Business In Action 9th Edition By Courtland Bovee, John V. Thill TEST BANK

Test Bank (Download only) for Business in Action Revised by Susan Schanne

Business in Action Ninth Edition

Courtland L. Bovee John V. Thill

Business in Action, 9e (Bovee/Thill) Chapter 1 Developing a Business Mindset 1) ________ is money that an organization brings in through the sale of its goods and services.

A) Competitive advantage B) Revenue C) Sales D) Capital investment E) Finance Answer: B Explanation: Revenue is the money a company brings in through the sale of goods and services.

Difficulty: 1: Easy AACSB: Application of knowledge LO: 1.1: Explain the concept of adding value in a business, and identify four useful ways to categorize businesses.

2) The risk and reward relationship ________.

A) is a key aspect of social responsibility B) applies only to service-intensive businesses C) is essential to the counter-cyclical business model D) is fundamental to businesses in every modern economy E) is an outdated concept that's been replaced by corporate sustainability Answer: D Explanation: A company needs to see some promise of reward before it will decide to accept the risks involved in creating and selling products. However, to ensure responsible behavior, these risks need to stay attached to those decisions, meaning that if the decisions turn out bad, that company should suffer the consequences.

Difficulty: 1: Easy AACSB: Application of knowledge LO: 1.1: Explain the concept of adding value in a business, and identify four useful ways to categorize businesses.

3) A(n) ________ is a framework of how a business intends to generate revenue.

A) business model B) strategic management tool C) profitability analysis D) competitive advantage E) entrepreneurial mindset Answer: A Explanation: A company's business model is a clear, simple outline of how the business intends to generate revenue.

Difficulty: 1: Easy AACSB: Analytical thinking LO: 1.1: Explain the concept of adding value in a business, and identify four useful ways to categorize businesses.

4) ________ is the term used to describe the difference between revenue and expenses.

A) Economies of scale B) Interest C) Sales D) Owner's equity E) Profit Answer: E Explanation: Profit is the amount of money left over after all the costs involved in doing business, have been deducted from revenue.

Difficulty: 1: Easy AACSB: Application of knowledge LO: 1.1: Explain the concept of adding value in a business, and identify four useful ways to categorize businesses.

5) ________ refers to some aspect of a product or company that makes it more appealing to target customers.

A) Competitive advantage B) Economies of scale C) Horizontal integration D) Vertical integration E) Barrier to entry advantage Answer: A Explanation: Competitive advantage refers to some aspect of a product or company that makes it more appealing to target customers.

Difficulty: 2: Moderate AACSB: Application of knowledge LO: 1.1: Explain the concept of adding value in a business, and identify four useful ways to categorize businesses.

6) An organization that seeks to operate efficiently and effectively to achieve its goals without focusing on profit as a motive is a ________.

A) business intermediary B) nonprofit organization C) service business D) government-owned corporation E) goods-producing business Answer: B Explanation: Not-for-profit organizations (also known as nonprofit organizations) such as museums, most universities, and charities do not have a profit motive.

Difficulty: 2: Moderate AACSB: Application of knowledge LO: 1.1: Explain the concept of adding value in a business, and identify four useful ways to categorize businesses.

7) If individuals and companies believe they can pursue rewards without facing the risks that should be attached to those pursuits, they are more likely to engage in irresponsible and even unethical behavior. This situation is known as a(n) ________.

A) ethical dilemma B) professional dilemma C) barrier to entry D) competitive advantage E) moral hazard Answer: E Explanation: If individuals and companies believe they can pursue rewards without facing the risks that should be attached to those pursuits, they are more likely to engage in irresponsible and even unethical behavior—a situation known as moral hazard.

Difficulty: 2: Moderate AACSB: Ethical understanding and reasoning LO: 1.1: Explain the concept of adding value in a business, and identify four useful ways to categorize businesses.

8) Business is any profit-seeking organization that provides goods and services designed to satisfy customers' needs.

Answer: TRUE Explanation: In a general sense business can be defined as any profit-seeking organization that provides goods and services designed to satisfy customers' needs.

Difficulty: 1: Easy AACSB: Application of knowledge LO: 1.1: Explain the concept of adding value in a business, and identify four useful ways to categorize businesses.

9) Profit refers to the money the company brings in through the sale of goods and services.

Answer: FALSE Explanation: Profit is the amount of money left over after expenses—all the costs involved in doing business—have been deducted from revenue.

Difficulty: 1: Easy AACSB: Application of knowledge LO: 1.1: Explain the concept of adding value in a business, and identify four useful ways to categorize businesses.

10) Businesses add value by transforming lower-value inputs (like paper and ink) into higher-value outputs (like textbooks).

Answer: TRUE Explanation: Businesses add value by transforming lower-value inputs to higher-value outputs. In other words, they make goods and services more attractive from the buyer's perspective.

Difficulty: 1: Easy AACSB: Application of knowledge LO: 1.1: Explain the concept of adding value in a business, and identify four useful ways to categorize businesses.

11) In a free-market economy, companies generally have limited autonomy in deciding which customers they want to focus on and how they want to compete.

Answer: FALSE Explanation: In a free-market economy, companies generally have considerable freedom in deciding which customers they want to focus on and how they want to compete.

Difficulty: 2: Moderate AACSB: Application of knowledge LO: 1.1: Explain the concept of adding value in a business, and identify four useful ways to categorize businesses.

12) A company has competitive advantage when its products are more appealing to its chosen customers.

Answer: TRUE Explanation: Competitive advantage makes a company's products or the company as a whole more appealing to its chosen customers.

Difficulty: 1: Easy AACSB: Application of knowledge LO: 1.1: Explain the concept of adding value in a business, and identify four useful ways to categorize businesses.

13) Assets refer to the tangible economic resources owned by a firm.

Answer: FALSE Explanation: Assets refer to anything of meaningful value, from patents and brand names to real estate and company stock.

Difficulty: 2: Moderate AACSB: Application of knowledge LO: 1.1: Explain the concept of adding value in a business, and identify four useful ways to categorize businesses.

14) A firm uses competitive advantage to reduce its costs. Using competitive advantage is an example of barrier to entry.

Answer: FALSE Explanation: Barrier to entry refers to any resource or capability a company must have before it can start competing in a given market.

Difficulty: 2: Moderate AACSB: Application of knowledge LO: 1.1: Explain the concept of adding value in a business, and identify four useful ways to categorize businesses.

15) Difficulty in obtaining business permits or licenses to perform a particular type of business would be an example of a barrier to entry for a firm.

Answer: TRUE Explanation: Barrier to entry refers to any resource or capability a company must have before it can start competing in a given market.

Difficulty: 2: Moderate AACSB: Application of knowledge LO: 1.1: Explain the concept of adding value in a business, and identify four useful ways to categorize businesses.

16) How are not-for-profit organizations different from most businesses?

Answer: The driving forces behind most businesses are the prospects of earning profits and building assets, which are anything of meaningful value, from patents and brand names to real estate and company stock. In contrast, not-for-profit organizations (also known as nonprofit organizations) such as museums, most universities, and charities do not have a profit motive. However, similar to goods-producing businesses, they must operate efficiently and effectively to achieve their goals. A nonprofit organization might use many of the business-management principles used by other businesses such as a goods-producing business.

Difficulty: 3: Challenging AACSB: Analytical thinking LO: 1.1: Explain the concept of adding value in a business, and identify four useful ways to categorize businesses.

17) Explain barrier to entry with an example.

Answer: Barrier to entry refers to a resource or capability a company must have before it can start competing in a given market. Barriers to entry include government testing and approval, tightly controlled markets, strict licensing procedures, limited supplies of raw materials, and the need for highly skilled employees.

Difficulty: 3: Challenging AACSB: Application of knowledge LO: 1.1: Explain the concept of adding value in a business, and identify four useful ways to categorize businesses.

18) ________ refers to a view of business that considers the many decisions that must be made and the potential problems that must be overcome before the organization can deliver its products or services.

A) Business mindset B) Service orientation C) Free-market philosophy D) Competitive advantage E) Business model Answer: A Explanation: A business mindset refers to a view of business that considers the many decisions that must be made and the potential problems that must be overcome before the organization can deliver its products or services.

Difficulty: 2: Moderate AACSB: Application of knowledge LO: 1.2: List three steps you can take to help make the leap from consumer to business professional.

19) What key aspect of running a business includes the ability to offer valuable goods and services while contributing to society?

A) Corporate social responsibility B) Business mindset C) Opportunities in the marketplace D) Vertical integration E) Producing intangibles Answer: A Explanation: Business has the potential to contribute to society in many useful ways including offering goods and services, providing employment, paying taxes, and contributing to national growth, stability, and security.

Difficulty: 2: Moderate AACSB: Analytical thinking LO: 1.2: List three steps you can take to help make the leap from consumer to business professional.

20) Businesses can impact society in both positive and negative ways. Occupying land and displacing existing businesses are examples of ________.

A) generating pollution B) disrupting communities C) creating waste D) creating safety risks E) causing financial instability Answer: B Explanation: From occupying land to displacing existing businesses to overloading schools and roads with employees and their children, growing businesses can disrupt communities even as they provide employment and other benefits. And when businesses fall into decline, they can leave behind everything from abandoned buildings to laid-off workers.

Difficulty: 2: Moderate AACSB: Analytical thinking LO: 1.2: List three steps you can take to help make the leap from consumer to business professional.

21) Who are the people who apply entrepreneurial strategies to cause large-scale social change?

A) Government regulators B) Social responsibility leaders C) Social entrepreneurs D) Business mindset entrepreneurs E) High-value output leadership Answer: C Explanation: Social entrepreneurs, people who apply entrepreneurial strategies to enable large-scale social change, use business concepts to create change.

Difficulty: 2: Moderate AACSB: Application of knowledge LO: 1.2: List three steps you can take to help make the leap from consumer to business professional.

22) Intangible products have a physical presence.

Answer: FALSE Explanation: Intangible products create value by performing activities that deliver some benefit to the customer. They do not have physical presence.

Difficulty: 2: Moderate AACSB: Application of knowledge LO: 1.2: List three steps you can take to help make the leap from consumer to business professional.

23) A business mindset is a view of business that considers the various decisions a business has to make as well as the challenges that it must overcome in order to be successful.

Answer: TRUE Explanation: A business mindset is a view of business that considers the various decisions a business has to make as well as the challenges that it must overcome in order to be successful.

Difficulty: 2: Moderate AACSB: Application of knowledge LO: 1.2: List three steps you can take to help make the leap from consumer to business professional.

24) Businesses can have both positive and negative effects on society.

Answer: TRUE Explanation: The relationship between business and society is complex and far-reaching.

Businesses can have both positive and negative effects on society.

Difficulty: 1: Easy AACSB: Application of knowledge LO: 1.2: List three steps you can take to help make the leap from consumer to business professional.

25) Compare and contrast the perspective of a business professional with that of a consumer.

Answer: Consumer experiences include the impact of poor customer service, a sense for product value, and the entire experience of searching for, purchasing, and owning products. While a customer thinks about the cost of buying a particular product, a business professional thinks about the cost of making it, promoting it, and distributing it.

A business professional focuses on what it takes to make a product stand out from the crowd and recognizes the importance of finding opportunities in the marketplace. He/she starts to develop a business mindset which involves an appreciation for the many decisions that must be made and the many challenges that must be overcome before companies can deliver the products that satisfy customer needs.

Difficulty: 3: Challenging AACSB: Analytical thinking LO: 1.2: List three steps you can take to help make the leap from consumer to business professional.

26) Discuss the positive and negative role of business in society.

Answer: A business professional needs to recognize the positive and negative effects that business can have on society. Business has the potential to contribute to society in many useful ways, such as: • Offering valuable goods and services.

• Providing employment, which enables employees to provide for themselves and their families. In addition, many companies help their employees meet the costs of health care, child care, insurance, retirement, and other living expenses.

• Paying taxes. Money collected from taxes that helps build highways, fund education, further scientific research, enhance public safety and national defense, and support other vital functions of government.

• Contributing to national growth, stability, and security. Beyond the mere dollars of taxes paid, a strong economy helps ensure a strong country.

Unfortunately, businesses don't always operate in ways that benefit society. The potentially negative effects that business can have on society include generating pollution and creating waste, creating health and safety risks, disrupting communities, and causing financial instability. The potential negative effects of business are serious matters, but employees can conduct themselves in ways that balance the profit motive with society's shared interests.

Difficulty: 3: Challenging AACSB: Ethical understanding and reasoning LO: 1.2: List three steps you can take to help make the leap from consumer to business professional.

27) ________ refers to the resources or capabilities a company must have before it can start competing in a given market.

A) Assets B) Economies of scale C) Barriers to entry D) Technological requirements E) Fixed costs Answer: C Explanation: Barrier to entry is a resource or capability a company must have before it can start competing in a given market.

Difficulty: 2: Moderate AACSB: Application of knowledge LO: 1.3: Discuss the five major environments in which every business operates.

28) Businesses that need very large amounts of money, equipment, or other material resources in order to get started are ________ businesses.

A) service sector B) labor-intensive C) competitively-advantaged D) not-for-profit E) capital-intensive Answer: E Explanation: Because they require large amounts of money, equipment, land, and other resources to get started and to operate, goods-producing businesses are often capitalintensive businesses.

Difficulty: 2: Moderate AACSB: Application of knowledge LO: 1.3: Discuss the five major environments in which every business operates.

29) Population trends that change the composition of consumer markets and the workforce are a part of a company's ________ environment.

A) economic B) regulatory C) technological D) social E) political Answer: D Explanation: Every business operates within the broad social environment, the trends and forces in society at large. For instance, all companies are affected by population trends that change the composition of consumer markets and the workforce.

Difficulty: 2: Moderate AACSB: Application of knowledge LO: 1.3: Discuss the five major environments in which every business operates.

30) Which one of the following is true regarding the economic environment of business that shapes the behavior of buyers and sellers?

A) Forces resulting from the practical application of science are affected by the economic environment.

B) Virtually every decision made is influenced by the economic environment.

C) Laws and regulations that restrain, support, and protect businesses protect the economic environment.

D) Targeted customers and competitors that market similar products will not affect the economic environment.

E) Population trends, social values, and relationships of society and business are dependent on the economic environment.

Answer: B Explanation: Conditions and forces in the economic environment affect the cost and availability of goods, services, and labor; so they shape the behavior of buyers and sellers.

Difficulty: 2: Moderate AACSB: Analytical thinking LO: 1.3: Discuss the five major environments in which every business operates.

31) All groups affected by a company's activities are referred to as its ________.

A) shareholders B) customers C) stakeholders D) employees E) suppliers Answer: C Explanation: Stakeholders refers to the internal and external groups affected by a company's decisions and activities.

Difficulty: 1: Easy AACSB: Ethical understanding and reasoning LO: 1.3: Discuss the five major environments in which every business operates.

32) The term ________ refers to forces resulting from the practical application of science to innovations, products, and processes.

A) social trends B) research and development C) barriers to entry D) technological environment E) business mindset Answer: D Explanation: The technological environment refers to forces resulting from the practical application of science to innovations, products, and processes.

Difficulty: 2: Moderate AACSB: Information technology LO: 1.3: Discuss the five major environments in which every business operates.

33) The conditions that affect the cost and availability of goods, services and labor, and the behavior of buyers and sellers are BEST described as the ________ environment.

A) market B) regulatory C) legal D) economic E) social Answer: D Explanation: Virtually every decision a company makes is influenced by the economic environment, the conditions and forces that (a) affect the cost and availability of goods, services, and labor and (b) thereby shape the behavior of buyers and sellers.

Difficulty: 2: Moderate AACSB: Application of knowledge LO: 1.3: Discuss the five major environments in which every business operates.

34) The legal and regulatory environment would include ________.

A) demographic factors B) technological innovations C) the number of competitors in the market D) preferences of the consumers E) the speed of obtaining licenses Answer: E Explanation: Every business is affected by the legal and regulatory environment, the sum of laws and regulations at the local, state, national, and even international level.

Difficulty: 2: Moderate AACSB: Application of knowledge LO: 1.3: Discuss the five major environments in which every business operates.

35) The policies and practices of government bodies would shape the ________ environment for a business.

A) legal and regulatory B) technological C) social D) economic E) market Answer: A Explanation: Every business is affected by the legal and regulatory environment, the sum of laws and regulations at the local, state, national, and even international level. The policies and practices of government bodies also establish an overall level of support for businesses operating within their jurisdictions.

Difficulty: 2: Moderate AACSB: Application of knowledge LO: 1.3: Discuss the five major environments in which every business operates.

36) Which of the following is a component of the specific market environment within which each business operates?

A) Ethical restrictions B) Competitors C) Technological innovations D) Environmental restrictions E) The speed of granting permits and licenses Answer: B Explanation: Every company operates within a specific market environment composed of three important groups: (1) its target customers, (2) buying influences that shape the behavior of those customers, and (3) competitors—other companies that market similar products to those customers.

Difficulty: 2: Moderate AACSB: Application of knowledge LO: 1.3: Discuss the five major environments in which every business operates.

37) ________ refers to a company's target customers, the buying influences that shape the behavior of those customers, and competitors that market similar products to those customers.

A) Regulatory environment B) Social environment C) Economic environment D) Market environment E) Technological environment Answer: D Explanation: Market environment refers to a company's target customers, the buying influences that shape the behavior of those customers, and competitors that market similar products to those customers.

Difficulty: 2: Moderate AACSB: Application of knowledge LO: 1.3: Discuss the five major environments in which every business operates.

38) The practical application of science to products and innovations has the potential to create change in almost every facet of business, as part of the ________.

A) social environment B) wearable and mobile technology revaluation C) technological environment D) economic environment E) stakeholders' responsibility Answer: C Explanation: Technological environment stems from the practical application of science to innovations, products, and processes. Technological advances have the potential to change every facet of business, from altering internal processes to creating or destroying market opportunities.

Difficulty: 2: Moderate AACSB: Information technology LO: 1.3: Discuss the five major environments in which every business operates.

39) What types of technologies are strong enough to create or destroy companies?

A) Connective B) Gig C) Mobile D) Disruptive E) Collaborative Answer: D Explanation: Disruptive technologies, those that fundamentally change the nature of an industry, can be powerful enough to create or destroy entire companies. Many of the technologies that you use in your academic, personal, and social activities, from digital audio and video to the Internet to social media, are disruptive technologies that have shaken up multiple industries.

Difficulty: 3: Challenging AACSB: Information technology LO: 1.3: Discuss the five major environments in which every business operates.

40) If mobile technology is a disruptive technology, why do organizations value integration of the technology?

A) Stakeholders are demanding an increase in the use of the newest technologies.

B) Mobile technology is more cost effective than traditional methods of communication.

C) Mobile technology is more consistent in international markets.

D) Once integrated, technology has fewer changes and is easy to maintain.

E) Mobile technology can boost productivity and help form closer relationships with customers.

Answer: E Explanation: Mobile apps and communication systems can boost employee productivity, help companies form closer relationships with customers and business partners, and spur innovation in products and services. Given the advantages and the rising expectations of employees and customers, firms on the leading edge of the mobile revolution are working to integrate mobile technology throughout their organizations.

Difficulty: 3: Challenging AACSB: Information technology LO: 1.3: Discuss the five major environments in which every business operates.

41) What part of the market environment shapes the behavior of customers?

A) Target market B) Buying influences C) Competitors D) Regulatory influences E) Connectivity Answer: B Explanation: A market environment is composed of three important groups: (1) its target customers, (2) the buying influences that shape the behavior of those customers, and (3) competitors.

Difficulty: 2: Moderate AACSB: Application of knowledge LO: 1.3: Discuss the five major environments in which every business operates.

42) Which of the following best describes a purpose-driven business?

A) A company that strives to create high financial return for stakeholders B) A company that strives to do more than just make money C) A company that strives to limit the demand for goods and services D) A company that strives to follow all laws and regulations in the international environment E) A company that strives to incorporate as much technology as possible Answer: B Explanation: A growing number of employees and company leaders believe that a company should strive for something more than just making money, giving rise to the concept of the purpose-driven business.

Difficulty: 2: Moderate AACSB: Application of knowledge LO: 1.3: Discuss the five major environments in which every business operates.

43) Which of the following is one of the biggest expenses a company faces?

A) Stakeholder return B) Taxes C) Labor D) Technology E) Raw material Answer: C Explanation: Labor is typically one of a company's biggest expenses, so companies keep an eye out for new technologies that can reduce labor costs or improve labor productivity.

Doing so can be good for business, but it can be bad for the workforce if fewer workers are needed.

Difficulty: 2: Moderate AACSB: Application of knowledge LO: 1.3: Discuss the five major environments in which every business operates.

44) Which of the following best describes a gig economy?

A) Workers who telecommute at least part of the work week B) Workers who use technology to track offerings of competitors C) Independent workers who utilize sharing services D) Independent contractors who work on short-term projects E) Workers who use smartphones to produce services Answer: D Explanation: Millions of people now work full- or part-time in the gig economy. The gig economy, is made up of people who work as independent contractors on a series of shortterm projects or tasks (colloquially known as "gigs"). Much of the work in the gig economy is either technology based or enabled by technologies such as website services and mobile apps.

Difficulty: 2: Moderate AACSB: Application of knowledge LO: 1.3: Discuss the five major environments in which every business operates.

45) In addition to its target customers, who makes up a company's specific market environment?

A) Purpose-driven buyers B) Stakeholders C) Governments D) Gig workers E) Competitors Answer: E Explanation: Within the various environments every company operates within a specific market environment composed of three important groups: (1) its target customers, (2) the buying influences that shape the behavior of those customers, and (3) competitors–other companies that market similar products to those customers.

Difficulty: 2: Moderate AACSB: Application of knowledge LO: 1.3: Discuss the five major environments in which every business operates.

46) Forces resulting from the practical application of science to a company's products and processes would best describe its social environment.

Answer: FALSE Explanation: Every business operates within the broad social environment. Social environment refers to the trends and forces in society at large. The technological environment stems from the practical application of science to innovations, products, and processes.

Difficulty: 2: Moderate AACSB: Application of knowledge LO: 1.3: Discuss the five major environments in which every business operates.

47) A firm sets up a paper-manufacturing factory in a country which has very strict regulations regarding disposal of industrial waste. This increases the cost of production of the firm. This is an example of the social environment of the firm.

Answer: FALSE Explanation: Every business operates within the broad social environment. Social environment refers to the trends and forces in society at large. The legal and regulatory environment includes the sum of laws and regulations at local, state, national, and even international levels.

Difficulty: 2: Moderate AACSB: Ethical understanding and reasoning LO: 1.3: Discuss the five major environments in which every business operates.

48) The term stakeholders refers only to those people who have invested money in the company's stock.

Answer: FALSE Explanation: All internal and external groups affected by a company's decisions and activities are referred to as its stakeholders.

Difficulty: 2: Moderate AACSB: Application of knowledge LO: 1.3: Discuss the five major environments in which every business operates.

49) Compare and contrast the social environment and the economic environment of a business.

Answer: Social environment refers to the trends and forces in society at large. For instance, all companies are affected by population trends that change the composition of consumer markets and the workforce. The economic environment of a business consists of the conditions and forces that (a) affect the cost and availability of goods, services, and labor and (b) thereby shape the behavior of buyers and sellers. For example, a growing economy can help companies by increasing demand and supporting higher prices for their products, but it can also raise the costs of labor and the materials the companies need to do business.

Difficulty: 3: Challenging AACSB: Analytical thinking LO: 1.3: Discuss the five major environments in which every business operates.

50) How is the legal and regulatory environment of a business related to barriers to entry?

Answer: Every business is affected by the legal and regulatory environment: the sum of laws and regulations at the local, state, national, and even international level. Some businesses, such as electricity and other basic utilities are heavily regulated, even to the point of government agencies determining how much such companies can charge for their services. The degree to which various industries should be regulated remains a point of contention, year in and year out. Government testing and approval, tightly controlled markets, strict licensing procedures can act as barriers to entry.

Businesses prefer to locate and do business in jurisdictions that offer lower costs, lower complexity, and greater stability and predictability. The policies and practices of government bodies establish an overall level of support for businesses operating within their jurisdictions. Taxation, fees, efforts to coordinate multiple regulatory agencies, the speed of granting permits and licenses, labor rules, environmental restrictions, protection for assets such as patents and brand names, roads and other infrastructure, and the transparency and consistency of decision making all affect this level of support.

Difficulty: 3: Challenging AACSB: Analytical thinking LO: 1.3: Discuss the five major environments in which every business operates.

51) Compare and contrast the technological environment and the market environment within which a business operates.

Answer: The technological environment refers to forces resulting from the practical application of science to innovations, products, and processes. Technological changes have the potential to change every facet of business, from altering internal processes to creating or destroying market opportunities.

Every company operates within a specific market environment composed of three important groups: (1) its target customers, (2) buying influences that shape the behavior of those customers, and (3) competitors—other companies that market similar products to those customers. The nature and behavior of these groups and their effect on business strategy vary widely from industry to industry.

Difficulty: 3: Challenging AACSB: Analytical thinking LO: 1.3: Discuss the five major environments in which every business operates.

52) ________ activities are intended to identify new ideas and designs that have the potential to result in new goods and services.

A) Information technology B) Operations management C) Research and development D) Human resources E) Accounting Answer: C Explanation: Research and development (R&D) refers to the functional area responsible for conceiving and designing new products. For companies that develop products, R&D is essential to their success because it provides the ideas and designs that allow these firms to meet customer needs in competitive markets.

Difficulty: 2: Moderate AACSB: Application of knowledge LO: 1.4: Explain the purpose of the six major functional areas in a business enterprise.

53) ________ is the act of designing new and better ways to run a company's operations.

A) Process R&D B) Marketing C) Purchasing D) Facilities E) Human resources Answer: A Explanation: Companies can engage in process R&D to design new and better ways to run their operations.

Difficulty: 2: Moderate AACSB: Application of knowledge LO: 1.4: Explain the purpose of the six major functional areas in a business enterprise.

54) Which of the following best describes the department where the company's products are made, or its service is performed?

A) Operations B) Finance C) Distribution D) Process R&D E) Marketing Answer: A Explanation: Variously called manufacturing, production, or operations, this area is where the company makes whatever it makes (for goods-producing businesses) or does whatever it does (for service businesses).

Difficulty: 2: Moderate AACSB: Application of knowledge LO: 1.4: Explain the purpose of the six major functional areas in a business enterprise.

55) The ________ function of an organization coordinates the incoming flow of materials and the outgoing flow of finished products.

A) finance B) logistics C) human resource D) purchasing E) sales Answer: B Explanation: Logistics involves coordinating the incoming flow of materials and the outgoing flow of finished products.

Difficulty: 2: Moderate AACSB: Application of knowledge LO: 1.4: Explain the purpose of the six major functional areas in a business enterprise.

56) Which of the following activities would be a part of facilities management?

A) Designing a new product B) Devising a marketing strategy C) Ensuring that the office building adheres to safety standards D) Delivering the finished product to the customer E) Maintaining demographic and contact details of potential customers Answer: C Explanation: Facilities management is responsible for everything from planning new buildings to maintaining them.

Difficulty: 2: Moderate AACSB: Application of knowledge LO: 1.4: Explain the purpose of the six major functional areas in a business enterprise.

57) An operations manager is most likely to be responsible for ________.

A) developing relationships with potential customers B) using social media to interact with customers C) helping to promote products to retailers D) creating branding and advertising strategies E) arranging to buy the necessary materials for manufacturing Answer: E Explanation: In addition to supervising the actual production activity, operations managers are responsible for a wide range of other strategies and decisions, including purchasing (arranging to buy the necessary materials for manufacturing).

Difficulty: 2: Moderate AACSB: Application of knowledge LO: 1.4: Explain the purpose of the six major functional areas in a business enterprise.

58) Creating branding and advertising strategies to communicate with potential customers would fall under the ________ function of a business.

A) human resource B) accounting C) logistics D) marketing E) research and development Answer: D Explanation: Marketing is charged with identifying opportunities in the marketplace.

Marketing departments often work with R&D to develop the products to address those opportunities, creating branding and advertising strategies to communicate with potential customers, and setting prices.

Difficulty: 2: Moderate AACSB: Application of knowledge LO: 1.4: Explain the purpose of the six major functional areas in a business enterprise.

59) The ________ function of a business involves the recruiting, hiring and support of its personnel.

A) operations B) finance C) human resources D) accounting E) information technology Answer: C Explanation: The human resources (HR) function is responsible for recruiting, hiring, developing, and supporting employees.

Difficulty: 2: Moderate AACSB: Application of knowledge LO: 1.4: Explain the purpose of the six major functional areas in a business enterprise.

60) One of the ________ functions of a business involves working with R&D to develop products to address opportunities in the marketplace and create branding and advertising strategies to communicate with potential customers.

A) operations B) finance C) marketing D) accounting E) information technology Answer: C Explanation: Although the lines separating these three activities are often blurry, generally speaking, marketing is charged with identifying opportunities in the marketplace, working with R&D to develop products to address those opportunities, creating branding and advertising strategies to communicate with potential customers, and setting prices.

Difficulty: 2: Moderate AACSB: Application of knowledge LO: 1.4: Explain the purpose of the six major functional areas in a business enterprise.

61) The ________ function of a business develops relationships with potential customers

and persuades them to buy the company's goods and services.

A) advertising B) marketing C) customer support D) sales E) distribution Answer: D Explanation: The sales function develops relationships with potential customers and persuades customers to buy the company's goods and services.

Difficulty: 2: Moderate AACSB: Application of knowledge LO: 1.4: Explain the purpose of the six major functional areas in a business enterprise.

62) Research and development fuels new ideas and designs for the company's products and services that allow it to meet customer needs in competitive markets.

Answer: TRUE Explanation: R&D fuels new ideas and designs for the company's products and services that allow it to meet customer needs in competitive markets.

Difficulty: 2: Moderate AACSB: Application of knowledge LO: 1.4: Explain the purpose of the six major functional areas in a business enterprise.

63) An employee who is responsible for creating a branding and marketing strategy is most likely to be a part of the firm's operations management team.

Answer: FALSE Explanation: A person responsible for a company's branding and marketing strategy will be part of strategic management rather than operations management.

Difficulty: 2: Moderate AACSB: Application of knowledge LO: 1.4: Explain the purpose of the six major functional areas in a business enterprise.

64) In general, accounting managers are responsible for planning, while financial managers are responsible for monitoring and reporting.

Answer: FALSE Explanation: In general, financial managers are responsible for planning, while accounting managers are responsible for monitoring and reporting.

Difficulty: 2: Moderate AACSB: Application of knowledge LO: 1.4: Explain the purpose of the six major functional areas in a business enterprise.

65) Companies that sell shares of stock to the public are required to have their financial records audited by an outside accounting firm.

Answer: TRUE Explanation: Companies that sell shares of stock to the public are required to have their financial records audited by an outside accounting firm.

Difficulty: 2: Moderate AACSB: Application of knowledge LO: 1.4: Explain the purpose of the six major functional areas in a business enterprise.

66) Describe the six major functional areas in a business enterprise.

Answer: The six major functional areas in a business are: (1) Research and development (R&D) creates the goods and services that a company can manufacture or perform for its customers. (2) Manufacturing, production, and operations is that part of the company where the firm makes whatever it makes or performs whatever services it performs. (3) The related group of functions in marketing, sales, distribution, and customer support are responsible for identifying market opportunities, crafting the promotional strategies, and making sure customers are supplied and satisfied with their purchases. (4) Finance and accounting plan for the company's financial needs, control spending, and report on financial matters. (5) The human resources (HR) function recruits, hires, develops, and supports employees. (6) A variety of business services provides expertise in law, real estate, and other areas.

Difficulty: 1: Easy AACSB: Analytical thinking LO: 1.4: Explain the purpose of the six major functional areas in a business enterprise.

67) Compare and contrast the research and development and the operations functions of a business.

Answer: Products are conceived and designed through research and development (R&D), sometimes known as product design or engineering. It creates the goods and services that a company can manufacture or perform for its customers. Companies can also engage in process R&D to design new and better ways to run their operations.

Manufacturing, production, or operations is that part of the company where the firm makes whatever it makes or performs whatever services it performs. In addition to supervising the actual production activity, operations managers are responsible for a wide range of other strategies and decisions, including purchasing (arranging to buy the necessary materials for manufacturing), logistics (coordinating the incoming flow of materials and the outgoing flow of finished products), and facilities management (everything from planning new buildings to maintaining them).

Difficulty: 3: Challenging AACSB: Analytical thinking LO: 1.4: Explain the purpose of the six major functional areas in a business enterprise.

68) ________ can be used to get timely, accurate information to the right people via computer and communication systems.

A) Research and development (R&D) B) Strategic marketing C) Product engineering D) Information technology (IT) E) Forensic technology (FT) Answer: D Explanation: Information technology (IT) systems promote communication and information usage through the company or allow companies to offer new services to their customers.

Difficulty: 2: Moderate AACSB: Information technology LO: 1.5: Summarize seven of the most important business professions.

69) ________ verify the financial reports of public companies as required by law.

A) Internal accountants B) External auditors C) Credit managers D) Management accountants E) Forensic accountants Answer: B Explanation: Companies that sell shares of stock to the public are required to have their financial records audited by an outside accounting firm.

Difficulty: 2: Moderate AACSB: Application of knowledge LO: 1.5: Summarize seven of the most important business professions.

70) ________ encompasses all the people and processes used to create the goods and perform the services that a company sells.

A) Sales and marketing B) Information technology management C) Human resources management D) Operations management E) Financial management Answer: D Explanation: Operations management encompasses all the people and processes used to create the goods and perform the services that a company sells. The work can involve a wide range of tasks and disciplines, including production engineering, assembly, testing, scheduling, quality assurance, information technology, forecasting, finance, logistics, and customer support.

Difficulty: 2: Moderate AACSB: Application of knowledge LO: 1.5: Summarize seven of the most important business professions.

71) An HR specialist is most likely to be responsible for which of the following activities?

A) Motivate and train diverse workforces B) Production monitoring C) Design, implement, and maintain information systems D) File the annual tax returns for the company E) Verify the financial reports of public companies Answer: A Explanation: HR specialists and managers plan and direct human resource activities that include recruiting, training and development, compensation and benefits, employee and labor relations, and health and safety.

Difficulty: 2: Moderate AACSB: Application of knowledge LO: 1.5: Summarize seven of the most important business professions.

72) A management accountant is likely to be responsible for which of the following activities?

A) Purchasing raw material for production B) Assessing the manufacturing costs of new products C) Determining the prices of products D) Removing a distributor from the supply chain E) Determining the money allocated for marketing Answer: B Explanation: Management accountants are responsible for collecting, analyzing, and reporting on financial matters—such as analyzing budgets, assessing the manufacturing costs of new products, and preparing state and federal tax returns.

Difficulty: 2: Moderate AACSB: Application of knowledge LO: 1.5: Summarize seven of the most important business professions.

73) Which of the following positions would be responsible for establishing the long-term financial goals of the company, investing funds, and raising capital?

A) Credit manager B) Internal auditor C) Chief information officer D) Forensic accountant E) Finance officer Answer: E Explanation: Treasurers and finance officers have a more strategic role, establishing long-term financial goals and budgets, investing the firm's funds, and raising capital as needed.

Difficulty: 2: Moderate AACSB: Application of knowledge LO: 1.5: Summarize seven of the most important business professions.

74) Which of the following is responsible for talent management efforts to ensure the company can compete in its chosen markets?

A) Human resources B) Operations management C) Sales D) Marketing E) Accounting Answer: A Explanation: HR also oversees talent management efforts, making sure the company can attract, develop, and retain people with the types of talent the company needs in order to compete in its chosen markets.

Difficulty: 2: Moderate AACSB: Analytical thinking LO: 1.5: Summarize seven of the most important business professions.

75) Because of the increasing importance of the field, most companies now employ ________ to oversee the development of IT strategies for the organization.

A) web designers B) chief information officers C) systems specialists D) Gig specialists E) Internal auditors Answer: B Explanation: Reflecting IT's strategic importance, many midsize and large companies now have a chief information officer (CIO) position at the executive level to plot IT strategy.

Difficulty: 1: Easy AACSB: Information technology LO: 1.5: Summarize seven of the most important business professions.

76) Which of the following verify the efforts of an organization's accounting department and look for ways to improve efficiency and cost-effectiveness?

A) Public accountants B) Management accountants C) Internal auditors D) Financial analysts E) Forensic accountants Answer: C Explanation: Internal auditors verify the work of the company's accounting effort and look for opportunities to improve efficiency and cost-effectiveness.

Difficulty: 2: Moderate AACSB: Application of knowledge LO: 1.5: Summarize seven of the most important business professions.

77) Who are those responsible for investigating financial crimes?

A) Financial managers B) Controllers C) External auditors D) Forensic accountants E) Treasurers Answer: D Explanation: Forensic accountants investigate financial crimes.

Difficulty: 2: Moderate AACSB: Application of knowledge LO: 1.5: Summarize seven of the most important business professions.

78) Who has the strategic, long-term responsibility for raising funds for an organization when needed?

A) Financial managers B) Cash managers C) Credit managers D) Controllers E) Finance officers Answer: E Explanation: Treasurers and finance officers have a more strategic role, establishing long-term financial goals and budgets, investing the firm's funds, and raising capital as needed.

Difficulty: 2: Moderate AACSB: Application of knowledge LO: 1.5: Summarize seven of the most important business professions.

79) The chief information officer (CIO) is responsible for the preparation of income statements and balance sheets.

Answer: FALSE Explanation: Accountants and controllers are responsible for the preparation of income statements, balance sheets, and other financial reports.

Difficulty: 2: Moderate AACSB: Application of knowledge LO: 1.5: Summarize seven of the most important business professions.

80) Internal auditors verify the work of the company's accounting effort and look for opportunities to improve efficiency and cost effectiveness.

Answer: TRUE Explanation: Internal auditors verify the work of the company's accounting effort and look for opportunities to improve efficiency and cost effectiveness.

Difficulty: 2: Moderate AACSB: Application of knowledge LO: 1.5: Summarize seven of the most important business professions.

81) Unlike accounting tasks, the work of financial managers is generally kept "in house," particularly in midsize and large companies.

Answer: TRUE Explanation: Unlike accounting tasks, for which there is a long tradition of outsourcing, the work of financial managers is generally kept in-house, particularly in midsize and large companies. The work of a financial manager touches every part of the company, so a broad understanding of the various functional areas in business is a key attribute for this position.

Difficulty: 2: Moderate AACSB: Application of knowledge LO: 1.5: Summarize seven of the most important business professions.

82) What are the functions of HR specialists and managers?

Answer: HR specialists and managers plan and direct human resource activities that include recruiting, training and development, compensation and benefits, employee and labor relations, and health and safety. Additionally, HR managers develop and implement human resources systems and practices to accommodate a firm's strategy and to motivate and manage diverse workforces. In the past, HR was seen by many as a lower-level function concerned mostly with processing employee records and other tactical duties.

However, in many companies, the HR function is becoming more strategic and focused on the global competition to find, attract, and keep the best talent on the market.

Difficulty: 3: Challenging AACSB: Analytical thinking LO: 1.5: Summarize seven of the most important business professions.

83) ________ is the quality of performing at a high level and conducting oneself with purpose and pride.

A) Business mindset B) Professionalism C) Job enrichment D) Positive reinforcement E) Etiquette Answer: B Explanation: Professionalism is the quality of performing at a high level and conducting oneself with purpose and pride.

Difficulty: 2: Moderate AACSB: Application of knowledge LO: 1.6: Identify six components of professionalism.

84) Which of the following activities is most likely to be considered unprofessional?

A) Viewing constant change as a positive thing, as a way to avoid stagnation and boredom B) Being conservative with commitments C) Helping others in the team to improve their performance D) Posting critical comments regarding the employer in a personal blog E) Providing practical information, when required Answer: D Explanation: Professionals don't talk negatively to their employers in front of customers or in their personal blogs. When they have a problem, they solve it; they don't share it.

Difficulty: 2: Moderate AACSB: Ethical understanding and reasoning LO: 1.6: Identify six components of professionalism.

85) The expected norms of behavior in a particular situation are referred to as ________.

A) etiquette B) dependability C) expectancy D) energy E) accountability Answer: A Explanation: Etiquette refers to the expected norms of behavior in any particular situation.

Difficulty: 2: Moderate AACSB: Ethical understanding and reasoning LO: 1.6: Identify six components of professionalism.

86) Performing at a high level, and continuing to improve is an indication of ________ in one's pursuit of professionalism.

A) being a team player B) making ethical decisions C) being dependable and accountable D) maintaining a confident, positive outlook E) striving to excel Answer: E Explanation: Not only do you have an ethical obligation to give your employer and your customers your best effort, but excelling at each level in your career is the best way to keep climbing up to new positions of responsibility.

Difficulty: 2: Moderate AACSB: Ethical understanding and reasoning LO: 1.6: Identify six components of professionalism.

87) What should be done to improve communications and ensure information is useful and adapted to the audience's specific needs?

A) Provide practical information B) Limit access to all data and release only what is necessary C) Present opinions in a forceful manner so they appear to be fact based D) Provide all detail possible in each message E) Make it clear how you will benefit from the audiences response to your message Answer: A Explanation: Give people useful information that is adapted to their specific needs.

Difficulty: 2: Moderate AACSB: Analytical thinking LO: 1.6: Identify six components of professionalism.

88) Improving your communication skills may be one of the most important steps you can take to ________.

A) establish yourself as a professional B) build a strong commitment to ethics C) have a friendly demeanor D) be accountable at all times E) be a team player Answer: A Explanation: If you're looking for a surefire way to stand out from your competition and establish yourself as a competent professional, improving your communication skills may be the most important step you can take.

Difficulty: 3: Challenging AACSB: Analytical thinking LO: 1.6: Identify six components of professionalism.

89) What makes a great team player and is often an indication of management skills?

A) Offering opinions only when asked B) Being able to make others more effective C) Making deadlines D) Showing loyalty to the group at all costs E) Protecting the reputation of the team Answer: B Explanation: In fact, the ability to help others improve their performance is one of the key attributes executives look for when they want to promote people into management.

Difficulty: 2: Moderate AACSB: Analytical thinking LO: 1.6: Identify six components of professionalism.

90) Dependability includes meeting your commitments, such as staying on schedule and within budgets.

Answer: TRUE Explanation: Being dependable includes developing a reputation as somebody people can count on. This means meeting your commitments, including staying on schedule and staying within budgets.

Difficulty: 2: Moderate AACSB: Application of knowledge LO: 1.6: Identify six components of professionalism.

91) Etiquette is the quality of performing your job to the best of your ability and conducting yourself with purpose and pride.

Answer: FALSE Explanation: Etiquette refers to the expected norms of behavior in any particular situation.

Difficulty: 2: Moderate AACSB: Application of knowledge LO: 1.6: Identify six components of professionalism.

92) List the seven key traits of professionalism.

Answer: Professionalism is the quality of performing at a high level and conducting yourself with purpose and pride. True professionals exhibit seven distinct traits: striving to excel, being dependable and accountable, being a team player, communicating effectively, demonstrating a sense of etiquette, making ethical decisions, and maintaining a positive outlook.

Difficulty: 1: Easy AACSB: Analytical thinking LO: 1.6: Identify six components of professionalism.

93) Why is being a team player an important aspect of professionalism?

Answer: Professionals know that they are contributors to a larger cause, and that it's not all about them. Great team players know how to make those around them more effective, whether it's lending a hand during crunch time, sharing resources, removing obstacles, making introductions, or offering expertise. Being a team player also means showing loyalty to your organization and protecting your employer's reputation—one of the most important assets any company has. Professionals don't trash their employers in front of customers or in their personal blogs. When they have a problem, they solve it; they don't share it.

Difficulty: 3: Challenging AACSB: Analytical thinking LO: 1.6: Identify six components of professionalism.

94) Discuss each of the seven guidelines to improve your communication skills.

Answer: First, listen actively. Active listening means making a conscious effort to turn off your own filters and biases to truly hear and understand what someone else is saying.

Second, provide practical information. Give people useful information that is adapted to their specific needs. Third, give facts rather than vague impressions. Use concrete language, specific detail, and supporting information that is clear, convincing, accurate, and ethical. Fourth, don't present opinions as facts. If you are offering an opinion, make sure the audience understands that. Fifth, present information in a concise, efficient manner. Audiences appreciate—and respond more positively to—high-efficiency messages. Sixth, clarify expectations and responsibilities. Clearly state what you expect from your readers or listeners and what you can do for them. Seventh, offer compelling, persuasive arguments and recommendations. Make it clear to people how they will benefit from responding to your messages the way you want them to.

Difficulty: 3: Challenging AACSB: Analytical thinking LO: 1.6: Identify six components of professionalism.

95) Because they fundamentally change the nature of an industry, ________ can be powerful enough to create or destroy entire companies.

A) adaptive technologies B) disruptive technologies C) apocryphal technologies D) incremental technologies E) innovative technologies Answer: B Explanation: Disruptive technologies fundamentally change the nature of an industry.

Therefore, they can have sufficient power to create or destroy entire companies.

Difficulty: 2: Moderate AACSB: Information technology LO: 1.7: Describe the concepts of disruptive innovation and digital transformation.

96) Which of the following is considered to be so fundamentally different that it can create new professions, companies or entire industries?

A) Hype cycling B) Disruptive innovation C) Digital enterprise D) App generation E) Digital transformation Answer: B Explanation: Disruptive innovation is a development so fundamentally different and far reaching that it can create new professions, companies, or even entire industries while damaging or destroying others.

Difficulty: 2: Moderate AACSB: Information technology LO: 1.7: Describe the concepts of disruptive innovation and digital transformation.

97) Which of the following describes any company who uses digital technology as one of the foundations of its value-creation process?

A) Disruptive organization B) Digital enterprise C) Digital transformer D) Disruptive innovator E) Digital twin Answer: B Explanation: A digital enterprise is any company that uses digital enterprise technologies as one of the foundations of its value-creation processes, regardless of what industry it is in or what products it makes.

Difficulty: 3: Challenging AACSB: Information technology LO: 1.7: Describe the concepts of disruptive innovation and digital transformation.

98) Many executives believe it is better to implement digital transformation themselves rather than waiting until other companies force disruption on them.

Answer: TRUE Explanation: Many executives now believe it is imperative to "disrupt themselves" through digital transformation rather than waiting until other companies force disruption on them.

Digital transformation can incorporate a variety of technologies, including big data, the Internet of Things, cloud computing, social media, mobile apps, AI, robotics, and robotic process automation.

Difficulty: 2: Moderate AACSB: Information technology LO: 1.7: Describe the concepts of disruptive innovation and digital transformation.

99) The ability to define and solve problems and form judgements about a situation is referred to as ________.

A) data literacy B) social responsibility C) knowledge application D) critical thinking E) collaboration Answer: D Explanation: In many of the assignments and activities, you will need to define and solve problems and make decisions or form judgments about a particular situation or set of circumstances. These are all critical thinking skills.

Difficulty: 3: Challenging AACSB: Reflective thinking LO: 1.8: Identify seven essential business skills that you will have the opportunity to develop during this course.

100) The ability to learn a concept and then apply that knowledge to other challenges is referred to as knowledge application and analysis.

Answer: TRUE Explanation: The ability to learn a concept and then apply that knowledge to other challenges is a skill that employers value highly.

Difficulty: 2: Moderate AACSB: Reflective thinking LO: 1.8: Identify seven essential business skills that you will have the opportunity to develop during this course.

Business in Action, 9e (Bovee/Thill) Chapter 2 Economics, Money, and Banking 1) ________ is/are the study of how a society uses scarce resources to produce and distribute goods.

A) Opportunity costs B) Economics C) Capitalism D) Entrepreneurship E) Socialism Answer: B Explanation: Economics is the study of how a society uses its scarce resources to produce and distribute goods and services.

Difficulty: 1: Easy AACSB: Application of knowledge LO: 2.1: Define economics, explain why scarcity is central to economic decision making, and identify the major ways of measuring economic activity.

2) Microeconomics includes the study of ________.

A) the costs of production as a means of stimulating the economy B) the application of economic and financial data and statistics C) the overall working of an economy in the society including its monetary and fiscal policies D) policies that raise capital and labor output by increasing the incentive to produce E) economic behavior among consumers and businesses Answer: E Explanation: The study of economic behavior among consumers, businesses, and industries that collectively determine the quantity of goods and services demanded and supplied at different prices is termed microeconomics.

Difficulty: 2: Moderate AACSB: Application of knowledge LO: 2.1: Define economics, explain why scarcity is central to economic decision making, and identify the major ways of measuring economic activity.

3) Which of the following refers to people and their individual talents and capabilities?

A) Natural resources B) Knowledge C) Capital investments D) Human resources

E) Entrepreneurship Answer: D Explanation: Human resources are people and their individual talents and capacities.

Difficulty: 2: Moderate AACSB: Application of knowledge LO: 2.1: Define economics, explain why scarcity is central to economic decision making, and identify the major ways of measuring economic activity.

4) The money, equipment, and buildings that a business needs in order to produce goods and services are called ________.

A) natural resources B) human resources C) capital D) knowledge E) entrepreneurship Answer: C Explanation: Capital includes money, computers, machines, tools, and buildings that a business needs in order to produce goods and services.

Difficulty: 1: Easy AACSB: Application of knowledge LO: 2.1: Define economics, explain why scarcity is central to economic decision making, and identify the major ways of measuring economic activity.

5) ________ is/are led by innovation, initiative, and the willingness to take the risks in creating and operating businesses.

A) Opportunity costs B) Socialization C) Macroeconomics D) Deregulation E) Entrepreneurship Answer: E Explanation: Entrepreneurship is the spirit of innovation, the initiative, and the willingness to take the risks involved in creating and operating businesses.

Difficulty: 2: Moderate AACSB: Application of knowledge LO: 2.1: Define economics, explain why scarcity is central to economic decision making, and identify the major ways of measuring economic activity.

6) Which of the following creates competition for finite resources, thereby forcing tradeoffs by participants in the economy?

A) Redundancy B) Scarcity C) Opportunity costs D) Free market systems E) Planned systems Answer: B Explanation: Scarcity doesn't mean a shortage of a particular resource; rather, it means that the resource has a finite supply. Scarcity has two powerful effects: It creates competition for resources, and it forces trade-offs on the part of every participant in the economy.

Difficulty: 2: Moderate AACSB: Application of knowledge LO: 2.1: Define economics, explain why scarcity is central to economic decision making, and identify the major ways of measuring economic activity.

7) The value given up when a different opportunity was pursued is referred to as ________.

A) opportunity cost B) factors of production C) scarcity value D) finite supply E) affordability Answer: A Explanation: Opportunity cost is a way to measure the value of what you gave up when you pursued a different opportunity.

Difficulty: 2: Moderate AACSB: Application of knowledge LO: 2.1: Define economics, explain why scarcity is central to economic decision making, and identify the major ways of measuring economic activity.

8) Which factor of production represents the collective intelligence of an organization?

A) Natural resources B) Human resources C) Capital D) Entrepreneurship E) Knowledge Answer: E Explanation: Each society must decide how to use its economic resources, or factors of production. Knowledge is the collective intelligence of an organization.

Difficulty: 2: Moderate AACSB: Application of knowledge LO: 2.1: Define economics, explain why scarcity is central to economic decision making, and identify the major ways of measuring economic activity.

9) In the global marketplace, which of the following is often a type of key asset needed to successfully utilize an advantage?

A) Capital B) Supplies C) Intellectual D) Production location E) Workforce Answer: C Explanation: Traditionally, a business or a country was considered to have an advantage if its location offered plentiful supplies of natural resources, human resources, capital, and entrepreneurs. In today's global marketplace, however, intellectual assets are often the key.

Difficulty: 2: Moderate AACSB: Analytical thinking LO: 2.1: Define economics, explain why scarcity is central to economic decision making, and identify the major ways of measuring economic activity.

10) What can companies use to protect themselves in long-term purchasing contracts?

A) Producer price index B) Gross domestic product rates C) Inflation rate clauses D) Price-escalation clauses E) Consumer price index Answer: D Explanation: In addition to monitoring economic activity, PPIs have a number of managerial uses, from helping companies place an accurate value on inventories to protecting buyers and sellers with price-escalation clauses in long-term purchasing contracts.

Difficulty: 2: Moderate AACSB: Analytical thinking LO: 2.1: Define economics, explain why scarcity is central to economic decision making, and identify the major ways of measuring economic activity.

11) What is gross domestic product?

A) Products a country is famous for producing B) An up and down swing in the economy.

C) A measure of a country's economic health.

D) All products produced and used within a country E) An indication of an economy that is growing and consumers are spending more money.

Answer: C Explanation: The broadest measure of an economy's health is the gross domestic product (GDP). Gross domestic product measures a country's output—its production, distribution, and use of goods and services—by computing the sum of all goods and services produced for final use in a country during a specified period (usually a year).

Difficulty: 2: Moderate AACSB: Analytical thinking LO: 2.1: Define economics, explain why scarcity is central to economic decision making, and identify the major ways of measuring economic activity.

12) The ________ measures the rate of inflation by comparing changes in the prices of a representative basket of goods and services such as clothing, food, housing, and utilities.

A) gross domestic product (GDP) B) producer price index (PPI) C) inflationary stability index (ISI) D) consumer price index (CPI) E) economic stimulus index (ESI) Answer: D Explanation: The consumer price index (CPI) measures the rate of inflation by comparing the change in prices of a representative "basket" of consumer goods and services, such as clothing, food, housing, and transportation.

Difficulty: 2: Moderate AACSB: Application of knowledge LO: 2.1: Define economics, explain why scarcity is central to economic decision making, and identify the major ways of measuring economic activity.

13) The ________ measures price at the producer or wholesaler level, reflecting what businesses are paying for the products they need.

A) gross domestic product (GDP) B) producer price index (PPI) C) inflationary stability index (ISI) D) consumer price index (CPI) E) economic stimulus index (ESI) Answer: B Explanation: The producer price index (PPI) measures price at the producer or wholesaler level, reflecting what businesses are paying for the products they need. Like the CPI, the PPI is often referred to as a single index, but it is actually a family of more than 600 industry-specific indexes.

Difficulty: 2: Moderate AACSB: Application of knowledge LO: 2.1: Define economics, explain why scarcity is central to economic decision making, and identify the major ways of measuring economic activity.

14) Economics is the study of how a society uses its scarce resources to produce and distribute goods and services to its citizens.

Answer: TRUE Explanation: Economics is the study of how a society uses its scarce resources to produce and distribute goods and services to its citizens.

Difficulty: 1: Easy AACSB: Application of knowledge LO: 2.1: Define economics, explain why scarcity is central to economic decision making, and identify the major ways of measuring economic activity.

15) Capital includes land and minerals that a business needs in order to produce goods and services.

Answer: FALSE Explanation: Capital includes money, computers, machines, tools, and buildings that a business needs in order to produce goods and services.

Difficulty: 1: Easy AACSB: Application of knowledge LO: 2.1: Define economics, explain why scarcity is central to economic decision making, and identify the major ways of measuring economic activity.

16) Scarcity creates competition for resources, and forces trade-offs on the part of every participant in the economy.

Answer: TRUE Explanation: Scarcity has two powerful effects: It creates competition for resources, and it forces trade-offs on the part of every participant in the economy.

Difficulty: 2: Moderate AACSB: Application of knowledge LO: 2.1: Define economics, explain why scarcity is central to economic decision making, and identify the major ways of measuring economic activity.

17) Deciding how much money to spend on new manufacturing equipment versus launching a new advertising campaign is described as opportunity cost.

Answer: FALSE Explanation: Opportunity cost refers to the value of the most appealing alternative from all those that weren't chosen. In other words, opportunity cost is a way to measure the value of what you gave up when you pursued a different opportunity.

Difficulty: 2: Moderate AACSB: Application of knowledge LO: 2.1: Define economics, explain why scarcity is central to economic decision making, and identify the major ways of measuring economic activity.

18) Compare and contrast microeconomics and macroeconomics.

Answer: Economics is the study of how a society uses its scarce resources to produce and distribute goods and services. Economics is divided into a small-scale perspective and a large-scale perspective. The study of economic behavior among consumers, businesses, and industries that collectively determine the quantity of goods and services demanded and supplied at different prices is termed microeconomics. The study of a country's larger economic issues, such as how firms compete, the effect of government policies, and how an economy maintains and allocates its scarce resources, is termed macroeconomics. While microeconomics looks at the small picture and macroeconomics looks at the big picture, understanding the economy at either scale requires an understanding of how the small and large forces interact. For instance, a number of macro forces and policies determine whether homeowners can afford to install solar energy systems. In turn, the aggregate behavior of all those homeowners at the micro level affects the vitality and direction of the overall economy.

Difficulty: 2: Moderate AACSB: Analytical thinking LO: 2.1: Define economics, explain why scarcity is central to economic decision making, and identify the major ways of measuring economic activity.

19) Explain the different factors of production.

Answer: Natural resources are things that are useful in their natural state, such as land, forests, minerals, and water. Human resources are people and their individual talents and capacities. Capital includes money, computers, machines, tools, and buildings that a business needs in order to produce goods and services. Entrepreneurship is the spirit of innovation, the initiative, and the willingness to take the risks involved in creating and operating businesses. Knowledge is the collective intelligence of an organization.

Difficulty: 2: Moderate AACSB: Analytical thinking LO: 2.1: Define economics, explain why scarcity is central to economic decision making, and identify the major ways of measuring economic activity.

20) Compare and contrast between trade-offs and opportunity costs.

Answer: Due to universal scarcity of resources, consumers, companies, and governments are constantly forced to make trade-offs, meaning they have to give up something to get something else. You have to decide how to spend the 24 hours you have every day, and every choice involves a trade-off—the more time you spend on one activity means less time for every other activity you could possibly pursue. Businesses must make similar trade-offs, such as deciding how much money to spend on advertising a new product versus how much to spend on the materials used to make it, or deciding how many employees to have in sales versus customer support. Opportunity cost refers to the value of the most appealing alternative from all those you didn't choose. In other words, opportunity cost is a way to measure the value of what you gave up when you pursued a different opportunity.

Difficulty: 2: Moderate AACSB: Analytical thinking LO: 2.1: Define economics, explain why scarcity is central to economic decision making, and identify the major ways of measuring economic activity.

21) In a ________, companies can decide what to produce, how to produce, whom to sell to, and at what price to sell.

A) planned system B) regulated economy C) socialist economy D) free-market system E) communist economy Answer: D Explanation: In a free-market system, individuals and companies are largely free to decide what products to produce, how to produce them, whom to sell them to, and at what price to sell them. In other words, they have the chance to succeed—or to fail—by their own efforts.

Difficulty: 2: Moderate AACSB: Application of knowledge LO: 2.2: Define economic system, and explain the government's role in a free-market economy.

22) The ________ economic system allows individuals to own and operate the majority of businesses with limited economic intervention by the government.

A) mixed B) planned C) capitalist D) free-market E) communist Answer: A Explanation: The practice of limited intervention is characteristic of a mixed economy or mixed capitalism, which is the economic system of the United States and most other countries. For example, government bodies intervene in the U.S. economy in a variety of ways, such as influencing particular allocations of resources through tax incentives, prohibiting or restricting the sale of certain goods and services, or setting price controls.

Difficulty: 2: Moderate AACSB: Application of knowledge

LO: 2.2: Define economic system, and explain the government's role in a free-market economy.

23) Which of the following is characteristic of a country with a planned economic system?

A) The economy relies chiefly on market forces to allocate goods and resources and to determine prices.

B) The economic system combines private and state enterprises with limited intervention from the government.

C) The economy subscribes to capitalistic competition, where private parties own and operate the majority of businesses.

D) The economic system is primarily capitalistic, but there is some degree of government ownership of the means of production.

E) The economy is largely controlled by the government and freedom of choice is limited in order to accomplish government goals.

Answer: E Explanation: In a planned system, governments largely control the allocation of resources and limit freedom of choice in order to accomplish government goals. Because social equality is a major goal of planned systems, private enterprise and the pursuit of private gain are generally regarded as wasteful and exploitive.

Difficulty: 2: Moderate AACSB: Analytical thinking LO: 2.2: Define economic system, and explain the government's role in a free-market economy.

24) The economic system that allows individuals the least degree of economic freedom is ________.

A) free-market B) planned C) capitalism D) authoritarianism E) mixed capitalism Answer: B Explanation: In a planned system, also called a command system or a command-andcontrol system, government controls the allocation of resources, including decisions regarding which products are produced and in what quantities. Planned economies are often equated with socialism, which in its most developed theoretical form involves collective ownership of the means of production.

Difficulty: 2: Moderate AACSB: Analytical thinking LO: 2.2: Define economic system, and explain the government's role in a free-market economy.

25) ________ occurs when a government takes control of a company or industry, which may result in a change in the entire economy.

A) Privatization B) Deregulation C) Nationalization D) Free-market systems E) Monopolistic competition Answer: C Explanation: The line between socialism and capitalism isn't always easy to define, and it doesn't always stay in the same place, either. Governments can change the structure of the economy by nationalizing—taking ownership of—selected companies or in extreme cases even entire industries.

Difficulty: 2: Moderate AACSB: Analytical thinking LO: 2.2: Define economic system, and explain the government's role in a free-market economy.

26) Which of the following is one of the ways the government helps to stabilize or stimulate the national economy?

A) Changes in supply B) Changing monetary policy C) Adjusting equilibrium pricing D) Eliminating monopolies E) Instituting an oligopoly Answer: B Explanation: Governments have two sets of tools they can use to stabilize and stimulate the national economy: monetary policy and fiscal policy.

Difficulty: 2: Moderate AACSB: Analytical thinking LO: 2.2: Define economic system, and explain the government's role in a free-market economy.

27) Which of the following involves changing the government's revenues or expenditures to change the growth rate of the economy?

A) Monetary policy B) Antitrust regulation C) Deregulation D) Fiscal policy E) Regulation Answer: D Explanation: Fiscal policy involves changes in the government's revenues and expenditures to stimulate a slow economy or dampen a growing economy that is in danger of overheating and causing inflation. On the revenue side, governments can adjust the revenue they bring in by changing tax rates and various fees collected from individuals and businesses.

Difficulty: 2: Moderate AACSB: Application of knowledge LO: 2.2: Define economic system, and explain the government's role in a free-market economy.

28) Governments established ________ in an effort to ensure all competitors have an equal chance of succeeding.

A) fiscal policies B) trusts C) free-market economies D) antitrust legislation E) deregulation legislation Answer: D Explanation: Antitrust laws limit what businesses can and cannot do, to ensure that all competitors have an equal chance of succeeding.

Difficulty: 2: Moderate AACSB: Analytical thinking LO: 2.2: Define economic system, and explain the government's role in a free-market economy.

29) Which of the following actions of the government indicates the privatization of an industry?

A) Allowing private businesses to operate in an industry that was previously operated by the government B) Discouraging private business to operate in an industry that is critical for the growth of the economy C) Acquiring the market leader to gain control of the industry and its resources D) Imposing taxes on scarce raw materials to discourage unfair pricing by its suppliers E) Imposing regulations on multinational businesses to protect local businesses Answer: A Explanation: Governments can change the structure of the economy by nationalizing— assuming ownership of—selected companies or, in extreme cases, even entire industries.

They can also move in the opposite direction, privatizing services once performed by the government by allowing private businesses to perform them instead.

Difficulty: 2: Moderate AACSB: Application of knowledge LO: 2.2: Define economic system, and explain the government's role in a free-market economy.

30) Which of the following best describes deregulation?

A) Putting rules in place to govern economic activity B) Having fewer rules and relying on the market to prevent excesses C) Encouraging all stakeholders to put pressure on organizations to save money D) Adjusting the amount of "spendable" money in the economy at any given time E) Increasing the revenues to stimulate spending and limiting inflation Answer: B Explanation: Much of the debate about the government's role can be framed as a question of regulation versus deregulation–having more rules in place to govern economic activity or versus having fewer rules in place and relying more on the market to prevent excesses and correct itself over time.

Difficulty: 2: Moderate AACSB: Application of knowledge LO: 2.2: Define economic system, and explain the government's role in a free-market economy.

31) ________ laws limit what businesses can and cannot do to ensure that all competitors have an equal chance of succeeding.

A) Fiscal B) Discrimination C) Antitrust D) Stabilization E) Equilibrium Answer: C Explanation: Antitrust laws limit what businesses can and cannot do to ensure that all competitors have an equal chance of succeeding.

Difficulty: 2: Moderate AACSB: Application of knowledge LO: 2.2: Define economic system, and explain the government's role in a free-market economy.

32) Capitalism is a term used to describe the free-market system, one in which private parties own and operate the majority of businesses and where competition, supply, and demand determine which goods and services are produced.

Answer: TRUE Explanation: Capitalism is a term used to describe the free-market system, one in which private parties own and operate the majority of businesses and where competition, supply, and demand determine which goods and services are produced.

Difficulty: 2: Moderate AACSB: Application of knowledge LO: 2.2: Define economic system, and explain the government's role in a free-market economy.

33) In practice, no economy is truly a free-market economy.

Answer: TRUE Explanation: Free market economy is a situation in which so many buyers and sellers exist that no single buyer or seller can individually influence market prices. In practice, no economy is truly a free-market economy.

Difficulty: 2: Moderate AACSB: Application of knowledge LO: 2.2: Define economic system, and explain the government's role in a free-market economy.

34) Fiscal policy involves the government limiting the nation's "spendable" money in the economy at any given time.

Answer: FALSE Explanation: Fiscal policy involves changes in the government's revenues and expenditures to stimulate a slow economy or dampen a growing economy that is in danger of overheating and causing inflation.

Difficulty: 2: Moderate AACSB: Application of knowledge LO: 2.2: Define economic system, and explain the government's role in a free-market economy.

35) Global economists use the terms capitalism and private enterprise to describe centrally planned economic systems.

Answer: FALSE Explanation: The terms capitalism and private enterprise are often used to describe freemarket systems.

Difficulty: 2: Moderate AACSB: Application of knowledge LO: 2.2: Define economic system, and explain the government's role in a free-market economy.

36) Compare and contrast between free-market systems and planned systems.

Answer: In a free-market system, individuals and companies are largely free to decide what products to produce, how to produce them, whom to sell them to, and at what price to sell them. In other words, they have the chance to succeed—or to fail—by their own efforts. Capitalism and private enterprise are the terms most often used to describe the free-market system, one in which private parties (individuals, partnerships, or corporations) own and operate the majority of businesses and where competition, supply, and demand determine which goods and services are produced.

In a planned system, governments largely control the allocation of resources and limit freedom of choice in order to accomplish government goals. Because social equality is a major goal of planned systems, private enterprise and the pursuit of private gain are generally regarded as wasteful and exploitive. The planned system that allows individuals the least degree of economic freedom is communism.

Difficulty: 2: Moderate AACSB: Analytical thinking LO: 2.2: Define economic system, and explain the government's role in a free-market economy.

37) Is there such a thing as a "free" economy? Explain and support your views.

Answer: In practice, no economy is truly "free."

Local, state, national, and even international governments, such as the European Community, intervene in the economy to accomplish goals that leaders deem socially or economically desirable. This practice of limited intervention is characteristic of a mixed economy or mixed capitalism, which is the economic system of the United States and most other countries. For example, government bodies intervene in the U.S. economy in a variety of ways, such as influencing particular allocations of resources through tax incentives, prohibiting or restricting the sale of certain goods and services, or setting price controls. Price controls can involve maximum allowable prices (such as limiting rent increases) and minimum allowable prices (such as supplementing the prices of agricultural goods to ensure producers a minimum level of income or establishing minimum wage levels).

Difficulty: 3: Challenging AACSB: Analytical thinking LO: 2.2: Define economic system, and explain the government's role in a free-market economy.

38) Discuss how antitrust legislation fosters competition in the marketplace.

Answer: Based on the belief that fair competition benefits the economy and society in general, governments intervene in markets to preserve competition and ensure that no single enterprise becomes too powerful. For instance, if a company has a monopoly, it can potentially harm customers by raising prices or stifling innovation and harm potential competitors by denying access to markets. Numerous laws and regulations have been established to help prevent individual companies or groups of companies from taking control of markets or acting in other ways that restrain competition or harm consumers.

Antitrust laws limit what businesses can and cannot do, to ensure that all competitors have an equal chance of succeeding. Some of the earliest government moves in this arena produced such landmark pieces of legislation as the Sherman Antitrust Act, the Clayton Antitrust Act, and the Federal Trade Commission Act, which generally sought to rein in the power of a few huge companies that had financial and management control of a significant number of other companies in the same industry. Usually referred to as trusts (hence the label antitrust legislation), these huge companies controlled enough of the supply and distribution in their respective industries. Governments remain active in antitrust activities to this day, with tech giants such as Google, Facebook, Amazon, and Microsoft getting hit with antitrust lawsuits and penalties that sometimes run into the billions of dollars.

Difficulty: 3: Challenging AACSB: Analytical thinking LO: 2.2: Define economic system, and explain the government's role in a free-market economy.

39) Explain why socialism and capitalism are not mutually exclusive and provide an example.

Answer: While free-market capitalism remains the foundation of the U.S. economy, some important elements of the U.S. economy are socialized and have been for many years. Public schools, the postal service, much of the transportation infrastructure, various local and regional utilities, and several major health care programs all fit the economic definition of socialism. Socialism and capitalism are competing philosophies, but they are not mutually exclusive, and each approach has strengths and weaknesses, which is why most modern economies combine aspects of both.

Difficulty: 3: Challenging AACSB: Analytical thinking LO: 2.2: Define economic system, and explain the government's role in a free-market economy.

40) Which of the following refers to the amount of a good or service that customers will buy at a given time at various prices?

A) Demand B) Utility C) Equilibrium D) Necessity E) Want Answer: A Explanation: Demand refers to the amount of a good or service that customers will buy at a given time.

Difficulty: 2: Moderate

AACSB: Application of knowledge LO: 2.3: Explain the interaction between demand and supply.

41) ________ refers to the quantities of a good or service that producers will provide on a particular date at various prices.

A) Necessity B) Supply C) Demand D) Utility E) Want Answer: B Explanation: Supply refers to the quantities of a good or service that producers will provide on a particular date at various prices.

Difficulty: 2: Moderate AACSB: Application of knowledge LO: 2.3: Explain the interaction between demand and supply.

42) A(n) ________ shows the relationship between the amount of product that buyers will purchase at various prices, all other factors being equal.

A) supply curve B) inflation rate C) demand curve D) deflation rate E) competitive balance Answer: C Explanation: A demand curve is a graph showing the relationship between the amount of product that buyers will purchase at various prices, all other factors being equal.

Difficulty: 2: Moderate AACSB: Application of knowledge LO: 2.3: Explain the interaction between demand and supply.

43) Demand curves typically slope downward. This implies that a(n) ________.

A) decrease in price will increase the quantity demanded B) decrease in price will decrease the quantity demanded C) increase in price will increase the quantity demanded D) decrease in price will have no effect on quantity demanded E) increase in price will have no effect on quantity demanded Answer: A Explanation: Demand curves typically slope downward, implying that as price drops, more people are willing to buy.

Difficulty: 2: Moderate AACSB: Application of knowledge LO: 2.3: Explain the interaction between demand and supply.

44) The ________ depicts the relationship between prices and quantities that sellers will offer for sale, regardless of demand.

A) fiscal cycle B) supply curve C) equilibrium point D) business cycle E) competitive analysis Answer: B Explanation: The depiction of the relationship between prices and quantities that sellers will offer for sale is called a supply curve.

Difficulty: 2: Moderate AACSB: Application of knowledge LO: 2.3: Explain the interaction between demand and supply.

45) Movement along the supply curve typically slopes upward because ________.

A) the amount of government regulation in an industry rises with increase in demand B) the quantity that the sellers are willing to supply rises with decrease in demand C) the amount of government regulation in an industry rises with an increase in price D) the quantity that the sellers are willing to supply rises with increase in government regulation E) the quantity that the sellers are willing to supply rises with an increase in price Answer: E Explanation: Movement along the supply curve typically slopes upward: as prices rise, the quantity that sellers are willing to supply also rises. Similarly, as prices decline, the quantity that sellers are willing to supply declines.

Difficulty: 2: Moderate AACSB: Application of knowledge LO: 2.3: Explain the interaction between demand and supply.

46) The point at which the demand and supply curves intersect—the point at which the quantity demanded and supplied are balanced is called the ________.

A) equilibrium point B) aggregation point C) marginal point D) break-even point E) distribution point Answer: A Explanation: The point at which the demand and supply curves intersect—the point at which the quantity demanded and supplied are equal—is the equilibrium point.

Difficulty: 2: Moderate AACSB: Application of knowledge LO: 2.3: Explain the interaction between demand and supply.

47) Demand refers to the quantities of a good or service that producers will provide on a particular date at various prices.

Answer: FALSE Explanation: Demand refers to buyers' willingness and ability to purchase products at various price points.

Difficulty: 1: Easy AACSB: Application of knowledge LO: 2.3: Explain the interaction between demand and supply.

48) The demand curve will shift to the left if the price of substitute products increases.

Answer: FALSE Explanation: The demand curve will shift to the right if the price of substitute products increases.

Difficulty: 2: Moderate AACSB: Analytical thinking LO: 2.3: Explain the interaction between demand and supply.

49) Movement along the supply curve typically slopes upward.

Answer: TRUE Explanation: Movement along the supply curve typically slopes upward: As prices rise, the quantity that sellers are willing to supply also rises. Similarly, as prices decline, the quantity that sellers are willing to supply declines.

Difficulty: 2: Moderate AACSB: Analytical thinking LO: 2.3: Explain the interaction between demand and supply.

50) The supply curve of a firm will shift to the right if technology increases the firm's production costs.

Answer: FALSE Explanation: The supply curve of a firm will shift to the left if technology increases the firm's production costs.

Difficulty: 2: Moderate AACSB: Analytical thinking LO: 2.3: Explain the interaction between demand and supply.

51) The equilibrium point is the point at which quantity of a good or service equals the quantity demanded.

Answer: TRUE Explanation: The point at which quantity of a good or service equals the quantity demanded is known as the equilibrium point.

Difficulty: 1: Easy AACSB: Analytical thinking LO: 2.3: Explain the interaction between demand and supply.

52) "As the supply and demand curves are dynamic, so is the equilibrium point." Explain this statement with an example.

Answer: As variables affecting supply and demand change, so will the equilibrium price.

For example, increased concerns about airline safety could encourage some travelers to choose alternatives such as automobile travel or web conferencing, thus reducing the demand for air travel at every price and moving the equilibrium point as well. Suppliers might respond to such a reduction in demand by either cutting the number of flights offered or lowering ticket prices in order to restore the equilibrium level.

Difficulty: 3: Challenging AACSB: Analytical thinking LO: 2.3: Explain the interaction between demand and supply.

53) The term ________ is used to characterize the fluctuations in an economy's rate of growth over a period of several years.

A) microeconomics B) competitive pressures C) cyclical machinations D) business cycles E) economic repercussions Answer: D Explanation: Business cycles are fluctuations in the rate of growth that an economy experiences over a period of several years.

Difficulty: 2: Moderate AACSB: Application of knowledge LO: 2.4: Identify four macroeconomic issues that are essential to understanding the behavior of the economy.

54) ________ occurs when no single firm is large enough to influence prices and distort the workings of the free-market system.

A) Pure monopoly B) Inflation C) Pure competition D) Deflation E) Recession Answer: C Explanation: Pure competition is a situation in which no single firm is large enough to influence prices and distort the workings of the free-market system.

Difficulty: 2: Moderate AACSB: Application of knowledge LO: 2.4: Identify four macroeconomic issues that are essential to understanding the behavior of the economy.

55) When the number of competitors in a market is small, and competitors influence each other through production and pricing decisions, a situation known as ________ is created.

A) monopoly B) duopoly C) oligopoly D) monopolistic competition E) pure competition Answer: C Explanation: When the number of competitors in a market is quite small, a situation known as oligopoly is created. Customers have some choice, unlike in a monopoly, but not as many choices as in monopolistic competition.

Difficulty: 2: Moderate AACSB: Application of knowledge LO: 2.4: Identify four macroeconomic issues that are essential to understanding the behavior of the economy.

56) Which of the following is a characteristic feature of economic contraction?

A) Decreased unemployment rates B) Decreased consumer spending C) Increased income D) Increased employment E) Increased demand Answer: B Explanation: During an economic contraction, spending declines, employment drops, and the economy as a whole slows down.

Difficulty: 2: Moderate AACSB: Application of knowledge LO: 2.4: Identify four macroeconomic issues that are essential to understanding the behavior of the economy.

57) The term ________ indicates two consecutive quarters of decline in the country's gross domestic product.

A) deflation B) stagnation C) depression D) stagflation E) recession Answer: E Explanation: If the period of downward swing is severe, the nation may enter into a recession. There are no official definitions of what constitutes a recession, but a common benchmark is a decline in GDP for two consecutive quarters.

Difficulty: 2: Moderate AACSB: Application of knowledge LO: 2.4: Identify four macroeconomic issues that are essential to understanding the behavior of the economy.

58) A deep and prolonged recession is known as ________.

A) an economic contraction B) stagnation C) deflation D) demand immobilization E) a depression Answer: E Explanation: A deep and prolonged recession can be considered a depression, which doesn't have an official definition but is generally considered to involve a catastrophic collapse of financial markets.

Difficulty: 1: Easy AACSB: Application of knowledge LO: 2.4: Identify four macroeconomic issues that are essential to understanding the behavior of the economy.

59) When a downward swing or recession is over, the economy enters into a period of ________.

A) recovery B) depression C) contraction D) stagnation E) repercussion Answer: A Explanation: When a downward swing or recession is over, the economy enters into a period of recovery.

Difficulty: 1: Easy AACSB: Application of knowledge LO: 2.4: Identify four macroeconomic issues that are essential to understanding the behavior of the economy.

60) ________ unemployment is the natural movement of workers into and out of jobs, such as when a person quits one job without first lining up a new job.

A) Structural B) Intrinsic C) Frictional D) Cyclical E) Seasonal Answer: C Explanation: Frictional unemployment is the natural movement of workers into and out of jobs, such as when a person quits one job without first lining up a new one.

Difficulty: 2: Moderate AACSB: Application of knowledge LO: 2.4: Identify four macroeconomic issues that are essential to understanding the behavior of the economy.

61) When demand for goods and services drops, businesses reduce production, resulting in economic contraction. The unemployment resulting because of this phenomenon is known as ________ unemployment.

A) intrinsic B) cyclical C) structural D) seasonal E) frictional Answer: B Explanation: When demand for goods and services drops, businesses reduce production, thereby requiring fewer workers. This leads to cyclical unemployment.

Difficulty: 2: Moderate AACSB: Application of knowledge LO: 2.4: Identify four macroeconomic issues that are essential to understanding the behavior of the economy.

62) Which of the following reflects the percentage of the labor force currently without work?

A) Economic contraction B) Economic fluctuation C) Deflation D) Monopolistic competition E) Unemployment rate Answer: E Explanation: The unemployment rate indicates the percentage of the labor force currently without employment. The labor force consists of people ages 16 and older who are either working or looking for jobs.

Difficulty: 2: Moderate AACSB: Application of knowledge LO: 2.4: Identify four macroeconomic issues that are essential to understanding the behavior of the economy.

63) Why is inflation a concern for businesses and consumers?

A) Inflation affects the amount of goods and services you can buy for a given amount of money.

B) Inflation affects the amount of government intervention in small businesses.

C) Inflation affects the potential sustained fall in average prices.

D) Inflation affects the ability for sustained economic contraction.

E) Inflation affects the amount of goods and services a firm can produce in a production cycle.

Answer: A Explanation: Inflation is a steady rise in the average prices of goods and services throughout the economy. Inflation is a major concern for consumers, businesses, and government leaders because of its effect on purchasing power or the amount of a good or service you can buy for a given amount of money.

Difficulty: 3: Challenging AACSB: Analytical thinking LO: 2.4: Identify four macroeconomic issues that are essential to understanding the behavior of the economy.

64) The situation in which one supplier thoroughly dominates a market and essentially shuts out other competitors is called monopoly.

Answer: TRUE Explanation: The situation in which one supplier thoroughly dominates a market and essentially shuts out other competitors is called monopoly.

Difficulty: 1: Easy AACSB: Application of knowledge LO: 2.4: Identify four macroeconomic issues that are essential to understanding the behavior of the economy.

65) A deep and prolonged recession can be considered a depression.

Answer: TRUE Explanation: A deep and prolonged recession can be considered a depression, which doesn't have an official definition but is generally considered to involve a catastrophic collapse of financial markets.

Difficulty: 1: Easy AACSB: Application of knowledge LO: 2.4: Identify four macroeconomic issues that are essential to understanding the behavior of the economy.

66) Frictional unemployment is caused by economic fluctuations.

Answer: FALSE Explanation: Frictional unemployment refers to the natural flow of workers into and out of jobs, such as when a person leaves one job without first lining up a new job.

Difficulty: 1: Easy AACSB: Application of knowledge LO: 2.4: Identify four macroeconomic issues that are essential to understanding the behavior of the economy.

67) Deflation is an economic condition in which prices fall steadily throughout the economy.

Answer: TRUE Explanation: Deflation is an economic condition in which prices fall steadily throughout the economy.

Difficulty: 2: Moderate AACSB: Analytical thinking LO: 2.4: Identify four macroeconomic issues that are essential to understanding the behavior of the economy.

68) Cyclical unemployment is caused by a mismatch between workers' skills and current employer needs.

Answer: FALSE Explanation: Cyclical unemployment refers to seasonal unemployment caused by economic fluctuations. When demand for goods and services drops, businesses reduce production, thereby requiring fewer workers.

Difficulty: 2: Moderate AACSB: Application of knowledge LO: 2.4: Identify four macroeconomic issues that are essential to understanding the behavior of the economy.

69) How does capitalism promote monopolistic competition in the market?

Answer: Most of the competition in advanced free-market economies is monopolistic competition, in which a number of sellers offer products that can be distinguished from competing products in at least some small way. The risk/reward nature of capitalism promotes constant innovation in pursuit of competitive advantage, rewarding companies that do the best job of satisfying customers.

Difficulty: 3: Challenging AACSB: Analytical thinking LO: 2.4: Identify four macroeconomic issues that are essential to understanding the behavior of the economy.

70) Differentiate between structural and cyclical unemployment.

Answer: Structural unemployment occurs due to a mismatch between the skills of workers and the needs of employers. Workers can't find jobs that match their qualifications, and employers can't find employees with the skills their job openings require. Structural unemployment is an ongoing concern because changes in the external environments of business make some skills obsolete and create demand for new skills.

Cyclical unemployment is caused by economic fluctuations. When demand for goods and services drops, businesses reduce production, thereby requiring fewer workers. Then, an increasing number of people who want to work can't find jobs. During catastrophic depressions, cyclical unemployment can run as high as 20 or 25 percent.

Difficulty: 2: Moderate AACSB: Analytical thinking LO: 2.4: Identify four macroeconomic issues that are essential to understanding the behavior of the economy.

71) Define and discuss the term business cycles.

Answer: The economy is always in a state of change, expanding or contracting in response to the combined effects of factors such as technological breakthroughs, changes in investment patterns, shifts in consumer attitudes, world events, and basic economic forces. Business cycles represent the fluctuations in the rate of growth that an economy experiences over a period of several years. These cycles include economic expansion, when the economy is growing and consumers are spending more money, which stimulates higher employment and wages, which then stimulate more consumer purchases. The cycles include economic contraction, when spending declines, employment drops, and the economy as a whole slows down. Even though experts call these up-and-down swings business cycles, this term is somewhat misleading, because real economies do not expand and contract in regular and predictable "cycles." More accurately, the behavior of an economy can be characterized as economic fluctuations.

Difficulty: 2: Moderate AACSB: Analytical thinking LO: 2.4: Identify four macroeconomic issues that are essential to understanding the behavior of the economy.

72) Money serves as a ________ when it is used as a way of accumulating wealth until it is needed.

A) unit of accounting B) means of payment C) temporary store of value D) medium of exchange E) standard of deferred payment Answer: C Explanation: Money serves as a temporary store of value when used as a way of accumulating wealth until it is needed.

Difficulty: 2: Moderate AACSB: Application of knowledge LO: 2.5: List the four financial functions of money, and define two key measures of the money supply.

73) Money serves as a(n) ________ to simplify transactions because a buyer can trade it for a good or service.

A) unit of accounting B) indication of value C) debt obligation D) measure of liquidity E) medium of exchange Answer: E Explanation: Money is anything generally accepted as a means of paying for goods and services. Money performs four financial functions. First, it serves as a medium of exchange, a tool for simplifying transactions between buyers and sellers.

Difficulty: 3: Challenging AACSB: Analytical thinking LO: 2.5: List the four financial functions of money, and define two key measures of the money supply.

74) In addition to trust, which of the following is the basis for the practical value of money?

A) Liquidity B) Exchange rate C) Medium of exchange D) Unit of accounting E) Store of value Answer: A Explanation: The practical value of money stems from two key properties: liquidity and trust. Money is the most liquid asset because it can be exchanged easily and more or less instantly for something else of value.

Difficulty: 2: Moderate AACSB: Analytical thinking LO: 2.5: List the four financial functions of money, and define two key measures of the money supply.

75) In the money supply, what represents the cash held by the public and money deposited in checking accounts?

A) Liquidity B) M1 C) Store of value D) Time deposits E) M2 Answer: B Explanation: The money supply can be measured in several ways. Economists focus on two aggregates known as M1 and M2. M1 consists of cash held by the public and money deposited in a variety of checking accounts. In simple terms, M1 is money that is spendable now, and M2 adds money that could be spendable fairly soon.

Difficulty: 2: Moderate AACSB: Application of knowledge LO: 2.5: List the four financial functions of money, and define two key measures of the money supply.

76) Which of the following best describes cryptocurrency?

A) Digital tokens issued to workers in a gig economy B) Digital tokens that rely on cryptography for security C) Any currency tied to a physical asset such as gold D) A currency that is liquid and can be easily exchanged for tangible products E) A measure of value that is consistent with every transaction Answer: B Explanation: Today, a new wave of alternative money is happening in the form of cryptocurrencies, digital tokens that rely on cryptography for security.

Difficulty: 2: Moderate AACSB: Application of knowledge LO: 2.5: List the four financial functions of money, and define two key measures of the money supply.

77) Money is anything generally accepted as a means of paying for goods and services.

Answer: TRUE

Explanation: Money is anything generally accepted as a means of paying for goods and services. It serves as a medium of exchange, a unit of accounting, a store of value, and a standard of deferred value.

Difficulty: 1: Easy AACSB: Application of knowledge LO: 2.5: List the four financial functions of money, and define two key measures of the money supply.

78) As an aggregate measure of the money supply, M1 consists of cash held by the public, as well as money in a variety of checking accounts.

Answer: TRUE Explanation: In order to measure the money supply, economists focus on two aggregates known as M1 and M2. M1 consists of cash held by the public and money in a variety of checking accounts. M2 consists of money held in interest-paying accounts that may restrict the owner's right to withdraw funds on short notice.

Difficulty: 1: Easy AACSB: Application of knowledge LO: 2.5: List the four financial functions of money, and define two key measures of the money supply.

79) What are the four essential functions of money?

Answer: Money is anything generally accepted as a means of paying for goods and services. Every country has its own system of money, or currency, except for those that opt to share a currency such as the euro. Money performs four essential functions. First, it serves as a medium of exchange, a tool for simplifying transactions between buyers and sellers. Second, it serves as a unit of accounting (a measure of value, in other words) so that buyers and sellers don't have to negotiate the relative worth of dissimilar items with every transaction. Third, money serves as a temporary store of value-a way of accumulating wealth until it is needed. Fourth, money serves as a standard of deferred payment, meaning it can be used to represent debt obligations.

Difficulty: 3: Challenging AACSB: Analytical thinking LO: 2.5: List the four financial functions of money, and define two key measures of the money supply.

80) The ________ is a fundamental driver of economic behavior because it influences short-term and long-term interest rates, foreign exchange rates, and inflation.

A) retail banking manifesto B) amortization ratio C) global prime rate D) federal funds rate E) prime mortgage market Answer: D Explanation: The federal funds rate is a fundamental driver of economic behavior because it influences short-term and long-term interest rates, foreign exchange rates, and inflation.

Difficulty: 2: Moderate AACSB: Application of knowledge LO: 2.6: Explain the role of the Federal Reserve System, list the major types of banking institutions, and summarize banking's role in the economy.

81) Which of the following can be done by the Federal Reserve to inject money into the economy and decrease the federal funds rate?

A) The Federal Reserve reducing the discount window for banks B) The Federal Reserve imposing selective credit controls C) The Federal Reserve buying Treasury bonds D) The Federal Reserve increasing short-term loans available to banks E) The Federal Reserve increasing the reserve requirement on deposits Answer: C Explanation: When the Federal Reserve buys Treasuries, this action injects money into the economy, thereby increasing the money supply, which tends to then decrease the federal funds rate. The opposite effect happens when the Federal Reserve sells Treasuries: Selling pulls money out of the economy, decreasing the money supply and increasing the federal funds rate.

Difficulty: 2: Moderate AACSB: Analytical thinking LO: 2.6: Explain the role of the Federal Reserve System, list the major types of banking institutions, and summarize banking's role in the economy.

82) Which of the following federal actions has the goal of reducing the money supply in markets?

A) The Federal Reserve liberalizes credit control actions on loans.

B) The Federal Reserve buys treasury bills from the market.

C) The Federal Reserve raises the discount rate.

D) The Federal Reserve reduces the reserve requirement.

E) The Federal Reserve promotes new loans to small businesses.

Answer: C Explanation: The discount rate is the interest rate that member banks pay when they borrow funds from the Federal Reserve. Raising the discount rate discourages loans and therefore, tightens the money supply.

Difficulty: 3: Challenging AACSB: Analytical thinking LO: 2.6: Explain the role of the Federal Reserve System, list the major types of banking institutions, and summarize banking's role in the economy.

83) ________ rate is the rate a bank charges its best loan customers.

A) Federal funds B) Discount C) Prime D) Paper E) Overnight Answer: C Explanation: Prime rate is the rate a bank charges its best loan customers. Many other interest rates are also based on the prime rate.

Difficulty: 2: Moderate AACSB: Application of knowledge LO: 2.6: Explain the role of the Federal Reserve System, list the major types of banking institutions, and summarize banking's role in the economy.

84) The ________ is the federal agency responsible for protecting money in customer accounts and managing the transition of assets whenever a bank fails.

A) Federal National Loan Corporation B) Federal Deposit Insurance Corporation C) Federal Home Loan Association D) Federal Mortgage Corporation E) Federal National Mortgage Association Answer: B Explanation: After thousands of banks failed in the United States during the Great Depression, the government established the Federal Deposit Insurance Corporation (FDIC). It is the federal agency responsible for protecting money in customer accounts and managing the transition of assets whenever a bank fails.

Difficulty: 2: Moderate AACSB: Application of knowledge LO: 2.6: Explain the role of the Federal Reserve System, list the major types of banking institutions, and summarize banking's role in the economy.

85) ________ is the government-sponsored enterprise responsible for guaranteeing and funding home mortgages for low and moderate income buyers.

A) The secondary mortgage market B) The Federal discount window C) Fannie Mae D) The NYSE E) The Federal Deposit Insurance Corporation Answer: C Explanation: Fannie Mae and Freddie Mac are two quasi-public companies that operate under the close supervision of the federal government with a mandate to support home ownership for low- and moderate-income buyers by making mortgage funding more readily available.

Difficulty: 2: Moderate AACSB: Application of knowledge LO: 2.6: Explain the role of the Federal Reserve System, list the major types of banking institutions, and summarize banking's role in the economy.

86) ________ refers to sums of money (equal to a certain percentage of their deposits) that banks are legally required to keep on hand.

A) Securities B) Mortgages C) Reserves D) Savings E) Collateral Answer: C Explanation: All depository institutions (those that accept deposits from customers), including commercial banks, savings and loan associations, and credit unions, are required to hold a portion of those deposits in reserve).

Difficulty: 2: Moderate AACSB: Application of knowledge LO: 2.6: Explain the role of the Federal Reserve System, list the major types of banking institutions, and summarize banking's role in the economy.

87) Which of the following offers investing and advisory services to organizational customers, including governments?

A) Merchant bank B) Credit union C) Thrift bank D) Private bank E) Investment bank Answer: E Explanation: Investment banks offer a variety of services related to initial public stock offerings, mergers and acquisitions, and other investment matters.

Difficulty: 2: Moderate AACSB: Application of knowledge LO: 2.6: Explain the role of the Federal Reserve System, list the major types of banking institutions, and summarize banking's role in the economy.

88) ________ offer financial services to businesses, particularly in the area of international finance.

A) Investment banks B) Retail banks C) Private banks D) Credit unions E) Merchant banks Answer: E Explanation: Merchant banks offer financial services to businesses, particularly in the area of international finance. Merchant banking is sometimes more narrowly defined as managing private equity investments, making it more akin to investment banking.

Difficulty: 2: Moderate AACSB: Application of knowledge LO: 2.6: Explain the role of the Federal Reserve System, list the major types of banking institutions, and summarize banking's role in the economy.

89) Banking institutions that offer deposit accounts and focus on offering home mortgage loans are known as ________.

A) merchant banks B) retail banks C) thrift banks D) private banks E) credit unions Answer: C Explanation: Thrift banks, also called thrifts, or savings and loan associations, offer deposit accounts and focus on offering home mortgage loans.

Difficulty: 2: Moderate AACSB: Application of knowledge LO: 2.6: Explain the role of the Federal Reserve System, list the major types of banking institutions, and summarize banking's role in the economy.

90) ________ are not-for-profit, member-owned cooperatives that offer deposit accounts and lending services to consumers and small businesses.

A) Loan associations B) Retail banks C) Credit unions D) Thrift banks E) Merchant banks Answer: C Explanation: Credit unions are not-for-profit, member-owned cooperatives that offer deposit accounts and lending services to consumers and small businesses.

Difficulty: 2: Moderate AACSB: Application of knowledge LO: 2.6: Explain the role of the Federal Reserve System, list the major types of banking institutions, and summarize banking's role in the economy.

91) The federal funds rate is also known as the overnight rate.

Answer: TRUE Explanation: The federal funds rate (aka, overnight rate) is the rate that member banks charge each other to borrow money overnight from the funds they keep in the Federal Reserve accounts.

Difficulty: 1: Easy AACSB: Application of knowledge LO: 2.6: Explain the role of the Federal Reserve System, list the major types of banking institutions, and summarize banking's role in the economy.

92) The discount rate is the interest rate that member banks charge each other to borrow money overnight from the funds they keep in the Federal Reserve accounts.

Answer: FALSE Explanation: Discount rate is the rate that member banks pay when they borrow funds from the Federal Reserve.

Difficulty: 1: Easy AACSB: Application of knowledge LO: 2.6: Explain the role of the Federal Reserve System, list the major types of banking institutions, and summarize banking's role in the economy.

93) If the Federal Reserve sells Treasuries in open-market operations, the country's money supply increases.

