
A. business-to-consumer
B. consumer-to-business
C. business-to-business
D. consumer-to-consumer
B
_______ 5. Which of the following is a business that is owned and operated by a single individual?
A. Partnership
B. Proprietorship
C. Corporation
D. Cooperative
C
_______ 6. The two common types of partnerships are _____.
A. general and unlimited
B. general and cooperative
C. general and limited
D. limited and unlimited
A
_______ 7. Which is not an advantage of a partnership form of ownership?
A. Limited liability
B. Easy to start
C. Combined financial resources
D. Simple tax structure

Copyright Goodheart-Willcox Co., Inc. May not be reproduced or posted to a publicly accessible website.
Chapter 4 Business in the Free Enterprise 33
Name _______________________________________
A
_______ 8. Which is a form of business ownership provides limited liability to its owners, but is
taxed as a partnership?
A. S Corporation
B. Cooperative
C. Green business
D. Limited partnership
D
_______ 9. A major advantage of forming a corporation is _____.
A. profit
B. limited life
C. management
D. limited liability
B
_______ 10. Cooperatives are run _____.
A. by the government
B. democratically
C. similarly to an LLC
D. without voting members

Completion
In the space provided, write the word(s) that best completes each of the following statements.
owners
_______________ 1. One of the sole purposes of a for-profit business is to be productive and gener-
ate money for its _____.

public sector
_______________ 2. Governmental organizations are part of the _____ sector.

client
_______________ 3. The customer of a service business is often called a _____.

consumer mar
_______________ 4. The _____ market consists of customers who buy products for their own use.

distributors
_______________ 5. Wholesalers are often called _____.

proprietorship
_______________ 6. The simplest and most common form of business ownership is a(n) _____.

limited partner
_______________ 7. A partner who does not participate in managing the business is
a(n) _____ partner.

corporation
_______________ 8. The form of business ownership described as an “artificial person”
is a(n) _____.

board of direct
_______________ 9. The group of individuals who makes high-level management decisions for a
corporation and establishes company policies is called the _____.

LLC
_______________ 10. The form of business ownership that combines the benefits of a corporation
with those of proprietorships and partnerships is a(n) _____.

Copyright Goodheart-Willcox Co., Inc. May not be reproduced or posted to a publicly accessible website.
34 Principles of Business, Marketing, and Finance

Name _______________________________________

Part 2: Concept Review

Open Response
Write your response to each of the following statements or questions in the space provided.
Use complete sentences.

1. What is an intermediary? What benefit do they provide in business?

___________________________________________________________________________________
An intermediary is a business or person that sells goods and services from producers to
customers, such as wholesalers and retailers. They benefit businesses by making products
___________________________________________________________________________________
more accessible to consumers and helping producers reach a larger market.
___________________________________________________________________________________

___________________________________________________________________________________

___________________________________________________________________________________

___________________________________________________________________________________

2. What information should be detailed in the articles of partnership?

___________________________________________________________________________________
The articles of partnership should explain each partner's responsibilities, how profits and
losses are shared, and how decisions will be made. It should also include how new partners
___________________________________________________________________________________
can be added and how the partnership can be ended.
___________________________________________________________________________________

___________________________________________________________________________________

___________________________________________________________________________________

___________________________________________________________________________________

3. What are the benefits and restrictions of an S corporation?

An S corporation provides limited liability to its owners and avoids double taxation because
___________________________________________________________________________________
profits are passed through to shareholders. However, it has restrictions such as limits on the
___________________________________________________________________________________
number and type of shareholders.
___________________________________________________________________________________

___________________________________________________________________________________

___________________________________________________________________________________

___________________________________________________________________________________

___________________________________________________________________________________

___________________________________________________________________________________

Copyright Goodheart-Willcox Co., Inc. May not be reproduced or posted to a publicly accessible website.
Chapter 4 Business in the Free Enterprise 35
Name _______________________________________

4. A disadvantage of proprietorships is unlimited liability. What is unlimited liability and why is it

a disadvantage?
Unlimited liability means the owner is personally responsible for all debts of the business. It is
___________________________________________________________________________________
a disadvantage because the owner's personal assets could be taken if the business cannot
___________________________________________________________________________________
pay its debts.
___________________________________________________________________________________