Answer: FALSE Explanation: If the Federal Reserve sells Treasuries in open-market operations, the country's money supply decreases.

Difficulty: 2: Moderate AACSB: Application of knowledge LO: 2.6: Explain the role of the Federal Reserve System, list the major types of banking institutions, and summarize banking's role in the economy.

94) If the Federal Reserve buys Treasuries on the open market, the country's money supply increases.

Answer: TRUE Explanation: If the Federal Reserve buys Treasuries on the open market, the country's money supply increases.

Difficulty: 2: Moderate AACSB: Application of knowledge LO: 2.6: Explain the role of the Federal Reserve System, list the major types of banking institutions, and summarize banking's role in the economy.

95) The prime rate is the interest rate that a bank charges its most creditworthy customers.

Answer: TRUE Explanation: The prime rate is the interest rate that a bank charges its most creditworthy customers.

Difficulty: 2: Moderate AACSB: Application of knowledge LO: 2.6: Explain the role of the Federal Reserve System, list the major types of banking institutions, and summarize banking's role in the economy.

96) What is the relationship between the Federal Reserve's reserve requirement and the money supply?

Answer: All depository institutions (those that accept deposits from customers) are required to hold a portion of those deposits in reserve. The institutions may keep the reserve as cash in their own vaults or in an account at a regional Federal Reserve bank.

By changing the reserve percentage, the Federal Reserve allows these institutions to lend out more or less of their deposited amounts, thereby affecting the size of the money supply. In contrast to the frequency of open-market operations, however, the Federal Reserve does not change the reserve ratio frequently because doing so is costly to implement and a small change can have a drastic effect.

Difficulty: 3: Challenging AACSB: Analytical thinking LO: 2.6: Explain the role of the Federal Reserve System, list the major types of banking institutions, and summarize banking's role in the economy.

97) Identify and discuss the Federal Reserve's major responsibilities.

Answer: The work of the Federal Reserve can be divided into three broad categories: (1) serving as a bank for the federal government and many commercial banks, (2) supervising and regulating many financial institutions, and (3) managing the nation's money supply by designing and implementing monetary policy. As the "bank for banks," the Federal Reserve provides many of the services that a commercial bank provides to businesses and consumers. It also operates two electronic systems for transferring money between banks: one for large amounts of cash and the smaller automated clearing house (ACH) system for routine payments made by check.

The Federal Reserve monitors the operation of state banks that are members of the Federal Reserve system, all bank holding companies (companies than own multiple banks), and the U.S. operations of foreign banks. The Federal Reserve's key objectives are making sure that banks are financially sound and that customers' accounts are safe.

Moreover, it has the authority to take formal or informal action against banks that are out of compliance with Federal Reserve guidelines. Two other important aspects of the Federal Reserve's regulatory mandate are approving bank mergers and acquisitions and implementing finance-related consumer protection laws. Monetary policy is decided by the Federal Open Market Committee (FOMC), which includes the Federal Reserve's board of governors, the president of the New York City Fed, and 4 of the other 11 regional presidents. The three primary goals of maximum employment, stable prices, and moderate inflation are sometimes in conflict, so the FOMC faces a constant balancing act as it tries to optimize the overall results.

Difficulty: 3: Challenging AACSB: Analytical thinking LO: 2.6: Explain the role of the Federal Reserve System, list the major types of banking institutions, and summarize banking's role in the economy.

98) Which of the following describes the wide range of innovations that have the potential to improve financial services or cause radical disruption of them?

A) Neobanking B) Freddie Mac C) Fintech D) Crowdfunding E) Peer-to-peer lending Answer: C Explanation: The term fintech is used as a label for a wide range of innovations that have the potential to improve financial services–and in some instances, radically disrupt them.

At least 10,000 companies are active in fintech, so advances are taking place in just about every corner of banking, investing, and insurance.

Difficulty: 2: Moderate AACSB: Application of knowledge LO: 2.7: Define fintech, and discuss five ways that financial institutions are innovating with digital technology.

99) ________ use(s) cloud technology to provide services through mobile and digital channels, thereby reducing the cost of banking services.

A) Neobanks B) Freddie Mac C) Fintech D) FDIC E) Peer-to-peer lending Answer: A Explanation: Mobile and cloud technologies have also helped to create a new category of banks, often referred to as neobanks, which provide services entirely through mobile and digital channels. Without large staffs and physical branches to maintain, these companies have much lower cost structures and therefore can offer banking services at lower costs.

Difficulty: 2: Moderate AACSB: Application of knowledge LO: 2.7: Define fintech, and discuss five ways that financial institutions are innovating with digital technology.

100) Discuss how fintech innovations work to improve investor returns in portfolio management.

Answer: A final group of fintech innovations apply cognitive automation and other tools to help investors make better financial decisions without paying for the services of a financial adviser. These so-called robo advisers assemble investment portfolios based on each client's risk tolerance, resources, and objectives. These systems aim to improve investors' returns by removing emotionally driven decision making and automating tasks that are time-consuming to do manually, such as rebalancing portfolios over time and taxloss harvesting (selling an investment that has declined in value to use the loss as a tax write-off and then buying back into the market).

Difficulty: 3: Challenging AACSB: Analytical thinking LO: 2.7: Define fintech, and discuss five ways that financial institutions are innovating with digital technology.

Business in Action, 9e (Bovee/Thill) Chapter 3 The Global Marketplace 1) The classic theory of comparative advantage suggests that each country should ________.

A) attempt to maintain a trade surplus by exporting more than what it imports B) attempt to maintain a trade deficit by importing more than what it exports C) produce all goods and services it requires for domestic consumption D) specialize in those areas where it can produce more efficiently than other countries E) produce a wide range of products to maintain an attractive international portfolio Answer: D Explanation: The classic theory of comparative advantage suggests that each country should specialize in those areas where it can produce more efficiently than other countries, and it should trade for goods and services that it can't produce as economically.

Difficulty: 2: Moderate AACSB: Analytical thinking LO: 3.1: Explain why nations trade, and describe how international trade is measured.

2) One way a company benefits from economies of scale when it ________.

A) does not use centralization of production and distribution B) produces goods or services in multiple locations C) adopts a highly differentiated marketing strategy D) engages in the production of personalized products E) manufactures and distributes products in higher quantities Answer: E Explanation: Purchasing, manufacturing, and distributing higher quantities will enable companies to produce goods and services at lower costs. This occurrence is referred to as economies of scale.

Difficulty: 2: Moderate AACSB: Application of knowledge LO: 3.1: Explain why nations trade, and describe how international trade is measured.

3) A country has a trade surplus when the ________.

A) value of its exports exceeds the value of its imports B) exchange rate of its currency with other currencies is variable C) exchange rate of its currency with other currencies is fixed D) value of its imports exceeds the value of its exports E) total flow of money into the country equals the total flow of money out of the country Answer: A Explanation: When the value of goods and services exported by a country exceeds the value of goods and services it imports, the country has a positive balance of trade, or a trade surplus.

Difficulty: 2: Moderate AACSB: Application of knowledge LO: 3.1: Explain why nations trade, and describe how international trade is measured.

4) A country has a trade deficit when the ________.

A) exchange rate of its currency with other currencies is fixed B) exchange rate of its currency with other currencies is variable C) value of its exports exceeds the value of its imports D) total flow of money into the country equals the total flow of money out of the country E) value of its imports exceeds the value of its exports Answer: E Explanation: When the value of goods and services imported by a country exceeds the value of goods and services it exports, the country has a negative balance of trade or a trade deficit.

Difficulty: 2: Moderate AACSB: Application of knowledge LO: 3.1: Explain why nations trade, and describe how international trade is measured.

5) A country's balance of payment equals the ________.

A) money spent on procuring services minus money spent on procuring goods B) total flow of money into the country minus the total flow of money out of the country C) gross domestic product of the country minus the gross national product of the country D) money spent on producing services minus money spent on producing goods E) money spent on buying goods minus money spent on producing goods Answer: B Explanation: The balance of payments is the broadest indicator of international trade. It is the total flow of money into the country minus the total flow of money out of the country over some period of time.

Difficulty: 2: Moderate AACSB: Application of knowledge LO: 3.1: Explain why nations trade, and describe how international trade is measured.

6) The number of units of one currency that must be given for a unit of the second currency is known as the ________ between the currencies.

A) balance payment B) trading bloc C) tariff rate D) exchange rate E) trade balance Answer: D Explanation: The number of units of one currency that must be exchanged for a unit of the second currency is known as the exchange rate between the currencies.

Difficulty: 2: Moderate AACSB: Application of knowledge LO: 3.1: Explain why nations trade, and describe how international trade is measured.

7) When the U.S. dollar is strong, U.S. exports will likely ________.

A) become more competitive in foreign markets B) cost more in other countries C) be limited by the U.S. government D) face embargoes in developing nations E) be restricted by governments across the world Answer: B Explanation: Exchange rates can dramatically affect a company's financial results by raising or lowering the cost of supplies it imports and raising or lowering the price of goods it exports. A strong dollar will raise the cost of the U.S. exports.

Difficulty: 2: Moderate AACSB: Analytical thinking LO: 3.1: Explain why nations trade, and describe how international trade is measured.

8) Which of the following best describes economic globalization?

A) The increasing integration and interdependence of national economies around the world B) The idea that each country should specialize in areas where it can produce more efficiently than other countries C) The ability of companies to produce goods and services at lower costs by distributing at higher quantities D) The idea that companies must compete globally because competitors are doing so E) The supply and demand of one country's currency on the international market Answer: A Explanation: Economic globalization is the increasing integration and interdependence of national economies around the world.

Difficulty: 3: Challenging AACSB: Diverse and multicultural work environments LO: 3.1: Explain why nations trade, and describe how international trade is measured.

9) Which of the following is the broadest indicator of international trade and shows how much is spent on international transactions?

A) Exchange rate B) Trade surplus C) Balance of payments D) Economies of scale E) Balance of trade Answer: C Explanation: Balance of payments is the total flow of money into the country minus the total flow of money out of the country over some period of time. The balance of payments includes the balance of trade plus the net dollars received and spent on foreign investment, military expenditures, tourism, foreign aid, and other international transactions.

Difficulty: 2: Moderate AACSB: Application of knowledge LO: 3.1: Explain why nations trade, and describe how international trade is measured.

10) Economies of scale are savings from consumers purchasing fewer items at one time.

Answer: FALSE Explanation: Economies of scale results when producing goods and services at lower costs by purchasing, manufacturing, and distributing higher quantities.

Difficulty: 2: Moderate AACSB: Application of knowledge LO: 3.1: Explain why nations trade, and describe how international trade is measured.

11) Comparative advantage theory states that countries should produce and sell to other countries those things it can produce most efficiently.

Answer: TRUE Explanation: The classic theory of comparative advantage suggests that each country should specialize in those areas where it can produce more efficiently than other countries, and it should trade for goods and services that it can't produce as economically.

Difficulty: 2: Moderate AACSB: Application of knowledge LO: 3.1: Explain why nations trade, and describe how international trade is measured.

12) A country's balance of trade is the total value of its imports less the total value of its exports.

Answer: FALSE Explanation: The total value of a country's exports minus the total value of its imports, over some period of time, determines its balance of trade.

Difficulty: 2: Moderate AACSB: Application of knowledge LO: 3.1: Explain why nations trade, and describe how international trade is measured.

13) A country that imports more than it exports would have a trade surplus.

Answer: FALSE Explanation: A country that imports more than it exports will have a negative balance of trade or a trade deficit.

Difficulty: 2: Moderate AACSB: Application of knowledge LO: 3.1: Explain why nations trade, and describe how international trade is measured.

14) The number of units of one currency that must be exchanged for a unit of the second currency is known as the exchange rate between the currencies.

Answer: TRUE Explanation: The number of units of one currency that must be exchanged for a unit of the second currency is known as the exchange rate between the currencies.

Difficulty: 2: Moderate AACSB: Application of knowledge LO: 3.1: Explain why nations trade, and describe how international trade is measured.

15) A strong dollar will lower the cost of goods that the United States exports.

Answer: FALSE Explanation: A currency is called strong relative to another when its exchange rate is higher than what is considered normal. Strong dollar will raise the cost of goods the United States exports.

Difficulty: 2: Moderate AACSB: Application of knowledge LO: 3.1: Explain why nations trade, and describe how international trade is measured.

16) Explain how balance of trade and balance of payments affect a nation's level of international trade.

Answer: Two key measurements of a nation's level of international trade are the balance of trade and the balance of payments. The total value of a country's exports minus the total value of its imports, over some period of time, determines its balance of trade. In years when the value of goods and services exported by a country exceeds the value of goods and services it imports, the country has a positive balance of trade, or a trade surplus. The opposite is a trade deficit when a country imports more than it exports. The balance of payments is the broadest indicator of international trade. It is the total flow of money into the country minus the total flow of money out of the country over some period of time. The balance of payments includes the balance of trade plus the net dollars received and spent on foreign investment, military expenditures, tourism, foreign aid, and other international transactions.

Difficulty: 3: Challenging AACSB: Analytical thinking LO: 3.1: Explain why nations trade, and describe how international trade is measured.

17) Explain how a floating exchange rate system operates.

Answer: The number of units of one currency that must be exchanged for a unit of the second currency is known as the exchange rate between the currencies. Most international currencies operate under a floating exchange rate system, meaning that a currency's value or price fluctuates in response to the forces of global supply and demand. The supply and demand of a country's currency are determined, in part, by what is happening in the country's own economy. Moreover, because supply and demand for a currency are always changing, the rate at which it is exchanged for other currencies may change a little each day.

Difficulty: 3: Challenging AACSB: Analytical thinking LO: 3.1: Explain why nations trade, and describe how international trade is measured.

18) Which of the following arguments supports the idea of free trade?

A) Dumping rules and tariffs should be stricter in developing countries.

B) International trade takes place without any government interference.

C) Organizations should prefer local workers to home country workers.

D) Local businesses should obtain help from governments.

E) Governments should subsidize exporters to promote global trade.

Answer: B Explanation: Free trade takes place without governmental interferences, such as subsidies and tariffs.

Difficulty: 2: Moderate AACSB: Application of knowledge LO: 3.2: Discuss the nature of conflicts in global business, including free trade and government interventions in international trade.

19) Which of the following is an objective of protectionism?

A) Reducing the purchasing power of individuals B) Protecting industries and workers through government policies C) Enhancing trade between nations D) Increasing foreign direct investment E) Helping developing nations engage in global trade Answer: B Explanation: When a government believes that free trade is not in the best interests of its national security, domestic industries, workforce, or consumers, it can intervene in a number of ways. Some of these methods are collectively known as protectionism because they seek to protect a specific industry or groups of workers.

Difficulty: 2: Moderate AACSB: Diverse and multicultural work environments LO: 3.2: Discuss the nature of conflicts in global business, including free trade and government interventions in international trade.

20) Taxes, surcharges, or duties levied against imported goods are known as ________.

A) import sanctions B) embargoes C) tariffs D) import quotas E) restrictive import standards Answer: C Explanation: Taxes, surcharges, or duties levied against imported goods are known as tariffs. Tariffs can be levied to generate revenue, to restrict trade, or to punish other countries for disobeying international trade laws.

Difficulty: 2: Moderate AACSB: Application of knowledge LO: 3.2: Discuss the nature of conflicts in global business, including free trade and government interventions in international trade.

21) ________ limit the amount of particular goods that countries allow to be imported during a given year.

A) Import subsidies B) Embargoes C) Import quotas D) Import tariffs E) Restrictive import standards Answer: C Explanation: Import quotas limit the amount of particular goods that countries allow to be imported during a given year.

Difficulty: 1: Easy AACSB: Application of knowledge LO: 3.2: Discuss the nature of conflicts in global business, including free trade and government interventions in international trade.

22) A country can assist its domestic producers by implementing ________ such as special business licenses and limiting foreign companies' access to them.

A) export subsidies B) embargos C) import quotas D) tariffs E) restrictive import standards Answer: E Explanation: Countries can assist their domestic producers by establishing restrictive import standards (such as requiring special licenses for doing certain kinds of business) and then making it difficult/expensive for foreign companies to obtain such licenses.

Difficulty: 3: Challenging AACSB: Diverse and multicultural work environments LO: 3.2: Discuss the nature of conflicts in global business, including free trade and government interventions in international trade.

23) ________ are a form of financial assistance in which producers receive enough money from the government to allow them to lower their prices in the world market.

A) Export subsidies B) Embargoes C) Tariffs D) Sanctions E) Export quotas Answer: A Explanation: Export subsidies are a form of financial assistance in which producers receive enough money from the government to allow them to lower their prices in order to compete more effectively in the world market.

Difficulty: 2: Moderate AACSB: Diverse and multicultural work environments LO: 3.2: Discuss the nature of conflicts in global business, including free trade and government interventions in international trade.

24) Dumping ________.

A) involves selling a product at a price lower than the cost of production

B) is a strategy to revoke a countries normal trade relations status C) refers to the practice of selling products in small quantities D) is a strategy used by organizations to reduce trade barriers between countries E) is typically prevented by providing export subsidies to local producers Answer: A Explanation: The practice of selling large quantities of a product at a price lower than the cost of production or below what the company would charge in its home market is called dumping.

Difficulty: 2: Moderate AACSB: Ethical understanding and reasoning LO: 3.2: Discuss the nature of conflicts in global business, including free trade and government interventions in international trade.

25) ________ are politically motivated embargoes that revoke a country's normal trade relations status.

A) Subsidies B) Tariffs C) Sanctions D) Quotas E) Restrictive standards Answer: C Explanation: Sanctions are politically motivated embargoes that revoke a country's normal trade relations status. They are often used as forceful alternatives short of war.

Difficulty: 2: Moderate AACSB: Application of knowledge LO: 3.2: Discuss the nature of conflicts in global business, including free trade and government interventions in international trade.

26) Trade that takes place without interferences is known as free trade.

Answer: TRUE Explanation: Trade that takes place without interferences such as duties, subsidies, and quotas is known as free trade.

Difficulty: 2: Moderate AACSB: Application of knowledge LO: 3.2: Discuss the nature of conflicts in global business, including free trade and government interventions in international trade.

27) Tariffs are politically motivated restrictions that revoke a company's normal trade relations status.

Answer: FALSE Explanation: Taxes, surcharges, or duties levied against imported goods are known as tariffs. Tariffs can be levied to generate revenue, to restrict trade, or to punish other countries for disobeying international trade laws. Sanctions are politically motivated embargoes that revoke a country's normal trade relations status. They are often used as forceful alternatives short of war.

Difficulty: 2: Moderate AACSB: Application of knowledge LO: 3.2: Discuss the nature of conflicts in global business, including free trade and government interventions in international trade.

28) An embargo is a complete ban on the import or export of certain products or even all trade between certain countries.

Answer: TRUE Explanation: An embargo is a complete ban on the import or export of certain products or even all trade between certain countries.

Difficulty: 2: Moderate AACSB: Application of knowledge LO: 3.2: Discuss the nature of conflicts in global business, including free trade and government interventions in international trade.

29) Export subsidies are a form of financial assistance given to exporters.

Answer: TRUE Explanation: Export subsidies are a form of financial assistance in which producers receive enough money from the government to allow them to lower their prices in order to compete more effectively in the world market.

Difficulty: 2: Moderate AACSB: Application of knowledge LO: 3.2: Discuss the nature of conflicts in global business, including free trade and government interventions in international trade.

30) Explain protectionism and why a government would support this policy.

Answer: When a government believes that free trade is not in the best interests of its national security, domestic industries, workforce, or consumers, it can intervene in a number of ways. Some of these methods are collectively known as protectionism because they seek to protect a specific industry or groups of workers. Although they can help some parties in the short term, many protectionist measures actually end up hurting the groups they were intended to help. When an industry is isolated from real-life competition for too long, it can fail to develop and become strong enough to compete efficiently.

Difficulty: 3: Challenging AACSB: Analytical thinking LO: 3.2: Discuss the nature of conflicts in global business, including free trade and government interventions in international trade.

31) Identify at least five ways governments intervene in international trade.

Answer: 1. Taxes, surcharges, or duties levied against imported goods are known as tariffs. Tariffs can be levied to generate revenue, to restrict trade, or to punish other countries for disobeying international trade laws. Import quotas limit the amount of particular goods that countries allow to be imported during a given year. 2. An embargo is a complete ban on the import or export of certain products or even all trade between certain countries. 3. Export subsidies are a form of financial assistance in which producers receive enough money from the government to allow them to lower their prices in order to compete more effectively in the world market.

4. Antidumping measures the practice of selling large quantities of a product at a price lower than the cost of production or below what the company would charge in its home market is called dumping. 5. Sanctions are politically motivated embargoes that revoke a country's normal trade relations status; they are often used as forceful alternatives short of war. Sanctions can include arms embargoes, foreign-assistance reductions and cutoffs, trade limitations, tariff increases, import-quota decreases, visa denials, air-link cancellations, and more.

Difficulty: 3: Challenging AACSB: Analytical thinking LO: 3.2: Discuss the nature of conflicts in global business, including free trade and government interventions in international trade.

32) What types of governmental intervention eliminates trade between certain countries?

Answer: An embargo is a complete ban on the import or export of certain products or even all trade between certain countries. Sanctions are politically motivated embargoes that revoke a country's normal trade relations status; they are often used as forceful alternatives short of war. Sanctions can include arms embargoes, foreign-assistance reductions and cutoffs, trade limitations, tariff increases, import-quota decreases, visa denials, air-link cancellations, and more.

Difficulty: 2: Moderate AACSB: Analytical thinking LO: 3.2: Discuss the nature of conflicts in global business, including free trade and government interventions in international trade.

33) ________ is a permanent forum for negotiating, implementing, and monitoring international trade procedures and for mediating trade disputes among member countries.

A) International Monetary Fund B) World Trade Organization C) World Bank D) European Union E) International Labor Organization Answer: B Explanation: The World Trade Organization (WTO) is a permanent forum for negotiating, implementing, and monitoring international trade procedures and for mediating trade disputes among its more than 160 member countries.

Difficulty: 2: Moderate AACSB: Application of knowledge LO: 3.3: Identify the major organizations that facilitate international trade and the major trading blocs around the world.

34) Which of the following is one of the six principles that governs the World Trade Organization's work?

A) Giving preference to trading partners who provide maximum business B) Protecting domestic industries by offering financial assistance C) Making trade policies more predictable and transparent D) Establishing dumping procedures to prevent pollution in developed countries E) Implementing protectionist ideologies to establish fair trade between nations Answer: C Explanation: WTO's work is guided by six principles. One of them is making trade policies more predictable and transparent.

Difficulty: 2: Moderate AACSB: Application of knowledge LO: 3.3: Identify the major organizations that facilitate international trade and the major trading blocs around the world.

35) The ________ was established to foster international financial cooperation and now provides short-term loans to member countries in need.

A) World Trade Organization B) World Commerce Center C) European Union D) North American Free Treaty E) International Monetary Fund Answer: E Explanation: The International Monetary Fund (IMF) was established after WWII to foster international financial cooperation. Now with 189 member countries, the IMF's primary functions are monitoring global financial developments, offering technical advice and training to help countries manage their economies more effectively, and providing short-term loans to member countries.

Difficulty: 2: Moderate AACSB: Application of knowledge LO: 3.3: Identify the major organizations that facilitate international trade and the major trading blocs around the world.

36) Which of the following is a goal of the World Trade Organization?

A) Support strong trading partners so they can later help weaker partners.

B) Make trade policies more arbitrary and less predictable.

C) Promote fair competition between nations.

D) Promote trading practices that help to stabile strong trade currencies.

E) Monitor global financial developments.

Answer: C Explanation: The organization's work is guided by five principles: preventing discriminatory policies that favor some trading partners over others or a country's own products over those of other countries; reducing trade barriers between countries; making trade policies more predictable and less arbitrary; promoting fair competition by discouraging unfair practices; promoting economic progress in the world's less-developed countries; and ensuring that countries don't use environmental or public health polices as a disguise for protectionism.

Difficulty: 1: Easy AACSB: Application of knowledge LO: 3.3: Identify the major organizations that facilitate international trade and the major trading blocs around the world.

37) If a country needed help in dealing with a natural disaster, where might they go?

A) The World Trade Organization B) Area trading blocs C) The International Monetary Fund D) The Trans-Pacific Partnership E) The World Bank Answer: C Explanation: The IMF's primary functions are monitoring global financial developments, offering technical advice and training to help countries manage their economies more effectively, and providing short-term loans to member countries.

Difficulty: 2: Moderate AACSB: Application of knowledge LO: 3.3: Identify the major organizations that facilitate international trade and the major trading blocs around the world.

38) Which organization has the goal of eliminating extreme poverty around the world by investing in education, health care and other concerns in developing countries?

A) The World Trade Organization B) Area trading blocs C) The International Monetary Fund D) The Trans-Pacific Partnership E) The World Bank Answer: E Explanation: The World Bank is a group of five financial institutions whose primary goals are eradicating the most extreme levels of poverty around the world and raising the income of the poorest people in every country as a way to foster shared prosperity for everyone.

Difficulty: 2: Moderate AACSB: Application of knowledge LO: 3.3: Identify the major organizations that facilitate international trade and the major trading blocs around the world.

39) Which of the following has been created to promote trade and ensure economic growth of member nations?

A) Tax havens B) The World Trade Organization C) Multinational corporations D) Trading blocs E) Transnational organizations Answer: D Explanation: Trading blocs, or common markets, are regional organizations that promote trade among member nations. Trading blocs generally promote trade inside the region while creating uniform barriers against goods and services entering the region from nonmember countries.

Difficulty: 2: Moderate AACSB: Application of knowledge LO: 3.3: Identify the major organizations that facilitate international trade and the major trading blocs around the world.

40) Where is the world's largest economy?

A) China B) India C) The United States D) South America E) The European Union Answer: E Explanation: Viewed as a whole, the EU now constitutes the world's largest economy.

EU nations have eliminated hundreds of local regulations, variations in product standards, and protectionist measures that once limited trade among member countries.

Difficulty: 2: Moderate AACSB: Application of knowledge LO: 3.3: Identify the major organizations that facilitate international trade and the major trading blocs around the world.

41) As one of the largest trading blocs, the European Union has created their own currency to ________.

A) increase the cost of trade for nonmember nations B) minimize widespread imbalances among member nations C) keep inflation rates high D) make transactions simpler and less expensive E) move towards the goal of becoming one country with several states Answer: D Explanation: By switching to a common currency, these countries have made financial transactions simpler and less expensive. According to EU leadership, the euro has simplified commerce for consumers and businesses, lowered inflation and interest rates, improved transparency in pricing, provided a more stable currency, and given the EU a stronger presence in global financial markets.

Difficulty: 2: Moderate AACSB: Application of knowledge LO: 3.3: Identify the major organizations that facilitate international trade and the major trading blocs around the world.

42) Which trading bloc represents more than half of the world's gross domestic product?

A) North American Free Trade Agreement (NAFTA) B) Trans-Pacific Partnership (TPP) C) Pacific Rim (PR) D) Asia-Pacific Economic Cooperation (APEC) E) European Union (EU) Answer: D Explanation: Member nations represent 40 percent of the world's population and more than 50 percent of the world's gross domestic product.

Difficulty: 2: Moderate AACSB: Application of knowledge LO: 3.3: Identify the major organizations that facilitate international trade and the major trading blocs around the world.

43) The World Trade Organization is a permanent forum for negotiating, implementing, and monitoring international trade procedures.

Answer: TRUE Explanation: The World Trade Organization (WTO) is a permanent forum for negotiating, implementing, and monitoring international trade procedures and for mediating trade disputes among its more than 160 member countries.

Difficulty: 2: Moderate AACSB: Application of knowledge LO: 3.3: Identify the major organizations that facilitate international trade and the major trading blocs around the world.

44) Offering technical advice and training to help countries manage their economies more effectively is one of the primary functions of the International Monetary Fund.

Answer: TRUE Explanation: The IMF's primary functions are monitoring global financial developments, offering technical advice and training to help countries manage their economies more effectively, and providing short-term loans to member countries. These loans can be made for a variety of reasons, from helping a country deal with a natural disaster to stabilizing a country's economy in order to limit the spread of a financial crisis beyond its borders.

Difficulty: 2: Moderate AACSB: Application of knowledge LO: 3.3: Identify the major organizations that facilitate international trade and the major trading blocs around the world.

45) The North American Free Trade Agreement was formed by twelve North and South American countries.

Answer: FALSE Explanation: The United States, Canada, and Mexico formed the North American Free Trade Agreement (NAFTA). It facilitated free trade between these countries.

Difficulty: 2: Moderate AACSB: Application of knowledge LO: 3.3: Identify the major organizations that facilitate international trade and the major trading blocs around the world.

46) The European Union has created a currency of its own.

Answer: TRUE Explanation: The EU has taken a significant step beyond all other trading blocs in the area of money by creating its own currency, the euro, which has been adopted by more than half the member states of the EU. Difficulty: 2: Moderate AACSB: Application of knowledge LO: 3.3: Identify the major organizations that facilitate international trade and the major trading blocs around the world.

47) Describe the importance of the World Trade Organization.

Answer: The World Trade Organization (WTO) is a permanent forum for negotiating, implementing, and monitoring international trade procedures and for mediating trade disputes among its more than 160 member countries. The organization's work is guided by six principles: preventing discriminatory policies that favor some trading partners over others or a country's own products over others', reducing trade barriers between countries, making trade policies more predictable and transparent, promoting economic progress in the world's less developed countries, and ensuring that countries don't use environmental or public health policies as a disguise for protectionism.

Difficulty: 2: Moderate AACSB: Analytical thinking LO: 3.3: Identify the major organizations that facilitate international trade and the major trading blocs around the world.

48) Explain the working of NAFTA.

Answer: Trading blocs, or common markets, are regional organizations that promote trade among member nations. NAFTA is an example of a trading bloc. In 1994, the United States, Canada, and Mexico formed the North American Free Trade Agreement (NAFTA), paving the way for the free flow of goods, services, and capital within the bloc through the phased elimination of tariffs and quotas. NAFTA primarily affects trade between the United States and Mexico and between the United States and Canada; trade between Mexico and Canada is small in comparison.

Difficulty: 2: Moderate AACSB: Analytical thinking LO: 3.3: Identify the major organizations that facilitate international trade and the major trading blocs around the world.

49) A(n) ________ is a country that allows companies the opportunity to shield some of their income from higher tax rates in their own countries.

A) fiscal incentive B) investment schema C) exchange premium D) income shelter E) tax haven Answer: E Explanation: A tax haven is a country whose favorable banking laws and low tax rates give companies the opportunity to shield some of their income from higher tax rates in their home countries or other countries where they do business.

Difficulty: 2: Moderate AACSB: Ethical understanding and reasoning LO: 3.4: Discuss the importance of understanding cultural and legal differences in the global business environment.

50) ________ refers to assigning a wide range of generalized attributes to an individual based on membership in a particular culture or social group.

A) Ethnocentrism B) Stereotyping C) Protectionism D) Discerning E) Culture shock Answer: B Explanation: Stereotyping refers to assigning a wide range of generalized (and often superficial or even false) attributes to an individual based on that person's membership in a particular culture or social group.

Difficulty: 2: Moderate AACSB: Diverse and multicultural work environments LO: 3.4: Discuss the importance of understanding cultural and legal differences in the global business environment.

51) ________ is the tendency to judge all other groups according to standards, behaviors, and customs that prevail in one's own culture.

A) Stereotyping B) Protectionism C) Discerning D) Culture shock E) Ethnocentrism Answer: E Explanation: Ethnocentrism is the tendency to judge all other groups according to the standards, behaviors, and customs of one's own culture.

Difficulty: 2: Moderate AACSB: Diverse and multicultural work environments LO: 3.4: Discuss the importance of understanding cultural and legal differences in the global business environment.

52) Legal systems in Great Britain and the United States are based on ________, in which tradition, custom, and judicial interpretation play important roles.

A) tax law B) theocratic law C) common law D) civil law E) prevailing custom Answer: C Explanation: The legal systems in the United States and the United Kingdom are based on common law, in which tradition, custom, and judicial interpretation play important roles.

Difficulty: 2: Moderate AACSB: Diverse and multicultural work environments LO: 3.4: Discuss the importance of understanding cultural and legal differences in the global business environment.

53) Countries such as France and Germany rely on a legal system based on ________, in which legal parameters are specified in detailed legal codes.

A) theocratic law B) case law C) common law D) precedent law E) civil law Answer: E Explanation: The legal system in countries such as France and Germany is based on civil law, in which legal parameters are specified in detailed legal codes.

Difficulty: 2: Moderate AACSB: Diverse and multicultural work environments LO: 3.4: Discuss the importance of understanding cultural and legal differences in the global business environment.

54) Theocratic law, found in such as Iran and Pakistan, is based on ________.

A) traditions and customs B) religious principles C) detailed legal codes D) legal parameters E) judicial interpretations Answer: B Explanation: Theocratic law is law based on religious principles, and it predominates in such countries as Iran and Pakistan.

Difficulty: 2: Moderate AACSB: Diverse and multicultural work environments LO: 3.4: Discuss the importance of understanding cultural and legal differences in the global business environment.

55) Which of the following acts outlaws payments that are intended to get government officials to break the laws of their own countries or to secure "improper advantage" in gaining or retaining sales?

A) Theocratic Laws Payment Act B) Economic Globalization Act C) Foreign Corrupt Practices Act D) Foreign Direct Investment Act E) Federal Corrupt Practices Act Answer: C Explanation: By law, all U.S. companies must abide by the Foreign Corrupt Practices Act (FCPA). The FCPA outlaws payments with the intent of getting government officials to break the laws of their own countries or to secure "improper advantage" in gaining or retaining sales.

Difficulty: 2: Moderate AACSB: Ethical understanding and reasoning LO: 3.4: Discuss the importance of understanding cultural and legal differences in the global business environment.

56) Accepting multiple cultures on their own terms is the practice of ________.

A) norming expectations B) stereotyping C) ethnocentrism D) distinction E) cultural pluralism Answer: E Explanation: To show respect for others and to interact successfully around the globe, adopt the more positive viewpoint of cultural pluralism—the practice of accepting multiple cultures on their own terms.

Difficulty: 2: Moderate AACSB: Ethical understanding and reasoning LO: 3.4: Discuss the importance of understanding cultural and legal differences in the global business environment.

57) How can a person improve the communication process when working with a person from another culture?

A) Learn how respect is communicated in various cultures.

B) Always be straightforward and direct.

C) Add emphasis to important issues through the use of body language.

D) Use preconceived ideas and stereotypes to minimize social mistakes.

E) Expect the other person to have the same values and beliefs that you do, or to at least understand and support your beliefs.

Answer: A Explanation: Learn how respect is communicated in various cultures through gestures, eye contact, social customs, and other actions.

Difficulty: 2: Moderate AACSB: Diverse and multicultural work environments LO: 3.4: Discuss the importance of understanding cultural and legal differences in the global business environment.

58) Culture is a shared system of symbols, beliefs, attitudes, values, expectations, and norms for behavior.

Answer: TRUE Explanation: Culture is a shared system of symbols, beliefs, attitudes, values, expectations, and norms for behavior.

Difficulty: 2: Moderate AACSB: Application of knowledge LO: 3.4: Discuss the importance of understanding cultural and legal differences in the global business environment.

59) Ethnocentrism is the tendency to being open to learning more about someone than just their demographic information.

Answer: FALSE Explanation: Ethnocentrism is the tendency to judge all other groups according to the standards, behaviors, and customs of one's own group.

Difficulty: 2: Moderate AACSB: Application of knowledge LO: 3.4: Discuss the importance of understanding cultural and legal differences in the global business environment.

60) The legal systems in the United States and the United Kingdom are based on civil law.

Answer: FALSE Explanation: The legal systems in the United States and the United Kingdom are based on common law whereas legal systems in countries such as France and Germany are based on civil law.

Difficulty: 2: Moderate AACSB: Application of knowledge LO: 3.4: Discuss the importance of understanding cultural and legal differences in the global business environment.

61) Theocratic law is law based on religious principles.

Answer: TRUE Explanation: Theocratic law is law based on religious principles. It predominates in such countries as Iran and Pakistan.

Difficulty: 2: Moderate AACSB: Application of knowledge LO: 3.4: Discuss the importance of understanding cultural and legal differences in the global business environment.

62) All U.S. companies are bound by the Foreign Corrupt Practices Act. Answer: TRUE Explanation: All U.S. companies are bound by the Foreign Corrupt Practices Act (FCPA), which outlaws payments with the intent of getting government officials to break the laws of their own countries.

Difficulty: 2: Moderate AACSB: Application of knowledge LO: 3.4: Discuss the importance of understanding cultural and legal differences in the global business environment.

63) Compare and contrast the three main legal systems that exist in the world.

Answer: Differences in national legal systems may not be as immediately obvious as cultural differences, but they can have a profound effect on international business efforts.

For instance, the legal systems in the United States and the United Kingdom are based on common law, in which tradition, custom, and judicial interpretation play important roles.

In contrast, the systems in countries such as France and Germany are based on civil law, in which legal parameters are specified in detailed legal codes. One everyday consequence of this difference is that business contracts tend to be shorter and simpler in civil law systems, since the existing legal code outlines more aspects of the transaction or relationship.

A third type of legal system, theocratic law, or law based on religious principles, predominates in such countries as Iran and Pakistan. Beyond the differences in legal philosophies, the business of contracts, copyrights, and other legal matters can vary considerably from one country to another.

Difficulty: 3: Challenging AACSB: Diverse and multicultural work environments LO: 3.4: Discuss the importance of understanding cultural and legal differences in the global business environment.

64) Which of the following strategies is best when attempting to enter a foreign market slowly and then designing the firm's product offerings for that market?

A) Foreign direct investment B) Exporting C) Business merger D) Joint venture E) Franchising Answer: B Explanation: Exporting allows a firm to enter a foreign market gradually, assess local conditions, and then fine-tune its product offerings to meet the needs of local markets. In most cases, the firm's financial exposure is limited to the costs of researching the market, advertising, and either establishing a direct sales and distribution system or hiring intermediaries.

Difficulty: 2: Moderate AACSB: Diverse and multicultural work environments LO: 3.5: Define the major forms of international business activity.

65) ________ refers to buying goods or services from a supplier in another country.

A) Franchising B) Importing C) Licensing D) Partnering E) Intermediating Answer: B Explanation: Importing refers to the buying of goods or services from a supplier in another country and is a practice that has existed for centuries.

Difficulty: 2: Moderate AACSB: Application of knowledge LO: 3.5: Define the major forms of international business activity.

66) ________ agreements entitle one company to use some or all of another firm's intellectual property in exchange for a royalty payment.

A) Joint venture B) Exporting C) Franchising D) Licensing E) Strategic alliance Answer: D Explanation: Licensing is a popular approach to international business. License agreements entitle one company to use some or all of another firm's intellectual property (patents, trademarks, brand names, copyrights, or trade secrets) in return for a royalty payment.

Difficulty: 2: Moderate AACSB: Application of knowledge LO: 3.5: Define the major forms of international business activity.

67) ________ allows a firm to sell the rights for the use of a specific business system, including trade secrets and brand names.

A) A strategic alliance B) Export licensing C) Franchising D) Joint venturing E) Foreign direct investment Answer: C Explanation: Franchising involves selling the right to use a business system, including brand names, business processes, trade secrets, and other assets.

Difficulty: 2: Moderate AACSB: Application of knowledge LO: 3.5: Define the major forms of international business activity.

68) ________ are long-term partnerships between two or more companies to jointly develop, produce, or sell products.

A) Strategic alliances B) Global franchises C) Joint ventures D) Strategic mergers E) Incorporated partnerships Answer: A Explanation: Strategic alliances are long-term partnerships between two or more companies to jointly develop, produce, or sell products. They can be used to reach the global marketplace.

Difficulty: 2: Moderate AACSB: Application of knowledge LO: 3.5: Define the major forms of international business activity.

69) In a(n) ________, two or more firms work together to create a new business entity that is legally separate and distinct from either parent company.

A) operational partnership B) strategic alliance C) joint venture D) operational alliance E) international franchise Answer: C Explanation: A joint venture is an arrangement in which two or more firms join together to create a new business entity that is legally separate and distinct from its parents. It is an alternative to a strategic alliance.

Difficulty: 2: Moderate AACSB: Application of knowledge LO: 3.5: Define the major forms of international business activity.

70) Multinational corporations are companies that ________.

A) export to multiple countries from a central location B) have formed strategic alliances with companies across the world C) have formed operational alliances with companies across the world D) procure supplies from multiple countries to improve their production E) establish a physical presence in multiple countries through foreign direct investment Answer: E Explanation: Companies that establish a physical presence in multiple countries through FDI are called multinational corporations (MNCs).

Difficulty: 2: Moderate AACSB: Application of knowledge LO: 3.5: Define the major forms of international business activity.

71) Foreign direct investment (FDI) ________.

A) usually does not receive support from domestic governments B) carries much lesser political risk C) typically gives companies greater control over business operations D) carries much less economic risk E) is less complex than any other form of global entry Answer: C Explanation: FDI typically gives companies greater control over business operations, but it carries much greater economic and political risk and is more complex than any other form of entry in the global marketplace.

Difficulty: 2: Moderate AACSB: Application of knowledge LO: 3.5: Define the major forms of international business activity.

72) Which of the following is one of the least risky forms of international business activity?

A) Exporting B) Licensing C) Joint venture D) Franchising E) Strategic alliance Answer: A Explanation: Exporting is one of the least risky forms of international business activity.

It allows a firm to enter a foreign market gradually, assess local conditions, and then finetune its product offerings to meet the needs of local markets.

Difficulty: 2: Moderate AACSB: Application of knowledge LO: 3.5: Define the major forms of international business activity.

73) What is the advantage of franchising internationally?

A) Stronger, long-term partnerships B) Reduced costs and risks, and better leveraging of investments in branding C) Low up-front costs D) It may be the only way to gain access to business in a country E) There is greater control, and better protection for foreign investors Answer: B Explanation: Franchising is an attractive option for many companies because it reduces the costs and risks of expanding internationally while leveraging their investments in branding and business processes.

Difficulty: 2: Moderate AACSB: Application of knowledge LO: 3.5: Define the major forms of international business activity.

74) Exporting is one of the least risky form of international business activity.

Answer: TRUE Explanation: Exporting is one of the least risky forms of international business activity.

It allows a firm to enter a foreign market gradually, assess local conditions, and then finetune its product offerings to meet the needs of local markets.

Difficulty: 2: Moderate AACSB: Application of knowledge LO: 3.5: Define the major forms of international business activity.

75) Joint ventures are short-term partnerships between two or more companies to jointly develop, produce, or sell products.

Answer: FALSE Explanation: A joint venture is an arrangement in which two or more firms join forces to create a new business entity that is legally separate and distinct from its parents. It is an alternative to a strategic alliance.

Difficulty: 2: Moderate AACSB: Application of knowledge LO: 3.5: Define the major forms of international business activity.

76) Compare and contrast strategic alliances with joint ventures.

Answer: Strategic alliances are long-term partnerships between two or more companies to jointly develop, produce, or sell products, and are another way to reach the global marketplace. Alliance partners typically share ideas, expertise, resources, technologies, investment costs, risks, management, and profits. In some cases, a strategic alliance might be the only way to gain access to a market. A joint venture is an arrangement in which two or more firms join together to create a new business entity that is legally separate and distinct from its parents, and is an alternative to a strategic alliance. In some countries, foreign companies are prohibited from owning facilities outright or from investing in local business, so establishing a joint venture with a local partner may be the only way to do business in that country.

Difficulty: 2: Moderate AACSB: Application of knowledge LO: 3.5: Define the major forms of international business activity.

77) In the ________ strategy, a company creates highly independent operating units in

each new country and gives local managers a great deal of freedom to run their operations almost as though they are independent companies.

A) integrated marketing B) transnational C) global D) franchising E) multidomestic Answer: E Explanation: In the multidomestic strategy, a company creates highly independent operating units in each new country, giving local managers a great deal of freedom to run their operations almost as though they are independent companies.

Difficulty: 2: Moderate AACSB: Application of knowledge LO: 3.6: Discuss the strategic choices that must be considered before entering international markets.

78) In a ________ strategy, managerial control is highly centralized and major decisions for the company's international operations are made at the company's headquarters in the home country.

A) multidomestic B) franchising C) global D) distributed E) transnational Answer: C Explanation: In the global strategy, a company embraces the notion of economic globalization by viewing the world as a single integrated market. Managerial control with the global strategy is highly centralized, with headquarters in the home country making all major decisions.

Difficulty: 2: Moderate AACSB: Application of knowledge LO: 3.6: Discuss the strategic choices that must be considered before entering international markets.

79) In the ________ strategy, strategic decisions are made at headquarters in the home country, but local business units are allowed to make "on-the-ground" decisions that are most appropriate for the local environment.

A) integrated marketing B) transnational C) global D) franchising E) multidomestic Answer: B Explanation: In the transnational strategy, a company uses a hybrid approach as it attempts to reap the benefits of international scale while being responsive to local market dynamics. With this approach, major strategic decisions, product planning, and business systems such as accounting and purchasing are centralized, but local business units are given the freedom to make "on-the-ground" decisions that are most appropriate for local markets.

Difficulty: 2: Moderate AACSB: Application of knowledge LO: 3.6: Discuss the strategic choices that must be considered before entering international markets.

80) Which of the following is a major disadvantage of customizing products to suit local markets?

A) Customization is likely to increase the costs and operational complexity.

B) Customized products attract more taxes and duties.

C) Customization reduces the diversity of a company's offerings.

D) Customization prevents companies from obtaining subsidies.

E) Customers' preferences will likely be ignored when using customization.

Answer: A Explanation: Customization can help companies accommodate the lifestyles and habits of local target markets. However, it can increase costs and operational complexity.

Difficulty: 2: Moderate AACSB: Application of knowledge LO: 3.6: Discuss the strategic choices that must be considered before entering international markets.

81) When considering how to market a product internationally, what can be used to ensure the exact same product is sold everywhere around the world?

A) Standardization B) Joint licensing agreements C) A transnational strategy D) A strong promotion strategy E) Franchising Answer: A Explanation: Standardization is selling the same product, without modification, everywhere in the world. Customization can accommodate the lifestyles and habits of local target markets.

Difficulty: 2: Moderate AACSB: Application of knowledge LO: 3.6: Discuss the strategic choices that must be considered before entering international markets.

82) Which of the following is essential when determining product design and branding for an international market?

A) Identifying price point B) Understanding of culture and regulation C) Understanding the need for customer support D) Recognizing language differences E) Identifying the available local talent Answer: B Explanation: Understanding a country's regulations, culture, and local competition is essential to making smart product design and branding decisions.

Difficulty: 2: Moderate AACSB: Application of knowledge LO: 3.6: Discuss the strategic choices that must be considered before entering international markets.

83) Because many customers are reluctant to buy foreign products if they cannot get service for the product, what functional strategy for international expansion should be considered?

A) Customized products B) Lower prices C) Increased customer support D) Strong market-entry promotions E) Customized advertising Answer: C Explanation: Many customers are reluctant to buy foreign products that don't offer some form of local support, whether it's a local dealer, a manufacturer's branch office, or a third-party organization that offers support under contract to the manufacturer.

Difficulty: 2: Moderate AACSB: Analytical thinking LO: 3.6: Discuss the strategic choices that must be considered before entering international markets.

84) Based on cultural differences such as significance of colors, language differences and other nonverbal signals, what should be customized when entering an international market?

A) Staffing skills B) Price C) Distribution D) Promotions E) Customer support Answer: D Explanation: Advertising, public relations, and other promotional efforts also present the dilemma of standardization versus customization. In addition to language differences, companies need to consider nonverbal symbols (the significance of colors and hand gestures, for example), local competition, and a variety of cultural differences.

Difficulty: 2: Moderate AACSB: Analytical thinking LO: 3.6: Discuss the strategic choices that must be considered before entering international markets.

85) The ability to cover all costs of customization while offering competitive prices in an international market should be considered in which functional strategy category?

A) Staffing B) Customer support C) Product D) Promotional E) Pricing Answer: E Explanation: Even a standardized strategy adds to the cost of doing business and customized international strategies add even more. Before moving into other countries, businesses need to make sure they can cover all these costs and still be able to offer competitive prices.

Difficulty: 2: Moderate AACSB: Analytical thinking LO: 3.6: Discuss the strategic choices that must be considered before entering international markets.

86) ________ allows a company to reap the benefits on international scale and stay responsive to local market dynamics.

A) A transnational strategy B) Licensing C) Global strategies D) Joint ventures E) Customization Answer: A Explanation: In a transnational strategy, a company uses a hybrid approach as it attempts to reap the benefits of international scale while being responsive to local market dynamics.

Difficulty: 2: Moderate AACSB: Analytical thinking LO: 3.6: Discuss the strategic choices that must be considered before entering international markets.

87) A company creates highly independent operating units in each new country when using the multidomestic strategy.

Answer: TRUE Explanation: A company creates highly independent operating units in each new country when using the multidomestic strategy.

Difficulty: 2: Moderate AACSB: Application of knowledge LO: 3.6: Discuss the strategic choices that must be considered before entering international markets.

88) Managerial control with the global strategy is highly decentralized.

Answer: FALSE Explanation: In the global strategy, a company embraces the notion of economic globalization by viewing the world as a single integrated market. Managerial control with the global strategy is highly centralized, with headquarters in the home country making all major decisions.

Difficulty: 2: Moderate AACSB: Application of knowledge LO: 3.6: Discuss the strategic choices that must be considered before entering international markets.

89) Compare and contrast a multidomestic strategy with a global strategy.

Answer: In the multidomestic strategy, a company creates highly independent operating units in each new country and gives local managers a great deal of freedom to run their operations almost as though they are independent companies. While this strategy can help a company respond more quickly and effectively to local market needs, it doesn't deliver the economy of scale advantages that other strategies can bring. In addition, the lack of centralized control can lead to situations in which local managers act in ways contrary to corporate strategy or guidelines.

In the global strategy, a company embraces the notion of economic globalization by viewing the world as a single integrated market. This is essentially the opposite of the multidomestic strategy. Managerial control with the global strategy is highly centralized, with headquarters in the home country making all major decisions.

Difficulty: 2: Moderate AACSB: Application of knowledge LO: 3.6: Discuss the strategic choices that must be considered before entering international markets.

90) Explain how companies using a transnational strategy manage their business.

Answer: In the transnational strategy, a company uses a hybrid approach as it attempts to reap the benefits of international scale while being responsive to local market dynamics.

This is the essence of the often-heard advice to "think globally, act locally." With this approach, major strategic decisions and business systems such as accounting and purchasing are often centralized, but then local business units are given the freedom to make "on the ground" decisions that are most appropriate for local markets.

Difficulty: 2: Moderate AACSB: Application of knowledge LO: 3.6: Discuss the strategic choices that must be considered before entering international markets.

91) Which of the following can be used to help eliminate the practical challenges of conducting international business in multiple languages?

A) Machine translation B) Character recognition software C) Natural language generation D) Natural language processing E) Speech recognition software Answer: A Explanation: Language is one of the many practical challenges of conducting international business when multiple languages are involved. Machine translation, as automated translation has historically been called, has been one of the long-standing goals of artificial intelligence.

Difficulty: 2: Moderate AACSB: Information technology LO: 3.7: Describe the current state of AI-assisted translation and its value to international businesses.

92) One of the flaws of AI-assisted translation tools is ________.

A) they only work well when a text contains a significant amount of abstract ideas B) they process language, not read it for understanding C) they work best on text with idiomatic expression and complex phrasing D) they get the gist of the text, but not an exact translation E) they are more expensive that having a human do the translation work Answer: B Explanation: AI-assisted translation tools are processing language, not reading for understanding in the same way that humans do.

Difficulty: 2: Moderate AACSB: Information technology LO: 3.7: Describe the current state of AI-assisted translation and its value to international businesses.

93) When writing a document that will be translated by software for an international audience, ________.

A) build in abstract examples B) use complex phrasing C) use straightforward, concrete language D) incorporate local expressions E) use words with a variety of meanings Answer: C Explanation: Using concrete, straightforward language, though—the style used in many business communication scenarios—will allow translation software to help you get at least the basic gist of text written in another language.

Difficulty: 2: Moderate AACSB: Information technology LO: 3.7: Describe the current state of AI-assisted translation and its value to international businesses.

94) Which of the following is the simplest form of text translation?

A) Translating text within images B) Adding spoken language to images C) Adding written text to images D) Translating written text E) Translating spoken language in real time Answer: D Explanation: Translation tools can work at several levels: translating written text (that you type or copy into the system), translating text within images, and translating spoken language. Working with written text is the simplest of these because the system doesn't need to convert sounds to text and then convert text back to sound, in addition to performing the translation.

Difficulty: 2: Moderate AACSB: Information technology LO: 3.7: Describe the current state of AI-assisted translation and its value to international businesses.

95) When translating text within images, ________ software can translate text that is written in standard type fonts.

A) machine translation B) speech recognition C) synthesizing D) natural language processing E) optical character recognition Answer: E Explanation: Optical character recognition is now refined enough to handle text that is clearly visible and in standard type fonts. For international travel, a particularly handy smartphone feature is the ability to aim your phone's camera at a sign or other printed material and let the translation app tell you what it says.

Difficulty: 2: Moderate AACSB: Information technology LO: 3.7: Describe the current state of AI-assisted translation and its value to international businesses.

96) Natural language generation software allows a user to ________.

A) remove local idioms from language B) create sensible language output C) add language to visual aids D) recognize a different language is being used E) recognize distinct speech patterns and dialects Answer: B Explanation: The trickiest translation job of all is translating spoken language in real time or close to real time. This requires multiple layers of technology, including speech recognition and synthesis to "hear" and "speak" the language, natural language processing and natural language generation to understand the incoming language and output sensible language.

Difficulty: 2: Moderate AACSB: Information technology LO: 3.7: Describe the current state of AI-assisted translation and its value to international businesses.

97) Which type of translation software is needed to "hear" what is being said when translating spoken language?

A) Speech recognition B) Synthesis C) Natural language generation D) Optical character recognition E) Text generation Answer: A Explanation: The trickiest translation job of all is translating spoken language in real time or close to real time. This requires multiple layers of technology, including speech recognition and synthesis to "hear" and "speak" the language, natural language processing and natural language generation to understand the incoming language and output sensible language, and the translation capability in the middle.

Difficulty: 2: Moderate AACSB: Information technology LO: 3.7: Describe the current state of AI-assisted translation and its value to international businesses.

98) When translating contracts, legal documents, or other complex documents where accuracy is critical, machine translation generally most accurate.

Answer: FALSE Explanation: Whenever you need to translate contracts or other documents in which complete accuracy is critical, however, the services of a professional translator are well worth the cost.

Difficulty: 2: Moderate AACSB: Information technology LO: 3.7: Describe the current state of AI-assisted translation and its value to international businesses.

99) The most difficult translation job of all is translating spoken language in real time.

Answer: TRUE Explanation: The trickiest translation job of all is translating spoken language in real time or close to real time so that people can carry on a conversation or participate in a presentation.

Difficulty: 1: Easy AACSB: Information technology LO: 3.7: Describe the current state of AI-assisted translation and its value to international businesses.

100) Discuss the various functions of a translation tool.

Answer: Translation tools can work at several levels: translating written text (that you type or copy into the system), translating text within images, and translating spoken language. Working with written text is the simplest of these because the system doesn't need to convert sounds to text and then convert text back to sound, while performing the translation. Two useful applications of text translation are the translation features of common web browsers and mobile apps that can translate text as you type it in.

Translating text within images adds a layer of complexity to the process, because the system much must be able to recognize words from within an image. However, optical character recognition is now refined enough to handle text that is clearly visible and in standard type fonts. For international travel, a particularly handy smartphone feature is the ability to aim your phone's camera at a sign or other printed material and let the translation app tell you what it says.

Difficulty: 2: Moderate AACSB: Information technology LO: 3.7: Describe the current state of AI-assisted translation and its value to international businesses.

Business in Action, 9e (Bovee/Thill) Chapter 4 Business Ethics and Corporate Social Responsibility 1) ________ is/are the principles and standards of moral behavior that are accepted by society as right and wrong.

A) Mandates B) Ethics C) Business mindset D) Etiquette E) Philanthropy Answer: B Explanation: Ethics are the principles and standards of moral behavior that are accepted by society as right versus wrong. Practicing good business ethics involves, at a minimum, competing fairly and honestly, communicating truthfully, and not causing harm to others.

Difficulty: 2: Moderate AACSB: Ethical understanding and reasoning LO: 4.1: Discuss what it means to practice good business ethics, and highlight the forces that can influence ethical decision making.

2) ________ refers to the degree to which information flows freely within an organization, among managers and employees, and outward to stakeholders.

A) Ethics B) Collaboration C) Conflicts of interest D) Transparency E) Utilitarianism Answer: D Explanation: Transparency can be defined as the degree to which information flows freely within an organization, among managers and employees, and outward to stakeholders.

Difficulty: 2: Moderate

AACSB: Ethical understanding and reasoning LO: 4.1: Discuss what it means to practice good business ethics, and highlight the forces that can influence ethical decision making.

3) Which of the following should be included in a code of ethics?

A) Social contributions that are directly aligned with the company's overall business strategy B) The obligations that society has to the company C) Advice for handling specific situations D) A formal chain of command for reporting ethical violations E) A list of stakeholders who may be affected by unethical decision making Answer: C Explanation: A code of ethics is a formal policy document that defines an organization's guiding values, complete with advice for handling specific situations that could arise in the course of business.

Difficulty: 2: Moderate AACSB: Ethical understanding and reasoning LO: 4.1: Discuss what it means to practice good business ethics, and highlight the forces that can influence ethical decision making.

4) An employee finds consistent discrepancies on invoices being sent to a large customer and is concerned about unethical behavior on the part of the billing manager. How can an organization provide support to the ethical decision-making process of the employee?

A) Write a code of ethics to guide all employees in decision making B) Train all employees in ethical practices C) Allow information to flow freely to managers and employees, but not to external stakeholders D) Give employees a safe and confidential way to share concerns with management E) Clearly identify outcomes for whistle-blowers.

Answer: D Explanation: An important aspect of transparency is two-way communication, giving employees and other parties a safe and confidential way to share questions and concerns with management. This communication can range from informal meetings with a supervisor to ethics hotlines that employees can call to report concerns.

Difficulty: 2: Moderate AACSB: Ethical understanding and reasoning LO: 4.1: Discuss what it means to practice good business ethics, and highlight the forces that can influence ethical decision making.

5) A(n) ________ refers to a written statement setting forth the principles that guide an organization's decisions regarding what is right or wrong.

A) code of ethics B) limited liability agreement C) employee procedure policy D) statement of sustainable development E) statement of corporate opportunity Answer: A Explanation: Code of ethics refers to a written statement setting forth the principles that guide an organization's decisions. It defines the values and principles that should be used to guide decisions.

Difficulty: 2: Moderate AACSB: Ethical understanding and reasoning LO: 4.1: Discuss what it means to practice good business ethics, and highlight the forces that can influence ethical decision making.

6) A person's disclosure that exposes illegal or unethical behavior by others within the organization is ________.

A) illegal B) insider trading C) unethical D) philanthropic E) whistle-blowing Answer: E Explanation: Whistle-blowing refers to the disclosure of information by a company insider that exposes illegal or unethical behavior by others within the organization.

Difficulty: 2: Moderate AACSB: Ethical understanding and reasoning LO: 4.1: Discuss what it means to practice good business ethics, and highlight the forces that can influence ethical decision making.

7) Which of the following is an example of whistle-blowing?

A) An employee discloses confidential information about the company to a rival firm for personal gain.

B) An employee suggests some process changes to his manager that he claims will increase the productivity of the team.

C) An employee avoids taking ownership of his mistakes by blaming it on his coworkers.

D) An employee informs the manager that some of his team members are misusing confidential customer details from the company database.

E) An employee who is unsatisfied with his performance appraisal requests his manager for a re-evaluation of his performance.

Answer: D Explanation: Whistle-blowing refers to the disclosure of information by a company insider that exposes illegal or unethical behavior by others within the organization.

Difficulty: 2: Moderate AACSB: Ethical understanding and reasoning LO: 4.1: Discuss what it means to practice good business ethics, and highlight the forces that can influence ethical decision making.

8) A situation in which you must choose between two conflicting but arguably valid alternatives would be known as a(n) ________.

A) insider trading B) ethical lapse C) corporate opportunity D) ethical dilemma E) conflict of interest Answer: D Explanation: An ethical dilemma is a situation in which you must choose between conflicting but arguably valid options, or even situations in which all your options are unpleasant.

Difficulty: 2: Moderate AACSB: Ethical understanding and reasoning LO: 4.1: Discuss what it means to practice good business ethics, and highlight the forces that can influence ethical decision making.

9) When faced with an ethical dilemma, ________.

A) identify and consider only the most important issues and questions B) assume you are viewing the situation fairly and objectively C) treat people the way you would wish to be treated D) assume others think the way you do E) consider the rights of all parties who might be affected by your decision Answer: E Explanation: Identify all parties who might be affected by your decision, and consider the rights of everyone involved.

Difficulty: 3: Challenging AACSB: Ethical understanding and reasoning LO: 4.1: Discuss what it means to practice good business ethics, and highlight the forces that can influence ethical decision making.

10) Choosing an unethical course of action, even where choices are clear, results in ________.

A) an ethical dilemma B) whistle-blowing C) an ethical lapse D) opportunity E) conflicts of interest Answer: C Explanation: If you choose the wrong course, such as cheating on your taxes or stealing from your employer, you commit an ethical lapse. The choices were clear, and you made the wrong one.

Difficulty: 2: Moderate AACSB: Ethical understanding and reasoning LO: 4.1: Discuss what it means to practice good business ethics, and highlight the forces that can influence ethical decision making.

11) Ethics are principles and standards of moral behavior that are accepted by society as "right" or "wrong."

Answer: TRUE Explanation: Ethics are principles and standards of moral behavior that are accepted by society as right and wrong.

Difficulty: 1: Easy AACSB: Ethical understanding and reasoning LO: 4.1: Discuss what it means to practice good business ethics, and highlight the forces that can influence ethical decision making.

12) All businesses have the capacity to cause harm to employees, customers, other companies, their communities, and investors.

Answer: TRUE Explanation: All businesses have the capacity to cause harm to employees, customers, other companies, their communities, and investors.

Difficulty: 1: Easy AACSB: Ethical understanding and reasoning LO: 4.1: Discuss what it means to practice good business ethics, and highlight the forces that can influence ethical decision making.

13) The degree to which information flows freely within an organization is termed as insider trading.

Answer: FALSE Explanation: Insider trading refers to the use of unpublicized information that an individual gains from the course of his or her job to benefit from fluctuations in the stock market.

Difficulty: 2: Moderate AACSB: Ethical understanding and reasoning LO: 4.1: Discuss what it means to practice good business ethics, and highlight the forces that can influence ethical decision making.

14) When making ethical behavior a priority in an organization, ethical behavior must start at the highest levels of the organization.

Answer: TRUE Explanation: Ethical behavior must start at the highest levels of the organization, and everyone in the organization needs to see that top executives behave ethically.

Difficulty: 2: Moderate AACSB: Ethical understanding and reasoning LO: 4.1: Discuss what it means to practice good business ethics, and highlight the forces that can influence ethical decision making.

15) Whistle-blowing is illegal.

Answer: FALSE Explanation: Whistle-blowing refers to the disclosure of information by a company insider that exposes illegal or unethical behavior by others within the organization.

Difficulty: 2: Moderate AACSB: Ethical understanding and reasoning LO: 4.1: Discuss what it means to practice good business ethics, and highlight the forces that can influence ethical decision making.

16) Making a morally wrong decision is not the same thing as an ethical lapse.

Answer: FALSE Explanation: Ethical lapse refers to a situation in which an individual or a group makes a decision that is morally wrong, illegal, or unethical. A morally wrong decision is one that refers to an act of human behavior that is not accepted as right by society.

Difficulty: 2: Moderate AACSB: Ethical understanding and reasoning LO: 4.1: Discuss what it means to practice good business ethics, and highlight the forces that can influence ethical decision making.

17) A situation in which an individual makes a decision that is morally wrong or illegal is an ethical dilemma.

Answer: FALSE Explanation: Ethical lapse refers to a situation in which an individual or a group makes a decision that is morally wrong, illegal, or unethical.

Difficulty: 2: Moderate AACSB: Ethical understanding and reasoning LO: 4.1: Discuss what it means to practice good business ethics, and highlight the forces that can influence ethical decision making.

18) Conflicts of interest involve business decisions that might be influenced by the potential for personal gain or personal loyalties.

Answer: TRUE Explanation: Conflicts of interest involve business decisions that might be influenced by the potential for personal gain.

Difficulty: 2: Moderate AACSB: Ethical understanding and reasoning LO: 4.1: Discuss what it means to practice good business ethics, and highlight the forces that can influence ethical decision making.

19) When someone uses the justice approach as a way to resolve an ethical dilemma, he or she seeks the greatest good for the most people.

Answer: FALSE Explanation: A decision maker who uses utilitarianism to resolve an ethical dilemma will choose the option that delivers the most good for the most people.

Difficulty: 2: Moderate AACSB: Ethical understanding and reasoning LO: 4.1: Discuss what it means to practice good business ethics, and highlight the forces that can influence ethical decision making.

20) List the components of good business ethics.

Answer: Ethics are the principles and standards of moral behavior that are accepted by society as right versus wrong. Practicing good business ethics involves, at a minimum, competing fairly and honestly, communicating truthfully, being transparent, and not causing harm to others.

Difficulty: 2: Moderate AACSB: Ethical understanding and reasoning LO: 4.1: Discuss what it means to practice good business ethics, and highlight the forces that can influence ethical decision making.

21) Compare and contrast insider trading and whistle-blowing.

Answer: Insider trading refers to the use of unpublicized information that an individual gains from the course of his or her job to benefit from fluctuations in the stock market.

Insider trading is illegal, in addition to being unethical.

Whistle-blowing refers to the disclosure of information by a company insider that exposes illegal or unethical behavior by others within the organization. Employees who observe unethical or illegal behavior within their companies and are unable to resolve the problems through normal channels may have no choice but to resort to whistle-blowing.

Difficulty: 3: Challenging AACSB: Ethical understanding and reasoning LO: 4.1: Discuss what it means to practice good business ethics, and highlight the forces that can influence ethical decision making.

22) Compare and contrast ethical lapse and ethical dilemma.

Answer: The term ethical lapse refers to the situation in which an individual or group makes a decision that is morally wrong, illegal, or unethical. If you choose the wrong course, such as cheating on your taxes or stealing from your employer, you commit an ethical lapse. The choices were clear, and you made the wrong one.

The term ethical dilemma refers to the situation in which more than one side of an issue can be supported with valid arguments. It is a situation in which you must choose between conflicting but arguably valid options, or even situations in which all your options are unpleasant.

Difficulty: 3: Challenging AACSB: Ethical understanding and reasoning LO: 4.1: Discuss what it means to practice good business ethics, and highlight the forces that can influence ethical decision making.

23) What is a conflict of interest? How is it related to ethical decision making?

Answer: Conflicts of interest refer to situations in which competing loyalties can lead to ethical lapses. For instance, if you are in charge of selecting an advertising agency to do your company's next campaign, you would have an obvious conflict of interest if your husband or wife worked for one of the agencies under consideration. It is difficult to make decisions when the question of what is right and what is wrong is unclear such as during ethical dilemmas. Watching out for conflicts of interest can help you to make the right decision when faced with an ethical dilemma.

Difficulty: 3: Challenging AACSB: Ethical understanding and reasoning LO: 4.1: Discuss what it means to practice good business ethics, and highlight the forces that can influence ethical decision making.

24) Compare and contrast the various approaches used to resolve ethical dilemmas.

Answer: The different approaches to resolve ethical dilemmas are as follows: Justice refers to treating people equally or at least fairly in a way that makes rational and moral sense. Utilitarianism involves choosing the option that delivers the most good for the most people (or protects the most people from a negative outcome). The individual rights approach supports respecting the rights of all individuals, particularly their right to control their own destinies.

Individual responsibilities focus on the ethical duties of the individuals involved in the situation.

The common good approach emphasizes qualities and conditions that benefit the community as a whole, such as peace and public safety. Virtue emphasizes desirable character traits such as integrity and compassion.

Difficulty: 3: Challenging AACSB: Ethical understanding and reasoning LO: 4.1: Discuss what it means to practice good business ethics, and highlight the forces that can influence ethical decision making.

25) Corporate social responsibility refers to ________.

A) the rules or standards governing the conduct of a person or group B) a written statement setting forth the principles that guide an organization's decisions C) the notion that business has obligations to society beyond the pursuit of profits D) the belief that profit-seeking companies drive modern society E) the movement that pressures businesses to consider consumer needs and interests Answer: C Explanation: Corporate social responsibility (CSR) is the notion that business has obligations to society beyond the pursuit of profits.

Difficulty: 2: Moderate AACSB: Ethical understanding and reasoning LO: 4.2: Define corporate social responsibility (CSR), and explain the difference between philanthropy and strategic CSR. 26) ________ involves donating money, employee time, or other resources to various causes without regard for any direct business benefits for the company.

A) Philanthropy B) Strategic CSR C) Cap and trade D) Sustainable development E) Affirmative action Answer: A Explanation: Philanthropy involves donating money, employee time, or other resources to various causes without regard for any direct business benefits for the company.

Difficulty: 2: Moderate AACSB: Ethical understanding and reasoning LO: 4.2: Define corporate social responsibility (CSR), and explain the difference between philanthropy and strategic CSR. 27) Which of the following is an example of philanthropy?

A) An IT company donates money to an orphanage without expecting any business benefits.

B) A niche gourmet retail store holds free-for-all bakery classes by celebrity chefs in its store.

C) A bookstore arranges free-for-all book readings and autograph sessions with authors of newly published books in stores.

D) A sporting goods retail store holds a sports competition in the neighborhood community center to generate interest in athletics.

E) A pharmaceutical company sponsors a blood donation camp, where it also advertises some of its products.

Answer: A Explanation: Philanthropy involves donating money, employee time, or other resources to various causes without regard for any direct business benefits for the company.

Difficulty: 2: Moderate AACSB: Ethical understanding and reasoning LO: 4.2: Define corporate social responsibility (CSR), and explain the difference between philanthropy and strategic CSR.

28) Supporting job-training efforts in the community as a way to develop the workforce is an example of ________.

A) strategic CSR B) cap and trade C) sustainable development D) philanthropy E) affirmative action Answer: A Explanation: Strategic CSR involves social contributions that are directly aligned with a company's overall business strategy.

Difficulty: 2: Moderate AACSB: Ethical understanding and reasoning LO: 4.2: Define corporate social responsibility (CSR), and explain the difference between philanthropy and strategic CSR. 29) Unlike general philanthropy, strategic CSR ________.

A) promotes an antagonistic business-versus-society mindset B) leads to weakening of both the business and the society C) refers to CSR activities that are mandatory according to law D) is aimed at specific sections of the society that have been historically discriminated against E) is aligned with a company's overall business strategy Answer: E Explanation: Strategic CSR involves social contributions that are directly aligned with a company's overall business strategy. It makes more sense than general philanthropy.

Difficulty: 2: Moderate AACSB: Ethical understanding and reasoning LO: 4.2: Define corporate social responsibility (CSR), and explain the difference between philanthropy and strategic CSR. 30) Which of the following allows profit-seeking companies to indirectly generate the vast majority of the money in a nation's economy?

A) Dependable transportation infrastructure B) Philanthropy C) Taxes paid and purchases made by the company's employees D) Taxes paid and purchases made by the company E) Strategic CSR Answer: C Explanation: Profit-seeking companies are the economic engine that powers modern society; they generate the vast majority of the money in a nation's economy, either directly (through their own taxes and purchases) or indirectly (through the taxes and purchases made by the employees they support).

Difficulty: 2: Moderate AACSB: Ethical understanding and reasoning LO: 4.2: Define corporate social responsibility (CSR), and explain the difference between philanthropy and strategic CSR.

31) Why should corporations be allowed to generate profits?

A) They can donate more resources to philanthropic causes.

B) To help support the legal framework for the country in which they operate.

C) The government can generate more tax dollars.

D) The country's standard of living involves the goods and services created by profitseeking companies.

E) Stakeholders of the company demand a high and consistent return on their investment in the organization.

Answer: D Explanation: Much of what we consider when assessing a society's standard of living involves goods and services created by profit-seeking companies.

Difficulty: 2: Moderate AACSB: Ethical understanding and reasoning LO: 4.2: Define corporate social responsibility (CSR), and explain the difference between philanthropy and strategic CSR. 32) Which of the following is one of benefits society contributes to a business's ability to operate profitably?

A) Education and health care opportunities B) Profit to stabilize the nation's economy C) Low taxes D) Increased standards of living E) A legal framework in which to pursue commerce Answer: E Explanation: Companies cannot hope to operate profitably without the many benefits provided by a stable, functioning society: talented and healthy employees, a legal framework in which to pursue commerce, a dependable transportation infrastructure, opportunities to raise money, and customers with the ability to pay for goods and services, to name just some of them.

Difficulty: 3: Challenging AACSB: Ethical understanding and reasoning LO: 4.2: Define corporate social responsibility (CSR), and explain the difference between philanthropy and strategic CSR. 33) Corporate social responsibility (CSR) embodies the concept that a business has obligations to society beyond the pursuit of profit.

Answer: TRUE Explanation: The concept that a business has obligations to society beyond the pursuit of profit is called corporate social responsibility (CSR).

Difficulty: 2: Moderate AACSB: Ethical understanding and reasoning LO: 4.2: Define corporate social responsibility (CSR), and explain the difference between philanthropy and strategic CSR.

34) Philanthropy involves social contributions that are directly aligned with a company's business strategy.

Answer: FALSE Explanation: Philanthropy refers to the donation of money, time, goods, or services to charitable, humanitarian, or educational institutions.

Difficulty: 2: Moderate AACSB: Ethical understanding and reasoning LO: 4.2: Define corporate social responsibility (CSR), and explain the difference between philanthropy and strategic CSR. 35) Business and society are mutually dependent; therefore, choices that weaken one or the other will ultimately weaken both.

Answer: TRUE Explanation: Business and society are mutually dependent, therefore choices that weaken one or the other will ultimately weaken both.

Difficulty: 2: Moderate AACSB: Ethical understanding and reasoning LO: 4.2: Define corporate social responsibility (CSR), and explain the difference between philanthropy and strategic CSR. 36) Compare and contrast philanthropy and strategic CSR. Answer: Philanthropy involves donating money, employee time, or other resources to various causes without regard for any direct business benefits for the company. For instance, a company might support the arts in its hometown in the interest of enhancing the city's cultural richness. Through a combination of free products, employee time, use of company facilities, and cash contributions, U.S. companies donate billions of dollars to charity every year.

In contrast to generic philanthropy, strategic CSR involves social contributions that are directly aligned with a company's overall business strategy. In other words, the company helps itself and society at the same time.

Difficulty: 3: Challenging AACSB: Ethical understanding and reasoning LO: 4.2: Define corporate social responsibility (CSR), and explain the difference between philanthropy and strategic CSR. 37) According to the ________ view, the only social responsibility of business is to pay taxes and obey the law.

A) defensive B) minimalist C) cynical D) proactive E) strategic Answer: B Explanation: According to the minimalist view, the only social responsibility of business is to pay taxes and obey the law.

Difficulty: 2: Moderate AACSB: Application of knowledge LO: 4.3: Distinguish among the four perspectives on corporate social responsibility.

38) Nongovernmental organizations are usually ________.

A) publicly traded and owned entities B) firms that apply sustainable business strategies to achieve their business goals C) nonprofit groups that provide charitable services or promote causes D) firms that derive a substantial portion of their income from trade E) composed primarily of sovereign states (referred to as member states), or of other intergovernmental organizations Answer: C Explanation: Nongovernmental organizations (NGOs) are usually nonprofit groups that provide charitable services or promote social and environmental causes.

Difficulty: 2: Moderate AACSB: Application of knowledge LO: 4.3: Distinguish among the four perspectives on corporate social responsibility.

39) A ________ approach to CSR is one in which a company accused of irresponsible behavior promotes itself as being socially responsible, without making significant improvements in its business practices.

A) minimalist B) philanthropic C) strategic D) proactive E) cynical Answer: E Explanation: A purely cynical response to CSR is one in which a company accused of irresponsible behavior promotes itself as being socially responsible without making substantial improvements in its business practices.

Difficulty: 2: Moderate AACSB: Application of knowledge LO: 4.3: Distinguish among the four perspectives on corporate social responsibility.

40) A company that takes positive steps to address a particular issue, but only because it has been embarrassed into action by negative publicity, is practicing ________ CSR. A) minimalist B) defensive C) strategic D) proactive E) cynical Answer: B Explanation: Many companies find themselves facing pressure from a variety of activists and nongovernmental organizations (NGOs). One possible response to this pressure is to engage in CSR activities as a way to avoid further criticism, which is termed as defensive CSR. Difficulty: 2: Moderate AACSB: Application of knowledge LO: 4.3: Distinguish among the four perspectives on corporate social responsibility.

41) ________ refers to publicity efforts that portray a company as being environmentally friendly when its actions indicate otherwise.

A) Environmental minimalism B) Quasi-environmentalism C) Greenwashing D) Collectivism E) Pro-activism Answer: C Explanation: Environmental activists use the term greenwash as a label for publicity efforts that present companies as being environmentally friendly when their actions speak otherwise.

Difficulty: 2: Moderate AACSB: Application of knowledge LO: 4.3: Distinguish among the four perspectives on corporate social responsibility.

42) In ________ CSR, company leaders believe they have responsibilities beyond making a profit, and they back up their beliefs with actions taken on their own initiative.

A) proactive B) cynical C) minimalistic D) primary E) philanthropic Answer: A Explanation: In proactive CSR, company leaders believe they have responsibilities beyond making a profit, and they back up their beliefs and proclamations with actions taken on their own initiative.

Difficulty: 2: Moderate AACSB: Application of knowledge LO: 4.3: Distinguish among the four perspectives on corporate social responsibility.

43) How can society encourage organizations to use ethical behavior to promote mutually beneficial relationships?

A) By passing laws that clearly define what is ethical and what is not B) By establishing clear expectations about how a business should conduct itself C) By requiring businesses to give a percentage of profit in philanthropic endeavors D) By categorizing social responsibility into perspectives E) By requiring whistle-blower accounts to be made public on an annual basis Answer: B Explanation: To encourage ethical behavior and promote a mutually beneficial relationship between business and society, it is clearly necessary to establish expectations about how businesses should conduct themselves. However, both business and society are still grappling with exactly what those expectations should be.

Difficulty: 2: Moderate AACSB: Application of knowledge LO: 4.3: Distinguish among the four perspectives on corporate social responsibility.

44) What is the chief advantage of a minimalist CSR policy, according to those holding this view?

A) Companies tend to donate more to charities.

B) Companies can support only those activities that are most meaningful to them.

C) Companies pay taxes and the government decides how the money is spent, not the organization.

D) There is less government intervention in the daily running of the business.

E) Companies are better able to compete in the global market.

Answer: C Explanation: Proponents of the minimalist view claim that business make social policy when allowed to donate and write the donation off their taxes.

Difficulty: 3: Challenging AACSB: Ethical understanding and reasoning LO: 4.3: Distinguish among the four perspectives on corporate social responsibility.

45) What type of CSR is supported by greenwashing?

A) Collective B) Defensive C) Minimalist D) Cynical E) Proactive Answer: D Explanation: One approach to CSR is purely cynical, in which a company accused of irresponsible behavior promotes itself as being socially responsible without making substantial improvements in its business practices. Environmental activists use the term greenwash (a combination of green and whitewash, a term that suggests covering something up) as a label for publicity efforts that portray companies as being environmentally friendly when their actions speak otherwise.

Difficulty: 2: Moderate AACSB: Application of knowledge LO: 4.3: Distinguish among the four perspectives on corporate social responsibility.

46) What type of business incorporates proactive CSR into the company's foundation, believing that a company should accomplish more than just making money for owners and investors?

A) Collectivist B) Two-tiered C) Nongovernmental D) Privately-held E) Purpose-driven Answer: E Explanation: A new type of corporate structure, the benefit corporation, builds proactive CSR into a company's very foundation and legally obligates it to pursue a social or environmental goal.

Difficulty: 2: Moderate AACSB: Application of knowledge LO: 4.3: Distinguish among the four perspectives on corporate social responsibility.

47) Companies have a choice in CSR, but at a minimum, all should practice ethical

choices that ________.

A) result in steady profit B) do no harm C) improve stakeholder standing D) put philanthropy before profits E) are dictated by pressure from outside forces Answer: B Explanation: Just as a society has a right to expect certain behavior from all citizens, it has a right to expect a basic level of responsible behavior from all businesses, including minimizing pollution and waste, minimizing the depletion of shared natural resources, being honest with all stakeholders, offering real value in exchange for prices asked, and avoiding exploitation of employees, customers, suppliers, communities, and investors.

Difficulty: 3: Challenging AACSB: Ethical understanding and reasoning LO: 4.3: Distinguish among the four perspectives on corporate social responsibility.

48) According to the minimalist view of CSR, businesses should be involved in making social policy and spending the public's money.

Answer: FALSE Explanation: According to what might be termed the minimalist view, the only social responsibility of business is to pay taxes and obey the law.

Difficulty: 2: Moderate AACSB: Analytical thinking LO: 4.3: Distinguish among the four perspectives on corporate social responsibility.

49) NGOs are nonprofit groups that provide charitable services or promote causes such as workers' rights and environmental protection.

Answer: TRUE Explanation: NGOs are nonprofit groups that provide charitable services or promote causes such as workers' rights and environmental protection.

Difficulty: 2: Moderate AACSB: Application of knowledge LO: 4.3: Distinguish among the four perspectives on corporate social responsibility.

50) Companies that engage in cynical CSR believe that the only social responsibility of business is to pay taxes and obey the law.

Answer: FALSE Explanation: In the cynical approach to CSR, a company accused of irresponsible behavior promotes itself as being socially responsible without making substantial improvements in its business practices.

Difficulty: 2: Moderate AACSB: Ethical understanding and reasoning LO: 4.3: Distinguish among the four perspectives on corporate social responsibility.

51) A social license to operate is the minimum level of business practices that society demands from companies.

Answer: TRUE Explanation: What was once considered voluntary is becoming expected by many. These expectations make up the social license to operate, the minimum level of business practices that society demands from companies. Companies that fail to conduct themselves in a way that society expects may find themselves facing an uphill battle of activism and increased regulation in the future.

Difficulty: 2: Moderate AACSB: Ethical understanding and reasoning LO: 4.3: Distinguish among the four perspectives on corporate social responsibility.

52) In proactive CSR, company leaders believe they have responsibilities beyond making a profit, and they back up their beliefs and proclamations with actions taken on their own initiative.

Answer: TRUE Explanation: In proactive CSR, company leaders believe they have responsibilities beyond making a profit, and they back up their beliefs and proclamations with actions taken on their own initiative.

Difficulty: 2: Moderate AACSB: Ethical understanding and reasoning LO: 4.3: Distinguish among the four perspectives on corporate social responsibility.

53) Compare and contrast the minimalist and the purely cynical perspective on corporate social responsibility.

Answer: According to what might be termed the minimalist view, the only social responsibility of business is to pay taxes and obey the law. According to this view, any business that operates ethically and legally provides society with beneficial goods and services at fair prices.

Another perspective is a purely cynical one, in which a company accused of irresponsible behavior promotes itself as being socially responsible without making substantial improvements in its business practices. For example, environmental activists use the term greenwash (a combination of green and whitewash, a term that suggests covering something up) as a label for publicity efforts that present companies as being environmentally friendly when their actions speak otherwise. Ironically, some of the most ardent antibusiness activists and the staunchly pro-business advocates of the minimalist view tend to agree on one point: that many CSR efforts are disingenuous.

Difficulty: 3: Challenging AACSB: Analytical thinking LO: 4.3: Distinguish among the four perspectives on corporate social responsibility.

54) How is defensive CSR different from proactive CSR? Answer: Defensive CSR refers to a situation when a company takes positive steps to address a particular issue, but only because it has been embarrassed into action by negative publicity. Many companies today find themselves facing pressure from a variety of activists and nongovernmental organizations (NGOs). Some companies respond to this pressure by engaging in CSR activities as a way to avoid further criticism.

In the proactive CSR approach, company leaders believe they have responsibilities beyond making a profit, and they back up their beliefs and proclamations with actions taken on their own initiative.

Difficulty: 3: Challenging AACSB: Analytical thinking LO: 4.3: Distinguish among the four perspectives on corporate social responsibility.

55) Discuss the two-tiered approach to CSR. Answer: A two-tiered approach to CSR can yield a practical, ethical answer to the debate surrounding the different perspectives to CSR. At the first tier, companies must take responsibility for the consequences of their actions and limit the negative impact of their operations. This can be summarized as "do no harm", and it is not a matter of choice.

At the second tier, moving beyond "do no harm" does become a matter of choice.

Companies can choose to help in whatever way that investors, managers, and employees see fit, but the choices are up to the company and should not be the result of pressure from outside forces.

Difficulty: 3: Challenging AACSB: Analytical thinking LO: 4.3: Distinguish among the four perspectives on corporate social responsibility.

56) ________ is the study of the relationship between organisms and the natural environment.

A) Greenwash B) Ecology C) Energy conservation D) Ergonomics E) Sustainability Answer: B Explanation: Ecology is the study of the relationship between organisms and the natural environment.

Difficulty: 1: Easy AACSB: Application of knowledge LO: 4.4: Discuss the role of business in protecting the natural environment, and define sustainable development.

57) The ________ establishes procedures for creating geologic repositories of radioactive waste.

A) Clean Air Act B) Solid Waste Disposal Act C) Toxic Substances Control Act D) Nuclear Waste Policy Act E) Resource Recovery Act Answer: D Explanation: The Nuclear Waste Policy Act establishes procedures for creating geologic repositories of radioactive waste.

Difficulty: 2: Moderate AACSB: Application of knowledge LO: 4.4: Discuss the role of business in protecting the natural environment, and define sustainable development.

58) One goal of The Resource Recovery Act (1970) is to ________.

A) subsidize pilot recycling plants B) regulate treatment, storage, transportation, and disposal of hazardous waste C) establish a structure for coordinating all federal environmental programs D) authorize grants to states for water-pollution control E) prohibit ocean dumping that could threaten human health or the marine environment Answer: A Explanation: The Resource Recovery Act (1970) subsidizes pilot recycling plants and authorizes nationwide control programs.

Difficulty: 2: Moderate AACSB: Application of knowledge LO: 4.4: Discuss the role of business in protecting the natural environment, and define sustainable development.

59) ________ is defined as meeting the needs of the present without compromising the ability of future generations to meet their own needs.

A) Greenwashing B) Consumerism C) Materialism D) Sustainable development E) Cap and trade Answer: D Explanation: Efforts to minimize resource depletion and pollution are part of a broader effort known as sustainability or sustainable development, which the United Nations has defined as development that "meets the needs of the present without compromising the ability of future generations to meet their own needs."

Difficulty: 2: Moderate AACSB: Application of knowledge LO: 4.4: Discuss the role of business in protecting the natural environment, and define sustainable development.

60) What is the result of the creation, delivery, use, and disposal of products valued by society?

A) Minimalist CSR B) Safety issues C) Stronger environmentalism D) Increased ecology E) Pollution and loss of natural resources Answer: E Explanation: The creation, delivery, use, and disposal of products that society values virtually always generate pollution and consume natural resources. For example, it's tempting to assume that web-based businesses are "clean" because there is no visible pollution. However, the Internet and all the computers attached to it have a voracious appetite for electricity.

Difficulty: 2: Moderate AACSB: Application of knowledge LO: 4.4: Discuss the role of business in protecting the natural environment, and define sustainable development.

61) What is the broad effort to minimize resource depletion and reduce pollution?

A) Greenwashing B) Sustainability C) Sustainable ethics D) Collectivism E) Consumerism Answer: B Explanation: Efforts to minimize resource depletion and pollution are part of a broader effort known as sustainability or sustainable development, which the United Nations has defined as development that "meets the needs of the present without compromising the ability of future generations to meet their own needs."

Difficulty: 2: Moderate AACSB: Application of knowledge LO: 4.4: Discuss the role of business in protecting the natural environment, and define sustainable development.

62) "Environmental" causes are often as much about human health and safety as they are about forests, rivers, and wildlife.

Answer: TRUE Explanation: "Environmental" causes are often as much about human health and safety as they are about forests, rivers, and wildlife.

Difficulty: 2: Moderate AACSB: Ethical understanding and reasoning LO: 4.4: Discuss the role of business in protecting the natural environment, and define sustainable development.

63) Widespread concern for the environment dates to the 1960s when ecology entered mainstream discussion.

Answer: TRUE Explanation: Widespread concern for the environment dates to the 1960s when ecology entered mainstream discussion.

Difficulty: 2: Moderate AACSB: Application of knowledge LO: 4.4: Discuss the role of business in protecting the natural environment, and define sustainable development.

64) The concept of sustainable development includes stakeholders in the future, not just those immediately affected by what a company does.

Answer: TRUE Explanation: Efforts to minimize resource depletion and pollution are part of a broader effort known as sustainability, or sustainable development, which the United Nations has defined as development that "meets the needs of the present without compromising the ability of future generations to meet their own needs."

Difficulty: 2: Moderate AACSB: Application of knowledge LO: 4.4: Discuss the role of business in protecting the natural environment, and define sustainable development.

65) Discuss the role of business in protecting the natural environment and sustainable development.

Answer: As major users of natural resources and generators of waste products, businesses play a huge role in conservation and pollution-reduction efforts. Many businesses are making an effort to reduce, reuse, and recycle. All these efforts are part of a trend toward sustainable development, which can be defined as meeting the needs of the present without compromising the ability of future generations to meet their own needs.

Difficulty: 3: Challenging AACSB: Application of knowledge LO: 4.4: Discuss the role of business in protecting the natural environment, and define sustainable development.

66) What is the meaning of the term "consumerism"?

A) Overspending by customers B) Overspending by corporations C) Pressuring businesses to consider consumer needs D) Pressuring consumers to consider business needs E) Unexpected demand by buyers Answer: C Explanation: Consumerism is a movement that puts pressure on businesses to consider consumer needs and interests.

Difficulty: 2: Moderate AACSB: Application of knowledge LO: 4.5: Identify five fundamental consumer rights and the responsibility of business to respect them.

67) Which of the following federal legislations limits a credit card holder's liability for unauthorized use?

A) Magnuson-Moss Warranty Act (1975) B) Fair Credit Reporting Act (1970) C) Truth in Lending Act (Consumer Protection Credit Act) (1968) D) Deceptive Mail Prevention and Enforcement Act (1999) E) Fair Packaging and Labeling Act (1966, 1972) Answer: C Explanation: Truth in Lending Act (Consumer Protection Credit Act) (1968) requires creditors to disclose finance charge and annual percentage rate, and limits cardholder liability for unauthorized use.

Difficulty: 2: Moderate AACSB: Application of knowledge LO: 4.5: Identify five fundamental consumer rights and the responsibility of business to respect them.

68) The Magnuson-Moss Warranty Act (1975) requires complete written warranties in ordinary language and requires warranties to be ________.

A) applicable for a minimum of one year B) supported by the manufacturer C) supported by the retailer D) available before purchase E) contained on package labeling Answer: D Explanation: The Magnuson-Moss Warranty Act (1975) requires complete written warranties in ordinary language; and requires warranties to be available before purchase.

Difficulty: 2: Moderate AACSB: Application of knowledge LO: 4.5: Identify five fundamental consumer rights and the responsibility of business to respect them.

69) Consumers have the right to buy safe products, and to buy them safely. Who enforces this?

A) Civil Rights Act of 1964 Board B) Affirmative Action Board C) Fair Credit Reporting Act Commission D) Equal Employment Opportunity Commission (EEOC) E) Consumer Product Safety Commission Answer: E Explanation: The U.S. government imposes many safety standards that are enforced by the Consumer Product Safety Commission (CPSC), as well as by other federal and state agencies.

Difficulty: 2: Moderate AACSB: Application of knowledge LO: 4.5: Identify five fundamental consumer rights and the responsibility of business to respect them.

70) ________ is/are where criminals steal personal information and use it to commit other types of fraud.

A) Identity theft B) Economic freedom C) Online privacy violations D) Social Security breach E) Social commerce Answer: A Explanation: Identity theft, in which criminals steal personal information and use it to take out loans, request government documents and tax refunds, get expensive medical procedures, and commit other types of fraud.

Difficulty: 1: Easy AACSB: Application of knowledge LO: 4.5: Identify five fundamental consumer rights and the responsibility of business to respect them.

71) According to the ________, consumers have the right to know what they are buying, how to use the product, and potential risks.

A) right to buy safe products B) right to buy products in a safe manner C) right to be informed D) right to choose which product to buy E) right to be heard Answer: C Explanation: Consumers have a right to know what they're buying, how to use it, and whether it presents any risks to them. They also have a right to know the true price of goods or services and the details of purchase contracts.

Difficulty: 2: Moderate AACSB: Analytical thinking LO: 4.5: Identify five fundamental consumer rights and the responsibility of business to respect them.

72) Which of the following has helped buyers educate each other, shifting power from sellers to buyers?

A) Surgeon General's reports B) Consumer Product Safety Commission C) Sustainability reports D) Social media E) Consumer Bill of Rights Answer: D Explanation: Both consumers and businesses can turn to a wide range of information sources to learn more about the goods and services they purchase. The spread of social media and their use in social commerce where buyers help educate one another, has helped shift power from sellers to buyers.

Difficulty: 2: Moderate AACSB: Application of knowledge LO: 4.5: Identify five fundamental consumer rights and the responsibility of business to respect them.

73) Social media has given consumers numerous ways to ask questions, voice concerns, and otherwise demand attention, supporting which consumer right?

A) The right to choose B) The right to buy safe products C) The right to buy products in a safe manner D) The right to digital security E) The right to be heard Answer: E Explanation: As with the challenge of gathering information, social media gives consumers numerous ways to ask questions, voice concerns, provide feedback, and—if necessary—demand attention. Savvy companies monitor Twitter, blogs, and other online venues to catch messages from dissatisfied customers.

Difficulty: 2: Moderate AACSB: Analytical thinking LO: 4.5: Identify five fundamental consumer rights and the responsibility of business to respect them.

74) President John F. Kennedy announced a "bill of rights" for consumers, laying the foundation for a wave of consumer-oriented legislation.

Answer: TRUE Explanation: President John F. Kennedy announced a "bill of rights" for consumers, laying the foundation for a wave of consumer-oriented legislation.

Difficulty: 2: Moderate AACSB: Application of knowledge LO: 4.5: Identify five fundamental consumer rights and the responsibility of business to respect them.

75) One of the fundamental consumer rights that form the basis of much of the consumerrelated legislation in the United States is the right to know the lowest available price of a good in the local market.

Answer: FALSE Explanation: Four fundamental consumer rights that form the basis of much of the consumer-related legislation in the United States are the right to safe products, the right to be informed, the right to choose, and the right to be heard.

Difficulty: 2: Moderate AACSB: Application of knowledge LO: 4.5: Identify five fundamental consumer rights and the responsibility of business to respect them.

76) In 1965, the Federal Cigarette Labeling and Advertising Act was passed, requiring all cigarette packs to carry the Surgeon General's warnings.

Answer: TRUE Explanation: In 1965, the Federal Cigarette Labeling and Advertising Act was passed, requiring all cigarette packs to carry the Surgeon General's warnings.

Difficulty: 2: Moderate AACSB: Application of knowledge LO: 4.5: Identify five fundamental consumer rights and the responsibility of business to respect them.

77) How does consumerism work to protect customers?

Answer: Consumerism is a movement that puts pressure on businesses to consider consumer needs and interests. Consumerism prompted many businesses to create consumer affairs departments to handle customer complaints. It also prompted state and local agencies to set up bureaus to offer consumer information and assistance. Five fundamental consumer rights that form the basis of much of the consumer-related legislation in the United States are the right to safe products, the right to be informed, the right to choose, the right to be heard, and the right to digital security.

Difficulty: 2: Moderate AACSB: Application of knowledge LO: 4.5: Identify five fundamental consumer rights and the responsibility of business to respect them.

78) Which of the following regulatory agencies is responsible for monitoring the hiring practices of companies and can require them to compensate individuals who have been victimized by unfair hiring practices?

A) Federal Employment Commission (FEC) B) Civil Rights Commission (CRC) C) Employee Protection Commission (EPC) D) Employment Regulatory Commission (ERC) E) Equal Employment Opportunity Commission (EEOC) Answer: E Explanation: The Equal Employment Opportunity Commission (EEOC) is responsible for monitoring the hiring practices of companies and for investigating complaints of jobrelated discrimination. It has the power to file legal charges against companies that discriminate and to force them to compensate individuals or groups who have been victimized by unfair practices.

Difficulty: 2: Moderate AACSB: Analytical thinking LO: 4.6: Explain the responsibilities businesses have toward their employees.

79) Activities undertaken by businesses to recruit and promote members of groups whose economic progress had been hindered through either legal barriers or established practices are known as ________ programs.

A) greenwashing B) sustainable development C) multiculturalism D) affirmative action E) selective recruiting Answer: D Explanation: Affirmative action programs were developed to encourage organizations to recruit and promote members of groups whose past economic progress has been hindered through legal barriers or established practices.

Difficulty: 2: Moderate AACSB: Analytical thinking LO: 4.6: Explain the responsibilities businesses have toward their employees.

80) The Civil Rights Act of 1991 amended the Civil Rights Act of 1964, and ________.

A) provided for an unlimited amount of damage awards B) made it mandatory for private firms to employ persons from minority groups C) made it tougher to sue for discrimination D) gave employees the right to have a trial by jury in discrimination cases E) made it mandatory for the government to subsidize programs based on race Answer: D Explanation: The Civil Rights Act of 1991 amended the original act in response to a number of Supreme Court decisions that had taken place in the intervening quarter century. Among its key provisions are limiting the amount of damage awards, making it easier to sue for discrimination, giving employees the right to have a trial by jury in discrimination cases, and extending protections to overseas employees of U.S. companies.

Difficulty: 2: Moderate AACSB: Analytical thinking LO: 4.6: Explain the responsibilities businesses have toward their employees.

81) ________ is the study of how people interact with computers and other machines.

A) Consumerism B) Ergonomics C) Systems psychology D) Environmental design E) Artificial intelligence Answer: B Explanation: Ergonomics refers to the study of how people interact with computers and other machines.

Difficulty: 2: Moderate AACSB: Analytical thinking LO: 4.6: Explain the responsibilities businesses have toward their employees.

82) Which of the following is a key provision of the Civil Rights Act of 1991?

A) Increasing the amount of damage awards B) Making it harder to sue for discrimination C) Eliminating trial by jury in discrimination cases D) Extending protections to overseas employees of U.S. companies E) Eliminating the government's ability to file charges against companies that discriminate Answer: D Explanation: Among its key provisions are limiting the amount of damage awards, making it easier to sue for discrimination, giving employees the right to have a trial by jury in discrimination cases, and extending protections to overseas employees of U.S. companies.

Difficulty: 2: Moderate AACSB: Analytical thinking LO: 4.6: Explain the responsibilities businesses have toward their employees.

83) Which of the following Acts guarantees equal opportunities in education and employment for those with health issues and who may require reasonable accommodation to perform certain job tasks?

A) Occupational Safety and Health (OSHA) B) Equal Employment Opportunity (EEO) C) Affirmative Action D) The Civil Rights Act of 1991 (CRA) E) Americans with Disabilities Act (ADA) Answer: E Explanation: The Americans with Disabilities Act (ADA), guarantees equal opportunities in housing, transportation, education, employment, and other areas for the estimated 50 to 75 million people in the United States who have disabilities.

Difficulty: 2: Moderate AACSB: Application of knowledge LO: 4.6: Explain the responsibilities businesses have toward their employees.

84) What might employers have to do to comply with the Americans with Disabilities Act? A) Make reasonable accommodations such as modifying workstations.

B) Require applicants to take physical examinations to ensure ability to accomplish the job.

C) Set up an affirmative action program to actively recruit and promote employees with disabilities.

D) Extend reasonable accommodations to include overseas assignments.

E) Improve conditions in factories and sweatshops.

Answer: A Explanation: Employers are also required to make reasonable accommodations to meet the needs of employees with disabilities, such as modifying workstations or schedules.

Difficulty: 2: Moderate AACSB: Analytical thinking LO: 4.6: Explain the responsibilities businesses have toward their employees.

85) Which government agency oversees the use of hazardous materials and ergonomic conditions in the workplace?

A) Equal Employment Opportunity Commission (EEOC) B) Occupational Safety and Health Administration (OSHA) C) Americans with Disabilities Act (ADA) D) Civil Rights Act (CRA) E) Affirmative Action Answer: B Explanation: During the 1960s, mounting concern about workplace hazards resulted in the passage of the Occupational Safety and Health Act of 1970, which set mandatory standards for safety and health and also established the Occupational Safety and Health Administration (OSHA) to enforce them.

Difficulty: 1: Easy AACSB: Application of knowledge LO: 4.6: Explain the responsibilities businesses have toward their employees.

86) Because some manufacturers use sweatshops to produce products, where can colleges and universities go to ensure products are manufactured in an ethical manner?

A) OSHA B) Consumer Rights Association C) Fair Labor Association D) Social commerce sites E) Consumer Product Safety Commission Answer: C Explanation: Nearly 200 schools have joined the Fair Labor Association to help ensure that school-logo products are manufactured in an ethical manner.

Difficulty: 2: Moderate AACSB: Application of knowledge LO: 4.6: Explain the responsibilities businesses have toward their employees.

87) The federal government can require companies with government contracts to establish affirmative action programs.

Answer: TRUE Explanation: The "affirmative" part of affirmative action indicates laws that go beyond outlawing discrimination to actively helping people in groups whose historical status may leave them at a disadvantage in the contemporary job market. Companies with contracts to sell goods or services to the federal government may be required to establish programs that focus on hiring and enabling career advancement for women, members of nonwhite ethnic groups, and military veterans with disabilities. Many states have similar requirements for companies that wish to pursue government contracts.

Difficulty: 3: Challenging AACSB: Analytical thinking LO: 4.6: Explain the responsibilities businesses have toward their employees.

88) The term "disability," as used in the federal Americans with Disabilities Act, means only those people with physical handicaps, such as hearing or vision loss or loss of mobility.

Answer: FALSE Explanation: As defined by the 1990 law, disability is a broad term that protects not only those with physical handicaps but also those with cancer, heart disease, diabetes, epilepsy, HIV/AIDS, drug addiction, alcoholism, emotional illness, and other conditions.

Difficulty: 2: Moderate AACSB: Application of knowledge LO: 4.6: Explain the responsibilities businesses have toward their employees.

89) The Occupational Safety and Health Act of 1970 set mandatory standards for safety and health and established the Occupational Safety and Health Administration (OSHA) to enforce them.

Answer: TRUE Explanation: The Occupational Safety and Health Act of 1970 set mandatory standards for safety and health and established the Occupational Safety and Health Administration (OSHA) to enforce them.

Difficulty: 2: Moderate AACSB: Application of knowledge LO: 4.6: Explain the responsibilities businesses have toward their employees.

90) Compare and contrast discrimination and affirmative action.

Answer: In a social and economic sense, discrimination refers to the denial of opportunities to individuals on the basis of some characteristic that has no bearing on their ability to perform in a job. Affirmative action refers to activities undertaken by businesses to recruit and promote members of groups whose economic progress had been hindered through either legal barriers or established practices.

Difficulty: 3: Challenging AACSB: Application of knowledge LO: 4.6: Explain the responsibilities businesses have toward their employees.

91) Compare key responsibilities that employers have regarding employees to the responsibility they have toward consumers.

Answer: Corporate social responsibility applies internally to the way employees are treated. Major issues include the push for equal opportunity, which includes affirmative action programs, regulations to protect the rights of people with disabilities, and occupational safety and health.

The 1960s activism that awakened business to its environmental responsibilities also gave rise to consumerism, a movement that put pressure on businesses to consider consumer needs and interests. Four fundamental consumer rights form the basis of much of the consumer-related legislation in the United States: (1) the right to safe products, (2) the right to be informed, (3) the right to choose, and (4) the right to be heard. Many specific aspects of these rights are now embodied in government regulations, but others rely on business professionals to practice ethical and responsive decision-making.

Difficulty: 3: Challenging AACSB: Application of knowledge LO: 4.6: Explain the responsibilities businesses have toward their employees.

92) Discuss the functions of the Equal Employment Opportunity Commission (EEOC).

Answer: The Civil Rights Act of 1964 established the Equal Employment Opportunity Commission (EEOC), the regulatory agency that addresses job discrimination. The EEOC is responsible for monitoring the hiring practices of companies and for investigating complaints of job-related discrimination. It has the power to file legal charges against companies that discriminate and to force them to compensate individuals or groups who have been victimized by unfair practices.

Difficulty: 3: Challenging AACSB: Application of knowledge LO: 4.6: Explain the responsibilities businesses have toward their employees.

93) Two areas of concern with artificial intelligence from an ethical perspective are embedded biases and ________.

A) a lack of transparency and accountability B) lack of simplification C) use of facial recognition software D) use for security issues E) limited language processing Answer: A Explanation: Two issues of particular concern from an ethical perspective are embedded biases and a lack of transparency and accountability.

Difficulty: 2: Moderate AACSB: Information technology LO: 4.7: Identify two categories of ethical concerns with artificial intelligence.

94) Which of the following can create bias in AI systems?

A) Lack of user training B) Algorithms and data built with human bias C) Lack of understanding why AI makes the decisions it does D) Few risk-assessment tools within the software E) Increased autonomy within systems Answer: B Explanation: AI systems incorporate algorithms, or instructions, and data that those instructions operate upon. If either the algorithms or the data reflect human biases, those AI system will likely exhibit those same biases.

Difficulty: 2: Moderate AACSB: Information technology LO: 4.7: Identify two categories of ethical concerns with artificial intelligence.

95) Which of the following can create ethically acceptable outputs by AI systems?

A) Work to determine why AI systems make the decisions they do.

B) Eliminate algorithms and data built with human bias.

C) Create transparency within the systems.

D) Build ethical principles into the software systems.

E) Increase autonomy within systems.

Answer: D Explanation: The spread of AI throughout business highlights the importance of ethical awareness and ethical decision-making. Only by building ethical principles into these systems can we expect them to generate ethically acceptable outputs.

Difficulty: 2: Moderate AACSB: Information technology LO: 4.7: Identify two categories of ethical concerns with artificial intelligence.

96) Which of the following is an indication of lack of transparency in AI? A) Bias still exists in AI systems.

B) AI is based on algorithms and data, not human emotion.

C) Humans cannot understand how AI makes some decisions.

D) AI is used to make decisions that affect the safety and well-being of the public.

E) There is increased autonomy within systems.

Answer: C Explanation: One of the most unnerving aspects of some advanced decision-making systems is the inability of even their creators—much less the general public—to understand why the systems make some of the decisions they do.

Difficulty: 2: Moderate AACSB: Information technology LO: 4.7: Identify two categories of ethical concerns with artificial intelligence.

97) AI can exhibit bias in language processing, causing some job candidates to lose opportunities based on names and word choices.

Answer: TRUE Explanation: One area in which AI systems can exhibit bias is language processing, because they learn from human language usage, which can have patterns of bias that range from overt to deeply buried. For instance, in a test where otherwise identical résumés were presented to some employers displaying a European-American name and to other employers displaying an African-American name, the résumé with the EuropeanAmerican name drew 50 percent more interview invitations.

Difficulty: 2: Moderate AACSB: Information technology LO: 4.7: Identify two categories of ethical concerns with artificial intelligence.

98) Creators of AI can control and understand the bias and decision-making process in an AI system.

Answer: FALSE Explanation: One of the most unnerving aspects of some advanced decision-making systems is the inability of even their creators—much less the general public—to understand why the systems make some of the decisions they do.

Difficulty: 2: Moderate AACSB: Information technology LO: 4.7: Identify two categories of ethical concerns with artificial intelligence.

99) Creators of AI systems cannot currently determine the consequences of AI. Answer: TRUE Explanation: As one of the most powerful technologies ever developed, artificial intelligence (AI) is already influencing human life in multiple ways and promises to do so even more in the future. Even with good intentions, it is impossible to foresee and control all the consequences that AI could unleash.

Difficulty: 2: Moderate AACSB: Application of knowledge LO: 4.7: Identify two categories of ethical concerns with artificial intelligence.

100) Discuss how human bias affects AI systems.

Answer: Like all human creations, AI reflects the intentions and beliefs of its creators–

sometimes consciously and sometimes subconsciously. Simplifying greatly, AI systems incorporate algorithms, or instructions, and data that instructions operate upon. If either the algorithms or the data reflect human biases, the AI system will likely exhibit those same biases. Facial recognition systems, which are increasingly being used for security and identification purposes, are "trained" using large collections of photographs. What they learn depends to a large degree on the photos in those collections. Another area in which AI systems can exhibit bias is language processing, because they learn from human language usage, which can have patterns of bias that range from overt to deeply buried. Other areas where AI systems can potentially exhibit bias include risk-assessment systems that purport to predict an individual's likelihood of committing a crime and automated applicant-evaluation systems used to make lending and hiring decisions.

Difficulty: 3: Challenging AACSB: Information technology LO: 4.7: Identify two categories of ethical concerns with artificial intelligence.

Business in Action, 9e (Bovee/Thill) Chapter 5 Forms of Ownership 1) A sole proprietorship ________.

A) is taxed as a separate corporation B) is owned by two or more people but is not a corporation C) has limited tax liability D) is owned by only one person E) has many owners, but only one person runs the business Answer: D Explanation: A sole proprietorship is a business owned by one person. However, it may have many employees.

Difficulty: 1: Easy AACSB: Application of knowledge LO: 5.1: Define sole proprietorship, and explain the six advantages and six disadvantages of this ownership model.

2) Profits of sole proprietorships ________.

A) reach shareholders through intermediaries B) flow directly to the owners C) are considered fixed assets D) are taxed at corporate rates E) are subject to double taxation Answer: B Explanation: Profits and losses of sole proprietorships flow directly to the owners and are taxed at individual rates.

Difficulty: 1: Easy AACSB: Application of knowledge LO: 5.1: Define sole proprietorship, and explain the six advantages and six disadvantages of this ownership model.

3) What type of exposure to financial liability is there in a sole proprietorship?

A) Financial liability is limited to the amount invested in fixed assets.

B) Financial liability refers to the amount invested on variable assets.

C) Financial liability is limited to the size of transaction.

D) Financial liability is limited to the total fixed investments made by the owner.

E) Financial liability is unlimited and the owner's personal responsibility.

Answer: E Explanation: The owner has unlimited personal liability for the business's financial obligations in a sole proprietorship. Any legal damages or debts incurred by the business are the owner's personal responsibility.

Difficulty: 2: Moderate AACSB: Application of knowledge LO: 5.1: Define sole proprietorship, and explain the six advantages and six disadvantages of this ownership model.

4) Which of the following is a key difference between a corporation and a sole proprietorship?

A) Compared to establishing a proprietorship, establishing a corporation is easier.

B) Unlike a corporation, a proprietorship is subject to double taxation.

C) Regulatory requirements are less severe for corporations than sole proprietorships.

D) Unlike a sole proprietorship, a corporation has limited financial liability.

E) Establishing a sole proprietorship has complex legal requirements unlike a corporation.

Answer: D Explanation: In a sole proprietorship, the owner has unlimited personal liability for the business's financial obligations. In a corporation, the investors' liability is limited to the amount of their investment.

Difficulty: 2: Moderate AACSB: Analytical thinking LO: 5.1: Define sole proprietorship, and explain the six advantages and six disadvantages of this ownership model.

5) Which of the following is a key advantage of operating a business as a sole proprietorship?

A) Owners receive tax exemptions when a business is a sole proprietorship.

B) It allows proprietors to file taxes separately from their personal income.

C) It is easy to establish and requires less paperwork than other structures.

D) Owner's risk is limited to the extent he/she has invested in the business.

E) Risk associated with sole proprietorship is less, compared to other structures.

Answer: C Explanation: A sole proprietorship is easy to establish and requires far less paperwork than other structures. The only legal requirement for establishing a sole proprietorship is obtaining the necessary business licenses and permits required by the city, county, and state.

Difficulty: 2: Moderate AACSB: Analytical thinking LO: 5.1: Define sole proprietorship, and explain the six advantages and six disadvantages of this ownership model.

6) In a sole proprietorship, the owner ________.

A) has limited liability protection on the business's actions B) is taxed more than once for the income generated C) and the business are legally inseparable D) has lesser responsibility compared to other forms E) does not have personal liability for the transactions of the business Answer: C Explanation: In a sole proprietorship, the owner and the business are legally inseparable, which gives the proprietor unlimited liability. Any legal damages or debts incurred by the business are the owner's personal responsibility.

Difficulty: 2: Moderate AACSB: Analytical thinking LO: 5.1: Define sole proprietorship, and explain the six advantages and six disadvantages of this ownership model.

7) Why is starting a business as a sole proprietorship easier than starting as a corporation?

A) There are very few legal requirements as a sole proprietorship.

B) Tax rates are lower.

C) There are fewer financial liabilities.

D) It is easier to solicit for investors.

E) There are fewer demands on the owner's time.

Answer: A Explanation: A sole proprietorship is easy to establish and requires far less paperwork than other structures. Otherwise, just by starting business operations without creating a partnership or a corporation, you legally establish yourself as a sole proprietor.

Difficulty: 2: Moderate AACSB: Analytical thinking LO: 5.1: Define sole proprietorship, and explain the six advantages and six disadvantages of this ownership model.

8) How are after-tax profits dispersed in a sole proprietorship?

A) Investors are paid first.

B) All after-tax profits belong to the owner.

C) Employees are paid from after-tax profits.

D) Stakeholders are ranked by order of importance and paid by percentage of profit.

E) All profit is reinvested in the business.

Answer: B Explanation: As a sole proprietor, you keep all the after-tax profits the business generates; if the business does extremely well, you do extremely well.

Difficulty: 2: Moderate AACSB: Analytical thinking LO: 5.1: Define sole proprietorship, and explain the six advantages and six disadvantages of this ownership model.

9) Which of the following is a disadvantage of a sole proprietorship?

A) Paid vacation time is limited to two weeks per year.

B) There are no support groups specifically designed for sole proprietors to seek council on key decisions.

C) They usually have fewer financial resources and fewer ways to get funds from lenders or investors.

D) Social media sites can be hard to manage.

E) There is a smaller limit on personal liability.

Answer: C Explanation: Because they depend on a single owner, sole proprietorships usually have fewer financial resources and fewer ways to get additional funds from lenders or investors. This lack of capital can hamper a small business in many ways, limiting its ability to expand, to hire the best employees, and to survive rough economic periods.

Difficulty: 2: Moderate AACSB: Analytical thinking LO: 5.1: Define sole proprietorship, and explain the six advantages and six disadvantages of this ownership model.

10) The owner has limited personal liability for the business's financial obligations in sole proprietorships.

Answer: FALSE Explanation: The owner has unlimited personal liability for the business's financial obligations in sole proprietorships. In corporations, investors have limited liability.

Difficulty: 1: Easy AACSB: Application of knowledge LO: 5.1: Define sole proprietorship, and explain the six advantages and six disadvantages of this ownership model.

11) Establishing a corporation is more complicated and expensive compared to establishing a sole proprietorship.

Answer: TRUE Explanation: Establishing a corporation is more complicated and expensive compared to establishing a sole proprietorship. Requirements for establishing a corporation vary from state to state.

Difficulty: 1: Easy AACSB: Application of knowledge LO: 5.1: Define sole proprietorship, and explain the six advantages and six disadvantages of this ownership model.

12) The federal government recognizes a sole proprietorship as an independent taxable entity.

Answer: FALSE Explanation: Income tax is a straightforward matter for sole proprietorships. The federal government doesn't recognize the company as a taxable entity.

Difficulty: 2: Moderate AACSB: Application of knowledge LO: 5.1: Define sole proprietorship, and explain the six advantages and six disadvantages of this ownership model.

13) Unlimited liability is a legal condition under which any damages or debts incurred by a business are the owner's personal responsibility.

Answer: TRUE Explanation: Unlimited liability is a legal condition under which any damages or debts incurred by a business are the owner's personal responsibility.

Difficulty: 2: Moderate AACSB: Application of knowledge LO: 5.1: Define sole proprietorship, and explain the six advantages and six disadvantages of this ownership model.

14) Discuss the financial liability of a sole proprietor.

Answer: In a sole proprietorship, the owner and the business are legally inseparable, which gives the proprietor unlimited liability: Any legal damages or debts incurred by the business are the owner's personal responsibility. If you aren't covered by appropriate insurance and run into serious financial or legal difficulty, such as getting sued for an accident that happened on your premises, you could lose not only the business but all your personal assets as well.

Difficulty: 3: Challenging AACSB: Analytical thinking LO: 5.1: Define sole proprietorship, and explain the six advantages and six disadvantages of this ownership model.

15) Explain the six advantages of operating as a sole proprietorship.

Answer: Operating as a sole proprietorship offers six key advantages: (1) Simplicity: A sole proprietorship is easy to establish and requires far less paperwork than other structures. About the only legal requirement for establishing a sole proprietorship is obtaining the necessary business licenses and permits required by the city, county, and state.

(2) Single layer of taxation: Income tax is a straightforward matter for sole proprietorships. The federal government doesn't recognize the company as a taxable entity; all profit "flows through" to the owner, where it is treated as personal income and taxed accordingly.

(3) Privacy: Beyond filing tax returns and certain other government reports that may apply to specific businesses, sole proprietors generally aren't required to report anything to anyone. Your business is your business. Of course, if you apply for a loan or solicit investors, you will need to provide detailed financial information to these parties.

(4) Flexibility and control: As a sole proprietor, you aren't required to get approval from a business partner, your boss, or a board of directors to change any aspect of your business strategy or tactics. You can make your own decisions, from setting your own hours to deciding how much of the work you'll do yourself and how much you'll assign to employees.

(5) Fewer limitations on personal income: As a partner in a partnership or an employee in a corporation, your income is established by various agreements and compensation policies. As a sole proprietor, you keep all the after-tax profits the business generates.

(6) Personal satisfaction: For many sole proprietors, the main advantage is the satisfaction of working for themselves—of taking the risks and enjoying the rewards. If you work hard, make smart decisions, and have a little bit of luck, you get to see and enjoy the fruits of your labor.

Difficulty: 2: Moderate AACSB: Analytical thinking LO: 5.1: Define sole proprietorship, and explain the six advantages and six disadvantages of this ownership model.

16) A(n) ________ is an unincorporated company owned by two or more people.

A) limited company B) partnership C) corporation D) S corporation E) sole proprietorship Answer: B Explanation: A partnership is an unincorporated company owned by two or more people.

The partnership structure is appropriate for firms that need more resources and leadership talent than a sole proprietorship but that don't need the fundraising capabilities or other advantages of a corporation.

Difficulty: 2: Moderate AACSB: Analytical thinking LO: 5.2: Define partnership, and explain the six advantages and three disadvantages of this ownership model.

17) In a general partnership, ________.

A) all partners have joint authority to make decisions B) all partners have limited liability for financial obligations C) the number of partners is limited to five D) units of ownership are sold to the general public E) risk is limited to the amount invested in a partnership Answer: A Explanation: In a general partnership, all partners have joint authority to make decisions for the firm and joint liability for the firm's financial obligations.

Difficulty: 2: Moderate AACSB: Analytical thinking LO: 5.2: Define partnership, and explain the six advantages and three disadvantages of this ownership model.

18) A ________ is allowed to raise money by selling units of ownership to the general public in the same way corporations sell shares of stock to the public.

A) master limited partnership B) general partnership C) sole proprietorship D) limited partnership E) limited liability partnership Answer: A Explanation: A master limited partnership (MLP) is allowed to raise money by selling units of ownership to the general public in the same way corporations sell shares of stock to the public. This gives MLPs the fundraising capabilities of corporations without the double-taxation disadvantage.

Difficulty: 2: Moderate AACSB: Analytical thinking LO: 5.2: Define partnership, and explain the six advantages and three disadvantages of this ownership model.

19) A ________ is a partnership in which each partner has unrestricted accountability only for his or her own actions and at least some degree of responsibility for the

partnership as a whole.

A) master limited partnership B) general partnership C) sole proprietorship D) combined proprietorship E) limited liability partnership Answer: E Explanation: A limited liability partnership is a partnership in which each partner has unlimited liability only for his or her own actions and at least some degree of limited liability for the partnership as a whole.

Difficulty: 2: Moderate AACSB: Analytical thinking LO: 5.2: Define partnership, and explain the six advantages and three disadvantages of this ownership model.

20) In a limited partnership, one or more persons acts as a general partner and the remaining partners ________.

A) do not participate in running the business B) have unlimited liability for debts and expenses C) avoid taxation on profits of the business D) must by units of ownership through the sale of stock E) are subject to the same double-taxation as a corporation Answer: A Explanation: To minimize personal liability exposure, some organizations opt instead for a limited partnership. Under this type of partnership, one or more persons act as general partners who run the business and have the same unlimited liability as sole proprietors.

The remaining owners are limited partners, are investors who do not participate in running the business and who have limited liability—the maximum amount they are liable for is whatever amount each invested in the business.

Difficulty: 2: Moderate AACSB: Analytical thinking LO: 5.2: Define partnership, and explain the six advantages and three disadvantages of this ownership model.

21) A major advantage of partnerships is that they ________.

A) do not require owners to take personal responsibility for their actions B) provide limited liability protection to partners C) have a straightforward income tax structure D) are less vulnerable to conflicts between investors E) allow investors to handle issues such as succession and termination better Answer: C Explanation: Income tax is straightforward for partnerships. Profit is split between or among the owners based on whatever percentages they have agreed to.

Difficulty: 2: Moderate AACSB: Analytical thinking LO: 5.2: Define partnership, and explain the six advantages and three disadvantages of this ownership model.

22) A potentially significant disadvantage of a partnership is that ________.

A) it involves double taxation of the income generated B) income tax payments are complex C) it has more potential for disagreement and conflict D) it does not present opportunities to share costs E) the amount of money generated in a partnership is low Answer: C Explanation: Partners can disagree over business strategy, the division of profits (or the liability for losses), hiring and firing of employees, and other significant matters. This attracts more conflicts in the business.

Difficulty: 2: Moderate AACSB: Analytical thinking LO: 5.2: Define partnership, and explain the six advantages and three disadvantages of this ownership model.

23) What is the level of authority and liability in a general partnership?

A) Limited authority and limited liability B) Joint authority and limited liability C) Joint authority and unlimited liability D) Unlimited authority and joint liability E) Limited authority and unlimited liability Answer: D Explanation: In a general partnership, all partners have authority to make decisions for the firm and joint liability for the firm's financial obligations. If the partnership gets sued or goes bankrupt, all the partners have to dig into their own pockets to pay the bills, just as sole proprietors must.

Difficulty: 2: Moderate AACSB: Analytical thinking LO: 5.2: Define partnership, and explain the six advantages and three disadvantages of this ownership model.

24) What is the advantage of a master limited partnership?

A) They do not have to pay back debt.

B) Liability is limited to what each partner invested, no more.

C) They have limited liability for returns to stakeholders.

D) They are easy to form and easy to dissolve.

E) They have the fundraising capabilities of a corporation without the double taxation disadvantage.

Answer: E Explanation: A master limited partnership (MLP) is allowed to raise money by selling units of ownership to the general public, in the same way corporations sell shares of stock to the public. This gives MLPs the fundraising capabilities of corporations without the double-taxation disadvantage.

Difficulty: 2: Moderate AACSB: Analytical thinking LO: 5.2: Define partnership, and explain the six advantages and three disadvantages of this ownership model.

25) How are taxes paid in a partnership?

A) By each partner based on their individual profit.

B) By the business, with partners splitting remaining profit.

C) The partnership is taxed at a flat percentage.

D) As business income before expenses for each partner.

E) Each partner pays the same amount.

Answer: A Explanation: Income tax is straightforward for partnerships. Profit is split between or among the owners based on whatever percentages they have agreed to. Each owner then treats his or her share as personal income.

Difficulty: 2: Moderate AACSB: Analytical thinking LO: 5.2: Define partnership, and explain the six advantages and three disadvantages of this ownership model.

26) A partnership is a company that is owned by two or more people but is not a corporation.

Answer: TRUE Explanation: A partnership is a company that is owned by two or more people but is not a corporation.

Difficulty: 2: Moderate AACSB: Application of knowledge LO: 5.2: Define partnership, and explain the six advantages and three disadvantages of this ownership model.

27) A master limited partnership cannot raise money by selling units of ownership to the general public.

Answer: FALSE Explanation: A master limited partnership (MLP) is allowed to raise money by selling units of ownership to the general public, in the same way corporations sell shares of stock to the public.

Difficulty: 2: Moderate AACSB: Application of knowledge LO: 5.2: Define partnership, and explain the six advantages and three disadvantages of this ownership model.

28) Partners are responsible for each other's action in a limited liability partnership.

Answer: FALSE Explanation: The limited liability partnership (LLP) form of business was created to help protect individual partners in certain professions from major mistakes (such as errors that trigger malpractice lawsuits) by other partners in the firm.

Difficulty: 2: Moderate AACSB: Application of knowledge LO: 5.2: Define partnership, and explain the six advantages and three disadvantages of this ownership model.

29) Partnerships are subject to double taxation of income.

Answer: FALSE Explanation: Income tax is straightforward for partnerships. Each owner's income is treated as his or her share as personal income. This helps investors avoid double taxation.

Difficulty: 2: Moderate AACSB: Application of knowledge LO: 5.2: Define partnership, and explain the six advantages and three disadvantages of this ownership model.

30) All owners in a general partnership and the general partners in a limited partnership face the same unlimited liability as sole proprietors.

Answer: TRUE Explanation: All owners in a general partnership and the general partners in a limited partnership face the same unlimited liability as sole proprietors.

Difficulty: 2: Moderate AACSB: Application of knowledge LO: 5.2: Define partnership, and explain the six advantages and three disadvantages of this ownership model.

31) Compare and contrast a general partnership and a limited partnership.

Answer: In a general partnership, all partners have joint authority to make decisions for the firm and joint liability for the firm's financial obligations. If the partnership gets sued or goes bankrupt, all the partners have to dig into their own pockets to pay the bills, just as sole proprietors must.

To minimize personal liability exposure, some organizations opt instead for a limited partnership. Under this type of partnership, one or more persons act as general partners who run the business and have the same unlimited liability as sole proprietors. The remaining owners are limited partners who do not participate in running the business and who have limited liability—the maximum amount they are liable for is whatever amount each invested in the business.

Difficulty: 3: Challenging AACSB: Analytical thinking LO: 5.2: Define partnership, and explain the six advantages and three disadvantages of this ownership model.

32) Compare and contrast a master limited partnership and a limited liability partnership.

Answer: A master limited partnership (MLP) is allowed to raise money by selling units of ownership to the general public, in the same way corporations sell shares of stock to the public. This gives MLPs the fundraising capabilities of corporations without the double-taxation disadvantage. Strict rules limit the types of companies that qualify for MLP status in the United States.

The limited liability partnership (LLP) form of business was created to help protect individual partners in certain professions from major mistakes (such as errors that trigger malpractice lawsuits) by other partners in the firm. In an LLP, each partner has unlimited liability only for his or her own actions and at least some degree of limited liability for the partnership as a whole. Restrictions on who can form an LLP—and how much liability protection is offered under this structure—vary from state to state.

Difficulty: 3: Challenging AACSB: Analytical thinking LO: 5.2: Define partnership, and explain the six advantages and three disadvantages of this ownership model.

33) Discuss the legal and practical aspects of a partnership agreement.

Answer: A carefully written partnership agreement can maximize the advantages of the partnership structure and minimize the potential disadvantages. Although state laws (everywhere except Louisiana) specify some basic agreements about business partnerships, these laws are generic and therefore not ideal for many partnerships. At a minimum, a partnership agreement should address investment percentages, profit-sharing percentages, management responsibilities and other expectations of each owner, decisionmaking strategies, and succession and exit strategies. Therefore, it is necessary to have all these aspects in the agreement from a legal standpoint.

A clear and complete agreement is important for every partnership, but it can be particularly important when you are going into business with a friend, a spouse, or anyone else with whom you have a personal relationship. While you might have a great personal partnership, the dynamics of that relationship could get in the way of a successful business partnership. In order to keep their personal relationship and business separate, the partners must form a clear agreement.

Difficulty: 3: Challenging AACSB: Analytical thinking LO: 5.2: Define partnership, and explain the six advantages and three disadvantages of this ownership model.

34) Which of the following is a key difference between private corporations and public corporations?

A) Private corporations are legally a group of people, whereas public corporations are distinct from any individual persons.

B) Private corporations cannot own property, whereas public corporations can own property.

C) Public corporations cannot own property, whereas private corporations can own property.

D) Private corporations do not have the power to run a business of its own, whereas public corporations can run a business of its own.

E) Private corporations are owned by a few people, whereas public corporations can be owned by anyone who has the means to buy stake.

Answer: E Explanation: The stock of a private corporation is owned by only a few individuals or companies, whereas the stock of a public corporation is sold to anyone who has the means to buy it.

Difficulty: 2: Moderate AACSB: Application of knowledge LO: 5.3: Define corporation, and explain the four advantages and six disadvantages of this ownership model.

35) Which of the following is a key advantage that corporations have over sole proprietorships and partnerships?

A) Management is less likely to lose control of operations in corporations than proprietorships and partnerships.

B) Reporting requirements of corporations are simpler than sole proprietorships and partnerships.

C) Forming corporations involves less cost than sole proprietorships and partnerships.

D) Investments in corporations have more liquidity than partnerships and sole proprietorships.

E) Corporations have a less complex structure compared to sole proprietorships and partnerships.

Answer: D Explanation: The stock of publicly-traded companies has a high degree of liquidity, which means that investors can easily and quickly convert their stock into cash by selling it on the open market. In contrast, liquidating (selling) the assets of a sole proprietorship or a partnership can be slow and difficult.

Difficulty: 2: Moderate AACSB: Application of knowledge LO: 5.3: Define corporation, and explain the four advantages and six disadvantages of this ownership model.

36) A disadvantage of the corporate structure is that it ________.

A) limits the business's ability to raise capital B) limits the liquidity that businesses have C) increases the risk of conducting business D) involves strict reporting requirements E) imposes unlimited liability on the owners Answer: D Explanation: To help investors make informed decisions about stocks, government agencies require publicly-traded companies to publish extensive and detailed financial reports. These reports can eat up a lot of staff and management time, and they can expose strategic information that might benefit competitors or discourage investors unwilling to wait for long-term results.

Difficulty: 2: Moderate AACSB: Application of knowledge LO: 5.3: Define corporation, and explain the four advantages and six disadvantages of this ownership model.

37) An S corporation ________.

A) combines limited liability of a corporation with the federal taxation advantages of a partnership B) does not have such advantages as limited liability of investments C) does not split the ownership into smaller units D) must have over 100 investors E) combines limited ownership of a proprietorship with the capital-raising options of a corporation Answer: A Explanation: S corporation is a type of corporation that combines the capital-raising options and limited liability of a corporation with the federal taxation advantages of a partnership.

Difficulty: 2: Moderate AACSB: Analytical thinking LO: 5.3: Define corporation, and explain the four advantages and six disadvantages of this ownership model.

38) A(n) ________ has most of the attributes of a regular corporation but adds the legal requirement that the company must also pursue a stated non-financial goal.

A) limited liability corporation B) general partnership C) S corporation D) sole proprietorship E) benefit corporation Answer: E Explanation: A benefit corporation has most of the attributes of a regular corporation but adds the legal requirement that the company must also pursue a stated non-financial goal, such as hiring workers whose life histories make employment difficult to attain, or reducing the environmental impact of particular products.

Difficulty: 2: Moderate AACSB: Application of knowledge LO: 5.3: Define corporation, and explain the four advantages and six disadvantages of this ownership model.

39) A public corporation refers to a corporation ________.

A) that is allowed to sell stock only to a limited number of investors B) whose stock is sold to the general public C) that is owned solely by the federal government D) whose stock is privately held E) whose stock is not traded in stock exchanges or other markets Answer: B Explanation: A public corporation refers to a corporation whose stock is sold to the general public. It is also known as a publicly held or publicly traded corporation.

Difficulty: 2: Moderate AACSB: Application of knowledge LO: 5.3: Define corporation, and explain the four advantages and six disadvantages of this ownership model.

40) A corporation primarily or wholly owned by another company is known as a(n)

________.

A) domestic company B) international company C) subsidiary D) parent company E) holding company Answer: C Explanation: A corporation primarily or wholly owned by another company is known as a subsidiary.

Difficulty: 2: Moderate AACSB: Application of knowledge LO: 5.3: Define corporation, and explain the four advantages and six disadvantages of this ownership model.

41) A company that is incorporated in one state but does business in several other states where it is registered is called a(n) ________.

A) foreign corporation B) domestic corporation C) global corporation D) holding corporation E) international corporation Answer: A Explanation: A company that is incorporated in one state (frequently the state of Delaware, where incorporation laws are more lenient) but that does business in several other states where it is registered is called a foreign corporation.

Difficulty: 2: Moderate AACSB: Application of knowledge LO: 5.3: Define corporation, and explain the four advantages and six disadvantages of this ownership model.

42) An S corporation is allowed to have ________.

A) fewer than 100 investors B) a maximum of 500 investors C) fewer than 500 investors in the U.S. but an unlimited number in the global market D) an unlimited number of investors E) only investors who are fully responsible for the liabilities of the company Answer: A Explanation: An S corporation, or subchapter S corporation, combines the capital-raising options and limited liability of a corporation with the federal taxation advantages of a partnership (although a few states tax S corporations like regular corporations).

Corporations seeking "S" status must meet certain criteria, including a maximum of 100 investors.

Difficulty: 2: Moderate AACSB: Application of knowledge LO: 5.3: Define corporation, and explain the four advantages and six disadvantages of this ownership model.

43) A corporation is a legal entity distinct from the persons running the corporation.

Answer: TRUE Explanation: A corporation is a legal entity, distinct from any individual persons, that has the power to own property and conduct business.

Difficulty: 2: Moderate AACSB: Application of knowledge LO: 5.3: Define corporation, and explain the four advantages and six disadvantages of this ownership model.

44) The stock of a private corporation is made available for purchase by the public.

Answer: FALSE Explanation: The stock of a private corporation is owned by only a few individuals or companies and is not made available for purchase by the public.

Difficulty: 2: Moderate AACSB: Application of knowledge LO: 5.3: Define corporation, and explain the four advantages and six disadvantages of this ownership model.

45) Liquidity is a measure of how easily and quickly an asset can be converted into cash.

Answer: TRUE Explanation: Liquidity is a measure of how easily and quickly an asset such as corporate stock can be converted into cash by selling it.

Difficulty: 2: Moderate AACSB: Application of knowledge LO: 5.3: Define corporation, and explain the four advantages and six disadvantages of this ownership model.

46) An S corporation has the federal taxation advantages of a partnership.

Answer: TRUE Explanation: S corporation is a type of corporation that combines the capital-raising options and limited liability of a corporation with the federal taxation advantages of a partnership.

Difficulty: 2: Moderate AACSB: Application of knowledge LO: 5.3: Define corporation, and explain the four advantages and six disadvantages of this ownership model.

47) A benefit corporation must pursue a stated non-financial goal.

Answer: TRUE Explanation: A benefit corporation has most of the attributes of a regular corporation but adds the legal requirement that the company must also pursue a stated non-financial goal, such as hiring workers whose life histories make employment difficult to attain or reducing the environmental impact of particular products.

Difficulty: 2: Moderate AACSB: Application of knowledge LO: 5.3: Define corporation, and explain the four advantages and six disadvantages of this ownership model.

48) Compare and contrast private corporations and public corporations.

Answer: The stock of a private corporation, also known as a closely held corporation, is owned by only a few individuals or companies and is not made available for purchase by the public. In contrast, the stock of a public corporation is sold to anyone who has the means to buy it—individuals, investment companies such as mutual funds, not-for-profit organizations, and other companies. These companies are said to be publicly held or publicly traded.

Difficulty: 3: Challenging AACSB: Analytical thinking LO: 5.3: Define corporation, and explain the four advantages and six disadvantages of this ownership model.

49) Explain the major disadvantages of incorporating a business as a corporation.

Answer: The major disadvantages of incorporating a business as a corporation are the following: (1) Cost and complexity: Starting a corporation is more expensive and more complicated than starting a sole proprietorship or a partnership, and "taking a company public" (selling shares to the public) can be extremely expensive for a firm and time consuming for upper managers.

(2) Reporting requirements: To help investors make informed decisions about stocks, government agencies require publicly-traded companies to publish extensive and detailed financial reports. These reports can eat up a lot of staff and management time, and they can expose strategic information that might benefit competitors or discourage investors unwilling to wait for long-term results.

(3) Managerial demands: Top executives must devote considerable time and energy to meeting with shareholders, financial analysts, and the news media.

(4) Possible loss of control: Outside investors who acquire enough of a company's stock can gain seats on the board of directors and therefore begin exerting their influence on company management. In extreme cases, outsiders can take complete control and even replace the company founders if they believe a change in leadership is needed.

(5) Double taxation: A corporation must pay federal and state corporate income tax on its profits, and individual shareholders must pay income taxes on their share of the company's profits received as dividends (periodic payments that some corporations opt to make to shareholders).

(6) Short-term orientation of the stock market: Publicly held corporations release their financial results once every quarter, and this seemingly simple requirement can have a damaging impact on the way companies are managed. The problem is that executives feel the pressure to constantly show earnings growth from quarter to quarter so that the stock price keeps increasing.

Difficulty: 3: Challenging AACSB: Analytical thinking LO: 5.3: Define corporation, and explain the four advantages and six disadvantages of this ownership model.

50) Compare and contrast a limited liability company and a benefit corporation.

Answer: The limited liability company (LLC) structure offers the advantages of limited liability, along with the pass-through taxation benefits of a partnership. Furthermore, LLCs are not restricted in the number of shareholders they can have, and members' participation in management is not restricted as it is in limited partnerships. Given these advantages, the LLC structure is recommended for most small companies that aren't sole proprietorships.

A benefit corporation has most of the attributes of a regular corporation but adds the legal requirement that the company must also pursue a stated non-financial goal, such as hiring workers whose life histories make employment difficult to attain or reducing the environmental impact of particular products. The corporation's performance toward meeting that goal must be independently verified as well. These requirements offer key advantages to founders and other stakeholders.

Difficulty: 3: Challenging AACSB: Analytical thinking LO: 5.3: Define corporation, and explain the four advantages and six disadvantages of this ownership model.

51) In a publicly held corporation, the board of directors is ________.

A) comprised of institutional investors B) elected by corporate officers C) representatives of the shareholders D) the top executives running a corporation E) elected by the employees of the organization Answer: C Explanation: The board of directors is a group of professionals elected by shareholders as their representatives, with responsibility for the overall direction of the company and the selection of top executives.

Difficulty: 1: Easy AACSB: Application of knowledge LO: 5.4: Explain the concept of corporate governance, and identify the three groups responsible for ensuring good governance.

52) Which of the following authorizes management to vote on behalf of a shareholder in a corporation?

A) Agency agreement B) Proxy C) Draft D) Affidavit E) Share certificate Answer: B Explanation: A proxy is a document that authorizes another person to vote on behalf of a shareholder in a corporation.

Difficulty: 2: Moderate AACSB: Application of knowledge LO: 5.4: Explain the concept of corporate governance, and identify the three groups responsible for ensuring good governance.

53) Corporate officers are the ________.

A) people who elect directors of a company B) official representatives of shareholders C) top executives who run a corporation D) middle level managers of a corporation E) lower level employees of an organization Answer: C Explanation: Corporate officers are the top executives who run the company. Executives such as CEO and CFO are corporate officers.

Difficulty: 2: Moderate AACSB: Application of knowledge LO: 5.4: Explain the concept of corporate governance, and identify the three groups responsible for ensuring good governance.

54) Which is the highest-ranked officer of a corporation?

A) Chief information officer B) Chief financial officer C) Chief operating officer D) Chief executive officer E) Chief technology officer Answer: D Explanation: The highest-ranking officer is the chief executive officer (CEO). Other "Clevel" executives, such as the following, assist the CEO: the chief financial officer (CFO), the chief information officer (CIO), the chief technology officer (CTO), and the chief operating officer (COO).

Difficulty: 1: Easy AACSB: Application of knowledge LO: 5.4: Explain the concept of corporate governance, and identify the three groups responsible for ensuring good governance.

55) What is corporate governance?

A) Voting rights and procedures for the Board of Directors B) Policies, procedures, and systems used to oversee the organization C) An indication of how the organization shows concern for society as a whole D) The power of stockholders of an organization E) The power of all stakeholders tied to an organization Answer: B Explanation: Corporate governance can be used in a broad sense to describe all the policies, procedures, relationships, and systems in place to oversee the successful and legal operation of the enterprise. However, media coverage and public discussion tend to define governance in a more narrow sense, as the responsibilities and performance of the board of directors specifically.

Difficulty: 2: Moderate AACSB: Analytical thinking LO: 5.4: Explain the concept of corporate governance, and identify the three groups responsible for ensuring good governance.

56) Because of their large investment in corporate stock, ________ can have considerable influence over management and the ultimate governing of the corporation.

A) shareholders B) internal stakeholders C) institutional investors D) proxy voters E) activist shareholders Answer: C Explanation: Institutional investors with large holdings of stock can have considerable influence over management. For example, the nearly 300 institutions that make up the Interfaith Center on Corporate Responsibility (ICCR) collectively control more than $100 billion in corporate stock, giving them a powerful voice.

Difficulty: 2: Moderate AACSB: Analytical thinking LO: 5.4: Explain the concept of corporate governance, and identify the three groups responsible for ensuring good governance.

57) Who is responsible for reviewing the long-term plans and major strategic decisions of an organization?

A) Institutional investors B) Philanthropists C) Shareholders D) Board of directors E) External stakeholders Answer: D Explanation: As the representatives of the shareholders, the members of the board of directors are responsible for selecting corporate officers, guiding corporate affairs, reviewing long-term plans, making major strategic decisions, and overseeing financial performance.

Difficulty: 2: Moderate AACSB: Application of knowledge LO: 5.4: Explain the concept of corporate governance, and identify the three groups responsible for ensuring good governance.

58) Who can act as an independent board member to help guide the operation of the board and remain an independent voice in governance?

A) Board chair B) Chief executive officer C) Corporate officers D) Executive team E) Lead director Answer: E Explanation: In many corporations, one person acts as both board chair and CEO (meaning that in a sense, the CEO is his or her own boss), leading critics to ask how effectively such boards can oversee top management. An emerging alternative is a lead director, an independent board member who guides the operation of the board and helps maintain its role as an independent voice in governance.

Difficulty: 2: Moderate AACSB: Analytical thinking LO: 5.4: Explain the concept of corporate governance, and identify the three groups responsible for ensuring good governance.

59) Which of the following is one of the negative aspects of holding a position on a board of directors?

A) Legal liability for the misdeeds of the company B) Excessive number of proxy votes C) Lack of board member diversity D) Being paid in stock options E) The close relationship between the board and key leadership within the organization Answer: A Explanation: One of the more controversial reform issues has been the potential for directors to be held legally and financially liable for misdeeds of the companies they oversee and even for simply failing to investigate "red flags" in company financial reports.

Difficulty: 2: Moderate AACSB: Analytical thinking LO: 5.4: Explain the concept of corporate governance, and identify the three groups responsible for ensuring good governance.

60) Corporate officers of an organization are elected directly by the shareholders of a corporation.

Answer: FALSE Explanation: The board of directors hires corporate officers of an organization.

Difficulty: 2: Moderate AACSB: Application of knowledge LO: 5.4: Explain the concept of corporate governance, and identify the three groups responsible for ensuring good governance.

61) A proxy is a document that authorizes another person to vote on behalf of a shareholder in a corporation.

Answer: TRUE Explanation: Proxy is a document that authorizes another person to vote on behalf of a shareholder in a corporation.

Difficulty: 2: Moderate AACSB: Application of knowledge LO: 5.4: Explain the concept of corporate governance, and identify the three groups responsible for ensuring good governance.

62) The chief operating officer is the highest-ranking officer of a corporation.

Answer: FALSE Explanation: Corporate officers are the top executives who run a corporation. Of them, the highest-ranking officer is the chief executive officer (CEO).

Difficulty: 2: Moderate AACSB: Application of knowledge LO: 5.4: Explain the concept of corporate governance, and identify the three groups responsible for ensuring good governance.

63) Describe the role of a board of directors in corporate governance.

Answer: Although a corporation's shareholders own the business, few of them are typically involved in managing it, particularly if the corporation is publicly traded.

Instead, shareholders who own common stock elect a board of directors to represent them, and the directors, in turn, select the corporation's top officers, who actually run the company. The term corporate governance can be used in a broad sense to describe all the policies, procedures, relationships, and systems in place to oversee the successful and legal operation of the enterprise. However, media coverage and public discussion tend to define governance in a more narrow sense, as the responsibilities and performance of the board of directors specifically. Because serious corporate blunders can wreak havoc on employees, investors, and the entire economy, effective corporate governance has become a vital concern for society as a whole, not just for the individual companies themselves.

Difficulty: 3: Challenging AACSB: Analytical thinking LO: 5.4: Explain the concept of corporate governance, and identify the three groups responsible for ensuring good governance.

64) What is shareholder activism?

Answer: Shareholder activism refers to activities taken by shareholders (individually or in groups) to influence executive decision making in areas ranging from strategic planning to social responsibility. Activist shareholders are becoming better organized and more sophisticated in proposals they present, forcing boards to pay more attention to the concerns they raise. At the same time, more boards seem to recognize the benefits to be gained by engaging activists and listening to their concerns.

Difficulty: 2: Moderate AACSB: Analytical thinking LO: 5.4: Explain the concept of corporate governance, and identify the three groups responsible for ensuring good governance.

65) Explain the role of corporate officers in corporate governance.

Answer: Corporate officers play a key role in corporate governance. They are the top executives who run the company. Because they implement major board decisions, make numerous other business decisions, ensure compliance with a dizzying range of government regulations, and perform other essential tasks, the executive team is the major influence on a company's performance and financial health. The highest-ranking officer is the chief executive officer (CEO). Other "C-level" executives, such as the following, assist the CEO: the chief financial officer (CFO), the chief information officer (CIO), the chief technology officer (CTO), and the chief operating officer (COO).

Difficulty: 2: Moderate AACSB: Analytical thinking LO: 5.4: Explain the concept of corporate governance, and identify the three groups responsible for ensuring good governance.

66) In a ________, two companies join to form a single entity either by pooling their resources or by one company purchasing the assets of the other.

A) limited partnership B) consolidation C) merger D) joint venture E) strategic alliance Answer: C Explanation: In a merger, two companies join to form a single entity. Companies can merge either by pooling their resources or by one company purchasing the assets of the other.

Difficulty: 2: Moderate AACSB: Application of knowledge LO: 5.5: Identify the potential advantages of pursuing mergers and acquisitions as a growth strategy, along with the potential difficulties and risks.

67) In a(n) ________, two companies create a new, third entity that then purchases the two original companies.

A) limited partnership B) consolidation C) acquisition D) joint venture E) strategic alliance Answer: B Explanation: Consolidation is an arrangement in which two companies create a new, third entity that then purchases the two original companies. It is often lumped together with the other merger approaches.

Difficulty: 2: Moderate AACSB: Application of knowledge LO: 5.5: Identify the potential advantages of pursuing mergers and acquisitions as a growth strategy, along with the potential difficulties and risks.

68) In a(n) ________, one company buys a controlling interest in the voting stock of another company.

A) limited partnership B) consolidation C) acquisition D) joint venture E) strategic alliance Answer: C Explanation: In an acquisition, one company simply buys a controlling interest in the voting stock of another company. In most acquisitions, the selling parties agree to be purchased.

Difficulty: 2: Moderate AACSB: Application of knowledge LO: 5.5: Identify the potential advantages of pursuing mergers and acquisitions as a growth strategy, along with the potential difficulties and risks.

69) A ________ occurs when someone purchases a company's publicly-traded stock primarily by using borrowed funds, sometimes using the target company's assets as collateral for these loans.

A) leveraged buyout B) hostile takeover C) forced joint venture D) consolidation E) strategic alliance Answer: A Explanation: A leveraged buyout (LBO) occurs when someone purchases a company's publicly-traded stock primarily by using borrowed funds, sometimes using the target company's assets as collateral for these loans.

Difficulty: 2: Moderate AACSB: Application of knowledge LO: 5.5: Identify the potential advantages of pursuing mergers and acquisitions as a growth strategy, along with the potential difficulties and risks.

70) A vertical merger occurs when ________.

A) a merger expands the geographic range of markets that it can serve B) a company purchases a complementary company at a different stage or levels C) different companies at the same stage or level unite D) several competitors expands the mix of goods and services available for sale E) two companies from unrelated industries unite to become a single company Answer: B Explanation: A vertical merger occurs when different stages or levels of the same industry merge.

Difficulty: 2: Moderate AACSB: Application of knowledge LO: 5.5: Identify the potential advantages of pursuing mergers and acquisitions as a growth strategy, along with the potential difficulties and risks.

71) A ________ merger occurs when a parent company buys one or more companies in unrelated industries.

A) product-extension B) vertical C) conglomerate D) retail E) market-extension Answer: C Explanation: A conglomerate merger occurs when companies in unrelated industries join to form a single entity.

Difficulty: 2: Moderate AACSB: Application of knowledge LO: 5.5: Identify the potential advantages of pursuing mergers and acquisitions as a growth strategy, along with the potential difficulties and risks.

72) Which of the following is a key disadvantage of mergers and acquisitions?

A) They limit the market reach of the companies involved.

B) They reduce the chances of cross-selling products.

C) They reduce the bargaining power of the companies.

D) They might present issues related to cultural harmony.

E) They limit the geographic range of the companies involved.

Answer: D Explanation: The organizational cultures of the two firms engaging in a merger must be harmonized somehow after a merger. It can result in clashes between different values, management styles, communication practices, workplace atmosphere, and approaches to managing the changes required to implement the merger.

Difficulty: 2: Moderate AACSB: Application of knowledge LO: 5.5: Identify the potential advantages of pursuing mergers and acquisitions as a growth strategy, along with the potential difficulties and risks.

73) In a ________, the raider launches a public relations battle for shareholder votes, hoping to enlist enough votes to oust the board and management.

A) guerilla blitz B) proxy fight C) tender offer D) poison pill defense E) white knight tactic Answer: B Explanation: In a proxy fight, the raider launches a public relations battle for shareholder votes, hoping to enlist enough votes to oust the board and management.

Difficulty: 2: Moderate AACSB: Application of knowledge LO: 5.5: Identify the potential advantages of pursuing mergers and acquisitions as a growth strategy, along with the potential difficulties and risks.

74) With a ________, a targeted company invokes some move that makes it less valuable to the potential raider, with the hope of discouraging the takeover.

A) white knight tactic B) tender offer C) proxy fight D) direct offer E) poison pill defense Answer: E Explanation: With a poison pill defense, a targeted company invokes some move that makes it less valuable to the potential raider, with the hope of discouraging the takeover.

Difficulty: 2: Moderate AACSB: Application of knowledge LO: 5.5: Identify the potential advantages of pursuing mergers and acquisitions as a growth strategy, along with the potential difficulties and risks.

75) With the ________ tactic, a third company is invited to acquire a company that is in danger of being swallowed up in a hostile takeover.

A) countdown B) proxy fight C) direct offer D) tender offer E) white knight Answer: E Explanation: With the white knight tactic, a third company is invited to acquire a company that is in danger of being swallowed up in a hostile takeover.

Difficulty: 2: Moderate AACSB: Application of knowledge LO: 5.5: Identify the potential advantages of pursuing mergers and acquisitions as a growth strategy, along with the potential difficulties and risks.

76) When a raider offers to buy shares of stock at considerably more than the current stock price, a(n) ________ is being made.

A) tender offer B) leveraged buyout C) acquisition D) merger offer E) white knight offer Answer: A Explanation: In a tender offer, the buyer, or raider, as this party is sometimes called, offers to buy a certain number of shares of stock in the corporation at a specific price.

The price offered is generally more, sometimes considerably more, than the current stock price, so that shareholders are motivated to sell.

Difficulty: 2: Moderate AACSB: Application of knowledge LO: 5.5: Identify the potential advantages of pursuing mergers and acquisitions as a growth strategy, along with the potential difficulties and risks.

77) How can a hostile takeover be started?

A) Merger or acquisition

B) Tender offer or proxy fight C) Poison pill or white knight fight D) Firing the board of directors E) Tender offer or merger Answer: B Explanation: A hostile takeover can be launched in one of two ways: by tender offer or by proxy fight.

Difficulty: 2: Moderate AACSB: Application of knowledge LO: 5.5: Identify the potential advantages of pursuing mergers and acquisitions as a growth strategy, along with the potential difficulties and risks.

78) One company buys a controlling interest in the voting stock of another company in a merger.

Answer: FALSE Explanation: In a merger, two companies join to form a single entity. In an acquisition, one company buys a controlling interest in the voting stock of another company.

Difficulty: 2: Moderate AACSB: Application of knowledge LO: 5.5: Identify the potential advantages of pursuing mergers and acquisitions as a growth strategy, along with the potential difficulties and risks.

79) A horizontal merger occurs when different companies at the same stage or level merge.

Answer: TRUE Explanation: A horizontal merger occurs when different companies at the same stage or level merge. A merger between a lumber supplier and a leather supplier exemplifies this concept.

Difficulty: 2: Moderate AACSB: Application of knowledge LO: 5.5: Identify the potential advantages of pursuing mergers and acquisitions as a growth strategy, along with the potential difficulties and risks.

80) Compare and contrast mergers and acquisitions.

Answer: In a merger, two companies join to form a single entity. Companies can merge either by pooling their resources or by one company purchasing the assets of the other.

Although not strictly a merger, a consolidation, in which two companies create a new, third entity that then purchases the two original companies, is often lumped together with the other two merger approaches.

In an acquisition, one company buys a controlling interest in the voting stock of another company. In most acquisitions, the selling parties agree to be purchased; furthermore, management is in favor of the deal and encourages shareholders to vote in favor of it as well. Because buyers frequently offer shareholders more than their shares are currently worth, sellers are often motivated to sell.

Difficulty: 3: Challenging AACSB: Analytical thinking LO: 5.5: Identify the potential advantages of pursuing mergers and acquisitions as a growth strategy, along with the potential difficulties and risks.

81) Discuss the disadvantage of a merger or acquisition.

Answer: Executives have to agree on how the merger will be financed—and then come up with the money to make it happen. Managers need to decide who will be in charge after they join forces. Marketing departments need to figure out how to blend product lines, branding strategies, and advertising and sales efforts. Incompatible information systems (including everything from email to websites to accounting software) may need to be rebuilt or replaced in order to operate together seamlessly. Companies must often deal with layoffs, transfers, and changes in job titles and work assignments. The organizational cultures of the two firms must be harmonized somehow, which can result in clashes between different values, management styles, communication practices, workplace atmosphere, and approaches to managing the changes required to implement the merger. Moreover, while managers and employees are wrestling with all these challenges, they need to continue manufacturing products, satisfying customers, and tending to all the other daily details of business. Mergers can drive customers away if they feel neglected while the two companies are busy with all the internal chores of stitching themselves together. Because of these risks and difficulties, somewhere between two-thirds and three-quarters of all mergers fail to meet their stated business goals.

Difficulty: 3: Challenging AACSB: Analytical thinking LO: 5.5: Identify the potential advantages of pursuing mergers and acquisitions as a growth strategy, along with the potential difficulties and risks.

82) Which of the following is an action that allows the companies to collaborate on the development, production or sales of products without formally combining?

A) Strategic alliance B) Joint venture C) Merger D) Acquisition E) Amalgamation Answer: A Explanation: Strategic alliances can accomplish many of the same goals as a merger or acquisition with less risk and work than permanently integrating two companies.

Strategic partnership allows the companies to collaborate without formally combining.

Difficulty: 2: Moderate AACSB: Application of knowledge LO: 5.6: Define strategic alliance and joint venture, and explain why a company would choose these options over a merger or an acquisition.

83) Strategic alliances are ________.

A) internal agreements formed between the subsidiaries of a company B) not helpful when a company has to gain credibility in a new field C) a means of permanently integrating two companies in a business D) an alternative to mergers and acquisitions with less risk and work E) not helpful when a company's aim is expanding its market presence Answer: D Explanation: Strategic alliances can accomplish many of the same goals as a merger or acquisition with less risk and work than permanently integrating two companies.

Strategic partnership allows the companies to collaborate without formally combining.

Difficulty: 2: Moderate AACSB: Application of knowledge LO: 5.6: Define strategic alliance and joint venture, and explain why a company would choose these options over a merger or an acquisition.

84) Joint ventures ________.

A) let companies create tightly integrated operations without disrupting the original companies B) are less risky than strategic alliances C) are riskier to a firm than formal mergers D) disrupt the original companies and their business E) would not help companies gain credibility in new fields Answer: A Explanation: A joint venture lets companies create an operation that is more tightly integrated than a strategic alliance but without disrupting the original companies to the extent that a merger or acquisition does.

Difficulty: 2: Moderate AACSB: Application of knowledge LO: 5.6: Define strategic alliance and joint venture, and explain why a company would choose these options over a merger or an acquisition.

85) A company decides to establish a relationship with a local company in order to better its business in a foreign country. The company must choose joint ventures ahead of mergers and acquisitions if it wants to ________.

A) establish a company that is totally different B) create a single management structure C) create a unified business structure D) establish a well-structured arrangement E) avoid disrupting the original companies too much Answer: E Explanation: A joint venture lets companies create an operation that is more tightly integrated than a strategic alliance but without disrupting the original companies to the extent that a merger or acquisition does. In fact, after the spotty record of mergers and acquisitions in recent years, more companies are now considering joint ventures as a more attractive way to collaborate.

Difficulty: 2: Moderate AACSB: Application of knowledge LO: 5.6: Define strategic alliance and joint venture, and explain why a company would choose these options over a merger or an acquisition.

86) What are long-term partnerships between companies to jointly develop or sell products or services?

A) Strategic alliances B) Joint ventures C) Mergers D) Acquisitions E) Buy-outs Answer: A Explanation: A strategic alliance is a long-term partnership between companies to jointly develop, produce, or sell products.

Difficulty: 2: Moderate AACSB: Application of knowledge LO: 5.6: Define strategic alliance and joint venture, and explain why a company would choose these options over a merger or an acquisition.

87) What is the advantage of a strategic alliance over a merger or acquisition?

A) More goals can be accomplished.

B) The integration of culture is easier.

C) There is less risk and work.

D) The strategic alliance can limit the market presence for both firms.

E) The strategic alliance creates permanent relationships.

Answer: C Explanation: Strategic alliances can accomplish many of the same goals as a merger or an acquisition but with less risk and work than permanently integrating two companies.

Difficulty: 2: Moderate AACSB: Application of knowledge LO: 5.6: Define strategic alliance and joint venture, and explain why a company would choose these options over a merger or an acquisition.

88) Which of the following can create a tightly integrated operation without disrupting the original companies?

A) Proxy takeovers B) Strategic alliances C) Mergers D) Joint ventures E) Acquisitions Answer: D Explanation: A joint venture lets companies create an operation that is more tightly integrated than a strategic alliance but without disrupting the original companies to the extent that a merger or acquisition does. In fact, after the spotty record of mergers and acquisitions in recent years, more companies are now considering joint ventures as a more attractive way to collaborate.

Difficulty: 2: Moderate AACSB: Application of knowledge LO: 5.6: Define strategic alliance and joint venture, and explain why a company would choose these options over a merger or an acquisition.

89) A joint venture does not result in a separate legal entity.

Answer: FALSE Explanation: A joint venture is a separate legal entity established by two or more companies to pursue shared business objectives.

Difficulty: 2: Moderate AACSB: Application of knowledge LO: 5.6: Define strategic alliance and joint venture, and explain why a company would choose these options over a merger or an acquisition.

90) Distinguish between strategic alliances and joint ventures.

Answer: While strategic alliances avoid much of the work and risk of formal mergers, they don't create a unified entity that functions with a single management structure, information system, and other organizational elements. In contrast, a joint venture lets companies create an operation that is more tightly integrated than a strategic alliance but without disrupting the original companies to the extent that a merger or acquisition does.

Difficulty: 3: Challenging AACSB: Analytical thinking LO: 5.6: Define strategic alliance and joint venture, and explain why a company would choose these options over a merger or an acquisition.

91) Everything from sensor readings and financial transactions to photographs and Twitter messages are considered to be ________.

A) poison pills B) veracity C) predictive analytics D) data E) self-serve analytics Answer: D Explanation: In some important ways, the business of modern business is data, which in a broad sense includes everything from sensor readings and financial transactions to photographs and Twitter messages. Consumers generate data constantly. Online shopping, mobile app usage, package deliveries, Instagram posts, mass transit rides, phone calls–virtually every time you interact with any kind of technology, you generate data.

Difficulty: 2: Moderate AACSB: Information technology LO: 5.7: Explain how companies can use big data and analytics to create value and find competitive advantages.

92) ________ is/are the massive data sets that companies collect and analyze to find trends and insights.

A) Proprietorship B) Proxy C) White knights D) Self-serve analytics E) Big data Answer: E Explanation: Big data is the term for the massive data sets that companies collect and analyze to find important trends and insights.

Difficulty: 2: Moderate AACSB: Information technology LO: 5.7: Explain how companies can use big data and analytics to create value and find competitive advantages.

93) The speed at which data come to you is referred to as ________.

A) velocity B) big data C) variety D) volume E) the Internet of Things Answer: A Explanation: Velocity is the idea that big data comes at you fast, so to speak, with continuous, real-time, and near-real-time streams from IoT sensors, point-of-sale terminals, internet shopping carts, and more.

Difficulty: 2: Moderate AACSB: Information technology LO: 5.7: Explain how companies can use big data and analytics to create value and find competitive advantages.

94) The uncertainty regarding the quality of some of the data a system collects is based on its ________.

A) velocity B) veracity C) variety D) volume E) voraciousness Answer: B Explanation: Some experts and companies that provide big data systems add various other dimensions. IBM, for example, adds a fourth V, for veracity, to indicate the uncertainty regarding the quality of some of the data that a system collects.

Difficulty: 2: Moderate AACSB: Information technology LO: 5.7: Explain how companies can use big data and analytics to create value and find competitive advantages.

95) Which type of analytics finds patterns in numerical data?

A) Text mining B) Predictive analytics C) Data mining D) Machine learning E) Business intelligence Answer: C Explanation: Three important analytics capabilities are data mining (finding patterns in numerical data), text mining (extracting meaning from text files), and predictive analytics (identifying the most likely outcomes of a decision or scenario).

Difficulty: 2: Moderate AACSB: Information technology LO: 5.7: Explain how companies can use big data and analytics to create value and find competitive advantages.

96) ________ is used to extract meaning from text files.

A) Business intelligence B) The Internet of Things C) Veracity D) Text mining E) Velocity Answer: D Explanation: Three important analytics capabilities are data mining (finding patterns in numerical data), text mining (extracting meaning from text files), and predictive analytics (identifying the most likely outcomes of a decision or scenario).

Difficulty: 2: Moderate AACSB: Information technology LO: 5.7: Explain how companies can use big data and analytics to create value and find competitive advantages.

97) When a firm needs to use data to identify he most likely outcome of a decision or scenario, they can use ________.

A) data mining B) data processing C) deep learning D) text mining E) predictive analytics Answer: D Explanation: Three important analytics capabilities are data mining (finding patterns in numerical data), text mining (extracting meaning from text files), and predictive analytics (identifying the most likely outcomes of a decision or scenario).

Difficulty: 2: Moderate AACSB: Information technology LO: 5.7: Explain how companies can use big data and analytics to create value and find competitive advantages.

98) Which of the following best describes business intelligence?

A) Systems and technique for gathering and processing valuable information B) Compiling statistical reports on web traffic C) Self-serve analytical capabilities that all employees can use D) The use of the Internet of Things to detect long-term problems within a business E) The ability to understand and store large sets of data for future use Answer: A Explanation: Machine learning, deep learning, and natural language processing are all analytics capabilities that come under the heading of business intelligence–systems and techniques for gathering and processing valuable information.

Difficulty: 3: Challenging AACSB: Information technology LO: 5.7: Explain how companies can use big data and analytics to create value and find competitive advantages.

99) Big data and analytics capabilities are at the core of the digital transformation concept.

Answer: TRUE Explanation: Big data and associated analytics capabilities are at the core cores of the digital transformation concept and together they can be used to find answers all across the business enterprise.

Difficulty: 2: Moderate AACSB: Information technology LO: 5.7: Explain how companies can use big data and analytics to create value and find competitive advantages.

100) Variety refers to the ability of big data to come at you with continuous, real-time streams from sensors, point-of-sale terminals, internet shopping carts and more.

Answer: FALSE Explanation: Velocity is the idea that big data comes at you fast, so to speak, with continuous, real-time, and near-real-time streams from IoT sensors, point-of-sale terminals, internet shopping carts, and more.

Difficulty: 2: Moderate AACSB: Information technology LO: 5.7: Explain how companies can use big data and analytics to create value and find competitive advantages.

Business in Action, 9e (Bovee/Thill) Chapter 6 Entrepreneurship and Small-Business Ownership 1) According to the Small Business Administration, a small business is defined as a company that ________.

A) is newly launched and has fewer than 100 shareholders B) is dominant in its field and employs fewer than 1,500 employees C) has revenue of less than $750,000 D) is any independent firm with fewer than 500 employees E) is funded through personal lines of credit and has fewer than 1,000 employees Answer: D Explanation: A small business is an independently owned and operated company that

employs fewer than 500 people and is not dominant in its field of operation.

Difficulty: 1: Easy AACSB: Application of knowledge LO: 6.1: Highlight the contributions small businesses make to the U.S. economy.

2) Which of the following is an example of a lifestyle business?

A) A paper-recycling unit that employs about 800 employees B) A self-employed landscape designer C) An international gourmet food chain reputed to be the world's leading retailer of natural and organic foods D) A government-funded museum that houses a collection of 19th and 20th century American, German, and French paintings E) A firm that is the leader in the English-language book publishing sector Answer: B Explanation: Lifestyle businesses are built around the personal and financial needs of an individual or a family and have limited potential to grow beyond providing income for their independent owners.

Difficulty: 2: Moderate AACSB: Analytical thinking LO: 6.1: Highlight the contributions small businesses make to the U.S. economy.

3) One of the general characteristics of a small business is that it typically sells fewer products ________.

A) to a larger customer base B) to fewer market segments C) to foreign companies D) at lower costs to government agencies E) at higher costs Answer: B Explanation: Most small firms have a narrow focus, offering fewer goods and services to fewer market segments.

Difficulty: 2: Moderate AACSB: Analytical thinking LO: 6.1: Highlight the contributions small businesses make to the U.S. economy.

4) Small companies tend to differ from large ones because ________.

A) they have a wider focus compared to larger companies B) they are mostly launched with more financial backing than larger companies C) they have less freedom to innovate and move quickly compared to larger companies D) they can react to market changes and make decisions more quickly than larger companies E) they are more bureaucratic compared to larger companies Answer: D Explanation: Small, entrepreneurial firms usually find it easier to operate "on the fly," making decisions quickly and reacting to changes in the marketplace.

Difficulty: 2: Moderate AACSB: Analytical thinking LO: 6.1: Highlight the contributions small businesses make to the U.S. economy.

5) How do small businesses help to support the needs of larger organizations?

A) Small businesses introduce new products.

B) Small businesses act as serving agents and suppliers to larger corporations.

C) Small businesses help larger companies offset their tax bills.

D) Small businesses help train workers who can later be hired by larger companies.

E) Small businesses often finance the cost of risk for larger companies.

Answer: B Explanation: Many small businesses act as distributors, servicing agents, and suppliers to larger corporations and to numerous government agencies (which often reserve a certain percentage of their purchasing contracts for small businesses).

Difficulty: 2: Moderate AACSB: Analytical thinking LO: 6.1: Highlight the contributions small businesses make to the U.S. economy.

6) What type of small business is usually run by a team rather than one individual, and expands rapidly by obtaining capital investment and introducing new products to a large market?

A) Lifestyle B) Primary C) High-growth ventures D) Niche E) Unproven Answer: C Explanation: Some firms are small simply because they are young, but they have ambitious plans to grow. These high-growth ventures are usually run by a team rather than by one individual, and they expand rapidly by obtaining a sizable supply of investment capital and by introducing new products or services to a large market.

Difficulty: 2: Moderate AACSB: Analytical thinking LO: 6.1: Highlight the contributions small businesses make to the U.S. economy.

7) What is one major advantage of a small firm over a large firm?

A) Better use of social media to market products B) A wider variety of goods and services being offered C) A larger market segment to pursue D) Freedom to innovate and move quickly E) Availability of financial backing Answer: D Explanation: Smaller businesses often have more freedom to innovate and move quickly.

As they grow larger, companies tend to get slower and more bureaucratic. In contrast, entrepreneurial firms usually find it easier to operate "on the fly," making decisions quickly and reacting to changes in the marketplace.

Difficulty: 2: Moderate AACSB: Analytical thinking LO: 6.1: Highlight the contributions small businesses make to the U.S. economy.

8) Among all firms that apply for U.S. patents on new inventions, small businesses receive more patents per employee than larger firms.

Answer: TRUE Explanation: Among all firms that apply for U.S. patents on new inventions, small businesses receive 16 times more patents per employee than larger firms.

Difficulty: 2: Moderate AACSB: Analytical thinking LO: 6.1: Highlight the contributions small businesses make to the U.S. economy.

9) A 12-employee executive recruiting firm making $750,000 per year would be considered a small business.

Answer: TRUE Explanation: Small business refers to a company that is independently owned and operated, is not dominant in its field, and employs fewer than 500 people (although this number varies by industry).

Difficulty: 2: Moderate AACSB: Analytical thinking LO: 6.1: Highlight the contributions small businesses make to the U.S. economy.

10) Lifestyle businesses are small only because they are new and have ambitious plans to grow.

Answer: FALSE Explanation: Small businesses such as a self-employed consultant, a corner florist, or a small e-commerce venture are sometimes called lifestyle businesses because they are built around the personal and financial needs of an individual or a family. In contrast, other firms are small simply because they are young, but they have ambitious plans to grow.

Difficulty: 2: Moderate AACSB: Application of knowledge LO: 6.1: Highlight the contributions small businesses make to the U.S. economy.

11) Define a small business. What is the economic role of small businesses?

Answer: A small business is a company that is independently owned and operated, is not dominant in its field, and employs fewer than 500 people (although this number varies by industry).

Some of the major contributions small firms make are: • They provide jobs.

• They introduce new products.

• They supply the needs of larger organizations. Many small businesses act as distributors, servicing agents, and suppliers to larger corporations and to numerous government agencies.

• They inject a considerable amount of money into the economy. Small businesses pay nearly half the private-sector payroll in the United States and produce half the country's gross domestic product.

• They take risks that larger companies sometimes avoid. Entrepreneurs play a significant role in the economy as risk takers—people willing to try new and unproven ideas.

• They provide specialized goods and services.

Difficulty: 2: Moderate AACSB: Analytical thinking LO: 6.1: Highlight the contributions small businesses make to the U.S. economy.

12) Compare and contrast lifestyle businesses with high-growth ventures.

Answer: The majority of small businesses are modest operations with little growth potential, although some have attractive income potential for the solo business person.

Small businesses such as a self-employed consultant, a corner florist, or a small ecommerce venture are sometimes called lifestyle businesses because they are built around the personal and financial needs of an individual or a family. In contrast, other firms are small simply because they are young, but they have ambitious plans to grow. These highgrowth ventures are usually run by a team rather than by one individual, and they expand rapidly by obtaining a sizable supply of investment capital and introducing new products or services to a large market.

Difficulty: 3: Challenging AACSB: Analytical thinking LO: 6.1: Highlight the contributions small businesses make to the U.S. economy.

13) Compare and contrast small companies with large ones.

Answer: Small companies tend to differ from large ones in a variety of important ways.

First, most small firms have a narrow focus, offering fewer goods and services to fewer market segments. Second, unless they are launched with generous financial backing, which is rare, small businesses have to get by with limited resources. Third, smaller businesses often have more freedom to innovate and move quickly. As they grow larger, companies tend to get slower and more bureaucratic. In contrast, entrepreneurial firms usually find it easier to operate "on the fly," making decisions quickly and reacting to changes in the marketplace.

Difficulty: 3: Challenging AACSB: Analytical thinking LO: 6.1: Highlight the contributions small businesses make to the U.S. economy.

14) The positive, forward-thinking desire to create a profitable, sustainable business is called ________.

A) optimism B) entrepreneurial spirit C) fiscal discipline D) marketing strategy E) business implementation Answer: B Explanation: Entrepreneurial spirit refers to the positive, forward-thinking desire to create profitable, sustainable business enterprises.

Difficulty: 2: Moderate AACSB: Analytical thinking LO: 6.2: List the most common reasons people start their own companies, and identify the common traits of successful entrepreneurs.

15) Which of the following is a quality that a successful entrepreneur is most likely to have?

A) Enjoys working as part of a team B) Views large organizations as direct competition C) High need to be motivated by an external agent D) Always measures success in strictly financial terms E) Passion for a new product or idea Answer: E Explanation: Starting a company is nearly always a difficult, risky, exhausting endeavor that requires significant sacrifice. Why do people do it? Some want more control over their future, some can't find corporate jobs that fit their interests or skill sets, and others are simply tired of working for someone else. Some have new product ideas that they believe in with such passion that they're willing to devote themselves to a start-up enterprise.

Difficulty: 2: Moderate AACSB: Application of knowledge LO: 6.2: List the most common reasons people start their own companies, and identify the common traits of successful entrepreneurs.

16) Intrapreneurship refers to ________.

A) entrepreneurial efforts within a larger organization B) starting a business by buying into a franchise system C) starting a business by buying an existing independent business D) individuals who are responsible for strategic corporate social responsibility activities within an organization E) the processes, customs, policies, laws, and institutions, which have an effect on the way a company is controlled Answer: A Explanation: Intrapreneurship is a term coined by business consultant Gifford Pinchot to designate entrepreneurial efforts within a larger organization.

Difficulty: 2: Moderate AACSB: Application of knowledge LO: 6.2: List the most common reasons people start their own companies, and identify the common traits of successful entrepreneurs.

17) The entrepreneurial spirit found within a larger corporation is referred to as ________.

A) vitality B) intrapreneurship C) innovation D) uniqueness E) niche Answer: B Explanation: The entrepreneur's innovative spirit is so compelling that many large companies and individuals within companies now try to express it through intrapreneurship, a term coined by business consultant Gifford Pinchot to designate entrepreneurial efforts within a larger organization.

Difficulty: 2: Moderate AACSB: Application of knowledge LO: 6.2: List the most common reasons people start their own companies, and identify the common traits of successful entrepreneurs.

18) Why is an innovative spirit harder to have in a larger company?

A) Large firms encourage innovation in the Research and Development departments only.

B) Large firms do not reward innovation.

C) Large firms are more analytical and careful as they mature.

D) Large firms automatically promote employees who share innovative ideas.

E) Large firms only encourage innovation that helps the business respond to environmental changes.

Answer: C Explanation: Innovating within a larger organization is often much easier said than done, because companies tend to become more analytical, more deliberate, more structured, and more careful as they mature.

Difficulty: 3: Challenging AACSB: Analytical thinking LO: 6.2: List the most common reasons people start their own companies, and identify the common traits of successful entrepreneurs.

19) How can a large firm foster an entrepreneurial spirit within the organization?

A) Follow the accepted wisdom of the department or industry.

B) Require all employees to be innovators.

C) Limit the size and funding for the Research and Development department.

D) Reward risky behavior that might lead to innovation.

E) Include team behaviors on performance reviews.

Answer: D Explanation: Injecting the entrepreneurial spirit sometimes means going against the accepted wisdom. In other words, it can be risky behavior that may or may not be rewarded. Companies sometimes need to take special steps to encourage, protect, and reward the entrepreneurial spirit.

Difficulty: 3: Challenging AACSB: Analytical thinking LO: 6.2: List the most common reasons people start their own companies, and identify

the common traits of successful entrepreneurs.

20) Entrepreneurs often have a talent for inspiring others, and are driven by a(n) ________ to succeed.

A) confidence B) spirit C) drive D) open-mindedness E) passion Answer: E Explanation: Passion includes loving what they do and a drive to succeed. Entrepreneurs have a high degree of confidence, relate well with diverse personalities and have a talent for inspiring others.

Difficulty: 2: Moderate AACSB: Analytical thinking LO: 6.2: List the most common reasons people start their own companies, and identify the common traits of successful entrepreneurs.

21) Intrapreneurship is a term to designate entrepreneurial efforts within a larger organization.

Answer: TRUE Explanation: Intrapreneurs are employees who approach their work with the imagination and drive typical of entrepreneurs, can be essential sources of product and process innovation in almost any company Difficulty: 2: Moderate AACSB: Application of knowledge LO: 6.2: List the most common reasons people start their own companies, and identify the common traits of successful entrepreneurs.

22) In large organizations, mechanisms put in place to prevent mistakes can also hamper innovative thinking by restricting people to tried-and-true methods.

Answer: TRUE Explanation: In large organizations, mechanisms put in place to prevent mistakes can also hamper innovative thinking by restricting people to tried-and-true methods.

Difficulty: 2: Moderate AACSB: Application of knowledge LO: 6.2: List the most common reasons people start their own companies, and identify the common traits of successful entrepreneurs.

23) Describe the qualities of a successful entrepreneur.

Answer: Successful entrepreneurs tend to love what they do and are driven by a passion to succeed at it. Moreover, they are disciplined and willing to work hard, they are confident and optimistic, and they like to control their own destiny. Moreover, they relate well to others and have the ability to inspire others, they are curious, they learn from their mistakes without letting failure drag them down, they are adaptable and tuned into their environments, and they are moderate but careful risk takers. The entrepreneur's innovative spirit is so compelling that many large companies and individuals within companies now try to express it through intrapreneurship, a term coined to designate entrepreneurial efforts within a larger organization.

Difficulty: 3: Challenging AACSB: Analytical thinking LO: 6.2: List the most common reasons people start their own companies, and identify the common traits of successful entrepreneurs.

24) The summary section of a business plan should include a(n) ________ which defines how it will generate revenue and produce a profit.

A) business objective statement B) mission statement C) business model D) executive summary E) entrepreneurial spirit Answer: C Explanation: The summary section of a business plan contains one or two paragraphs that summarize a company's business concept: particularly the business model, which defines how the company will generate revenue and produce a profit.

Difficulty: 2: Moderate AACSB: Application of knowledge LO: 6.3: Explain the importance of planning a new business, and outline the key elements in a business plan.

25) Which of the following is an advantage of buying into a franchise system?

A) It comes with an established business system.

B) It comes with a workforce.

C) It requires very little risk.

D) It allows the owner to have a very high level of freedom.

E) It requires the owner to establish brand recognition from scratch.

Answer: A Explanation: Buying a franchise combines many of the benefits of independent business ownership with the support that comes with being part of a larger organization. One of the key advantages of buying a franchise is that it comes with an established business system.

Difficulty: 2: Moderate AACSB: Application of knowledge LO: 6.3: Explain the importance of planning a new business, and outline the key elements in a business plan.

26) A business plan is a written document that summarizes the ________.

A) cost benefit analysis of the business B) sources of financing for the business C) proposed business venture, goals, and plans for achieving those goals D) personal financial statements of the business owners E) organization's exposure to internal and external threats Answer: C Explanation: A business plan summarizes a proposed business venture, communicates the company's goals, highlights how management intends to achieve those goals, and shows how customers will benefit from the company's goods or services.

Difficulty: 2: Moderate AACSB: Application of knowledge LO: 6.3: Explain the importance of planning a new business, and outline the key elements in a business plan.

27) Preparing a business plan serves which of the following functions?

A) It assists the owners in preparing publicity releases for the business.

B) It helps persuade lenders and investors to finance the business.

C) It identifies sources of potential employees for the business.

D) It fulfills the requirements set forth by the Small Business Administration.

E) It meets licensing regulations established by the local government.

Answer: B Explanation: Preparing a business plan serves important functions. It helps persuade lenders and investors to finance your business if outside money is required.

Difficulty: 2: Moderate AACSB: Application of knowledge LO: 6.3: Explain the importance of planning a new business, and outline the key elements in a business plan.

28) A business plan indicates that investors will be able to sell their investment through a public stock offering, or participate in a buyback of the investors' interest. This is an example of which of the following elements of a business plan?

A) Start-up schedule B) Operations plan C) Exit strategy D) Marketing strategy E) Target market Answer: C Explanation: An exit strategy explains how investors will be able to cash out or sell their investment, such as through a public stock offering, sale of the company, or a buyback of the investors' interest.

Difficulty: 2: Moderate AACSB: Application of knowledge LO: 6.3: Explain the importance of planning a new business, and outline the key elements in a business plan.

29) Which of the following requires less work and less risk because there is an established customer base?

A) Starting a business from the ground up B) Being a joint partner in a business C) Merging your start up with an existing startup in the same field D) Buying an existing business E) Buying a franchise Answer: D Explanation: Compared to starting a new business, buying an existing business can involve less work and less risk, provided you check out the company carefully. When you buy a healthy business, you generally purchase an established customer base, functioning business systems, proven products or services, and a known location.

Difficulty: 2: Moderate AACSB: Application of knowledge LO: 6.3: Explain the importance of planning a new business, and outline the key elements in a business plan.

30) Which of the following combines the benefits of independent business ownership with the support of a large organization?

A) Starting a business from the ground up B) Being a joint partner in a business C) Merging your start up with an existing startup in the same field D) Buying an existing business E) Buying a franchise Answer: E Explanation: The option of buying a franchise combines many of the benefits of independent business ownership with the support that comes with being part of a larger organization.

Difficulty: 2: Moderate AACSB: Application of knowledge LO: 6.3: Explain the importance of planning a new business, and outline the key elements in a business plan.

31) Which of the following should indicate the business plan for a new company and be compelling enough to entice an investor into reading more?

A) Summary B) Mission and objectives C) Company overview D) Products or services E) Marketing strategy Answer: A Explanation: In one or two paragraphs, summarize your business concept, particularly the business model, which defines how the company will generate revenue and produce a profit. The summary must be compelling, catching the investor's attention and giving him or her reasons to keep reading.

Difficulty: 2: Moderate AACSB: Application of knowledge LO: 6.3: Explain the importance of planning a new business, and outline the key elements in a business plan.

32) Which of the following should be developed to present a concise overview of a business plan to investors?

A) Opportunity statement B) Executive summary C) Operations plan D) Financial projects and requirements E) Marketing strategy Answer: B Explanation: Veteran Silicon Valley entrepreneur and investor Guy Kawasaki advises entrepreneurs to create a concise executive summary of their business plan to use when presenting their ideas to investors for the first time.

Difficulty: 2: Moderate AACSB: Application of knowledge LO: 6.3: Explain the importance of planning a new business, and outline the key elements in a business plan.

33) Data that will persuade an investor that you understand the strengths and weaknesses of your competitors can be found in which section of the business plan?

A) Products or services B) Design and development plans C) Target market D) Business model E) Management and key personnel Answer: C Explanation: The target market section of the business plan should provide data that will persuade an investor that you understand your target market. Be sure to identify the strengths and weaknesses of your competitors.

Difficulty: 2: Moderate AACSB: Application of knowledge LO: 6.3: Explain the importance of planning a new business, and outline the key elements in a business plan.

34) In which section of the business plan do you explain your business and what you wish to accomplish?

A) Company overview B) Marketing strategy C) Operations plan D) Mission and objective E) Management and key personnel Answer: D Explanation: The mission and objectives section of the business plan provides the direction and goals for the business.

Difficulty: 2: Moderate AACSB: Application of knowledge LO: 6.3: Explain the importance of planning a new business, and outline the key elements in a business plan.

35) Compared to starting a new business, buying an existing business can involve more work and more risk.

Answer: FALSE Explanation: Compared to starting a new business, buying an existing business can involve less work and less risk-provided, of course, that you check out the company carefully.

Difficulty: 2: Moderate AACSB: Application of knowledge LO: 6.3: Explain the importance of planning a new business, and outline the key elements in a business plan.

36) Financing a business you are starting from scratch is often easier than financing an existing business.

Answer: FALSE Explanation: Financing an existing business is often much easier because lenders are reassured by the company's history, existing assets, and customer base.

Difficulty: 2: Moderate AACSB: Application of knowledge LO: 6.3: Explain the importance of planning a new business, and outline the key elements in a business plan.

37) A business plan summarizes the proposed business venture, goals, and plans for achieving those goals.

Answer: TRUE Explanation: A business plan summarizes the proposed business venture, goals, and plans for achieving those goals.

Difficulty: 2: Moderate AACSB: Application of knowledge LO: 6.3: Explain the importance of planning a new business, and outline the key elements in a business plan.

38) The start-up schedule section in a business plan would forecast the income, expenses, and cash flow for the first three years of business.

Answer: FALSE Explanation: The start-up schedule forecasts development of the company in terms of completion dates for major aspects of the business plan.

Difficulty: 2: Moderate AACSB: Application of knowledge LO: 6.3: Explain the importance of planning a new business, and outline the key elements in a business plan.

39) In the business plan, the exit strategy explains how and when the owner will close her business.

Answer: FALSE Explanation: An exit strategy explains how investors will be able to cash out or sell their investment, such as through a public stock offering, sale of the company, or a buyback of the investors' interest.

Difficulty: 2: Moderate AACSB: Application of knowledge LO: 6.3: Explain the importance of planning a new business, and outline the key elements in a business plan.

40) Compare and contrast creating a new, independent business with buying into a franchise system.

Answer: Creating a new, independent business usually has very limited possibilities for borrowing start-up capital or getting investors. It gives a lot of freedom and flexibility to the owner; and must be designed and created from scratch, which can be time consuming and expensive. Support networks, workforce, customer base, brand recognition, and sales must be built from scratch.

Buying a franchise combines many of the benefits of independent business ownership with the support that comes with being part of a larger organization. Many franchisors do not allow franchisees to buy a franchise with borrowed funds, so they must have their own capital. Most franchisors require rigid adherence to company policies and processes, and the franchisee's freedom and independence is low. A franchise comes with an established business system; workers must be hired and trained, but a franchisor usually provides training or training support. Additionally, the customer base and repeat sales must be cultivated. However, one of the major advantages of a franchise is established brand recognition.

Difficulty: 3: Challenging AACSB: Analytical thinking LO: 6.3: Explain the importance of planning a new business, and outline the key elements in a business plan.

41) Discuss the information typically included in the summary section of a business plan written to attract outside investors.

Answer: The summary section should give an overview of your business concept, particularly the business model, so investors can see how the company will generate revenue and produce a profit. The summary must be compelling, catching the investor's attention and giving him or her reasons to keep reading. Describe your product or service and its market potential. Highlight some things about your company and its leaders that will distinguish your firm from the competition. Summarize your financial projections and indicate how much money you will need from investors or lenders and where it will be spent.

Difficulty: 3: Challenging AACSB: Analytical thinking LO: 6.3: Explain the importance of planning a new business, and outline the key elements in a business plan.

42) How is a business plan different from an executive summary?

Answer: A business plan summarizes a proposed business venture, communicates the company's goals, highlights how management intends to achieve those goals, and shows how customers will benefit from the company's goods or services. An effective business plan should include your mission and objectives, company overview, management, target market, marketing strategy, design and development plans, operations plan, start-up schedule, major risk factors, and financial projections and requirements.

An executive summary is a concise version of the business plan. Investor Guy Kawasaki advises entrepreneurs to create an executive summary of their business plan to use when presenting their ideas to investors for the first time. Entrepreneurs often have as little as 20 minutes to make these pitches, so a compelling presentation backed up by an executive summary, no longer than 20 pages, is ideal. The most important part of the entire package is "the grab," a compelling one-or two-sentence statement that gets an investor's attention. If an investor is intrigued, he or she can then read the executive summary to get a better sense of the opportunity and then review the full business plan before making a decision to provide funds.

Difficulty: 3: Challenging AACSB: Analytical thinking LO: 6.3: Explain the importance of planning a new business, and outline the key elements in a business plan.

43) Briefly describe the purpose of a business plan and its importance in starting a business.

Answer: A business plan summarizes the proposed business venture, its goals, and its plans for achieving those goals. It serves three important functions: 1) it guides company operations and outlines the strategy of the business; 2) it helps persuade lenders and investors to finance the business; 3) it provides a "reality check" in the event that the business idea is not feasible.

Difficulty: 1: Easy AACSB: Analytical thinking LO: 6.3: Explain the importance of planning a new business, and outline the key elements in a business plan.

44) At the federal level, small businesses can apply for loans backed by the ________.

A) Center for Emerging Technologies B) U.S. Chamber of Commerce C) Service Corps of Retired Executives D) Venture Capitalists Association (VCA) E) Small Business Administration (SBA) Answer: E Explanation: At the federal level, small businesses can apply for loans backed by the SBA, get management and financing advice, and learn about selling to the federal government.

Difficulty: 1: Easy AACSB: Application of knowledge LO: 6.4: Identify the major causes of business failures, explain what pivoting means, and identify sources of advice and support for business owners.

45) The Service Corps of Retired Executives (SCORE) is a resource partner of the ________.