___________________________________________________________________________________

___________________________________________________________________________________

___________________________________________________________________________________

5. A friend wants to start a business and asks your advice on the best form of ownership. She is very
smart and experienced, and prefers to make important decisions by herself. She does not need to
raise large sums of capital and wants to keep the costs of forming the business low. In addition,
she has substantial personal wealth that she wants to keep separate from the business. Consider
the following business forms: proprietorship, partnership, corporation, and limited liability
company (LLC). Make a short argument for one of the forms of ownership for your friend.

___________________________________________________________________________________
Based on her situation, an LLC would be best because it offers limited liability to protect her
personal wealth while still allowing her to make independent decisions. It also has simpler
___________________________________________________________________________________
taxes compared to a corporation and lower costs to start than other forms.
___________________________________________________________________________________

___________________________________________________________________________________

___________________________________________________________________________________

___________________________________________________________________________________

___________________________________________________________________________________

___________________________________________________________________________________

Copyright Goodheart-Willcox Co., Inc. May not be reproduced or posted to a publicly accessible website.
36 Principles of Business, Marketing, and Finance

Name _______________________________________

Part 3: Math Skills

Word Problems
Basic math skills are essential to carry out the daily activities of a retail business. Real-life situ-
ations require that you understand how to interpret word problems. Word problems are exercises set
up in text rather than presented with mathematical notation. There are two steps to solving a word
problem. First, carefully read the problem and translate the wording into a numeric equation. Second,
solve the equation.
Complete the following problems. Show the equation and solve the problem.

1. The free enterprise system is the driving force that enables retailers to make a profit and stay
in business. Central Products is a manufacturer that generated sales of $838,515 last year. Total
expenses were $719,311. What was the profit or loss last year?
Profit = $119,204
___________________________________________________________________________________

___________________________________________________________________________________

2. Sigma Gears is a manufacturer that operates in the same industry as Central Products. Sigma’s
sales were $1,325,875 last year, with total expenses of $1,269,288. What was Sigma Gear’s profit
or loss? Compare Sigma Gear’s profit or loss to Central Products in the previous question.
Which company earned more money last year?
Profit = $56,587
___________________________________________________________________________________

___________________________________________________________________________________

___________________________________________________________________________________

3. The term value-added describes any enhancement to a product or service that makes consumers
want to buy. Comparison shopping is a simple way to learn which product to buy and where to
get the best value. You want to purchase a hot water heater. Ark Plumbing Supply has a model
you like for $449. Jensen Warehouse, a competitor, sells the identical model for $599. Jensen
offers free delivery, installation, and removal of your old heater. Ark Plumbing Supply charges
$50 for delivery, $100 for installation, and $25 to remove the old heather. Which business offers
the lower total purchase price?
Jensen Warehouse offers the lower total purchase price ($599 vs $624).
___________________________________________________________________________________

___________________________________________________________________________________

___________________________________________________________________________________

___________________________________________________________________________________

Copyright Goodheart-Willcox Co., Inc. May not be reproduced or posted to a publicly accessible website.
Chapter 4 Business in the Free Enterprise 37
Name _______________________________________

4. Refer to the prices listed in the previous problem. You need a water heater and can install
it yourself. You need delivery, but there is no old water heater to remove. Based on this
information, at which business will you get the lower total price?
Ark Plumbing Supply is lower at $100 cheaper
___________________________________________________________________________________

___________________________________________________________________________________

___________________________________________________________________________________
___________________________________________________________________________________

5. Ever-Brite Sponge Company manufacturers various size sponges for household and janitorial
use. The company sells its products to various retailers, as well as directly to the public through
its website. Total sales last year were $800,000, of which $600,000 was to retailers.

a. How much did Ever-Brite sell directly to the public?