A) Small Business Online Community B) Minority Business Development Agency C) Small Business Administration D) United States Chamber of Commerce E) Center for Emerging Technologies Answer: C Explanation: Some of the best advice available to small businesses is delivered by thousands of volunteers from the Service Corps of Retired Executives (SCORE), a resource partner of the SBA. Difficulty: 1: Easy AACSB: Application of knowledge LO: 6.4: Identify the major causes of business failures, explain what pivoting means, and identify sources of advice and support for business owners.

46) A(n) ________ is a form of "group mentoring" in which you assemble a team of people with subject-area expertise or vital contacts to help review plans and decisions.

A) advisory board B) business incubator C) venture capitalist D) angel investor E) micro lender Answer: A Explanation: An advisory board is a form of "group mentoring" in which you assemble a team of people with subject-area expertise or vital contacts to help review plans and decisions.

Difficulty: 2: Moderate AACSB: Application of knowledge LO: 6.4: Identify the major causes of business failures, explain what pivoting means, and identify sources of advice and support for business owners.

47) An advisory board differs from a corporate board of directors, because ________.

A) an advisory board has legal responsibilities B) new members can be added regardless of strengths and weaknesses C) you usually require high amounts of financial compensation to consult an advisory board D) members of an advisory board lack subject-area expertise E) advisors are required to obtain certification from SBA Answer: B Explanation: Unlike a corporate board of directors, an advisory board does not have legal responsibilities, and you don't have to incorporate to establish an advisory board.

Difficulty: 2: Moderate AACSB: Application of knowledge LO: 6.4: Identify the major causes of business failures, explain what pivoting means, and identify sources of advice and support for business owners.

48) ________ help an entrepreneurial team develop an idea into a workable business model.

A) Seed centers B) Business incubators C) Microlenders D) Angel investors E) Intrapreneurs Answer: B Explanation: In general, business incubators help an entrepreneurial team develop an idea into a workable business model and establish a company framework for commercializing products. Start-ups often stay in incubators for indefinite periods of time as they develop their business models.

Difficulty: 2: Moderate AACSB: Application of knowledge LO: 6.4: Identify the major causes of business failures, explain what pivoting means, and identify sources of advice and support for business owners.

49) Entrepreneurs who adapt their product offerings based on opportunities to be more successful are making a move known as ________.

A) pivoting B) crowdfunding C) deep learning D) incubating E) accelerating Answer: A Explanation: Smart entrepreneurs monitor how their initial product offerings are received in the market and adapt if they see opportunities to be more successful, a move known as pivoting. This can range from adjusting the feature set of an individual product all the way up to taking the company in a completely new direction, and some companies pivot multiple times until they find the right product-market fit.

Difficulty: 2: Moderate AACSB: Application of knowledge LO: 6.4: Identify the major causes of business failures, explain what pivoting means, and identify sources of advice and support for business owners.

50) Where can small business partners find help in making an existing company more attractive to investors?

A) Advisory boards B) Business incubators C) Government agencies D) Business accelerators E) Business networks Answer: B Explanation: Business accelerators work with existing companies with the primary goal of making them more attractive to investors. Accelerators usually take a small ownership share in the company in exchange for providing their services, and most provide a small amount of seed money to help the company through this stage.

Difficulty: 2: Moderate AACSB: Application of knowledge LO: 6.4: Identify the major causes of business failures, explain what pivoting means, and identify sources of advice and support for business owners.

51) Motivational collapse occurs when the would-be entrepreneur is burned out before the business becomes self-sustaining.

Answer: TRUE Explanation: Motivational collapse occurs when the would-be entrepreneur gets burned out before the business becomes self-sustaining.

Difficulty: 2: Moderate AACSB: Application of knowledge LO: 6.4: Identify the major causes of business failures, explain what pivoting means, and identify sources of advice and support for business owners.

52) SCORE is a government organization designed to offer advice to entrepreneurs for a low fee.

Answer: FALSE Explanation: Some of the best advice available to small businesses is delivered by thousands of volunteers from the Service Corps of Retired Executives (SCORE), a resource partner of the SBA. These experienced business professionals offer free advice and one-to-one counseling to entrepreneurs.

Difficulty: 2: Moderate AACSB: Application of knowledge LO: 6.4: Identify the major causes of business failures, explain what pivoting means, and identify sources of advice and support for business owners.

53) An advisory board is a form of "group mentoring" in which you assemble a team of people with subject-area expertise or vital contacts to help review plans and decisions.

Answer: TRUE Explanation: An advisory board is a form of "group mentoring" in which you assemble a team of people with subject-area expertise or vital contacts to help review plans and decisions. Unlike a corporate board of directors, an advisory board does not have legal responsibilities, and you don't have to incorporate to establish an advisory board.

Difficulty: 2: Moderate AACSB: Application of knowledge LO: 6.4: Identify the major causes of business failures, explain what pivoting means, and identify sources of advice and support for business owners.

54) Unlike a corporate board of directors, an advisory board has legal responsibilities.

Answer: FALSE Explanation: Unlike a corporate board of directors, an advisory board does not have legal responsibilities, and you don't have to incorporate to establish an advisory board.

Difficulty: 2: Moderate AACSB: Application of knowledge LO: 6.4: Identify the major causes of business failures, explain what pivoting means, and identify sources of advice and support for business owners.

55) Facilities that house small businesses and provide support services during the company's early growth phases are called angel investors.

Answer: FALSE Explanation: Facilities that house small businesses and provide support services during the company's early growth phases are known as business incubators.

Difficulty: 2: Moderate AACSB: Application of knowledge LO: 6.4: Identify the major causes of business failures, explain what pivoting means, and identify sources of advice and support for business owners.

56) Discuss the role of mentors and advisory boards as sources of advice and support for entrepreneurs.

Answer: Many entrepreneurs and business owners take advantage of individual mentors and advisory boards. Mentoring can happen through both formal programs such as SCORE and informal relationships developed in person or online. In either case, the advice of a mentor who has been down the road before can be priceless. An advisory board is a form of "group mentoring" in which you assemble a team of people with subject-area expertise or vital contacts to help review plans and decisions.

Difficulty: 3: Challenging AACSB: Analytical thinking LO: 6.4: Identify the major causes of business failures, explain what pivoting means, and identify sources of advice and support for business owners.

57) Compare and contrast business incubators with networks and support groups as sources of advice and support for entrepreneurs.

Answer: Many cities across the country have local networks of entrepreneurs. Some entrepreneurs meet regularly in small groups to analyze each other's progress month by month. Having to state your plans and decisions to peers and being accountable for results can be an invaluable reality check. Some groups focus on helping entrepreneurs hone their presentations to potential investors. In addition to local in-person groups, social networking technology gives entrepreneurs an endless array of opportunities to connect online.

Business incubators are centers that provide "newborn" businesses with various combinations of advice, financial support, and access to industry insiders and connections, facilities, and other services a company needs to get started. Some incubators are not-for-profit organizations affiliated with the economic development agencies of local or state governments or universities, some are for-profit enterprises, some companies have internal incubators to encourage new ventures, and some are run by venture capitalists.

Difficulty: 3: Challenging AACSB: Analytical thinking LO: 6.4: Identify the major causes of business failures, explain what pivoting means, and identify sources of advice and support for business owners.

58) Money used or needed to set up a new business is ________.

A) an incubator fund B) seed money C) an initial public offering D) public financing E) an advisory board loan Answer: B Explanation: The first infusion of capital used to get a business started is called seed money.

Difficulty: 2: Moderate AACSB: Application of knowledge LO: 6.5: Discuss the principal sources of funding for small businesses.

59) ________ is a combination of private and public financing, in which an entrepreneur invites people to fund a share of a new business venture or a new product.

A) Crowdfunding B) Microlending C) Angel investment D) Business incubator E) Threshold pledge system Answer: A Explanation: Crowdfunding is a combination of private and public financing, in which an entrepreneur invites people to fund a share of a new business venture or a new product.

Difficulty: 2: Moderate AACSB: Application of knowledge LO: 6.5: Discuss the principal sources of funding for small businesses.

60) ________ are organizations, often not-for-profit, that lend smaller amounts of money to business owners who might not qualify for conventional bank loans.

A) Angel groups B) Venture capitalists C) Angel investors D) Microlenders E) Franchises Answer: D Explanation: Many microlenders focus on local needs and support entrepreneurs who don't qualify for standard bank loans. Microlenders are often not-for-profit.

Difficulty: 2: Moderate AACSB: Application of knowledge LO: 6.5: Discuss the principal sources of funding for small businesses.

61) Investors who provide money to ventures that have a high growth potential and need large amounts of capital are called ________.

A) angel investors B) microlenders C) venture capitalists D) advisory boards E) business incubators Answer: C Explanation: Venture capitalists (VCs) are investment specialists who raise pools of capital from large private and institutional sources (such as pension funds) to finance ventures that have high growth potential and need large amounts of capital.

Difficulty: 2: Moderate AACSB: Application of knowledge LO: 6.5: Discuss the principal sources of funding for small businesses.

62) Private individuals who put their own money into start-ups, with the goal of eventually selling their interest for a profit, are called ________.

A) angel investors B) microlenders C) venture capitalists D) advisory boards E) business incubators Answer: A Explanation: Angel investors are private individuals who invest money in start-ups, usually earlier in the life of a business and in smaller amounts than VCs are willing to invest.

Difficulty: 2: Moderate AACSB: Application of knowledge LO: 6.5: Discuss the principal sources of funding for small businesses.

63) Funding a new business with credit cards or a personal line of credit ________.

A) is the least expensive form of financing B) is subject to a lot of bureaucratic procedures C) involves minimum amount of risk and a high level of reward D) is used by very few entrepreneurs E) is a widely available form of financing, but has a high level of risk Answer: E Explanation: Credit cards are widely available and sometimes the only source of funding an entrepreneur has. While funding a business with credit cards or a personal line of credit might be the only option for many people, it can be a risky approach if the business doesn't generate enough revenue to make the payments.

Difficulty: 2: Moderate AACSB: Application of knowledge LO: 6.5: Discuss the principal sources of funding for small businesses.

64) Which of the following is a major difference between banks and venture capitalists as categories of private financing?

A) Unlike banks, which recruit investment specialists, venture capitalists are private investors without any specialized investment skills.

B) Unlike banks, which provide investment for high-risk businesses, venture capitalists won't lend money to a start-up that hasn't established a successful record of accomplishment.

C) Unlike banks, which don't require collateral, venture capitalists provide investments only when an entrepreneur puts up marketable collateral.

D) Unlike banks, which only provide money, venture capitalists also provide management expertise.

E) Unlike banks, which are extremely focused and selective in giving loans, venture capitalists are less focused and provide loans to a large number of start-ups.

Answer: D Explanation: Unlike banks or most other financing sources, venture capitalists do more than simply provide money. They also provide management expertise in return for a sizable ownership interest in the business.

Difficulty: 2: Moderate AACSB: Application of knowledge LO: 6.5: Discuss the principal sources of funding for small businesses.

65) Unlike venture capitalists, angel investors tend to ________.

A) invest larger amounts of money in start-ups B) remain involved with the company for a very short time C) focus more on local opportunities D) be investment specialists with an extremely wide but selective approach E) invest mostly in high-potential areas Answer: C Explanation: Angel investing tends to have a more local focus than venture capitalism, so you can search for angels through local business contacts and organizations.

Difficulty: 2: Moderate AACSB: Application of knowledge LO: 6.5: Discuss the principal sources of funding for small businesses.

66) The institution that actually provides the money for an SBA-backed loan is the ________.

A) venture capitalist B) bank C) SBIC D) business incubator E) IPO Answer: B Explanation: To get an SBA-backed loan, you apply to a regular bank or credit union, which actually provides the money.

Difficulty: 2: Moderate AACSB: Application of knowledge LO: 6.5: Discuss the principal sources of funding for small businesses.

67) A corporation's first offering of shares of stock to the public is called ________.

A) a public options proposal (POP) B) a secondary stock offering (SSO) C) a secondary equity offering (SEO) D) an initial public offering (IPO) E) an inaugural funding foray (IFF) Answer: D Explanation: A corporation's first offering of shares to the public is called initial public offering (IPO).

Difficulty: 2: Moderate AACSB: Application of knowledge LO: 6.5: Discuss the principal sources of funding for small businesses.

68) The first infusion of capital that a business receives is called seed money.

Answer: TRUE Explanation: Seed money refers to the first infusion of capital used to get a business started.

Difficulty: 2: Moderate AACSB: Application of knowledge LO: 6.5: Discuss the principal sources of funding for small businesses.

69) Angel investors provide money to finance new businesses in exchange for a high rate of interest.

Answer: FALSE Explanation: Angel investors are private individuals who invest money in start-ups, usually earlier in the life of a business and in smaller amounts than VCs are willing to invest or banks are willing to lend.

Difficulty: 2: Moderate AACSB: Application of knowledge LO: 6.5: Discuss the principal sources of funding for small businesses.

70) When companies go public, they put out an IPO, or initial public offering.

Answer: TRUE Explanation: The shares offered for sale at this point are the company's initial public offering (IPO). Going public is an effective method of raising needed capital.

Difficulty: 2: Moderate AACSB: Application of knowledge LO: 6.5: Discuss the principal sources of funding for small businesses.

71) How does using banks and microlenders as sources of financing differ from seeking funds by going public?

Answer: Bank loans are one of the most important sources of financing for small businesses, but there's an important catch: In most cases, banks won't lend money to a start-up that has not established a successful track record. In response to the needs of entrepreneurs who don't qualify for standard bank loans or who doesn't need the amount of a regular loan, hundreds of organizations now serve as microlenders, offering loans up to $35,000 or so. On the other hand, companies with solid growth potential may also seek funding from the public at large by going public via an initial public offering (IPO).

Going public is an effective method of raising needed capital, but it can be an expensive and time-consuming process with no guarantee of raising the amount of money needed.

Difficulty: 3: Challenging AACSB: Analytical thinking LO: 6.5: Discuss the principal sources of funding for small businesses.

72) Compare and contrast venture capitalists with angel investors.

Answer: Venture capitalists (VCs) are investors who provide money to finance new businesses or turnarounds in exchange for a portion of ownership, with the objective of reselling the business at a profit. VC funding provides a crucial stimulus to the economy by making risky, early-stage investments in firms that are likely to become major employers if their products succeed in the marketplace. Given the amounts of money involved and the expectations of sizable returns, VCs usually invest in high-potential areas such as information technology, energy, biotechnology, and digital media.

Start-up companies that can't attract VC investment (perhaps because they are too early in their product development) often look for angel investors, private individuals who put their own money into start-ups, with the goal of eventually selling their interest for a profit. These individuals are willing to invest smaller amounts than VCs and often stay involved with the company for a longer period of time. Many of these investors join angel networks or angel groups that invest together in chosen companies. Angel investing tends to have a more local focus than venture capitalism.

Difficulty: 3: Challenging AACSB: Analytical thinking LO: 6.5: Discuss the principal sources of funding for small businesses.

73) A company that licenses elements of its business system to other companies is called a(n) ________.

A) franchisor B) venture capitalist C) angel investor D) intrapreneur E) business mentor Answer: A Explanation: A company that licenses elements of its business system to other companies is called a franchisor.

Difficulty: 2: Moderate AACSB: Application of knowledge LO: 6.6: Explain the advantages and disadvantages of franchising.

74) A ________ is a legally binding contract that defines the relationship between a franchisee and a franchisor.

A) franchising prospectus B) franchise agreement C) business agreement D) franchisor's declaration E) contractual understanding Answer: B Explanation: A franchise agreement is a legally binding contract that defines the relationship between a franchisee and a franchisor.

Difficulty: 2: Moderate AACSB: Application of knowledge LO: 6.6: Explain the advantages and disadvantages of franchising.

75) A ________ gives a franchisee the right to sell goods and services as part of a franchisor's distribution system A) product-distribution franchise B) business-format franchise C) manufacturing franchise D) licensed franchise E) utilitarian franchise Answer: A Explanation: A product-distribution franchise gives the franchisee the right to sell products as part of a franchisor's distribution system. New cars, gasoline, beverages, and home appliances are some of the common products that are often marketed via this model.

Difficulty: 2: Moderate AACSB: Application of knowledge LO: 6.6: Explain the advantages and disadvantages of franchising.

76) Well-known examples of ________ include Taco Bell, Pizza Hut, The UPS Store, and Curves fitness centers.

A) product franchises B) business-format franchises C) manufacturing franchises D) global franchises E) discount franchises Answer: B Explanation: A business-format franchise gives you the right to open a business using a franchisor's name and format for doing business. This format includes many well-known chains, including Taco Bell, Pizza Hut, The UPS Store, and Curves fitness centers.

Difficulty: 2: Moderate AACSB: Application of knowledge LO: 6.6: Explain the advantages and disadvantages of franchising.

77) What is the name of the small business owner who contracts to buy a franchise?

A) Franchisor B) Entrepreneur C) Franchisee D) Angel investor E) Intrapreneur Answer: C Explanation: The franchisee (the small-business owner who contracts to sell the goods or services) pays the franchisor (the supplier) an initial start-up fee, then monthly royalties based on sales volume.

Difficulty: 2: Moderate AACSB: Application of knowledge LO: 6.6: Explain the advantages and disadvantages of franchising.

78) Which of the following gives you the right to sell trademarked goods purchased from a franchisor?

A) Manufacturing franchise B) Global franchise C) Discount franchise D) Product-distribution franchise E) Business-format franchise Answer: D Explanation: A product franchise gives you the right to sell trademarked goods, which are purchased from the franchisor and resold. Car dealers and gasoline stations fall into this category.

Difficulty: 2: Moderate AACSB: Application of knowledge LO: 6.6: Explain the advantages and disadvantages of franchising.

79) What is the advantage to opening a franchise instead of starting a business from the ground up?

A) The business model is extremely flexible.

B) Financing is readily available.

C) You have leverage when negotiating for the purchase of goods and services.

D) There is strong personal control at every level of the business.

E) You can work for yourself and have the advantages of being a part of an established organization.

Answer: E Explanation: Franchising is a popular option for many people because it combines at least some of the freedom of working for yourself with many of the advantages of being part of a larger, established organization.

Difficulty: 2: Moderate AACSB: Analytical thinking LO: 6.6: Explain the advantages and disadvantages of franchising.

80) Which of the following is a disadvantage for those with the entrepreneurial spirit when considering a franchise?

A) The lack of control over many decisions B) The ability to build a specialized customer base C) The lack of control over the quality of the goods and services provided D) Minimal short- and long-term support from the franchisor E) Conformity to site specifications during the start-up phase of the business Answer: A Explanation: Perhaps the biggest disadvantage is the relative lack of control, at several levels. When you buy into a franchise system, you typically agree to follow the business format, and franchisors can prescribe virtually every aspect of the business, from the color of the walls to the products you can carry.

Difficulty: 2: Moderate AACSB: Analytical thinking LO: 6.6: Explain the advantages and disadvantages of franchising.

81) In addition to receiving funding from the initial cost of a franchise purchase, how does a franchisor make money?

A) A percentage of after-tax profit B) Royalties on a percentage of sales revenue C) Increased product sales D) Advertising and promotional efforts from third parties E) Interest payments on start-up loans Answer: B Explanation: In addition, buying a franchise involves both initial costs associated with buying into a franchise system and regular payments after that, based on a percentage of sales revenue.

Difficulty: 2: Moderate AACSB: Analytical thinking LO: 6.6: Explain the advantages and disadvantages of franchising.

82) The one-time payment a franchisee gives to the franchisor for access to systems, sitelocation studies, market research and other aspects of opening a franchise is called ________.

A) the franchise fee B) startup costs C) royal payments D) initial investment E) distribution costs Answer: A Explanation: The initial costs of launching a franchise come in two parts. The first is a one-time payment called the franchise fee, which gives the franchisee access to the system along with a variety of start-up services that can include site-location studies, market research, training, initial advertising, and guidance on building or preparing a facility that meets the franchisor's standards.

Difficulty: 2: Moderate AACSB: Analytical thinking LO: 6.6: Explain the advantages and disadvantages of franchising.

83) Who is responsible for ensuring franchisors disclose accurate relevant information to potential franchisees?

A) SCORE B) U.S. Chamber of Commerce C) Federal Trade Commission (FTC) D) Minority Business Development Agency E) Small Business Administration (SBA) Answer: C Explanation: The Federal Trade Commission (FTC) requires franchisors to disclose extensive information about their operations to prospective franchisees, including background information on the company and its executives, the company's financial status, the history of any litigation involving other franchisees, initial and ongoing costs, all restrictions put on franchisees, the availability and cost of training, procedures for ending the franchise agreement, earnings projections, and the names of current and former franchise owners.

Difficulty: 2: Moderate AACSB: Analytical thinking LO: 6.6: Explain the advantages and disadvantages of franchising.

84) A product franchise gives its franchisees the right to resell its trademarked goods that must be purchased from the franchisor.

Answer: TRUE Explanation: Franchise is a business arrangement in which one company (the franchisee) obtains the rights to sell the products and use various elements of a business system of another company (the franchisor).

Difficulty: 2: Moderate AACSB: Application of knowledge LO: 6.6: Explain the advantages and disadvantages of franchising.

85) If you invest in a successful franchise, you know you are getting a viable business model, one that has worked many times before.

Answer: TRUE Explanation: If you invest in a successful franchise, you know you are getting a viable business model, one that has worked many times before. If the franchise system is well managed, you get the added benefit of instant name recognition, national advertising programs, training, standardized quality of goods and services, a support network of other franchisees, financial assistance (in some systems), and a proven formula for success.

Difficulty: 2: Moderate AACSB: Application of knowledge LO: 6.6: Explain the advantages and disadvantages of franchising.

86) If customer demand for the goods or services sold by your franchise changes, you have the ability to quickly adapt your business in response.

Answer: FALSE Explanation: If the customer-demand for the goods and services you sell declines, a franchisor doesn't have the option of independently changing your business in response.

Difficulty: 2: Moderate AACSB: Application of knowledge LO: 6.6: Explain the advantages and disadvantages of franchising.

87) From the perspective of the franchisee, list three advantages of buying a franchise.

Answer: From the perspective of the franchisee, advantages of buying a franchise are: 1) freedom of being a business owner while having the support of a larger, established organization; 2) a viable business model that has worked many times before; 3) instant name recognition; 4) standardized quality of goods and services; 5) national advertising; 6) services such as site-location studies, market research, training and technical assistance; 7) assistance in financing the initial investment.

Difficulty: 3: Challenging AACSB: Analytical thinking LO: 6.6: Explain the advantages and disadvantages of franchising.

88) Discuss the four disadvantages of buying a franchise.

Answer: From the perspective of the franchisee, disadvantages of buying a franchise are: 1) you must follow a prescribed business format that covers every aspect of doing business; 2) you have little ability to change business models if the demand for goods or services declines; 3) there are potentially high initial costs and royalties; 4) you have little control over decisions the franchisor makes that affect the entire system.

Difficulty: 3: Challenging AACSB: Analytical thinking LO: 6.6: Explain the advantages and disadvantages of franchising.

89) Which of the following best describes the general capability of a computer to learn?

A) Artificial intelligence B) Machine learning C) Deep learning D) Neural networking E) Inflated expectations Answer: B Explanation: For any artificial intelligence (AI) system to possess intelligence, it needs to be able to learn, which can include such scenarios as understanding text, converting spoken language to written text, and recognizing the content of photographs and videos.

Machine learning refers to the general capability of computers to learn.

Difficulty: 2: Moderate AACSB: Information technology LO: 6.7: Define machine learning and deep learning, and describe their importance to contemporary business.

90) Machine learning refers to ________.

A) the general capability of computers to learn B) intelligent systems that learn by being trained C) a machine that uses layers of artificial neural networks to mimic learning D) software that learns how to process data sets from neurons in a network E) computers that teach themselves how to keep learning Answer: A Explanation: Don't be thrown off by the "machine" part; it always refers to software running on a computer or other digital device, although that computer might be embedded in a machine such as a robot.

Difficulty: 2: Moderate AACSB: Information technology LO: 6.7: Define machine learning and deep learning, and describe their importance to contemporary business.

91) ________ learn by being trained through extensive exposure to vast numbers of images, text fragments, handwriting samples, recordings of human speech, email messages, and other types of data processed by the system.

A) Big data systems B) Artificial neural networks C) Intelligent systems D) Deep learning tools E) Dynamic neurons Answer: C Explanation: Intelligent systems learn by being trained through extensive exposure to vast numbers of images, text fragments, handwriting samples, recordings of human speech, email messages, or whatever types of data the system is designed to process.

Difficulty: 2: Moderate AACSB: Information technology LO: 6.7: Define machine learning and deep learning, and describe their importance to contemporary business.

92) What does deep learning use to mimic the function of neurons and neural networks in

the brain?

A) Dynamic neurons B) Process values C) Image recognition D) Artificial neural networks E) Intrusion threat analysis Answer: D Explanation: Deep learning is a specific type of machine learning that uses layers of artificial neural networks to mimic the function of neurons and neural networks in the brain.

Difficulty: 2: Moderate AACSB: Information technology LO: 6.7: Define machine learning and deep learning, and describe their importance to contemporary business.

93) For deep learning to take place, neurons in the network need to know ________.

A) when to process values received from other neurons B) which neurons to apply to the specific learning function being used C) the size of the data set to be analyzed D) the number of training passes required to complete the learning function E) how to process values received from other neurons Answer: E Explanation: For this process to work, all the neurons in the network need to know how to process the values they receive from other neurons, and they gain this capability by being trained on massive data sets.

Difficulty: 3: Challenging AACSB: Information technology LO: 6.7: Define machine learning and deep learning, and describe their importance to contemporary business.

94) For deep learning to occur, successive layers of neural networks ________.

A) must be trained to figure out one specific piece of the puzzle at a time B) must prevent themselves from adapting to new data inputs C) must be explainable by the creators of the system(s) D) are given numerical values that reflect the accuracy of the learning outcome E) eliminate dynamic results based on inputs received by the system Answer: A Explanation: Now for the "deep" part of deep learning. These systems solve problems using successive layers of neural networks, with each layer trained to figure out one piece of the puzzle.

Difficulty: 2: Moderate AACSB: Information technology LO: 6.7: Define machine learning and deep learning, and describe their importance to contemporary business.

95) Deep learning refers to the general capability of computers to learn.

Answer: FALSE Explanation: Machine learning refers to the general capability of computers to learn.

Deep learning is a specific type of machine learning that uses layers of artificial neural networks to mimic the function of neurons and neural networks in the brain.

Difficulty: 2: Moderate AACSB: Information technology LO: 6.7: Define machine learning and deep learning, and describe their importance to contemporary business.

96) Deep learning is a specific type of machine learning that uses artificial neural networks to mimic the neural networks in the brain.

Answer: TRUE Explanation: Machine learning refers to the general capability of computers to learn.

Deep learning is a specific type of machine learning that uses layers of artificial neural networks to mimic the function of neurons and neural networks in the brain.

Difficulty: 2: Moderate AACSB: Information technology LO: 6.7: Define machine learning and deep learning, and describe their importance to contemporary business.

97) Neural networks are designed to be transparent and provide high levels of accountability for the users and creators.

Answer: FALSE Explanation: These neural networks are "deep" in another way, too, in that the people who create and use them can't always explain how they work, which creates the concerns over transparency and accountability. Research into just how these networks function is an ongoing theoretical conversation.

Difficulty: 2: Moderate AACSB: Information technology LO: 6.7: Define machine learning and deep learning, and describe their importance to contemporary business.

98) People who create deep learning tools and neural networks cannot always explain how they work.

Answer: TRUE Explanation: These neural networks are "deep" in another way in that the people who create and use them can't always explain how they work.

Difficulty: 2: Moderate AACSB: Information technology LO: 6.7: Define machine learning and deep learning, and describe their importance to contemporary business.

99) Discuss the process of deep learning.

Answer: Deep learning is a specific type of machine learning that uses layers of artificial neural networks to mimic the function of neurons and neural networks in the brain. Deep learning uses networks of computer processors working in parallel as artificial neurons, mirroring the brain's neural connections. Each of these neurons processes numerical inputs from multiple other neurons and outputs a value that other neurons can use. All these neurons interact and dynamically produce an answer in response to whatever inputs the system has received.

Difficulty: 3: Challenging AACSB: Information technology LO: 6.7: Define machine learning and deep learning, and describe their importance to contemporary business.

100) Discuss ways that machine learning and deep learning applications are changing today's business world.

Answer: Thanks to several advances in methodology and technology that occurred more or less simultaneously a few years ago, machine learning and deep learning applications are exploding in the business world. Self-driving cars, automated image recognition on social media and on manufacturing production lines, real-time translation, virtual assistants on mobile devices, automated medical diagnosis, sentiment analysis that reads the emotional state of the Twittersphere, malware and intrusion threat analysis on computer networks, automated investing systems, product recommendations on Amazon, those uncannily accurate movie recommendations that show up in your Netflix account– all these rely on machine learning or deep learning. With so many proven applications and so much continuing research and development (Google alone is working on more than 1,000 deep learning projects, for instance), deep learning is here to stay. Venture capitalists are pouring billions of dollars into AI and deep learning start-ups, and over a few short years, deep learning has gone from a sci-fi curiosity to a feature that many VCs expect to see in new products.

Difficulty: 2: Moderate AACSB: Information technology LO: 6.7: Define machine learning and deep learning, and describe their importance to contemporary business.

Business in Action, 9e (Bovee/Thill) Chapter 7 Management Roles, Functions, and Skills 1) Managerial roles are grouped into three main categories: interpersonal, decisional, and ________.

A) directive B) instructional C) operational D) informational E) differential Answer: D Explanation: All the managerial roles that leaders must play can be grouped into three main categories: interpersonal, informational, and decisional.

Difficulty: 1: Easy AACSB: Application of knowledge

LO: 7.1: Explain the importance of management, and identify the three vital management roles.

2) Providing leadership to employees is an example of a(n) ________ role of management.

A) interpersonal B) communicative C) instructional D) decisional E) informational Answer: A Explanation: The interpersonal roles that a manager must play include the following: providing leadership to employees, building relationships, and acting as a liaison between groups and individuals both inside and outside the company.

Difficulty: 2: Moderate AACSB: Application of knowledge LO: 7.1: Explain the importance of management, and identify the three vital management roles.

3) A top executive reads summaries of vital performance variables in the organization.

The executive is performing the ________ role in this case.

A) interpersonal B) instructional C) directional D) decisional E) informational Answer: E Explanation: Managers spend a fair amount of time gathering information from sources both inside and outside an organization. The higher up they are, the more they rely on subordinates to collect, analyze, and summarize information—and the greater the risk that they will fall out of touch with what is happening on "the front lines," where the essential day-to-day work of the organization is performed.

Difficulty: 2: Moderate AACSB: Application of knowledge LO: 7.1: Explain the importance of management, and identify the three vital management roles.

4) Choosing a candidate from several job applicants is an example of the ________ role of managers.

A) interpersonal B) instructional C) collaborative D) decisional E) informational Answer: D Explanation: Managers have many decisional roles. Such roles include choosing which of several job candidates to hire or setting the prices of new products.

Difficulty: 2: Moderate AACSB: Application of knowledge

LO: 7.1: Explain the importance of management, and identify the three vital management roles.

5) Which of the following refers to the interrelated tasks that lead an organization in pursuit of its goals?

A) Leadership B) Planning C) Mission D) Vision E) Management Answer: E Explanation: Management is the interrelated tasks of planning, organizing, leading, and controlling in pursuit of organizational goals.

Difficulty: 2: Moderate AACSB: Application of knowledge LO: 7.1: Explain the importance of management, and identify the three vital management roles.

6) What is one of the key roles of management?

A) Creating an environment where employees can excel in their work B) Overseeing the buying and selling of products or services C) Conducting the daily "hands-on" work of the organization D) Tracking and following up on the behaviors of employees E) Improving the standards of living for stakeholders of the organization Answer: A Explanation: Although managers don't usually do the hands-on work in an organization, they create the environment and provide the resources that give employees opportunities to excel in their work.

Difficulty: 3: Challenging AACSB: Analytical thinking LO: 7.1: Explain the importance of management, and identify the three vital management roles.

7) Providing leadership and building relationships is part of the ________ role of management.

A) effectiveness B) interpersonal C) economic D) informational E) decisional Answer: B Explanation: Management is largely a question of getting work accomplished through the efforts of other people, so a manager must play a number of interpersonal roles, including providing leadership to employees, building relationships, and acting as a liaison between groups and individuals both inside and outside the company.

Difficulty: 2: Moderate AACSB: Application of knowledge LO: 7.1: Explain the importance of management, and identify the three vital management roles.

8) Which of the following is changing the nature of the informational role of management within the organization?

A) Dashboards B) Email C) Social media D) Increased global competition E) Organizational skills Answer: C Explanation: The increasing use of social media for both internal and external communication is changing the nature of the manager's informational role in many companies. With social media, a more conversational model is emerging, in which more people can participate and communication is more immediate and less formal.

Difficulty: 2: Moderate AACSB: Analytical thinking LO: 7.1: Explain the importance of management, and identify the three vital management roles.

9) Pushing the decision-making function as far down the organizational pyramid as possible allows managers to work on ________.

A) technological improvements B) social media responses C) financial security D) strategic plans E) stakeholder concerns Answer: D Explanation: One of the most significant changes occurring in business management in recent years is the effort to push decision making as far down the organizational pyramid as possible, giving whichever employees face a particular situation the authority to make decisions about it. This approach not only accelerates and improves work flow and customer service but also frees up higher-level managers to work on more strategic matters.

Difficulty: 2: Moderate

AACSB: Analytical thinking LO: 7.1: Explain the importance of management, and identify the three vital management roles.

10) Management is the process of planning, organizing, leading, and controlling to meet organizational goals.

Answer: TRUE Explanation: Management is the process of planning, organizing, leading, and controlling to meet organizational goals. These tasks are interrelated.

Difficulty: 1: Easy AACSB: Application of knowledge LO: 7.1: Explain the importance of management, and identify the three vital management roles.

11) High-level managers rely heavily on subordinates to collect, analyze, and summarize information.

Answer: TRUE Explanation: Managers spend a fair amount of time gathering information from sources both inside and outside an organization. The higher up they are, the more they rely on subordinates to collect, analyze, and summarize information–and the greater the risk that they will fall out of touch with what is happening on "the front lines," where the essential day-to-day work of the organization is performed.

Difficulty: 1: Easy AACSB: Application of knowledge LO: 7.1: Explain the importance of management, and identify the three vital management roles.

12) Setting the prices of new products is a fairly routine decision that managers make.

Answer: TRUE Explanation: Managers up and down the organizational ladder face an endless stream of decisions. Many of these decisions are fairly routine, such as choosing which of several job candidates to hire or setting the prices of new products.

Difficulty: 2: Moderate AACSB: Application of knowledge LO: 7.1: Explain the importance of management, and identify the three vital management roles.

13) Selecting an individual for employment from a pool of job applicants is an example of an interpersonal role of management.

Answer: FALSE Explanation: Managers make many decisions as part of their work. Choosing which of several job candidates to hire is an example of a decisional role of managers.

Difficulty: 2: Moderate AACSB: Application of knowledge LO: 7.1: Explain the importance of management, and identify the three vital management roles.

14) Cite an example of a person who holds a managerial position and categorize the various activities that he or she performs into informational roles, decisional roles, and interpersonal roles.

Answer: Students may consider a manager who is familiar to them, such as the dean of their school. Students may list the various tasks that he or she performs and categorize them into different types of roles. Student answers will vary due to the nature of this question.

Difficulty: 3: Challenging AACSB: Analytical thinking LO: 7.1: Explain the importance of management, and identify the three vital management roles.

15) Explain the decisional roles of managers.

Answer: Managers up and down the organizational ladder face an endless stream of decisions. Many of these decisions are routine, such as choosing which of several job candidates to hire or setting the prices of new products. Other decisions, however, might occur only once or twice in a manager's career, such as responding to a producttampering crisis or the threat of a hostile takeover. Some decisions are made after extensive information gathering and analysis; other decisions must be made on the spot using only judgment and intuition to guide the manager's choice.

Difficulty: 2: Moderate AACSB: Analytical thinking LO: 7.1: Explain the importance of management, and identify the three vital management roles.

16) Developing strategies, establishing goals and objectives for the organization, and translating those strategies and goals into action plans is part of the ________ function of management.

A) leading B) organizing C) intermediating D) motivating E) planning Answer: E Explanation: Managers engage in planning when they develop strategies, establish goals and objectives for the organization, and translate those strategies and goals into action plans.

Difficulty: 2: Moderate AACSB: Application of knowledge LO: 7.2: Describe the planning function, and outline the strategic planning process.

17) ________ plans outline the firm's long-range (often two to five years) organizational goals and set a course of action the firm will pursue to reach its goals.

A) Tactical B) Operational C) Strategic D) Short-term E) Contingency Answer: C Explanation: Strategic plans outline the firm's long-range (often two to five years) organizational goals and set a course of action the firm will pursue to reach its goals. The strategic planning process consists of six interrelated steps.

Difficulty: 2: Moderate AACSB: Application of knowledge LO: 7.2: Describe the planning function, and outline the strategic planning process.

18) A(n) ________ is a brief declaration of why the organization exists and how it will conduct itself as it pursues its goals.

A) operational plan B) mission statement C) SWOT statement D) tactical plan E) values statement Answer: B Explanation: To achieve any level of strategic clarity, planners first need to agree on why the company exists—its purpose—and how it will conduct itself as it pursues its goals–its values. This is done with the mission statement, sometimes termed vision statement or statement of purpose.

Difficulty: 2: Moderate AACSB: Application of knowledge LO: 7.2: Describe the planning function, and outline the strategic planning process.

19) Some companies use a(n) ________ as a brief and inspirational expression of what a company aspires to be.

A) tactical plan B) values statement C) operational plan D) vision statement E) summary of objectives Answer: D Explanation: A vision statement is a brief and inspirational expression of what a company aspires to be.

Difficulty: 2: Moderate AACSB: Application of knowledge LO: 7.2: Describe the planning function, and outline the strategic planning process.

20) "Do what's right, respect others, care for customers, and perform with excellence."

This is likely to be an organization's ________ statement.

A) vision B) operational C) tactical D) values E) mission Answer: D Explanation: A values statement identifies the principles that guide the company's decisions and behaviors and establish expectations for everyone in the organization. The given statement describes a company's principles.

Difficulty: 2: Moderate AACSB: Application of knowledge LO: 7.2: Describe the planning function, and outline the strategic planning process.

21) Which of the following is an example of a strength that companies possess?

A) Prospective merger candidates B) Lack of regulations C) Respected brand D) Narrow customer base E) Limiting demand for products Answer: C Explanation: Strengths are positive internal factors that contribute to a company's success. Having a respected brand is such a strength.

Difficulty: 2: Moderate AACSB: Application of knowledge LO: 7.2: Describe the planning function, and outline the strategic planning process.

22) A(n) ________ is a specific, short-range target to help reach a goal.

A) mission B) tactic C) strategy D) objective E) vision Answer: D Explanation: An objective is a specific, short-range target designed to help organizations reach their goals.

Difficulty: 2: Moderate AACSB: Application of knowledge LO: 7.2: Describe the planning function, and outline the strategic planning process.

23) In order to be effective, a business goal should be ________.

A) broadly defined B) measurable C) unlimited in duration D) loosely defined E) substantially high Answer: B Explanation: Business people should make their goals and objectives "SMART," as in specific, measurable, attainable, relevant, and time limited.

Difficulty: 2: Moderate AACSB: Application of knowledge LO: 7.2: Describe the planning function, and outline the strategic planning process.

24) The overall strategic plan of an organization might be supported by plans from functional areas, such as research and development, manufacturing, and marketing. The plans from these functional areas are called ________ plans.

A) appraisal B) strategic C) contingency D) tactical E) corporate Answer: D Explanation: The overall strategic plan of an organization might be supported at the next level down by a research and development plan, a manufacturing plan, and a marketing plan, describing how each functional area will help the company reach its strategic goals and objectives. Such plans are called tactical plans or operational plans.

Difficulty: 2: Moderate AACSB: Application of knowledge LO: 7.2: Describe the planning function, and outline the strategic planning process.

25) Before establishing long-term goals, a company should understand its ________ relative to opportunities and threats.

A) long-term strategies B) potential for profit C) mission statement D) short-term strategies E) strengths and weaknesses Answer: E Explanation: This analysis is commonly referred to as SWOT (pronounced "swat"), which stands for strengths, weaknesses, opportunities, and threats.

Difficulty: 2: Moderate AACSB: Application of knowledge LO: 7.2: Describe the planning function, and outline the strategic planning process.

26) Those positive internal factors that contribute to a company's success are referred to as ________.

A) strengths B) vision C) opportunities D) skills E) unique traits Answer: A Explanation: Strengths are positive internal factors that contribute to a company's success, which can be anything from a team of expert employees to financial resources to unique technologies.

Difficulty: 2: Moderate AACSB: Application of knowledge LO: 7.2: Describe the planning function, and outline the strategic planning process.

27) In a SWOT analysis, which term is used to describe the possibility of generating new revenue through positive situations?

A) Strengths B) Abilities C) Opportunities D) Skills E) Unique traits Answer: C Explanation: Opportunities are positive situations that represent the possibility of generating new revenue. Shrewd managers and entrepreneurs recognize opportunities before others do and then promptly act on their ideas.

Difficulty: 2: Moderate AACSB: Application of knowledge LO: 7.2: Describe the planning function, and outline the strategic planning process.

28) Predicting when events will occur and their impact on the organization should be done through ________.

A) goal setting B) action plans C) tactical plans D) forecasting E) objective setting Answer: D Explanation: Forecasting is crucial to every company's success because it influences the decisions managers make regarding virtually every business activity, and misreading the future can damage or even destroy a company.

Difficulty: 2: Moderate AACSB: Application of knowledge LO: 7.2: Describe the planning function, and outline the strategic planning process.

29) Which of the following forecasting techniques are based on intuitive judgments?

A) Quantitative forecasts B) Executive dashboards C) SWOT analysis D) Strategic planning E) Qualitative forecasts Answer: E Explanation: Managerial forecasts fall under two broad categories: quantitative forecasts, which are typically based on historical data or tests and often involve complex statistical computations, and qualitative forecasts, which are based more on intuitive judgments.

Difficulty: 2: Moderate AACSB: Application of knowledge LO: 7.2: Describe the planning function, and outline the strategic planning process.

30) A mission statement is a statement of the operational goals of the organization.

Answer: FALSE Explanation: A mission statement is a brief statement of why an organization exists. It describes what the organization aims to accomplish for customers, investors, and other stakeholders.

Difficulty: 2: Moderate AACSB: Application of knowledge LO: 7.2: Describe the planning function, and outline the strategic planning process.

31) A vision statement is a brief description of a company's present status in the market.

Answer: FALSE Explanation: A vision statement is a brief and inspirational expression of what a company aspires to be.

Difficulty: 2: Moderate AACSB: Application of knowledge LO: 7.2: Describe the planning function, and outline the strategic planning process.

32) A value statement does not establish expectations for an organization's employees.

Answer: FALSE Explanation: A value statement establishes the expectations for an organization's employees.

Difficulty: 2: Moderate AACSB: Application of knowledge LO: 7.2: Describe the planning function, and outline the strategic planning process.

33) Strengths and weaknesses include the internal factors that contribute to a company's success or failure.

Answer: TRUE Explanation: Strengths are positive internal factors that contribute to a company's success. Weaknesses are negative internal factors that inhibit the company's success.

Difficulty: 2: Moderate AACSB: Application of knowledge LO: 7.2: Describe the planning function, and outline the strategic planning process.

34) An economic slowdown is viewed as a weakness in the SWOT analysis of a firm.

Answer: FALSE Explanation: Weaknesses are negative internal factors that inhibit the company's success, such as obsolete facilities, inadequate financial resources to fund growth, or lack of managerial depth and talent. Economic slowdown is an external factor.

Difficulty: 3: Challenging AACSB: Application of knowledge LO: 7.2: Describe the planning function, and outline the strategic planning process.

35) Qualitative managerial forecasts involve historical data and complex statistical computations.

Answer: FALSE Explanation: Managerial forecasts fall under two broad categories: quantitative forecasts, which are typically based on historical data or tests and often involve complex statistical computations, and qualitative forecasts, which are based more on intuitive judgments.

Difficulty: 2: Moderate AACSB: Application of knowledge LO: 7.2: Describe the planning function, and outline the strategic planning process.

36) A goal is a broad, long-term accomplishment that an organization wants to achieve.

Answer: TRUE Explanation: A goal is a broad, long-range accomplishment that organizations want to attain and an objective is a specific, short-range target designed to help them reach that goal.

Difficulty: 2: Moderate AACSB: Application of knowledge LO: 7.2: Describe the planning function, and outline the strategic planning process.

37) Compare and contrast mission statements, vision statements, and values statements.

Answer: A mission statement is a brief statement of why an organization exists. In other words, what the organization aims to accomplish for customers, investors, and other stakeholders. A vision statement is a brief and inspirational expression of what a company aspires to be. A values statement is a brief articulation of the principles that guide a company's decisions and behaviors.

Difficulty: 3: Challenging AACSB: Analytical thinking LO: 7.2: Describe the planning function, and outline the strategic planning process.

38) Compare and contrast an organization's strengths with opportunities.

Answer: Strengths are positive internal factors that contribute to a company's success, which can be anything from a team of expert employees to financial resources to unique technologies. Opportunities are positive situations that represent the possibility of generating new revenue. Opportunities are not under an organization's control, whereas strengths can be controlled by the organization. A respected brand name is a strength, whereas a booming economy is an opportunity.

Difficulty: 3: Challenging AACSB: Analytical thinking LO: 7.2: Describe the planning function, and outline the strategic planning process.

39) Compare and contrast quantitative forecasts with qualitative forecasts.

Answer: Managerial forecasts fall under two broad categories: quantitative forecasts (typically involving historical data or tests and complex statistical computations) and qualitative forecasts (typically involving intuition and judgment). Neither method is foolproof, but both are valuable tools and are often used together to help managers fill in the unknown variables that inevitably crop up in the planning process.

Difficulty: 3: Challenging AACSB: Analytical thinking LO: 7.2: Describe the planning function, and outline the strategic planning process.

40) ________ is the process of arranging resources to carry out an organization's plans, and is one of the major functions of managers.

A) Planning B) Directing C) Organizing D) Analyzing E) Controlling Answer: C Explanation: Organizing is the process of arranging resources to carry out an organization's plans. It is one of the major functions of managers.

Difficulty: 2: Moderate AACSB: Application of knowledge LO: 7.3: Describe the organizing function, and differentiate among top, middle, and first-line management.

41) Which of the following functions is typically performed by top managers of an organization?

A) Establishing the structure for the organization B) Supervising lower-level managers C) Translating strategic goals into actions D) Putting the systems and resources in place E) Translating strategic objectives into the actions Answer: A Explanation: Top managers in an organization establish the structure for the organization as a whole, and they select the people who fill the upper-level positions.

Difficulty: 2: Moderate AACSB: Application of knowledge LO: 7.3: Describe the organizing function, and differentiate among top, middle, and first-line management.

42) Which of the following is a typical role of middle managers in an organization?

A) Defining the strategic orientation of the organization B) Supervising workers on an assembly line C) Supervising knowledge workers D) Making long-range plans for the organization E) Translating strategic goals and objective into actions Answer: E Explanation: Middle managers play the essential role of translating strategic goals and objectives into the actions that allow the company to meet those targets. While they may not do the actual day-to-day work, middle managers are the ones who put the systems and resources in place so that front-line teams can work efficiently and with coordinated purpose.

Difficulty: 2: Moderate AACSB: Application of knowledge LO: 7.3: Describe the organizing function, and differentiate among top, middle, and first-line management.

43) On a broad scale, how do managers help employees work toward company goals?

A) By determining who has the authority to make decisions B) By allowing all employees to be responsible for their decisions C) By allowing employees to take risks within the organization D) By understanding what competitors are doing well E) By understanding where competitors fall short of their goals and plans Answer: A Explanation: Managers give people the ability to work toward company goals by determining who will have the authority to make decisions, to perform or supervise activities, and to distribute resources.

Difficulty: 2: Moderate AACSB: Analytical thinking LO: 7.3: Describe the organizing function, and differentiate among top, middle, and first-line management.

44) On the management pyramid, who would be at the top?

A) Supervisors B) Controllers C) Directors D) Vice presidents E) Department heads Answer: D Explanation: Top managers are the upper-level managers, who have the most power and who take overall responsibility for an organization. These include CEOs, CTOs, CFOs, CIOs, and Vice Presidents.

Difficulty: 1: Easy AACSB: Application of knowledge LO: 7.3: Describe the organizing function, and differentiate among top, middle, and first-line management.

45) How do the roles of top managers differ from middle managers?

A) The amount of time allowed for decisions B) The magnitude of the decisions being made C) The ability to hire and fire employees D) Their representation of the company to stakeholders E) Their ability to translate strategic goals into action Answer: B Explanation: Two significant ways in which top management differs from lower management tiers are the long time frames with which executives must work and the magnitude of the decisions they need to make.

Difficulty: 2: Moderate AACSB: Application of knowledge LO: 7.3: Describe the organizing function, and differentiate among top, middle, and first-line management.

46) What is the most essential role of middle managers?

A) Overseeing the actual day-to-day work of lower level managers B) Identifying strategic goals for the organization C) Translating strategic goals into action D) Establishing structure for the overall organization E) Selecting people to fill upper level management positions Answer: C Explanation: Middle managers play the essential role of translating strategic goals and objectives into the actions that allow the company to meet those targets. Although they may not do the actual day-to-day work, middle managers are the ones who put the systems and resources in place so that front-line teams can work efficiently and with coordinated purpose.

Difficulty: 2: Moderate AACSB: Application of knowledge LO: 7.3: Describe the organizing function, and differentiate among top, middle, and first-line management.

47) Who oversees the work of nonmanagerial employees?

A) Middle managers B) Executives C) Supervisors D) First-line managers E) Top managers Answer: D Explanation: First-line managers (or supervisory managers) oversee the work of nonmanagerial employees, and they put into action the plans developed at higher levels.

Difficulty: 1: Easy AACSB: Application of knowledge LO: 7.3: Describe the organizing function, and differentiate among top, middle, and first-line management.

48) Organizing is the process of arranging resources to carry out an organization's plans.

Answer: TRUE Explanation: Organizing is the process of arranging resources to carry out an organization's plans. It is a major function of managers.

Difficulty: 2: Moderate AACSB: Application of knowledge LO: 7.3: Describe the organizing function, and differentiate among top, middle, and first-line management.

49) A management pyramid is used to exhibit managerial roles without defining a corporate hierarchy.

Answer: FALSE Explanation: A management pyramid defines a corporate hierarchy.

Difficulty: 2: Moderate AACSB: Application of knowledge LO: 7.3: Describe the organizing function, and differentiate among top, middle, and first-line management.

50) Middle managers establish the structure for an organization as a whole.

Answer: FALSE Explanation: Top managers establish the structure for the organization as a whole, and they select the people who fill the upper-level positions.

Difficulty: 2: Moderate AACSB: Application of knowledge LO: 7.3: Describe the organizing function, and differentiate among top, middle, and first-line management.

51) First-line managers are those at the lowest level of the management hierarchy.

Answer: TRUE Explanation: First-line managers are those at the lowest level of the management hierarchy. They supervise the operating employees and implement the plans set at the higher management levels.

Difficulty: 2: Moderate AACSB: Application of knowledge LO: 7.3: Describe the organizing function, and differentiate among top, middle, and first-line management.

52) Briefly describe the organizing function of management.

Answer: Organizing is the process of arranging resources to carry out an organization's plans. It is the second major function of managers. To organize effectively, managers must think through all the activities that employees perform, as well as all the facilities and equipment employees need in order to complete those activities.

Difficulty: 3: Challenging AACSB: Analytical thinking LO: 7.3: Describe the organizing function, and differentiate among top, middle, and first-line management.

53) Compare the roles of top managers and middle managers.

Answer: Top managers establish the structure for the organization as a whole, and they

select the people who fill the upper-level positions. Top managers also make long-range plans, establish major policies, and often represent the company to the media, the community, and other stakeholders.

Middle managers have similar responsibilities but on a smaller scale, such as for an individual division or facility. Managers at this level report upward to top executives, while first-line managers' report to them. Middle managers play the essential role of translating strategic goals and objectives into the actions that allow the company to meet those targets.

Difficulty: 3: Challenging AACSB: Analytical thinking LO: 7.3: Describe the organizing function, and differentiate among top, middle, and first-line management.

54) Do you think middle managers are essential to organizations? Explain your answer.

Answer: The term middle management is sometimes used disparagingly, giving the impression that middle managers are people who clog up the works without adding much value. Some highly regarded opinion leaders have gone so far as to blame such managers for much that ails the modern corporation. Many companies have also flattened their organizational structures by removing one or more layers of middle management.

However, middle managers play the essential role of translating strategic goals and objectives into the actions that allow the company to meet those targets. Students may agree or disagree with the idea of having middle managers. Student answers will vary due to the nature of this question.

Difficulty: 3: Challenging AACSB: Analytical thinking LO: 7.3: Describe the organizing function, and differentiate among top, middle, and first-line management.

55) ________ is the process of influencing and motivating people to work willingly and effectively toward common goals.

A) Organizing B) Leading C) Planning D) Directing E) Controlling Answer: B Explanation: Leading is the process of influencing and motivating people to work willingly and effectively toward common goals. Managers with good leadership skills have greater success in influencing the attitudes and actions of others and motivating employees to put forth their best performance.

Difficulty: 2: Moderate AACSB: Application of knowledge LO: 7.4: Describe the leading function, leadership style, and organizational culture.

56) ________ intelligence involves reasoning, problem solving, memorization, and other rational skills.

A) Cognitive B) Emotional C) Social D) Collaborative E) Networking Answer: A Explanation: Cognitive intelligence involves reasoning, problem solving, memorization, and other rational skills. Obviously, leaders need a sufficient degree of cognitive intelligence to understand and process the information required for planning and decision making in the jobs.

Difficulty: 2: Moderate AACSB: Application of knowledge LO: 7.4: Describe the leading function, leadership style, and organizational culture.

57) ________ is a measure of a person's awareness of and ability to manage his or her own emotions, and to recognize emotional states in others.

A) Cognitive intelligence B) Degree of autocracy C) Social intelligence D) Emotional intelligence E) Leadership Answer: D Explanation: People with high emotional intelligence recognize their own emotional states and the effect those emotions have on others. They are able to regulate their emotional responses in order to control or reduce disruptive impulses and moods, and they have a high degree of empathy (the ability to understand others' feelings).

Difficulty: 2: Moderate AACSB: Application of knowledge LO: 7.4: Describe the leading function, leadership style, and organizational culture.

58) Socially adept managers will have a knack for ________.

A) solving problems quickly using their reasoning abilities B) exhibiting rational skills to make high-quality decisions C) controlling their own emotions and impulses D) judging others based on a variety of objective parameters E) finding and building common ground with people of all kinds Answer: E Explanation: Socially adept managers have a knack for finding and building common ground with people of all kinds. Moreover, leaders, in a sense, infect their organizations with their own emotions, positive or negative.

Difficulty: 2: Moderate AACSB: Application of knowledge LO: 7.4: Describe the leading function, leadership style, and organizational culture.

59) Under ________ leadership, subordinates have little or no freedom to make decisions, deviate from plans, or provide contrary input.

A) democratic B) autocratic C) laissez-faire D) transformational E) participative Answer: B Explanation: Under autocratic leadership, a manager makes the decisions and issues directives down the chain of command. Subordinates have little or no freedom to make decisions, deviate from plans, or provide contrary input.

Difficulty: 2: Moderate AACSB: Application of knowledge LO: 7.4: Describe the leading function, leadership style, and organizational culture.

60) ________ leaders act as advisors and supporters and generally give subordinates power to make decisions that apply to their specific aspects of work.

A) Participative B) Consultative C) Autocratic D) Transactional E) Laissez-faire Answer: E Explanation: Laissez-faire leaders act as advisors and supporters, offering input as needed. However, they generally let subordinates chart and adjust their own course toward meeting agreed-upon goals and objectives.

Difficulty: 2: Moderate AACSB: Application of knowledge LO: 7.4: Describe the leading function, leadership style, and organizational culture.

61) What type of leadership skill is based on a person's unique attributes, such as expertise or charisma?

A) Position power B) Cognitive intelligence C) Personal power D) Emotional intelligence E) Empathy Answer: C Explanation: Both management and leadership involve the use of power, but management involves position power (so called because it stems from the individual's position in the organization), whereas leadership involves personal power (which stems from a person's own unique attributes, such as expertise or charisma).

Difficulty: 2: Moderate AACSB: Analytical thinking LO: 7.4: Describe the leading function, leadership style, and organizational culture.

62) What type of intelligence includes the ability to minimize the disruption caused by negative emotions and uses positive emotions to enhance the emotional well-being of people around them?

A) Cognitive B) Autocratic C) Democratic D) Emotional E) Social Answer: D Explanation: People with high emotional intelligence recognize their own emotional states and the effect those emotions have on others, they are able to regulate their emotional responses in order to control or reduce disruptive impulses and moods, and they have a high degree of empathy (the ability to understand others' feelings).

Difficulty: 2: Moderate AACSB: Analytical thinking LO: 7.4: Describe the leading function, leadership style, and organizational culture.

63) What type of leader uses his or her position to control the decision-making process, thereby restricting the decision-making freedom of subordinates?

A) Democratic B) Empathetic C) Emotional D) Cognitive E) Autocratic Answer: E Explanation: Autocratic leaders control the decision-making process in their organizations, often restricting the decision-making freedom of subordinates.

Difficulty: 2: Moderate AACSB: Application of knowledge LO: 7.4: Describe the leading function, leadership style, and organizational culture.

64) What type of leadership work to foster participative management within the organization, seeking input from anyone who can add insight to the decisions-making process?

A) Collaborative B) Laissez-faire C) Employee empowerment D) Autocratic E) Coaching Answer: A Explanation: Also known as collaborative leaders, democratic managers invite and seek out input from anyone in the organization who can add insight to the decision-making process.

Difficulty: 2: Moderate AACSB: Application of knowledge LO: 7.4: Describe the leading function, leadership style, and organizational culture.

65) Which of the following gives employees the authority to make decisions that apply to their specific areas of work?

A) Coaching B) Employee empowerment C) Collaboration D) Mentoring E) Autocratic Answer: B Explanation: After the overall strategic direction and priorities are in place, laissez-faire leaders emphasize employee empowerment-giving employees the power to make decisions that apply to their specific aspects of work.

Difficulty: 2: Moderate AACSB: Application of knowledge LO: 7.4: Describe the leading function, leadership style, and organizational culture.

66) Which leadership role is developed based on long-term relationships between senior and junior members of an organization?

A) Coaching B) Collaboration C) Mentoring D) Participative E) Empowering Answer: C Explanation: Mentors have a deep knowledge of the business and can explain office politics, serve as role models for appropriate business behavior, and provide valuable advice about how to succeed within the organization.

Difficulty: 2: Moderate AACSB: Application of knowledge LO: 7.4: Describe the leading function, leadership style, and organizational culture.

67) Leading is the process of influencing and motivating people to work willingly and effectively toward common goals.

Answer: TRUE Explanation: Leading is the process of influencing and motivating people to work willingly and effectively toward common goals. Managers with good leadership skills have greater success in influencing the attitudes and actions of others and motivating employees to put forth their best performance.

Difficulty: 2: Moderate AACSB: Application of knowledge LO: 7.4: Describe the leading function, leadership style, and organizational culture.

68) Cognitive intelligence is a measure of a person's awareness of and ability to manage his or her own emotions.

Answer: FALSE Explanation: Emotional intelligence is a measure of a person's awareness of and ability to manage his or her own emotions. People with high emotional intelligence recognize their own emotional states and the effect those emotions have on others.

Difficulty: 2: Moderate AACSB: Application of knowledge LO: 7.4: Describe the leading function, leadership style, and organizational culture.

69) Socially adept managers have a knack for finding and building common ground with people of all kinds.

Answer: TRUE Explanation: Social intelligence involves looking outward to understand the dynamics of social situations and the emotions of other people, in addition to your own. Socially adept managers have a knack for finding and building common ground with people of all kinds.

Difficulty: 2: Moderate AACSB: Application of knowledge LO: 7.4: Describe the leading function, leadership style, and organizational culture.

70) Mentoring is the process of establishing a short-term relationship between a senior member and a junior member.

Answer: FALSE Explanation: Mentoring is similar to coaching but is based on long-term relationships between senior and junior members of an organization.

Difficulty: 2: Moderate AACSB: Application of knowledge LO: 7.4: Describe the leading function, leadership style, and organizational culture.

71) Compare and contrast cognitive intelligence and social intelligence.

Answer: Cognitive intelligence involves reasoning, problem solving, memorization, and other rational skills. Obviously, leaders need a sufficient degree of cognitive intelligence to understand and process the information required for planning and decision making in the jobs. Social intelligence involves looking outward to understand the dynamics of social situations and the emotions of other people, in addition to your own. Socially adept managers have a knack for finding and building common ground with people of all kinds.

Difficulty: 3: Challenging AACSB: Analytical thinking LO: 7.4: Describe the leading function, leadership style, and organizational culture.

72) Explain how democratic leaders function.

Answer: Democratic leaders delegate authority and involve employees in decision making. Also known as collaborative leaders, these managers invite and seek out input from anyone in the organization who can add insight to the decision-making process.

This style is often called participative management.

Difficulty: 3: Challenging AACSB: Analytical thinking LO: 7.4: Describe the leading function, leadership style, and organizational culture.

73) Compare and contrast cognitive intelligence and social intelligence.

Answer: Cognitive intelligence involves reasoning, problem solving, memorization, and other rational skills. Obviously, leaders need a sufficient degree of cognitive intelligence to understand and process the information required for planning and decision making in the jobs. Social intelligence involves looking outward to understand the dynamics of social situations and the emotions of other people, in addition to your own. Socially adept managers have a knack for finding and building common ground with people of all kinds.

Difficulty: 3: Challenging AACSB: Analytical thinking LO: 7.4: Describe the leading function, leadership style, and organizational culture.

74) ________ is the management function of keeping a company's activities on track toward previously established goals.

A) Organizing B) Leading C) Planning D) Motivating E) Controlling Answer: E Explanation: Controlling is the management function of keeping a company's activities on track toward previously established goals. The nature of control varies widely, from directly intervening in a process to modifying policies or systems in a way that enables employees to reach their objectives.

Difficulty: 2: Moderate AACSB: Application of knowledge LO: 7.5: Describe the controlling function, and explain the four steps in the control cycle.

75) Directly intervening in organizational processes to improve performance is an example of the ________ function of management.

A) communicating B) controlling C) planning D) organizing E) decision-making Answer: B Explanation: Controlling is the management function of keeping a company's activities on track toward previously established goals. The nature of control varies from directly intervening in a process to modifying policies or systems in a way that enables employees to reach their objectives.

Difficulty: 2: Moderate AACSB: Application of knowledge LO: 7.5: Describe the controlling function, and explain the four steps in the control cycle.

76) The criteria against which performance is measured are referred to as ________.

A) standards B) tools C) controls D) goals E) frameworks Answer: A Explanation: Standards refer to the criteria against which performance is measured.

Managers set standards in the first step of the control cycle.

Difficulty: 2: Moderate AACSB: Application of knowledge LO: 7.5: Describe the controlling function, and explain the four steps in the control cycle.

77) When setting performance standards, benchmarking refers to ________.

A) comparing performance results between work groups in the organization B) determining departmental standards of performance C) establishing a timeline to determine efficiency D) balancing process and performance data within the company E) comparing performance data with industry leaders Answer: E Explanation: A common approach to setting standards is benchmarking, comparing a company's key performance attributes with those of industry leaders.

Difficulty: 2: Moderate AACSB: Application of knowledge LO: 7.5: Describe the controlling function, and explain the four steps in the control cycle.

78) ________ is a measure of how closely activities or outcomes conform to predetermined standards and customer expectations.

A) Productivity B) Yield C) Quality D) Efficiency E) Structure Answer: C Explanation: Quality is a measure of how closely activities or outcomes conform to predetermined standards and customer expectations. It is one of the most important performance variables that fall under managerial control.

Difficulty: 2: Moderate AACSB: Application of knowledge LO: 7.5: Describe the controlling function, and explain the four steps in the control cycle.

79) Balanced scorecard is a method of ________.

A) creating schedules for non-routine organizational tasks B) monitoring a company's performance from multiple perspectives C) evaluating the external threats of an organization D) documenting the strategic goals of an organization E) monitoring the external opportunities of an organization Answer: B Explanation: Balanced scorecard is a method of monitoring the performance from four perspectives: finances, operations, customer relationships, and the growth and development of employees and intellectual property.

Difficulty: 2: Moderate AACSB: Application of knowledge LO: 7.5: Describe the controlling function, and explain the four steps in the control cycle.

80) Controlling is the process of motivating employees to be committed toward the organization's values.

Answer: FALSE Explanation: Controlling is the management function of keeping a company's activities on track toward previously established goals.

Difficulty: 2: Moderate AACSB: Application of knowledge LO: 7.5: Describe the controlling function, and explain the four steps in the control cycle.

81) Standards refer to the criteria against which performance is measured.

Answer: TRUE Explanation: Standards refer to the criteria against which performance is measured.

Setting standards is the first step of the control cycle.

Difficulty: 2: Moderate AACSB: Application of knowledge LO: 7.5: Describe the controlling function, and explain the four steps in the control cycle.

82) Quality is a measure of how productive an organization's employees are.

Answer: FALSE Explanation: Quality is a measure of how closely a product conforms to predetermined standards and customer expectations.

Difficulty: 2: Moderate AACSB: Application of knowledge LO: 7.5: Describe the controlling function, and explain the four steps in the control cycle.

83) Explain a balanced scorecard.

Answer: Balanced scorecard is a method of monitoring the performance from four perspectives: finances, operations, customer relationships, and the growth and development of employees and intellectual property. It is used by managers in the second step of the control cycle.

Difficulty: 3: Challenging AACSB: Analytical thinking LO: 7.5: Describe the controlling function, and explain the four steps in the control cycle.

84) ________ skills are required to understand, motivate, and lead others effectively.

A) Technical B) Decisional C) Conceptual D) Administrative E) Interpersonal Answer: E Explanation: The various skills required to communicate with other people, work effectively with them, motivate them, and lead them are interpersonal skills.

Difficulty: 2: Moderate AACSB: Application of knowledge LO: 7.6: Identify and explain four important types of managerial skills.

85) ________ is considered to be the most important and pervasive interpersonal skill that managers use.

A) Communication B) Evaluation C) Analytics D) Negotiation E) Computer literacy Answer: A Explanation: Communication is the most important and pervasive interpersonal skill that managers use. Effective communication not only increases a manager's and an organization's productivity but also shapes the impression made on colleagues.

Difficulty: 2: Moderate AACSB: Application of knowledge LO: 7.6: Identify and explain four important types of managerial skills.

86) Which of the following skills refer to the ability and knowledge to perform the mechanics of a particular job?

A) Cognitive skills B) Technical skills C) Conceptual skills D) Decisional skills E) Organizational skills Answer: B Explanation: Technical skills refer to the ability and knowledge to perform the mechanics of a particular job.

Difficulty: 2: Moderate AACSB: Application of knowledge LO: 7.6: Identify and explain four important types of managerial skills.

87) Which of the following is the best example of a technical skill that managers must possess?

A) Capability of making accurate decisions on issues B) Ability to get along well with the subordinates C) Ability to prepare a formal profit and loss statement D) Ability to collaborate well with workers E) Capability to understand the relationship between parts and whole Answer: C Explanation: A person who knows how to operate a machine, prepare a financial statement, or use a web content management system has technical skills. Technical skills refer to the ability and knowledge to perform the mechanics of a particular job.

Difficulty: 2: Moderate AACSB: Application of knowledge LO: 7.6: Identify and explain four important types of managerial skills.

88) ________ skills refer to technical skills in information gathering, data analysis, planning, organizing, and other aspects of managerial work.

A) Collaborative B) Decisional C) Conceptual D) Administrative E) Interpersonal Answer: D Explanation: Administrative skills are technical skills in information gathering, data analysis, planning, organizing, and other aspects of managerial work.

Difficulty: 2: Moderate AACSB: Application of knowledge LO: 7.6: Identify and explain four important types of managerial skills.

89) Which of the following is an example of an administrative skill that managers possess?

A) Making correct hiring decisions B) Gathering data for a SWOT analysis C) Skillfully operating machines D) Understanding others' feeling E) Fostering empathy among employees Answer: B Explanation: Administrative skills refer to the technical skills in information gathering, data analysis, planning, organizing, and other aspects of managerial work.

Difficulty: 2: Moderate AACSB: Application of knowledge LO: 7.6: Identify and explain four important types of managerial skills.

90) ________ skills refer to the ability to visualize organizations, systems, markets, and solution, and understanding the relationship of parts to the whole.

A) Interpersonal B) Conceptual C) Technical D) Administrative E) Decision-making Answer: B Explanation: Conceptual skills refer to the ability to understand the relationship of parts to the whole. Managers need conceptual skills to visualize organizations, systems, markets, and solutions, both as complete entities on their own and as interrelated pieces of a whole.

Difficulty: 2: Moderate AACSB: Application of knowledge LO: 7.6: Identify and explain four important types of managerial skills.

91) ________ abilities are especially important to top managers because they are the strategists who guide the organization toward its goals.

A) Interpersonal B) Conceptual C) Technical D) Administrative E) Decision-making Answer: B Explanation: Conceptual skills are especially important to top managers because they are the strategists who develop the plans that guide the organization toward its goals.

Managers use their conceptual skills to acquire and analyze information, identify both problems and opportunities, understand the competitive environment in which their companies operate, and develop strategies and plans.

Difficulty: 2: Moderate AACSB: Application of knowledge LO: 7.6: Identify and explain four important types of managerial skills.

92) Managers need conceptual skills to ________.

A) perform such tasks as operating a machine and preparing a financial statement B) verify information relating various managerial and non-managerial issues C) accurately perform the mechanics of a particular job D) understand other people and to interact effectively with them E) visualize elements both as complete entities on their own and as interrelated pieces of a whole Answer: E Explanation: Managers need conceptual skills to visualize organizations, systems, markets, and solutions—both as complete entities on their own and as interrelated pieces of a whole.

Difficulty: 2: Moderate AACSB: Application of knowledge LO: 7.6: Identify and explain four important types of managerial skills.

93) Identifying and developing options to resolve a problem is a(n) ________ skill.

A) technical B) administrative C) coaching D) mentoring E) decision-making Answer: E Explanation: The goal of this step is to develop a list of alternative courses of action.

Managers may need to break old thinking habits and throw away long-held assumptions in order to find promising solutions to tough problems.

Difficulty: 2: Moderate AACSB: Application of knowledge LO: 7.6: Identify and explain four important types of managerial skills.

94) Conceptual skills refer to the ability and knowledge to perform the mechanics of a particular job.

Answer: FALSE Explanation: Technical skills refer to the ability and knowledge to perform the mechanics of a particular job. In contrast, conceptual skills refer to the ability to understand the relationship of parts to the whole.

Difficulty: 2: Moderate AACSB: Application of knowledge LO: 7.6: Identify and explain four important types of managerial skills.

95) Identifying and developing options requires strong conceptual skills by managers.

Answer: TRUE Explanation: Identifying and developing options requires solid conceptual skills.

Managers may need to break old thinking habits and throw away long-held assumptions in order to find promising solutions to tough problems.

Difficulty: 2: Moderate AACSB: Application of knowledge LO: 7.6: Identify and explain four important types of managerial skills.

96) Briefly explain the four basic categories of management skills.

Answer: The four types of skills are explained below.

(1) Interpersonal skills: These are skills required to understand other people and to interact effectively with them.

(2) Technical skills: They refer to the ability and knowledge to perform the mechanics of a particular job.

(3) Conceptual skills: They refer to the ability to understand the relationship of parts to the whole.

(4) Decision-making skills: They refer to the ability to identify a decision situation, analyze the problem, weigh the alternatives, choose an alternative, implement it, and evaluate the results.

Difficulty: 3: Challenging AACSB: Analytical thinking LO: 7.6: Identify and explain four important types of managerial skills.

97) Compare and contrast technical skills and conceptual skills.

Answer: Technical skills refer to the ability and knowledge to perform the mechanics of a particular job. A person who knows how to operate a machine, prepare a financial statement, or use a web content management system has technical skills. Conceptual skills refer to the ability to understand the relationship of parts to the whole. Managers need conceptual skills to visualize organizations, systems, markets, and solutions—both as complete entities on their own and as interrelated pieces of a whole.

Difficulty: 3: Challenging AACSB: Analytical thinking LO: 7.6: Identify and explain four important types of managerial skills.

98) Which of the following artificial intelligence tools helps professionals with complex questions?

A) Cognitive automation B) Deep learning C) Einstein technology D) Machine learning E) Robotic process automation Answer: A Explanation: Cognitive automation aims to help professionals and managers with complex questions that present some of the most daunting decision scenarios. A related technology, robotic process automation, tackles narrower and more well-defined business tasks.

Difficulty: 2: Moderate AACSB: Information technology LO: 7.7: Discuss the potential of cognitive automation in management decision making.

99) Cognitive automation can be used to handle data-intensive aspects of decision making and free up managers for more creative and interpersonal aspects of leadership.

Answer: TRUE Explanation: If cognitive automation handles the data-intensive aspects of decision making, it could free up managers for the more unstructured, creative, and interpersonal aspects of leadership.

Difficulty: 2: Moderate AACSB: Information technology LO: 7.7: Discuss the potential of cognitive automation in management decision making.

100) Discuss five uses of cognitive technology within an organization.

Answer: Cognitive automation is generally a more collaborative technology that divides decision-making into the components that humans can do well and those components that computers can do well. Examples of cognitive automation capabilities include (1) Assembling teams by matching people who are most likely to work together productively on team projects, (2) Matching individuals with project assignments based on their history of performance on previous projects, (3) Analyzing financial contracts, (4) Assessing staff and management performance, and (5) Identifying sales prospects that who are mostly likely to respond positively to a sales calls and gathering the optimum set of information that salespeople reps need to interact with each potential customer.

Difficulty: 2: Moderate AACSB: Application of knowledge LO: 7.7: Discuss the potential of cognitive automation in management decision making.

Business in Action, 9e (Bovee/Thill) Chapter 8 Organization and Teamwork 1) A diagram that shows how employees and tasks are grouped and where the lines of communication and authority flow is called a(n) ________.

A) positional depiction B) matrix structure C) network structure D) organization chart E) functional chart Answer: D Explanation: An organization chart is a diagram that shows how employees and tasks are grouped and where the lines of communication and authority flow.

Difficulty: 1: Easy AACSB: Application of knowledge LO: 8.1: Explain the major decisions needed to design an organization structure.

2) A company whose structure, policies, and capabilities allow employees to respond quickly to customer needs and changes in the business environment is termed as a(n) ________.

A) agile organization B) hyper-specialized organization C) formal organization D) umbrella organization E) mechanistic organization Answer: A

Explanation: An agile organization is a company whose structure, policies, and capabilities allow employees to respond quickly to customer needs and changes in the business environment.

Difficulty: 1: Easy AACSB: Application of knowledge LO: 8.1: Explain the major decisions needed to design an organization structure.

3) What does an organization chart show?

A) The attrition rate in the organization B) The costs incurred by the organization C) Lines of authority in the organization D) The performance of the organization E) The growth curve of employees Answer: C Explanation: An organization chart is a diagram that shows how employees and tasks are grouped and where the lines of communication and authority flow.

Difficulty: 2: Moderate AACSB: Application of knowledge LO: 8.1: Explain the major decisions needed to design an organization structure.

4) ________ are those activities in which a company excels and has the potential to create competitive advantages.

A) Core competencies B) Divisions of labor C) Spans of control D) Centralization methodologies E) Process divisions Answer: A Explanation: Core competencies are those activities in which a company excels and has the potential to create competitive advantages.

Difficulty: 2: Moderate AACSB: Application of knowledge LO: 8.1: Explain the major decisions needed to design an organization structure.

5) Another term for work specialization is ________.

A) virtual organization B) chain of command C) span of management D) division of labor E) organizational structure Answer: D Explanation: Work specialization refers to specialization in or responsibility for some portion of an organization's overall work tasks; also called division of labor.

Difficulty: 2: Moderate AACSB: Application of knowledge LO: 8.1: Explain the major decisions needed to design an organization structure.

6) ________ is defined as a pathway for the flow of authority and connects the various groups and levels within the organization.

A) Span of management B) Span of control C) Departmentalization D) Network structure E) Chain of command Answer: E Explanation: Chain of command indicates the lines of authority that connect the various groups and levels within the organization. The chain of command helps the organization function smoothly by making two things clear: who is responsible for each task and who has the authority to make decisions.

Difficulty: 2: Moderate AACSB: Application of knowledge LO: 8.1: Explain the major decisions needed to design an organization structure.

7) Which of the following chain of command systems was developed to address the need to combine specialization with management control?

A) Line organization B) Line-and-staff organization C) Agile organization D) Formal organization E) Informal organization Answer: B Explanation: Line-and-staff organization was developed to address the need to combine specialization with management control. It refers to an organization system that has a clear chain of command but that also includes functional groups of people who provide advice and specialized services.

Difficulty: 2: Moderate AACSB: Application of knowledge LO: 8.1: Explain the major decisions needed to design an organization structure.

8) The number of workers that a manager directly supervises is called the manager's ________.

A) chain of command B) functional structure C) divisional structure D) span of management E) task force Answer: D Explanation: Span of management refers to the number of people under one manager's control; also known as span of control.

Difficulty: 2: Moderate AACSB: Application of knowledge LO: 8.1: Explain the major decisions needed to design an organization structure.

9) In a ________ organization, a manager usually has a wide span of management.

A) tall B) line C) flat D) line-and-staff E) formal Answer: C Explanation: When a large number of people report directly to one person, that person has a wide span of management. This situation is common in flat organizations with relatively few levels in the management hierarchy.

Difficulty: 2: Moderate AACSB: Application of knowledge LO: 8.1: Explain the major decisions needed to design an organization structure.

10) Organizations that focus decision-making authority near the top of the chain of command are said to be ________.

A) departmentalized organizations B) centralized organizations C) unstructured organizations D) informal organizations E) flat organizations Answer: B Explanation: Centralization refers to the concentration of decision-making authority at the top of an organization.

Difficulty: 2: Moderate AACSB: Application of knowledge LO: 8.1: Explain the major decisions needed to design an organization structure.

11) Organization structure is a framework that enables managers to divide responsibilities, ensure employee accountability, and distribute decision-making authority.

Answer: TRUE Explanation: Organization structure is a framework that enables managers to divide responsibilities, ensure employee accountability, and distribute decision-making authority. This structure helps the company achieve its goals by providing a framework for managers to divide responsibilities, distribute the authority to make decisions, coordinate and control the organization's work, and hold employees accountable for their work.

Difficulty: 1: Easy AACSB: Application of knowledge LO: 8.1: Explain the major decisions needed to design an organization structure.

12) The diagram that shows how employees and tasks are grouped is called organizational structure.

Answer: FALSE Explanation: A chart that provides a visual representation of how employees and tasks are grouped and how the lines of communication and authority flow is known as an organization chart.

Difficulty: 1: Easy AACSB: Application of knowledge LO: 8.1: Explain the major decisions needed to design an organization structure.

13) The degree to which organizational tasks are broken down into separate jobs is referred to as work specialization.

Answer: TRUE Explanation: The degree to which organizational tasks are broken down into separate jobs is referred to as work specialization.

Difficulty: 2: Moderate AACSB: Application of knowledge LO: 8.1: Explain the major decisions needed to design an organization structure.

14) Core competencies are those activities in which a company excels and has the potential to create competitive advantages.

Answer: TRUE Explanation: Core competencies are those activities in which a company excels and has the potential to create competitive advantages. Once a company knows what it wants to focus on, it can design each job needed to deliver those competencies.

Difficulty: 2: Moderate AACSB: Application of knowledge LO: 8.1: Explain the major decisions needed to design an organization structure.

15) A chain of command is the line of authority that connect various groups in the organization.

Answer: TRUE Explanation: The chain of command is the lines of authority that connect the various groups and levels within the organization. The chain of command helps the organization function smoothly by making two things clear: who is responsible for each task and who has the authority to make decisions.

Difficulty: 2: Moderate AACSB: Application of knowledge LO: 8.1: Explain the major decisions needed to design an organization structure.

16) When a manager has many employees reporting directly to her, she has a narrow span of control.

Answer: FALSE Explanation: The number of people under one manager's control is known as span of control. When a manager has many employees reporting directly to her, she has a wide span of control.

Difficulty: 2: Moderate AACSB: Application of knowledge LO: 8.1: Explain the major decisions needed to design an organization structure.

17) A centralized organization concentrates decision-making authority at the upper levels of the organization.

Answer: TRUE Explanation: A centralized organization concentrates decision-making authority at the upper levels of the organization.

Difficulty: 2: Moderate AACSB: Application of knowledge LO: 8.1: Explain the major decisions needed to design an organization structure.

18) Discuss the advantages and disadvantages of work specialization.

Answer: Work specialization can improve organizational efficiency by enabling each worker to perform tasks that are well defined and that require specific skills. When employees concentrate on the same specialized tasks, they can perfect their skills and perform their tasks more quickly. In addition to aligning skills with job tasks, specialization prevents overlapping responsibilities and communication breakdowns.

However, organizations can overdo specialization. If a task is defined too narrowly, employees may become bored with performing the same limited, repetitious job over and over. They may also feel unchallenged and alienated.

Difficulty: 2: Moderate AACSB: Analytical thinking LO: 8.1: Explain the major decisions needed to design an organization structure.

19) Compare and contrast line organization and line-and-staff organization.

Answer: The simplest and most common chain-of-command system is known as line organization because it establishes a clear line of authority flowing from the top down.

Everyone knows who is accountable to whom, as well as for which tasks and decisions each is responsible. However, line organization sometimes falls short because the technical complexity of a firm's activities may require specialized knowledge that individual managers don't have and can't easily acquire. A more elaborate system, called line-and-staff organization, was developed to address the need to combine specialization with management control. In such an organization, managers in the chain of command are supplemented by functional groupings of people known as staff, who provide advice and specialized services but who are not in the line organization's overall chain of command.

Difficulty: 3: Challenging AACSB: Analytical thinking LO: 8.1: Explain the major decisions needed to design an organization structure.

20) How does the span of management in flat organizations differ from that in tall organizations?

Answer: The number of people a manager directly supervises is called the span of management. When a large number of people report directly to one person, that person has a wide span of management. This situation is common in flat organizations with relatively few levels in the management hierarchy. In contrast, tall organizations have many hierarchical levels, typically with fewer people reporting to each manager than is the case in a flat organization. In these organizations, the span of management is narrow.

Difficulty: 3: Challenging AACSB: Analytical thinking LO: 8.1: Explain the major decisions needed to design an organization structure.

21) Compare and contrast centralization with decentralization.

Answer: Centralized organizations focus decision-making authority near the top of the chain of command. Centralization can benefit a company by utilizing top management's experience and broad view of organizational goals. In addition, it can help companies coordinate large undertakings more efficiently, accelerate decisions that might otherwise get bogged down in discussions and disagreements, and reduce the number of overlapping capabilities.

In contrast, decentralization pushes decision-making authority down to lower organizational levels—such as department heads—while control over essential companywide matters remains with top management. Implemented properly, decentralization can stimulate responsiveness because decisions don't have to be referred up the hierarchy.

However, decentralization does not work in every situation or in every company.

Difficulty: 3: Challenging AACSB: Analytical thinking LO: 8.1: Explain the major decisions needed to design an organization structure.

22) Grouping people within an organization into logical groups that are then clustered into larger departments is called ________.

A) departmentalization B) decentralization C) centralization D) matrix structuring E) line-and-staff organization Answer: A Explanation: The arrangement of activities into logical groups that are then clustered into larger departments and units to form the total organization is known as departmentalization.

Difficulty: 2: Moderate AACSB: Interpersonal relations and teamwork LO: 8.2: Define four major types of organization structure.

23) ________ refers to the number of layers the chain of command is divided into from the top of the company to the bottom.

A) Vertical structure B) Horizontal structure C) Hybrid structure D) Line structure E) Line-and-staff structure Answer: A Explanation: Vertical structure refers to how many layers the chain of command is divided into from the top of the company to the bottom.

Difficulty: 2: Moderate AACSB: Application of knowledge LO: 8.2: Define four major types of organization structure.

24) ________ refers to how the various business functions and work specialties are divided across the company.

A) Hybrid structure B) Line structure C) Line-and-staff structure D) Vertical structure E) Horizontal structure Answer: E Explanation: Horizontal structure refers to how the various business functions and work specialties are divided across the company.

Difficulty: 2: Moderate AACSB: Interpersonal relations and teamwork LO: 8.2: Define four major types of organization structure.

25) Grouping workers according to their similar skills, resource use, and expertise is called a ________ structure.

A) divisional B) functional C) matrix D) virtual E) network Answer: B Explanation: The functional structure groups employees according to their skills, resource use, and job requirements.

Difficulty: 2: Moderate AACSB: Application of knowledge LO: 8.2: Define four major types of organization structure.

26) Grouping departments according to similarities in product, process, customer, or geography is called ________.

A) network structure B) virtual structure C) matrix structure D) functional structure E) divisional structure Answer: E Explanation: Grouping departments according to similarities in product, process, customer, or geography is called divisional structure.

Difficulty: 2: Moderate AACSB: Interpersonal relations and teamwork LO: 8.2: Define four major types of organization structure.

27) A structure in which employees are assigned to both a functional group and a project team simultaneously is called a(n) ________.

A) network structure B) virtual structure C) matrix structure D) line structure E) informal structure Answer: C Explanation: In a matrix structure, employees are assigned to both a functional group and a project team (thus using functional and divisional patterns simultaneously).

Difficulty: 2: Moderate AACSB: Interpersonal relations and teamwork LO: 8.2: Define four major types of organization structure.

28) A ________ structure is also called a virtual organization because many functions are outsourced, creating a more cohesive whole.

A) functional B) matrix C) divisional D) line E) network Answer: E Explanation: Also called a virtual organization, a network organization can outsource engineering, marketing, research, accounting, production, distribution, or other functions.

Difficulty: 2: Moderate AACSB: Application of knowledge LO: 8.2: Define four major types of organization structure.

29) Which of the following is a characteristic of a matrix structure?

A) Assigning employees to project teams without reorganizing the company's structure B) Establishing a virtual structure by outsourcing various functions C) Relying on multiple external partners to achieve in-house goals D) Creating fully self-managed teams E) Using shared online workspaces to provide access to information and documents Answer: A Explanation: Matrix structure refers to a structure in which employees are assigned to both a functional group and a project team (thus using functional and divisional patterns simultaneously).

Difficulty: 2: Moderate AACSB: Application of knowledge LO: 8.2: Define four major types of organization structure.

30) What division structure is based on major steps of a production plan?

A) Product B) Process C) Customer D) Geographic E) Knowledge Answer: B Explanation: Many organizations use a structure based on product divisions—grouping around each of the company's products or family of products. In contrast, process divisions are based on the major steps of a production process.

Difficulty: 2: Moderate AACSB: Application of knowledge LO: 8.2: Define four major types of organization structure.

31) How can firms counter the weaknesses of the functional structure?

A) By eliminating the number of functional boundaries B) By allowing employees to become focused only on departmental goals C) By using cross-functional teams to coordinate efforts across functional boundaries D) By limiting the coordination and control between geographically dispersed areas E) By decentralizing decision making by top management Answer: C Explanation: The primary disadvantage of a functional structure is the silo effect, whereby people become isolated within the vertical "towers" of their own functional areas, which can inhibit vital communication and collaboration across functions. Firms that use functional structures often try to counter these weaknesses by using crossfunctional teams to coordinate efforts across functional boundaries.

Difficulty: 2: Moderate AACSB: Application of knowledge LO: 8.2: Define four major types of organization structure.

32) When an organization is grouped around product lines, and each line encompasses all functional resources needed to achieve its goal, the company is utilizing a functional structure.

Answer: FALSE Explanation: A functional structure groups workers according to their similar skills, resource use, and expertise. A divisional structure would include product divisions.

Difficulty: 3: Challenging AACSB: Analytical thinking LO: 8.2: Define four major types of organization structure.

33) A matrix organization uses functional and divisional patterns simultaneously.

Answer: TRUE Explanation: A matrix structure is an organizational design in which employees from functional departments form teams to combine their specialized skills.

Difficulty: 2: Moderate AACSB: Application of knowledge LO: 8.2: Define four major types of organization structure.

34) Employees working in a firm with divisional structure have to get used to reporting to

two bosses at the same time.

Answer: FALSE Explanation: Divisional structure refers to grouping departments according to similarities in product, process, customer, or geography. Employees working in a firm with divisional structure will report to only one boss.

Difficulty: 2: Moderate AACSB: Application of knowledge LO: 8.2: Define four major types of organization structure.

35) A network structure stretches beyond the boundaries of a company to connect a variety of partners and suppliers that perform selected tasks for the organization.

Answer: TRUE Explanation: A network structure coordinates resources inside and outside the company to form a cohesive whole. A network structure stretches beyond the boundaries of a company to connect a variety of partners and suppliers that perform selected tasks for a headquarters organization.

Difficulty: 2: Moderate AACSB: Application of knowledge LO: 8.2: Define four major types of organization structure.

36) While a network structure can lower costs and increase a company's flexibility, it can also leave the company vulnerable to risks such as outside contractors going out of business or offering the same goods and services to a competitor.

Answer: TRUE Explanation: While a network structure can lower costs and increase a company's flexibility, relying too heavily on outsiders can render the company vulnerable to events beyond its control, such as a key supplier going out of business, offering the same goods and services to its competitors, or going into direct competition with the company.

Difficulty: 2: Moderate AACSB: Application of knowledge LO: 8.2: Define four major types of organization structure.

37) Define the four major types of organization structure.

Answer: Companies can organize in four primary ways: (1) by function, which groups employees according to their skills, resource use, and expertise; (2) by division, which establishes self-contained departments formed according to similarities in product, process, customer, or geography; (3) by matrix, which assigns employees from functional departments to interdisciplinary project teams and requires them to report to both a department head and a team leader; and (4) by network, which connects separate companies that perform selected tasks for a headquarters organization. Companies can also combine two or more of these types in hybrid structures.

Difficulty: 2: Moderate AACSB: Analytical thinking LO: 8.2: Define four major types of organization structure.

38) Compare and contrast functional structure with divisional structure.

Answer: The functional structure groups employees according to their skills, resource use, and job requirements. Common functional subgroups include research and development (R&D), production or manufacturing, marketing and sales, and human resources.

The divisional structure establishes self-contained sub-organizations that encompass all the major functional resources required to achieve their goals: such as research and design, manufacturing, finance, and marketing. In some companies, these divisions operate with great autonomy; such divisions are often called business units.

Difficulty: 3: Challenging AACSB: Analytical thinking LO: 8.2: Define four major types of organization structure.

39) Compare and contrast matrix structure with network structure.

Answer: A matrix structure is an organizational design in which employees from functional departments form teams to combine their specialized skills. This structure allows the company to pool and share resources across divisions and functional groups.

The matrix may be a permanent feature of the organization's design, or it may be established to complete a specific project.

A network structure stretches beyond the boundaries of a company to connect a variety of partners and suppliers that perform selected tasks for a headquarters organization. Also called a virtual organization, a network organization can outsource engineering, marketing, research, accounting, production, distribution, or other functions. The design of a network structure stems from decisions about core competencies, with executives deciding which functions to focus on internally and which to outsource.

Difficulty: 3: Challenging AACSB: Analytical thinking LO: 8.2: Define four major types of organization structure.

40) Which of the following is a defining characteristic of a problem-solving team?

A) It manages its own activities and requires minimal supervision.

B) It is composed of managers and employees within a single functional department.

C) It is assembled to find ways of improving quality, efficiency, or other performance measures.

D) It is a team that uses communication technology to bring together geographically distant employees to achieve goals.

E) It typically deals with regularly recurring tasks, such as addressing employee grievances.

Answer: C Explanation: A problem-solving team is assembled to find ways of improving quality, efficiency, or other performance measures.

Difficulty: 2: Moderate AACSB: Application of knowledge LO: 8.3: Explain how a team differs from a group, and describe the six most common forms of teams.

41) Which of the following is a defining characteristic of a cross-functional team?

A) It manages its own activities and requires minimal supervision.

B) It is organized along the lines of the organization's vertical structure.

C) It is composed of members at two or more geographic locations.

D) It is typically composed of managers and employees within a single functional department.

E) It includes people from a variety of departments with different areas of expertise and responsibility.

Answer: E Explanation: Cross-functional teams are a powerful scheme for assembling talent, because they overcome the fixed organizational structure and unite people from a variety of departments who have different areas of expertise and responsibility.

Difficulty: 2: Moderate AACSB: Interpersonal relations and teamwork LO: 8.3: Explain how a team differs from a group, and describe the six most common forms of teams.

42) Which of the following is a defining characteristic of a command team?

A) It is organized along the lines of the organization's vertical structure.

B) It manages its own activities and requires minimal supervision.

C) It uses communication technology to bring together geographically distant employees to achieve goals.

D) It is comprised of people from several departments who are temporarily brought together to address a specific issue.

E) It draws together employees from various functional areas and expertise.

Answer: A Explanation: A functional team, or command team, is organized along the lines of the organization's vertical structure and thus may be referred to as a vertical team.

Difficulty: 2: Moderate AACSB: Interpersonal relations and teamwork LO: 8.3: Explain how a team differs from a group, and describe the six most common forms of teams.

43) Functional teams are also known as ________ teams.

A) control B) virtual C) command D) committee-based E) cross-functional Answer: C Explanation: A functional team, or command team, is organized along the lines of the organization's vertical structure and thus may be referred to as a vertical team.

Difficulty: 2: Moderate AACSB: Application of knowledge LO: 8.3: Explain how a team differs from a group, and describe the six most common forms of teams.

44) Which of the following is a defining characteristic of a task force?

A) It is formed to work on a specific activity with a completion point.

B) It is a permanent part of the organization and is designed to deal with regularly recurring tasks.

C) It uses communication technology to bring together geographically distant employees to achieve ongoing goals.

D) It is composed of managers and employees within a single functional department.

E) It manages its own activities and requires minimal supervision.

Answer: A Explanation: A task force is formed to work on a specific activity with a completion point. Several departments are usually involved so that all parties who have a stake in the outcome of the task are able to provide input.

Difficulty: 2: Moderate AACSB: Interpersonal relations and teamwork LO: 8.3: Explain how a team differs from a group, and describe the six most common forms of teams.

45) Which of the following is a defining characteristic of a committee?

A) It refers to a team of people from several departments who are temporarily brought together to address a specific issue.

B) It is composed of members at two or more geographic locations.

C) It typically deals with regularly recurring tasks, such as addressing employee grievances.

D) It is usually composed of managers and employees within a single functional department.

E) It manages its own activities and requires minimal supervision.

Answer: C Explanation: A committee usually has a long life span and may become a permanent part of the organization structure. Committees typically deal with regularly recurring tasks, such as addressing employee grievances.

Difficulty: 2: Moderate AACSB: Interpersonal relations and teamwork LO: 8.3: Explain how a team differs from a group, and describe the six most common forms of teams.

46) Which of the following best describes the working relationship within a team?

A) Teams have shared missions and are collectively responsible for their work.

B) Teams interact to share information and make decisions to help each other only in their areas of responsibility.

C) Teams are limited by a lack of decision-making authority.

D) Teams work best in organizations that practice vertical integration.

E) Teams are responsible for setting their own goals and staying on track to achieve those goals.

Answer: A Explanation: The members of a team have a shared mission and are collectively responsible for their work. By coordinating their individual efforts, the members of a successful team accomplish more together than they could individually, a result known as synergy.

Difficulty: 2: Moderate AACSB: Analytical thinking LO: 8.3: Explain how a team differs from a group, and describe the six most common forms of teams.

47) How can companies use social networking technologies to link employees with similar professional interests throughout the organization for improved collaboration opportunities?

A) By requiring daily interaction of virtual teams B) By establishing communities of practice and virtual communities C) By using wikis to eliminate information overload for team members D) By incorporating videoconferencing and teleconferencing to improve the flow of nonverbal cues in virtual meetings E) By reinforcing constraints of geographic and organization boundaries Answer: B Explanation: Some companies use social networking technologies to form virtual communities or communities of practice that link employees with similar professional interests throughout the company and sometimes with customers and suppliers as well.

Difficulty: 3: Challenging AACSB: Analytical thinking LO: 8.3: Explain how a team differs from a group, and describe the six most common forms of teams.

48) What is the advantage of using virtual communities or communities of practice over traditional team based environments?

A) Virtual team members only use accumulated organizational knowledge.

B) Virtual team members will all have access to the same technology.

C) Virtual team members can collaborate on a project no matter where they are located.

D) Virtual team members will have a shared vision and goal for the success of the team.

E) Virtual teams can come from several departments to work on a specific activity, then disband upon completion.

Answer: C Explanation: The huge advantage that social networking brings is in identifying the best people to collaborate on each problem or project, no matter where they are around the world or what their official roles are in the organization. Such communities are similar to teams in many respects, but one major difference is in the responsibility for accumulating organizational knowledge over the long term.

Difficulty: 3: Challenging AACSB: Interpersonal relations and teamwork LO: 8.3: Explain how a team differs from a group, and describe the six most common forms of teams.

49) A cross-functional team that deals with recurring tasks and has the opportunity to become a permanent part of the organization's structure is known as a ________.

A) task force B) command team C) community of practice D) committee E) self-managed team Answer: D Explanation: A committee usually has a long life span and may become a permanent part of the organization's structure. Committees typically deal with regularly recurring tasks, such as addressing employee grievances.

Difficulty: 2: Moderate AACSB: Interpersonal relations and teamwork LO: 8.3: Explain how a team differs from a group, and describe the six most common forms of teams.

50) A team is a unit of two or more people who work together to achieve a shared goal.

Answer: TRUE Explanation: A team is a unit of two or more people who work toward a shared goal and, unlike other work groups, depend on one another to achieve that goal. Teams differ from work groups in that work groups interact primarily to share information and to make decisions to help one another perform within each member's area of responsibility.

Difficulty: 1: Easy AACSB: Application of knowledge LO: 8.3: Explain how a team differs from a group, and describe the six most common forms of teams.

51) A self-managed team requires little supervision, controls the pace of its work, and determines work assignments.

Answer: TRUE Explanation: A self-managed team requires little supervision, controls the pace of its work and determines work assignments.

Difficulty: 2: Moderate AACSB: Interpersonal relations and teamwork LO: 8.3: Explain how a team differs from a group, and describe the six most common forms of teams.

52) A functional team is also known as a horizontal team.

Answer: FALSE Explanation: The members of a functional team come from a single functional department, so this type of team is based on the organization's vertical structure. A horizontal team is a team that draws together employees from different functional areas.

Difficulty: 2: Moderate AACSB: Application of knowledge LO: 8.3: Explain how a team differs from a group, and describe the six most common forms of teams.

53) A functional team is organized along the lines of the organization's vertical structure.

Answer: TRUE Explanation: A functional team, or command team, is organized along the lines of the organization's vertical structure and thus may be referred to as a vertical team.

Difficulty: 2: Moderate AACSB: Interpersonal relations and teamwork LO: 8.3: Explain how a team differs from a group, and describe the six most common forms of teams.

54) A team that may become permanent in order to deal with regularly recurring tasks is called a task force.

Answer: FALSE Explanation: A task force is formed to work on a specific activity with a completion point. A team that deals with regularly recurring tasks is a committee.

Difficulty: 2: Moderate AACSB: Interpersonal relations and teamwork LO: 8.3: Explain how a team differs from a group, and describe the six most common forms of teams.

55) Social networking can help a company maintain a sense of community even as it grows beyond the size that normally permits a lot of daily interaction.

Answer: TRUE Explanation: Social networking can also help a company maintain a sense of community even as it grows beyond the size that normally permits a lot of daily interaction. Social media is a way for employees to build their community regardless of size.

Difficulty: 2: Moderate AACSB: Interpersonal relations and teamwork LO: 8.3: Explain how a team differs from a group, and describe the six most common forms of teams.

56) How do teams differ from work groups?

Answer: A team is a unit of two or more people who work together to achieve a shared goal. Teams differ from work groups in that work groups interact primarily to share information and to make decisions to help one another perform within each member's area of responsibility. In other words, the performance of a work group is merely the summation of all group members' individual contributions. In contrast, the members of a team have a shared mission and are collectively responsible for their work. By coordinating their individual efforts, the members of a successful team accomplish more together than they could individually, a result known as synergy.

Difficulty: 3: Challenging AACSB: Interpersonal relations and teamwork LO: 8.3: Explain how a team differs from a group, and describe the six most common forms of teams.

57) How does a functional team differ from a cross-functional team?

Answer: A unit of two or more people who share a mission and collective responsibility as they work together to achieve a goal is called a team. A functional team is organized along the lines of the organization's vertical structure and thus may be referred to as a vertical team. Such teams are composed of managers and employees within a single functional department, and the structure of a vertical team typically follows the formal chain of command.

In contrast to functional teams, a cross-functional team draws together employees from various functional areas and expertise. Cross-functional teams can facilitate information exchange, help coordinate multiple organizational units, encourage new solutions for organizational problems, and aid the development of new organizational policies and procedures.

Difficulty: 3: Challenging AACSB: Interpersonal relations and teamwork LO: 8.3: Explain how a team differs from a group, and describe the six most common forms of teams.

58) What is a virtual team?

Answer: A virtual team is composed of members at two or more geographic locations.

Research indicates that virtual teams can be as effective as face-to-face teams, as long as they take steps to overcome the disadvantages of not being able to communicate face to face. For instance, some virtual teams meet in person at least once to allow the members to get to know one another before diving into their work.

Difficulty: 3: Challenging AACSB: Interpersonal relations and teamwork LO: 8.3: Explain how a team differs from a group, and describe the six most common forms of teams.

59) Compare and contrast a task force with a committee.

Answer: A cross-functional team can take on a number of formats. A task force is formed to work on a specific activity with a completion point. Several departments are usually involved so that all parties who have a stake in the outcome of the task are able to provide input. In contrast, a committee usually has a long life span and may become a permanent part of the organization structure. Committees typically deal with regularly recurring tasks, such as addressing employee grievances.

Difficulty: 3: Challenging AACSB: Interpersonal relations and teamwork LO: 8.3: Explain how a team differs from a group, and describe the six most common forms of teams.

60) Which of the following is an advantage of working in a team?

A) Teams limit groupthink.

B) Teams improve flexibility and responsiveness.

C) Teams can lead to less time being spent on decisions.

D) Teams can compete with the formal chain of command.

E) Teams limit the diversity of views.

Answer: B Explanation: Teams are easier to reformulate to respond to changing business needs because they don't have the same degree of permanence as formal departments and other structural elements.

Difficulty: 2: Moderate AACSB: Interpersonal relations and teamwork LO: 8.4: Highlight the advantages and disadvantages of working in teams, and list the characteristics of effective teams.

61) Groupthink occurs when ________.

A) managers favor employees who don't compete with their own particular strengths B) employees judge a decision by its eventual outcome, rather than on the quality of the decision at the time it was made C) peer pressures cause individual team members to withhold contrary or unpopular opinions D) a team places too much importance on one aspect of an event, which causes errors in accurately predicting the utility of a future outcome E) employees rely too heavily, or "anchor," on one trait or piece of information when making decisions about team members Answer: C Explanation: Groupthink occurs when peer pressure causes individual team members to withhold contrary or unpopular opinions.

Difficulty: 2: Moderate AACSB: Interpersonal relations and teamwork LO: 8.4: Highlight the advantages and disadvantages of working in teams, and list the characteristics of effective teams.

62) In a team, people who focus on work-related accomplishments over human needs, and help the team reach its goals are said to assume the ________.

A) task-specialist role B) nonparticipator role C) psychological safety role D) socioemotional role E) people-oriented role Answer: A Explanation: People who assume the task-specialist role focus on helping the team reach its goals.

Difficulty: 2: Moderate AACSB: Interpersonal relations and teamwork LO: 8.4: Highlight the advantages and disadvantages of working in teams, and list the characteristics of effective teams.

63) An employee who focuses on the needs of the team members over the task needs in order to strengthen team unity assumes the ________ role.

A) nonparticipator B) socioemotional C) dual D) task specialist E) norming Answer: B Explanation: Team members who take on the socioemotional role focus on supporting the team's emotional needs and strengthening the team's social unity.

Difficulty: 2: Moderate AACSB: Interpersonal relations and teamwork LO: 8.4: Highlight the advantages and disadvantages of working in teams, and list the characteristics of effective teams.

64) Which of the following is a characteristic of effective teams?

A) Groupthink is encouraged among team members.

B) Decision making is done through quick votes.

C) Decision making is done by the team leader.

D) Conflict is managed by focusing on the people, not the issues.

E) Disagreements are discussed in the interest of task accomplishment.

Answer: E Explanation: Effective teams manage conflict constructively by sharing leadership, encouraging equal participation, discussing disagreements openly and calmly, and focusing on the issues, not the people.

Difficulty: 2: Moderate AACSB: Interpersonal relations and teamwork LO: 8.4: Highlight the advantages and disadvantages of working in teams, and list the characteristics of effective teams.

65) Which of the following is an advantage of creating a team with a diverse background?

A) There will be a stronger sense of collective effort and satisfaction.

B) There will be less likelihood of creating groupthink.

C) There is an increased chance that all group members will support and accept decisions made by the team.

D) There will be broader range of viewpoints that can improve decision making.

E) There will be higher levels of creativity and energy with a shared purpose.

Answer: D Explanation: Diverse teams can bring a variety of perspectives that improve decisionmaking, thereby creating a broader range of viewpoints.

Difficulty: 3: Challenging AACSB: Interpersonal relations and teamwork LO: 8.4: Highlight the advantages and disadvantages of working in teams, and list the characteristics of effective teams.

66) What is the result of a group spending too much time on decisions or losing sight of the ultimate goal?

A) Groupthink B) Diminished motivation C) Inefficiency D) Structural disruption E) Excessive workloads Answer: C Explanation: Even successful teams need to be on constant watch for inefficiency— spending more time than necessary on their decisions and activities or simply losing sight of the team's ultimate goal. Potential sources of inefficiency include internal politics, too much emphasis on consensus, and excessive socializing among team members.

Difficulty: 2: Moderate AACSB: Interpersonal relations and teamwork LO: 8.4: Highlight the advantages and disadvantages of working in teams, and list the characteristics of effective teams.

67) When team members understand the task, what is expected of them, and their role within in the team, they ________.

A) have open and honest communication B) practice decision by consensus C) use empathy and mutual understanding D) have a clear sense of purpose E) foster creative thinking in others Answer: D Explanation: Team members clearly understand the task at hand, what is expected of them, and their respective roles on the team when they have a clear sense of purpose.

Difficulty: 2: Moderate AACSB: Interpersonal relations and teamwork LO: 8.4: Highlight the advantages and disadvantages of working in teams, and list the characteristics of effective teams.

68) When people work together toward a common goal rather than competing for individual recognition, their efforts and energies tend to focus on the common good.

Answer: TRUE Explanation: When people work together toward a common goal rather than competing for individual recognition, their efforts and energies tend to focus on the common good.

Difficulty: 2: Moderate AACSB: Interpersonal relations and teamwork LO: 8.4: Highlight the advantages and disadvantages of working in teams, and list the characteristics of effective teams.

69) People who assume the task-specialist role focus on supporting the team's emotional needs and strengthening the team's social unity.

Answer: FALSE Explanation: People who assume the task-specialist role focus on helping the team reach its goals.

Difficulty: 2: Moderate AACSB: Interpersonal relations and teamwork LO: 8.4: Highlight the advantages and disadvantages of working in teams, and list the characteristics of effective teams.

70) Discuss various factors that can account for team success.

Answer: To be successful, teams must be designed as carefully as any other part of an organization structure. Teams should have a shared sense of purpose and compatible values, with clear and challenging goals. There should be a belief in the value of the team's efforts, a well-balanced mix of people who can provide the insights and skills needed to achieve the goal. The size should align well with the team's responsibilities, and use positive behavioral norms that promote psychological safety, encouraging people to share information, propose unproven ideas, and express vulnerability without fear of repercussion. There should also be a willingness to put the team's needs ahead of individual needs. Additionally, open and honest communication should be encouraged.

Difficulty: 3: Challenging AACSB: Interpersonal relations and teamwork LO: 8.4: Highlight the advantages and disadvantages of working in teams, and list the characteristics of effective teams.

71) According to Bruce Tuckman's model of team development, in the ________ stage, conflicts are resolved, and team harmony develops.

A) forming B) storming C) norming D) performing E) adjourning Answer: C Explanation: During the norming stage, conflicts are resolved, and team harmony develops. Members understand and accept one another, and they agree on the team's leader and team members' roles.

Difficulty: 2: Moderate AACSB: Interpersonal relations and teamwork LO: 8.5: Review the five stages of team development, and explain why conflict can arise in team settings.

72) According to Tuckman's model of team development, in the ________ stage of team development, teams have a cohesive personality and norms to guide behavior, and the group is ready to perform its task.

A) forming B) storming C) norming D) performing E) adjourning Answer: D Explanation: In the performing stage, members are really committed to the team's goals.

Problems are solved and disagreements are handled in the interest of task accomplishment.

Difficulty: 2: Moderate AACSB: Interpersonal relations and teamwork LO: 8.5: Review the five stages of team development, and explain why conflict can arise in team settings.

73) According to Tuckman's model of team development, the ________ stage is a period

of orientation and ice-breaking, and members begin to establish their roles within the team.

A) storming B) forming C) norming D) performing E) adjourning Answer: B Explanation: The forming stage is a period of orientation and ice-breaking. Members get to know each other, determine what types of behaviors are appropriate within the group, identify what is expected of them, and become acquainted with each other's task orientation.

Difficulty: 2: Moderate AACSB: Interpersonal relations and teamwork LO: 8.5: Review the five stages of team development, and explain why conflict can arise in team settings.

74) ________ refer(s) to informal standards of conduct that guide team behavior.

A) Norms B) Groupthink C) Etiquette D) Schemas E) Win-win Answer: A Explanation: Norms define acceptable behavior by setting limits, identifying values, and clarifying expectations. By encouraging consistent behavior, norms boost efficiency and help ensure the group's survival.

Difficulty: 2: Moderate AACSB: Interpersonal relations and teamwork LO: 8.5: Review the five stages of team development, and explain why conflict can arise in team settings.

75) As conflicts resolve themselves, a team begins to establish ________ and clear behavioral norms.

A) groupthink B) vertical integration C) horizontal integration D) decentralization E) cohesiveness Answer: E Explanation: As conflicts resolve themselves (or are resolved through intervention), the team begins to take on a cohesive personality with clear behavioral norms.

Difficulty: 2: Moderate AACSB: Interpersonal relations and teamwork LO: 8.5: Review the five stages of team development, and explain why conflict can arise in team settings.

76) In which stage of Tuckman's model of team development is conflict and disagreement most likely to manifest as team members become more assertive in establishing their roles?

A) Forming B) Storming C) Norming D) Performing E) Adjourning Answer: B Explanation: Conflict and disagreement often arise during the storming stage, as members jockey for position or form coalitions to promote their own perceptions of the team's mission. Although it is necessary for this storming to occur, team members need to make sure the team doesn't lapse into counterproductive behaviors before they have a chance to resolve these emerging conflicts.

Difficulty: 2: Moderate AACSB: Interpersonal relations and teamwork LO: 8.5: Review the five stages of team development, and explain why conflict can arise in team settings.

77) How can conflict be a positive experience for group members?

A) Conflict can isolate and eliminate team members who do not follow acceptable group norms.

B) Conflict can eliminate the opportunity for groupthink to take hold.

C) Conflict can increase the involvement of team members and generate creative ideas for problem solving.

D) Conflict can set precedents for future actions.

E) Conflict resolution will result in increased team happiness and harmony.

Answer: C Explanation: Although the term conflict sounds negative, conflict isn't necessarily bad. It can be constructive if it brings important issues into the open, increases the involvement of team members, and generates creative ideas for solving a problem.

Difficulty: 2: Moderate AACSB: Interpersonal relations and teamwork LO: 8.5: Review the five stages of team development, and explain why conflict can arise in team settings.

78) What type of conflict resolution is based on the premise that greater power or status doesn't entitle one party to impose a solution?

A) Win-lose B) Destructive C) Virtuoso D) Win-win E) Positional Answer: D Explanation: For a win-win strategy to work, everybody must believe that (1) it's possible to find a solution that both parties can accept, (2) cooperation is better for the organization than competition, (3) the other party can be trusted, and (4) greater power or status doesn't entitle one party to impose a solution.

Difficulty: 2: Moderate AACSB: Interpersonal relations and teamwork LO: 8.5: Review the five stages of team development, and explain why conflict can arise in team settings.

79) One way to resolve conflict is to insist on fair outcomes and not letting team members hide behind rules, leading to ________.

A) openness B) proactive attention C) alliances D) communication E) fair play Answer: E Explanation: To use the fair play measure in resolving team conflict, insist on fair outcomes and don't let anyone avoid a fair solution by hiding behind the rules.

Difficulty: 2: Moderate AACSB: Interpersonal relations and teamwork LO: 8.5: Review the five stages of team development, and explain why conflict can arise in team settings.

80) Which of the following will help identify the individual duties for each team member?

A) Developing well-defined tasks B) Establishing clear goals C) Facilitating open communication D) Fostering respect and tolerance E) Setting group objectives Answer: A Explanation: By developing well-defined tasks for each member, the team leader ensures that all parties are aware of their responsibilities and the limits of their authority.

Difficulty: 2: Moderate AACSB: Interpersonal relations and teamwork LO: 8.5: Review the five stages of team development, and explain why conflict can arise in team settings.

81) The stage of team development in which the team stabilizes and team members recognize and accept their roles and duties is called performing.

Answer: TRUE Explanation: During the performing stage of team development, the team stabilizes and team members recognize and accept their roles and duties.

Difficulty: 2: Moderate AACSB: Interpersonal relations and teamwork LO: 8.5: Review the five stages of team development, and explain why conflict can arise in team settings.

82) Informal standards of conduct that guide team behavior are called groupthink.

Answer: FALSE Explanation: Groupthink refers to uniformity of thought that occurs when peer pressures cause individual team members to withhold contrary or unpopular opinions.

Difficulty: 2: Moderate AACSB: Interpersonal relations and teamwork LO: 8.5: Review the five stages of team development, and explain why conflict can arise in team settings.

83) Conflict is a destructive force in an organization and should be avoided at all costs.

Answer: FALSE Explanation: Although the term conflict sounds negative, conflict isn't necessarily bad. It can be constructive if it brings important issues into the open.

Difficulty: 2: Moderate AACSB: Interpersonal relations and teamwork LO: 8.5: Review the five stages of team development, and explain why conflict can arise in team settings.

84) Destructive conflict can lead to win-lose or lose-lose outcomes, in which one or both sides lose, to the detriment of the entire team.

Answer: TRUE Explanation: Destructive conflict can lead to win-lose or lose-lose outcomes, in which one or both sides lose to the detriment of the entire team.

Difficulty: 2: Moderate AACSB: Interpersonal relations and teamwork LO: 8.5: Review the five stages of team development, and explain why conflict can arise in team settings.

85) Identify and define the stages of team development, according to Bruce Tuckman.

Answer: Several models have been proposed to describe the stages of team development; the well-known model defined by researcher Tuckman identifies the stages as forming, storming, norming, performing, and adjourning.

Forming—The members are new, getting to know each other. They are still unsure about how to relate to one another and what is expected of them.

Storming—The team begins to experience some conflict due to differing priorities and personalities, hidden agenda, disagreement about team goals.

Norming—Conflicts are resolved and team harmony begins to develop. The team members' roles and duties are accepted and recognized.

Performing—Members are truly committed to the goals of the team and they are performing at optimal levels. The team is focusing on its assigned tasks rather than team development issues. Differences among team members are seen as positives, not negatives.

Adjourning—Issues are wrapped up and the team is disbanded.

Difficulty: 3: Challenging AACSB: Interpersonal relations and teamwork LO: 8.5: Review the five stages of team development, and explain why conflict can arise in team settings.

86) Discuss the steps team members and team leaders can take to prevent conflicts.

Answer: Team members and team leaders can take several steps to prevent conflicts.

First, by establishing clear goals that require the efforts of every member, the team reduces the chance that members will battle over their objectives or roles. Second, by developing well-defined tasks for each member, the team leader ensures that all parties are aware of their responsibilities and the limits of their authority. Finally, by facilitating open communication, the team leader can ensure that all members understand their own tasks and objectives as well as those of their teammates. Communication builds respect and tolerance, and it provides a forum for bringing misunderstandings into the open before they turn into full-blown conflicts.

Difficulty: 2: Moderate AACSB: Interpersonal relations and teamwork LO: 8.5: Review the five stages of team development, and explain why conflict can arise in team settings.

87) An organization that doesn't have a conventional structure, but instead assembles talent as needed from the open market, is called a(n) ________ organization.

A) unstructured B) functional C) informal D) line-and-staff E) line Answer: A Explanation: Some entrepreneurs and leaders are pushing the concepts of network structures and virtual teams to the extreme to create unstructured organizations that have little or no permanent structure, at least in terms of the traditional forms. These companies use digital technologies—and global socioeconomic changes enabled by these technologies—to rapidly form and re-form work patterns that bear almost no resemblance to the classic structures.

Difficulty: 2: Moderate AACSB: Application of knowledge LO: 8.6: Explain the concept of an unstructured organization, and identify the major benefits and challenges of taking this approach.

88) Which of the following is a defining characteristic of an unstructured organization?

A) It uses digital technologies to rapidly re-form work patterns.

B) It decreases division of labor and work specialization.

C) It has a chain-of-command system that establishes a clear line of authority flowing from the top down.

D) It involves grouping employees according to their skills.

E) It involves using product divisions, grouping departments around each of the company's products.

Answer: A Explanation: These companies use digital technologies—and global socioeconomic changes enabled by these technologies—to rapidly form and re-form work patterns that bear almost no resemblance to the classic structures Difficulty: 2: Moderate AACSB: Application of knowledge LO: 8.6: Explain the concept of an unstructured organization, and identify the major benefits and challenges of taking this approach.

89) From the perspective of companies, which of the following is a potential benefit of an unstructured firm?

A) Companies are more certain that they will be able to get the talent they need.

B) Companies have a workforce with increased sense of loyalty.

C) Companies find it easier to groom replacement managers and executives.

D) Companies have clear built-in lines of accountability up and down the chain of command.

E) Companies can access hyperspecialized talents that were previously unreachable.

Answer: E Explanation: Talent marketplaces such as TopCoder give many more companies access to highly developed and often hyperspecialized talents. Companies that might never be able to attract or afford top experts in a field can essentially rent them on a project-byproject basis instead.

Difficulty: 2: Moderate AACSB: Analytical thinking LO: 8.6: Explain the concept of an unstructured organization, and identify the major benefits and challenges of taking this approach.

90) From the perspective of workers, which of the following is a potential benefit of working for an unstructured organization?

A) Increased job security B) Increased loyalty toward employers C) Increased freedom and flexibility D) Increased sense of working together for a larger, shared purpose E) Availability of full-time trainers to guide, support, and teach new skills Answer: C Explanation: Unstructured organization provides extreme flexibility for workers, particularly after they establish themselves in a field. Within the limits of financial need and project availability, independent contractors can often choose the clients and projects that interest them most and decide how much they want to work.

Difficulty: 2: Moderate AACSB: Analytical thinking LO: 8.6: Explain the concept of an unstructured organization, and identify the major benefits and challenges of taking this approach.

91) From the perspective of the company, which of the following is a potential drawback of using an unstructured organization?

A) Less flexible capacity management B) Higher fixed costs C) Reduced agility D) Lack of built-in accountability E) Decreased loyalty for all employee groups Answer: D Explanation: Conventional structures tend to have clear lines of accountability up and down the chain of command (meaning it's clear who is responsible if things go awry) and clear assignments of legal or financial liability in the event of major foul-ups. However, the situation might not be quite so clear in an unstructured organization that relies on a temporary assemblage of independent companies and contractors.

Difficulty: 2: Moderate AACSB: Analytical thinking LO: 8.6: Explain the concept of an unstructured organization, and identify the major benefits and challenges of taking this approach.

92) Unlike conventional organizations, unstructured organizations tend to ________.

A) provide employees opportunity to form close bonds with co-workers B) have less control over independent contractors than they do permanent employees C) have lower flexibility in adjusting their expense levels to match revenue levels D) have clear lines of accountability up and down the chain of command E) invest in employees over months or years, giving them time and opportunities to develop deep knowledge and skills Answer: B Explanation: Even though companies can in effect hire and fire independent contractors more easily, they have less control over this talent than they have over permanent employees.

Difficulty: 2: Moderate AACSB: Analytical thinking LO: 8.6: Explain the concept of an unstructured organization, and identify the major benefits and challenges of taking this approach.

93) From the perspective of independent contractors, which of the following is a potential drawback of working for an unstructured organization?

A) Evaluations are subjective and based almost entirely on the manager's impressions.

B) There is reduced flexibility and freedom.

C) There is a lack of access to more interesting and more fulfilling work.

D) Independent contractors are required to work for a larger, shared purpose.

E) Independent contractors have to keep their skills current at their own expense.

Answer: E Explanation: Independent contractors are responsible for developing themselves while they're busy making a living, so keeping up with developments in their professions presents a greater burden than it does for typical employees. The situation might not be quite so clear in an unstructured organization that relies on a temporary assemblage of independent companies and contractors.

Difficulty: 2: Moderate AACSB: Application of knowledge LO: 8.6: Explain the concept of an unstructured organization, and identify the major benefits and challenges of taking this approach.

94) How do unstructured organizations utilize digital technologies in a way that is different from structured organizations?

A) To tie work patterns to classic structures B) To limit complexity and increase control C) To provide family-like social structures D) To rapidly form and re-form work patterns E) To identify management succession plans Answer: D Explanation: Unstructured organizations are using digital technologies—and global socioeconomic changes enabled by these technologies—to rapidly form and re-form work patterns that bear almost no resemblance to the classic structures.

Difficulty: 2: Moderate AACSB: Analytical thinking LO: 8.6: Explain the concept of an unstructured organization, and identify the major benefits and challenges of taking this approach.

95) Which of the following is an advantage to the unstructured organization?

A) Increased control B) Increased agility C) Less uncertainty D) Improved organizational loyalty E) Enhanced meaning and connection for workers Answer: B Explanation: In many instances, virtual organizations can be assembled, reconfigured as needed, and disassembled much faster than a conventional employee-based organization can be created, changed, or dismantled. This agility makes it easier to jump on emerging market trends and then change course when the market changes again.

Difficulty: 2: Moderate AACSB: Application of knowledge LO: 8.6: Explain the concept of an unstructured organization, and identify the major benefits and challenges of taking this approach.

96) Unstructured organizations can be even more complex than matrix organizations because workers not only have multiple bosses, they also report to multiple bosses in multiple companies.

Answer: TRUE Explanation: Unstructured organizations can be more complex than matrix organizations. Workers in an unstructured organization will have multiple bosses (from different organizations) to report to.

Difficulty: 2: Moderate AACSB: Analytical thinking LO: 8.6: Explain the concept of an unstructured organization, and identify the major benefits and challenges of taking this approach.

97) Compare and contrast an unstructured organization with a conventional organization.

Answer: Unlike a conventional organization, an unstructured organization assembles talent as needed from the open market, thus taking the virtual and networked organizational concepts to the extreme. Virtual organizations can be assembled, reconfigured as needed, and disassembled much faster than a conventional employeebased organization can be created, changed, or dismantled. Hiring employees to build organizational capacity increases a company's fixed costs, which are incurred regardless of production or sales volumes. With the unstructured approach, companies have much more flexibility in adjusting their expense levels to match revenue levels. The bond that develops between employers and employees over time creates a sense of loyalty that can carry both parties through hard times. However, this sense of "all for one and one for all" is not likely to factor heavily in most unstructured scenarios, where workers are more like competing vendors than members of a family.

Difficulty: 3: Challenging AACSB: Analytical thinking LO: 8.6: Explain the concept of an unstructured organization, and identify the major benefits and challenges of taking this approach.

98) Which of the following is computer software designed to engage in conversation and handle chores?

A) Taskbots B) Widgets C) Robotic process automation D) Chatbots E) Slack Answer: D Explanation: The distinctions can be a little vague, but bots can be divided into two general categories: chatbots and taskbots. As their names suggest, the former primarily engages in conversation and the latter handles chores, although many bots can do both.

Chatbots such as Apple's Siri and Amazon's Alexa use voice interaction, whereas many online chatbots and taskbots use text input and output.

Difficulty: 2: Moderate AACSB: Information technology LO: 8.7: Describe the use of taskbots and robotic procession automation in contemporary business.

99) Which of the following can be programmed to handle routine tasks such as scheduling, data collections, and document distribution?

A) Holacracy B) Taskbots C) Slack D) Chatbots E) Virtual teams Answer: B Explanation: A taskbot is a software agent that can be programmed to handle a variety of routine tasks. Taskbots can assist teams with scheduling, data collection, document distribution, routine communication, and other tasks to give teams more time to focus on higher-level work.

Difficulty: 2: Moderate AACSB: Information technology LO: 8.7: Describe the use of taskbots and robotic procession automation in contemporary business.

100) Robotic process automation (RPA) is software that targets the "paperwork" aspect of business.

Answer: TRUE Explanation: RPA targets the high-volume "paperwork" aspects of business, such as entering and retrieving records, creating database reports, and processing customer orders.

Difficulty: 2: Moderate AACSB: Information technology LO: 8.7: Describe the use of taskbots and robotic procession automation in contemporary business.

Business in Action, 9e (Bovee/Thill) Chapter 9 Production Systems

1) In the systems view of business, a system is an interconnected set of elements that ________.

A) considers all elements that add value to the organization B) acts as a multidimensional network of suppliers and outsourcing partners C) manages the speed and flexibility of a process D) converts inputs into desired outputs E) helps identify key advantages of a process Answer: D Explanation: A system is an interconnected and coordinated set of elements and processes that converts inputs into desired outputs.

Difficulty: 2: Moderate AACSB: Application of knowledge LO: 9.1: Explain the systems perspective, and identify seven principles of systems thinking that can improve your skills as a manager.

2) When analyzing systems behavior and malfunctions, be sure to focus on things that ________.

A) are most obvious B) make a large, but short-term, impact C) are meaningful D) result in high productivity E) create leverage points Answer: C Explanation: The most obvious answer is not always the right answer, and poorly conceived solutions often end up causing more harm than good. When you analyze systems behavior and malfunctions, make sure you focus on things that are meaningful, not merely things that are measurable.

Difficulty: 2: Moderate AACSB: Application of knowledge LO: 9.1: Explain the systems perspective, and identify seven principles of systems thinking that can improve your skills as a manager.

3) Organizations can promote systems thinking by ________.

A) showing people how they contribute to the overall goal B) implementing output-based individual incentives C) restricting interactions at the subsystem level D) giving them direct solutions from the top E) implementing output-based incentives for small teams Answer: A Explanation: Organizations can benefit from systems thinking by helping everyone see the big picture. They should show people how they contribute to the overall goal and reward them for doing so.

Difficulty: 2: Moderate AACSB: Application of knowledge LO: 9.1: Explain the systems perspective, and identify seven principles of systems thinking that can improve your skills as a manager.

4) The point in a system where a small correction could improve the performance of the entire organization is called the ________.

A) break-even point B) breaking point C) leverage point D) equilibrium point E) point of no return Answer: C Explanation: Leverage point is the point where a relatively small correction could make the entire company perform better.

Difficulty: 2: Moderate AACSB: Application of knowledge LO: 9.1: Explain the systems perspective, and identify seven principles of systems thinking that can improve your skills as a manager.

5) One of the most important skills a manager can develop is the ability to ________.

A) identify and utilize value chain B) establish a value web within the organization C) view the business from a systems perspective D) understand the value of service and delivery E) incorporate process quality into all functions Answer: C Explanation: One of the most important skills you can develop as a manager is the ability to view business from a systems perspective.

Difficulty: 3: Challenging AACSB: Analytical thinking LO: 9.1: Explain the systems perspective, and identify seven principles of systems thinking that can improve your skills as a manager.

6) What do systems do?

A) Separate functional areas B) Identify elements that add value to products C) Utilize other firms for significant functions of the process D) Convert inputs into desired outputs E) Identify multidimensional networks of suppliers and other partners Answer: D Explanation: A system is an interconnected and coordinated set of elements and processes that convert inputs into desired outputs.

Difficulty: 2: Moderate AACSB: Analytical thinking LO: 9.1: Explain the systems perspective, and identify seven principles of systems thinking that can improve your skills as a manager.

7) What can a manager do to benefit from systems thinking?

A) Fix mistakes and move on without dwelling on the problem.

B) Reward people for measurable outcomes.

C) Isolate problem areas from the overall system.

D) Solve problems instead of moving them to another subsystem.

E) Send soft, or mixed, signals when giving feedback.

Answer: D Explanation: Don't just move problems around—solve them. When one subsystem in a company is malfunctioning, its problems are sometimes just moved around from one subsystem to the next, without ever getting solved.

Difficulty: 3: Challenging AACSB: Analytical thinking LO: 9.1: Explain the systems perspective, and identify seven principles of systems thinking that can improve your skills as a manager.

8) How can managers avoid or eliminate reoccurring mistakes in the system?

A) Fix the mistake and move on.

B) View the mistake from the goals identified in the big picture.

C) Isolate the mistake from interaction with the rest of the system.

D) Show employees how the mistake detracts from the overall goals.

E) Use mistakes as an opportunity to learn.

Answer: E Explanation: When mistakes occur, resist the temptation to just criticize or complain and then move on. Pull the team together and find out why the mistake occurred, and then identify ways to fix the system to eliminate mistakes in the future.

Difficulty: 3: Challenging AACSB: Analytical thinking LO: 9.1: Explain the systems perspective, and identify seven principles of systems thinking that can improve your skills as a manager.

9) Individual systems within an organization are considered ________ of the overall business.

A) goals B) inputs C) subsystems D) outputs E) functions Answer: C Explanation: A company is made up of numerous individual systems in the various functional areas, not only in manufacturing or operations, but also in engineering, marketing, accounting, and other areas that together constitute the overall system that is the company itself. Each of these individual systems can also be thought of as a subsystem of the overall business.

Difficulty: 2: Moderate AACSB: Application of knowledge LO: 9.1: Explain the systems perspective, and identify seven principles of systems thinking that can improve your skills as a manager.

10) A system is an interconnected and coordinated set of elements and processes that converts inputs to desired outputs.

Answer: TRUE Explanation: System is an interconnected and coordinated set of elements and processes that converts inputs to desired outputs. A company is made up of numerous individual systems in the various functional areas, not only in manufacturing or operations but also in engineering, marketing, accounting, and other areas that together constitute the overall system that is the company itself.

Difficulty: 2: Moderate AACSB: Application of knowledge LO: 9.1: Explain the systems perspective, and identify seven principles of systems thinking that can improve your skills as a manager.

11) Feedback is the information from the output applied back to the input.

Answer: TRUE Explanation: Feedback is the information from the output applied back to the input.

Feedback can work in unanticipated ways, too. A good example is managers sending mixed signals to their employees, such as telling them that customer satisfaction is the top priority but then criticizing anyone who spends too much time helping customers.

Difficulty: 2: Moderate AACSB: Application of knowledge LO: 9.1: Explain the systems perspective, and identify seven principles of systems thinking that can improve your skills as a manager.

12) Corrections will not lead to performance improvements at the leverage point.

Answer: FALSE Explanation: At the leverage point, a relatively small correction could make the entire company perform better.

Difficulty: 2: Moderate AACSB: Application of knowledge LO: 9.1: Explain the systems perspective, and identify seven principles of systems thinking that can improve your skills as a manager.

13) Identify individual systems found in a company.

Answer: A system is an interconnected and coordinated set of elements and processes that converts inputs into desired outputs. A company is made up of numerous individual systems in the various functional areas, not only in manufacturing or operations, but also in engineering, marketing, accounting, and other areas that together constitute the overall system that is the company itself. Each of these individual systems can also be thought of as a subsystem of the overall business.

Difficulty: 2: Moderate AACSB: Analytical thinking LO: 9.1: Explain the systems perspective, and identify seven principles of systems thinking that can improve your skills as a manager.

14) What seven steps can a manager use to ensure a system works at peak performance level?

Answer: First, help everyone see the big picture. It's human nature for individual employees and departments to focus on their own goals and lose sight of what the company as a whole is trying to accomplish. Second, understand how individual systems really work and how they interact. Managers need to avoid the temptation to jump in and try to fix systems without understanding how each one works and how they interact with one another. Third, understand problems before you try to fix them. The most obvious answer is not always the right answer, and poorly conceived solutions often end up causing more harm than good. Fourth, understand the potential impact of solutions before you implement them. Fifth, don't just move problems around—solve them. When one subsystem in a company is malfunctioning, its problems are sometimes just moved around from one subsystem to the next, without ever getting solved. Sixth, understand how feedback works in the system. Systems respond to feedback, which is information from the output applied back to the input. Seventh, use mistakes as opportunities to learn and improve. Pull the team together and find out why the mistake occurred, and then identify ways to fix the system to eliminate mistakes in the future.

Difficulty: 3: Challenging AACSB: Analytical thinking LO: 9.1: Explain the systems perspective, and identify seven principles of systems thinking that can improve your skills as a manager.

15) ________ include all the elements and processes from transforming raw materials to making the final products available to the ultimate customer.

A) Value webs B) Supply webs C) Value chains D) Supply chains E) Ecosystems Answer: C Explanation: Value chains refer to all the elements and processes that add value as raw materials are transformed into the final products made available to the ultimate customer.

Difficulty: 2: Moderate AACSB: Application of knowledge LO: 9.2: Describe the value chain and value web concepts, and discuss the controversy over offshoring.

16) ________ refers to focusing on core competencies and letting other companies handle remaining business functions.

A) Outsourcing B) Scaling C) Supply chain D) Value webs E) External valuation Answer: A Explanation: Outsourcing refers to contracting out certain business functions or operations to other companies. Companies focus on their core competencies and outsource the remaining tasks.

Difficulty: 2: Moderate AACSB: Application of knowledge LO: 9.2: Describe the value chain and value web concepts, and discuss the controversy over offshoring.

17) ________ refers to transferring a part or all of a business function to a facility in another country.

A) Offshoring B) Scaling C) Leveraging D) Customization E) External valuation Answer: A Explanation: Offshoring refers to transferring a part or all of a business function to a facility (a different part of the company or another company entirely) in another country.

Difficulty: 2: Moderate AACSB: Application of knowledge LO: 9.2: Describe the value chain and value web concepts, and discuss the controversy over offshoring.

18) The phenomenon where U.S. companies move their production back to U.S. soil is known as ________.

A) offshoring B) outsourcing C) leveraging D) reshoring E) external valuation Answer: D Explanation: The complexities and rising costs of long-distance manufacturing have prompted some companies to move their production back to home soil, a phenomenon known as onshoring or reshoring.

Difficulty: 2: Moderate AACSB: Application of knowledge LO: 9.2: Describe the value chain and value web concepts, and discuss the controversy over offshoring.

19) Which of the following is an advantage of offshoring goods where labor is a significant part of production costs?

A) Hidden costs and risks are rarely involved.

B) U.S. firms can charge lower prices.

C) Business agility is improved.

D) Information risks are lower.

E) Customer responsiveness is increased.

Answer: B Explanation: For goods in which labor represents a significant portion of production costs, dramatically lowering labor costs through offshoring lets a company lower its prices to consumers.

Difficulty: 2: Moderate AACSB: Application of knowledge LO: 9.2: Describe the value chain and value web concepts, and discuss the controversy over offshoring.

20) Which of the following is a disadvantage of offshoring?

A) U.S. consumers will be charged higher prices.

B) Global trade will decline.

C) Customer responsiveness may suffer.

D) Customers will lack choice in many industries.

E) U.S. competitiveness will decrease.

Answer: C Explanation: Even with its potential benefits, offshoring is not a simple decision for any company. Managers must consider such issues as time zone differences, transportation costs and delays, quality assurance, responsiveness, and the loss of direct control.

Difficulty: 2: Moderate AACSB: Application of knowledge LO: 9.2: Describe the value chain and value web concepts, and discuss the controversy over offshoring.

21) What is the advantage of outsourcing significant functions of an organization?

A) Companies have increased globalization.

B) Companies can concentrate on core competencies.

C) Companies can better utilize value webs.

D) Companies can move toward becoming unstructured.

E) Companies can expand their focus.

Answer: B Explanation: The outsourced, value web approach has several key advantages, including speed, flexibility, and the opportunity to access a wide range of talents and technologies that might be expensive or impossible to acquire otherwise. Established companies can narrow their focus to excel at their core competencies.

Difficulty: 2: Moderate AACSB: Application of knowledge LO: 9.2: Describe the value chain and value web concepts, and discuss the controversy over offshoring.

22) What are value webs?

A) Functional areas for virtual teams B) Coordinated elements and processes C) Networks of suppliers and outsourcing partners

D) The conversion of inputs into outputs E) Links in the supply chain Answer: C Explanation: Instead of the linear value chain, some businesses now think in terms of value webs, multidimensional networks of suppliers and outsourcing partners. Value webs enable the virtual or network organization structures and the unstructured organizations to be viewed as dynamic value webs that grow, shrink, or change as the company's needs change.

Difficulty: 2: Moderate AACSB: Application of knowledge LO: 9.2: Describe the value chain and value web concepts, and discuss the controversy over offshoring.

23) Which of the following is a risk of using outsourcing?

A) Expensive technology B) Limit access to talent C) Flexibility D) Control E) Speed Answer: D Explanation: For all its potential advantages, outsourcing does carry some risks, particularly in terms of control. Suppliers can miss target dates and quality standards.

Difficulty: 2: Moderate AACSB: Application of knowledge LO: 9.2: Describe the value chain and value web concepts, and discuss the controversy over offshoring.

24) Establishing production facilities in or near a market incorporates what type of strategy?

A) Offshoring B) Market expansion C) Reshoring D) Value web E) Near-shoring Answer: E Explanation: As developing economies generate more demand for products, some manufacturers are establishing production facilities in or near those markets, a strategy known as near-shoring.

Difficulty: 2: Moderate AACSB: Application of knowledge LO: 9.2: Describe the value chain and value web concepts, and discuss the controversy over offshoring.

25) Shifting a job to an overseas division of the same company is considered ________.

A) offshoring B) near-shoring C) job transfers D) relationship trade-off E) sustainability Answer: A Explanation: Offshoring can shift jobs to another company or to an overseas division of the same company.

Difficulty: 2: Moderate AACSB: Application of knowledge LO: 9.2: Describe the value chain and value web concepts, and discuss the controversy over offshoring.

26) In response to increasing demand for products in developing countries, some manufacturers pursue a strategy called nearshoring, allowing the company to ________.

A) move production back to the home country B) establish production facilities close to the home country C) set up facilities in several countries where the products are most popular D) have ecosystems compete against one another E) move production to an outside vendor in the home country Answer: B Explanation: Companies in North America and Europe may decide to move production to nearby countries, rather than to traditional low-cost areas in Asia, a strategy known as nearshoring.

Difficulty: 2: Moderate AACSB: Application of knowledge LO: 9.2: Describe the value chain and value web concepts, and discuss the controversy over offshoring.

27) A company that hires an outside firm to do its accounting and payroll function is outsourcing that function.

Answer: TRUE Explanation: A company that hires an outside firm to do its accounting and payroll function is outsourcing that function. The term outsourcing is usually applied when a firm decides to move a significant function that was previously done in-house, such as information technology or manufacturing, to an outside vendor.

Difficulty: 2: Moderate AACSB: Application of knowledge LO: 9.2: Describe the value chain and value web concepts, and discuss the controversy over offshoring.

28) A firm's suppliers are not part of its value chain.

Answer: FALSE Explanation: The value chain includes all the elements and processes that add value as raw materials used to make the final products for the ultimate customer.

Difficulty: 2: Moderate AACSB: Application of knowledge LO: 9.2: Describe the value chain and value web concepts, and discuss the controversy over offshoring.

29) Value webs are multidimensional networks of suppliers and outsourcing partners.

Answer: TRUE Explanation: Value webs are multidimensional networks of suppliers and outsourcing partners. A value web can connect an entire ecosystem of partners and suppliers, and in some industries, these ecosystems compete against one another as much as companies do.

Difficulty: 2: Moderate AACSB: Application of knowledge LO: 9.2: Describe the value chain and value web concepts, and discuss the controversy over offshoring.

30) Outsourcing and offshoring are synonymous terms.

Answer: FALSE Explanation: Outsourcing refers to contracting out certain business functions or operations to other companies. It is different from offshoring, which happens when companies move jobs to another country.

Difficulty: 2: Moderate AACSB: Application of knowledge LO: 9.2: Describe the value chain and value web concepts, and discuss the controversy over offshoring.

31) Offshoring is moving processes to markets that are closer to home in order to minimize transportation and management costs.

Answer: FALSE Explanation: Offshoring refers to transferring a part or all of a business function to a facility (a different part of the company or another company entirely) in another country.

Difficulty: 2: Moderate AACSB: Application of knowledge LO: 9.2: Describe the value chain and value web concepts, and discuss the controversy over offshoring.

32) Explain the essential purpose of a business and how value chain can support that purpose.

Answer: The essential purpose of a business is adding value—transforming lower-value inputs into higher-value outputs. The details vary widely from industry to industry, but all businesses focus on some kind of transformation. The value chain is a helpful way to consider all the elements and processes that add value as input materials are transformed into the final products made available to the ultimate customer. Each industry has a value chain, and each company has its own value chain as well.

Difficulty: 2: Moderate AACSB: Analytical thinking LO: 9.2: Describe the value chain and value web concepts, and discuss the controversy over offshoring.

33) Explain the concept of value webs.

Answer: Instead of the linear value chain, some businesses now think in terms of value webs, multidimensional networks of suppliers and outsourcing partners. Value webs enable the virtual or network organization structures and the unstructured organizations.

They can be viewed as dynamic value webs that grow, shrink, or change as the company's needs change.

Difficulty: 2: Moderate AACSB: Analytical thinking LO: 9.2: Describe the value chain and value web concepts, and discuss the controversy over offshoring.

34) Why is the offshoring debate an excellent example of conflicting priorities in the stakeholder model?

Answer: Offshoring may maximize a company's profits by reducing labor and materials costs, and this would benefit its shareholders. Offshoring may also open new markets for the company's products, thus benefiting customers in the region. It may also make the company more globally competitive, which may ultimately save jobs in the United States.

However, losing jobs to locations with cheaper labor may also eliminate jobs in the United States, and this would negatively affect the company's employees in the United States. Offshoring operations may also make the company less responsive to its customers in the United States.

Difficulty: 2: Moderate AACSB: Analytical thinking LO: 9.2: Describe the value chain and value web concepts, and discuss the controversy over offshoring.

35) Discuss the advantages of creating a value web in an organization.

Answer: A value web can connect an entire ecosystem of partners and suppliers, and in some industries, these ecosystems compete against one another as much as companies do.

For example, Google created an online shopping ecosystem, Google Express, to compete with the Amazon ecosystem. The outsourced, value web approach has several key advantages, including speed, flexibility, and the opportunity to access a wide range of talents and technologies that might be expensive or impossible to acquire otherwise.

Established companies can narrow their focus to excel at their core competencies; entrepreneurs with product ideas can quickly assemble a team of designers, manufacturing plants, and distributors in far less time than it would take to build an entire company from scratch.

Difficulty: 3: Challenging AACSB: Analytical thinking LO: 9.2: Describe the value chain and value web concepts, and discuss the controversy over offshoring.

36) A supply chain ________.

A) cannot be distinct for different departments B) is applicable for services rather than goods C) has only two components D) does not include end customers E) coordinates the flow of goods and materials Answer: E Explanation: Supply chain is a set of connected systems that coordinates the flow of goods and materials from suppliers all the way through to final customers.

Difficulty: 2: Moderate AACSB: Application of knowledge LO: 9.3: Define supply chain management, and explain its strategic importance.

37) Supply chain management refers to the business procedures, policies, and computer systems that ________.

A) separate supply chain from the value chain of an organization B) convert supply chain into a cohesive system C) separate supply chain from other business functions D) help an organization communicate with competing firms E) create a procurement process independent of the supply chain Answer: B Explanation: Supply chain management refers to the business procedures, policies, and computer systems that integrate the various elements of the supply chain into a cohesive system.

Difficulty: 2: Moderate AACSB: Application of knowledge LO: 9.3: Define supply chain management, and explain its strategic importance.

38) ________ refers to determining the right quantities of supplies and products to have on hand and tracking where those items are.

A) Customer relationship management B) Summative evaluation C) Quality control D) Inventory control E) Statistical process control Answer: D Explanation: Inventory control refers to determining the right quantities of supplies and products to have on hand and tracking where those items are. Inventory control is essential to minimize organizational costs.

Difficulty: 2: Moderate AACSB: Application of knowledge LO: 9.3: Define supply chain management, and explain its strategic importance.

39) Which of the following is the main objective of engaging in inventory control?

A) Providing a channel for customer communication B) Obtaining feedback from the customers C) Providing a channel for brand communication D) Balancing supply and storage costs E) Storing less finished products and more raw materials Answer: D Explanation: Inventory control is the act of balancing costs associated with storing raw materials and finished products and maintaining an adequate supply of them.

Difficulty: 2: Moderate AACSB: Application of knowledge LO: 9.3: Define supply chain management, and explain its strategic importance.

40) ________ refers to the acquisition of the raw materials, parts, components, supplies, and finished products required to produce goods and services.

A) Procurement B) Logistics C) Operation D) Finishing E) Inventory Answer: A Explanation: Procurement refers to the acquisition of the raw materials, parts, components, supplies, and finished products required to produce goods and services.

Procurement's goal is to make sure that the company has all the materials it needs, when it needs them, at the lowest possible cost.

Difficulty: 2: Moderate AACSB: Application of knowledge LO: 9.3: Define supply chain management, and explain its strategic importance.

41) The period of time between placing an order for supplies and receiving the material is called ________.

A) process forecast B) run time C) lead time D) lag time E) procurement delay Answer: C Explanation: The period that elapses between placing the supply order and receiving materials is referred to as a product's lead time. A company must always have enough supplies on hand to cover a product's lead time.

Difficulty: 2: Moderate AACSB: Application of knowledge LO: 9.3: Define supply chain management, and explain its strategic importance.

42) The technology known as ________ attaches small antenna tags to products or shipping containers to help the company track where needed materials are in its supply chain.

A) Wi-Fi intelligence (WFI) B) resource identification protocols (RIP) C) ISO informatics (ISOI) D) just-in-time systematics (JITS) E) radio frequency identification (RFID) Answer: E Explanation: Radio frequency identification (RFID) uses small antenna tags attached to products or shipping containers; special sensors detect the presence of the tags and can track the flow of goods through the supply chain.

Difficulty: 2: Moderate AACSB: Information technology LO: 9.3: Define supply chain management, and explain its strategic importance.

43) What is the goal of purchasing?

A) To ensure the company has what it needs, when they need it, at the lowest possible cost B) To determine the right quantities of supplies and products to have on hand C) To track where items are in the supply chain D) To link a company's financial system to other processes E) To extend resource planning to encompass the entire organization Answer: A Explanation: Procurement, or purchasing, is the acquisition of the raw materials, parts, components, supplies, and finished products required to produce goods and services. The goal of purchasing is to make sure that the company has all the materials it needs, when it needs them, at the lowest possible cost.

Difficulty: 2: Moderate AACSB: Information technology LO: 9.3: Define supply chain management, and explain its strategic importance.

44) What type of system helps a manufacturer get the correct materials where they are needed, when they are needed?

A) Manufacturing resource planning (MRP II) B) Enterprise resource planning (ERP) C) Near-shoring D) Radio frequency identification (RFID) E) Material requirements planning (MRP) Answer: E Explanation: Managers use MRP software to calculate when certain materials will be required, when they should be ordered, and when they should be delivered so that storage costs will be minimal. These systems are so effective at reducing inventory levels that they are used almost universally in both large and small manufacturing firms.

Difficulty: 2: Moderate AACSB: Information technology LO: 9.3: Define supply chain management, and explain its strategic importance.

45) Inventory control refers to determining how much of what to have on hand at any given time.

Answer: TRUE Explanation: Inventory control refers to determining how much of what to have on hand at any given time. Keeping the right amount of supplies and materials available without excess will balance the needs of production while keeping cost down.

Difficulty: 2: Moderate AACSB: Application of knowledge LO: 9.3: Define supply chain management, and explain its strategic importance.

46) The period of time that elapses between placing an order and actual receipt is the product's lag time.

Answer: FALSE Explanation: The period that elapses between placing the supply order and receiving materials is referred to as lead time.

Difficulty: 2: Moderate AACSB: Application of knowledge LO: 9.3: Define supply chain management, and explain its strategic importance.

47) Explain the various ways in which supply chain management (SCM) can have a profound strategic impact on companies and the broader economy.

Answer: Managing risks: SCM can help companies manage the complex risks involved in a supply chain, risks that include everything from cost and availability to health and safety issues.

Managing relationships: SCM can coordinate the numerous relationships in the supply chain and help managers focus their attention on the most important company-tocompany relationships.

Managing trade-offs: SCM helps managers address the many trade-offs in the supply chain. These trade-offs can be a source of conflict within the company, and SCM helps balance the competing interests of the various functional areas.

Promoting sustainability: As the part of business that moves raw materials and finished goods around the world, supply chains have an enormous effect on resource usage, waste, and environmental impact. A major effort is underway in the field of SCM to develop greener supply chains.

Difficulty: 3: Challenging AACSB: Analytical thinking LO: 9.3: Define supply chain management, and explain its strategic importance.

48) Explain the significance of procurement in a business.

Answer: Procurement is the acquisition of the raw materials, parts, components, supplies, and finished products required to produce goods and services. The goal of purchasing is to make sure that the company has all the materials it needs, when it needs them, at the lowest possible cost. A company must always have enough supplies on hand to cover a product's lead time; that is, the period that elapses between placing the supply order and receiving materials.

Difficulty: 3: Challenging AACSB: Analytical thinking LO: 9.3: Define supply chain management, and explain its strategic importance.

49) Compare and contrast materials requirement planning (MRP) and enterprise resource planning (ERP).

Answer: Material requirements planning (MRP) helps a manufacturer get the correct materials where and when they are needed, without unnecessary stockpiling. Managers use MRP software to calculate when certain materials will be required, when they should be ordered, and when they should be delivered so that storage costs will be minimal.

Because these systems are so effective at reducing inventory levels, they are used almost universally in both large and small manufacturing firms.

Enterprise resource planning (ERP) extends the scope of resource planning and management even further to encompass the entire organization. Typical ERP software programs consist of modules that address the needs of the various functional areas, from manufacturing to sales to human resources. Some companies deploy ERP on a global scale, with a single centralized system connecting all their operations worldwide.

Difficulty: 3: Challenging AACSB: Analytical thinking LO: 9.3: Define supply chain management, and explain its strategic importance.

50) ________ refers to overseeing all the activities involved in producing goods and services.

A) Facilities management B) Capacity planning C) Procurement D) Logistics E) Operations management Answer: E Explanation: Operations management refers to overseeing all the activities involved in producing goods and services. Operations managers are responsible for a wide range of strategies and decisions, from high-level design of the production system to forecasting and scheduling.

Difficulty: 2: Moderate AACSB: Application of knowledge LO: 9.4: Identify the major planning decisions in production and operations management.

51) ________ refers to the arrangement of production work centers and other elements needed to process goods and services.

A) Supply chain B) Facility layout C) Capacity planning D) Critical path E) Production forecast Answer: B Explanation: Facility layout refers to the arrangement of production work centers and other elements (such as materials, equipment, and support departments) needed to process goods and services.

Difficulty: 2: Moderate AACSB: Application of knowledge LO: 9.4: Identify the major planning decisions in production and operations management.

52) ________ refers to establishing the overall level of resources needed to meet customer demand.

A) Production planning B) Facility analysis C) Capacity planning D) Process control E) Critical path analysis Answer: C Explanation: Capacity planning is the collection of long-term strategic decisions that establish the overall level of resources needed to meet customer demand.

Difficulty: 2: Moderate AACSB: Application of knowledge LO: 9.4: Identify the major planning decisions in production and operations management.

53) ________ are estimates of future demand for a company's products.

A) Operation plans B) PERT reports C) Resource plans D) Critical paths E) Production forecasts Answer: E Explanation: Production forecasts are estimates of future demand for a company's products. Management should balance capacity and demand after forecast.

Difficulty: 2: Moderate AACSB: Application of knowledge LO: 9.4: Identify the major planning decisions in production and operations management.

54) ________ is a tool used by manufacturing facilities to coordinate production of all the goods the company makes.

A) JIT system B) Value web C) Six Sigma D) Inventory list E) Master production schedule Answer: E Explanation: Manufacturing facilities often use a master production schedule (MPS) to coordinate production of all the goods the company makes.

Difficulty: 2: Moderate AACSB: Application of knowledge LO: 9.4: Identify the major planning decisions in production and operations management.

55) ________ is a special type of bar chart that shows the progress of all the tasks needed to complete a project.

A) Forecast schedule B) Gantt chart C) Value chart D) PERT diagram E) Supply chain diagram Answer: B Explanation: To plan and track projects of all kinds, managers throughout a company can use a Gantt chart, a special type of bar chart that shows the progress of all the tasks needed to complete a project.

Difficulty: 2: Moderate AACSB: Application of knowledge LO: 9.4: Identify the major planning decisions in production and operations management.

56) The sequence of activities that take the longest time from start to finish in a PERT diagram is called the ________ path.

A) external B) lagging C) minor D) critical E) buffered Answer: D Explanation: In a PERT network diagram, the sequence of operations that requires the longest time to complete is referred to as the critical path.

Difficulty: 2: Moderate AACSB: Application of knowledge LO: 9.4: Identify the major planning decisions in production and operations management.

57) ________ refers to the efficiency with which an organization can convert inputs to outputs.

A) Productivity B) Sustainability C) Security D) Capacity E) System value Answer: A Explanation: Productivity refers to the efficiency with which an organization can convert inputs to outputs. Productivity is one of the most vital responsibilities in operations management because it is a key factor in determining the company's competitiveness and profitability.

Difficulty: 2: Moderate AACSB: Application of knowledge LO: 9.4: Identify the major planning decisions in production and operations management.

58) Which of the following is the main purpose of just-in-time systems?

A) Disintermediation of distribution B) Bettering work scheduling C) Strategic analysis D) Capacity improvement E) Better inventory management Answer: E Explanation: Just-in-time (JIT) is a type of inventory management in which goods and materials are delivered throughout the production process right before they are needed.

Its main objective is better inventory management.

Difficulty: 2: Moderate AACSB: Application of knowledge LO: 9.4: Identify the major planning decisions in production and operations management.

59) ________ refers to the creation of a unique good or service for each customer.

A) Mass production B) Batch production C) Customized production D) Mass customization E) Standard production Answer: C Explanation: Customized production is the creation of a unique good or service for each customer. The firm is producing a unique product for the customer in this case.

Difficulty: 2: Moderate AACSB: Application of knowledge LO: 9.4: Identify the major planning decisions in production and operations management.

60) ________ refers to the creation of identical goods or services in large quantities.

A) Mass customization B) Batch-of-one production C) Mass production D) Customized production E) Mass personalization Answer: C Explanation: Mass production refers to the creation of identical goods or services, usually in large quantities.

Difficulty: 2: Moderate AACSB: Application of knowledge LO: 9.4: Identify the major planning decisions in production and operations management.

61) The manufacturing approach in which part of the product is mass-produced and the remaining features are customized is known as ________.

A) batch-of-one production B) total quality management C) scalability D) mass manufacturing E) mass customization Answer: E Explanation: Mass customization is a manufacturing approach in which part of the product is mass-produced and the remaining features are customized for each buyer. It is a compromise between mass production and custom production.

Difficulty: 2: Moderate AACSB: Application of knowledge LO: 9.4: Identify the major planning decisions in production and operations management.

62) Production forecasts estimate future demand for a company's products or services.

Answer: TRUE Explanation: Estimates of future demand for a company's products or services are referred to as production forecasts.

Difficulty: 2: Moderate AACSB: Application of knowledge LO: 9.4: Identify the major planning decisions in production and operations management.

63) Capacity planning is not directly linked to estimation of future demand.

Answer: FALSE Explanation: Capacity planning is directly linked to estimation of future demand.

Difficulty: 2: Moderate AACSB: Application of knowledge LO: 9.4: Identify the major planning decisions in production and operations management.

64) Capacity planning refers to making decisions about the arrangement of production work centers and other elements.

Answer: FALSE Explanation: Capacity planning refers to establishing the overall level of resources needed to meet customer demand.

Difficulty: 2: Moderate AACSB: Application of knowledge LO: 9.4: Identify the major planning decisions in production and operations management.

65) Scheduling involves determining how long each operation takes and deciding which tasks are done in which order.

Answer: TRUE Explanation: In any production process, managers must do scheduling—determining how long each operation takes, as well as deciding which tasks are done and the order in which they're done.

Difficulty: 2: Moderate AACSB: Application of knowledge LO: 9.4: Identify the major planning decisions in production and operations management.

66) PERT diagrams are bar charts that show production managers what projects are being worked on and what stage they are in.

Answer: FALSE Explanation: PERT helps managers identify the optimal sequencing of activities, the expected time for project completion, and the best use of resources. PERT is not a bar chart.

Difficulty: 2: Moderate AACSB: Application of knowledge LO: 9.4: Identify the major planning decisions in production and operations management.

67) Productivity is the measure of the efficiency at which an organization can convert inputs into outputs.

Answer: TRUE Explanation: Productivity is the measure of the efficiency at which an organization can convert inputs into outputs.

Difficulty: 1: Easy AACSB: Application of knowledge LO: 9.4: Identify the major planning decisions in production and operations management.

68) What is production and operations management?

Answer: The term production and operations management, or simply operations management, refers to overseeing all the activities involved in producing goods and services. Operations managers are responsible for a wide range of strategies and decisions, from high-level design of the production system to forecasting and scheduling.

Difficulty: 2: Moderate AACSB: Application of knowledge LO: 9.4: Identify the major planning decisions in production and operations management.

69) Explain productivity and why it is one of the most vital responsibilities of operations management.

Answer: Throughout all the activities in the production process, operations managers pay close attention to productivity, or the efficiency with which they can convert inputs to outputs. (Put another way, productivity is equal to the value of the outputs divided by the value of the inputs.) Productivity is one of the most vital responsibilities in operations management because it is a key factor in determining the company's competitiveness and profitability. Companies that can produce similar goods or services with fewer resources have a distinct advantage over their competitors. Moreover, high productivity in the fullest sense also requires low waste, whether it's leftover materials, shoddy products that must be scrapped, or excess energy usage. Consequently, productivity improvements and sustainability improvements often complement each other.

Difficulty: 2: Moderate AACSB: Analytical thinking LO: 9.4: Identify the major planning decisions in production and operations management.

70) Describe lean systems and just-in-time (JIT) inventory systems.

Answer: Lean systems that maximize productivity by reducing waste and delays are at the heart of many productivity improvement efforts. Many lean systems borrow techniques from Toyota; the Toyota Production System is world renowned for its ability to continually improve both productivity and quality. Central to the notion of lean systems is just-in-time (JIT) inventory management, in which goods and materials are delivered throughout the production process right before they are needed rather than being stockpiled in inventories. Reducing stocks to immediate needs reduces waste and forces factories to keep production flowing smoothly.

Difficulty: 1: Easy AACSB: Analytical thinking LO: 9.4: Identify the major planning decisions in production and operations

management.

71) Compare and contrast mass production, customized production, and mass customization.

Answer: Both goods and services can be created through mass production, customized production, or mass customization, depending on the nature of the product and the desires of target customers.

In mass production, identical goods or services are created, usually in large quantities, such as when Apple churns out a million identical iPhones.

At the other extreme is customized production, sometimes called batch-of-one production in manufacturing, in which the producer creates a unique good or service for each customer.

An attractive compromise in many cases is mass customization, in which part of the product is mass-produced and then the remaining features are customized for each buyer.

Difficulty: 3: Challenging AACSB: Analytical thinking LO: 9.4: Identify the major planning decisions in production and operations management.

72) Most services are consumed at the same time they are produced and cannot exist before or after that time. This means that most services are ________.

A) separable B) scalable C) perishable D) measurable E) standardized Answer: C Explanation: Most services are consumed at the same time they are produced and cannot exist before or after that time. This refers to the perishable nature of services.

Difficulty: 2: Moderate AACSB: Application of knowledge LO: 9.5: Explain the unique challenges of service delivery.

73) ________ is the potential to increase production by expanding or replicating its initial production capacity.

A) Perishability B) Separability C) Serviceability D) Scalability E) Capacity Answer: D Explanation: Scalability is the potential to increase production by expanding or replicating its initial production capacity. Any business that wants to grow must consider the issue of scalability.

Difficulty: 2: Moderate AACSB: Application of knowledge LO: 9.5: Explain the unique challenges of service delivery.

74) ________ refers to the degree to which a product or process meets reasonable or agreed-upon expectations.

A) Lean systems B) Standard C) Scalability D) Capacity E) Serviceability Answer: A Explanation: Quality refers to the degree to which a product or process meets reasonable or agreed-upon expectations. A specific set of parameters can be identified that define quality in each situation.

Difficulty: 2: Moderate AACSB: Application of knowledge LO: 9.5: Explain the unique challenges of service delivery.

75) Which of the following represents one of the biggest differences between quality for goods and services delivery?

A) Customer involvement B) Quality of experience C) Customer perception D) Mass customization E) Scalability Answer: A Explanation: One of the biggest differences between goods and services production is the fact that customers are often involved in—and thereby can affect the quality of—the service delivery. When customers and service providers interact, the quality of the interpersonal experience also affects customer perceptions of quality.

Difficulty: 2: Moderate AACSB: Analytical thinking LO: 9.5: Explain the unique challenges of service delivery.

76) With a service, quality sometimes cannot be judged until after the service has been performed, creating a variable in ________.

A) quality of experience B) customer involvement C) provider interaction D) scalability E) quality of performance Answer: E Explanation: For many types of services, the quality of performance can vary from one instance to the next—and that quality is in the eye of the beholder and often can't be judged until after the service has been performed.

Difficulty: 2: Moderate AACSB: Analytical thinking LO: 9.5: Explain the unique challenges of service delivery.

77) When a business is built around the reputation of a single person, the business has limited ________.

A) subjective variables B) scalability C) quality of experience D) provider interaction E) customer involvement Answer: B Explanation: Scaling up always creates some challenges, but service businesses that depend on the skills of specific professionals can be particularly difficult to scale.

Examples range from chefs and interior designers to business consultants and graphic designers, particularly when the business is built around the reputation of a single person.

Difficulty: 2: Moderate AACSB: Analytical thinking LO: 9.5: Explain the unique challenges of service delivery.

78) How has the use of the internet changed the issue of perishability for companies?

A) The internet has improved scalability.

B) The internet allows for a rapid change in perceptions of quality.

C) The internet has removed location constraints.

D) The internet has removed performance variability for most services.

E) The internet has decreased service provider interaction.

Answer: C Explanation: One of the most significant commercial advantages of the Internet is the way it has enabled many service businesses to get around this constraint. Online retailers, information providers, and other e-businesses can locate virtually anywhere on the planet.

Difficulty: 2: Moderate AACSB: Analytical thinking LO: 9.5: Explain the unique challenges of service delivery.

79) Services that must be consumed at the same time they are produced are known as perishable services.

Answer: TRUE Explanation: Services that must be consumed at the same time they are produced are known as perishable services.

Difficulty: 1: Easy AACSB: Application of knowledge LO: 9.5: Explain the unique challenges of service delivery.

80) Scalability is the potential to increase production by expanding or replicating its initial production capacity.

Answer: TRUE Explanation: Scalability is the potential to increase production by expanding or replicating its initial production capacity. Scalability can be an important factor to a consider when an organization wants to grow.

Difficulty: 2: Moderate AACSB: Application of knowledge LO: 9.5: Explain the unique challenges of service delivery.

81) Customer involvement tends to be more important for goods than services.

Answer: FALSE Explanation: Customer involvement tends to be more for services than goods.

Difficulty: 2: Moderate AACSB: Application of knowledge LO: 9.5: Explain the unique challenges of service delivery.

82) Compare and contrast the production of goods and services.

Answer: Perishability—Services are consumed at the same time they are produced. The producer cannot make the services ahead of time and store them in inventory until someone is ready to buy. If the service is unavailable when the buyer wants it, the sale is lost forever.

Location constraints—Unlike the production of goods, which can be shipped to customers wherever they are, a service provider needs to make certain the services are available where the customers are.

Scalability challenges—A service provider relies on the skills of specific professionals to provide their services to customers and cannot ramp up production by incorporating robotics or other technology. It can expand only by hiring additional professionals.

Performance variability/perceptions of quality—Services are often judged subjectively, rather than objectively. Additionally, a service is judged based on quality of experience, not just results. Customer involvement—As a rule, customers aren't involved in the process of manufacturing goods. However, customers often participate in the delivery of a service, so they can affect the quality of the service itself and how it's delivered.

Difficulty: 3: Challenging AACSB: Analytical thinking LO: 9.5: Explain the unique challenges of service delivery.

83) ________ refers to measuring quality against established standards after the good or service has been produced and fine-tuning production to improve results.

A) Statistical process control B) Quality assurance C) Quality control D) Continuous quality E) Total quality management Answer: C Explanation: You can think of quality control as the tactical aspect of quality–measuring goods and services to see if whether they meet their established quality specifications and fine-tuning production methods as needed to improve the results.

Difficulty: 2: Moderate AACSB: Application of knowledge LO: 9.6: Define quality, explain the challenge of quality and product complexity, and identify four major tools and strategies for ensuring product quality.

84) Which of the following is a key difference between quality control and quality assurance?

A) High level managers perform quality control whereas middle managers perform quality assurance.

B) Quality assurance is more strategic than quality control.

C) Quality assurance is a subset of quality control process.

D) Quality control is continuous, whereas quality assurance is intermittent.

E) Quality control is typically preferred by organizations that focus on quality.

Answer: B Explanation: Quality control involves measuring quality after production, whereas quality assurance is a more strategic function that focuses on the policies and producers that influence product quality.

Difficulty: 2: Moderate AACSB: Application of knowledge LO: 9.6: Define quality, explain the challenge of quality and product complexity, and identify four major tools and strategies for ensuring product quality.

85) ________ is a comprehensive approach of companywide policies, practices, and procedures to ensure that every product meets quality standards.

A) Statistical process control B) Quality assurance C) Quality control D) Quality directive E) Corrective management Answer: B Explanation: Quality assurance is a comprehensive approach of companywide policies, practices, and procedures to ensure that every product meets quality standards. It is a holistic system of integrated policies.

Difficulty: 2: Moderate AACSB: Application of knowledge LO: 9.6: Define quality, explain the challenge of quality and product complexity, and identify four major tools and strategies for ensuring product quality.

86) ________ refers to the use of random sampling and tools, such as control charts, to monitor quality.

A) Total Quality Management B) Six Sigma C) ISO 9000 D) JIT quality E) Statistical process control Answer: E Explanation: Quality assurance often includes the use of statistical process control (SPC), which involves taking samples from the process periodically and analyzing these data points to look for trends and anomalies. The control chart is one of the most important SPC tools.

Difficulty: 2: Moderate AACSB: Application of knowledge LO: 9.6: Define quality, explain the challenge of quality and product complexity, and identify four major tools and strategies for ensuring product quality.

87) Kaizen refers to ________.

A) taking samples form the process to look for trends and anomalies B) empowering employees to look for ways to improve quality C) plotting data over time to identify performance outside the normal range D) the philosophy of striving toward perfection E) combining the attributes of lean production to Six Sigma to reduce waste and defects simultaneously Answer: B Explanation: Companies empower their employees to continuously improve the quality of goods production or service delivery, a strategy often expressed through the Japanese word kaizen.

Difficulty: 2: Moderate AACSB: Application of knowledge LO: 9.6: Define quality, explain the challenge of quality and product complexity, and identify four major tools and strategies for ensuring product quality.

88) ________ is a rigorous quality management program that strives to eliminate deviations between the actual and desired performance of a business system and reduce defects to 3.4 per 1 million opportunities.

A) Statistical process control B) Six Sigma C) ISO 9000 D) ISO 9001 E) Total quality management Answer: B Explanation: Six Sigma is a rigorous quality management program that strives to eliminate deviations between the actual and desired performance of a business system. It strives to reduce defects to 3.4 per 1 million opportunities.

Difficulty: 2: Moderate AACSB: Application of knowledge LO: 9.6: Define quality, explain the challenge of quality and product complexity, and identify four major tools and strategies for ensuring product quality.

89) ________ is a globally recognized family of standards for quality management systems.

A) Statistical process control B) Six Sigma C) Kaizen D) ISO 9000 E) Total quality management Answer: D Explanation: ISO 9000 is a globally recognized family of standards for quality management systems. The International Organization for Standardization administers ISO 9000.

Difficulty: 2: Moderate AACSB: Application of knowledge LO: 9.6: Define quality, explain the challenge of quality and product complexity, and identify four major tools and strategies for ensuring product quality.

90) Achieving ISO certification indicates that the ________.

A) company has recently affected a drastic quality change B) company is responsive toward its environment C) company manufactures goods in a European country D) company's internal processes meet accepted standards E) company ensures that the defects are limited to 3.4 in million Answer: D Explanation: Achieving ISO certification sends a reassuring signal to other companies that your internal processes meet these widely accepted standards.

Difficulty: 2: Moderate AACSB: Application of knowledge LO: 9.6: Define quality, explain the challenge of quality and product complexity, and identify four major tools and strategies for ensuring product quality.

91) One of the most important tools in utilizing statistical process control is ________ to plot data and identify performance outside the normal range.

A) Six Sigma B) quality control measures C) the control chart D) a PERT chart E) kaizen Answer: C Explanation: One of the most important SPC tools is the control chart, which plots measured data over time and helps identify performance that is outside the normal range of operating conditions and therefore in need of investigation.

Difficulty: 2: Moderate AACSB: Application of knowledge LO: 9.6: Define quality, explain the challenge of quality and product complexity, and identify four major tools and strategies for ensuring product quality.

92) Measuring quality against established standards after production is known as quality assurance.

Answer: FALSE Explanation: Quality assurance is a comprehensive approach of companywide policies, practices, and procedures to ensure that every product meets quality standards.

Difficulty: 2: Moderate AACSB: Application of knowledge LO: 9.6: Define quality, explain the challenge of quality and product complexity, and identify four major tools and strategies for ensuring product quality.

93) Quality control is a strategic function that focuses on policies that influence product quality.

Answer: FALSE Explanation: You can think of quality control as the tactical aspect of quality–measuring goods and services to see if whether they meet their established quality specifications and fine-tuning production methods as needed to improve the results. Quality assurance is a more strategic function that focuses on the policies, practices, and procedures that influence product quality, with the goal of increasing the level of confidence that quality outcomes will be achieved.

Difficulty: 2: Moderate AACSB: Application of knowledge LO: 9.6: Define quality, explain the challenge of quality and product complexity, and identify four major tools and strategies for ensuring product quality.

94) Kaizen calls for continuous quality improvements.

Answer: TRUE Explanation: Kaizen is a Japanese word that refers to the strategy of empowering employees to continuously improve the quality of goods production or service delivery.

Difficulty: 2: Moderate AACSB: Application of knowledge LO: 9.6: Define quality, explain the challenge of quality and product complexity, and identify four major tools and strategies for ensuring product quality.

95) Statistical process control refers to the use of random sampling and tools, such as control charts, to monitor the production process.

Answer: TRUE Explanation: Quality assurance often includes the use of statistical process control (SPC), which involves taking samples from the process periodically and analyzing these data points to look for trends and anomalies.

Difficulty: 2: Moderate AACSB: Application of knowledge LO: 9.6: Define quality, explain the challenge of quality and product complexity, and identify four major tools and strategies for ensuring product quality.

96) ISO 9000 is a methodology used for customized production and avoids the use of standards.

Answer: FALSE Explanation: ISO 9000 is a globally recognized family of standards for quality management systems.

Difficulty: 2: Moderate AACSB: Application of knowledge LO: 9.6: Define quality, explain the challenge of quality and product complexity, and identify four major tools and strategies for ensuring product quality.

97) Compare and contrast quality control and quality assurance.

Answer: Quality control means, "catching the bad ones." It measures the quality of production against established standards after the goods have been produced, and the defects are weeded out. Quality assurance means, "doing it right the first time." It involves policies, procedures and practices to build quality into the product from the start, rather than finding defects after the production process.

Difficulty: 3: Challenging AACSB: Analytical thinking LO: 9.6: Define quality, explain the challenge of quality and product complexity, and identify four major tools and strategies for ensuring product quality.

98) Which of the following refers to the digital transformation of manufacturing moving from automated factories to smart factories?

A) Six Sigma B) ISO 9000 C) Industry 4.0 D) Scalability E) Kaizen Answer: C Explanation: In its broadest sense, Industry 4.0 refers to the digital transformation of manufacturing, moving from automated factories to smart factories. As with most revolutions, Industry 4.0 is not a distinct break with the past or a rigid boundary around a specific set of things, but rather a label for the gathering consensus that a new way of doing things has emerged.

Difficulty: 2: Moderate AACSB: Information technology LO: 9.7: Explain the concept of Industry 4.0 and the smart factory.

99) Which cyber-physical system connects computer networks to the physical world through sensors and actuators?

A) Additive manufacturing B) Industrial robots C) Augmented reality D) The Internet of Things E) Machine vision Answer: D Explanation: Three prominent examples of cyber-physical systems are industrial robots (which perform actions in response to digital commands), additive manufacturing or 3D printing (which creates physical items from digital models), and the Internet of Things (which connects computer networks to the physical world through sensors and actuators).

Difficulty: 2: Moderate AACSB: Information technology LO: 9.7: Explain the concept of Industry 4.0 and the smart factory.

100) In order to test a process virtually before implementing it on the factory floor, engineers can use ________.

A) cyber-physical systems B) augmented reality C) additive manufacturing D) Six Sigma E) statistical process control Answer: B Explanation: The smart factory idea can also embrace big data and analytics, machine vision, AI, new forms of human-machine interaction such as augmented reality, and simulations that let production engineers test processes virtually before implementing them on the factory floor.

Difficulty: 2: Moderate AACSB: Information technology LO: 9.7: Explain the concept of Industry 4.0 and the smart factory.

Business in Action, 9e (Bovee/Thill) Chapter 10 Employee Motivation 1) ________ refers to the combination of forces that moves individuals to take certain actions and avoid other actions.

A) Engagement B) Drive C) Aptitude D) Motivation E) Ethics Answer: D Explanation: Motivation refers to the combination of forces that moves individuals to take certain actions and avoid other actions.

Difficulty: 1: Easy AACSB: Application of knowledge LO: 10.1: Define motivation, and identify the classical motivation theories.

2) An employee's rational and emotional commitment to his or her work is termed as ________.

A) engagement B) motivation C) work satisfaction D) drive E) competence Answer: A Explanation: An employee's rational and emotional commitment to his or her work is called engagement. It reflects the degree of energy, enthusiasm, and effort each employee brings to his or her work.

Difficulty: 1: Easy AACSB: Application of knowledge LO: 10.1: Define motivation, and identify the classical motivation theories.

3) Which of the following refers to the likelihood an employee will stay with his or her employer?

A) Drive B) Satisfaction C) Rootedness D) Engagement E) Commitment Answer: C Explanation: Rootedness refers to the degree to which an employee intends to stay with his or her employer.

Difficulty: 2: Moderate AACSB: Application of knowledge LO: 10.1: Define motivation, and identify the classical motivation theories.

4) In the workplace, motivation can be assessed by measuring four indicators: satisfaction, engagement, rootedness, and ________.

A) intelligence B) commitment C) creativity D) performance E) cognition Answer: B Explanation: In a workplace setting, motivation can be assessed by measuring four indicators: engagement, satisfaction, commitment, and rootedness.

Difficulty: 2: Moderate AACSB: Application of knowledge LO: 10.1: Define motivation, and identify the classical motivation theories.

5) ________ refers to a supposed effect of organizational research, in which employees change their behavior because they are being studied and given special treatment.

A) Herzberg's two-factor theory B) Maslow's hierarchy C) Theory X D) Hawthorne effect E) Theory Y Answer: D Explanation: Hawthorne effect refers to a supposed effect of organizational research in which employees change their behavior because they are being studied and given special treatment; the validity of the effect is uncertain.

Difficulty: 2: Moderate AACSB: Application of knowledge LO: 10.1: Define motivation, and identify the classical motivation theories.

6) According to Maslow, workplace factors such as health insurance, pension plans, and retirement benefits would satisfy ________.

A) safety needs B) social needs C) esteem needs D) physiological needs E) self-actualization needs Answer: A Explanation: In Maslow's hierarchy all of the requirements for basic survival—food, clothing, shelter, and the like—fall into the category of physiological needs. These basic needs must be satisfied before the person can consider higher-level needs such as safety needs (health insurance; pension plan).

Difficulty: 2: Moderate AACSB: Application of knowledge LO: 10.1: Define motivation, and identify the classical motivation theories.

7) According to Maslow's hierarchy of needs theory, which of the following is a selfactualization need?

A) A person's need to give and receive love and to feel a sense of belonging B) A person's need for a sense of self-worth, status, and attention C) A person's need to become what he or she is capable of becoming D) A person's need for security and protection from physical and emotional harm E) A person's need for food, clothing, and shelter Answer: C Explanation: At the top of Maslow's hierarchy is self-actualization—the need to become everything one can be.

Difficulty: 2: Moderate AACSB: Application of knowledge LO: 10.1: Define motivation, and identify the classical motivation theories.

8) According to McGregor, Theory X-oriented managers believe that ________.

A) employees dislike work and can be motivated only by the fear of losing their jobs or by extrinsic rewards B) employees can be motivated by working for goals that promote creativity C) physiological needs must be satisfied before an employee can consider higher-level needs D) employees work not just because they want to make money or impress others, but because they feel their work is worthwhile and satisfying in itself E) they need to remove dissatisfying elements and add satisfying elements—doing one or the other is not enough Answer: A Explanation: According to McGregor, Theory X-oriented managers believe that employees dislike work and can be motivated only by the fear of losing their jobs or by extrinsic rewards—those given by other people, such as money and promotions.

Difficulty: 2: Moderate AACSB: Application of knowledge LO: 10.1: Define motivation, and identify the classical motivation theories.

9) ________ proposed a motivation model that divides motivational forces into satisfiers (motivators) and dissatisfiers (hygiene factors).

A) Douglas McGregor B) Abraham Maslow C) David McClelland D) Frederick W. Taylor E) Frederick Herzberg Answer: E Explanation: Frederick Herzberg's two-factor theory refers to a model that divides motivational forces into satisfiers (motivators) and dissatisfiers (hygiene factors).

Difficulty: 2: Moderate AACSB: Application of knowledge LO: 10.1: Define motivation, and identify the classical motivation theories.

10) According to Frederick Herzberg's two-factor theory, which of the following factors acts as a motivator?

A) Favorable working conditions B) Favorable company policies C) Increase in pay D) Job security E) Responsibility Answer: E Explanation: In Herzberg's two-factor theory, motivators are associated with satisfying experiences. Motivators tend to be intrinsic and include achievement, recognition, responsibility, and other personally rewarding factors.

Difficulty: 2: Moderate AACSB: Application of knowledge LO: 10.1: Define motivation, and identify the classical motivation theories.

11) In Herzberg's two-factor theory, hygiene factors are ________.

A) associated with dissatisfying experiences B) mostly intrinsic and include achievement, recognition, responsibility, and other personally rewarding factors C) the requirements for basic survival such as food, clothing, and shelter D) related to the need to give and receive love and to feel a sense of belonging E) related to the need for a sense of self-worth and integrity Answer: A Explanation: In Herzberg's two-factor theory, hygiene factors are associated with dissatisfying experiences, and motivators are associated with satisfying experiences.

Difficulty: 2: Moderate AACSB: Application of knowledge LO: 10.1: Define motivation, and identify the classical motivation theories.

12) Which of the following theorists developed the three-needs theory of motivation that highlights needs for power, affiliation, and achievement?

A) Douglas McGregor B) Abraham Maslow C) David McClelland D) Frederick W. Taylor E) Frederick Herzberg Answer: C Explanation: The three-needs theory was developed by David McClelland. It highlights the need for power, the need for affiliation, and the need for achievement.

Difficulty: 2: Moderate AACSB: Application of knowledge LO: 10.1: Define motivation, and identify the classical motivation theories.

13) What is one of the most important challenges faced by managers and is needed by every employee to perform at a high level?

A) Motivation B) Skill C) Reward D) Power E) Leadership Answer: A Explanation: Motivating employees is one of the most important challenges every manager faces. No matter how skillful employees may be and how supportive the work environment is, without the motivation to excel, they won't perform at a high level.

Difficulty: 3: Challenging AACSB: Analytical thinking LO: 10.1: Define motivation, and identify the classical motivation theories.

14) How happy employees are with the experience of work and the way they are treated is indicated by ________.

A) engagement B) satisfaction C) motivation D) commitment E) rootedness Answer: B Explanation: Satisfaction indicates how happy employees are with the experience of work and the way they are treated.

Difficulty: 1: Easy AACSB: Application of knowledge LO: 10.1: Define motivation, and identify the classical motivation theories.

15) The need to feel a part of something larger is a motivational factor called ________.

A) the drive to acquire B) the drive to defend C) the drive to bond D) the drive to excel E) the drive to comprehend Answer: C Explanation: Humans are social creatures, and the need to feel a part of something larger is a vital aspect of employee motivation. This drive can be helpful, such as when it inspires employees to contribute to common goals, but it can also be harmful, such as when it pits groups of employees against one another in an "us-versus-them" mentality.

Difficulty: 2: Moderate AACSB: Application of knowledge LO: 10.1: Define motivation, and identify the classical motivation theories.

16) The need to know how well one is doing compared to others around them is a motivational indicator of one's drive to ________.

A) acquire B) defend C) bond D) excel E) comprehend Answer: A Explanation: This includes fulfilling the need for not only physical goods such as food and clothing but also for enjoyable experiences and "psychological goods" such as prestige. Importantly, this drive is relative: Individuals want to know how well they're doing compared to others around them.

Difficulty: 2: Moderate AACSB: Application of knowledge LO: 10.1: Define motivation, and identify the classical motivation theories.

17) What motivational approach sought to improve employee efficiency through the study of work and popularizing financial incentives for good performance?

A) Expectancy theory B) Organizational justice C) Hawthorne effect D) Scientific management E) Equity theory Answer: D Explanation: Frederick Taylor's scientific management theory was an approach that sought to improve employee efficiency through the scientific study of work. In addition to analyzing work and business processes in order to develop better methods, Taylor popularized financial incentives for good performance.

Difficulty: 2: Moderate AACSB: Analytical thinking LO: 10.1: Define motivation, and identify the classical motivation theories.

18) What was the outcome of the Hawthorne studies?

A) All employees will meet their self-actualization needs through their work.

B) Physiological needs must be met in order to perform at an average level.

C) Employees work towards goals and promotion.

D) The fulfillment of safety needs increases individual performance levels.

E) Group norms and cultural makeup affect individual performance.

Answer: E Explanation: The research team eventually concluded that group norms affected individual performance more than any other factor and that to understand employee performance one needed to understand an employee's total emotional and cultural makeup, on and off the job.

Difficulty: 2: Moderate AACSB: Analytical thinking LO: 10.1: Define motivation, and identify the classical motivation theories.

19) According to Maslow, what type of motivational need is the need to become everything one can be?

A) Self-actualization B) Physiological C) Safety D) Psychological E) Esteem Answer: A Explanation: At the top of Maslow's hierarchy is self-actualization—the need to become everything one can be. This need is also the most difficult to fulfill—and even to identify in many cases. Employees who reach this point work not just because they want to make money or impress others but because they feel their work is worthwhile and satisfying in itself.

Difficulty: 2: Moderate AACSB: Application of knowledge LO: 10.1: Define motivation, and identify the classical motivation theories.

20) What motivational theory supports the idea that employees like to work and are motivated by causes they believe in?

A) Hygiene factors B) Theory Y C) Need for affiliation D) Need for achievement E) Theory X Answer: B Explanation: Theory Y oriented managers believe that employees like to work and can be motivated by working for goals that promote creativity or for causes they believe in.

Consequently, Theory Y-oriented managers seek to motivate employees through intrinsic rewards—which employees essentially give to themselves.

Difficulty: 2: Moderate AACSB: Application of knowledge LO: 10.1: Define motivation, and identify the classical motivation theories.

21) Power predicts the likelihood that employees will stay or leave their jobs.

Answer: FALSE Explanation: Rootedness predicts the likelihood that employees will stay or leave their jobs.

Difficulty: 1: Easy AACSB: Application of knowledge LO: 10.1: Define motivation, and identify the classical motivation theories.

22) The four indicators; engagement, satisfaction, commitment, and rootedness can identify who is motivated and who isn't, as well as explain why.

Answer: FALSE Explanation: The four indicators, engagement, satisfaction, commitment, and rootedness can identify who is motivated and who isn't, but they don't explain why.

Difficulty: 2: Moderate AACSB: Application of knowledge LO: 10.1: Define motivation, and identify the classical motivation theories.

23) The fundamental motivational need called the "drive to defend" can be both positive and negative.

Answer: TRUE Explanation: The fundamental motivational need called the "drive to defend" can be both positive and negative. People can defend the status quo and fight necessary changes.

Difficulty: 2: Moderate AACSB: Application of knowledge LO: 10.1: Define motivation, and identify the classical motivation theories.

24) Frederick W. Taylor's scientific management approach focused on intrinsic motivational elements, such as opportunities for personal satisfaction.

Answer: FALSE Explanation: Scientific management is a management approach designed to improve employees' efficiency by scientifically studying their work.

Difficulty: 2: Moderate AACSB: Application of knowledge LO: 10.1: Define motivation, and identify the classical motivation theories.

25) According to Maslow, higher-level needs can serve as motivators even if lower level needs are not yet met.

Answer: FALSE Explanation: Maslow's hierarchy is a model in which human needs are arranged in a hierarchy, with the most basic needs at the bottom and the more advanced needs toward the top.

Difficulty: 2: Moderate AACSB: Application of knowledge LO: 10.1: Define motivation, and identify the classical motivation theories.

26) At the top of Maslow's hierarchy is self-actualization need.

Answer: TRUE Explanation: Self-actualization need is at the top of Maslow's hierarchy. It refers to the need to become everything one can be.

Difficulty: 2: Moderate AACSB: Application of knowledge LO: 10.1: Define motivation, and identify the classical motivation theories.

27) Theory X-oriented managers believe that most employees are motivated by intrinsic rewards.

Answer: FALSE Explanation: Theory X refers to the managerial assumption that employees are irresponsible, are unambitious, and dislike work and that managers must use force, control, or threats to motivate them.

Difficulty: 2: Moderate AACSB: Application of knowledge LO: 10.1: Define motivation, and identify the classical motivation theories.

28) Theory Y-oriented managers believe that employees like to work.

Answer: TRUE Explanation: Theory Y-oriented managers believe that employees like to work. It is the managerial assumption that employees enjoy meaningful work and are naturally committed to certain goals.

Difficulty: 2: Moderate AACSB: Application of knowledge LO: 10.1: Define motivation, and identify the classical motivation theories.

29) Unlike with the other classical theories, there is a lot of research to validate Herzberg's two-factor theory.

Answer: FALSE Explanation: Unlike with the other classical theories, there is a lot of research to validate McClelland's ideas and to explain particular outcomes in the workplace, but not much research has validated Herzberg's theory.

Difficulty: 2: Moderate AACSB: Application of knowledge LO: 10.1: Define motivation, and identify the classical motivation theories.

30) Discuss the four indicators that can be used to measure motivation in a workplace setting.

Answer: In a workplace setting, motivation can be assessed by measuring four indicators: engagement, satisfaction, commitment, and rootedness. First, engagement reflects the degree of energy, enthusiasm, and effort each employee brings to his or her work. If you're "just not into it," chances are you won't perform at your best. Second, satisfaction indicates how happy employees are with the experience of work and the way they are treated. Third, commitment suggests the degree to which employees support the company and its mission. Fourth, rootedness (or its opposite, intention to quit) predicts the likelihood that employees will stay or leave their jobs. A person who is engaged, satisfied, and committed and who has no intention of quitting can be safely said to be motivated.

Difficulty: 3: Challenging AACSB: Analytical thinking LO: 10.1: Define motivation, and identify the classical motivation theories.

31) Compare and contrast scientific management with the Hawthorne effect.

Answer: Frederick W. Taylor, a machinist and engineer from Philadelphia, studied employee efficiency and motivation in the late 19th and early 20th centuries. He is credited with developing scientific management, an approach that sought to improve employee efficiency through the scientific study of work. In addition to analyzing work and business processes in order to develop better methods, Taylor popularized financial incentives for good performance.

Hawthorne effect refers to a supposed effect of organizational research, in which employees change their behavior because they are being studied and given special treatment. The validity of the effect is uncertain, and the Hawthorne studies were richer and more influential than this simple outcome would suggest.