___________________________________________________________________________________
$200,000 sold directly to the public
___________________________________________________________________________________

b. Calculate the percentage of Ever-Brite’s sales to the public using the following formula:

sales to the public

× 100 = percentage of sales to the public
total sales
25% of Ever-Brite's sales were to the public
___________________________________________________________________________________

___________________________________________________________________________________

Copyright Goodheart-Willcox Co., Inc. May not be reproduced or posted to a publicly accessible website.
38 Principles of Business, Marketing, and Finance

Name _______________________________________

Part 4: Communication Skills

Reading
Good reading skills are important in business. Read the following passage and focus on the
content. Then, answer the questions that follow in the space provided.

Diversity
Today, more than ever, companies benefit from employees with different backgrounds.
Employees may differ in many ways: personality styles, education, age, gender, socioeconomic
background, cultural background, race, religion, family situation, physical abilities, and lifestyles.
A diverse workforce is a reflection of a changing world and marketplace. The workforce of today
and tomorrow is much more diverse than in the past. Bringing people from many backgrounds
together in the workplace provides a greater diversity of talents, skills, ideas, and viewpoints. We
welcome this diversity, as organizations that have a diverse workforce are most likely to thrive well
into the future. However, a diverse workforce requires employees to work with coworkers of varied
backgrounds. The Company must develop ways to maximize the potential of each employee.
A diverse workforce benefits the Company by creating a workplace where all employees have
opportunities and feel good about their jobs. When employees’ diversity is seen as an asset and
employees are made to feel good about who they are and what they are capable of accomplishing,
the Company can attract and retain good employees, maximize productivity, enhance the reputation
of the Company, and improve decision making by having more viewpoints and choices.
A diverse workforce benefits employees because people are the happiest and most productive
when they can be themselves. In a workplace that appreciates differences, people are valued as
individuals and are not defined by stereotypes about their groups; employees are encouraged to
discuss issues and resolve conflicts; employees acquire new skills through coaching, education, and
shared knowledge among coworkers; and employees’ needs and input are valued in developing job
structures, work processes, conditions, and benefits.
The success of the Company is dependent upon the contributions of all its workers. In order to
promote a fair and diverse workplace, employees must be respectful and open to others, especially
when dealing with issues and people who may not always agree with their personal beliefs and values.
It is important to overcome bias and stereotypes. Every individual is unique and does not
represent or speak for his or her group. Employees must talk to each other, hear each other, and work
together for the success of the Company. Employees must recognize that they are interdependent
and all must work together to accomplish goals.

Copyright Goodheart-Willcox Co., Inc. May not be reproduced or posted to a publicly accessible website.
Chapter 4 Business in the Free Enterprise 39
Name _______________________________________

Reading Questions
1. What is the main point of this passage?
The main point is that a diverse workforce benefits both companies and employees. Diversity
___________________________________________________________________________________
brings different skills, ideas, and viewpoints, which help businesses succeed while also
___________________________________________________________________________________
creating a more positive and fair workplace for employees.
___________________________________________________________________________________

___________________________________________________________________________________

___________________________________________________________________________________

2. How does diversity benefit employees?

___________________________________________________________________________________
Diversity benefits employees by allowing them to feel valued as individuals, not defined by
stereotypes. It encourages open discussion, conflict resolution, and skill-building through
___________________________________________________________________________________
shared knowledge. Employees are happier and more productive when they can be themselves
in a workplace that respects differences.
___________________________________________________________________________________

___________________________________________________________________________________

___________________________________________________________________________________

___________________________________________________________________________________

___________________________________________________________________________________

___________________________________________________________________________________

3. Which paragraph of the passage describes how diversity benefits employers?

Paragraph 3 explains how diversity benefits employers by improving productivity,
___________________________________________________________________________________
decision-making, reputation, and the ability to attract and retain employees.
___________________________________________________________________________________

4. Upon what is the success of a company dependent?

___________________________________________________________________________________
The success of a company depends on the contributions of all employees. Workers must
respect each other, overcome stereotypes, and work together toward shared goals.
___________________________________________________________________________________

___________________________________________________________________________________

___________________________________________________________________________________

___________________________________________________________________________________

Copyright Goodheart-Willcox Co., Inc. May not be reproduced or posted to a publicly accessible website.