Difficulty: 3: Challenging AACSB: Analytical thinking LO: 10.1: Define motivation, and identify the classical motivation theories.

32) Discuss Maslow's hierarchy of needs.

Answer: In 1943, psychologist Abraham Maslow hypothesized that behavior is determined by a variety of needs, which he organized into categories arranged in a hierarchy. In Maslow's hierarchy, all of the requirements for basic survival—food, clothing, shelter, and the like—fall into the category of physiological needs. These basic needs must be satisfied before the person can consider higher-level needs such as safety needs, social needs (the need to give and receive love and to feel a sense of belonging), and esteem needs (the need for a sense of self-worth and integrity). At the top of Maslow's hierarchy is self-actualization—the need to become everything one can be. This need is also the most difficult to fulfill—and even to identify in many cases.

Difficulty: 1: Easy AACSB: Analytical thinking LO: 10.1: Define motivation, and identify the classical motivation theories.

33) Compare and contrast Theory X with Theory Y. Answer: In the 1960s, psychologist Douglas McGregor proposed two radically different sets of assumptions that underlie most management thinking, which he classified as Theory X and Theory Y. According to McGregor, Theory X-oriented managers believe that employees dislike work and can be motivated only by the fear of losing their jobs or by extrinsic rewards—those given by other people, such as money and promotions. In contrast, Theory Y-oriented managers believe that employees like to work and can be motivated by working for goals that promote creativity or for causes they believe in.

Consequently, Theory Y-oriented managers seek to motivate employees through intrinsic rewards—which employees essentially give to themselves.

Difficulty: 3: Challenging AACSB: Analytical thinking LO: 10.1: Define motivation, and identify the classical motivation theories.

34) What is Herzberg's two-factor theory? How do hygiene factors differ from motivators?

Answer: Herzberg's two-factor theory refers to a model that divides motivational forces into satisfiers (motivators) and dissatisfiers (hygiene factors). In Herzberg's two-factor theory, hygiene factors are associated with dissatisfying experiences, and motivators are associated with satisfying experiences. Hygiene factors are mostly extrinsic and include working conditions, company policies, pay, and job security. Motivators tend to be intrinsic and include achievement, recognition, responsibility, and other personally rewarding factors.

Difficulty: 3: Challenging AACSB: Analytical thinking LO: 10.1: Define motivation, and identify the classical motivation theories.

35) Discuss McClelland's three-needs theory. How does the three-needs theory differ from other classical theories?

Answer: The three-needs theory was developed by David McClelland. It highlights the need for power (having—and demonstrating—control over others), the need for affiliation (being accepted by others and having opportunities for social interaction), and the need for achievement (attaining personally meaningful goals).

Unlike with the other classical theories, there is a lot of research to validate McClelland's ideas and to explain particular outcomes in the workplace. For example, those with a high need for achievement tend to make successful entrepreneurs, but this focus on personal achievement can actually get in the way of managerial effectiveness, which relies on the ability to influence others toward shared goals.

Difficulty: 3: Challenging AACSB: Analytical thinking LO: 10.1: Define motivation, and identify the classical motivation theories.

36) ________ connects an employee's efforts to the outcome he or she thinks will result from those efforts.

A) Maslow's hierarchy of needs B) Herzberg's two-factor theory C) David McClelland's three needs theory D) Expectancy theory E) Equity theory Answer: D Explanation: Expectancy theory refers to the idea that the effort employees put into their work depends on expectations about their own ability to perform, expectations about likely rewards, and the attractiveness of those rewards.

Difficulty: 2: Moderate AACSB: Application of knowledge LO: 10.2: Explain why many consider expectancy theory to be the best current explanation of employee motivation.

37) Belief in your ability to complete a task is known as ________.

A) drive B) self-efficacy C) self-actualization D) rootedness E) self-motivation Answer: B Explanation: Self-efficacy embodies your belief in your ability to complete a task. Selfefficacy can be increased by gaining experience, mimicking successful role models, getting encouragement from others, and sometimes even "psyching yourself up."

Difficulty: 2: Moderate AACSB: Application of knowledge LO: 10.2: Explain why many consider expectancy theory to be the best current explanation of employee motivation.

38) ________ suggests that employee satisfaction depends on the perceived ratio of inputs to outputs.

A) Maslow's hierarchy of needs B) Herzberg's two-factor theory C) David McClelland's three needs theory D) Expectancy theory E) Equity theory Answer: E Explanation: Equity theory suggests that employee satisfaction depends on the perceived ratio of inputs to outputs.

Difficulty: 2: Moderate AACSB: Application of knowledge LO: 10.2: Explain why many consider expectancy theory to be the best current explanation of employee motivation.

39) Research into equity theory has led to thinking about the broader concept of ________.

A) scientific management B) self-actualization C) organizational justice D) intrinsic rewards E) self-efficacy Answer: C Explanation: Research into equity theory has led to thinking about the broader concept of organizational justice, or perceptions of fairness in the workplace.

Difficulty: 2: Moderate AACSB: Application of knowledge LO: 10.2: Explain why many consider expectancy theory to be the best current explanation of employee motivation.

40) Which of the following best describes the focus of expectancy theory?

A) Special forces that motivate employees B) Processes employees follow to seek satisfaction in their job C) The ability of managers to reward all employees equally and fairly D) Managerial tactics that will train employees for higher levels of performance E) The ability to mimic successful role models in order to appear more successful Answer: B Explanation: Expectancy theory connects an employee's efforts to the outcome he or she expects from those efforts. Expectancy theory focuses less on the specific forces that motivate employees and more on the process they follow to seek satisfaction in their jobs.

Difficulty: 2: Moderate AACSB: Application of knowledge LO: 10.2: Explain why many consider expectancy theory to be the best current explanation of employee motivation.

41) Which of the following indicates the perceptions of fairness in the workplace?

A) Organizational justice B) Self-efficacy C) Self-actualization D) Autonomy E) Task identity Answer: A Explanation: Research into equity theory has led to thinking about the broader concept of organizational justice, or perceptions of fairness in the workplace. These perceptions relate to outcomes, the processes used to generate those outcomes, and the way employees are treated during the process.

Difficulty: 2: Moderate AACSB: Application of knowledge LO: 10.2: Explain why many consider expectancy theory to be the best current explanation of employee motivation.

42) The idea that your job satisfaction is based on how much you put into your job versus how much you get out of your job is the basis of the equity theory of motivation.

Answer: TRUE Explanation: The idea that your job satisfaction is based on how much you put into your job versus how much you get out of your job is the basis of the equity theory of motivation. When employees feel they will receive the rewards they deserve for their work, they will be more motivated to meet goals and deadlines.

Difficulty: 2: Moderate AACSB: Application of knowledge LO: 10.2: Explain why many consider expectancy theory to be the best current explanation of employee motivation.

43) Complaints about gender pay fairness, where men get more money than women for the same work, are instances of equity issues.

Answer: TRUE Explanation: Complaints about gender pay fairness, where men get more money than women for the same work, are instances of equity issues. Equity issues can show up in a number of areas, such as in complaints about gender pay fairness and executive compensation and in many unionizing efforts, whenever employees feel they aren't getting a fair share of corporate profits or are being asked to shoulder more than their fair share of hardships.

Difficulty: 2: Moderate AACSB: Application of knowledge LO: 10.2: Explain why many consider expectancy theory to be the best current explanation of employee motivation.

44) Goals that are specific enough to give employees clarity and focus can function as effective motivators.

Answer: TRUE Explanation: Goals that are specific enough to give employees clarity and focus can function as effective motivators. Employees can lose their motivation if they have to spend too much time figuring out what is expected of them.

Difficulty: 2: Moderate AACSB: Application of knowledge LO: 10.2: Explain why many consider expectancy theory to be the best current explanation of employee motivation.

45) Compare and contrast expectancy theory with equity theory.

Answer: Expectancy theory refers to the idea that the effort employees put into their work depends on expectations about their own ability to perform, expectations about likely rewards, and the attractiveness of those rewards. Expectancy theory focuses less on the specific forces that motivate employees and more on the process they follow to seek satisfaction in their jobs.

Equity theory refers to the idea that employees base their level of satisfaction on the ratio of their inputs to the job and the outputs or rewards they receive from it. Equity issues can show up in a number of areas, such as in complaints about gender pay fairness and executive compensation and in many unionizing efforts, whenever employees feel that they aren't getting a fair share of corporate profits or that they are being asked to shoulder more than their fair share of hardships.

Difficulty: 3: Challenging AACSB: Analytical thinking LO: 10.2: Explain why many consider expectancy theory to be the best current explanation of employee motivation.

46) ________ refers to the idea that carefully designed performance targets can motivate employees to higher performance.

A) Goal-setting theory B) Theory Y C) Herzberg's two-factor theory D) David McClelland's three needs theory E) Expectancy theory Answer: A Explanation: Goal-setting theory is a motivational theory suggesting that setting goals can be an effective way to motivate employees.

Difficulty: 2: Moderate AACSB: Application of knowledge LO: 10.3: Identify the strengths and weaknesses of goal-setting theory.

47) Goal-setting theory of motivation suggests that ________.

A) setting goals is unrelated to motivation in most employees B) carefully designed goals can motivate employee performance C) managers, not employees, need to set goals D) collaborative goal setting can undermine managerial authority E) employees should set their own goals without input from managers Answer: B Explanation: Goal-setting theory, the idea that carefully designed goals can motivate employees to higher performance, is one of the most important contemporary theories of motivation.

Difficulty: 2: Moderate AACSB: Application of knowledge LO: 10.3: Identify the strengths and weaknesses of goal-setting theory.

48) ________ refers to a goal setting theory in which employees are involved in goal setting and decision making.

A) Scientific management B) Theory X-oriented management C) Management by objectives D) Maslow's Hierarchy of Needs E) Micromanagement Answer: C Explanation: Goal-setting theory is frequently implemented through a technique known as management by objectives (MBO), a companywide process that empowers employees and involves them in goal setting and decision-making.

Difficulty: 2: Moderate AACSB: Application of knowledge LO: 10.3: Identify the strengths and weaknesses of goal-setting theory.

49) Which of the following is a limitation of the goal-setting theory?

A) Decreased extrinsic motivation B) Reduced internal competition C) Missed learning opportunities D) Less challenging goals E) Reduced emphasis on short-term performance Answer: C Explanation: Goal setting can misfire in a variety of ways, such as missed learning opportunities. Employees can focus so intently on meeting deadlines and other goals that they overlook opportunities to learn.

Difficulty: 2: Moderate AACSB: Application of knowledge LO: 10.3: Identify the strengths and weaknesses of goal-setting theory.

50) What criteria must be met for goals to function as effective motivators?

A) Goals should be broad and flexible.

B) Goals should be easy to achieve.

C) Feedback should be timely and include progress towards the goal.

D) Individuals should be challenged and unsure about their ability to achieve the goal.

E) Goals should be personal but require a team effort to achieve.

Answer: C Explanation: Timely feedback that lets people know if they're progressing toward their goals and, if not, how to change course.

Difficulty: 1: Easy AACSB: Application of knowledge LO: 10.3: Identify the strengths and weaknesses of goal-setting theory.

51) Which of the following is one of the keys to successful implementation of management by objectives?

A) Creating lofty and challenging goals B) Establishing internal competition for completion of goals.

C) Setting goals for the group, not the individual.

D) Collaborative goal setting.

E) Setting goals that are narrow.

Answer: D Explanation: One of the key elements of MBO is the collaborative goal-setting process.

Together, a manager and an employee define the employee's goals, the responsibilities for achieving those goals, and the means of evaluating individual and group performance so that the employee's activities are directly linked to achieving the organization's longterm goals.

Difficulty: 2: Moderate AACSB: Analytical thinking LO: 10.3: Identify the strengths and weaknesses of goal-setting theory.

52) Management by objectives can eliminate the motivation of doing well for the sake of the work itself, resulting in ________.

A) unhealthy internal competition B) intentional performance limitations C) overly narrow goals D) decreased intrinsic motivation E) improved learning opportunities Answer: D Explanation: Relying too heavily on exterior goals and their extrinsic rewards can eventually dull the intrinsic motivation to do well for the sake of the work itself—one of the most powerful and sustainable motivators.

Difficulty: 2: Moderate AACSB: Analytical thinking LO: 10.3: Identify the strengths and weaknesses of goal-setting theory.

53) Being overly focused on achieving goals set using management by objectives may result in the inability to respond to a change in the business environment, or ________.

A) unintentional performance limitations B) inappropriate time horizons C) decreased intrinsic motivation D) unhealthy internal competition E) missed learning opportunities Answer: E Explanation: Employees can get so focused on meeting deadlines and other goals that they overlook opportunities to learn, whether to improve their own skills, fix process problems, or adapt to changes in the business environment—all of which could benefit the company more than meeting the original goal.

Difficulty: 2: Moderate AACSB: Analytical thinking LO: 10.3: Identify the strengths and weaknesses of goal-setting theory.

54) Goals set using the management by objective goal setting process should be directly linked to what?

A) The organization's long-term goals B) Motivation of the employee to achieve those goals C) Performance limitations D) Effective feedback E) Intrinsic rewards Answer: A Explanation: Together, a manager and an employee define the employee's goals, the responsibilities for achieving those goals, and the means of evaluating individual and group performance so that the employee's activities are directly linked to achieving the organization's long-term goals.

Difficulty: 2: Moderate AACSB: Analytical thinking LO: 10.3: Identify the strengths and weaknesses of goal-setting theory.

55) For goals to function as a motivator, the employee must believe in his or her ability to meet that goal.

Answer: TRUE Explanation: For goals to function as a motivator, the employee must believe in his or her ability to meet that goal. Most people don't want to risk failing. When an employee doesn't believe they have the ability to do the work, they may lose their motivation.

Difficulty: 2: Moderate AACSB: Application of knowledge LO: 10.3: Identify the strengths and weaknesses of goal-setting theory.

56) Management by objectives is a motivational approach where managers set specific goals for each employee.

Answer: FALSE Explanation: Management by objectives is a motivational approach in which managers and employees work together to structure personal goals and objectives for every individual, department, and project to mesh with the organization's goals.

Difficulty: 2: Moderate AACSB: Application of knowledge LO: 10.3: Identify the strengths and weaknesses of goal-setting theory.

57) Discuss the criteria that must be met for goals to function as effective motivators.

Answer: For goals to function as effective motivators, a number of criteria must be met.

These criteria include: • Goals that are specific enough to give employees clarity and focus • Goals that are difficult enough to inspire energetic and committed effort • Clear ownership of goals so that accountability can be established • Timely feedback that lets people know if they're progressing toward their goals and, if not, how to change course • Individuals' belief in their ability to meet their goals • Cultural support for the individual achievement and independence needed to reach the goals Difficulty: 2: Moderate AACSB: Application of knowledge LO: 10.3: Identify the strengths and weaknesses of goal-setting theory.

58) Discuss the risks and limitations of the goal-setting theory.

Answer: The weaknesses of goal setting generally lie in ways that the pursuit of goals can distort behavior. Some of the potential problems are: • Overly narrow goals. When goals are too narrow, people can miss or intentionally ignore vital aspects of the bigger picture.

• Overly challenging goals. Such goals can inspire great performance, but they can also lead to risky behavior, belligerent negotiating tactics, and ethical lapses as employees cut corners to reach targets.

• Inappropriate time horizons. Too much emphasis on short-term performance can degrade long-term performance.

• Unintentional performance limitations. Goals can limit performance potential when employees reach their targets and then stop trying, even though they could go beyond that level if reaching the goal didn't signal that it was acceptable to stop there.

• Missed learning opportunities. Employees can get so focused on meeting deadlines and other goals that they overlook opportunities to learn, whether to improve their own skills, fix process problems, or adapt to changes in the business environment—all of which could benefit the company more than meeting the original goal.

• Unhealthy internal competition. Goals can pit groups within a company against each other, which can be beneficial if the competition is healthy, but ultimately harmful if it is not.

• Decreased intrinsic motivation. Relying too heavily on public goals and their extrinsic rewards can eventually dull the intrinsic motivation to do well for the sake of the work itself.

Difficulty: 2: Moderate AACSB: Analytical thinking LO: 10.3: Identify the strengths and weaknesses of goal-setting theory.

59) ________ refers to a model suggesting that five core job dimensions influence three critical psychological states that determine motivation, performance, and other outcomes.

A) Job characteristics model B) Management by objectives C) Goal-setting theory D) Theory X E) Theory Y Answer: A Explanation: The Job Characteristics model uses five core job dimensions (skill variety, task identity, task significance, autonomy, and feedback) and three critical psychological states (experienced meaningfulness of the work, experienced responsibility for results, and knowledge of actual results) to study employee motivation.

Difficulty: 1: Easy AACSB: Application of knowledge LO: 10.4: Describe the job characteristics model, and explain how it helps predict motivation and performance.

60) According to the job characteristics model, the degree to which the employee has responsibility for completing an entire task is called ________.

A) task significance B) skill variety C) self-reliance D) task availability E) task identity Answer: E Explanation: Task identity refers to the degree to which the employee has responsibility for completing an entire task. Greater task identity contributes to the sense of meaning in work.

Difficulty: 2: Moderate AACSB: Application of knowledge LO: 10.4: Describe the job characteristics model, and explain how it helps predict motivation and performance.

61) According to the job characteristics model, ________ refers to the range of abilities and talents needed to accomplish the responsibilities associated with the job.

A) task significance B) skill variety C) autonomy D) task availability E) task identity Answer: B Explanation: Skill variety refers to the range of skills and talents needed to accomplish the responsibilities associated with the job. The broader the range of skills required, the more meaningful the work is likely to be to the employee.

Difficulty: 2: Moderate AACSB: Application of knowledge LO: 10.4: Describe the job characteristics model, and explain how it helps predict motivation and performance.

62) According to the job characteristics model, the employee's perception of the impact the job has on the lives of other people is called ________.

A) skill variety B) task identity C) task significance D) autonomy E) emotional labor Answer: C Explanation: Task significance refers to the employee's perception of the impact the job has on the lives of other people.

Difficulty: 2: Moderate AACSB: Application of knowledge LO: 10.4: Describe the job characteristics model, and explain how it helps predict motivation and performance.

63) According to the job characteristics model, experienced meaningfulness of the work is ________.

A) a measure of how much employees care about the jobs they are doing B) the sense each employee has that his or her efforts contribute to the outcome C) an employee's intention to stay in the company D) an employee's support of the company and its mission E) employees' awareness of the real-life results of their efforts Answer: A Explanation: Experienced meaningfulness of the work is a measure of how much employees care about the jobs they are doing.

Difficulty: 2: Moderate AACSB: Application of knowledge LO: 10.4: Describe the job characteristics model, and explain how it helps predict motivation and performance.

64) According to the job characteristics model, experienced responsibility for results refers to ________.

A) how much employees care about the jobs they are doing B) the sense each employee has that his or her efforts contribute to the outcome C) an employee's intention to stay in the company D) an employee's support of the company and its mission E) employees' awareness of the real-life results of their efforts Answer: B Explanation: Experienced responsibility for results refers to the sense each employee has that his or her efforts contribute to the outcome.

Difficulty: 2: Moderate AACSB: Application of knowledge LO: 10.4: Describe the job characteristics model, and explain how it helps predict motivation and performance.

65) Making jobs more challenging and interesting by expanding the range of skills required is called ________.

A) job enlargement B) cross-training C) job enrichment D) flextime E) task identity Answer: C Explanation: The strategy behind job enrichment is to make jobs more challenging and interesting by expanding the range of skills required—typically by expanding upward, giving employees some of the responsibilities previously held by their managers.

Difficulty: 2: Moderate AACSB: Application of knowledge LO: 10.4: Describe the job characteristics model, and explain how it helps predict motivation and performance.

66) ________ refers to training workers to perform multiple jobs and rotating them through these various jobs to combat boredom or burnout.

A) Job enrichment B) Behavior modification C) Cross-training D) Job enlargement E) Task significance Answer: C Explanation: Cross-training, or job rotation, involves training workers to perform multiple jobs and rotating them through these various jobs to combat boredom or burnout. Working in other departments will also help employees understand and appreciate how their work affects other departments.

Difficulty: 2: Moderate AACSB: Application of knowledge LO: 10.4: Describe the job characteristics model, and explain how it helps predict motivation and performance.

67) Why is cross-training valuable in areas such as lean manufacturing?

A) Companies can address task needs without adding staff.

B) Managers can use behavior modification to shape and train employees.

C) The positive reinforcement acts as a valuable motivational tool.

D) Employees can earn incentives for increased performance.

E) Jobs become more focused as employees learn new skills.

Answer: A Explanation: Cross-training is also valuable in lean manufacturing because it lets companies keep staffs as small as possible and assign people wherever they are needed to handle fluctuations in workflow. And in a tight economy, cross-training helps companies address task needs without adding new staff.

Difficulty: 2: Moderate AACSB: Analytical thinking LO: 10.4: Describe the job characteristics model, and explain how it helps predict motivation and performance.

68) Which of the following expands a job horizontally by adding tasks that are not necessarily more challenging?

A) Cross-training B) Job enlargement C) Task identity D) Autonomy E) Job enrichment Answer: B Explanation: Whereas job enrichment expands vertically, job enlargement is more of a horizontal expansion, adding tasks that aren't necessarily any more challenging.

Difficulty: 2: Moderate AACSB: Analytical thinking LO: 10.4: Describe the job characteristics model, and explain how it helps predict motivation and performance.

69) Task identity refers to the employee's perception of how his or her job impacts the

lives of other employees.

Answer: FALSE Explanation: Task identity refers to the degree to which the employee has responsibility for completing an entire task. Greater task identity contributes to the sense of meaning in work.

Difficulty: 1: Easy AACSB: Application of knowledge LO: 10.4: Describe the job characteristics model, and explain how it helps predict motivation and performance.

70) Job enrichment expands a job horizontally.

Answer: FALSE Explanation: Job enrichment refers to making jobs more challenging and interesting by expanding the range of skills required. It is a type of vertical expansion.

Difficulty: 1: Easy AACSB: Application of knowledge LO: 10.4: Describe the job characteristics model, and explain how it helps predict motivation and performance.

71) Cross-training involves expanding the scope of an individual job.

Answer: FALSE Explanation: Cross-training refers to training workers to perform multiple jobs and rotating them through these various jobs to combat boredom or burnout.

Difficulty: 2: Moderate AACSB: Application of knowledge LO: 10.4: Describe the job characteristics model, and explain how it helps predict motivation and performance.

72) Compare and contrast management by objectives with the job characteristics model.

Answer: Management by objectives (MBO) is a motivational approach in which managers and employees work together to structure personal goals and objectives for every individual, department, and project to mesh with the organization's goals. This process consists of four steps: setting goals, planning actions, implementing plans, and reviewing performance. One of the key elements of MBO is a collaborative goal-setting process.

On the other hand, job characteristics model refers to a model suggesting that five core job dimensions (skill variety, task identity, task significance, autonomy, and feedback) influence three critical psychological states (experienced meaningfulness of the work, experienced responsibility for results, and knowledge of actual results). Achieving these three states leads to improvements in motivation, job satisfaction, performance, absenteeism, and turnover.

Difficulty: 3: Challenging AACSB: Analytical thinking LO: 10.4: Describe the job characteristics model, and explain how it helps predict motivation and performance.

73) Compare and contrast the three critical psychological states described in the job characteristics model.

Answer: The job characteristics model suggests that five core job dimensions influence three critical psychological states that determine motivation, performance, and other outcomes. The critical psychological states are as follows: (1) Experienced meaningfulness of the work, which is a measure of how much employees care about the jobs they are doing. (2) Experienced responsibility for results, which refers to the sense each employee has that his or her efforts contribute to the outcome. (3) Knowledge of actual results, which refers to employees' awareness of the real-life results of their efforts.

Difficulty: 3: Challenging AACSB: Analytical thinking LO: 10.4: Describe the job characteristics model, and explain how it helps predict motivation and performance.

74) Compare and contrast job enrichment with job enlargement.

Answer: The strategy behind job enrichment is to make jobs more challenging and interesting by expanding the range of skills required—typically by expanding upward, giving employees some of the responsibilities previously held by their managers. For example, an employee who had been preparing presentations for his or her boss to give to customers could be asked to give the presentations as well.

Whereas job enrichment expands vertically, job enlargement is more of a horizontal expansion, adding tasks that aren't necessarily any more challenging. If it simply gives workers more to do, job enlargement won't do much to motivate and will more likely demotivate. However, if jobs are enlarged in ways that increase worker knowledge, expansion can improve job satisfaction.

Difficulty: 3: Challenging AACSB: Analytical thinking LO: 10.4: Describe the job characteristics model, and explain how it helps predict motivation and performance.

75) ________ theory suggests that managers can motivate employees by shaping their actions through behavior modification.

A) Expectancy B) Two-factor C) Equity D) Reinforcement E) Maslow's Answer: D Explanation: Reinforcement theory is a motivational approach based on the idea that managers can motivate employees by influencing their behaviors with positive and negative reinforcement.

Difficulty: 2: Moderate AACSB: Application of knowledge LO: 10.5: Define reinforcement theory, and differentiate between positive and negative reinforcement.

76) When an employee has perfect attendance for the month, he or she is given a $25 bonus. This would be an example of ________.

A) an incentive B) job enrichment C) an intrinsic reward D) punishment E) negative reinforcement Answer: A Explanation: Incentives refer to monetary payments and other rewards of value used for positive reinforcement.

Difficulty: 2: Moderate AACSB: Application of knowledge LO: 10.5: Define reinforcement theory, and differentiate between positive and negative reinforcement.

77) Employees who receive positive reinforcement for one type of behavior are motivated to perform well in other areas as well. This process is known as ________.

A) cross-training B) job enrichment C) benchmarking D) chaining E) horizontal integration Answer: D Explanation: Positive reinforcement can also have a multiplier effect, in which employees who receive positive reinforcement for one type of behavior are motivated to perform well in other areas, a process known as chaining.

Difficulty: 2: Moderate AACSB: Application of knowledge LO: 10.5: Define reinforcement theory, and differentiate between positive and negative reinforcement.

78) Encouraging the repetition of a particular behavior by not offering unpleasant consequences for the behavior is called ________.

A) negative reinforcement B) cognitive restructuring C) transactional analysis D) positive reinforcement E) cross-training Answer: A Explanation: Negative reinforcement encourages a particular behavior to be repeated through the reduction, removal, or absence of an unpleasant outcome.

Difficulty: 2: Moderate AACSB: Application of knowledge LO: 10.5: Define reinforcement theory, and differentiate between positive and negative reinforcement.

79) Reinforcement theory suggests that managers can motivate employees by shaping their actions through ________.

A) carefully designed goals B) cross-training C) management by objectives D) behavior modification E) intrinsic motivation Answer: D Explanation: Reinforcement theory suggests that managers can motivate employees by shaping their actions through behavior modification. Using reinforcement theory, managers try to systematically encourage those actions considered beneficial to the company. Reinforcement is a valuable motivational tool, but it has broad application whenever managers want to shape employee behavior.

Difficulty: 2: Moderate AACSB: Application of knowledge LO: 10.5: Define reinforcement theory, and differentiate between positive and negative reinforcement.

80) A manager demotes an employee who does not meet performance goals. This is an example of ________.

A) chaining B) negative reinforcement C) punishment D) mentoring E) scaffolding Answer: C Explanation: Punishment refers to actions used to diminish the repetition of unwanted behaviors by adding unpleasant outcomes.

Difficulty: 2: Moderate AACSB: Application of knowledge LO: 10.5: Define reinforcement theory, and differentiate between positive and negative reinforcement.

81) How does positive reinforcement encourage a behavior to be repeated?

A) By removing an unpleasant outcome B) By using punishment to diminish unwanted behavior C) By minimizing stress and job burnout D) By adding an unpleasant outcome E) By offering pleasant consequences for a particular action or behavior Answer: E Explanation: Positive reinforcement offers pleasant consequences for particular actions or behaviors, increasing the likelihood that the behaviors will be repeated.

Difficulty: 2: Moderate AACSB: Application of knowledge LO: 10.5: Define reinforcement theory, and differentiate between positive and negative reinforcement.

82) Why is there a potential for distortion in performance when using reinforcement to motivate behavior?

A) Reinforcement does not offer enough reward for change.

B) Reinforcement encourages negative behaviors before employees can be eligible for reward.

C) Reinforcement is time consuming when attempting to change a behavior.

D) Reinforcement encourages repetition in behaviors.

E) Reinforcement encourages employees to focus on a single variable.

Answer: E Explanation: Managers must be on constant alert for unintended consequences of incentives and other reinforcement efforts. For example, because they often focus on a single variable, incentive programs can distort performance by encouraging employees to focus on that variable to the detriment of other responsibilities.

Difficulty: 2: Moderate AACSB: Analytical thinking LO: 10.5: Define reinforcement theory, and differentiate between positive and negative reinforcement.

83) When using reinforcement theory, managers try to encourage, in a systematic way, those actions considered beneficial to the company.

Answer: TRUE Explanation: Using reinforcement theory, managers apply systematic methods to encourage actions that benefit the company.

Difficulty: 1: Easy AACSB: Application of knowledge LO: 10.5: Define reinforcement theory, and differentiate between positive and negative reinforcement.

84) Negative reinforcement and punishment are the same thing.

Answer: FALSE Explanation: Negative reinforcement refers to encouraging the repetition of a particular behavior (desirable or not) by removing unpleasant consequences for the behavior.

Punishment refers to using a unpleasant outcome to discourage unwanted behaviors.

Difficulty: 2: Moderate AACSB: Application of knowledge LO: 10.5: Define reinforcement theory, and differentiate between positive and negative reinforcement.

85) Negative reinforcement encourages a particular behavior to be repeated through the reduction, removal, or absence of an unpleasant outcome.

Answer: TRUE Explanation: Negative reinforcement encourages a particular behavior to be repeated through the reduction, removal, or absence of an unpleasant outcome. For example, when an employee shows they will complete their work, they may be able to work flexible hours.

Difficulty: 2: Moderate AACSB: Application of knowledge LO: 10.5: Define reinforcement theory, and differentiate between positive and negative reinforcement.

86) Reinforcement needs to involve explicit monetary incentives to change behavior.

Answer: FALSE Explanation: Reinforcement doesn't have to involve explicit monetary incentives to distort behavior.

Difficulty: 2: Moderate AACSB: Application of knowledge LO: 10.5: Define reinforcement theory, and differentiate between positive and negative reinforcement.

87) Compare and contrast positive reinforcement with negative reinforcement.

Answer: Both positive and negative reinforcement encourage a behavior to be repeated: they reinforce it, in other words. The difference is in how they work. Positive reinforcement offers pleasant consequences for particular actions or behaviors, increasing the likelihood that the behaviors will be repeated. For example, even a simple but sincere "thank you" provides emotional reward and encourages employees to repeat whatever behavior elicited the praise. Negative reinforcement also encourages a particular behavior to be repeated, but it does so through the reduction, removal, or absence of an unpleasant outcome.

Difficulty: 3: Challenging AACSB: Analytical thinking LO: 10.5: Define reinforcement theory, and differentiate between positive and negative reinforcement.

88) What is the difference between negative reinforcement and punishment?

Answer: Negative reinforcement refers to encouraging the repetition of a particular behavior (desirable or not) by not offering unpleasant consequences for the behavior. On the other hand, punishment refers to actions used to diminish the repetition of unwanted behaviors by adding unpleasant outcomes. Fear can certainly be a powerful motivator, but it also adds stress and anxiety that can eventually lead to burnout and attrition as employees decide they don't want to deal with the constant pressure. Punishment (not negative reinforcement) is the opposite of positive reinforcement.

Difficulty: 3: Challenging AACSB: Analytical thinking LO: 10.5: Define reinforcement theory, and differentiate between positive and negative reinforcement.

89) The tendency for a manager to oversee every detail of their employees' work and give them little autonomy in how to perform their jobs is known as ________.

A) vertical integration B) micromanaging C) empowering D) centralization E) reinforcement Answer: B Explanation: Micromanaging refers to overseeing every small detail of employees' work and refusing to give them freedom or autonomy.

Difficulty: 2: Moderate AACSB: Application of knowledge LO: 10.6: List five managerial strategies that are vital to maintaining a motivated workforce.

90) What is one key element of motivation, regardless of the motivational theory being used?

A) Reward B) Feedback C) Opportunity D) Micromanagement E) Financial incentive Answer: B Explanation: No matter which theory of motivation an organization or a manager subscribes to, providing timely and frequent feedback is essential. From the perspective of reinforcement theory, for example, feedback is the mechanism that shapes employee behavior.

Difficulty: 2: Moderate AACSB: Analytical thinking LO: 10.6: List five managerial strategies that are vital to maintaining a motivated workforce.

91) Which of the following would be an effective way to make a reward personal and meaningful for an employee?

A) Establish systems and policies that are individualized.

B) Limit flexibility in the choice of reward.

C) Know what is important to each person.

D) Give all employees an equal opportunity.

E) Incorporate gamification as a reward system.

Answer: C Explanation: First, establish systems and policies that are as equitable and as automatic as possible, and explain to employees why they are fair. Second, build in as much flexibility as you can, such as offering employees the cash equivalent of paid time off if they prefer money over time. Third, get to know employees as individuals in order to understand what is important to each person.

Difficulty: 2: Moderate AACSB: Analytical thinking LO: 10.6: List five managerial strategies that are vital to maintaining a motivated workforce.

92) What is gamification?

A) Incorporating video technology in a business context B) Use of social networks as part of a recognition system C) Allowing employees to spend time doing things they enjoy to decrease levels of dissatisfaction D) Applying game playing principles to existing business processes E) A motivational technique to address workplace negativity Answer: D Explanation: Gamification isn't about "playing games" in a business context, but rather applying the motivational power of scorekeeping, competition, and other game-playing mechanics to existing business activities.

Difficulty: 2: Moderate AACSB: Analytical thinking LO: 10.6: List five managerial strategies that are vital to maintaining a motivated workforce.

93) Why is it important for managers to address workplace negativity as soon as possible?

A) It shows managers care about employees without having to resolve the issue.

B) To limit the sense of community an employee feels when they are allowed to vent frustrations C) To eliminate hopeless feelings about the future D) To eliminate fear as a motivator E) To prevent the erosion of employee morale Answer: E Explanation: Just as with physical health, in the workplace managers must address problems and conflicts quickly, before they multiply and erode employee morale. When left to fester long enough, these problems can destroy the sense of community in a company and leave employees feeling hopeless about the future.

Difficulty: 2: Moderate AACSB: Analytical thinking LO: 10.6: List five managerial strategies that are vital to maintaining a motivated workforce.

94) Motivation is a deeply personal phenomenon.

Answer: TRUE Explanation: Motivation is the combination of forces that move individuals to take certain actions and avoid other actions.

Difficulty: 2: Moderate AACSB: Application of knowledge LO: 10.6: List five managerial strategies that are vital to maintaining a motivated workforce.

95) Micromanagement refers to overseeing every small detail of an employees' work and refusing to give them freedom or autonomy.

Answer: TRUE Explanation: Micromanagement refers to overseeing every small detail of an employees' work and refusing to give them freedom or autonomy. Micromanaging can not only demotivate employees, it takes a lot of time to do.

Difficulty: 2: Moderate AACSB: Application of knowledge LO: 10.6: List five managerial strategies that are vital to maintaining a motivated workforce.

96) List the managerial strategies that are vital to maintaining a motivated workforce.

Answer: Regardless of the specific motivational theories that a company chooses to implement in its management policies and reward systems, managers can improve their ability to motivate employees by providing timely and frequent feedback, personalizing motivational efforts, adapting to circumstances and special needs, tackling workplace problems before they have a chance to destroy morale, and being inspirational leaders.

Difficulty: 3: Challenging AACSB: Analytical thinking LO: 10.6: List five managerial strategies that are vital to maintaining a motivated workforce.

97) Performance management systems allow companies to move from annual reviews to ________, giving managers and employees time to correct issues before things get too far off track.

A) gamification systems B) management by objectives C) real-time monitoring D) micromanagement practices E) negative reinforcement Answer: C Explanation: Moving away from annual reviews to real-time monitoring and feedback allows managers can see how their employees are performing as the work is being done, and they can provide immediate feedback—both praise and advice for improvement. In addition, because progress toward goals is tracked in real time, rather than checked at long intervals such as once a year, employees and managers can make course corrections before things get too far off track.

Difficulty: 2: Moderate AACSB: Information technology LO: 10.7: Discuss the potential strengths and weaknesses of performance management systems.

98) Which of the following is an advantage to logging measured performance as work progresses in to a performance management system?

A) Results are less susceptible to cognitive errors.

B) Recency bias can be incorporated in to the system.

C) There is a more accurate measurement of what the employee is supposed to be doing.

D) Data such as number of emails sent per day become more meaningful and are easier to track.

E) Cross-functional capabilities are reduced.

Answer: A Explanation: With the system transparently evaluating how well each employee is doing, this approach is less susceptible to race, gender, or "likeability" biases and to cognitive errors such as recency bias, in which a manager overemphasizes the most recent work an employee has done because that is what he or she remembers most vividly.

Difficulty: 2: Moderate AACSB: Information technology LO: 10.7: Discuss the potential strengths and weaknesses of performance management systems.

99) What is the first step in implementing a performance management system?

A) The type of feedback that will be offered by the system B) Employees and managers must agree on goals C) How recent the work must be in order to be considered D) Employees and managers must agree on rewards E) The frequency of feedback that will be offered by the system Answer: B Explanation: A variety of performance management systems are now available to help companies set goals, monitor performance, provide feedback, and adjust plans in real time. Employees and their managers first agree on goals, which are then entered into the system. As work progresses toward each goal, the progress is updated so everyone stays on the same page.

Difficulty: 2: Moderate AACSB: Information technology LO: 10.7: Discuss the potential strengths and weaknesses of performance management systems.

100) The overemphasis of the most recent work an employee has done, because this is what the manager remembers most vividly, is referred to as ________.

A) likeability bias B) system transparency C) recency bias D) artificial intelligence leveling E) real-time performance monitoring Answer: C Explanation: With the system transparently evaluating how well each employee is doing, performance management systems are less susceptible to race, gender, or "likeability" biases and to cognitive errors such as recency bias, in which a manager overemphasizes the most recent work an employee has done because that is what he or she remembers most vividly.

Difficulty: 2: Moderate AACSB: Information technology LO: 10.7: Discuss the potential strengths and weaknesses of performance management systems.

Business in Action, 9e (Bovee/Thill) Chapter 11 Human Resources Management 1) ________ refers to a state of physical and emotional exhaustion that can result from constant exposure to stress over a long period of time.

A) Worker buyout B) Discrimination C) Employee burnout D) Work-life balance E) Ergonomic stress Answer: C Explanation: Employee burnout refers to a state of physical and emotional exhaustion that can result from constant exposure to stress over a long period of time.

Difficulty: 2: Moderate

AACSB: Application of knowledge LO: 11.1: Identify four contemporary human resources (HR) challenges, and discuss the evolving role of HR. 2) Aligning the workforce refers to ________.

A) making jobs more challenging and interesting by expanding the range of skills required B) helping employees balance the competing demands of their personal and professional lives C) improving overall work environment D) training workers to perform multiple jobs E) matching the right employees to the right jobs at the right time Answer: E Explanation: Aligning the workforce with organizational needs involves matching the right employees to the right jobs at the right time.

Difficulty: 2: Moderate AACSB: Application of knowledge LO: 11.1: Identify four contemporary human resources (HR) challenges, and discuss the evolving role of HR. 3) An overall environment that results from job and work conditions is called ________.

A) ergonomics B) work-life balance C) quality of work life D) job enrichment E) employee turnover Answer: C Explanation: Quality of work life (QWL) is an overall environment that results from job and work conditions.

Difficulty: 2: Moderate AACSB: Application of knowledge LO: 11.1: Identify four contemporary human resources (HR) challenges, and discuss the evolving role of HR.

4) What do shifts in strategy and technological changes force managers to do when attempting to match the right employee to the right job?

A) Foster employee loyalty B) Monitor employee burnout C) Monitor quality of work life D) Realign the workforce E) Monitor work-life balance Answer: D Explanation: Matching the right employees to the right jobs at the right time is a constant challenge. Internally, shifts in strategy, technological changes, and growing or declining product sales can force managers to realign their workforces.

Difficulty: 2: Moderate AACSB: Analytical thinking LO: 11.1: Identify four contemporary human resources (HR) challenges, and discuss the evolving role of HR. 5) Which of the following is, in part, a contributor to the gender pay gap?

A) Education levels B) Ability C) Chosen profession D) Opportunity E) Legislation Answer: C Explanation: A higher percentage of men choose careers in the lucrative fields of engineering and computer science, whereas a higher percentage of women choose careers in teaching, which pays considerably less.

Difficulty: 2: Moderate AACSB: Analytical thinking LO: 11.1: Identify four contemporary human resources (HR) challenges, and discuss the evolving role of HR. 6) An environment where one is made to feel uncomfortable by lewd jokes, remarks, or gestures could be considered to support ________.

A) age discrimination B) the glass ceiling C) sexism D) sexual harassment E) a violation of the Civil Rights Act of 1964 Answer: D Explanation: Sexual harassment is defined as either an obvious request for sexual favors with an implicit reward or punishment related to work, or the more subtle creation of a sexist environment in which employees are made to feel uncomfortable by lewd jokes, remarks, or gestures.

Difficulty: 2: Moderate AACSB: Analytical thinking LO: 11.1: Identify four contemporary human resources (HR) challenges, and discuss the evolving role of HR. 7) One of the five areas where HR can help company leadership is in ________.

A) transparency and inclusiveness in networking opportunities B) assigning projects based on seniority and not gender C) allowing managers to personally interview all candidates being considered for promotion D) allowing for privacy in pay and benefit policies E) outsourcing the recruiting function to ensure a lack of bias Answer: A Explanation: Five important areas on which HR departments and company leadership should focus are fairness in recruiting, transparent and inclusive networking opportunities, fairness in project assignments and promotion opportunities, and fairness in compensation.

Difficulty: 2: Moderate AACSB: Analytical thinking LO: 11.1: Identify four contemporary human resources (HR) challenges, and discuss the evolving role of HR. 8) Which of the following contributes to the lack of female leadership within corporations?

A) Fewer women hold college and/or professional degrees.

B) Women are promoted at lower rates than men.

C) There are fewer women in the promotion pipeline, which will self-correct within one generation.

D) Too many women are hired into professional positions and face more competition for promotion.

E) The U.S. work environment is not family friendly, therefore more women leave the workforce to tend to family needs.

Answer: B Explanation: Research indicates that the problems start at the very beginning of the pipeline. Although more women than men now earn college degrees, fewer women are hired into professional positions. When they are hired, their first step up the corporate ladder takes longer, and they are promoted at lower rates than men.

Difficulty: 2: Moderate AACSB: Analytical thinking LO: 11.1: Identify four contemporary human resources (HR) challenges, and discuss the evolving role of HR.

9) Human resource departments must work to combine a supportive employee atmosphere while still complying with legal responsibilities that cannot be compromised.

Answer: TRUE Explanation: While supporting employees and contributing to an enjoyable work experience, HR also has a wide range of important legal responsibilities that cannot be compromised. Some HR departments have rebranded themselves with employee-friendly titles such as People Operations or Employee Success, but this doesn't change the reality that HR is still responsible for legal compliance, performance evaluations, and even surveillance tasks such as monitoring employee communications.

Difficulty: 2: Moderate AACSB: Analytical thinking LO: 11.1: Identify four contemporary human resources (HR) challenges, and discuss the evolving role of HR. 10) Work-life balance is the concept that employees need to juggle the competing demands of their professional and personal lives.

Answer: TRUE Explanation: Work-life balance is the concept that employees need to juggle the competing demands of their professional and personal lives. Organizations who respect a healthy work-life balance for their employees often have more potential employees to hire.

Difficulty: 1: Easy AACSB: Application of knowledge LO: 11.1: Identify four contemporary human resources (HR) challenges, and discuss the evolving role of HR. 11) Human resources management encompasses all tasks involved in attracting, developing, and supporting an organization's staff, while maintaining a safe and ethical work environment.

Answer: TRUE Explanation: The field of human resources (HR) management encompasses all the tasks involved in attracting, developing, and supporting an organization's staff, as well as maintaining a safe and fair working environment that meets legal requirements and ethical expectations.

Difficulty: 2: Moderate AACSB: Application of knowledge LO: 11.1: Identify four contemporary human resources (HR) challenges, and discuss the evolving role of HR. 12) Workforce analytics are a computer-based statistical approach to analyzing and planning for workforce needs.

Answer: TRUE Explanation: Many companies now rely on workforce analytics to align business needs and employee skillsets.

Difficulty: 2: Moderate AACSB: Application of knowledge LO: 11.1: Identify four contemporary human resources (HR) challenges, and discuss the evolving role of HR.

13) Discuss some of the contemporary staffing challenges.

Answer: Managers in every organization face an ongoing array of staffing challenges such as: • Aligning the workforce. Matching the right employees to the right jobs at the right time is a constant challenge.

• Fostering employee loyalty. Most companies can't guarantee long-term employment, but they want employees to commit themselves to the company. With the increasing number of temporary employees and independent contractors, this challenge will continue to grow.

• Monitoring workloads and avoiding employee burnout. As companies try to beat competitors and keep workforce costs to a minimum, managers need to be on guard for employee burnout, a state of physical and emotional exhaustion that can result from constant exposure to stress over a long period of time.

• Managing work-life balance. The concern over workloads is one of the factors behind the growing interest in work-life balance, the idea that employees, managers, and entrepreneurs need to balance the competing demands of their professional and personal lives. Many companies are trying to make it easier for employees to juggle multiple responsibilities with on-site day-care facilities, flexible work schedules, and other options designed to improve quality of work life (QWL).

Difficulty: 2: Moderate AACSB: Application of knowledge LO: 11.1: Identify four contemporary human resources (HR) challenges, and discuss the evolving role of HR. 14) ________ made it illegal for employers to practice sexism or discrimination on the basis of gender.

A) The Equal Pay Act of 1963 B) The Civil Rights Act of 1964 C) The Wagner Act D) The Social Security Act E) The Fair Labor Standards Act Answer: B Explanation: The Equal Pay Act of 1963 mandated equal pay for comparable work, and the Civil Rights Act of 1964 made it illegal for employers to practice sexism or discrimination on the basis of gender.

Difficulty: 2: Moderate AACSB: Application of knowledge LO: 11.2: Discuss the challenges and advantages of a diverse workforce, and identify five major dimensions of workforce diversity.

15) The ________ is a metaphor for discriminatory practices that have prevented women and minorities from advancing to executive level jobs.

A) high hurdle B) glass ceiling C) transparent entryway D) wall of denial E) line of demarcation Answer: B Explanation: Term glass ceiling refers to an invisible barrier attributable to subtle discrimination that keeps women and minorities out of the top positions in business.

Difficulty: 2: Moderate AACSB: Application of knowledge LO: 11.2: Discuss the challenges and advantages of a diverse workforce, and identify five major dimensions of workforce diversity.

16) What can a company do to help employees with disabilities perform activities that might otherwise be difficult or impossible for them?

A) Informally promote glass ceiling B) Enrich jobs C) Invest in assistive technologies D) Perform succession planning E) Promote ethnocentrism Answer: C Explanation: Employers can invest in a variety of assistive technologies that help people with disabilities perform activities that might otherwise be difficult or impossible.

Difficulty: 2: Moderate AACSB: Application of knowledge LO: 11.2: Discuss the challenges and advantages of a diverse workforce, and identify five major dimensions of workforce diversity.

17) The various characteristics and experiences that define individuals is called ________.

A) diversity B) personality C) enrichment D) ethnocentrism E) attitudes Answer: A Explanation: Although the concept is often framed in terms of ethnic background, a broader and more useful definition of diversity includes "all the characteristics and experiences that define each of us as individuals."

Difficulty: 2: Moderate AACSB: Application of knowledge LO: 11.2: Discuss the challenges and advantages of a diverse workforce, and identify five major dimensions of workforce diversity.

18) ________ is a broad concept that incorporates one's genetic background in addition to cultural issues such as language.

A) Race B) Diversity C) Minority D) National origin E) Ethnicity Answer: E Explanation: Ethnicity is a broader concept than race, incorporating both the genetic background of race and cultural issues such as language and national origin. Neither term is absolute or precise; millions of people have mixed racial heritage, and ethnicity doesn't always have fixed boundaries that clearly distinguish one group from another.

Difficulty: 2: Moderate AACSB: Analytical thinking LO: 11.2: Discuss the challenges and advantages of a diverse workforce, and identify five major dimensions of workforce diversity.

19) Which of the following designates any ethnic segment other than white Americans of European descent?

A) Minority B) Race C) Culture D) National origin E) Ethnicity Answer: A Explanation: Minority is a term often used to designate any race or ethnic segment other than white Americans of European descent.

Difficulty: 2: Moderate AACSB: Analytical thinking LO: 11.2: Discuss the challenges and advantages of a diverse workforce, and identify five major dimensions of workforce diversity.

20) Steps an organization takes to target the needs of a workforce that includes woman and minorities are referred to as ________.

A) competitive advantage B) diversity and inclusion initiatives C) cognitive abilities D) assistive technologies E) accommodations Answer: B Explanation: Diversity initiatives can include such steps as contracting with more suppliers owned by women and minorities, targeting a more diverse customer base, and supporting the needs and interests of a diverse workforce.

Difficulty: 2: Moderate AACSB: Application of knowledge LO: 11.2: Discuss the challenges and advantages of a diverse workforce, and identify five major dimensions of workforce diversity.

21) Sexism refers to discrimination on the basis of gender.

Answer: TRUE Explanation: Perceptions, roles, and treatment of men and women in the workplace has have been a complex and at times contentious issues. The Equal Pay Act of 1963 mandated equal pay for comparable work, and the Civil Rights Act of 1964 made it illegal for employers to practice sexism, or discrimination based on gender.

Difficulty: 2: Moderate AACSB: Application of knowledge LO: 11.2: Discuss the challenges and advantages of a diverse workforce, and identify five major dimensions of workforce diversity.

22) The ethnic composition of the United States has been on a long-term trend of decreasing diversity.

Answer: FALSE Explanation: The United States has been on a long-term trend of greater and greater diversity.

Difficulty: 2: Moderate AACSB: Application of knowledge LO: 11.2: Discuss the challenges and advantages of a diverse workforce, and identify five major dimensions of workforce diversity.

23) Creation of a sexist environment in which employees are made to feel uncomfortable by lewd jokes, remarks, or gestures is a form of sexual harassment.

Answer: TRUE Explanation: Creation of a sexist environment in which employees are made to feel uncomfortable by lewd jokes, remarks, or gestures is a form of sexual harassment. More instances of sexual harassment are now being publicly reported, as people feel more comfortable sharing information.

Difficulty: 2: Moderate AACSB: Application of knowledge LO: 11.2: Discuss the challenges and advantages of a diverse workforce, and identify five major dimensions of workforce diversity.

24) Compare and contrast the workforce implications of the Baby Boomers generation with those of the Generation X. Answer: The multiple generations within a culture present a dimension of diversity in the workplace.

The term Baby Boomers refers to people within the 1946 to 1964 range of birth years.

This large segment of the workforce, which now occupies many mid- and upper-level managerial positions, got its name from the population boom in the years following World War II. The older members of this generation are just now reaching retirement age, but many will continue to work beyond age 65—meaning that younger workers waiting for some of these management spots to open up might have to wait a while longer.

The term Generation X refers to people within the 1965 to 1980 range of birth years. This relatively small "MTV generation" is responsible for many of the innovations that have shaped communication habits today, but sometimes feels caught between the large mass of Baby Boomers ahead of them and the younger Generation Y employees entering the workforce. When Generation X does finally get the chance to take over starting in 2015 or 2020, it will be managing in a vastly different business landscape, one in which virtual and networked organizations replace much of the hierarchy inherited from the Baby Boomers.

Difficulty: 3: Challenging AACSB: Analytical thinking LO: 11.2: Discuss the challenges and advantages of a diverse workforce, and identify five major dimensions of workforce diversity.

25) Compare and contrast the terms race and ethnicity.

Answer: Ethnicity is a broader concept than race, incorporating both the genetic background of race and cultural issues such as language and national origin. These terms are neither absolute nor precise; millions of people have mixed racial heritage, and ethnicity doesn't always have fixed boundaries that clearly distinguish one group from another.

Difficulty: 3: Challenging AACSB: Analytical thinking LO: 11.2: Discuss the challenges and advantages of a diverse workforce, and identify five major dimensions of workforce diversity.

26) What are diversity initiatives?

Answer: To respond to the many challenges—and to capitalize on the business opportunities offered by both diverse marketplaces and diverse workforces—companies across the country are finding that embracing diversity in the richest sense is simply good business. In response, thousands of U.S. companies have established diversity initiatives, which can include such steps as contracting with more suppliers owned by women and minorities, targeting a more diverse customer base, and supporting the needs and interests of a diverse workforce.

Difficulty: 1: Easy AACSB: Application of knowledge LO: 11.2: Discuss the challenges and advantages of a diverse workforce, and identify five major dimensions of workforce diversity.

27) ________ is the process of gathering information about the demands, responsibilities and worker requirements of each position in the organization.

A) Employee orientation B) Performance monitoring C) Compensation analysis D) Competency analysis E) Job analysis Answer: E Explanation: Through the process of job analysis, employers try to identify the nature and demands of each position within the firm as well as the optimal employee profile to fill each position.

Difficulty: 2: Moderate AACSB: Application of knowledge LO: 11.3: Describe the three phases involved in managing the employment life cycle.

28) ________ refers to a statement of the tasks involved in a given job and the conditions under which the holder of a job will work.

A) Job specification B) Job description C) Succession planning D) Job analysis E) Job enrichment Answer: B Explanation: Once job analysis has been completed, the HR staff develops a job description, a formal statement summarizing the tasks involved in the job and the conditions under which the employee will work. In most cases, the staff will also develop a job specification, which identifies the type of personnel a job requires, including the skills, education, experience, and personal attributes that candidates need to possess.

Difficulty: 2: Moderate AACSB: Application of knowledge LO: 11.3: Describe the three phases involved in managing the employment life cycle.

29) ________ refers to a statement describing the kind of person who would be best for a given job—including the skills, education, and previous experience that the job requires.

A) Job specification B) Job enrichment C) Succession planning D) Job analysis E) Job description Answer: A Explanation: In most cases, the staff will also develop a job specification, which identifies the type of personnel a job requires, including the skills, education, experience, and personal attributes that candidates need to possess.

Difficulty: 2: Moderate AACSB: Application of knowledge LO: 11.3: Describe the three phases involved in managing the employment life cycle.

30) ________ refers to the percentage of the workforce that leaves every year.

A) Cyclical unemployment

B) Contingency rate C) Alignment D) Retention E) Turnover Answer: E Explanation: Turnover rate refers to the percentage of the workforce that leaves every year. A high turnover rate can be costly to an organization, because new employees will need to be recruited, hired, and trained.

Difficulty: 2: Moderate AACSB: Application of knowledge LO: 11.3: Describe the three phases involved in managing the employment life cycle.

31) Many companies now rely on a computer-based statistical approach called ________ to align the skillsets of employees with the needs of the business.

A) simulated human capital B) workforce scalability C) workforce analytics D) just-in-time recruitment E) productions and operations management Answer: C Explanation: The emerging field of predictive workforce analytics involves the use of statistical modeling to help a company keep its business needs and employee skillsets in alignment.

Difficulty: 2: Moderate AACSB: Information technology LO: 11.3: Describe the three phases involved in managing the employment life cycle.

32) The term ________ represents workforce planning efforts that identify possible replacements for specific employees, usually senior executives.

A) job retrenchment B) employee retention C) 360-degree prognostication D) succession planning E) passing the torch Answer: D Explanation: Succession planning refers to workforce planning efforts that identify possible replacements for specific employees, usually senior executives.

Difficulty: 2: Moderate AACSB: Application of knowledge LO: 11.3: Describe the three phases involved in managing the employment life cycle.

33) Employee retention programs ________.

A) aim to evaluate salaries for long-term employees B) list potential replacements for key positions in a firm C) evaluate job requirements and create job specifications D) aim to hire more contingent employees E) ensure a steady supply of experienced employees for new opportunities Answer: E Explanation: To ensure a steady supply of experienced employees for new opportunities and to maintain existing operations, successful companies focus heavily on employee retention. Employee retention involves efforts to keep current employees.

Difficulty: 2: Moderate AACSB: Application of knowledge LO: 11.3: Describe the three phases involved in managing the employment life cycle.

34) Which of the following alternative work arrangements allow two or more employees to share a single full-time job, and split the salary and benefits?

A) Flextime B) Employee balance C) Telecommuting D) Temporary leaves of absence E) Job sharing Answer: E Explanation: Job sharing lets two employees share a single full-time job and split the salary and benefits, can be an attractive alternative for people who want part-time hours in situations normally reserved for full-time employees.

Difficulty: 2: Moderate AACSB: Application of knowledge LO: 11.3: Describe the three phases involved in managing the employment life cycle.

35) When evaluating job requirements, which of the following tries to identify the nature and demands of a position, and the best employee profile to fill the position?

A) Job specification B) Job analysis C) Succession plan D) Workforce analytics E) Job description Answer: B Explanation: Through the process of job analysis, employers try to identify the nature and demands of each position within the firm as well as the optimal employee profile to fill each position.

Difficulty: 2: Moderate AACSB: Analytical thinking LO: 11.3: Describe the three phases involved in managing the employment life cycle.

36) Where can a description of the personal attributes a candidate needs to do well on the job be found?

A) Job description B) Job forecast C) Job analysis D) Workforce analytics E) Job specification Answer: E Explanation: Job specification identifies the type of personnel a job requires, including the skills, education, experience, and personal attributes that candidates need to possess.

Difficulty: 2: Moderate AACSB: Analytical thinking LO: 11.3: Describe the three phases involved in managing the employment life cycle.

37) The process of attracting appropriate applicants for an organization's jobs is known as ________.

A) quality of hire B) recruiting C) positioning D) downsizing E) onboarding Answer: B Explanation: Recruiting refers to the process of attracting appropriate applicants for an organization's jobs.

Difficulty: 2: Moderate AACSB: Application of knowledge LO: 11.3: Describe the three phases involved in managing the employment life cycle.

38) Quality of hire measures ________.

A) the amount of money spent in hiring and training new employees B) the level of productivity of employees in the probationary period C) how closely incoming employees meet the company's needs D) the percentage of minority groups in a firm's workforce E) the percentage of the workforce that leaves every year Answer: C Explanation: Quality of hire measures how closely incoming employees meet the company's needs.

Difficulty: 2: Moderate AACSB: Application of knowledge LO: 11.3: Describe the three phases involved in managing the employment life cycle.

39) Which of the following acts prohibits any form of testing that can be construed as a pre-employment medical examination?

A) The Taft-Hartley Act B) The Landrum-Griffin Act C) The Wagner Act D) Americans with Disabilities Act E) Fair Labor Standards Act Answer: D Explanation: The Americans with Disabilities Act prohibits any form of testing that can be construed as a pre-employment medical examination.

Difficulty: 2: Moderate AACSB: Application of knowledge LO: 11.3: Describe the three phases involved in managing the employment life cycle.

40) ________ services, such as resume-writing courses, career counseling, and secretarial assistance are offered to laid-off employees by many companies.

A) Rightsizing B) Termination C) Coaching D) Affirmative action E) Outplacement Answer: E Explanation: Outplacement services such as résumé-writing courses, career counseling, office space, and secretarial help are offered to laid-off executives and blue-collar employees alike.

Difficulty: 1: Easy AACSB: Application of knowledge LO: 11.3: Describe the three phases involved in managing the employment life cycle.

41) The ________ provides retirement, disability and medical coverage for employees and their dependents and is jointly funded by employers and employees.

A) Fair Labor Standards Act B) Civil Rights Act C) Employee Retirement Income Security Act D) Social Security Act E) Lilly Ledbetter Fair Pay Act Answer: D Explanation: The Social Security Act provides a level of retirement, disability, and medical coverage for employees and their dependents; jointly funded by employers and employees.

Difficulty: 2: Moderate AACSB: Application of knowledge LO: 11.3: Describe the three phases involved in managing the employment life cycle.

42) ________ refers to distributions of financial incentives to employees who voluntarily depart; usually undertaken in order to reduce the payroll.

A) Mandatory retirement B) Affirmative action C) Worker buyout D) Decentralization E) Outplacement Answer: C Explanation: A firm that needs to cut its workforce for economic reasons may try to persuade employees to depart ahead of their planned retirement by offering early retirement with financial incentives known as severance packages or buyouts.

Difficulty: 2: Moderate AACSB: Application of knowledge LO: 11.3: Describe the three phases involved in managing the employment life cycle.

43) Which of the following is the action of laying off employees for economic or business reasons not related to employee performance?

A) At-will employment B) Termination C) Outplacement D) Layoffs E) Headhunting Answer: D Explanation: Layoffs are the termination of employees for economic or business reasons unrelated to employee performance.

Difficulty: 2: Moderate AACSB: Application of knowledge LO: 11.3: Describe the three phases involved in managing the employment life cycle.

44) ________ supports the concept that an employee can be fired or quit their employment at any time.

A) Wrongful discharge B) Layoff C) Whistle-blowing D) For cause employment E) At-will employment Answer: E Explanation: For the most part, employment in the United States is considered at will, meaning that in situations that are not explicitly covered by contracts (either individual employment contracts or collective bargaining agreements in the case of unionized employees), employers and employees are free to end the arrangement at any time for any reason.

Difficulty: 2: Moderate AACSB: Application of knowledge LO: 11.3: Describe the three phases involved in managing the employment life cycle.

45) If a firm can prove age is a valid qualification for the normal operation of the business, how can the firm force people to quit working at a predetermined age?

A) Mandatory retirement B) Worker buyout C) At-will employment D) Outplacement E) Early retirement Answer: A Explanation: The Age Discrimination in Employment Act now outlaws mandatory retirement based on age alone, unless an employer can demonstrate that age is a valid qualification for normal operation of the particular business.

Difficulty: 2: Moderate AACSB: Application of knowledge LO: 11.3: Describe the three phases involved in managing the employment life cycle.

46) An employee who works from home and uses electronic communications to stay in touch with colleagues is said to be telecommuting.

Answer: TRUE Explanation: Telecommuting refers to working from home or another location using electronic communications to stay in touch with colleagues, suppliers, and customers.

Difficulty: 1: Easy AACSB: Application of knowledge LO: 11.3: Describe the three phases involved in managing the employment life cycle.

47) Flextime allows two employees to share a single full-time job and split the salary and benefits.

Answer: FALSE Explanation: Flextime is a scheduling system that allows employees to choose their own hours, within certain limits.

Difficulty: 1: Easy AACSB: Application of knowledge LO: 11.3: Describe the three phases involved in managing the employment life cycle.

48) Layoffs involve terminating employees because of poor performance or other disciplinary reasons.

Answer: FALSE Explanation: Layoffs are the termination of employees for economic or business reasons unrelated to employee performance.

Difficulty: 2: Moderate AACSB: Application of knowledge LO: 11.3: Describe the three phases involved in managing the employment life cycle.

49) Outplacement services refers to external professionals who help an organization in terminating employees.

Answer: FALSE Explanation: Outplacement services such as résumé-writing courses, career counseling, office space and secretarial help are offered to laid-off executives and blue-collar employees alike.

Difficulty: 2: Moderate AACSB: Application of knowledge LO: 11.3: Describe the three phases involved in managing the employment life cycle.

50) The Age Discrimination in Employment Act outlaws mandatory retirement based on age alone.

Answer: TRUE Explanation: Federal law prohibits age discrimination against anyone 40 or older, and some states protect workers younger than 40.

Difficulty: 2: Moderate AACSB: Application of knowledge LO: 11.3: Describe the three phases involved in managing the employment life cycle.

51) What are the alternative work arrangements that a company can use to better accommodate the needs of employees?

Answer: To meet today's staffing and demographic challenges, many companies are adopting alternative work arrangements to better accommodate the needs of employees— and to reduce costs in many cases. Four of the most popular arrangements are flextime, telecommuting, job sharing, and flexible career paths: • Flextime is a scheduling system that allows employees to choose their own hours, within certain limits.

• Telecommuting, working from home or another location using electronic communications to stay in touch with colleagues, suppliers, and customers, helps employees balance their professional and personal commitments because they can spend less time in transit between home and work.

• Job sharing, which lets two employees share a single full-time job and split the salary and benefits, can be an attractive alternative for people who want part-time hours in situations normally reserved for full-time employees.

• Perhaps the most challenging of all alternative work arrangements are situations in which employees want to limit their work time or leave the workforce entirely for an extended period to raise children, attend school, volunteer, or pursue other personal interests. Programs such as Deloitte's mass career customization give employees more freedom in designing their own career paths.

Difficulty: 2: Moderate AACSB: Analytical thinking LO: 11.3: Describe the three phases involved in managing the employment life cycle.

52) When can an employee file a wrongful termination lawsuit against the employer?

Answer: State laws vary, but in general, employers cannot discriminate in firing, nor can they fire employees for whistle-blowing, filing a worker's compensation claim, or testifying against the employer in harassment or discrimination lawsuits. If a terminated employee believes any of these principles have been violated, he or she can file a wrongful termination lawsuit against the employer. In addition, employers must abide by the terms of an employment contract, if one has been entered into with the employee.

Difficulty: 3: Challenging AACSB: Analytical thinking LO: 11.3: Describe the three phases involved in managing the employment life cycle.

53) Compare and contrast layoffs with worker buyouts.

Answer: Layoffs are the termination of employees for economic or business reasons unrelated to employee performance. To help ease the pain of layoffs, many companies provide laid-off employees with outplacement services. On the other hand, worker buyouts refer to distributions of financial incentives to employees who voluntarily depart; usually undertaken in order to reduce the payroll.

Difficulty: 3: Challenging AACSB: Analytical thinking LO: 11.3: Describe the three phases involved in managing the employment life cycle.

54) ________ refers to a multidimensional review in which a person is given feedback from subordinates, peers, superiors, and possibly outside stakeholders such as customers and business partners.

A) Skills inventory B) Coaching C) 360-degree review D) Behaviorally anchored rating scale E) Benchmarking Answer: C Explanation: 360-degree review refers to a multidimensional review in which a person is given feedback from subordinates, peers, superiors, and possibly outside stakeholders such as customers and business partners. This practice promotes fairness by correcting for possible biases.

Difficulty: 2: Moderate AACSB: Application of knowledge LO: 11.4: Explain the steps used to develop and evaluate employees.

55) A(n) ________ identifies both the current skill levels of the company's workforce as well as those the company needs in order to succeed.

A) employee turnover analysis B) replacement chart C) electronic performance monitoring D) skills inventory E) 360-degree review Answer: D Explanation: A skills inventory identifies both the current skill levels of all the employees and the skills the company needs in order to succeed.

Difficulty: 2: Moderate AACSB: Application of knowledge LO: 11.4: Explain the steps used to develop and evaluate employees.

56) What is used to clarify job requirements and give employees feedback on their performance?

A) Skills inventories B) Turnover analysis C) Electronic performance monitoring D) Orientation E) Performance appraisals Answer: E Explanation: Performance reviews, also known as performance appraisals, are periodic evaluations of employee performance designed to clarify job requirements, give employees feedback on their performance, and establish personal action plans.

Difficulty: 2: Moderate AACSB: Application of knowledge LO: 11.4: Explain the steps used to develop and evaluate employees.

57) To promote fairness and correct for possible biases, what type of review should be conducted?

A) Skills inventory B) Coaching C) 360-degree review D) Behaviorally anchored rating scale E) Benchmarking Answer: C Explanation: A 360-degree review is where a person is given feedback from subordinates (if the employee has supervisory responsibility), peers, superiors, and possibly customers or outside business partners. The multiple viewpoints can uncover weaknesses that employees and even their direct managers might not be aware of, as well as contributions and achievements that might have been overlooked in normal reviews.

Difficulty: 2: Moderate AACSB: Analytical thinking LO: 11.4: Explain the steps used to develop and evaluate employees.

58) Which of the following is a potential drawback to internal promotion policies?

A) Employees receive limited training.

B) Employees not promoted may have better morale because their coworker was promoted.

C) Employees must learn skills on their own before being considered for promotion.

D) Employees could be promoted past their competence level.

E) The lack of new employees from competitors results in less of an understanding of competitors, and the industry.

Answer: D Explanation: A possible pitfall of internal promotion is that a person may be given a job beyond his or her competence. If the promotion is a mistake, the company not only loses its sales leader but also risks demoralizing the sales staff.

Difficulty: 2: Moderate AACSB: Analytical thinking LO: 11.4: Explain the steps used to develop and evaluate employees.

59) Onboarding programs help new employees better understand the organization, its rules, procedures, and expectations.

Answer: TRUE Explanation: Many companies also have more comprehensive onboarding programs, which may extend for several months to help new employees get up to speed in their specific roles, establish important relationships, and get comfortable with the organizational culture.

Difficulty: 2: Moderate AACSB: Application of knowledge LO: 11.4: Explain the steps used to develop and evaluate employees.

60) Effective orientation programs help employees become more productive in less time, help eliminate confusion and mistakes, and can significantly increase employee retention rates.

Answer: TRUE Explanation: Effective orientation programs help employees become more productive in less time, help eliminate confusion and mistakes, and can significantly increase employee retention rates. Training and development efforts begin with orientation for new hires and continue throughout a person's career in many cases. When employees have reached sufficient skill levels to take on new challenges, they may be considered for promotion into positions of more responsibility.

Difficulty: 2: Moderate AACSB: Application of knowledge LO: 11.4: Explain the steps used to develop and evaluate employees.

61) Discuss the processes involved in training and developing employees.

Answer: Most successful companies place heavy emphasis on employee training and development efforts for everyone from entry-level workers to the CEO. Training usually begins with orientation programs designed to ease the new hire's transition into the company and to impart vital knowledge about the organization and its rules, procedures, and expectations. Effective orientation programs help employees become more productive in less time, help eliminate confusion and mistakes, and can significantly increase employee retention rates. Training and other forms of employee development continue throughout the employee's career in most cases. Many HR departments maintain a skills inventory, which identifies both the current skill levels of all the employees and the skills the company needs in order to succeed.

Difficulty: 1: Easy AACSB: Analytical thinking LO: 11.4: Explain the steps used to develop and evaluate employees.

62) A wage differs from salary in that the wage ________.

A) is based on a fixed amount per year B) includes the cost of all benefits C) is paid by the unit of time such as daily or weekly D) does not fall under the purview of the Fair Labor Standards Act E) relates to exempt employees Answer: C Explanation: Most employees receive the bulk of their compensation in the form of salary, if they receive a fixed amount per year, or wages, if they are paid by the unit of time (hourly, daily, or weekly) or by the unit of output (often called "getting paid by the piece" or "piecework").

Difficulty: 1: Easy AACSB: Application of knowledge LO: 11.5: Describe the major elements of employee compensation, benefits, and support services.

63) ________ refers to tying rewards to profits achieved by meeting specific goals.

A) Gain sharing B) Employee benefits C) Wellness program D) Sliding-scale plan E) Cafeteria plan Answer: A Explanation: Similar to profit sharing, gain sharing ties rewards to profits (or cost savings) achieved by meeting specific goals such as quality and productivity improvement.

Difficulty: 2: Moderate AACSB: Application of knowledge LO: 11.5: Describe the major elements of employee compensation, benefits, and support services.

64) ________ refers to an incentive program that rewards employees for meeting specific, individual goals.

A) Pay for performance B) Knowledge-based pay C) Salary plans D) Sliding-scale pay E) Cafeteria plans Answer: A Explanation: A variation of gain sharing, pay for performance requires employees to accept a lower base pay but rewards them with bonuses, commissions, or stock options if they reach agreed-on goals.

Difficulty: 2: Moderate AACSB: Application of knowledge LO: 11.5: Describe the major elements of employee compensation, benefits, and support services.

65) ________ refers to pay tied to an employee's acquisition of skills.

A) Cafeteria plan B) Knowledge-based pay C) Sliding-scale plan D) Gain sharing E) Commission Answer: B Explanation: Knowledge-based pay refers to pay tied to an employee's acquisition of knowledge or skills; also called competency-based pay or skill-based pay.

Difficulty: 2: Moderate AACSB: Application of knowledge LO: 11.5: Describe the major elements of employee compensation, benefits, and support services.

66) In a broad sense, what determines compensation?

A) Availability of bonuses and other incentives B) Conditions in the job-market and value the employee brings to the organization C) Executive compensation levels D) How immediate and measurable impact on revenue will be E) Knowledge Answer: B Explanation: In the broadest terms, compensation is dictated by prevailing conditions in the job market and the value each employee brings to the organization. Such variables as geography (locations with higher living expenses tend to have higher salaries), industry, and company size (larger companies tend to pay more) can also factor into the equation.

Difficulty: 3: Challenging AACSB: Analytical thinking LO: 11.5: Describe the major elements of employee compensation, benefits, and support services.

67) Employee benefits refer to ________.

A) pay tied to an employee's acquisition of knowledge or skills B) tying rewards to profits or cost savings achieved by meeting specific goals C) compensation other than wages, salaries, and incentive programs D) employee compensation based on a percentage of sales made E) a cash payment, in addition to regular wage or salary, that serves as a reward for achievement Answer: C Explanation: Employee benefits refer to compensation other than wages, salaries, and incentive programs. These benefits may be offered either as a preset package or as flexible plans.

Difficulty: 2: Moderate AACSB: Application of knowledge LO: 11.5: Describe the major elements of employee compensation, benefits, and support services.

68) ________ is a defined contribution retirement plan in which employers often match the amount employees invest.

A) Gainsharing B) Profit sharing C) ESOP D) Stock option E) 401(k) plan Answer: E Explanation: 401(k) plan is a defined contribution retirement plan in which employers often match the amount employees invest. The details of 401(k) plans vary, but in general, employees can invest a portion of their salary, and this amount is deducted from their taxable income; employers often match all or a portion of the employee's contribution.

Difficulty: 2: Moderate AACSB: Application of knowledge LO: 11.5: Describe the major elements of employee compensation, benefits, and support services.

69) Which of the following enables employees to acquire shares in a company?

A) A self-insurance plan B) A cafeteria plan C) An employee stock-ownership plan D) A pension plan E) A retirement plan Answer: C Explanation: Employee stock-ownership plan (ESOP) refers to a program that enables employees to become partial owners of a company.

Difficulty: 2: Moderate AACSB: Application of knowledge LO: 11.5: Describe the major elements of employee compensation, benefits, and support services.

70) A(n) ________ refers to a company-sponsored counseling or referral plan for employees with personal problems.

A) health savings benefit B) employee assistance program C) self-insurance plan D) ESOP E) 401(k) plan Answer: B Explanation: To help employees deal with personal issues that could impact affect their work, a company can choose to establish an employee assistance program (EAP). Such programs offer private and confidential counseling for issues related to substance abuse, domestic violence, finances, stress, family issues, and other personal matters.

Difficulty: 2: Moderate AACSB: Application of knowledge LO: 11.5: Describe the major elements of employee compensation, benefits, and support services.

71) Which of the following allows workers up to 12 weeks unpaid leave to care for a family member with a serious illness?

A) Child-care assistance B) Employee assistance program C) Family Medical Leave Act D) Defined benefits E) ESOP Answer: C Explanation: The Family Medical Leave Act (FMLA) of 1993 requires employers with 50 or more workers to provide up to 12 weeks of unpaid leave per year for childbirth, adoption, or the care of oneself, a child, a spouse, or a parent with a serious illness.

Difficulty: 2: Moderate AACSB: Application of knowledge LO: 11.5: Describe the major elements of employee compensation, benefits, and support services.

72) A retirement plan that indicates how much the company will contribute to an employees retirement fund is called a(n) ________.

A) defined-benefits plan B) pension plan C) employee stock-ownership plan D) defined-contribution plan E) 401(k) plan Answer: D Explanation: Company-sponsored retirement plans can be categorized as either definedbenefit plans, in which companies specify how much they will pay employees on retirement, or defined-contribution plans, in which companies specify how much they will put into the retirement fund (by matching employee contributions, for instance), without guaranteeing specific payout levels during retirement.

Difficulty: 2: Moderate AACSB: Application of knowledge LO: 11.5: Describe the major elements of employee compensation, benefits, and support services.

73) ________ allow(s) employees to purchase prorated portions of stock shares over a period of years, until the employee has complete ownership of the stock shares.

A) 401(k) options B) Defined-benefits plans C) Affordable Care plans D) Defined-contribution plans E) Vesting Answer: E Explanation: Options typically vest over a number of years, meaning that employees can purchase a prorated portion of the shares every year until the vesting period is over (at which time they can purchase all the shares they are entitled to).

Difficulty: 2: Moderate AACSB: Analytical thinking LO: 11.5: Describe the major elements of employee compensation, benefits, and support services.

74) Legislators enacted the Affordable Care Act in 2010, featuring a variety of changes designed to improve access to health care.

Answer: TRUE Explanation: In 2010, the Affordable Care Act was signed into law, featuring a variety of changes designed to improve access to health care.

Difficulty: 1: Easy AACSB: Application of knowledge LO: 11.5: Describe the major elements of employee compensation, benefits, and support services.

75) A 401(k) plan refers to a defined-benefit plan in which companies specify how much they will pay employees upon retirement.

Answer: FALSE Explanation: 401(k) plan is a defined contribution retirement plan in which employers often match the amount employees invest.

Difficulty: 1: Easy AACSB: Application of knowledge LO: 11.5: Describe the major elements of employee compensation, benefits, and support services.

76) The Family Medical Leave Act (FMLA) requires employers to provide up to 12 weeks of unpaid leave per year for the birth or adoption of a child.

Answer: TRUE Explanation: The Family Medical Leave Act (FMLA) of 1993 requires employers with 50 or more workers to provide up to 12 weeks of unpaid leave per year for childbirth, adoption, or the care of oneself, a child, a spouse, or a parent with serious illness.

Difficulty: 1: Easy AACSB: Application of knowledge LO: 11.5: Describe the major elements of employee compensation, benefits, and support services.

77) Employees who receive wages instead of a salary are exempt from the Fair Labor Standards Act. Answer: FALSE Explanation: The Fair Labor Standards Act, introduced in 1938 and amended many times since then, sets specific guidelines that employers must follow when administering salaries and wages. Waged employees are not exempted from this act.

Difficulty: 2: Moderate AACSB: Application of knowledge LO: 11.5: Describe the major elements of employee compensation, benefits, and support services.

78) In contrast to commissions, bonus is a form of compensation that pays employees in sales positions based on the level of sales they make within a given time frame.

Answer: FALSE Explanation: A bonus is a cash payment, in addition to regular wage or salary, which serves as a reward for achievement.

Difficulty: 1: Easy AACSB: Application of knowledge LO: 11.5: Describe the major elements of employee compensation, benefits, and support services.

79) Gain sharing ties rewards to an employee's knowledge and abilities rather than to his or her type of work.

Answer: FALSE Explanation: Gain sharing refers to tying rewards to profits or cost savings achieved by meeting specific goals.

Difficulty: 1: Easy AACSB: Application of knowledge LO: 11.5: Describe the major elements of employee compensation, benefits, and support services.

80) Pay for performance requires employees to accept a lower base pay but rewards them with bonuses, commissions, or stock options if they reach agreed-upon goals.

Answer: TRUE Explanation: A variation of gain sharing, pay for performance requires employees to accept a lower base pay but rewards them with bonuses, commissions, or stock options if they reach agreed-on goals.

Difficulty: 1: Easy AACSB: Application of knowledge LO: 11.5: Describe the major elements of employee compensation, benefits, and support services.

81) Compare and contrast commissions with bonus.

Answer: Commissions and bonus are both types of incentive programs. A bonus is a cash payment, in addition to regular wage or salary, which serves as a reward for achievement. Paying performance-based bonuses has become an increasingly popular approach to compensation as more companies shift away from automatic annual pay increases. In contrast to bonuses, commissions are a form of compensation that pays employees in sales positions based on the level of sales they make within a given time frame.

Difficulty: 3: Challenging AACSB: Analytical thinking LO: 11.5: Describe the major elements of employee compensation, benefits, and support services.

82) Compare and contrast retirement plans with pension plans.

Answer: Retirement plans are designed to provide continuing income after an employee retires. Company-sponsored retirement plans can be categorized as either defined-benefit plans, in which companies specify how much they will pay employees upon retirement, or defined-contribution plans, in which companies specify how much they will put into the retirement fund (by matching employee contributions, for instance), without guaranteeing any specific payouts during retirement. Although both types are technically pension plans, when most people speak of pension plans, they are referring to traditional defined-benefit plans, which are far less common than they were in years past.

Difficulty: 3: Challenging AACSB: Analytical thinking LO: 11.5: Describe the major elements of employee compensation, benefits, and support services.

83) How is a 401(k) plan different than an employee stock-ownership plan?

Answer: The most common type of defined-contribution plan is known as a 401(k) plan.

In a 401(k) plan, employees contribute a percentage of their pretax income, and employers often match that amount or some portion of it. Defined-contribution plans are similar to savings plans; they provide a future benefit based on annual employer contributions, voluntary employee matching contributions, and accumulated investment earnings.

Many U.S. employees are now enrolled in a type of defined-benefit plan known as an employee stock-ownership plan (ESOP), in which a company places some or all of its stock in trust, with each eligible employee entitled to a certain portion. Most ESOPs are in closely-held corporations whose stock isn't available for sale to the public. Many companies report that ESOPs help boost employee productivity because workers perceive a direct correlation between their efforts and the value of the company stock price.

Difficulty: 3: Challenging AACSB: Analytical thinking LO: 11.5: Describe the major elements of employee compensation, benefits, and support services.

84) Typically, labor unions seek to protect employee interests by ________.

A) negotiating with employers for better wages and benefits B) funding skill-improvement programs for employers C) requiring employers to be OSHA compliant D) providing annual bonuses and benefits to employees E) negotiating salary caps for non-union employees Answer: A Explanation: Labor unions are organizations that seek to protect employee interests by negotiating with employers for better wages and benefits, improved working conditions, and increased job security.

Difficulty: 2: Moderate AACSB: Application of knowledge LO: 11.6: Characterize the role of labor unions in today's business world.

85) Which of the following is an advantage of joining a labor union?

A) Labor unions allow members to engage in direct negotiations with the management.

B) Most unions do not collect money from the members.

C) Most unions are not related to political activities.

D) Labor unions promote skill-based pay systems and promotions.

E) Union members receive greater benefits compared to non-union employees.

Answer: E Explanation: As with compensation, union members receive greater benefits, on average, than non-union employees.

Difficulty: 2: Moderate AACSB: Application of knowledge LO: 11.6: Characterize the role of labor unions in today's business world.

86) Seniority refers to the ________.

A) length of time someone has worked for his or her current employer B) skills that an employee has acquired over a period of time C) present productivity level of an employee D) lifetime productivity value of an employee E) total compensation and benefits offered to an employee Answer: A Explanation: Seniority is the length of time someone has worked for his or her current employer. Union contracts usually have specific provisions with regard to seniority.

Difficulty: 2: Moderate AACSB: Application of knowledge LO: 11.6: Characterize the role of labor unions in today's business world.

87) Labor unions ________.

A) negotiate contracts to spell out formal procedures for discipline B) will lead to lower employee compensation levels C) give more importance to skills than seniority D) are fully sponsored by the employers E) cause a significant improvement in organizational productivity Answer: A Explanation: Labor union contracts typically spell out formal procedures for such matters as disciplining employees.

Difficulty: 2: Moderate AACSB: Application of knowledge LO: 11.6: Characterize the role of labor unions in today's business world.

88) Which of the following is a disadvantage of becoming a union member?

A) Unions give little importance to the length of time someone has worked.

B) Unions do not promote formal procedures for disciplining employees.

C) Unions often force employees to help fund political activities.

D) Unions do not have any impact in determining the work rules.

E) Unions do not provide tangible and measurable benefits to employees.

Answer: C Explanation: Some of the reasons why employees might not want to join unions include being forced to pay union dues, being forced to help fund political activities they may not support, being held back in their careers by union seniority rules, and being forced to accept the union as the sole intermediary.

Difficulty: 2: Moderate AACSB: Application of knowledge LO: 11.6: Characterize the role of labor unions in today's business world.

89) ________ is/are a common element of labor contracts and specify such things as the tasks certain employees are required to do or are forbidden to do.

A) Compensation policy B) Work rules C) Authorization cards D) Employee certification E) Productivity certification Answer: B Explanation: Work rules are a common element of labor contracts. These rules specify such things as the tasks certain employees are required to do or are forbidden to do.

Difficulty: 2: Moderate AACSB: Application of knowledge LO: 11.6: Characterize the role of labor unions in today's business world.

90) Which of the following gives unionized employees rights and opportunities that are more closely aligned with management and is the most fundamental appeal of unionization?

A) Strength in numbers B) Negotiation ability C) Discipline D) Seniority E) Workplace safety Answer: A Explanation: The most fundamental appeal of unionization is strength in numbers, giving workers the opportunity to negotiate on a more equal footing with management (who represent company ownership).

Difficulty: 2: Moderate AACSB: Application of knowledge LO: 11.6: Characterize the role of labor unions in today's business world.

91) How do unions affect wages for workers nationwide?

A) Union workers make more than all nonunion workers in the same industry.

B) Union workers make more than nonunion workers when averaged across all private sector industries.

C) Union workers in public sector jobs make more than private sector counterparts.

D) Union workers make less than nonunion workers in the same industry.

E) Union workers make less than nonunion workers when averaged across all private sector industries.

Answer: B Explanation: According to the U.S. Bureau of Labor Statistics, union members currently earn about 27 percent more than nonunion workers, taken as an average across the entire workforce.

Difficulty: 2: Moderate AACSB: Application of knowledge LO: 11.6: Characterize the role of labor unions in today's business world.

92) Which of the following refers to the relationship between organized labor and business owners?

A) Organized labor B) Unionization C) Labor relations D) Solidarity E) Work rules Answer: C Explanation: Perhaps nothing represents the potential for stress in the stakeholder model more than labor relations, the relationship between organized labor and business owners.

Although they work toward common goals in most cases, managers and employees face an inherent conflict over resources: Company owners and managers want to minimize the costs of operating the business, whereas employees want to maximize salaries and ensure good benefits and safe, pleasant working conditions.

Difficulty: 2: Moderate AACSB: Application of knowledge LO: 11.6: Characterize the role of labor unions in today's business world.

93) What is management's top priority when having to work with unions in the organization?

A) Being flexible enough to respond to changes in product demand B) Decreasing employee burnout C) Increasing productivity gains D) Making sure the firm can stay competitive E) Establishing strong work rules Answer: D Explanation: Although union sympathizers sometimes portray this attitude as simple greed, in general, management's top priority is making sure their firms can remain competitive. For example, by containing the ongoing costs of providing compensation and benefits, a firm is better able to invest in facilities, equipment, and new product development.

Difficulty: 2: Moderate AACSB: Application of knowledge LO: 11.6: Characterize the role of labor unions in today's business world.

94) Nonunion employees typically receive greater benefits than union members.

Answer: FALSE Explanation: Union members receive greater benefits, on average, than nonunion employees.

Difficulty: 2: Moderate AACSB: Application of knowledge LO: 11.6: Characterize the role of labor unions in today's business world.

95) Seniority refers to the length of time someone has worked for his or her current employer.

Answer: TRUE Explanation: Union contracts usually have specific provisions about hiring, promotions, and layoffs, particularly with regard to seniority, the length of time someone has worked for his or her current employer.

Difficulty: 2: Moderate AACSB: Application of knowledge LO: 11.6: Characterize the role of labor unions in today's business world.

96) How do unions negatively impact productivity?

Answer: Negotiations and stress on seniority often affect the productivity of organizations. It also affects organizational flexibility. Supporters of the argument will stress these points. The main argument against this view will be the level of employee protection that labor unions provide. Student answers will vary due to the nature of this question.

Difficulty: 3: Challenging AACSB: Application of knowledge LO: 11.6: Characterize the role of labor unions in today's business world.

97) Explain the benefits of unionization.

Answer: Higher compensation. According to the U.S. Bureau of Labor Statistics, union members currently earn about 27 percent more than nonunion workers, taken as an average across the entire workforce.

Greater benefits. As with compensation, on average union members receive better nonwage benefits such as health-care insurance, and a greater percentage of union employees receive these benefits, than nonunion employees.

Influence over hiring, promotions, and layoffs. Union contracts usually have specific provisions about hiring, promotions, and layoffs, particularly with regard to seniority, the length of time someone has worked for his or her current employer.

Working conditions and workplace safety. Many unionization efforts focus on issues of workplace safety, work breaks, training, and other aspects of life on the job.

Formal processes for employee grievances, discipline, and other matters. Union contracts typically spell out formal procedures for such matters as disciplining employees.

Solidarity and recognition. Aside from tangible and measurable benefits, union membership can appeal to workers who feel unappreciated, humiliated, or let down by management.

Difficulty: 2: Moderate AACSB: Analytical thinking LO: 11.6: Characterize the role of labor unions in today's business world.

98) Which of the following applies the tools of big data and analytics across the full scope of HR management?

A) Workforce analytics B) Data extraction C) Predicative analytics D) Employee assistance programs E) Skills inventory Answer: A Explanation: Workforce analytics, also called people analytics, applies the tools of big data and analytics across the full scope of HR management, from recruiting and hiring to training and development to compensation and employee benefits.

Difficulty: 2: Moderate AACSB: Information technology LO: 11.7: Describe the use of workforce analytics in HR management.

99) Insights provided by workforce analytics combine performance measurements and ________ to help managers make better decisions.

A) promotional opportunity B) predicative analysis C) major shifts in the workforce D) skills inventories E) data-driven HR Answer: B Explanation: Workforce analytics provide helpful information for managers to make decisions by combining performance measurements and predicative analysis.

Difficulty: 2: Moderate AACSB: Information technology LO: 11.7: Describe the use of workforce analytics in HR management.

100) What is the emphasis of workforce analytics?

A) Subjective decision making B) Benefits as compared to performance C) Data-driven decision making D) Diversity and inclusion E) Contingency options Answer: C Explanation: By emphasizing objective, data-driven decision-making, workforce analytics can help companies overcome instances of explicit and implicit bias in hiring, compensation, and promotion opportunities.

Difficulty: 2: Moderate AACSB: Information technology LO: 11.7: Describe the use of workforce analytics in HR management.

Business in Action, 9e (Bovee/Thill) Chapter 12 The Art and Science of Marketing 1) Consumer ________ arise(s) from a gap between the consumer's actual state and their ideal state.

A) cognition

B) utility C) needs D) perception E) drive Answer: C Explanation: Needs refer to differences between a person's actual state and his or her ideal state; it provides the basic motivation to make a purchase.

Difficulty: 2: Moderate AACSB: Application of knowledge LO: 12.1: Define marketing, and explain its role in society.

2) How do wants differ from needs?

A) Wants are more specific.

B) Wants are independent of culture.

C) Wants create motivation to buy products.

D) Wants are the core of all marketing efforts.

E) Wants are more difficult to shape by marketers.

Answer: A Explanation: Your wants are based on your needs but are more specific. Producers do not create needs, but they do try to shape your wants by exposing you to attractive choices.

Difficulty: 1: Easy AACSB: Application of knowledge LO: 12.1: Define marketing, and explain its role in society.

3) The exchange of value between parties is referred to as ________.

A) utility B) social commerce C) attribution D) a transition E) a transaction Answer: E Explanation: Transaction refers to an exchange of value between parties.

Difficulty: 1: Easy AACSB: Application of knowledge LO: 12.1: Define marketing, and explain its role in society.

4) When a manufacturer combines fabric, buttons, and zippers to create clothing, it creates ________.

A) time utility B) form utility C) place utility D) value utility E) possession utility Answer: B Explanation: When organizations change raw materials into finished goods, they are creating form utility desired by consumers. When supermarkets provide fresh, ready-toeat dishes as an alternative to food ingredients, they are creating form utility.

Difficulty: 2: Moderate AACSB: Analytical thinking LO: 12.1: Define marketing, and explain its role in society.

5) ________ utility is the benefit provided by making the company's products available where customers want to purchase them.

A) Form B) Possession C) Value D) Place E) Time Answer: D Explanation: Marketers try to make their products available when and where customers want to buy them, creating time utility and place utility. Coffee carts in office buildings and ATMs in shopping malls create place utility.

Difficulty: 1: Easy AACSB: Application of knowledge LO: 12.1: Define marketing, and explain its role in society.

6) In addition to the ideas of and exchange of value, which of the following is one of the three essential elements of successful marketing?

A) Lasting relationships B) Competitive price C) Social causes D) Promotion of the industry E) Buying power Answer: A Explanation: Marketing is "the process by which companies create value for customers and build strong customer relationships in order to capture value from customers in return." The ideas of value, the exchange of value, and lasting relationships are essential elements of successful marketing.

Difficulty: 2: Moderate AACSB: Analytical thinking LO: 12.1: Define marketing, and explain its role in society.

7) When a firm develops a marketing campaign for a social cause, such as a cleaner environment, what type of marketing campaign is being used?

A) Exchange marketing B) Cause-related marketing C) Needs marketing D) Relationship marketing E) Place marketing Answer: B Explanation: Cause-related marketing promotes a cause or a social issue—such as physical fitness, cancer awareness, or environmental sustainability—while also promoting a company and its products.

Difficulty: 2: Moderate AACSB: Analytical thinking LO: 12.1: Define marketing, and explain its role in society.

8) Which of the following identifies any attribute that helps determine the value a customer places on a product?

A) Form B) Possession C) Utility D) Customer loyalty E) Lifetime value Answer: C Explanation: To encourage the exchange process, marketers enhance the appeal of their goods and services by adding utility, which is any attribute that increases the value that customers place on the product.

Difficulty: 2: Moderate AACSB: Analytical thinking LO: 12.1: Define marketing, and explain its role in society.

9) What type of utility is created when a customer actually purchases and has a product?

A) Time B) Place C) Form D) Possession E) Relationship Answer: D Explanation: The final form of utility is possession utility—the satisfaction that buyers get when they actually possess a product, both legally and physically.

Difficulty: 2: Moderate AACSB: Analytical thinking LO: 12.1: Define marketing, and explain its role in society.

10) ________ is a term used to represent the effort of companies to create customer lifetime value while seeking long-term profitability and other goals.

A) Customer loyalty B) Social commerce C) Customer satisfaction D) Sales concept E) Relationship marketing Answer: E Explanation: Most successful companies tend to embrace the marketing concept, the idea that companies should respond to customers' needs and wants while seeking long-term profitability and coordinating their own marketing efforts to achieve the company's longterm goals. The term relationship marketing is often applied to these efforts to distinguish them from efforts that emphasize production or sales transactions.

Difficulty: 2: Moderate AACSB: Application of knowledge LO: 12.1: Define marketing, and explain its role in society.

11) ________ marketing is a program that works to promote a social issue while promoting the company and its products.

A) Place B) Social C) Utility D) Possession E) Cause-related Answer: E Explanation: Cause-related marketing promotes a cause or a social issue—such as physical fitness, cancer awareness, or environmental sustainability—while also promoting a company and its products.

Difficulty: 2: Moderate AACSB: Application of knowledge LO: 12.1: Define marketing, and explain its role in society.

12) Producers do not create needs, but they do try to shape your wants by exposing you to attractive choices.

Answer: TRUE Explanation: Producers do not create needs, but they do try to shape your wants by exposing you to attractive choices. If you have the means, or buying power, to purchase the product you want, you create demand for that product.

Difficulty: 1: Easy AACSB: Application of knowledge LO: 12.1: Define marketing, and explain its role in society.

13) When a supermarket provides fresh, ready-to-eat meals as an alternative to buying all of the ingredients needed to make dinner, it is creating place utility.

Answer: FALSE Explanation: Utility is the power of a good or service to satisfy a human need. Place utility refers to the convenience attached with place.

Difficulty: 1: Easy AACSB: Application of knowledge LO: 12.1: Define marketing, and explain its role in society.

14) Today's most successful companies embrace the marketing concept, the idea that customers will continue to buy from the same company only if that company is loyal to them.

Answer: FALSE Explanation: Today's most successful companies tend to embrace the marketing concept, the idea that companies should respond to customers' needs and wants while seeking long-term profitability and coordinating their own marketing efforts to achieve the company's long-term goals.

Difficulty: 2: Moderate AACSB: Application of knowledge LO: 12.1: Define marketing, and explain its role in society.

15) Customer loyalty is one of the most significant goals of relationship marketing.

Answer: TRUE Explanation: One of the most significant goals of relationship marketing is customer loyalty, the degree to which customers continue to buy from a particular retailer or buy the products offered by a particular manufacturer.

Difficulty: 2: Moderate AACSB: Application of knowledge LO: 12.1: Define marketing, and explain its role in society.

16) Compare and contrast place marketing with cause-related marketing.

Answer: Marketing refers to the process of creating value for customers and building relationships with those customers in order to capture value back from them. In addition to goods and services, marketing applies to not-for-profit organizations, people, places, and causes. Place marketing describes efforts to market geographic areas ranging from neighborhoods to entire countries. Cause-related marketing promotes a cause or a social issue—such as physical fitness, cancer awareness, environmental sustainability—while also promoting a company and its products.

Difficulty: 2: Moderate AACSB: Analytical thinking LO: 12.1: Define marketing, and explain its role in society.

17) Compare and contrast needs with wants.

Answer: Needs refers to differences between a person's actual state and his or her ideal state. As a consumer, you experience needs any time there are differences or gaps between your actual state and your ideal state. Needs provide the basic motivation to make a purchase. Your wants are based on your needs but are more specific. Wants refer to specific goods, services, experiences, or other entities that are desirable in light of a person's experiences, culture, and personality.

Difficulty: 2: Moderate AACSB: Analytical thinking LO: 12.1: Define marketing, and explain its role in society.

18) Compare and contrast marketing concept with the product and selling concepts.

Answer: The product concept views the primary purpose of a business as making things, not satisfying customers. As markets evolved and competition heated up, the sales concept began to take over, which emphasizes building a business by generating as many sales transactions as possible. The customer features more prominently in the sales concept, but only as a target to be sold to, not as a partner in a mutually satisfying relationship.

In contrast, today's most successful companies tend to embrace the marketing concept, the idea that companies should respond to customers' needs and wants while seeking long-term profitability and coordinating their own marketing efforts to achieve the company's long-term goals. These customer-focused companies build their marketing strategies around the goal of long-term relationships with satisfied customers. The term relationship marketing is often applied to these efforts to distinguish them from efforts that emphasize production or sales transactions.

Difficulty: 3: Challenging AACSB: Analytical thinking LO: 12.1: Define marketing, and explain its role in society.

19) ________ refers to using social networks to create and share product-related information among customers and potential customers.

A) Guerrilla marketing B) Cause-related marketing C) Vertical integration D) Social commerce E) Diversification Answer: D Explanation: Social commerce refers to the creation and sharing of product-related information among customers and potential customers. Social commerce can be enabled using blogs, wikis, user-generated content such as online videos or customer-created advertising, and other social media technologies.

Difficulty: 2: Moderate AACSB: Information technology LO: 12.2: Identify five trends that help define contemporary marketing.

20) The process of collecting and interpreting information about customers, competitors, and other related marketing issues is known as ________.

A) social commerce B) product development C) market development D) permission-based marketing E) marketing research Answer: E Explanation: The process of gathering and analyzing market intelligence about customers, competitors, and related marketing issues through any combination of methods is known as marketing research.

Difficulty: 2: Moderate AACSB: Application of knowledge LO: 12.2: Identify five trends that help define contemporary marketing.

21) A research technique that measures the brain activity of customers while they are interacting with a product or brand is known as ________.

A) neuromarketing studies B) ethnographic experiments C) psychoanalysis D) transactional analysis E) focus groups Answer: A Explanation: Neuromarketing studies refer to research that measures brain activity while customers are viewing or interacting with product, websites, or other elements.

Difficulty: 3: Challenging AACSB: Application of knowledge LO: 12.2: Identify five trends that help define contemporary marketing.

22) Studying people in their daily lives to learn about their needs, wants, and behaviors in real-life settings is called ________.

A) neuromarketing studies B) ethnographic research C) experiments D) focus groups E) process data collection Answer: B Explanation: Ethnographic research is a branch of anthropology that studies people in their daily lives to learn about their needs, wants, and behaviors in real-life settings.

Difficulty: 3: Challenging AACSB: Application of knowledge LO: 12.2: Identify five trends that help define contemporary marketing.

23) Unlike surveys, focus groups ________.

A) require knowledge of statistical techniques B) are not designed to collect statistics that represent a larger group C) fail to uncover issues that might require further study D) are not used to probe deeper into issues E) study people in their daily lives to learn about their needs, wants, and behaviors in real-life settings Answer: B Explanation: Unlike surveys, interviews and focus groups are not designed to collect statistics that represent a larger group; their real value is in uncovering issues that might require further study.

Difficulty: 3: Challenging AACSB: Application of knowledge LO: 12.2: Identify five trends that help define contemporary marketing.

24) An e-commerce website allows visitors to sign up for specific content streams with the promise that they won't be bombarded with information they don't care about. This is an example of ________.

A) stealth marketing B) ethnographic research C) permission-based marketing D) market development E) cause-related marketing Answer: C Explanation: Permission-based marketing refers to a marketing approach in which firms first ask permission to deliver messages to an audience and then promise to restrict their communication efforts to those subject areas in which audience members have expressed interest.

Difficulty: 2: Moderate AACSB: Information technology LO: 12.2: Identify five trends that help define contemporary marketing.

25) What can companies use to capture and organize information that is relevant to a consumer's interaction with a company?

A) Customer relationship management systems B) Social commerce C) User generated content D) Relationship marketing E) Time and place utility Answer: A Explanation: A customer relationship management (CRM) system captures, organizes, and capitalizes on all the interactions that a company has with its customers, from marketing surveys and advertising through sales orders and customer support. A CRM system functions like an institutional memory for a company, allowing it to record and act on the information that is pertinent to each customer relationship.

Difficulty: 2: Moderate AACSB: Information technology LO: 12.2: Identify five trends that help define contemporary marketing.

26) Measuring the effectiveness of marketing efforts, or how much each marketing activity contributes to sales, is a matter of ________.

A) social commerce B) attribution C) touchpoints D) cognition E) customer relationship management Answer: B Explanation: The challenge of measuring the effectiveness of marketing efforts focuses largely on the matter of attribution, determining how much each marketing activity contributes to sales and other marketing metrics.

Difficulty: 2: Moderate AACSB: Application of knowledge LO: 12.2: Identify five trends that help define contemporary marketing.

27) The use of social media as a marketing tool has led to ________, which involves the promotion of products or services to customers who don't know they are being marketed to.

A) voice of the customer (VoC) marketing B) touchpoints C) native advertising D) geographic segmentation E) behavioral segmentation Answer: C Explanation: Native advertising, also known as sponsored content, is advertising material that is designed to look like regular news stories, articles, or social media posts.

Difficulty: 2: Moderate AACSB: Application of knowledge LO: 12.2: Identify five trends that help define contemporary marketing.

28) In which of the following do marketers invite customers to receive information that genuinely interest them?

A) Stealth marketing B) Permission-based marketing C) Marketing analytics D) Data-driven marketing E) Social commerce Answer: B Explanation: Social commerce shows a lot of promise for redefining marketing communication from one-way promotion to two-way conversation. One hopeful sign is permission-based marketing in which marketers invite potential or current customers to receive information in areas that genuinely interest them.

Difficulty: 2: Moderate AACSB: Application of knowledge LO: 12.2: Identify five trends that help define contemporary marketing.

29) Companies use ________ in an effort to capture everything current and potential customers say and write about the company and its products.

A) stealth marketing B) sustainability marketing C) attribution systems D) sponsored content E) voice of the customer Answer: E Explanation: CRM, social media, and other "listening" efforts aim to capture the voice of the customer (VoC) everything that current and potential customers are saying and writing about a company and its products (or would like to say about them if given the chance). Companies with comprehensive and systematic VoC programs enjoy significantly higher financial results than companies that fail to integrate customer input.

Difficulty: 2: Moderate AACSB: Application of knowledge LO: 12.2: Identify five trends that help define contemporary marketing.

30) Any point of interaction a customer has with a product or a company is referred to as ________.

A) touchpoints B) differentiators C) promotion D) core values E) attribution Answer: A Explanation: Companies evaluate the customer experience at every touchpoint, which is any point of interaction–online, on the phone, or in person–between a company and its current and potential customers.

Difficulty: 1: Easy AACSB: Application of knowledge LO: 12.2: Identify five trends that help define contemporary marketing.

31) Ethnographic research refers to research that measures brain activity while customers

are viewing or interacting with product, Web site, or other elements.

Answer: FALSE Explanation: Ethnographic research is a branch of anthropology that studies people in their daily lives to learn about their needs, wants, and behaviors in real-life settings.

Difficulty: 1: Easy AACSB: Application of knowledge LO: 12.2: Identify five trends that help define contemporary marketing.

32) The launch of a product under real-world conditions but on a limited scale (such as in a single city), is a form of neuromarketing studies.

Answer: FALSE Explanation: The launch of a product under real-world conditions but on a limited scale (such as in a single city), is known as test marketing.

Difficulty: 2: Moderate AACSB: Application of knowledge LO: 12.2: Identify five trends that help define contemporary marketing.

33) Sustainable development is a core value for many companies and is now a strong purchase consideration for many customers.

Answer: TRUE Explanation: Sustainable development is a core value for a growing number of companies and a strong purchase consideration for many customers, too. Marketing plays a key role in educating customers about a company's sustainable business practices, including the qualities of individual products.

Difficulty: 2: Moderate AACSB: Ethical understanding and reasoning LO: 12.2: Identify five trends that help define contemporary marketing.

34) Discuss the influence of customer relationship management (CRM) systems and social commerce on the marketing process.

Answer: Two sets of technologies have helped foster communication and collaboration between companies and their customers. The first is customer relationship management (CRM) systems, which capture, organize, and capitalize on all the interactions that a company has with its customers, from marketing surveys and advertising through sales orders and customer support. A CRM system functions like an institutional memory for a company, allowing it to record and act on the information that is pertinent to each customer relationship.

CRM can be a powerful means to foster relationships, but to a certain degree, conventional CRM simply computerizes an existing way of doing business. A more dramatic step is enabling social commerce, using blogs, wikis, user-generated content such as online videos or customer-created advertising, and other social media technologies. These tools let customers communicate with companies, with each other, and with influences in the marketplace such as prominent bloggers and journalists.

Difficulty: 3: Challenging AACSB: Analytical thinking LO: 12.2: Identify five trends that help define contemporary marketing.

35) Compare and contrast surveys with interviews and focus groups.

Answer: Surveys refer to data collection efforts that measure responses from a

representative subset of a larger group of people. They can be conducted in person, over the phone, by mail or email, or online. Designing and conducting a meaningful survey requires thorough knowledge of statistical techniques, such as sampling, to ensure valid results that truly represent the larger group. For this reason, many of the simple surveys that you see online these days do not produce statistically valid results.

One-on-one or group discussions try to probe deeper into issues than a survey typically does. Focus groups involve a small number of people guided by a facilitator while being observed or recorded by researchers. Unlike surveys, interviews and focus groups are not designed to collect statistics that represent a larger group; their real value is in uncovering issues that might require further study.

Difficulty: 3: Challenging AACSB: Analytical thinking LO: 12.2: Identify five trends that help define contemporary marketing.

36) Tension that exists when a person's beliefs don't match his or her behaviors is called ________.

A) cognitive dissonance B) anchoring C) hindsight bias D) self-serving bias E) fundamental attribution error Answer: A Explanation: Cognitive dissonance occurs when one's beliefs and behaviors don't match.

A common form of this situation is buyer's remorse, in which one makes a purchase and then regrets doing so—sometimes immediately after the purchase.

Difficulty: 2: Moderate AACSB: Application of knowledge LO: 12.3: Differentiate between consumer buying behavior and organizational buying behavior.

37) Buyer's remorse, in which one makes a purchase and then regrets doing so, is an example of ________.

A) anchoring B) hindsight bias C) self-serving bias D) fundamental attribution error E) cognitive dissonance Answer: E Explanation: Cognitive dissonance occurs when one's beliefs and behaviors don't match.

A common form of this situation is buyer's remorse, in which one makes a purchase and then regrets doing so—sometimes immediately after the purchase.

Difficulty: 2: Moderate AACSB: Application of knowledge LO: 12.3: Differentiate between consumer buying behavior and organizational buying behavior.

38) Consumer purchasing differs from organizational purchasing in that consumer purchasing ________.

A) is influenced more by subconscious and emotional factors

B) follows a formal buying process C) has greater complexity in product usage D) involves a closer relationship between buyers and sellers E) has a greater emphasis on economic payback Answer: A Explanation: The purchasing behavior of organizations is easier to understand than the purchasing behavior of consumers, because it's more clearly driven by economics and influenced less by subconscious and emotional factors.

Difficulty: 2: Moderate AACSB: Application of knowledge LO: 12.3: Differentiate between consumer buying behavior and organizational buying behavior.

39) Organizational purchasing differs from consumer purchasing in that organizational purchasing ________.

A) is influenced more by subconscious and emotional factors B) usually involves closer relationships between buyers and sellers C) has lower complexity in product usage D) lacks a formal buying process E) is less clearly driven by economics Answer: B Explanation: Close relationships between buyers and sellers are common in organizational purchasing. In some cases, employees from the seller even have offices inside the buyer's facility to promote close interaction.

Difficulty: 2: Moderate AACSB: Application of knowledge LO: 12.3: Differentiate between consumer buying behavior and organizational buying behavior.

40) After a customer perceives a need, what is the next step in their purchasing process?

A) Collecting information B) Making the purchase C) Establishing criteria D) Evaluating outcomes E) Evaluating alternatives Answer: C Explanation: The first step in the purchase process is establishing criteria. Customers identifies and prioritizes decisions criteria, often needed to make compromises and difficult trade-offs.

Difficulty: 2: Moderate AACSB: Analytical thinking LO: 12.3: Differentiate between consumer buying behavior and organizational buying behavior.

41) Organizational purchases tend to be data driven and based on ________.

A) personal needs B) status C) sensory cues D) relationships E) rational factors Answer: E Explanation: Broadly speaking, organizational buyers tend to approach purchasing in a more rational, data-driven fashion, simply because organizational choices are nearly always about functional and financial value.

Difficulty: 2: Moderate AACSB: Analytical thinking LO: 12.3: Differentiate between consumer buying behavior and organizational buying behavior.

42) Consumers markets include ________.

A) schools B) households C) governments D) companies E) retailers Answer: B Explanation: The first step toward understanding customers is recognizing the purchase and ownership habits of the consumer market, made up of individuals and families who buy for personal or household use.

Difficulty: 2: Moderate AACSB: Analytical thinking LO: 12.3: Differentiate between consumer buying behavior and organizational buying behavior.

43) Which of the following influence our purchase decisions by shaping values, attitudes, and beliefs?

A) Reference groups B) Culture C) Self-image D) Socioeconomic level E) Situational factors Answer: B Explanation: The cultures (and subgroups within cultures) that people belong to shape their values, attitudes, and beliefs and influence the way they respond to the world around them.

Difficulty: 2: Moderate AACSB: Analytical thinking LO: 12.3: Differentiate between consumer buying behavior and organizational buying behavior.

44) Family, friends, and work groups make up a consumer's ________ and become role models for style, opinions, and other behaviors.

A) situational factors B) self-image C) reference groups D) socioeconomic level E) culture Answer: C Explanation: Reference groups can be either membership or aspirational and are membership groups to which consumers actually belong, such as families, networks of friends, clubs, and work groups. Consumers are not members of aspirational reference groups but use them as role models for style, speech, opinions, and various other behaviors.

Difficulty: 2: Moderate AACSB: Analytical thinking LO: 12.3: Differentiate between consumer buying behavior and organizational buying behavior.

45) Organizational purchasing choices are different than consumer purchasing choices in that consumer choices ________.

A) are carefully evaluated for reliability and other objective factors B) are made after a careful review of the choices C) are carefully evaluated for compatibility with existing items D) are often based on the image value of goods and services E) often involve a larger group of people in the decision-making process Answer: D Explanation: Much more so than with consumer purchases, organizational purchases are carefully evaluated for financial impact, reliability, and other objective factors. Many consumers tend to believe that "you are what you buy," so they make or avoid choices that support their desired self-images. Marketers capitalize on people's need to express their identity through their purchases by emphasizing the image value of goods and services.

Difficulty: 2: Moderate AACSB: Analytical thinking LO: 12.3: Differentiate between consumer buying behavior and organizational buying behavior.

46) When will the customer evaluate the product and decision-making process of a routine purchase?

A) When establishing criteria B) When evaluating sources C) When collecting information from technical experts D) When making the purchase E) Only when something goes wrong Answer: E Explanation: Consistency builds habits; if the purchase worked out as expected, the customer probably won't think twice about it.

Difficulty: 2: Moderate AACSB: Application of knowledge

LO: 12.3: Differentiate between consumer buying behavior and organizational buying behavior.

47) Which type of purchase decision is driven primarily by moods and emotions?

A) Affective B) Routine C) Institutional D) Cognitive E) Logical Answer: A Explanation: Affective choices are those driven primarily by moods and emotions. You can get a good idea of the power of affective choice by studying all the advertising you are exposed to: Marketers know that fear, hope, pride, joy, love, sadness, disgust, envy, embarrassment, and other emotions are powerful forces.

Difficulty: 1: Easy AACSB: Application of knowledge LO: 12.3: Differentiate between consumer buying behavior and organizational buying behavior.

48) Which of the following factors include events that are circumstantial, but can influence buying patterns?

A) Self-image B) Situational C) Culture D) Reference E) Aspiration Answer: B Explanation: Situational factors include events or circumstances in people's lives that are more circumstantial but that can influence buying patterns. Such factors can range from having a coupon to celebrating a holiday to being in a bad mood.

Difficulty: 2: Moderate AACSB: Application of knowledge LO: 12.3: Differentiate between consumer buying behavior and organizational buying behavior.

49) At one time or another, all consumers suffer from cognitive dissonance.

Answer: TRUE Explanation: At one time or another, all consumers suffer from cognitive dissonance, which occurs when one's beliefs and behaviors don't match.

Difficulty: 1: Easy AACSB: Application of knowledge LO: 12.3: Differentiate between consumer buying behavior and organizational buying behavior.

50) Aspirational reference groups are those to which consumers actually belong, such as families, networks of friends, clubs, and work groups.

Answer: FALSE Explanation: Membership groups are those to which consumers actually belong, such as families, networks of friends, clubs, and work groups.

Difficulty: 1: Easy AACSB: Application of knowledge LO: 12.3: Differentiate between consumer buying behavior and organizational buying behavior.

51) The purchasing behavior of organizations is more clearly driven by economics and influenced less by subconscious and emotional factors.

Answer: TRUE Explanation: The purchasing behavior of organizations is easier to understand than the purchasing behavior of consumers because it's more clearly driven by economics and influenced less by subconscious and emotional factors.

Difficulty: 1: Easy AACSB: Application of knowledge LO: 12.3: Differentiate between consumer buying behavior and organizational buying behavior.

52) Compare and contrast consumer market with organizational market.

Answer: Consumer market is made up of individuals and families who buy for personal or household use, and the organizational market is composed of companies and a variety of noncommercial institutions, from local school districts to the federal government.

Classical economic theory suggests that consumers follow a largely rational process of recognizing a need, searching for information, evaluating alternatives, making a purchase, and evaluating the product after use or consumption. However, recent research into behavioral economics and consumer psychology suggests that many consumer purchases are far less rational. Much of this decision-making happens subconsciously and is driven, to a large degree, by emotion, culture, and situational factors. The purchasing behavior of organizations is easier to understand than the purchasing behavior of consumers because it's more clearly driven by economics and influenced less by subconscious and emotional factors. The most significant ways in which organizational purchasing differs from consumer purchasing are an emphasis on economic payback, a formal buying process, greater complexity in product usage, the participation and influence of multiple people, and close relationships between buyers and sellers.

Difficulty: 3: Challenging AACSB: Analytical thinking LO: 12.3: Differentiate between consumer buying behavior and organizational buying behavior.

53) What is cognitive dissonance?

Answer: Cognitive dissonance refers to the tension that exists when a person's beliefs don't match his or her behaviors; a common example is buyer's remorse, when someone regrets a purchase immediately after making it. At one time or another, all consumers suffer from cognitive dissonance.

Difficulty: 2: Moderate AACSB: Analytical thinking LO: 12.3: Differentiate between consumer buying behavior and organizational buying behavior.

54) The process of examining an organization's current marketing situation, assessing opportunities and setting objectives, and then developing a marketing strategy to reach those objectives is called ________.

A) stealth marketing B) strategic marketing planning C) marketing research D) social commerce E) marketing concept Answer: B Explanation: The process of examining an organization's current marketing situation, assessing opportunities and setting objectives, and then developing a marketing strategy to reach those objectives is called strategic marketing planning. Companies often record the results of their planning efforts in a formal marketing plan.

Difficulty: 2: Moderate AACSB: Application of knowledge LO: 12.4: Define strategic marketing planning, and identify the four basic options for pursuing new marketing opportunities.

55) ________ involves selling more of your existing products into the markets you already serve.

A) Product development B) Market development C) Diversification D) Market penetration E) Benchmarking Answer: D Explanation: Market penetration involves selling more of your existing products into the markets you already serve. Market penetration can be the least risky, because your products already exist and the market has already demonstrated some level of demand for them.

Difficulty: 2: Moderate AACSB: Application of knowledge LO: 12.4: Define strategic marketing planning, and identify the four basic options for pursuing new marketing opportunities.

56) Creating new goods and services for a firm's current markets is called ________.

A) market penetration B) product development C) market development D) diversification E) pure play Answer: B Explanation: Product development refers to creating new products for a firm's current markets.

Difficulty: 2: Moderate AACSB: Application of knowledge LO: 12.4: Define strategic marketing planning, and identify the four basic options for pursuing new marketing opportunities.

57) Selling existing products to new markets is referred to as ________.

A) market development B) product development C) market segmentation D) market penetration E) vertical integration Answer: A Explanation: Market development refers to selling existing products to new markets.

Difficulty: 2: Moderate AACSB: Application of knowledge LO: 12.4: Define strategic marketing planning, and identify the four basic options for pursuing new marketing opportunities.

58) Creating new products for new markets is called ________.

A) market penetration B) vertical integration C) diversification D) horizontal integration E) decentralization Answer: C Explanation: Diversification refers to creating new products for new markets.

Difficulty: 2: Moderate AACSB: Application of knowledge LO: 12.4: Define strategic marketing planning, and identify the four basic options for pursuing new marketing opportunities.

59) Market penetration differs from diversification in that market penetration ________.

A) involves division of a diverse market into smaller, relatively homogeneous groups B) involves selling more of the existing products in current target markets C) involves selling new products in existing markets D) involves a higher amount of risk E) involves selling existing products to new markets Answer: B Explanation: Market penetration involves selling more of your existing products into the markets you already serve, while diversification involves creating new products for new markets.

Difficulty: 2: Moderate AACSB: Application of knowledge LO: 12.4: Define strategic marketing planning, and identify the four basic options for pursuing new marketing opportunities.

60) When developing a formal marketing plan, why is it most important to review where you are and how you got there?

A) To identify areas for diversification B) To better understand the external environment C) To identify trends that could affect the business D) To better evaluate what the competition is doing E) To learn from mistakes and repeat successes Answer: E Explanation: Reviewing where you are and how you got there is critical because you want to learn from your mistakes and repeat your successes—without getting trapped in mindsets and practices that need to change for the future, even if they were successful in the past.

Difficulty: 2: Moderate AACSB: Application of knowledge LO: 12.4: Define strategic marketing planning, and identify the four basic options for pursuing new marketing opportunities.

61) Trends and conditions in the business environment can be determined during what activity?

A) Crafting a marketing strategy B) Evaluating competition C) Analyzing the external environment D) Reviewing performance E) Assessing opportunities and setting objectives Answer: C Explanation: Marketers must also analyze trends and conditions in the business environment when planning their marketing strategies.

Difficulty: 2: Moderate AACSB: Application of knowledge LO: 12.4: Define strategic marketing planning, and identify the four basic options for pursuing new marketing opportunities.

62) A firm's portion of the total sales within a market is its ________.

A) market penetration B) market share C) diversification level D) market segmentation E) market development Answer: B Explanation: A common marketing objective is to achieve a certain level of market share, which is a firm's portion of the total sales within a market (market share can be defined by either number of units sold or by sales revenue).

Difficulty: 2: Moderate AACSB: Application of knowledge LO: 12.4: Define strategic marketing planning, and identify the four basic options for pursuing new marketing opportunities.

63) Strategic marketing planning refers to the process of examining an organization's current marketing situation, assessing opportunities and setting objectives, and then developing a marketing strategy to reach those objectives.

Answer: TRUE Explanation: Strategic marketing planning refers to the process of examining an organization's current marketing situation, assessing opportunities and setting objectives, and then developing a marketing strategy to reach those objectives. Companies often document their planning efforts in a formal marketing plan.

Difficulty: 1: Easy AACSB: Application of knowledge LO: 12.4: Define strategic marketing planning, and identify the four basic options for pursuing new marketing opportunities.

64) Successful marketers try to identify sources of competitive advantage and areas that need improvement.

Answer: TRUE Explanation: Successful marketers try to identify sources of competitive advantage and areas that need improvement. They look at such factors as financial resources, production capabilities, distribution networks, brand awareness, business partnerships, managerial expertise, and promotional capabilities.

Difficulty: 1: Easy AACSB: Application of knowledge LO: 12.4: Define strategic marketing planning, and identify the four basic options for pursuing new marketing opportunities.

65) Market share can be defined by either number of units sold or by sales revenue.

Answer: TRUE Explanation: Market share refers to a firm's portion of the total sales in a market.

Difficulty: 1: Easy AACSB: Application of knowledge LO: 12.4: Define strategic marketing planning, and identify the four basic options for pursuing new marketing opportunities.

66) What are the steps involved in strategic marketing planning?

Answer: Strategic marketing planning involves three steps: (1) examining the current marketing situation (including past performance, competition, internal strengths and weaknesses, and the external environment); (2) assessing market opportunities and setting marketing objectives; and (3) developing a marketing strategy to reach those objectives.

Difficulty: 1: Easy AACSB: Application of knowledge LO: 12.4: Define strategic marketing planning, and identify the four basic options for pursuing new marketing opportunities.

67) Compare and contrast market penetration with diversification.

Answer: Market penetration involves selling more of a firm's existing products into the markets it already serves. Diversification refers to creating new products for new markets. Market penetration can be the least risky because your products already exist and the market has already demonstrated some level of demand for your products.

However, diversification has high levels of risk. It involves creating new products for new markets which is usually the riskiest choice of all because you encounter uncertainties in both products and market dimensions.

Difficulty: 3: Challenging AACSB: Analytical thinking LO: 12.4: Define strategic marketing planning, and identify the four basic options for pursuing new marketing opportunities.

68) Compare and contrast product development with market development.

Answer: Product development refers to creating new products for a firm's current markets. Suppose that Herbal Care, a U.S. company that manufactures cosmetics, decides to introduce a new range of shampoos and hair conditioners for its existing target customer group. This is an example of product development. Market development involves selling existing products to new markets. Suppose that Amtech Systems, a firm that manufactures financial software, sells its products in the United States. Based on its huge success, the firm decides to sell its existing products in Britain and France as well.

In this example, Amtech Systems uses the market development strategy.

Difficulty: 3: Challenging AACSB: Analytical thinking LO: 12.4: Define strategic marketing planning, and identify the four basic options for pursuing new marketing opportunities.

69) Grouping customers with similar characteristics, behaviors, and needs is known as ________.

A) a marketing mix B) market development C) social commerce D) market segmentation E) market penetration Answer: D Explanation: The division of a diverse market into smaller, relatively homogeneous groups with similar needs, wants, and purchase behaviors is known as market segmentation.

Difficulty: 2: Moderate AACSB: Application of knowledge LO: 12.5: Identify the four steps in crafting a marketing strategy.

70) The study of the statistical characteristics of a population is called ________.

A) demographics B) psychographics C) behavioral segmentation D) anthropology E) ethnographic research Answer: A Explanation: Demographics refer to the study of statistical characteristics of a population.

Difficulty: 2: Moderate AACSB: Application of knowledge LO: 12.5: Identify the four steps in crafting a marketing strategy.

71) Businesses use ________ to classify people by focusing on why they behave the way they do by examining such issues as brand preferences, media preferences, values, attitudes, self-concept, and opinions.

A) social commerce B) demographics C) geographic segmentation D) psychographics E) market penetration Answer: D Explanation: Psychographics refers to the classification of customers on the basis of their psychological makeup, interests, and lifestyles. Psychographic analysis focuses on why people behave the way they do by examining such issues as brand preferences, media preferences, values, self-concept, and behavior.

Difficulty: 2: Moderate AACSB: Application of knowledge LO: 12.5: Identify the four steps in crafting a marketing strategy.

72) ________ refers to the categorization of customers according to their relationship with products or response to product characteristics.

A) Demographic segmentation B) Geographic segmentation C) Ethnographic segmentation D) Psychographic segmentation E) Behavioral segmentation Answer: E Explanation: Behavioral segmentation groups customers according to their relationship with products or response to product characteristics. To identify behavioral segments, marketers study such factors as the occasions that prompt people to buy certain products, the particular benefits they seek from a product, their habits and frequency of product usage, and the degree of loyalty they show toward a brand.

Difficulty: 2: Moderate AACSB: Application of knowledge LO: 12.5: Identify the four steps in crafting a marketing strategy.

73) Demographics differ from psychographics in that demographics ________.

A) involve analyzing customers' self-concept and behavior B) involve segmenting the market into geographic units C) involve grouping customers according to characteristics such as age, gender, and income D) involve grouping customers according to their relationship with products E) involve grouping customers according to their response to product characteristics Answer: C Explanation: When you segment a market using demographics, you subdivide your customers according to characteristics such as age, gender, income, race, occupation, and ethnic group. Psychographics refers to the classification of customers on the basis of their psychological makeup, interests, and lifestyles.

Difficulty: 2: Moderate AACSB: Application of knowledge LO: 12.5: Identify the four steps in crafting a marketing strategy.

74) A company who ignores differences among buyers and offers only one product line presented with the same communication and distribution strategies most likely uses which of the following targeting strategies?

A) Mass marketing B) Cause-related marketing C) Individualized marketing D) Micromarketing E) Differentiated marketing Answer: A Explanation: Companies that practice undifferentiated marketing (also known as mass marketing) ignore differences among buyers, offer only one product or product line, and present that product line with the same communication, pricing, and distribution strategies to all potential buyers.

Difficulty: 2: Moderate AACSB: Application of knowledge LO: 12.5: Identify the four steps in crafting a marketing strategy.

75) Mass marketing differs from differentiated marketing in that mass marketing ________.

A) has one marketing mix for the entire market B) focuses on only a single market segment C) requires substantial resources D) sells a variety of products to several target customer groups E) targets a single location or even a single customer Answer: A Explanation: Companies that practice mass marketing offer only one product or product line; in addition, they present it with the same communication, pricing, and distribution strategies to all potential buyers. By contrast, companies that manufacture or sell a variety of products to several target customer groups practice differentiated marketing.

Difficulty: 2: Moderate AACSB: Analytical thinking LO: 12.5: Identify the four steps in crafting a marketing strategy.

76) Concentrated marketing differs from micromarketing in that concentrated marketing ________.

A) targets a single location or even a single customer B) focuses on a single market segment C) ignores differences among buyers D) involves crafting entire marketing programs of products for an individual customer E) sells a variety of products to several target customer groups Answer: B Explanation: Concentrated marketing focuses on only a single market segment.

Micromarketing is the narrowest strategy of all, in which firms target a single location or even a single customer.

Difficulty: 2: Moderate AACSB: Analytical thinking LO: 12.5: Identify the four steps in crafting a marketing strategy.

77) Micromarketing differs from undifferentiated marketing in that micromarketing ________.

A) ignores differences among buyers B) focuses on only a single market segment C) has one marketing mix for the entire market D) sells a variety of products to several target customer groups E) targets a single location or even a single customer Answer: E Explanation: In undifferentiated marketing, a company offers only one product (or product line) and uses the same communication, pricing, and distribution strategies to present that product to potential buyers. Micromarketing is the narrowest strategy of all, in which a firm targets a single location or even a single customer.

Difficulty: 2: Moderate AACSB: Analytical thinking LO: 12.5: Identify the four steps in crafting a marketing strategy.

78) ________ refers to designing a company's offerings and messages in a way so the company and their products occupy a particular place in the minds of target customers.

A) Positioning B) Vertical integration C) Horizontal integration D) Decentralization E) Delayering Answer: A Explanation: Positioning is the process of designing a company's offerings, messages, and operating policies so that both the company and its products occupy distinct and desirable competitive positions in your target customers' minds.

Difficulty: 2: Moderate AACSB: Application of knowledge LO: 12.5: Identify the four steps in crafting a marketing strategy.

79) Concentrated marketing is the narrowest strategy of all market-coverage strategies, in which firms target a single location or even a single customer.

Answer: FALSE Explanation: Concentrated marketing focuses on only a single market segment. With this approach, a marketer acknowledges that various other market segments may exist but you choose to target just one.

Difficulty: 2: Moderate AACSB: Application of knowledge LO: 12.5: Identify the four steps in crafting a marketing strategy.

80) A market contains all customers who might be interested in a product, and have the ability to pay for it.

Answer: TRUE Explanation: A market contains all the customers who might be interested in a product and can pay for it. However, most markets contain subgroups of potential customers with different interests, values, and behaviors.

Difficulty: 2: Moderate AACSB: Application of knowledge LO: 12.5: Identify the four steps in crafting a marketing strategy.

81) Discuss the four fundamental factors marketers use to identify market segments.

Answer: Market segmentation refers to the division of a diverse market into smaller, relatively homogeneous groups with similar needs, wants, and purchase behaviors. The overall goal of market segmentation is to understand why and how certain customers buy what they buy so that you use your finite resources to create and market products in the most efficient manner possible. Four fundamental factors marketers use to identify market segments are demographics, psychographics, geography, and behavior.

Difficulty: 2: Moderate AACSB: Application of knowledge LO: 12.5: Identify the four steps in crafting a marketing strategy.

82) Compare and contrast undifferentiated marketing with differentiated marketing.

Answer: Companies that practice undifferentiated marketing (also known as mass marketing) ignore differences among buyers and offer only one product or product line and present it with the same communication, pricing, and distribution strategies to all potential buyers. Undifferentiated marketing has the advantages of simplicity and economies of scale, but it can be less effective at reaching some portions of the market.

By contrast, companies that manufacture or sell a variety of products to several target customer groups practice differentiated marketing. Differentiated marketing is a popular strategy, but it requires substantial resources because the company has to tailor products, prices, promotional efforts, and distribution arrangements for each customer group. The differentiation should be based on meaningful differences that don't alienate any audiences.

Difficulty: 2: Moderate AACSB: Analytical thinking LO: 12.5: Identify the four steps in crafting a marketing strategy.

83) Compare and contrast concentrated marketing with micromarketing.

Answer: Concentrated marketing focuses on only a single market segment. With this approach, you acknowledge that various other market segments may exist but you choose to target just one. The biggest advantage of concentrated marketing is that it allows you to focus all your time and resources on a single type of customer. The strategy can be risky, however, because you've staked your fortunes on just one segment.

Micromarketing, or individualized marketing, is the narrowest strategy of all, in which firms target a single location or even a single customer. This approach can range from customizable products to major accounts sales teams that design entire marketing programs for each of their largest customers.

Difficulty: 2: Moderate AACSB: Analytical thinking LO: 12.5: Identify the four steps in crafting a marketing strategy.

84) ________ consists of the four key elements of marketing strategy: product, price, distribution, and customer communication.

A) Positioning B) Marketing mix C) Social commerce D) Market development E) Product development Answer: B Explanation: A firm's marketing mix consists of product, price, distribution, and customer communication.

Difficulty: 2: Moderate AACSB: Application of knowledge LO: 12.6: Describe the four main components of the marketing mix.

85) ________ is an element of the marketing mix that refers to a wide variety of persuasive techniques used by companies to communicate with their target markets and the general public.

A) Distribution B) Promotion C) Decentralization D) Market segmentation E) Differentiation Answer: B Explanation: Promotion refers to a wide variety of persuasive techniques used by companies to communicate with their target markets and the general public.

Difficulty: 2: Moderate AACSB: Application of knowledge LO: 12.6: Describe the four main components of the marketing mix.

86) Which of the following is referred to as the bundle of value offered in a marketing exchange, for the purpose of satisfying a need or want?

A) Products B) Marketing mix C) Goods D) Value captured E) Promotion Answer: A Explanation: For the purposes of studying marketing, it is helpful to define products as the bundle of value offered for the purpose of satisfying a want or a need in a marketing exchange. In this expanded definition, both tangible goods and intangible services are considered products.

Difficulty: 2: Moderate AACSB: Application of knowledge LO: 12.6: Describe the four main components of the marketing mix.

87) The value captured from customers in exchange for the value offered in a product determines ________.

A) marketing mix B) product C) promotion D) distribution channels E) price Answer: E Explanation: Price is the value captured from customers in exchange for the value offered in the product. Setting and managing a product's price is one of the most critical decisions a company must make because price is the only element in a company's marketing mix that produces revenue; all other elements represent costs.

Difficulty: 2: Moderate AACSB: Application of knowledge LO: 12.6: Describe the four main components of the marketing mix.

88) The organized network that moves a product from the producer to the customer is known as the ________.

A) marketing elasticity B) distribution channel C) captured value D) promotion E) marketing mix Answer: B Explanation: Distribution is the third marketing-mix element. It covers the organized network of firms and systems that move goods and services from the producer to the customer. This network is also known as marketing channels, marketing intermediaries, or distribution channels.

Difficulty: 2: Moderate AACSB: Application of knowledge LO: 12.6: Describe the four main components of the marketing mix.

89) The sensitivity of consumers to changes in the price of a product is reflected in ________.

A) optimum price point B) external forces C) value captured D) price elasticity E) established costs Answer: D Explanation: Products also exhibit various levels of price elasticity, which is a measure of how sensitive customers are to changes in price.

Difficulty: 2: Moderate AACSB: Application of knowledge LO: 12.6: Describe the four main components of the marketing mix.

90) Which of the following can perform a variety of essential marketing functions, including providing information to customers and manufactures, transportation and storage, and generally making shopping easier for the customer?

A) Wholesalers B) Micromarketers C) Marketing intermediaries D) Major account sales managers E) Retailers Answer: C Explanation: Marketing intermediaries perform a variety of essential marketing functions, including providing information to customers, providing feedback to manufacturers, providing sales support, gathering assortments of goods from multiple producers to make shopping easier for customers, and transporting and storing goods.

Difficulty: 2: Moderate AACSB: Application of knowledge LO: 12.6: Describe the four main components of the marketing mix.

91) How has social media changed the promotion process?

A) By allowing firms to talk with their customers B) By limited negative feedback on new ideas C) By allowing a unidirectional approach to promotion D) By allowing for immediate help with service related problems E) By lowering the cost of traditional marketing efforts Answer: A Explanation: By talking with their customers instead of at their customers, marketers get immediate feedback on everything from customer service problems to new product ideas.

Difficulty: 2: Moderate AACSB: Analytical thinking LO: 12.6: Describe the four main components of the marketing mix.

92) A firm's marketing mix consists of product, price, distribution, and customer communication.

Answer: TRUE Explanation: A firm's marketing mix consists of product, price, distribution, and customer communication.

Difficulty: 1: Easy AACSB: Application of knowledge LO: 12.6: Describe the four main components of the marketing mix.

93) The basic distinction between wholesalers and retailers is that retailers sell to other companies whereas wholesalers sell to individual consumers.

Answer: FALSE Explanation: The basic distinction between wholesalers and retailers is that wholesalers sell to businesses whereas retailers sell to individual consumers.

Difficulty: 2: Moderate AACSB: Application of knowledge LO: 12.6: Describe the four main components of the marketing mix.

94) Discuss the four main components of the marketing mix.

Answer: The marketing mix consists of four key elements of marketing strategy: the products a company offers to potential buyers, the price it asks in return, its methods of distributing those products to customers, and the various efforts it makes to communicate with customers before and after the sale. Products are goods, services, persons, places, ideas, organizations, or anything else offered for the purpose of satisfying a want or need in a marketing exchange. Price is the amount of money customers pay for the product.

Distribution is the organized network of firms that move the goods and services from the producer to the customer. Customer communication involves the activities used to communicate with and promote products to target markets.

Difficulty: 2: Moderate AACSB: Application of knowledge LO: 12.6: Describe the four main components of the marketing mix.

95) ________ include(s) a range of tools and techniques that help marketers plan and evaluate marketing activities.

A) Digital communication channels B) Distribution channels C) Marketing analytics D) Marketing mix E) Neuromarketing Answer: C Explanation: Marketing analytics refers to a range of tools and techniques that help marketers plan and evaluate marketing activities.

Difficulty: 2: Moderate AACSB: Information technology LO: 12.7: Define marketing analytics, and characterize its use in contemporary marketing.

96) Which of the following is the primary goal of incorporating marketing analytics in the marketing effort?

A) To increase revenue and profit B) To incorporate digital communication channels C) To encourage two-way communication between the customer and the organization D) To simplify the marketing mix E) To create a broader view of products that will appeal to more consumers Answer: A Explanation: The primary goals of marketing analytics are to increase revenue and profits while improving the cost effectiveness of the entire marketing effort.

Difficulty: 2: Moderate AACSB: Information technology LO: 12.7: Define marketing analytics, and characterize its use in contemporary marketing.

97) ________ are a company's most important marketing metrics used when measuring the effectiveness of the marketing effort.

A) Optimization results B) Key performance indicators C) Promotional messaging D) Shares of customer E) Influencers Answer: C Explanation: The overall effectiveness of the marketing effort is the sum of all the individual components of that effort, from broadcast advertising to digital marketing to personal sales. A company's most important metrics are often referred to as key performance indicators (KPIs).

Difficulty: 2: Moderate AACSB: Information technology LO: 12.7: Define marketing analytics, and characterize its use in contemporary marketing.

98) One important goal for marketing analytics efforts is to establish a(n) ________ so all data collection can feed into a well-organized repository.

A) text mining database B) sentiment analysis C) emotional analysis D) unified data layer E) share of wallet goal Answer: D Explanation: An important goal for every marketing analytics effort is to establish a unified data layer across the entire enterprise, so that all the various data collection "pipes" can feed into a centralized and well-organized repository, and all the decisionmaking applications work from the same set of data.

Difficulty: 3: Challenging AACSB: Information technology LO: 12.7: Define marketing analytics, and characterize its use in contemporary marketing.

99) Companies can use an A/B test, where one audience receives one message, and the other audience receives a different version of the message. What is the goal of an A/B test?

A) To optimize timing and placement of ads B) To prioritize customers in advertising efforts C) To measure share of customer D) To track advertising effectiveness of competitors E) To measure response to advertising Answer: E Explanation: With an ability to measure the response to advertising efforts, companies can test and adjust their promotional messaging. This can be done through A/B tests, in which one audience segment receives the "A" version of the message and a second segment receives the "B" version.

Difficulty: 2: Moderate AACSB: Information technology LO: 12.7: Define marketing analytics, and characterize its use in contemporary marketing.

100) Discuss the major goals of marketing analytics.

Answer: The primary goals of marketing analytics are to increase revenue and profits while improving the cost effectiveness of the entire marketing effort. Behind all the computer power and mathematical techniques, it's really still about solving the attribution problem.

Difficulty: 3: Challenging AACSB: Information technology LO: 12.7: Define marketing analytics, and characterize its use in contemporary marketing.

Business in Action, 9e (Bovee/Thill) Chapter 13 Product Management and Pricing Strategies 1) Which of the following can be categorized as a good?

A) Financial advice B) Digital music C) Air travel D) Life insurance E) Shoes Answer: E Explanation: Products contain both tangible and intangible components. Predominantly tangible products are categorized as goods, whereas predominantly intangible products are categorized as services. Most tangible of the given set of products is a pair of shoes.

Difficulty: 1: Easy AACSB: Application of knowledge LO: 13.1: Identify the main types of consumer and organizational products, and describe the four stages in the life cycle of a product.

2) A product is called a good if ________.

A) its price is below the market standards B) it is predominantly tangible

C) it has been standardized D) it is sold directly to the end consumers E) its price is above the market standards Answer: B Explanation: Products contain both tangible and intangible components. Predominantly tangible products are categorized as goods, whereas predominantly intangible products are categorized as services.

Difficulty: 1: Easy AACSB: Application of knowledge LO: 13.1: Identify the main types of consumer and organizational products, and describe the four stages in the life cycle of a product.

3) ________ are everyday individual goods and services that people buy frequently without much conscious planning.

A) Convenience products B) Shopping products C) Expense items D) Capital items E) Specialty products Answer: A Explanation: Everyday goods and services that people buy frequently, usually without much conscious planning, are known as convenience products.

Difficulty: 1: Easy AACSB: Application of knowledge LO: 13.1: Identify the main types of consumer and organizational products, and describe the four stages in the life cycle of a product.

4) ________ are fairly important individual goods and services that people buy less frequently.

A) Convenience products B) Expense items C) Specialty products D) Capital items E) Shopping products Answer: E Explanation: Shopping products (such as computers or college educations) are fairly important goods and services that people buy less frequently.

Difficulty: 1: Easy AACSB: Application of knowledge LO: 13.1: Identify the main types of consumer and organizational products, and describe the four stages in the life cycle of a product.

5) ________ are particular brands that the buyer especially wants and will seek out regardless of location or price.

A) Specialty products B) Expense items C) Capital items D) Convenience products E) Shopping products

Answer: A Explanation: Specialty products are particular brands that the buyer especially wants and will seek out, regardless of location or price, such as a wedding dress or Rolex watch.

Difficulty: 1: Easy AACSB: Application of knowledge LO: 13.1: Identify the main types of consumer and organizational products, and describe the four stages in the life cycle of a product.

6) Expense items are ________.

A) fairly important goods and services that organizations buy less frequently B) everyday goods and services that individuals buy C) inexpensive products that organizations generally use within a year D) expensive organizational products with a longer useful life E) particular brands that the organizational buyer especially wants and will seek out Answer: C Explanation: Expense items are relatively inexpensive organizational goods that are generally used within a year of purchase, such as printer cartridges and paper.

Difficulty: 1: Easy AACSB: Application of knowledge LO: 13.1: Identify the main types of consumer and organizational products, and describe the four stages in the life cycle of a product.

7) ________ are expensive organizational products with a long useful life.

A) Shopping products B) Capital items C) Expense items D) Specialty products E) Convenience products Answer: B Explanation: Capital items are expensive organizational products with a long useful life, ranging from office and plant equipment to entire factories.

Difficulty: 1: Easy AACSB: Application of knowledge LO: 13.1: Identify the main types of consumer and organizational products, and describe the four stages in the life cycle of a product.

8) Research and development is carried out usually during the ________ stage of product development.

A) maturity B) introductory C) growth D) saturation E) intensification Answer: B Explanation: The first stage in the product life cycle is the introductory stage, which extends from the research-and-development (R&D) phase through the product's first commercial availability.

Difficulty: 2: Moderate AACSB: Application of knowledge LO: 13.1: Identify the main types of consumer and organizational products, and describe the four stages in the life cycle of a product.

9) The ________ stage of the product life cycle is marked by a rapid increase in sales.

A) maturity B) research C) saturation D) growth E) infiltration Answer: D Explanation: After the introductory stage comes the growth stage, marked by a rapid jump in sales—if the product is successful—and, usually, an increase in the number of competitors and distribution outlets.

Difficulty: 2: Moderate AACSB: Application of knowledge LO: 13.1: Identify the main types of consumer and organizational products, and describe the four stages in the life cycle of a product.

10) The maturity stage of product life cycle is ________.

A) a stage where a product's price is at a high level B) usually the shortest stage in a product's lifetime C) characterized by steep decline in profits D) typically followed by a growth stage E) a stage where the market is saturated and sales begin to level off Answer: E Explanation: During the maturity stage, markets tend to get saturated with all the supply that buyers demand, so the only way a firm can expand its sales in this phase is to win sales away from other suppliers.

Difficulty: 2: Moderate AACSB: Application of knowledge LO: 13.1: Identify the main types of consumer and organizational products, and describe the four stages in the life cycle of a product.

11) Shopping products are particular brands that the buyer especially wants and will seek out, regardless of location or price.

Answer: FALSE Explanation: Particular brands that the buyer especially wants and will seek out, regardless of location or price, are called specialty products. Buyers perform comparison shopping for shopping goods.

Difficulty: 1: Easy AACSB: Application of knowledge LO: 13.1: Identify the main types of consumer and organizational products, and describe the four stages in the life cycle of a product.

12) Expense items are inexpensive products that organizations generally use within a year of purchase.

Answer: TRUE Explanation: Expense items are inexpensive products that organizations generally use within a year of purchase. They include such products as printer cartridges and paper.

Difficulty: 2: Moderate AACSB: Application of knowledge LO: 13.1: Identify the main types of consumer and organizational products, and describe the four stages in the life cycle of a product.

13) Capital items are less expensive than expense items.

Answer: FALSE Explanation: Capital items are more expensive products than expensive items and have a longer useful life.

Difficulty: 2: Moderate AACSB: Application of knowledge LO: 13.1: Identify the main types of consumer and organizational products, and describe the four stages in the life cycle of a product.

14) A software firm buys 250 personal computers for a new facility that it is opening.

This is an example of an expense item.

Answer: FALSE Explanation: Expense items are inexpensive products that organizations generally use within a year of purchase. The computers that the firm bought are considered capital items.

Difficulty: 2: Moderate AACSB: Application of knowledge LO: 13.1: Identify the main types of consumer and organizational products, and describe the four stages in the life cycle of a product.

15) Product life cycle refers to the four stages through which a product progresses.

Answer: TRUE Explanation: Product life cycle refers to the four stages through which a product progresses. The stages are introduction, growth, maturity, and decline.

Difficulty: 2: Moderate AACSB: Application of knowledge LO: 13.1: Identify the main types of consumer and organizational products, and describe the four stages in the life cycle of a product.

16) Compare and contrast convenience products, shopping products, and specialty products.

Answer: Convenience products are everyday goods and services that people buy frequently, usually without much conscious planning. Usually, these low-risk products are purchased quickly. Shopping products are fairly important goods and services that people buy less frequently, such as computers and college educations. Because the stakes are higher and the decisions more complex, such products require more thought and comparison-shopping. Specialty products are particular brands that the buyer especially wants and will seek out, regardless of location or price, such as Suzuki violin lessons or Bang & Olufsen home entertainment gear.

Difficulty: 3: Challenging AACSB: Analytical thinking LO: 13.1: Identify the main types of consumer and organizational products, and describe the four stages in the life cycle of a product.

17) Describe the four subgroups that are used when classifying the products that people buy.

Answer: Industrial buyers and sellers often classify products according to their intended use.

Raw materials such as iron ore, crude petroleum, lumber, and chemicals are used in the production of final products.

Components such as semiconductors and fasteners also become part of the manufacturers' final products.

Supplies such as pencils, nails, and light bulbs that are used in a firm's daily operations are considered expense items.

Installations such as factories, power plants, and airports are major capital projects.

Equipment includes items such as desks, computers, and factory robots.

Business services range from landscaping and cleaning to complex services such as management consulting and auditing.

Difficulty: 3: Challenging AACSB: Analytical thinking LO: 13.1: Identify the main types of consumer and organizational products, and describe the four stages in the life cycle of a product.

18) Which of the following best describes the method of generating, selecting, developing, and commercializing ideas for goods or services?

A) Augmented reality B) Product development process C) Test marketing D) Product life cycle E) Product convenience Answer: B Explanation: Many of today's products appear on the market as a result of a rigorous, formal product development process—a method of generating, selecting, developing, and commercializing product ideas.

Difficulty: 2: Moderate AACSB: Application of knowledge LO: 13.2: Describe six stages in the product development process.

19) Which of the following has the purpose of identifying which concepts have the most promise and which should be abandoned?

A) Business analysis B) Test marketing C) Idea screening D) Commercialization E) Prototype development Answer: C Explanation: The purpose of idea screening is to identify which concepts have the most promise and which should be abandoned. Ideas need to be screened to minimize the chances of discovering later that they can't be built, can't deliver the envisioned benefits, or will cost more than the market is willing to pay for them.

Difficulty: 2: Moderate AACSB: Application of knowledge LO: 13.2: Describe six stages in the product development process.

20) During the business analysis stage, a company ________.

A) sells the product on a limited basis to gauge its market appeal B) invests significantly in research and development C) reviews the sales, costs, and profit projections D) screens the business ideas that it has generated E) generates a wide variety of ideas to introduce a new product Answer: C Explanation: During the business analysis stage, a company reviews the sales, costs, and profit projections to determine whether they meet the company's objectives.

Difficulty: 2: Moderate AACSB: Analytical thinking LO: 13.2: Describe six stages in the product development process.

21) Prototypes are ________.

A) layouts used in the design of a product B) analysts who screen product ideas C) tools used to design a new product D) preproduction samples of products E) networks used in the commercialization of products Answer: D Explanation: Prototypes are preproduction samples of products used for testing and evaluation.

Difficulty: 2: Moderate AACSB: Application of knowledge LO: 13.2: Describe six stages in the product development process.

22) ________ is a product development stage in which a product is sold on a limited basis to gauge its market appeal.

A) Business analysis B) Test marketing C) Crowdsourcing D) Prototyping E) Commercialization Answer: B Explanation: During test marketing, a firm introduces the product in selected markets and monitors consumer reactions. It is a product development stage in which a product is sold on a limited basis to gauge its market appeal.

Difficulty: 2: Moderate AACSB: Application of knowledge LO: 13.2: Describe six stages in the product development process.

23) During prototype development of a digital service, a company identifies the resources required to bring a product to market in a process called ________.

A) beta testing B) commercialization C) concept testing D) scalability E) feasibility testing Answer: D Explanation: The company begins to plan for large-scale manufacturing (for tangible goods) or scalability (for digital services, for example), then identifies the resources required to bring the product to market.

Difficulty: 2: Moderate AACSB: Application of knowledge LO: 13.2: Describe six stages in the product development process.

24) During the final stage of development, large-scale production and distribution of the product begins the process of ________.

A) media relations B) crowdsourcing C) test marketing D) scalability E) product launch Answer: E Explanation: The final stage of development is commercialization, the large-scale production and distribution of products that have survived the testing process. This phase (also referred to as a product launch) requires the coordination of many activities— manufacturing, packaging, distribution, pricing, media relations, and customer communication.

Difficulty: 2: Moderate AACSB: Application of knowledge LO: 13.2: Describe six stages in the product development process.

25) When a new product enters the commercialization phase of the product development process, it's guaranteed to succeed if it has gone through rigorous risk-reduction procedures.

Answer: FALSE Explanation: Even after following a rigorous process to reduce risk, companies have no guarantee that products will take off when they hit the commercialization phase.

Difficulty: 2: Moderate AACSB: Application of knowledge LO: 13.2: Describe six stages in the product development process.

26) Prototypes are diagrammatic representations of a business model.

Answer: FALSE Explanation: Prototypes are preproduction samples of products used for testing and evaluation.

Difficulty: 2: Moderate AACSB: Application of knowledge LO: 13.2: Describe six stages in the product development process.

27) Commercialization refers to the large-scale production and distribution of products that have survived the testing process.

Answer: TRUE Explanation: The final stage of development is commercialization, the large-scale production and distribution of products that have survived the testing process.

Difficulty: 2: Moderate AACSB: Application of knowledge LO: 13.2: Describe six stages in the product development process.

28) Explain how a business analysis is carried out.

Answer: A product idea that survives the screening stage is subjected to a business analysis. During this stage, the company reviews the sales, costs, and profit projections to determine whether they meet the company's objectives. In addition, it estimates the costs associated with various levels of production. Given these projections, analysts calculate the potential profit that will be achieved if the product is introduced. If the product meets the company's objectives, it can then move to the prototype development stage.

Difficulty: 2: Moderate AACSB: Analytical thinking LO: 13.2: Describe six stages in the product development process.

29) Explain how a firm conducts test marketing for a new product.

Answer: During test marketing, the firm introduces the product in selected markets and monitors consumer reactions. Test marketing gives the marketer experience with marketing the product before going to the expense of a full introduction. For instance, producers of television programs can test shows in local or regional markets to gauge viewer appeal before going nationwide. Companies can also release products early to get feedback from potential customers before finalizing features and functions. Software developers often do so through beta versions. Test marketing can be expensive and time consuming, however, so not all companies choose to take this step with every new product.

Difficulty: 2: Moderate AACSB: Analytical thinking LO: 13.2: Describe six stages in the product development process.

30) A survey revealed that a product has a high level of brand loyalty. This means that ________.

A) buyers will not accept substitutes of the brand B) the brand does not have many substitutes C) people are committed to the brand D) the brand represents a specialty product E) majority considered the brand as a preferred one Answer: C Explanation: Customers who buy the same brand again and again are evidence of the strength of brand loyalty, or commitment to a particular brand.

Difficulty: 2: Moderate AACSB: Application of knowledge LO: 13.3: Define brand, and explain the concepts of brand equity and brand loyalty.

31) Which of the following best describes a brand?

A) The core value associated with a product B) The identity that is encompassed in a product or company C) The graphical representation of a producer of a product D) The appeal of a product that encourages consumer to purchase the product over and over E) The aspects of a product that are intertwined with the narratives of the consumer's life Answer: B Explanation: Creating an identity for products is one of the most important decisions marketers make. That identity is encompassed in the brand, which can have meaning at three levels: (1) a unique name, symbol, or design that sets the product apart from those offered by competitors; (2) the legal protections afforded by a trademark and any relevant intellectual property; and (3) the overall company or organizational brand.

Difficulty: 2: Moderate AACSB: Application of knowledge LO: 13.3: Define brand, and explain the concepts of brand equity and brand loyalty.

32) The portion of the brand that can be spoken and can include words, letters, or number is referred to as the ________.

A) brand mark B) trademark C) logo D) brand identity E) brand name Answer: E Explanation: Brand names are the portion of a brand that can be spoken, including letters, words, or numbers.

Difficulty: 2: Moderate AACSB: Application of knowledge LO: 13.3: Define brand, and explain the concepts of brand equity and brand loyalty.

33) ________ is/are the portion of a brand that cannot be expressed verbally.

A) Logo B) Brand marks C) Brand name D) Brand identity E) Trademarks Answer: B Explanation: Brand marks are the part of a brand that can't be expressed verbally, such as McDonald's arches or the Nike swoosh.

Difficulty: 2: Moderate AACSB: Application of knowledge LO: 13.3: Define brand, and explain the concepts of brand equity and brand loyalty.

34) Which of the following refers to a graphical representation of a brand?

A) Brand equity B) Brand name C) License D) Logo E) Prototype Answer: D Explanation: A graphical representation of a brand is called a logo. The logo can also be a textual representation.

Difficulty: 2: Moderate AACSB: Application of knowledge LO: 13.3: Define brand, and explain the concepts of brand equity and brand loyalty.

35) ________ refer to brands that have been given legal protection so that their owners have exclusive rights to their use.

A) Brand equities B) Prototypes C) Licenses D) Trademarks E) Brand marks Answer: D Explanation: Trademarks are brands that have been given legal protection so that their owners have exclusive rights to their use. Brands can be registered as trademarks with the Patent and Trademark Office.

Difficulty: 2: Moderate AACSB: Application of knowledge LO: 13.3: Define brand, and explain the concepts of brand equity and brand loyalty.

36) Co-branding is ________.

A) a legal protection given to owners for exclusive rights to the use of brands B) a partnership to closely link brand names for a single product C) the process of selling a famous brand to a third party D) a method of testing and evaluating a new product E) an agreement to produce and market another company's product Answer: B Explanation: Co-branding is a partnership between two or more companies to closely link their brand names together for a single product.

Difficulty: 2: Moderate AACSB: Application of knowledge LO: 13.3: Define brand, and explain the concepts of brand equity and brand loyalty.

37) Which of the following is one of the ways packaging promotes the marketing strategy of a particular brand?

A) Packaging offers protection from damage.

B) Packaging serves as a means of product differentiation.

C) Packaging avoids perceptual effects to create uniformity.

D) Packaging acts as a method of testing and evaluating new products.

E) Packaging eliminates the need to create brand equity and recognition.

Answer: B Explanation: Most tangible products need some form of packaging to protect them from damage or tampering, but packaging can also play an important role in a product's marketing strategy. Packaging makes products easier to display, facilitates the sale of smaller products, serves as a means of product differentiation, and enhances the product's overall appeal and convenience.

Difficulty: 2: Moderate AACSB: Application of knowledge LO: 13.3: Define brand, and explain the concepts of brand equity and brand loyalty.

38) ________ is an agreement to use another company's brand on its products for a fee.

A) A trademark B) A license C) A patent D) A copyright E) Co-branding Answer: B Explanation: A license is an agreement to produce and market another company's product in exchange for a royalty or fee. This is common with well-known brands.

Difficulty: 2: Moderate AACSB: Application of knowledge LO: 13.3: Define brand, and explain the concepts of brand equity and brand loyalty.

39) Which of the following involves decisions about which items to include as part of a product offering, and in which quantities to offer them?

A) Labeling B) Licensing C) Branding D) Trademarks E) Packaging Answer: E Explanation: Most tangible products need some form of packaging to protect them from damage or tampering, but packaging can also play an important role in a product's marketing strategy. Packaging can also involve decisions about which items to include as the product offering and in what quantities.

Difficulty: 2: Moderate AACSB: Analytical thinking LO: 13.3: Define brand, and explain the concepts of brand equity and brand loyalty.

40) Because of ________, a brand name can become an organization's most valuable asset.

A) product identity B) brand preference C) brand equity D) brand insistence E) commercialization Answer: C Explanation: A brand name can be an organization's most valuable asset, and major brands such as Apple, Google, and IBM are valued at a hundred billion dollars or more.

Strong brands simplify marketing efforts because the target audience tends to associate positive qualities with any product that carries a respected brand name.

Difficulty: 2: Moderate AACSB: Application of knowledge LO: 13.3: Define brand, and explain the concepts of brand equity and brand loyalty.

41) Brands offered and promoted by a national manufacturer are considered to be ________.

A) generic brands B) store brands C) national brands D) private brands E) wholesale brands Answer: C Explanation: Brand names may be associated with a manufacturer, a retailer, a wholesaler, or a combination of business types. Brands offered and promoted by a national manufacturer, such as Procter & Gamble's Tide detergent and Pampers disposable diapers, are called national brands.

Difficulty: 2: Moderate AACSB: Application of knowledge LO: 13.3: Define brand, and explain the concepts of brand equity and brand loyalty.

42) A logo is a graphical or textual representation of a brand.

Answer: TRUE Explanation: A logo is a graphical and/or textual representation of a brand. It is considered a nonverbal brand mark, the visual treatment of the brand name, or a combination of the two.

Difficulty: 2: Moderate AACSB: Application of knowledge LO: 13.3: Define brand, and explain the concepts of brand equity and brand loyalty.

43) A product carrying the label of a wholesaler is an example of a private brand.

Answer: TRUE Explanation: Private brands are brands that carry the label of a retailer or a wholesaler rather than a manufacturer.

Difficulty: 2: Moderate AACSB: Application of knowledge LO: 13.3: Define brand, and explain the concepts of brand equity and brand loyalty.

44) A license is an agreement to produce and market another company's product in exchange for a royalty or fee.

Answer: TRUE Explanation: A license is an agreement to produce and market another company's product in exchange for a royalty or fee.

Difficulty: 2: Moderate AACSB: Application of knowledge LO: 13.3: Define brand, and explain the concepts of brand equity and brand loyalty.

45) What are national brands, private brands, and generic products?

Answer: Brands offered and promoted by a national manufacturer, such as Procter & Gamble's Tide detergent and Pampers disposable diapers, are called national brands.

Private brands are not linked to a manufacturer but instead carry a wholesaler's or a retailer's brand. These store brands have become a major force in the grocery business, as they have overcome an early reputation for lower quality and have become more widely accepted by consumers. As an alternative to branded products, some retailers also offer generic products, which are packaged in plain containers that bear only the name of the product.

Difficulty: 3: Challenging AACSB: Analytical thinking LO: 13.3: Define brand, and explain the concepts of brand equity and brand loyalty.

46) Compare and contrast co-branding and licensing.

Answer: Co-branding occurs when two or more companies team up to closely link their names in a single product, usually to leverage the brand associations and awareness of one product onto the other. Licensing refers to selling the rights to well-known brand names and symbols. Mainstream movies, for example, often hit the market with an array of licensing deals with fast-food chains and other consumer products companies.

Difficulty: 3: Challenging AACSB: Analytical thinking LO: 13.3: Define brand, and explain the concepts of brand equity and brand loyalty.

47) Explain the significance of labeling.

Answer: Labeling is an integral part of packaging. Whether the label is a separate element attached to the package or a printed part of the container, it serves to identify a brand and communicate multiple types of information, from promotional messages to legally required safety or nutritional data. The labeling of foods, drugs, cosmetics, and many health products is regulated under various federal laws, which often require disclosures about potential dangers, benefits, and other issues consumers need to consider when making a buying decision.

Difficulty: 3: Challenging AACSB: Analytical thinking LO: 13.3: Define brand, and explain the concepts of brand equity and brand loyalty.

48) Which of the following is a key difference between product mix and product line?

A) Product line is the complete set of the products in an industry, whereas product mix is an incomplete set of products.

B) Product mix contains products that are similar, whereas product line may contain dissimilar products.

C) A product mix is used by larger companies, whereas a product line is used by smaller companies.

D) Product line is a set of heterogeneous goods or services whereas product mix is a set of homogeneous products.

E) Product mix includes all products from a single manufacturer, whereas product line contains a group of similar products from the manufacturer.

Answer: E Explanation: A product mix is a complete list of all products that a company offers for sale. A product line is a group of products from a single manufacturer that are similar in terms of use or characteristics.

Difficulty: 2: Moderate AACSB: Application of knowledge LO: 13.4: Identify four ways of expanding a product line, and discuss two risks that product-line extensions pose.

49) Which of the following refers to creating variations of an existing product?

A) Brand differentiation B) Product mix C) Brand filling D) Product expansion E) Line stretching Answer: D Explanation: Product lines can be expanded by introducing additional items in a given product category under the same brand name or by expanding a product line to add new and similar products with the same product name.

Difficulty: 2: Moderate AACSB: Application of knowledge LO: 13.4: Identify four ways of expanding a product line, and discuss two risks that product-line extensions pose.

50) ________ refers to using a successful brand name on new products in the hopes that the reputation of the existing product will help sales of the new product.

A) Brand filling B) Commercialization C) Line filling D) Brand stretching E) Brand extension Answer: E Explanation: In a brand extension, a company applies a successful brand name to a new product category in the hopes that the recognition and reputation of the brand will give it a head start in the new category.

Difficulty: 2: Moderate AACSB: Application of knowledge LO: 13.4: Identify four ways of expanding a product line, and discuss two risks that product-line extensions pose.

51) Using a brand name on a variety of related products is known as ________.

A) brand filling B) commercialization C) product mix D) family branding E) brand stretching Answer: D Explanation: Family branding is the technique of using a brand name on a variety of related products. It is used to expand a company's product line.

Difficulty: 2: Moderate AACSB: Application of knowledge LO: 13.4: Identify four ways of expanding a product line, and discuss two risks that product-line extensions pose.

52) The management of individual products or groups of products for a large manufacturing company is performed by ________.

A) stakeholders B) product-line managers C) trend watchers D) test marketers E) distribution specialists Answer: B Explanation: In larger companies with more products to manage, individual products or groups of products are usually assigned to brand managers, known in some companies as product managers or product-line managers.

Difficulty: 2: Moderate AACSB: Application of knowledge LO: 13.4: Identify four ways of expanding a product line, and discuss two risks that product-line extensions pose.

53) A product mix that includes several versions of each product in the product line is a ________ product mix.

A) wide B) long C) deep D) simple E) complementary Answer: C Explanation: A product mix is wide if it has several product lines. A product mix is long if it carries several items in its product lines. A product mix is deep if it has a number of versions of each product in a product line.

Difficulty: 2: Moderate AACSB: Application of knowledge LO: 13.4: Identify four ways of expanding a product line, and discuss two risks that product-line extensions pose.

54) A company strategy of providing fewer products and selling more of each of those products can lower production costs through ________.

A) rapid response to market shifts B) economies of scale C) marketing synergy D) supply chain management E) brand extension opportunities Answer: B Explanation: Some companies limit the number of product offerings and focus on selling a few items in higher quantities. Doing so can keep production and marketing costs lower through economies of scale.

Difficulty: 2: Moderate AACSB: Analytical thinking LO: 13.4: Identify four ways of expanding a product line, and discuss two risks that product-line extensions pose.

55) Which of the following offers better opportunities for manufacturers of specialized or low-volume products to reach customers?

A) Increased shelf space B) Brand extension C) Dynamic pricing D) Online retailing E) Bundling Answer: D Explanation: Online retailing presents much better opportunities for large numbers of specialized and low-volume products. Without the physical limitations of a bricks-andmortar facility, online retailers can offer a much greater variety of products.

Difficulty: 2: Moderate AACSB: Analytical thinking LO: 13.4: Identify four ways of expanding a product line, and discuss two risks that product-line extensions pose.

56) When considering a product-line extension, what is one of the risks that marketers

need to consider carefully?

A) Brand width B) Product category competition C) Family branding fit D) Depth of product mix E) Product cannibalization Answer: E Explanation: Marketers need to make sure that new products don't simply cannibalize, or take sales away from, their existing products.

Difficulty: 2: Moderate AACSB: Analytical thinking LO: 13.4: Identify four ways of expanding a product line, and discuss two risks that product-line extensions pose.

57) When extending a product to an overseas market, what type of governmental influences must be considered?

A) Cultural preferences B) Size and packaging C) Language differences D) Tariffs and trade barriers E) Business customs Answer: D Explanation: When selecting a country, companies must take into consideration the type of government, market-entry requirements, tariffs and other trade barriers, cultural and language differences, consumer preferences, foreign-exchange rates, and differing business customs.

Difficulty: 3: Challenging AACSB: Analytical thinking LO: 13.4: Identify four ways of expanding a product line, and discuss two risks that product-line extensions pose.

58) A product mix is ________ if it has several product lines.

A) long B) deep C) generic D) wide E) branded Answer: D Explanation: Three important dimensions of a product mix are width, length, and depth, and each dimension presents its own set of challenges and opportunities. A product mix is wide if it has several product lines. A product mix is long if it carries several items in its product lines.

Difficulty: 3: Challenging AACSB: Analytical thinking LO: 13.4: Identify four ways of expanding a product line, and discuss two risks that product-line extensions pose.

59) Which of the following would be considered to be a deep product mix?

A) Ford

B) General Mills C) Costco D) Cheerios E) Bread Answer: D Explanation: A product mix is wide if it has several product lines. A product mix is long if it carries several items in its product lines. For instance, General Mills produces multiple cereal brands within the ready-to-eat cereal line. A product mix is deep if it has a number of versions of each product in a product line. The Cheerios brand, for example, has nearly 20 varieties.

Difficulty: 3: Challenging AACSB: Analytical thinking LO: 13.4: Identify four ways of expanding a product line, and discuss two risks that product-line extensions pose.

60) A product line comprises all products from a single manufacturer.

Answer: FALSE Explanation: Product line is a series of related products offered by a firm. It may not comprise all products of a firm.

Difficulty: 2: Moderate AACSB: Application of knowledge LO: 13.4: Identify four ways of expanding a product line, and discuss two risks that product-line extensions pose.

61) Product mix is a complete list of all products that a company offers for sale.

Answer: TRUE Explanation: An organization with several product lines has a product mix—a collection of diverse goods or services offered for sale.

Difficulty: 2: Moderate AACSB: Application of knowledge LO: 13.4: Identify four ways of expanding a product line, and discuss two risks that product-line extensions pose.

62) Creating variations of an existing product is referred to as line stretching.

Answer: FALSE Explanation: Line stretching refers to adding items with price points above or below the current product line. Creating variations of an existing product is referred to as line extension.

Difficulty: 2: Moderate AACSB: Application of knowledge LO: 13.4: Identify four ways of expanding a product line, and discuss two risks that product-line extensions pose.

63) A firm uses the brand of an existing product on a new product in a different new category. This is an example of line filling.

Answer: FALSE Explanation: Line filling refers to developing items to fill gaps in the market that have been overlooked by competitors or have emerged as consumer tastes and needs shift. The given situation is an example of brand extension rather than line filling.

Difficulty: 2: Moderate AACSB: Application of knowledge LO: 13.4: Identify four ways of expanding a product line, and discuss two risks that product-line extensions pose.

64) Discuss product strategies when entering international markets.

Answer: Product adaptation is one of the key changes that companies need to consider when moving into other countries. First, managers must decide on which products and services to introduce in which countries. When selecting a country, they must take into consideration the type of government, market-entry requirements, tariffs and other trade barriers, cultural and language differences, consumer preferences, foreign-exchange rates, and differing business customs. Then, they must decide whether to standardize the product, selling it everywhere, or to customize the product to accommodate the lifestyles and habits of local target markets. A company might change only the product's name or packaging, or it can modify the product's components, size, and functions.

Difficulty: 3: Challenging AACSB: Application of knowledge LO: 13.4: Identify four ways of expanding a product line, and discuss two risks that product-line extensions pose.

65) What is a product line?

Answer: A product line is a group of products from a single manufacturer that are similar in terms of use or characteristics. Within each product line, a company confronts decisions about the number of goods and services to offer. On the other hand, creating too many products and product variations can be expensive for everyone in the supply chain and can be confusing to buyers.

Difficulty: 1: Easy AACSB: Application of knowledge LO: 13.4: Identify four ways of expanding a product line, and discuss two risks that product-line extensions pose.

66) Price elasticity is a measure of the sensitivity of ________ to changes in price.

A) variable cost B) demand C) income D) yield E) total cost Answer: B Explanation: Price elasticity is a measure of the sensitivity of demand to changes in price.

Difficulty: 2: Moderate AACSB: Application of knowledge LO: 13.5: List the factors that influence pricing decisions, and explain break-even analysis.

67) Which of the following is an example of a fixed cost?

A) Cost of raw materials B) Cost of supplies C) Shipping costs D) Cost of insurance premiums E) Cost of building plants Answer: D Explanation: Fixed costs include rent or mortgage payments, insurance premiums, real estate taxes, and salaries. These are costs incurred just to keep the doors open, without creating or selling anything.

Difficulty: 2: Moderate AACSB: Application of knowledge LO: 13.5: List the factors that influence pricing decisions, and explain break-even analysis.

68) Which of the following is an example of a variable cost?

A) Insurance premiums B) Real estate taxes C) Unit-based incentives D) Inventory E) Mortgage payments Answer: C Explanation: Variable costs are business costs that increase with the number of units produced. Unit-based incentives lead to variable costs.

Difficulty: 2: Moderate AACSB: Application of knowledge LO: 13.5: List the factors that influence pricing decisions, and explain break-even analysis.

69) Break-even analysis is a method of ________.

A) calculating the minimum sales needed to cover all costs B) classifying the variable costs incurred by a firm C) classifying the fixed costs incurred by a firm D) balancing the costs and risks of a business E) estimating the fixed costs required to minimize the operational costs Answer: A Explanation: Break-even analysis is a method of calculating the minimum volume of sales needed at a given price to cover all costs.

Difficulty: 2: Moderate AACSB: Application of knowledge LO: 13.5: List the factors that influence pricing decisions, and explain break-even analysis.

70) The first step in setting price is to match the strategic plan to ________.

A) marketing objectives B) government regulations C) customer perceptions D) market demand E) competition Answer: A Explanation: The first step in setting a price is to match it to the objectives set in the strategic marketing plan. Is the goal to increase market share, increase sales, improve profits, project a particular image, or combat competition?

Difficulty: 2: Moderate AACSB: Application of knowledge LO: 13.5: List the factors that influence pricing decisions, and explain break-even analysis.

71) Unfairly offering attractive discounts to some customers but not others is the prohibited behavior of ________.

A) price fixing B) price discrimination C) price elasticity D) price flexibility E) deceptive pricing Answer: B Explanation: These regulations are particularly important in three areas of prohibited behavior: (1) price discrimination, unfairly offering attractive discounts to some customers but not to others; (2) deceptive pricing, pricing schemes that are considered misleading; and (3) price fixing, an agreement among two or more companies supplying the same type of products as to the prices they will charge.

Difficulty: 2: Moderate AACSB: Application of knowledge LO: 13.5: List the factors that influence pricing decisions, and explain break-even analysis.

72) Price elasticity, or how buyers view price fluctuation, can have a significant impact in what area?

A) Competition B) Marketing objectives C) Market demand D) Government regulations E) Cost structure Answer: C Explanation: Buyers can also exhibit individual levels of price sensitivity. Marketers refer to this sensitivity as price elasticity—how responsive demand will be to a change in price.

Difficulty: 2: Moderate AACSB: Analytical thinking LO: 13.5: List the factors that influence pricing decisions, and explain break-even analysis.

73) Which of the following has been greatly influenced by the increased use of social commerce websites and internet access, especially when buyers don't see much difference among available products?

A) Cost structure B) Price elasticity C) Fixed costs D) Competition E) Government regulations Answer: D Explanation: The easier it is for buyers to compare prices, for instance, the more important competitive prices become—particularly when buyers don't perceive much difference among the available products.

Difficulty: 2: Moderate AACSB: Analytical thinking LO: 13.5: List the factors that influence pricing decisions, and explain break-even analysis.

74) How does a firm determine the number of units they must sell to pay for fixed and variable costs?

A) Break-even point B) Cost structure C) Price elasticity D) Price sensitivity point E) Break-even analysis Answer: E Explanation: A critical calculation in setting prices is break-even analysis, determining the number of units a firm must sell at a given price to recoup both fixed and variable costs—to "break even," in other words.

Difficulty: 2: Moderate AACSB: Analytical thinking LO: 13.5: List the factors that influence pricing decisions, and explain break-even analysis.

75) What will a break-even analysis show?

A) The price level that will generate a profit B) The amount competitors charge for their products C) Which variable costs need to be controlled in order to generate a profit D) The most that should be charged E) The fixed costs that need to be controlled in order to generate a profit Answer: A Explanation: Note that break-even analysis doesn't dictate what price you should charge; rather, it provides some insight into the price you can charge and begin to generate profit.

Difficulty: 2: Moderate AACSB: Analytical thinking LO: 13.5: List the factors that influence pricing decisions, and explain break-even analysis.

76) Price elasticity is a measure of the sensitivity of demand to changes in price.

Answer: TRUE Explanation: Buyers can exhibit individual levels of price sensitivity. For instance, brand-loyal customers tend to be less sensitive to price, meaning they will stick with a brand even as the price increases, whereas other buyers will begin switching to cheaper alternatives. Marketers refer to this sensitivity as price elasticity—how responsive demand will be to a change in price.

Difficulty: 2: Moderate AACSB: Application of knowledge LO: 13.5: List the factors that influence pricing decisions, and explain break-even analysis.

77) Variable costs are not dependent on the volume of production.

Answer: FALSE Explanation: Variable costs are business costs that increase or decrease with the number of units produced. They are dependent on the magnitude of production.

Difficulty: 2: Moderate AACSB: Application of knowledge LO: 13.5: List the factors that influence pricing decisions, and explain break-even analysis.

78) Break-even point refers to the sales volume at a given price that will cover all of a company's costs.

Answer: TRUE Explanation: The break-even point is the minimum sales volume the company must achieve to avoid losing money. Sales volume beyond the break-even point will generate profits; sales volume below the break-even amount will result in losses.

Difficulty: 2: Moderate AACSB: Application of knowledge LO: 13.5: List the factors that influence pricing decisions, and explain break-even analysis.

79) Explain the concept of price elasticity.

Answer: Market demand usually fluctuates as prices fluctuate. However, some goods and services are relatively insensitive to changes in price; others are highly sensitive.

Buyers can also exhibit individual levels of price sensitivity. For instance, brand-loyal customers tend to be less sensitive to price, meaning they will stick with a brand even as the price increases, whereas other buyers will begin switching to cheaper alternatives.

Marketers refer to this sensitivity as price elasticity—how responsive demand will be to a change in price.

Difficulty: 2: Moderate AACSB: Analytical thinking LO: 13.5: List the factors that influence pricing decisions, and explain break-even analysis.

80) Explain cost structure and break-even analysis.

Answer: Every company has a particular cost structure that determines how much it must spend to create and market its products. Some costs remain the same regardless of production and sales volume. This includes fixed and variable costs. The cost to create and sell each product is a combination of fixed and variable costs. A critical calculation in setting prices is break-even analysis, determining the number of units a firm must sell at a given price to recoup both fixed and variable costs—to break even. The break-even point is the minimum sales volume the company must achieve to avoid losing money.

Sales volume beyond the break-even point will generate profits; sales volume below the break-even amount will result in losses. Note that break-even analysis doesn't dictate what price you should charge; rather, it provides some insight into the price you can charge and begin to generate profit. With the break-even point in hand, you can then factor in the various strategic considerations to determine price using one of the methods discussed in the next section.

Difficulty: 3: Challenging AACSB: Analytical thinking LO: 13.5: List the factors that influence pricing decisions, and explain break-even analysis.

81) Cost-based pricing ________.

A) uses software to generate the ideal price for each item B) introduces a new product at a very low price C) is based on customer perceptions of cost D) adds a markup to the cost of producing goods to determine selling price E) uses a high price for a new product during the introductory stages Answer: D Explanation: With cost-based pricing, also known as cost-plus pricing, a company starts with the cost of producing a good or a service and then adds a markup to arrive at the selling price. Cost-based pricing is simple, but it suffers from a major weakness: It doesn't consider any external factors such as customer demand or competitive prices.

Difficulty: 2: Moderate AACSB: Application of knowledge LO: 13.6: Compare the three foundational pricing methods, and list six situational pricing methods.

82) ________ is a method of setting prices based on customer perceptions of a product's worth.

A) Cost-based pricing B) Optimal pricing C) Skim pricing D) Freemium pricing E) Value-based pricing Answer: E Explanation: In contrast to cost-based pricing, value-based pricing establishes a price based on a product's perceived value in the marketplace.

Difficulty: 2: Moderate AACSB: Application of knowledge LO: 13.6: Compare the three foundational pricing methods, and list six situational pricing methods.

83) ________ is a computer-based pricing method that creates a demand curve for every product to help managers select a price that meets specific marketing objectives.

A) Value-based pricing B) Cost-based pricing C) Freemium pricing D) Algorithmic pricing E) Participative pricing Answer: D Explanation: Optimal pricing is a computer-based pricing method that creates a demand curve for every product to help managers select a price that meets specific marketing objectives. Optimal pricing attempts to minimize the errors and guesswork of other methods.

Difficulty: 2: Moderate AACSB: Application of knowledge LO: 13.6: Compare the three foundational pricing methods, and list six situational pricing methods.

84) Which of the following pricing methods is characterized by charging a high price for a new product during the introductory stage and lowering the price later?

A) Cost-based pricing B) Value-based pricing C) Optimal pricing D) Skim pricing E) Auction pricing Answer: D Explanation: Skim pricing refers to charging a high price for a new product during the introductory stage and lowering the price later.

Difficulty: 2: Moderate AACSB: Analytical thinking LO: 13.6: Compare the three foundational pricing methods, and list six situational pricing methods.

85) Penetration pricing doesn't work if ________.

A) the company can't sustain the low price levels profitably B) there is some level of competition in the market C) a company is entering a market that is new D) the customers in a market are highly price sensitive E) the product is characterized by high extent of price elasticity Answer: A Explanation: Penetration pricing doesn't work if the company can't sustain the low price levels profitably, if prices for a particular product are inelastic, or if customers weigh other factors more heavily than price.

Difficulty: 2: Moderate AACSB: Analytical thinking LO: 13.6: Compare the three foundational pricing methods, and list six situational pricing methods.

86) In ________, the seller doesn't set a firm price. Instead, buyers competitively propose the prices that they are willing to pay.

A) cost-based pricing B) value-based pricing C) optimal pricing D) auction pricing E) freemium pricing Answer: D Explanation: In an auction, the seller doesn't set a firm price but allows buyers to competitively bid on the products being sold. Auctions used to be confined to a few market sectors such as fine art, agricultural products, and government bonds, but that all changed when eBay became prominent.

Difficulty: 2: Moderate AACSB: Analytical thinking LO: 13.6: Compare the three foundational pricing methods, and list six situational pricing methods.

87) Which of the following is an unusual pricing method that allows customers to pay the amount they think a product or service is worth?

A) Cost-based pricing B) Participative pricing C) Penetration pricing D) Optimal pricing E) Value-based pricing Answer: B Explanation: Participative pricing refers to allowing customers to pay the amount they think a product is worth.

Difficulty: 2: Moderate AACSB: Analytical thinking LO: 13.6: Compare the three foundational pricing methods, and list six situational pricing methods.

88) A number of applications in the Android Market do not charge the customer for using the basic version of the application. However, the customers are charged if they want a

version of the product with better features. This pricing strategy is referred to as ________ pricing.

A) value-based B) freemium C) optimal D) auction E) penetration Answer: B Explanation: Freemium pricing is a hybrid pricing strategy of offering some products for free while charging for others, or offering a product for free to some customers while charging others for it. Offering a free version and paid version is an example of this pricing strategy.

Difficulty: 2: Moderate AACSB: Analytical thinking LO: 13.6: Compare the three foundational pricing methods, and list six situational pricing methods.

89) ________ refers to continually adjusting prices to reflect changes in supply and demand.

A) Freemium pricing B) Auction pricing C) Optimal pricing D) Dynamic pricing E) Participative pricing Answer: D Explanation: Dynamic pricing refers to continually adjusting prices to reflect changes in supply and demand. Uber uses dynamic pricing during rush hour or special events such as concerts.

Difficulty: 2: Moderate AACSB: Analytical thinking LO: 13.6: Compare the three foundational pricing methods, and list six situational pricing methods.

90) Algorithmic pricing is a computer-based pricing method.

Answer: TRUE Explanation: Algorithmic pricing refers to a variety of computational methods used to set price, either in more nuanced ways than simple cost- or competition-based pricing or in dynamic ways that respond in real time to fluctuations in demand and other market conditions.

Difficulty: 2: Moderate AACSB: Application of knowledge LO: 13.6: Compare the three foundational pricing methods, and list six situational pricing methods.

91) Skim pricing refers to introducing a new product at a low price in hopes of building sales volume quickly.

Answer: FALSE Explanation: Skim pricing refers to charging a high price for a new product during the introductory stage and lowering the price later.

Difficulty: 2: Moderate AACSB: Application of knowledge LO: 13.6: Compare the three foundational pricing methods, and list six situational pricing methods.

92) Participative pricing allows customers to pay the amount they think a product is worth.

Answer: TRUE Explanation: An unusual way of letting customers decide what to pay is participative pricing, sometimes known as "pay what you want." Customers literally get to pay as much as they think a product or service is worth.

Difficulty: 2: Moderate AACSB: Application of knowledge LO: 13.6: Compare the three foundational pricing methods, and list six situational pricing methods.

93) Dynamic pricing refers to offering temporary price reductions to stimulate sales.

Answer: FALSE Explanation: Temporary price reductions that stimulate sales are called discounts.

Dynamic pricing refers to continually adjusting prices to reflect changes in supply and demand.

Difficulty: 2: Moderate AACSB: Application of knowledge LO: 13.6: Compare the three foundational pricing methods, and list six situational pricing methods.

94) Compare and contrast cost-based pricing and value-based pricing.

Answer: Some companies simplify the pricing task by using cost-based pricing, also known as cost-plus pricing, in which they start with the cost of producing a good or a service and then add a markup to arrive at the selling price. Cost-based pricing is simple, but it suffers from a major weakness: It doesn't consider any external factors such as customer demand or competitive prices. The price could be too high for market conditions, leaving the company uncompetitive, or it could be too low, generating less profit than it could otherwise.

In contrast to cost-based pricing, value-based pricing establishes a price on a product's potential or perceived value in the marketplace. In other words, rather than starting with cost and then figuring out a price, this method starts with a target price and works backward to identify a cost structure that will yield acceptable profit margins. The disadvantage of this method is that it requires more information and more analysis, because managers need to measure, or at least estimate, perceptions of customer value in order to establish the price.

Difficulty: 3: Challenging AACSB: Analytical thinking LO: 13.6: Compare the three foundational pricing methods, and list six situational

pricing methods.

95) Explain loss-leader pricing.

Answer: Loss-leader pricing refers to selling one product at a loss as a way to entice customers to consider other products. For instance, grocery stores can use milk and other staples as loss leaders to encourage shoppers to visit. Loss-leader pricing attracts the customer to the shop rather than producing sales by itself.

Difficulty: 2: Moderate AACSB: Analytical thinking LO: 13.6: Compare the three foundational pricing methods, and list six situational pricing methods.

96) Compare and contrast auctions and participative pricing.

Answer: In an auction, the seller doesn't set a firm price but allows buyers to competitively bid on the products being sold. Auctions used to be confined to a few market sectors such as fine art, agricultural products, and government bonds, but that all changed when eBay turned selling and buying via auctions into a new national pastime.

In participative pricing, customers literally get to pay as much as they think a product is worth. With participative pricing, buyers sometimes pay more than the company would normally charge. Unlike auctions this pricing does not involve competitive bidding from buyers.

Difficulty: 3: Challenging AACSB: Analytical thinking LO: 13.6: Compare the three foundational pricing methods, and list six situational pricing methods.

97) Which of the following creates the sensation of being in an environment that has been entirely computer generated?

A) Augmented reality B) Virtual interactivity C) Virtual prototyping D) Virtual reality E) Augmented virtuality Answer: D Explanation: Virtual reality (VR) systems create a simulation in which the person experiences the sensation of being in an environment, even though that environment is entirely computer generated.

Difficulty: 2: Moderate AACSB: Information technology LO: 13.7: Describe how companies are using virtual and augmented reality to create new products and new customer experiences.

98) ________ starts with reality and enhances the user experience by superimposing visual or textual information on it.

A) Virtual interactivity B) Augmented reality C) Virtual prototyping D) Augmented prototyping E) Virtual reality Answer: B Explanation: Unlike VR's ability to simulate reality, augmented reality (AR) starts with reality and enhances the user experience by superimposing visual or textual information on it. These additional layers of information, which are displayed in headsets or on mobile device screens, are relevant to the user's immediate surroundings, allowing them to interact with reality in more productive ways.

Difficulty: 2: Moderate AACSB: Information technology LO: 13.7: Describe how companies are using virtual and augmented reality to create new products and new customer experiences.

99) How does a manufacturer use virtual reality in the design and evaluation of a product?

A) By superimposing instructions and images when building a complex system B) By creating "live" instructions in a training exercise C) By displaying information when troubleshooting and maintaining complex equipment D) By allowing engineers to experience and test the prototype designs before manufacturing the product E) By providing end users higher resolution mobile device screens Answer: D Explanation: VR can help people experience a product or structure before it is built. Ford uses VR to let engineers "see" design ideas before building anything and to get feedback from drivers by letting them sit in and experience prototype designs before the cars are manufactured. Safety testing is another key application of virtual prototyping, such as subjecting virtual models to crash test procedures.

Difficulty: 2: Moderate AACSB: Information technology LO: 13.7: Describe how companies are using virtual and augmented reality to create new products and new customer experiences.

100) Virtual reality is based on simulation of reality, while augmented reality starts with reality and enhances it.

Answer: TRUE Explanation: Unlike VR's ability to simulate reality, augmented reality (AR) starts with reality and enhances the user experience by superimposing visual or textual information on it. These additional layers of information, which are displayed in headsets or on mobile device screens, are relevant to the user's immediate surroundings, allowing them to interact with reality in more productive ways.

Difficulty: 2: Moderate AACSB: Information technology LO: 13.7: Describe how companies are using virtual and augmented reality to create new products and new customer experiences.

Business in Action, 9e (Bovee/Thill) Chapter 14 Customer Communication and Product Distribution 1) The social communication model for customer communication differs from the conventional promotion model in that the social communication model ________.

A) is unidirectional and intrusive B) is hierarchical and static C) views audiences as passive recipients of messages D) is interactive and conversational E) broadcasts carefully scripted messages to a mass audience Answer: D Explanation: In contrast to the "we talk, you listen" mindset of the past, this new social communication model is interactive and conversational.

Difficulty: 2: Moderate AACSB: Written and oral communication LO: 14.1: Describe the three major tasks in crafting a communication strategy, and identify six important legal aspects of marketing communication.

2) The conventional promotion model differs from the social model of customer communication in that the conventional promotion model ________.

A) tends to be interactive and conversational B) tends to be bidirectional or multidirectional C) tends to have a higher message frequency D) focuses on collaboration with customers E) tends to be intrusive and unidirectional Answer: E Explanation: Conventional promotion model tendencies include intrusion and unidirectional communication. In contrast to the "we talk, you listen" mindset of the past, the new social communication model is interactive and conversational.

Difficulty: 3: Challenging AACSB: Written and oral communication LO: 14.1: Describe the three major tasks in crafting a communication strategy, and identify six important legal aspects of marketing communication.

3) The defining characteristic of ________ is that it tells past customers that a product is still available or a company is ready to serve their needs.

A) reminder advertising B) cooperative advertising C) bait and switch advertising D) comparative advertising E) advocacy advertising Answer: A Explanation: Reminder advertising refers to reminding past customers that a product is still available or a company is ready to serve their needs.

Difficulty: 2: Moderate AACSB: Application of knowledge LO: 14.1: Describe the three major tasks in crafting a communication strategy, and identify six important legal aspects of marketing communication.

4) The single most important idea the company hopes to convey to its target audience about a product is the ________.

A) promotional mix B) marketing mix C) core message D) call to action E) media mix Answer: C Explanation: The core message is the single most important idea the company hopes to convey to the target audience about a product.

Difficulty: 2: Moderate AACSB: Application of knowledge LO: 14.1: Describe the three major tasks in crafting a communication strategy, and identify six important legal aspects of marketing communication.

5) A promotional strategy that focuses on intermediaries is termed as ________.

A) push strategy B) digital strategy C) pull strategy D) operations strategy E) pricing strategy Answer: A Explanation: Push strategy refers to a promotional strategy that focuses on intermediaries, motivating them to promote, or push, products toward end users.

Difficulty: 2: Moderate AACSB: Application of knowledge LO: 14.1: Describe the three major tasks in crafting a communication strategy, and identify six important legal aspects of marketing communication.

6) A promotional strategy that directly stimulates consumer demand via advertising and other communication efforts is known as ________.

A) pricing strategy B) push strategy C) digital strategy D) pull strategy E) operations strategy Answer: D Explanation: Pull strategy refers to a promotional strategy that stimulates consumer demand via advertising and other communication efforts, thereby creating a pull effect through the channel.

Difficulty: 2: Moderate AACSB: Application of knowledge LO: 14.1: Describe the three major tasks in crafting a communication strategy, and identify six important legal aspects of marketing communication.

7) Push strategy differs from pull strategy because in push strategy a producer ________.

A) appeals directly to end customers B) uses integrated marketing communications C) focuses on wholesalers or retailers D) uses reminder advertising E) uses "bait and switch" advertising Answer: C Explanation: With a push strategy, a producer focuses on intermediaries, trying to persuade wholesalers or retailers to carry its products and promote those products to their customers. Conversely, with a pull strategy, the producer appeals directly to end customers.

Difficulty: 2: Moderate AACSB: Analytical thinking LO: 14.1: Describe the three major tasks in crafting a communication strategy, and identify six important legal aspects of marketing communication.

8) Trying to attract buyers by advertising a product that you don't intend to sell, and then trying to sell them another, usually more expensive, product is known as ________.

A) stealth advertising B) bait-and-switch advertising C) implied claims D) reminder advertising E) a push strategy Answer: B Explanation: Trying to attract buyers by advertising a product that you don't intend to sell, and then trying to sell them another (and usually more expensive) product is known as bait-and-switch advertising.

Difficulty: 2: Moderate AACSB: Ethical understanding and reasoning LO: 14.1: Describe the three major tasks in crafting a communication strategy, and identify six important legal aspects of marketing communication.

9) The government agency that has the authority to impose penalties against advertisers who violate federal standards for truthful advertising is the ________.

A) Federal Communications Commission B) Consumer Product Safety Commission C) Federal Trade Commission D) Federal Advertising Administration E) Federal Regulatory Commission Answer: C Explanation: In the United States, the Federal Trade Commission (FTC) has the authority to impose penalties against advertisers that violate federal standards for truthful advertising.

Difficulty: 2: Moderate AACSB: Ethical understanding and reasoning LO: 14.1: Describe the three major tasks in crafting a communication strategy, and identify six important legal aspects of marketing communication.

10) In ________, behaviorally targeted ads follow users even as they move on to other Web sites.

A) attack ads B) advocacy advertising C) cooperative advertising D) remarketing E) push marketing Answer: D Explanation: Remarketing is a communication strategy in which behaviorally targeted ads follow users even as they move on to other websites.

Difficulty: 2: Moderate AACSB: Information technology LO: 14.1: Describe the three major tasks in crafting a communication strategy, and identify six important legal aspects of marketing communication.

11) Why is search engine marketing said to be more of a direct medium than advertising?

A) It can be produced as a mass mailing.

B) It is a static advertising media.

C) It allows viewers to opt-in to the ad.

D) It can be individualized to each web user.

E) It contains spam.

Answer: D Explanation: Although it doesn't quite fit the traditional categories of either advertising or direct marketing, search engine marketing comes closer to being a direct medium because it is individualized to each web user.

Difficulty: 2: Moderate AACSB: Information technology LO: 14.1: Describe the three major tasks in crafting a communication strategy, and identify six important legal aspects of marketing communication.

12) If a company asks its customers or website visitors to opt-in to its mailing lists, it is using ________.

A) stealth marketing B) search engine marketing C) targeted display advertising D) permission-based marketing E) remarketing Answer: D Explanation: To minimize the level of annoyance and to help potential customers get the information they really do want, many companies now emphasize permission-based email marketing, usually by asking customers or website visitors to opt-in to mailing lists.

Difficulty: 2: Moderate AACSB: Analytical thinking LO: 14.1: Describe the three major tasks in crafting a communication strategy, and identify six important legal aspects of marketing communication.

13) The new social model of customer communication is unidirectional and intrusive.

Answer: FALSE Explanation: The new social model of customer communication is multidirectional and less intrusive.

Difficulty: 1: Easy AACSB: Application of knowledge LO: 14.1: Describe the three major tasks in crafting a communication strategy, and identify six important legal aspects of marketing communication.

14) Reminder advertising tells past customers that a product is still available or a company is ready to serve their needs.

Answer: TRUE Explanation: Past customers are often the best prospects for future sales, so reminder advertising tells these buyers that a product is still available or that a company is ready to serve their needs.

Difficulty: 1: Easy AACSB: Application of knowledge LO: 14.1: Describe the three major tasks in crafting a communication strategy, and identify six important legal aspects of marketing communication.

15) One of the most significant changes that the social communication model has brought to marketing is that companies now have far less control of their messages.

Answer: TRUE Explanation: One of the most significant changes that the social communication model has brought to marketing is that companies now have far less control of their messages.

Difficulty: 2: Moderate AACSB: Information technology LO: 14.1: Describe the three major tasks in crafting a communication strategy, and identify six important legal aspects of marketing communication.

16) The AIDA model, a classic approach to persuasive communication, consists of four steps: stimulating Anxiety, encouraging Introspection, increasing Determination, and promoting Activity.

Answer: FALSE Explanation: The AIDA model is a classic approach to persuasive communication. It is built upon the following steps: getting Attention, building Interest, increasing Desire, and prompting Action.

Difficulty: 3: Challenging AACSB: Application of knowledge LO: 14.1: Describe the three major tasks in crafting a communication strategy, and identify six important legal aspects of marketing communication.

17) Compare and contrast the conventional promotion model with the new social model of customer communication.

Answer: Conventional marketing communication was largely about companies broadcasting carefully scripted messages to a mass audience that often had few, if any, ways to respond. Moreover, customers and other interested parties had few ways to connect with one another to ask questions about products, influence company decisions, or offer each other support. Conventional promotion model tendencies include publication, lecture, intrusion, unidirectional, one to many, control, low message frequency, few channels, information hoarding, static, hierarchical, structured, isolation, planned, and isolated.

In contrast to the "we talk, you listen" mindset of the past, the new social communication model is based on interactive social media and conversational communication styles.

Social model tendencies include conversation, discussion, permission, bidirectional, multidirectional, one to one, many to many, influence, high message frequency, many channels, information sharing, dynamic, egalitarian, amorphous, collaboration, reactive, and responsive.

Difficulty: 3: Challenging AACSB: Analytical thinking LO: 14.1: Describe the three major tasks in crafting a communication strategy, and identify six important legal aspects of marketing communication.

18) Compare and contrast push strategy with pull strategy.

Answer: Push strategy refers to a promotional strategy that focuses on intermediaries, motivating them to promote, or push, products toward end users. A producer focuses on intermediaries, trying to persuade wholesalers or retailers to carry its products and promote those products to their customers. Conversely, with a pull strategy, the producer appeals directly to end customers. Customers learn of the product through these communication efforts and request it from retailers (in the case of consumers) or wholesalers (in the case of business customers). For example, if a television commercial encourages you to "ask your pharmacist" about a specific product, the company is using a pull strategy. Many companies use both push and pull strategies to increase the impact of their promotional efforts.

Difficulty: 3: Challenging AACSB: Analytical thinking LO: 14.1: Describe the three major tasks in crafting a communication strategy, and identify six important legal aspects of marketing communication.

19) Discuss integrated marketing communications.

Answer: With the number of communication vehicles continuing to expand, the need for companies to "speak with one voice" becomes even greater. Integrated marketing communications (IMC) is a strategy of coordinating and integrating all communication and promotional efforts to ensure clarity, consistency, and maximum communications impact. However, companies obviously can't control all the messages their target audiences receive, particularly now that customers are empowered through social media.

While the company is working to integrate its outgoing communication efforts, the customer is also integrating all the incoming messages he or she is receiving.

Difficulty: 3: Challenging AACSB: Analytical thinking LO: 14.1: Describe the three major tasks in crafting a communication strategy, and identify six important legal aspects of marketing communication.

20) Institutional advertisements that present a company's point of view on public issues such as education or health care are known as ________ advertising.

A) product B) comparative C) cooperative D) advocacy E) consultative Answer: D Explanation: Companies with a financial stake in the outcome of public policy decisions can use advocacy ads to persuade voters or legislators to consider a particular point of view.

Difficulty: 2: Moderate AACSB: Application of knowledge LO: 14.2: Identify the most common advertising appeals and the most important media used in advertising and direct response marketing.

21) Advertising that seeks to create goodwill and to build a desired image for a company, rather than to promote specific products is termed as ________.

A) product advertising B) institutional advertising C) comparative advertising D) bait and switch advertising E) reminder advertising Answer: B Explanation: Institutional advertising refers to advertising that seeks to create goodwill and to build a desired image for a company, rather than to promote specific products.

Difficulty: 2: Moderate AACSB: Application of knowledge LO: 14.2: Identify the most common advertising appeals and the most important media used in advertising and direct response marketing.

22) ________ refers to a creative tactic designed to capture the audience's attention and promote preference for the product or company being advertised.

A) Media mix B) Advertising appeal C) Advertising media D) Specialty advertising E) Communication mix Answer: B Explanation: A key decision in planning a promotional campaign is choosing the advertising appeal, a creative tactic designed to capture the audience's attention and promote preference for the product or company being advertised. Marketers can use a variety of appeals (note that these appeals are not limited to advertising; they are used in other types of persuasive communication as well).

Difficulty: 2: Moderate AACSB: Application of knowledge LO: 14.2: Identify the most common advertising appeals and the most important media used in advertising and direct response marketing.

23) The ad that tells you to "call within the next ten minutes because supplies are limited" is using advertising appeal based on ________.

A) logic B) emotion C) humor D) scarcity E) sentiment Answer: D Explanation: If a product is in limited supply or available only for a limited time, advertisers can use this scarcity to encourage consumer responses.

Difficulty: 2: Moderate AACSB: Application of knowledge LO: 14.2: Identify the most common advertising appeals and the most important media used in advertising and direct response marketing.

24) Which of the following is an advantage of using newspapers as an advertising media?

A) Long lead time for placing ads B) Low visual competition from other ads C) Low cost and short lead time D) Long life span E) Increasing readership in most cities Answer: C Explanation: Newspapers have several advantages such as extensive market coverage, low cost, short lead time for placing ads, good local market coverage, geographic selectivity, and credibility.

Difficulty: 3: Challenging AACSB: Application of knowledge LO: 14.2: Identify the most common advertising appeals and the most important media used in advertising and direct response marketing.

25) One significant advantage to using television for advertising is the ________.

A) entertainment carryover B) high audience selectivity C) long life for the message D) short preparation time E) low cost for production Answer: A Explanation: Some of the advantages of using television as an advertising media include great impact, broad reach, appealing to senses of sight, sound, and motion, creative opportunities for demonstration, high attention, and entertainment carryover.

Difficulty: 3: Challenging AACSB: Application of knowledge LO: 14.2: Identify the most common advertising appeals and the most important media used in advertising and direct response marketing.

26) Which of the following is an advantage of product placement as an advertising medium?

A) It is predictable.

B) Its effectiveness is independent of the popularity of the programming.

C) It provides extensive choice of vehicles.

D) It offers a way to get around viewers' advertising filters.

E) It has low visibility.

Answer: D Explanation: Some of the advantages of using product placement are: it offers a way to get around viewers' advertising filters, and there is a chance for high visibility in the right program, movie, or game.

Difficulty: 3: Challenging AACSB: Application of knowledge LO: 14.2: Identify the most common advertising appeals and the most important media used in advertising and direct response marketing.

27) Which of the following is a disadvantage of product placement?

A) It cannot get around viewers' advertising filters.

B) It is predictable.

C) It provides extensive choice of vehicles.

D) It has less scope for visibility in the right program.

E) Its effectiveness is linked to the popularity of the programming.

Answer: E Explanation: Some of the disadvantages of using product placement are: limited choice of vehicles, unpredictable, effectiveness is linked to the popularity of the programming, and risk of overuse could reduce effectiveness over time.

Difficulty: 3: Challenging AACSB: Application of knowledge LO: 14.2: Identify the most common advertising appeals and the most important media used in advertising and direct response marketing.

28) Which of the following is a disadvantage of using digital media (from stationary computers) as an advertising media?

A) Clutter B) Limited media options C) Results cannot be measured D) Changes and additions cannot be made easily E) Extreme degree of audience fragmentation Answer: E Explanation: Disadvantages of using digital media as an advertising media include extreme degree of audience fragmentation, increasing clutter, technical glitches that can interrupt ad display, and ad-blocking software that can prevent ads from being displayed.

Difficulty: 3: Challenging AACSB: Information technology LO: 14.2: Identify the most common advertising appeals and the most important media used in advertising and direct response marketing.

29) What type of advertising appeal calls on the feeling and sympathies of the audience?

A) Emotional B) Logical C) Scarcity D) Celebrity E) Humor Answer: A Explanation: An emotional appeal calls on audience feelings and sympathies rather than on facts, figures, and rational arguments.

Difficulty: 2: Moderate AACSB: Application of knowledge LO: 14.2: Identify the most common advertising appeals and the most important media used in advertising and direct response marketing.

30) When a product is prominently displayed in a television show or movie, what type of advertising method is being utilized?

A) Emotion B) Product placement C) Value-added D) Celebrity E) Logic Answer: B Explanation: Product placement, in which companies pay to have their products displayed or used in television shows, movies, and video games, has become a multibillion-dollar business as advertisers respond to the increasing number of ways consumers are able to ignore, skip, or block ads—and as content producers look for more funds to create programming. Product placement ranges from subtle brand displays in the background of a scene to active engagement with a product.

Difficulty: 2: Moderate AACSB: Analytical thinking LO: 14.2: Identify the most common advertising appeals and the most important media used in advertising and direct response marketing.

31) Using personalized letters and email messages to deliver targeted messages to individual consumers or organizational purchasers would be classified as ________.

A) institutional advertising B) direct marketing C) product placement D) guerrilla advertising E) integrated message transmission Answer: B Explanation: Direct marketing refers to direct communication other than personal sales contacts designed to stimulate a measurable response.

Difficulty: 2: Moderate AACSB: Application of knowledge LO: 14.2: Identify the most common advertising appeals and the most important media used in advertising and direct response marketing.

32) Direct marketing differs from advertising in that direct marketing ________.

A) is carried by someone else's medium B) promotes the features and benefits of specific products C) sends the same message to the largest number of potential customers D) involves the purchase of time or space in other media E) often uses personally addressable media Answer: E Explanation: Direct marketing can differ from advertising in important ways, such as it often uses personally addressable media, such as letters and email messages, to deliver targeted messages to individual consumers or organizational purchasers.

Difficulty: 2: Moderate AACSB: Analytical thinking LO: 14.2: Identify the most common advertising appeals and the most important media used in advertising and direct response marketing.

33) What is the goal of direct response marketing campaigns?

A) To stimulate a measurable response B) To use personally addressable media C) To increase control over the delivery mechanism D) To build long-term sales E) To sell on a massive scale Answer: A Explanation: Direct response marketing is direct communication with potential customers other than personal sales contacts designed to stimulate a measurable response; also known as direct marketing.

Difficulty: 2: Moderate AACSB: Analytical thinking LO: 14.2: Identify the most common advertising appeals and the most important media used in advertising and direct response marketing.

34) Which of the following enables a company to personalize its interaction with every customer?

A) Mass mailings B) Customer databases C) Direct response D) Demographics E) Product placement Answer: B Explanation: Databases play a vital role in relationship marketing because they enable a company to personalize its interaction with every customer.

Difficulty: 2: Moderate AACSB: Analytical thinking LO: 14.2: Identify the most common advertising appeals and the most important media used in advertising and direct response marketing.

35) Adverting appeals for products often promote the features and benefits of the specific products.

Answer: TRUE Explanation: Companies use advertising for a variety of purposes. Product advertising promotes the features and benefits of specific products. Institutional advertising is designed to create goodwill and build a desired image for a company rather than to promote specific products.

Difficulty: 1: Easy AACSB: Application of knowledge LO: 14.2: Identify the most common advertising appeals and the most important media used in advertising and direct response marketing.

36) Institutional advertising refers to advertising that presents a company's opinions on public issues such as education or health care.

Answer: FALSE Explanation: Institutional advertising is designed to create goodwill and build a desired image for a company rather than to promote specific products.

Difficulty: 2: Moderate AACSB: Application of knowledge LO: 14.2: Identify the most common advertising appeals and the most important media used in advertising and direct response marketing.

37) Business-to-business advertising relies heavily on emotional appeals.

Answer: FALSE Explanation: Business-to-business advertising relies heavily on logical appeals rather than emotional appeals because businesses have logical concerns—profitability, process improvements, quality, and other financial and technical concerns.

Difficulty: 2: Moderate AACSB: Application of knowledge LO: 14.2: Identify the most common advertising appeals and the most important media used in advertising and direct response marketing.

38) The thinking behind celebrity endorsement in advertising is that people will be more inclined to use products endorsed by a celebrity because they will identify with and want to be like this person.

Answer: TRUE Explanation: The thinking behind celebrity involvement in advertising is that people will be more inclined to use products endorsed by a celebrity because they will identify with and want to be like this person (no matter how far-fetched such aspirations might be at a purely logical level).

Difficulty: 2: Moderate AACSB: Application of knowledge LO: 14.2: Identify the most common advertising appeals and the most important media used in advertising and direct response marketing.

39) The paid display or use of products in television shows, movies, and video games is referred to as media mix.

Answer: FALSE Explanation: The term product placement represents the paid display or use of products in television shows, movies, and video games.

Difficulty: 2: Moderate AACSB: Application of knowledge LO: 14.2: Identify the most common advertising appeals and the most important media used in advertising and direct response marketing.

40) The measurability of direct marketing is one of its greatest appeals.

Answer: TRUE Explanation: The impact of direct marketing is measured easily. This feature appeals to many marketers.

Difficulty: 2: Moderate AACSB: Application of knowledge LO: 14.2: Identify the most common advertising appeals and the most important media used in advertising and direct response marketing.

41) Targeted display advertising allows customers or website visitors to opt-in to mailing lists.

Answer: FALSE Explanation: Targeted display advertising involves ads with graphical (as opposed to just textual) content served up on web pages based on some knowledge of an individual's interests or behaviors.

Difficulty: 2: Moderate AACSB: Ethical understanding and reasoning LO: 14.2: Identify the most common advertising appeals and the most important media used in advertising and direct response marketing.

42) Compare and contrast institutional advertising with advocacy advertising.

Answer: Institutional advertising is designed to create goodwill and build a desired image for a company rather than to promote specific products. For example, a firm might promote its commitment to sustainable business practices or workforce diversity.

Institutional ads that address public issues are called advocacy advertising. With recent efforts to overhaul health insurance in the United States, for instance, many companies with a financial stake in the outcome have been using advertising to present their points of view.

Difficulty: 3: Challenging AACSB: Analytical thinking LO: 14.2: Identify the most common advertising appeals and the most important media used in advertising and direct response marketing.

43) Compare and contrast advertising based on logical appeal with that based on emotional appeal.

Answer: The basic approach with a logical appeal is to make a claim based on a rational argument supported by solid evidence. Not surprisingly, business-to-business advertising relies heavily on logical appeals because businesses have logical concerns—profitability, process improvements, quality, and other financial and technical concerns. However, marketers should not ignore the emotional aspects of business purchasing. Managers put their reputations and sometimes their careers on the line when they make major purchase decisions, so advertisers need to consider these emotional elements. Logical appeals are also used in consumer advertising whenever the purchase decision has a rational component and logic might help persuade buyers to consider or prefer a particular product.

An emotional appeal calls on audience feelings and sympathies rather than facts, figures, and rational arguments. Emotional appeals range from sentimental to terrifying. On the lighter side, flowers, greeting cards, and gifts are among the products usually sold with a positive emotional appeal. At the other end of the spectrum are appeals to a broad range of fears: personal and family safety, financial security, social acceptance, and business success or failure. To be effective, appeals to fear must be managed carefully. Laying it on too thick can anger the audience or even cause them to block out the message entirely.

Difficulty: 3: Challenging AACSB: Analytical thinking LO: 14.2: Identify the most common advertising appeals and the most important media used in advertising and direct response marketing.

44) Compare and contrast the advantages and disadvantages of newspapers as advertising media, with that of television.

Answer: The advantages of using newspaper as an advertising media include extensive market coverage, low cost, short lead time for placing ads, good local market coverage, geographic selectivity, and credibility. Disadvantages include poor graphic quality, short life span, and declining readership in many markets.

The advantages of using television as an advertising media include great impact, broad reach, appealing to senses of sight, sound, and motion, creative opportunities for demonstration, high attention, and entertainment carryover. Disadvantages include high cost for production and air time, less audience selectivity, long preparation time, commercial clutter, short life for message, vulnerability to being skipped or muted, and losing ground to new media options.

Difficulty: 3: Challenging AACSB: Analytical thinking LO: 14.2: Identify the most common advertising appeals and the most important media used in advertising and direct response marketing.

45) One-on-one interaction between a salesperson and a prospective buyer is called ________.

A) personal selling B) direct marketing C) prospecting D) sales promotion E) specialty advertising Answer: A Explanation: Personal selling, the one-on-one interaction between a salesperson and a prospective buyer, remains a fundamentally important part of the promotional mix in many consumer and organizational markets.

Difficulty: 1: Easy AACSB: Application of knowledge LO: 14.3: Describe consultative selling, and explain the personal-selling process.

46) In ________, a salesperson acts as an advisor who helps current and potential customers find the best solutions to their personal or business needs.

A) direct marketing B) prospecting C) consultative selling D) specialty advertising E) sales promotion Answer: C Explanation: Consultative selling refers to an approach in which a salesperson acts as a consultant and advisor to help customers find the best solutions to their personal or business needs.

Difficulty: 2: Moderate AACSB: Application of knowledge LO: 14.3: Describe consultative selling, and explain the personal-selling process.

47) The process of finding and qualifying potential customers is known as ________.

A) consultative selling B) behavioral targeting C) consumer promotion D) prospecting E) trade promotion Answer: D Explanation: The process of finding and qualifying potential customers is known as prospecting.

Difficulty: 2: Moderate AACSB: Application of knowledge LO: 14.3: Describe consultative selling, and explain the personal-selling process.

48) In ________, the salesperson recites or even reads a stock message with no regard for the customer's unique circumstances.

A) a canned sales pitch B) prospecting C) direct marketing D) behavioral targeting E) consultative selling Answer: A Explanation: In the canned sales pitch, the salesperson recites or even reads a stock message, with no regard for the customer's unique circumstances.

Difficulty: 2: Moderate AACSB: Application of knowledge LO: 14.3: Describe consultative selling, and explain the personal-selling process.

49) What is the advantage to using personal selling over website or direct marketing programs?

A) It is less expensive.

B) There is a more personalized relationship.

C) It has a wider reach.

D) Cost efficiencies are improved.

E) It can easily be combined with other formats.

Answer: B Explanation: Although a sales force can't reach millions of customers at once like a website or a direct marketing program can, today's highly trained sales professionals are able to build relationships and solve problems in ways that impersonal media can't match.

Difficulty: 2: Moderate AACSB: Analytical thinking LO: 14.3: Describe consultative selling, and explain the personal-selling process.

50) In the personal selling process, the practice of learning as much about the people and organization a salesperson will be working with takes place when ________.

A) prospecting B) approaching C) preparing D) identifying E) generating Answer: C Explanation: In preparing for this research phase, the sales staff tries to learn more about the people and organizations they will be contacting regarding their buying needs, their motives for buying, and the names of current suppliers. The salesperson then establishes specific objectives to achieve during the sales call, which vary depending on where the buyer is in the decision cycle.

Difficulty: 2: Moderate AACSB: Application of knowledge LO: 14.3: Describe consultative selling, and explain the personal-selling process.

51) Listening to the needs of a customer is critical in the personal selling process when ________.

A) approaching the prospect B) closing the sale C) giving a canned sales pitch D) aligning with customer's needs E) preparing a presentation Answer: D Explanation: After the conversation has been initiated, the next step is understanding the customer's specific needs. The biggest mistake a salesperson can make at this stage is talking instead of listening.

Difficulty: 2: Moderate AACSB: Analytical thinking LO: 14.3: Describe consultative selling, and explain the personal-selling process.

52) If a potential customer has a concern or objection, what should a salesperson do?

A) Press to close the sale B) Offer a discount C) Review the advantages of the product D) Compare the product to competitors E) Have answers and alternatives ready Answer: E Explanation: Potential customers can express a variety of objections to the products they are considering, and salespeople need to be ready with answers and alternatives.

Difficulty: 2: Moderate AACSB: Analytical thinking LO: 14.3: Describe consultative selling, and explain the personal-selling process.

53) During which step of the sales process should salespeople make sure customers are satisfied and ask for referrals to other customers?

A) Following up B) Closing C) Handling objections D) Aligning with customer needs E) Approaching the prospect Answer: A Explanation: Most companies depend on repeat sales and referrals from satisfied customers, so it's important that salespeople follow up after the sale to make sure customers are satisfied with their purchases.

Difficulty: 2: Moderate AACSB: Analytical thinking LO: 14.3: Describe consultative selling, and explain the personal-selling process.

54) The first step in the personal-selling process is uncovering needs and presenting solutions.

Answer: FALSE Explanation: The first step in personal selling is prospecting, the process of finding and qualifying potential customers.

Difficulty: 2: Moderate AACSB: Analytical thinking LO: 14.3: Describe consultative selling, and explain the personal-selling process.

55) In a canned sales pitch, the salesperson focuses on questioning and listening before offering a solution that meets each prospect's unique needs.

Answer: FALSE Explanation: In the canned sales pitch, a salesperson recites or even reads a stock message, with no regard for the customer's unique circumstances.

Difficulty: 2: Moderate AACSB: Application of knowledge LO: 14.3: Describe consultative selling, and explain the personal-selling process.

56) Most companies depend on repeat sales and referrals from satisfied customers.

Answer: TRUE Explanation: Most companies depend on repeat sales and referrals from satisfied customers, so it's important that salespeople follow up after the sale to make sure customers are satisfied with their purchases.

Difficulty: 2: Moderate AACSB: Application of knowledge LO: 14.3: Describe consultative selling, and explain the personal-selling process.

57) Compare and contrast personal selling with consultative selling.

Answer: Personal selling refers to one-on-one interaction between a salesperson and a prospective buyer. Even with the rapid advance of e-commerce and other marketing technologies, personal selling remains a fundamentally important part of the promotional mix in many consumer and organizational markets. Although a salesforce can't reach millions of customers at once like a website or a direct marketing program can, today's highly-trained sales professionals are able to build relationships and solve problems in ways that impersonal media can't match.

One of the most important shifts in the sales profession is the advent of consultative selling, in which the salesperson acts as a consultant and advisor who helps current and potential customers find the best solutions to their personal or business needs. And even if a shopper isn't ready to buy something immediately, a good consultative salesperson will view the interaction as a chance to build a long-term relationship that could lead to sales in the future.

Difficulty: 3: Challenging AACSB: Analytical thinking LO: 14.3: Describe consultative selling, and explain the personal-selling process.

58) What are the seven general steps in personal selling?

Answer: The seven general steps in personal selling are: Step 1: Prospecting. The process of finding and qualifying potential customers is known as prospecting. This step usually involves three activities: (1) generating sales leads, (2) identifying prospects, and (3) qualifying prospects.

Step 2: Preparing. In this research phase, the sales staff tries to learn more about the people and organizations they will be contacting, their buying needs, their motives for buying, and the names of current suppliers. They create a prospect profile, setting objectives for the call, and preparing a presentation.

Step 3: Approaching the prospect. Because first impressions can make or break a sale, successful salespeople dress, behave, and communicate in a professional manner.

Step 4: Uncovering needs and presenting solutions. After initiating a conversation with the customer, the next step is understanding his or her specific needs.

Step 5: Handling objections. Potential customers can express a variety of objections to the products they are considering, and salespeople need to be ready with answers and alternatives.

Step 6: This step involves concluding the sales process by asking for and receiving an affirmative purchase decision.

Step 7: Following up. This step involves checking in with the customer after the sale to make sure the solution is working out as expected and keep building a long-term relationship.

Difficulty: 2: Moderate AACSB: Analytical thinking LO: 14.3: Describe consultative selling, and explain the personal-selling process.

59) ________ involve(s) short-term incentives to build the reputation of a brand and stimulate interest in a product.

A) Direct selling B) Sales promotion C) Institutional advertising D) Public relations E) Brand communities Answer: B Explanation: Sales promotion consists of short-term incentives to build the reputation of a brand, encourage the purchase of a product, or simply enhance relationships with current and potential customers.

Difficulty: 2: Moderate AACSB: Application of knowledge LO: 14.4: Define sales promotion, and characterize the differences between consumer and trade promotions.

60) ________ refer to printed or digital certificates that offer discounts on particular items and are redeemed at the time of purchase.

A) Coupons B) Rebates C) Premiums D) Trade allowances E) Trade promotions Answer: A Explanation: The biggest category of consumer promotion is coupons, printed or digital certificates that spur sales by giving buyers a discount when they purchase specified products.

Difficulty: 1: Easy AACSB: Application of knowledge LO: 14.4: Define sales promotion, and characterize the differences between consumer and trade promotions.

61) Advertising or display materials set up at retail locations to promote products to potential customers as they are making their purchase decisions are called ________.

A) rebates B) trade allowances C) point-of-purchase displays D) specialty advertising E) coupons Answer: C Explanation: Point-of-purchase (POP) display refers to advertising or other display materials set up at retail locations to promote products to potential customers as they are making their purchase decisions.

Difficulty: 2: Moderate AACSB: Application of knowledge LO: 14.4: Define sales promotion, and characterize the differences between consumer and trade promotions.

62) Free or bargain-priced items offered to encourage consumers to buy a product are termed as ________.

A) premiums B) point-of-purchase displays C) coupons D) rebates E) trade allowances Answer: A Explanation: Premiums are free or bargain-priced items offered to encourage the consumer to buy a product.

Difficulty: 2: Moderate AACSB: Application of knowledge LO: 14.4: Define sales promotion, and characterize the differences between consumer and trade promotions.

63) The chief downside of trade allowances is that they can lead to ________, in which the retailer buys a large quantity of a product when the price is low, thus reducing the producer's profit in the long run.

A) push marketing B) forward buying C) slotting allowances D) viral marketing E) pull strategies Answer: B Explanation: The chief downside of trade allowances is that they can create the controversial practice of forward buying, in which customers load up on merchandise while the price is low.

Difficulty: 2: Moderate AACSB: Analytical thinking LO: 14.4: Define sales promotion, and characterize the differences between consumer and trade promotions.

64) Discounts or other financial considerations offered by producers to wholesalers and retailers are referred to as ________.

A) trade allowances B) point-of-purchase displays C) product placement D) conversation marketing E) premiums Answer: A Explanation: Trade allowances refer to discounts or other financial considerations offered by producers to wholesalers and retailers.

Difficulty: 2: Moderate AACSB: Application of knowledge LO: 14.4: Define sales promotion, and characterize the differences between consumer and trade promotions.

65) What type of promotional tool could be used if the company wanted to create consumer involvement and energy around a brand base?

A) Contests and games B) Coupons C) Rebates D) Point-of-purchase displays E) Premiums Answer: A Explanation: Giving consumers the opportunity to participate in contests, games, sweepstakes, surveys, and other activities, particularly if there is a chance for consumers to demonstrate cleverness or creativity, is a great way to build energy around a brand.

Difficulty: 2: Moderate AACSB: Analytical thinking LO: 14.4: Define sales promotion, and characterize the differences between consumer and trade promotions.

66) Which of the following is an in-store presentation that can generate in increase in

impulse purchases?

A) Samples B) Point-of-purchase display C) Trade allowances D) Premiums E) Trial-use versions Answer: B Explanation: POP displays are a vital element in the marketing effort for many products sold at retail stores. Not only do they represent the manufacturer's last chance to communicate with the consumer, but they help capture impulse purchases—unplanned purchases that can make up as much as 50 percent of sales in mass merchandise stores and supermarkets.

Difficulty: 2: Moderate AACSB: Analytical thinking LO: 14.4: Define sales promotion, and characterize the differences between consumer and trade promotions.

67) Today, one of the most popular sales promotion tactics is ________, which gives the company visibility and helps it share in positive emotions of consumers.

A) premiums B) trade promotions C) special-event sponsorship D) forward buying E) trial-use Answer: C Explanation: Sponsoring special events has become one of the most popular sales promotion tactics, with thousands of companies spending billions of dollars to sponsor events ranging from golf to opera.

Difficulty: 2: Moderate AACSB: Analytical thinking LO: 14.4: Define sales promotion, and characterize the differences between consumer and trade promotions.

68) Which of the following is common when using a push marketing strategy that encourages intermediaries to carry new products?

A) Forward buying B) Trade promotions C) Special-event sponsorship D) Trade allowances E) Experiential marketing Answer: D Explanation: Trade allowances are commonly used when adopting a push marketing strategy because they encourage the intermediaries to carry new products or to sell higher volumes of current products.

Difficulty: 3: Challenging AACSB: Analytical thinking LO: 14.4: Define sales promotion, and characterize the differences between consumer and trade promotions.

69) Sales promotion consists of two basic categories: consumer promotion and trade promotion.

Answer: TRUE Explanation: Consumer promotion and trade promotion are the two basic categories that make up sales promotion.

Difficulty: 1: Easy AACSB: Application of knowledge LO: 14.4: Define sales promotion, and characterize the differences between consumer and trade promotions.

70) Paper couponing is one of the most effective sales promotion techniques available.

Answer: FALSE Explanation: Paper couponing is an inefficient technique. Consumers redeem only 1 percent of the 300 billion printed coupons distributed every year in the United States.

Difficulty: 1: Easy AACSB: Application of knowledge LO: 14.4: Define sales promotion, and characterize the differences between consumer and trade promotions.

71) The chief downside of trade allowances is that they can create the controversial practice of forward buying, in which customers load up on merchandise while the price is low.

Answer: TRUE Explanation: Some of the most widely used trade promotions are trade allowances, which involve discounts on product prices, free merchandise, or other financial considerations. The chief downside of trade allowances is that they can create the controversial practice of forward buying, in which customers load up on merchandise while the price is low.

Difficulty: 1: Easy AACSB: Application of knowledge LO: 14.4: Define sales promotion, and characterize the differences between consumer and trade promotions.

72) Compare and contrast trade promotions with consumer promotions.

Answer: The two main types of sales promotion are consumer promotion and trade promotion. Consumer promotions are intended to motivate the final consumer to try new products or to experiment with the company's brands. Examples include contests, coupons, rebates, point-of-purchase displays, samples, special-event sponsorship, premiums, and specialty advertising. Although shoppers are more aware of consumer promotions, trade promotions aimed at inducing wholesalers or retailers to sell a company's products actually account for the larger share of promotional spending and can be the single largest item in a manufacturer's marketing budget. Common trade promotions include trade allowances, dealer contests, bonus programs, and samples.

Difficulty: 3: Challenging AACSB: Analytical thinking LO: 14.4: Define sales promotion, and characterize the differences between consumer and trade promotions.

73) Word-of-mouth marketing is often called ________.

A) guerrilla advertising B) institutional advertising C) sales promotion D) prospecting E) viral marketing Answer: E Explanation: Word-of-mouth marketing is often called viral marketing, in reference to the transmission of messages in much the same way that biological viruses are transmitted from person to person.

Difficulty: 2: Moderate AACSB: Application of knowledge LO: 14.5: Explain the uses of social media in customer communication and the role of public relations.

74) ________ encompass(es) a wide variety of nonsales communications that businesses use to build a favorable corporate image and foster positive relations with stakeholders.

A) Push strategy B) Trade allowances C) Brand communities D) Public relations E) Pull strategy Answer: D Explanation: Public relations (PR) encompasses a wide variety of nonsales communications that businesses have with their many stakeholders, including communities, investors, industry analysts, government agencies, and activists. Companies rely on PR to build a favorable corporate image and foster positive relations with all these groups.

Difficulty: 2: Moderate AACSB: Application of knowledge LO: 14.5: Explain the uses of social media in customer communication and the role of public relations.

75) An in-person or online gathering of media representatives at which companies

announce new information is called a ________.

A) press conference B) press release C) conversation marketing D) sale promotion E) trade promotion Answer: A Explanation: Also called a news conference, a press conference refers to an in-person or online gathering of media representatives at which companies announce new information.

Difficulty: 2: Moderate AACSB: Application of knowledge LO: 14.5: Explain the uses of social media in customer communication and the role of public relations.

76) Consumers who are united by their interest in and ownership of a particular product have created ________.

A) brand facilitators B) champions C) content marketing D) social customer care E) brand communities Answer: E Explanation: One major impact of social media has been the rapid spread of brand communities, people united by their interest in and ownership of particular products.

These communities can be formal membership organizations, or informal networks of people with similar interests.

Difficulty: 2: Moderate AACSB: Analytical thinking LO: 14.5: Explain the uses of social media in customer communication and the role of public relations.

77) Consumers who defend a company against detractors and help other customers in the use of the product are called ________.

A) social media enthusiasts B) champions C) content marketers D) conversational marketers E) brand communities Answer: B Explanation: In marketing, champions are enthusiastic fans of a company and its products—so enthusiastic that they help spread the company's message, defend it against detractors, and help other customers use its products.

Difficulty: 2: Moderate AACSB: Analytical thinking LO: 14.5: Explain the uses of social media in customer communication and the role of public relations.

78) Brand communities refer to formal or informal groups of people united by their interest in and ownership of particular products.

Answer: TRUE Explanation: Brand communities refer to formal or informal groups of people united by their interest in and ownership of particular products. These communities range from loose-knit groups of people who hang out on the same social media platform to formal, company-sponsored membership organizations.

Difficulty: 2: Moderate AACSB: Application of knowledge LO: 14.5: Explain the uses of social media in customer communication and the role of public relations.

79) Social media marketing is a marketing tactic where companies initiate and facilitate conversations only in a networked community.

Answer: FALSE Explanation: Conversation marketing, in which companies initiate and facilitate conversations in a networked community of customers, journalists, bloggers, Twitter users, and other interested parties.

Difficulty: 2: Moderate AACSB: Application of knowledge LO: 14.5: Explain the uses of social media in customer communication and the role of public relations.

80) Public relations include nonsales communications with stakeholders.

Answer: TRUE Explanation: Public relations (PR) encompasses a wide variety of nonsales communications that businesses have with their many stakeholders, including communities, investors, industry analysts, government agencies, and activists.

Difficulty: 2: Moderate AACSB: Application of knowledge LO: 14.5: Explain the uses of social media in customer communication and the role of public relations.

81) The majority of consumers trust brand communities more than the organization as an information source.

Answer: TRUE Explanation: Because a strong majority of consumers now trust their peers more than any other source of product information—including conventional advertising techniques—formal and informal brand communities are becoming an essential information source in consumer buying behavior.

Difficulty: 2: Moderate AACSB: Application of knowledge LO: 14.5: Explain the uses of social media in customer communication and the role of public relations.

82) Compare and contrast viral marketing with conversation marketing.

Answer: Social media activities combine the newest communication technologies with the oldest form of marketing communication in the world, word-of-mouth—customers and other parties transmitting information about companies and products through personal conversations. Word-of-mouth marketing is often called viral marketing, in reference to the transmission of messages in much the same way that biological viruses are transmitted from person to person. Marketers need to give people a good reason— good content, in other words—to pass along their messages.

Audiences in the social media environment are not willing to be passive recipients in a structured, one-way information delivery process—or to rely solely on promotional messages from marketers. This notion of interactive participation is the driving force behind conversation marketing, in which companies initiate and facilitate conversations in a networked community of customers, journalists, bloggers, Twitter users, and other interested parties.

Difficulty: 3: Challenging AACSB: Information technology LO: 14.5: Explain the uses of social media in customer communication and the role of public relations.

83) Wholesalers differ from retailers in that wholesalers ________.

A) sell products to organizational customers B) create brand communities C) primarily sell products to consumers for personal use D) cannot sell products to consumers for personal use E) create place utility and time utility Answer: A Explanation: Wholesalers sell to organizational customers, including other wholesalers, companies, government agencies, and educational institutions. Unlike wholesalers, retailers primarily sell products to consumers for personal use.

Difficulty: 2: Moderate AACSB: Application of knowledge LO: 14.6: Discuss the importance of marketing intermediaries, and contrast the roles of wholesalers and retailers.

84) ________ refer(s) to intermediaries that sell products to other intermediaries for resale or to organizations for internal use.

A) Retailers B) Wholesalers C) Department store D) Specialty store E) Convenience store Answer: B Explanation: Intermediaries can be grouped into two general types: wholesalers and retailers. Wholesalers sell to organizational customers, including other wholesalers, companies, government agencies, and educational institutions. In turn, the customers of wholesalers either resell the products or use them to make products of their own.

Difficulty: 2: Moderate AACSB: Application of knowledge LO: 14.6: Discuss the importance of marketing intermediaries, and contrast the roles of wholesalers and retailers.

85) Retailers differ from wholesalers in that retailers ________.

A) sell products to small-business owners B) sell products to wholesalers, government agencies, and educational institutions C) primarily sell products to consumers for personal use D) receive bulk shipments from producers E) create possession utility Answer: C Explanation: Wholesalers sell to organizational customers, including other wholesalers, companies, government agencies, and educational institutions. Unlike wholesalers, retailers primarily sell products to consumers for personal use.

Difficulty: 2: Moderate AACSB: Application of knowledge LO: 14.6: Discuss the importance of marketing intermediaries, and contrast the roles of wholesalers and retailers.

86) Intermediaries that primarily sell goods and services to individuals for their own personal use are called ________.

A) drop shippers B) agents C) brokers D) distributors E) retailers Answer: E Explanation: Intermediaries that sell goods and services to individuals for their own personal use are called retailers.

Difficulty: 2: Moderate AACSB: Application of knowledge LO: 14.6: Discuss the importance of marketing intermediaries, and contrast the roles of wholesalers and retailers.

87) One of the valuable services that a wholesaler might perform is ________, in which it receives large shipments from the producer and then sells smaller quantities to retailers.

A) rack jobbing B) drop shipping C) bundling D) breaking bulk E) system integration Answer: D Explanation: Many intermediaries receive bulk shipments from producers and break them into more convenient units (known as breaking bulk) by sorting, standardizing, and dividing bulk quantities into smaller packages.

Difficulty: 2: Moderate AACSB: Application of knowledge LO: 14.6: Discuss the importance of marketing intermediaries, and contrast the roles of wholesalers and retailers.

88) Producers rely on a class of intermediaries called value-added resellers (VARs) to assist with which of the following functions?

A) Transporting the goods from the producer to the retail outlets B) Assisting with advertising, in-store displays, and other promotional efforts C) Providing market information D) Dividing bulk quantities into smaller packages E) Customizing solutions for customers Answer: E Explanation: In some industries, producers rely on a class of intermediaries often called value-added resellers (VARs) or system integrators to complete or customize solutions for customers.

Difficulty: 2: Moderate AACSB: Application of knowledge LO: 14.6: Discuss the importance of marketing intermediaries, and contrast the roles of wholesalers and retailers.

89) What is the term for the organized network of companies that work together to move goods and services from the manufacturer to consumers?

A) Wheel of retailing B) Shopper market C) Marketing channel D) Industry consolidation E) Strategic sourcing Answer: C Explanation: A distribution channel, or marketing channel, is an organized network of firms that work together to get goods and services from producer to customer.

Difficulty: 2: Moderate AACSB: Application of knowledge LO: 14.6: Discuss the importance of marketing intermediaries, and contrast the roles of wholesalers and retailers.

90) How do marketing intermediaries help retailers identify buying patterns that optimize product mixes and promotional efforts?

A) By maintaining inventories B) By providing market information

C) By providing promotional and sales support D) By matching buyers and sellers E) By facilitating customer support Answer: B Explanation: Retail intermediaries, such as Amazon and Macy's, collect valuable data about customer purchases: who buys, how often, and how much. For example, ecommerce records and data from "frequent shopper" cards help retailers spot buying patterns, providing vital market information they can then share with producers to optimize product mixes and promotional efforts.

Difficulty: 2: Moderate AACSB: Analytical thinking LO: 14.6: Discuss the importance of marketing intermediaries, and contrast the roles of wholesalers and retailers.

91) How do wholesalers and retailers create time utility for the customer?

A) By providing information to online brand communities B) By providing items at a lower price C) By creating the goods and services customers need D) By eliminating the need for the customer to contact each manufacturer E) By providing an efficient process for transferring products Answer: D Explanation: They provide the items customers need in a convenient location (place utility), they save customers the time of having to contact each manufacturer to purchase a good (time utility), and they provide an efficient process for transferring products from the producer to the customer (possession utility).

Difficulty: 2: Moderate AACSB: Analytical thinking LO: 14.6: Discuss the importance of marketing intermediaries, and contrast the roles of wholesalers and retailers.

92) Distribution strategy refers to a firm's overall plan for moving products through intermediaries and on to final customers.

Answer: TRUE Explanation: Manufacturers and other producers face some critical decisions when selecting marketing channels for their products. Distribution strategy refers to a firm's overall plan for moving products through intermediaries and on to final customers.

Difficulty: 1: Easy AACSB: Application of knowledge LO: 14.6: Discuss the importance of marketing intermediaries, and contrast the roles of wholesalers and retailers.

93) Unlike retailers, wholesalers primarily sell products to consumers for personal use.

Answer: FALSE Explanation: Unlike wholesalers, retailers primarily sell products to consumers for personal use.

Difficulty: 1: Easy AACSB: Application of knowledge LO: 14.6: Discuss the importance of marketing intermediaries, and contrast the roles of wholesalers and retailers.

94) Consumers (reached by retailers) and organizations (reached by wholesalers) respond to marketing programs the same way, because their motivations are similar.

Answer: FALSE Explanation: Consumers (reached by retailers) and organizations (reached by wholesalers) respond to marketing programs in different ways with dissimilar motivations.

Difficulty: 2: Moderate AACSB: Application of knowledge LO: 14.6: Discuss the importance of marketing intermediaries, and contrast the roles of wholesalers and retailers.

95) Retail intermediaries collect valuable data about customer purchases: who buys, how often, and how much.

Answer: TRUE Explanation: Retail intermediaries provide market information by collecting valuable data about customer purchases: who buys, how often, and how much.

Difficulty: 2: Moderate AACSB: Application of knowledge LO: 14.6: Discuss the importance of marketing intermediaries, and contrast the roles of wholesalers and retailers.

96) Compare and contrast wholesalers with retailers.

Answer: Intermediaries can be grouped into two general types: wholesalers and retailers.

Wholesalers sell to organizational customers, including other wholesalers, companies, government agencies, and educational institutions. In turn, the customers of wholesalers either resell the products or use them to make products of their own. Unlike wholesalers, retailers primarily sell products to consumers for personal use. The distinction is important because business strategies for wholesaling and retailing are dramatically different in many ways. Even when they buy the same products, consumers and organizations usually make purchases for different reasons. Because their motivations and expectations are different, consumers (reached by retailers) and organizations (reached by wholesalers) don't respond to marketing programs the same way.

Difficulty: 3: Challenging AACSB: Analytical thinking LO: 14.6: Discuss the importance of marketing intermediaries, and contrast the roles of wholesalers and retailers.

97) Which of the following is an assistive writing tool that provides real-time advice about the effectiveness of the written language?

A) Automated writing B) Social communication C) Augmented writing D) Segmented writing E) Predictive engines Answer: C Explanation: Digital tools have been assisting writers for decades, as far back as spell checkers that predate the PC era, but most haven't done much beyond applying simple rules. However, advances in natural language processing show potential to fill this feedback void with augmented writing systems that provide real-time advice about the effectiveness of written language.

Difficulty: 2: Moderate AACSB: Information technology LO: 14.7: Describe how companies are using augmented and automated writing to communicate with customers.

98) Which of the following is a digital tool that produces finished or near finished sentences?

A) Automated writing B) Social communication C) Augmented writing D) Segmented writing E) Predictive engines Answer: A Explanation: Automated writing goes beyond augmented writing to produce finished or near-finished writing. Chances are you've already read product descriptions and other content on e-commerce websites that was written by an AI system, rather than by a human copywriter.

Difficulty: 2: Moderate AACSB: Information technology LO: 14.7: Describe how companies are using augmented and automated writing to communicate with customers.

99) Companies can use AI systems to generate text such as product descriptions on websites and routine customer communications.

Answer: TRUE Explanation: Augmented writing systems provide real-time advice about the effectiveness of written language so that writers can adjust their phrasing and word choices to maximize the chances of success. Companies are beginning to use this technology to fine-tune marketing messages. Automated writing goes a step further to have AI systems generate text, such as the product descriptions on websites and routine customer communication.

Difficulty: 2: Moderate AACSB: Information technology LO: 14.7: Describe how companies are using augmented and automated writing to communicate with customers.

100) Automated writing technology works to ensure your thoughts are crafted in writing as effectively as possible.

Answer: FALSE Explanation: Augmented writing is a digital tool that provides real-time advice about the effectiveness of the written language.

Difficulty: 2: Moderate AACSB: Information technology LO: 14.7: Describe how companies are using augmented and automated writing to communicate with customers.

Business in Action, 9e (Bovee/Thill) Chapter 15 Financial Information and Accounting Concepts 1) Generating a(n) ________ indicates a company's financial position on a particular date.

A) organizational budget B) balance sheet C) cost analysis D) profitability report E) productivity analysis Answer: B Explanation: The balance sheet, also known as the statement of financial position, is a snapshot of a company's financial position on a particular date. In effect, it freezes all business actions and provides a baseline from which a company can measure change from that point forward.

Difficulty: 2: Moderate AACSB: Analytical thinking LO: 15.1: Define accounting, and describe the roles of private and public accountants.

2) Which of the following is a key difference between financial accounting and management accounting?

A) Financial accounting is concerned with preparing cost analysis, whereas management accounting is concerned with creating reports.

B) Financial accounting considers such aspects as profitability, whereas management accounting does not consider profitability.

C) Financial accounting creates information for outsiders, whereas management accounting is for insiders.

D) Management accounting is based on historical data, whereas financial accounting is based on real time data.

E) Accounting knowledge creates information for all stakeholders, whereas management knowledge is used for internal purposes only.

Answer: C Explanation: Financial accounting is concerned with preparing financial statements and other information for outsiders such as stockholders and creditors. Management accounting is concerned with preparing cost analyses, profitability reports, budgets, and other information for insiders such as management and other company decision makers.

Difficulty: 2: Moderate AACSB: Application of knowledge LO: 15.1: Define accounting, and describe the roles of private and public accountants.

3) Which of the following is generated through management accounting rather than financial accounting?

A) Profit and loss statement B) Cash flow statement C) Balance sheet D) Budget reports E) Statement of retained earnings Answer: D Explanation: Management accounting is concerned with preparing cost analyses, profitability reports, budgets, and other information for insiders such as management and other company decision makers.

Difficulty: 2: Moderate AACSB: Application of knowledge LO: 15.1: Define accounting, and describe the roles of private and public accountants.

4) Bookkeeping refers to ________.

A) the cost accounting component of accounting B) analyzing financial information C) preparing financial forecasts D) recording the economic activities of the business E) performing profitability analysis for a company Answer: D Explanation: Bookkeeping is the clerical function of recording the economic activities of a business. It does not include financial analyses.

Difficulty: 2: Moderate AACSB: Application of knowledge LO: 15.1: Define accounting, and describe the roles of private and public accountants.

5) Tasks such as calculating and analyzing the production and operating expenditures of the organization are referred to as ________.

A) tax accounting B) bookkeeping C) cost accounting D) auditing E) forensic accounting Answer: C Explanation: Cost accounting refers to computing and analyzing production and operating costs of a business.

Difficulty: 2: Moderate AACSB: Application of knowledge LO: 15.1: Define accounting, and describe the roles of private and public accountants.

6) Which of the following refers to evaluating a company's performance and the economic implications of strategic decisions such as product pricing, employee benefits, and business acquisitions?

A) Financial analysis B) Tax accounting C) Bookkeeping D) Cost accounting E) Forensic accounting Answer: A Explanation: Financial analysis refers to evaluating a company's performance and the financial implications of strategic decisions such as product pricing, employee benefits, and business acquisitions.

Difficulty: 2: Moderate AACSB: Application of knowledge LO: 15.1: Define accounting, and describe the roles of private and public accountants.

7) ________ refers to combining accounting and investigating skills to assist in legal and criminal matters.

A) Financial analysis B) Tax accounting C) Bookkeeping D) Cost accounting E) Forensic accounting Answer: E Explanation: Some accountants specialize in certain areas of accounting, such as cost accounting (computing and analyzing production and operating costs), tax accounting (preparing tax returns and interpreting tax law), financial analysis (evaluating a company's performance and the financial implications of strategic decisions such as product pricing, employee benefits, and business acquisitions), or forensic accounting (combining accounting and investigating skills to assist in legal and criminal matters).

Difficulty: 2: Moderate AACSB: Application of knowledge LO: 15.1: Define accounting, and describe the roles of private and public accountants.

8) A(n) ________ is responsible for overseeing all accounting functions in a company, reports to the CFO or company president, and is the higher ranking accountant in a company.

A) inventory manager B) controller C) treasurer D) credit manager E) cost accountant Answer: B Explanation: Private accountants generally work together as a team under the supervision of the organization's controller, who reports to the vice president of finance or the chief financial officer (CFO).

Difficulty: 2: Moderate AACSB: Application of knowledge LO: 15.1: Define accounting, and describe the roles of private and public accountants.

9) Which of the following terms refers to a formal evaluation of the integrity and reliability of a company's financial statements?

A) Cost accounting B) Audit C) Forensics D) Bookkeeping E) Management accounting Answer: B Explanation: Audit is a formal evaluation of the fairness and reliability of a client's financial statements. Certified public accountants are authorized to perform audits.

Difficulty: 2: Moderate AACSB: Application of knowledge LO: 15.1: Define accounting, and describe the roles of private and public accountants.

10) Public accountants are professionals who provide ________.

A) accounting services to businesses and individuals for a fee B) accounting services to publicly owned firms only C) financial services to not-for-profit organizations only D) financial services without charging a fee for them E) free auditing services to people who trade in the stock market Answer: A Explanation: Public accountants are professionals who provide accounting services to businesses and individuals for a fee. They are independent of the businesses, organizations, and individuals they serve.

Difficulty: 2: Moderate AACSB: Application of knowledge LO: 15.1: Define accounting, and describe the roles of private and public accountants.

11) How do banks and suppliers most often use the accounting information generated by an organization?

A) To determine profit potential B) To determine the tax liability C) To determine cost analysis variables D) To determine how the company compares to others E) To determine creditworthiness Answer: E Explanation: Suppliers, banks, and other parties want to know whether a business is creditworthy; shareholders and other investors are concerned with its profit potential; government agencies are interested in its tax accounting.

Difficulty: 2: Moderate AACSB: Analytical thinking LO: 15.1: Define accounting, and describe the roles of private and public accountants.

12) What must public accountants obtain before they are eligible to conduct a company's audit?

A) CMA licensing B) Background in forensic accounting C) Financial analysis capabilities D) CPA licensing E) External auditor approval Answer: D Explanation: Public accountants generally are CPAs and must obtain CPA and state licensing certifications before they are eligible to conduct an audit—a formal evaluation of a company's accounting records and processes to ensure the integrity and reliability of a company's financial statements.

Difficulty: 2: Moderate AACSB: Analytical thinking LO: 15.1: Define accounting, and describe the roles of private and public accountants.

13) Which type of accountant would use financial analysis to aid in the decision to acquire a new business?

A) Cost B) Tax C) Financial D) Forensic E) Private Answer: C Explanation: Some accountants specialize in certain areas of accounting, such as cost accounting, tax accounting, financial analysis (evaluating a company's performance and the financial implications of strategic decisions such as product pricing, employee benefits, and business acquisitions), or forensic accounting.

Difficulty: 2: Moderate AACSB: Analytical thinking LO: 15.1: Define accounting, and describe the roles of private and public accountants.

14) Financial accounting is concerned with preparing cost analyses, profitability reports, budgets, and other information for insiders such as management and other company decision makers.

Answer: FALSE Explanation: Financial accounting is concerned with preparing financial statements and other information for outsiders such as stockholders and creditors. Management accounting is concerned with such reports as profitability reports.

Difficulty: 1: Easy AACSB: Application of knowledge LO: 15.1: Define accounting, and describe the roles of private and public accountants.

15) Bookkeeping is the clerical function of recording the economic activities of a business.

Answer: TRUE Explanation: The work accountants do is sometimes confused with bookkeeping, which is the clerical function of recording the economic activities of a business. Although some accountants do perform bookkeeping functions, their work goes well beyond the scope of this activity.

Difficulty: 1: Easy AACSB: Application of knowledge LO: 15.1: Define accounting, and describe the roles of private and public accountants.

16) Financial analysis refers to combining accounting and investigating skills to assist in legal and criminal matters.

Answer: FALSE Explanation: Financial analysis refers to evaluating a company's performance and the financial implications of strategic decisions such as product pricing, employee benefits, and business acquisitions. Accounting and investigation skills are used to assist in legal and criminal matters in forensic accounting.

Difficulty: 1: Easy AACSB: Application of knowledge LO: 15.1: Define accounting, and describe the roles of private and public accountants.

17) An audit is a formal evaluation of the fairness and reliability of a client's financial statements.

Answer: TRUE Explanation: An audit is a formal evaluation of the fairness and reliability of a client's financial statements. An unqualified or "clean" audit report means that to the best of the auditor's knowledge a company's financial statements are accurate and conform to GAAP practices. Auditors issue qualified reports when they are unable to verify all relevant information or to call attention to nonstandard elements within the report. If the departures from normal practices are significant and unfairly represent the company's finances, the auditor issues an adverse opinion.

Difficulty: 1: Easy AACSB: Application of knowledge LO: 15.1: Define accounting, and describe the roles of private and public accountants.

18) Compare and contrast management accounting with financial accounting.

Answer: Because outsiders and insiders use accounting information for different purposes, accounting has two distinct facets. Financial accounting is concerned with preparing financial statements and other information for outsiders such as stockholders and creditors (people or organizations that have lent a company money or have extended it credit); management accounting is concerned with preparing cost analyses, profitability reports, budgets, and other information for insiders such as management and other company decision makers. Management accounting is for internal use, whereas financial accounting is for external use.

Difficulty: 3: Challenging AACSB: Analytical thinking LO: 15.1: Define accounting, and describe the roles of private and public accountants.

19) Compare and contrast public accountants and private accountants.

Answer: Private accountants are in-house accountants employed by organizations and businesses other than a public accounting firm. They are also called corporate accountants.

In contrast to private accountants, public accountants are independent of the businesses, organizations, and individuals they serve. Most public accountants are employed by public accounting firms that provide a variety of accounting and consulting services to their clients.

Difficulty: 3: Challenging AACSB: Analytical thinking LO: 15.1: Define accounting, and describe the roles of private and public accountants.

20) Independent accounting firms that provide auditing services for public companies are called ________.

A) forensic auditors B) external auditors C) cost accountants D) domestic auditors E) financial analysts Answer: B Explanation: Independent accounting firms that provide auditing services for public companies are called external auditors. They review a client's financial records to determine whether the statements that summarize these records have been prepared in accordance with GAAP. Difficulty: 1: Easy AACSB: Application of knowledge LO: 15.2: Explain the impact of accounting standards such as GAAP and the SarbanesOxley Act on corporate accounting.

21) An accountant that thoroughly evaluates its clients' financial statements and certifies them is a(n) ________.

A) forensic auditor B) cost accountant C) external auditor D) domestic auditor E) financial analyst Answer: C Explanation: Independent accounting firms that provide auditing services for public companies are called external auditors. They review a client's financial records to determine whether the statements that summarize these records have been prepared in accordance with GAAP. Difficulty: 3: Challenging AACSB: Analytical thinking LO: 15.2: Explain the impact of accounting standards such as GAAP and the SarbanesOxley Act on corporate accounting.

22) The ________ oversees GAAP compliance in the United States.

A) Consumer Financial Protection Agency (CFPA) B) Financial Management Service (FMS) C) Securities and Exchange Commission (SEC) D) Financial Accounting Standards Board (FASB) E) Office of Terrorism and Financial Intelligence (OTFI) Answer: D Explanation: GAAP (generally accepted accounting principles), overseen in the United States by the Financial Accounting Standards Board (FASB), aims to give a fair and true picture of a company's financial position and enable outsiders to make confident analyses and comparisons.

Difficulty: 2: Moderate AACSB: Application of knowledge LO: 15.2: Explain the impact of accounting standards such as GAAP and the SarbanesOxley Act on corporate accounting.

23) The goal of GAAP is to ________.

A) prohibit firms from documenting their internal financial controls and processes B) give companies the freedom to determine the salaries of its employees C) prevent firms from using internal auditors to audit operations D) enable outsiders to make confident analyses and comparisons E) eliminate the need for an independent auditor Answer: D Explanation: GAAP (generally accepted accounting principles), overseen in the United States by the Financial Accounting Standards Board (FASB), aims to give a fair and true picture of a company's financial position and enable outsiders to make confident analyses and comparisons.

Difficulty: 2: Moderate AACSB: Application of knowledge LO: 15.2: Explain the impact of accounting standards such as GAAP and the SarbanesOxley Act on corporate accounting.

24) The Sarbanes-Oxley Act outlaws ________.

A) loans by corporations to their own executives B) the use of external auditors C) internal financial tests by companies D) loans obtained through pledging assets E) having financial experts on the board of directors Answer: A Explanation: The Sarbanes-Oxley Act outlaws most loans by corporations to their own directors and executives.

Difficulty: 2: Moderate AACSB: Application of knowledge LO: 15.2: Explain the impact of accounting standards such as GAAP and the SarbanesOxley Act on corporate accounting.

25) Which of the following legislations requires CEOs and CFOs to attest to the accuracy of their financial statements?

A) Reconstruction Finance Corporation Act B) Public Utility Company Act C) Ethics in Government Act D) Sarbanes-Oxley Act E) Financial Services Modernization Act Answer: D Explanation: Sarbanes-Oxley changed public company accounting in the United States.

One major provision included requiring CEOs and CFOs to sign statements attesting to the accuracy of their financial statements.

Difficulty: 2: Moderate AACSB: Application of knowledge LO: 15.2: Explain the impact of accounting standards such as GAAP and the SarbanesOxley Act on corporate accounting.

26) Most countries outside of the United States use ________ to standardize their accounting practices.

A) international financial reporting standards (IFRS) B) generally accepted accounting principles (GAAP) C) earnings before interest, taxes, depreciation, and amortization (EBITDA) D) internationally accepted accounting protocols (IAAP) E) country-specific principles of accounting (CSPOA) Answer: A Explanation: Most countries outside of the United States use international financial reporting standards (IFRS) to standardize their accounting practices.

Difficulty: 2: Moderate AACSB: Application of knowledge LO: 15.2: Explain the impact of accounting standards such as GAAP and the SarbanesOxley Act on corporate accounting.

27) The Sarbanes-Oxley Act requires ________.

A) the board of directors to be comprised of at least fifteen members B) external auditors to provide nonaudit services C) directors and executives to get loans from the corporate office D) companies to publicize operational budgets E) corporate lawyers to report evidence of financial wrongdoing Answer: E Explanation: The Sarbanes-Oxley Act requires corporate lawyers to report evidence of financial wrongdoing. The need for and complexity of financial reporting standards is highlighted in the story of Sarbanes-Oxley, the informal name of the Public Company Accounting Reform and Investor Protection Act. Difficulty: 2: Moderate AACSB: Application of knowledge LO: 15.2: Explain the impact of accounting standards such as GAAP and the SarbanesOxley Act on corporate accounting.

28) Which of the following best describes when a "qualified" report would be issued?

A) After auditors can verify the financial statements are accurate B) After auditors can verify the financial statements conform to GAAP standards C) When auditors feel the company did not use normal practices in preparing the financial report D) When auditors are unable to verify all relevant information within the report E) When auditors feel the financial statements unfairly report the company's finances Answer: D Explanation: Auditors issue qualified reports when they are unable to verify all relevant information or to call attention to nonstandard elements within the report. If the departures from normal practices are significant and unfairly represent the company's finances, the auditor issues an adverse opinion.

Difficulty: 2: Moderate AACSB: Application of knowledge LO: 15.2: Explain the impact of accounting standards such as GAAP and the SarbanesOxley Act on corporate accounting.

29) External auditors work for independent accounting firms that provide auditing services for public companies.

Answer: TRUE Explanation: During an audit, CPAs who work for an independent accounting firm, also known as external auditors, review a client's financial statements to determine whether they have been prepared in accordance with GAAP. Difficulty: 1: Easy AACSB: Application of knowledge LO: 15.2: Explain the impact of accounting standards such as GAAP and the SarbanesOxley Act on corporate accounting.

30) Sarbanes-Oxley Act prohibits companies from testing their internal financial controls and processes.

Answer: FALSE Explanation: Sarbanes-Oxley Act is the informal name of comprehensive legislation designed to improve integrity and accountability of financial information. It requires companies to document and test their internal financial controls and processes.

Difficulty: 2: Moderate AACSB: Application of knowledge LO: 15.2: Explain the impact of accounting standards such as GAAP and the SarbanesOxley Act on corporate accounting.

31) Most companies in the United States use international financial reporting standards (IFRS) to standardize accounting and financial reporting methods.

Answer: FALSE Explanation: Generally Accepted Accounting Principles (GAAP) standardize accounting and financial reporting for companies in the United States. However, most other countries follow international financial reporting standards (IFRS), maintained by the Londonbased International Accounting Standards Board.

Difficulty: 1: Easy AACSB: Application of knowledge LO: 15.2: Explain the impact of accounting standards such as GAAP and the SarbanesOxley Act on corporate accounting.

32) External auditors review a client's financial records to ensure the statement has been prepared according to international financial reporting standards.

Answer: FALSE Explanation: During an audit, CPAs who work for an independent accounting firm, also known as external auditors, review a client's financial records to determine whether the statements that summarize these records have been prepared in accordance with GAAP. Difficulty: 2: Moderate AACSB: Application of knowledge LO: 15.2: Explain the impact of accounting standards such as GAAP and the SarbanesOxley Act on corporate accounting.

33) According to generally accepted accounting principles (GAAP), earnings before interest, taxes, depreciation, and amortization (EBITDA) is the preferred measure of profitability.

Answer: FALSE Explanation: As a measure of profitability, earnings before interest, taxes, depreciation, and amortization (EBITDA) is a non-GAAP indicator.

Difficulty: 3: Challenging AACSB: Application of knowledge LO: 15.2: Explain the impact of accounting standards such as GAAP and the SarbanesOxley Act on corporate accounting.

34) What is GAAP? Answer: GAAP refers to generally accepted accounting principles. They refer to the standards and practices used by publicly-held corporations in the United States, and a few other countries, in the preparation of financial statements. GAAP is on course to converge with IFRS. Difficulty: 1: Easy AACSB: Application of knowledge LO: 15.2: Explain the impact of accounting standards such as GAAP and the SarbanesOxley Act on corporate accounting.

35) Discuss areas of potential change a conversion to international financial reporting standards would bring.

Answer: Most other countries use international financial reporting standards (IFRS) maintained by the London-based International Accounting Standards Board. After a decade-long effort to harmonize the GAAP and IFRS, the two systems are closer in some respects but still different in some significant ways. If the SEC ever does make the switch to IFRS, it could bring extensive changes to the accounting profession, financial management, information systems, stock-based compensation and bonuses, and other aspects of managing a public corporation.

Difficulty: 3: Challenging AACSB: Analytical thinking LO: 15.2: Explain the impact of accounting standards such as GAAP and the SarbanesOxley Act on corporate accounting.

36) Describe the major provisions of the Sarbanes-Oxley Act. Answer: The major provisions of the Sarbanes-Oxley act include the following: (1) Outlawing most loans by corporations to their own directors and executives (2) Creating the Public Company Accounting Oversight Board (PCAOB) to oversee external auditors (3) Requiring corporate lawyers to report evidence of financial wrongdoing (4) Requiring that audit committees on the board of directors have at least one financial expert and that the majority of board members be independent (not employed by the company in an executive position) (5) Requiring CEOs and CFOs to sign statements attesting to the accuracy of their financial statements (6) Requiring companies to document and test their internal financial controls and processes Difficulty: 2: Moderate AACSB: Application of knowledge LO: 15.2: Explain the impact of accounting standards such as GAAP and the SarbanesOxley Act on corporate accounting.

37) Assets - Liabilities = ________.

A) variable cost B) fixed cost C) liquidity D) business cost E) owners' equity Answer: E Explanation: Owners' equity refers to the portion of a company's assets that belongs to the owners after obligations to all creditors have been met. Owners' equity = Assets Liabilities.

Difficulty: 2: Moderate AACSB: Application of knowledge LO: 15.3: Describe the accounting equation, and explain the purpose of double-entry bookkeeping and the matching principle.

38) A company has the following assets: (1) Fixed assets worth $30,000 and (2) investments worth $6,000. The company's total liabilities amount to $25,000. What is the owners' equity of the company?

A) $24,000 B) $36,000 C) $5,000 D) $30,000 E) $11,000 Answer: E Explanation: Owners' equity = Assets - Liabilities = $36,000 - $25,000 = $11,000 Difficulty: 3: Challenging AACSB: Analytical thinking LO: 15.3: Describe the accounting equation, and explain the purpose of double-entry bookkeeping and the matching principle.

39) Which of the following is an example of a company's asset?

A) Inventory in the warehouse B) Mortgage loans C) Bonds issued by the company D) Short-term loans E) Debt security raised by the company Answer: A Explanation: Assets are things of value owned or leased by a business. Inventory is a thing of value that the company owns.

Difficulty: 2: Moderate AACSB: Application of knowledge LO: 15.3: Describe the accounting equation, and explain the purpose of double-entry bookkeeping and the matching principle.

40) The ________ requires that expenses incurred in producing revenues be deducted from the revenue they generated during the same accounting period.

A) principle of prudence B) deferral principle C) materiality principle D) matching principle E) principle of continuity Answer: D Explanation: The matching principle is the fundamental principle requiring that expenses incurred in producing revenue be deducted from the revenues they generate during an accounting period. This matching of expenses and revenue is necessary for the company's financial statements to present an accurate picture of profitability.

Difficulty: 2: Moderate AACSB: Application of knowledge LO: 15.3: Describe the accounting equation, and explain the purpose of double-entry bookkeeping and the matching principle.

41) ________ is an accounting method in which revenue is recorded when a sale is made, and an expense is recorded when the company uses an asset to produce revenue.

A) Accrual basis B) Cash basis C) Profit basis D) Depreciation E) Deferral basis Answer: A Explanation: Accountants match revenue to expenses by adopting the accrual basis of accounting, which states that revenue is recognized when a company makes the sale, not when it gets paid. Similarly, expenses are recorded when a company receives the benefit of a service or when it uses an asset to produce revenue–not when it pays the bill.

Difficulty: 2: Moderate AACSB: Application of knowledge LO: 15.3: Describe the accounting equation, and explain the purpose of double-entry bookkeeping and the matching principle.

42) ________ is an accounting method in which revenue is recorded when payment is received and an expense is recorded when money is paid.

A) Accrual basis B) Profit basis C) Cash basis D) Depreciation E) Deferral basis Answer: C Explanation: Cash basis is an accounting method in which revenue is recorded when payment is received and expense is recorded when cash is paid. Checking account is a simple cash-based accounting system in this case.

Difficulty: 2: Moderate AACSB: Application of knowledge LO: 15.3: Describe the accounting equation, and explain the purpose of double-entry bookkeeping and the matching principle.

43) What type of accounting system records revenue only when the money is actually received?

A) Depreciation B) Deferral basis C) Accrual basis D) Profit basis E) Cash basis Answer: E Explanation: If a business runs on a cash basis, it records revenue only when money from the sale is actually received. Cash-based accounting is simple, but it can be misleading. It's easy to inflate the appearance of income, for example, by delaying the payment of bills. For that reason, public companies are required to keep their books on an accrual basis.

Difficulty: 2: Moderate AACSB: Application of knowledge LO: 15.3: Describe the accounting equation, and explain the purpose of double-entry bookkeeping and the matching principle.

44) ________ is an accounting procedure for systematically spreading the cost of a tangible asset over its estimated useful life.

A) Profit basis B) Accrual basis C) Cash basis D) Depreciation E) Deferral basis Answer: D Explanation: Depreciation is an accounting procedure for systematically spreading the cost of a tangible asset over its estimated useful life.

Difficulty: 2: Moderate AACSB: Application of knowledge LO: 15.3: Describe the accounting equation, and explain the purpose of double-entry bookkeeping and the matching principle.

45) Which of the following is a key difference between depreciation and amortization?

A) Amortization is applicable for long-term assets, whereas depreciation is applicable for short-term assets.

B) Depreciation applies to tangible assets, whereas amortization applies to intangible assets.

C) Amortization is calculated for liabilities, whereas depreciation is calculated for assets.

D) Amortization is calculated for assets, whereas depreciation is calculated for liabilities.

E) Depreciation is applicable for long-term assets, whereas amortization is applicable for short-term assets.

Answer: B Explanation: Depreciation refers to the cost of a tangible long-term asset over a period of time and is a way that companies match expenses with revenue. For intangible assets, this allocation over time is known as amortization.

Difficulty: 2: Moderate AACSB: Application of knowledge LO: 15.3: Describe the accounting equation, and explain the purpose of double-entry bookkeeping and the matching principle.

46) Owners' equity refers to the total assets of a company.

Answer: FALSE Explanation: Owners' equity is the portion of a company's assets that belongs to the owners after obligations to all creditors have been met. Owners' equity = Assets Liabilities.

Difficulty: 2: Moderate AACSB: Application of knowledge LO: 15.3: Describe the accounting equation, and explain the purpose of double-entry bookkeeping and the matching principle.

47) Cash basis is an accounting method in which revenue is recorded when a sale is made.

Answer: FALSE Explanation: Cash basis is an accounting method in which revenue is recorded when payment is received and expense is recorded when cash is paid.

Difficulty: 2: Moderate AACSB: Application of knowledge LO: 15.3: Describe the accounting equation, and explain the purpose of double-entry bookkeeping and the matching principle.

48) Depreciation is an accounting procedure used for intangible assets.

Answer: FALSE Explanation: Depreciation is an accounting procedure for systematically spreading the cost of a tangible asset over its estimated useful life. For intangible assets, this allocation over time is known as amortization.

Difficulty: 2: Moderate AACSB: Application of knowledge LO: 15.3: Describe the accounting equation, and explain the purpose of double-entry bookkeeping and the matching principle.

49) According to the double-entry bookkeeping method, the accounting equation must be in balance.

Answer: TRUE Explanation: Double-entry bookkeeping is a method of recording financial transactions that requires a debit entry and credit entry for each transaction to ensure that the accounting equation is always kept in balance.

Difficulty: 2: Moderate AACSB: Application of knowledge LO: 15.3: Describe the accounting equation, and explain the purpose of double-entry bookkeeping and the matching principle.

50) Describe double-entry bookkeeping and the matching principle.

Answer: Double-entry bookkeeping is a method of recording financial transactions that requires a debit entry and credit entry for each transaction to ensure that the accounting equation is always kept in balance. Matching principle is the fundamental principle requiring that expenses incurred in producing revenue be deducted from the revenues they generate during an accounting period.

Difficulty: 1: Easy AACSB: Application of knowledge LO: 15.3: Describe the accounting equation, and explain the purpose of double-entry bookkeeping and the matching principle.

51) Compare and contrast accrual basis accounting and cash basis accounting.

Answer: Accountants match revenue to expenses by adopting the accrual basis of accounting, which states that revenue is recognized when you make a sale or provide a service, not when you get paid. Similarly, your expenses are recorded when you receive the benefit of a service or when you use an asset to produce revenue—not when you pay for it. Accrual accounting focuses on the economic substance of an event rather than on the movement of cash. It's a way of recognizing that revenue can be earned either before or after cash is received and that expenses can be incurred when a company receives a benefit (such as a shipment of supplies) either before or after the benefit is paid for.

If a business runs on a cash basis, the company records revenue only when money from the sale is actually received. Your checking account is a simple cash-based accounting system. You record checks, debit card charges, and ATM withdrawals at the time of purchase and record deposits at the time of receipt. Cash-based accounting is simple, but it can be misleading. It's easy to inflate income, for example, by delaying the payment of bills. For that reason, public companies are required to keep their books on an accrual basis.

Difficulty: 3: Challenging AACSB: Analytical thinking LO: 15.3: Describe the accounting equation, and explain the purpose of double-entry bookkeeping and the matching principle.

52) Transferring net revenue and expense account balances to retained earnings for the period is referred to as ________.

A) multiple-entry bookkeeping B) matching the account C) closing the books D) single-entry bookkeeping E) measuring current balance Answer: C Explanation: Closing the books refers to transferring net revenue and expense account balances to retained earnings for the period. It is performed after all individual transactions are recorded and summarized.

Difficulty: 2: Moderate AACSB: Application of knowledge LO: 15.4: Identify the major financial statements, and explain how to read a balance sheet.

53) Which of the following is used to analyze a firm's financial strengths in terms of its overall assets and liabilities, on a particular date?

A) Long-term expense report B) Profit and loss statement C) Balance sheet D) Cash flow statement E) Short-term expense report Answer: C Explanation: The balance sheet, also known as the statement of financial position, is a snapshot of a company's financial position on a particular date. It lists all assets and liabilities of a firm.

Difficulty: 2: Moderate AACSB: Application of knowledge LO: 15.4: Identify the major financial statements, and explain how to read a balance sheet.

54) Which of the following is an example of a current asset?

A) Accounts receivable B) Goodwill C) Land D) Equipment E) Intellectual property Answer: A Explanation: Current assets include cash and other items that will or can become cash within the following year. Accounts receivable is a current asset.

Difficulty: 2: Moderate AACSB: Application of knowledge LO: 15.4: Identify the major financial statements, and explain how to read a balance sheet.

55) Which of the following is an example of a fixed asset?

A) Transportation equipment B) Money-market funds C) Cash D) Accounts receivable E) Short-term investments Answer: A Explanation: Fixed assets are assets retained for long-term use, such as land, buildings, machinery, and equipment. Transportation equipment is a long-term asset and is typically used for more than one year.

Difficulty: 2: Moderate AACSB: Application of knowledge LO: 15.4: Identify the major financial statements, and explain how to read a balance sheet.

56) Accrued expenses are expenses that ________.

A) are likely to be incurred at a future time in a different financial year B) have been incurred but for which bills have not yet been received C) are long-term liabilities that have been incurred in a financial year D) have been incurred and for which the bills have been received E) are likely to be incurred at a future time in the same financial year Answer: B Explanation: Accrued expenses are expenses that have been incurred but for which bills have not yet been received. For example, because salespeople at Computer Central Services earn commissions, the company has a liability to those employees after the sale is made—regardless of when a check is issued to the employee.

Difficulty: 2: Moderate AACSB: Application of knowledge LO: 15.4: Identify the major financial statements, and explain how to read a balance sheet.

57) The purchase of a good or service that has not yet been paid for is recorded in ________ on the balance sheet.

A) accrued expense B) owners' equity C) supplier's equity D) accounts payable E) deferred expense Answer: D Explanation: Accounts payable includes the money the company owes its suppliers, as well as money it owes vendors for miscellaneous services (such as electricity and telephone charges).

Difficulty: 2: Moderate AACSB: Application of knowledge LO: 15.4: Identify the major financial statements, and explain how to read a balance sheet.

58) Which of the following expenses is classified as accounts payable?

A) Electricity charges B) Sales commissions C) Employee salaries D) Interest on bonds E) Loans from banks Answer: A Explanation: Accounts payable includes the money the company owes its suppliers as well as money it owes vendors for miscellaneous services (such as electricity and telephone charges).

Difficulty: 2: Moderate AACSB: Application of knowledge LO: 15.4: Identify the major financial statements, and explain how to read a balance sheet.

59) A company issues $50,000 in bonds to generate money for expanding its business.

This money is an example of a(n) ________.

A) short-term liability B) long-term liability C) owners' equity D) accrued expense E) payable account Answer: B Explanation: Long-term liabilities are obligations that fall due more than a year from the date of the balance sheet. Long-term liabilities include loans, leases, and bonds.

Difficulty: 2: Moderate AACSB: Analytical thinking LO: 15.4: Identify the major financial statements, and explain how to read a balance sheet.

60) Transferring net revenue and expense account balances to retained earnings for the period is referred to as closing the books.

Answer: TRUE Explanation: Closing the books refers to transferring net revenue and expense account balances to retained earnings for the period.

Difficulty: 2: Moderate AACSB: Application of knowledge LO: 15.4: Identify the major financial statements, and explain how to read a balance sheet.

61) Balance sheet presents a firm's financial position on a particular date.

Answer: TRUE Explanation: Balance sheet is a statement of a firm's financial position on a particular date. It is also known as a statement of financial position.

Difficulty: 1: Easy AACSB: Application of knowledge LO: 15.4: Identify the major financial statements, and explain how to read a balance sheet.

62) A fiscal year is a 12-month accounting period that begins on January 1 and ends on December 31.

Answer: FALSE Explanation: A calendar year is a 12-month accounting period that begins on January 1 and ends on December 31. A fiscal year can be any 12 consecutive months used as an accounting period.

Difficulty: 2: Moderate AACSB: Application of knowledge LO: 15.4: Identify the major financial statements, and explain how to read a balance sheet.

63) Intellectual property and goodwill are considered liabilities in accounting.

Answer: FALSE Explanation: Intellectual property (such as patents and business methods) and goodwill (which includes company reputation) are considered assets in accounting.

Difficulty: 1: Easy AACSB: Application of knowledge LO: 15.4: Identify the major financial statements, and explain how to read a balance sheet.

64) Accounts payable is an example of a long-term liability.

Answer: FALSE Explanation: Current liabilities are obligations that must be met within a year. Accounts payable is an example of a current, short-term, liability.

Difficulty: 2: Moderate AACSB: Application of knowledge LO: 15.4: Identify the major financial statements, and explain how to read a balance sheet.

65) Discuss the purpose of a balance sheet.

Answer: Balance sheet is a statement of a firm's financial position on a particular date. It is also known as a statement of financial position. In effect, it freezes all business actions and provides a baseline from which a company can measure change from that point forward. The statement is called a balance sheet because it includes all elements in the accounting equation and shows the balance between assets on one side of the equation and liabilities and owners' equity on the other side.

Difficulty: 2: Moderate AACSB: Application of knowledge LO: 15.4: Identify the major financial statements, and explain how to read a balance sheet.

66) Explain the difference between current assets and fixed assets, and how they are listed on the balance sheet.

Answer: The asset section of the balance sheet is often divided into current assets and fixed assets. Current assets include cash and other items that will or can become cash within the following year, such as short-term investments such as money-market funds and accounts receivable (amounts due from customers). Fixed assets (sometimes referred to as property, plant, and equipment) are long-term investments in buildings, equipment, furniture and fixtures, transportation equipment, land, and other tangible property used in running the business. Fixed assets have a useful life of more than one year.

Assets are listed in descending order by liquidity, or the ease with which they can be converted into cash. Thus, current assets are listed before fixed assets. The balance sheet gives a subtotal for each type of asset and then a grand total for all assets.

Difficulty: 3: Challenging AACSB: Analytical thinking LO: 15.4: Identify the major financial statements, and explain how to read a balance sheet.

67) The ________ is a financial record that represents a company's revenues, expenses, and profits over a given period of time, typically one year.

A) statement of current assets B) income statement C) balance sheet D) cash flow statement E) statement of financial position Answer: B Explanation: The income statement, or profit-and-loss statement or simply "P&L," shows an organization's profit performance over a period of time, typically one year. It summarizes revenue from all sources and all expenses, the costs that have arisen in generating revenues.

Difficulty: 2: Moderate AACSB: Application of knowledge LO: 15.5: Explain the purpose of the income statement and the statement of cash flows.

68) The profit earned, or the loss incurred by a firm, determined by subtracting expenses and taxes from revenues, is referred to as the ________.

A) working capital B) current asset C) net income D) net sales E) gross income Answer: C Explanation: Net income is the profit earned or loss incurred by a firm, determined by subtracting expenses from revenues. It is casually referred to as the bottom line.

Difficulty: 1: Easy AACSB: Application of knowledge LO: 15.5: Explain the purpose of the income statement and the statement of cash flows.

69) Net sales - cost of goods sold = ________.

A) working capital B) current asset C) gross profit D) net profit E) current liability Answer: C Explanation: Gross profit is the amount remaining when the cost of goods sold is deducted from net sales. It is also known as gross margin.

Difficulty: 1: Easy AACSB: Application of knowledge LO: 15.5: Explain the purpose of the income statement and the statement of cash flows.

70) Which of the following is classified as a general expense?

A) Promotional expenses B) Commissions paid to salespeople C) Legal fees D) Advertising costs E) Depreciation costs of showroom Answer: C Explanation: General expenses are operating expenses incurred in the overall administration of a business. They include such items as professional services (such as accounting and legal fees), office salaries, depreciation of office equipment, insurance for office operations, and supplies.

Difficulty: 2: Moderate AACSB: Analytical thinking LO: 15.5: Explain the purpose of the income statement and the statement of cash flows.

71) Expenses incurred through marketing and distributing a product are referred to as ________ expenses.

A) organization B) permanent C) general D) selling E) administration Answer: D Explanation: Selling expenses are operating expenses incurred through marketing and distributing the product (such as wages or salaries of salespeople, advertising, supplies, insurance for the sales operation, depreciation for the store and sales equipment, and other sales department expenses such as telephone charges).

Difficulty: 2: Moderate AACSB: Application of knowledge LO: 15.5: Explain the purpose of the income statement and the statement of cash flows.

72) Which of the following is a way of measuring profitability, which allows for easier comparisons of financial performance across companies or industries?

A) EBITDA B) GAAP C) Cash flow statement D) Ratio analysis E) Trend analysis Answer: A Explanation: An alternative and controversial measure of profitability is earnings before interest, taxes, depreciation, and amortization, or EBITDA. Because it doesn't include various items such as the interest payments on loans or the effects of depreciating expensive capital equipment, EBITDA is viewed by some investors as a "purer" measure of profitability and an easier way to compare financial performance across companies or industries.

Difficulty: 2: Moderate AACSB: Application of knowledge LO: 15.5: Explain the purpose of the income statement and the statement of cash flows.

73) Which of the following tracks how much money a company has generated over time and where it went?

A) EBITDA B) Statement of cash flows C) Balance sheet D) Income statement E) Net operating income Answer: B Explanation: In addition to preparing a balance sheet and an income statement, all public companies and many privately owned companies prepare a statement of cash flows, or cash flow statement, to show how much cash the company generated over time and where it went.

Difficulty: 2: Moderate AACSB: Application of knowledge LO: 15.5: Explain the purpose of the income statement and the statement of cash flows.

74) ________ include both the direct costs incurred with creating a product and the indirect costs incurred to operate the business.

A) Cost of goods sold B) Selling expenses C) Expenses D) Losses E) Operating expenses Answer: C Explanation: Expenses include both the direct costs associated with creating or purchasing products for sale and the indirect costs associated with operating the business.

Difficulty: 2: Moderate AACSB: Application of knowledge LO: 15.5: Explain the purpose of the income statement and the statement of cash flows.

75) Income statement is a record of a company's total assets and liabilities.

Answer: FALSE Explanation: Income statement is a financial record of a company's revenues, expenses, and profits over a given period of time; also known as a profit and loss statement.

Difficulty: 1: Easy AACSB: Application of knowledge LO: 15.5: Explain the purpose of the income statement and the statement of cash flows.

76) Net income refers to profit earned or loss incurred by a firm.

Answer: TRUE Explanation: Net income refers to profit earned or loss incurred by a firm, determined by subtracting expenses from revenues. It is casually referred to as the bottom line.

Difficulty: 1: Easy AACSB: Application of knowledge LO: 15.5: Explain the purpose of the income statement and the statement of cash flows.

77) Marketing and distribution expenses are examples of general expenses.

Answer: FALSE Explanation: Marketing and distributing expenses are examples of selling expenses.

General expenses are operating expenses incurred in the overall administration of a business. They include such items as professional services (such as accounting and legal fees), office salaries, depreciation of office equipment, insurance for office operations, and supplies.

Difficulty: 2: Moderate AACSB: Application of knowledge LO: 15.5: Explain the purpose of the income statement and the statement of cash flows.

78) Explain the significance of the income statement of a business.

Answer: The income statement, or profit-and-loss statement, shows an organization's profit performance over a period of time, typically one year. It summarizes revenue from all sources as well as all expenses, the costs that have arisen in generating revenues.

Expenses and income taxes are then subtracted from revenues to show the actual profit or loss of a company, a figure known as net income—also called profit or, informally, the bottom line. By briefly reviewing a company's income statements, you should have a general sense of the company's size, its trend in sales, its major expenses, and the resulting net income or loss.

Difficulty: 2: Moderate AACSB: Application of knowledge LO: 15.5: Explain the purpose of the income statement and the statement of cash flows.

79) Describe cost of goods sold and operating expenses.

Answer: Cost of goods sold refers to the cost of producing or acquiring a company's products for sale during a given period. Operating expenses refer to all costs of operation that are not included under cost of goods sold.

Difficulty: 2: Moderate AACSB: Application of knowledge LO: 15.5: Explain the purpose of the income statement and the statement of cash flows.

80) ________ ratio is calculated by dividing current assets by current liabilities.

A) Debt-to-equity B) Current C) Quick D) Acid-test E) Inventory turnover Answer: B Explanation: Current ratio is a measure of a firm's short-term liquidity. It is calculated by dividing current assets by current liabilities.

Difficulty: 2: Moderate AACSB: Analytical thinking LO: 15.6: Explain the purpose of ratio analysis, and list the four main categories of financial ratios.

81) Which of the following ratio is considered to be a better indicator of a firm's ability to pay creditor because it leaves out inventories?

A) Accounts receivable turnover ratio B) Inventory turnover ratio C) Quick ratio D) Debt-to-equity ratio E) Equity-to-debt ratio Answer: C Explanation: Quick ratio is a measure of a firm's short-term liquidity. It is calculated by adding cash, marketable securities, and receivables, then dividing that sum by current liabilities. This ratio is often a better indicator of a firm's ability to pay creditors than the current ratio because the quick ratio leaves out inventories, which can take a long time to convert to cash.

Difficulty: 2: Moderate AACSB: Application of knowledge LO: 15.6: Explain the purpose of ratio analysis, and list the four main categories of financial ratios.

82) Which of the following is a type of activity ratio?

A) Inventory turnover ratio B) Acid-test ratio C) Debt-to-equity ratio D) Current ratio E) Debt-to-assets ratio Answer: A Explanation: Activity ratios analyze how well a company is managing and making use of its assets. For companies that maintain inventories, the most common activity ratio is the inventory turnover ratio, which measures how fast a company's inventory is turned into sales.

Difficulty: 2: Moderate AACSB: Analytical thinking LO: 15.6: Explain the purpose of ratio analysis, and list the four main categories of financial ratios.

83) Activity ratios analyze ________.

A) how well a company is making use of its assets B) a firm's ability to pay its short-term obligations C) a firm's ability to pay its long-term obligations D) the leverage a firm has to pay when borrowing funds E) the extent to which a business is financed by debt Answer: A Explanation: Activity ratios analyze how well a company is managing and making use of its assets. The inventory turnover ratio and accounts receivable turnover ratio are examples of activity ratios.

Difficulty: 2: Moderate AACSB: Application of knowledge LO: 15.6: Explain the purpose of ratio analysis, and list the four main categories of financial ratios.

84) A reduction in a manufacturer's inventory turnover ratio is likely to indicate that the ________.

A) market growth has been very high B) sales are slowing down C) forecasting has been accurate D) company is in a strong financial position E) company has long-term debt obligations Answer: B Explanation: A decline in a manufacturer's inventory turnover ratio would indicate that sales are slowing down, or it could mean sales are steady but the company made some forecasting errors and as a result produced more goods than it needed. A company that struggles to move inventory has more capital tied up in inventory, and the low ratio could indicate that it is having trouble forecasting accurately, selling effectively, or both.

Difficulty: 2: Moderate AACSB: Analytical thinking LO: 15.6: Explain the purpose of ratio analysis, and list the four main categories of financial ratios.

85) Which of the following is a leverage ratio?

A) Inventory turnover ratio B) Debt-to-equity ratio C) Current ratio D) Acid-test ratio E) Accounts receivable turnover ratio Answer: B Explanation: A company's ability to pay its long-term debts is reflected in its leverage ratios, also known as debt ratios. Both lenders and investors use these ratios to judge a company's risk and growth potential. The debt-to-equity ratio (total liabilities divided by total equity) indicates the extent to which a business is financed by debt as opposed to invested capital (equity).

Difficulty: 2: Moderate AACSB: Application of knowledge LO: 15.6: Explain the purpose of ratio analysis, and list the four main categories of financial ratios.

86) Leverage ratios indicate ________.

A) how well a company is making use of its assets B) a firm's ability to pay its short-term debts C) how well a company is making use of its investments D) a firm's ability to pay its long-term obligations E) a firm's ability to meet short-term obligations Answer: D Explanation: A company's ability to pay its long-term debts is reflected in its leverage ratios, also known as debt ratios.

Difficulty: 2: Moderate AACSB: Application of knowledge LO: 15.6: Explain the purpose of ratio analysis, and list the four main categories of financial ratios.

87) Total liabilities divided by total assets will yield the ________ ratio.

A) debt-to-equity B) current C) acid-test D) asset turnover E) debt-to-assets Answer: E Explanation: Debt-to-assets ratio is a measure of a firm's ability to carry long-term debt, calculated by dividing total liabilities by total assets.

Difficulty: 2: Moderate AACSB: Application of knowledge LO: 15.6: Explain the purpose of ratio analysis, and list the four main categories of financial ratios.

88) Working capital refers to the amount of cash an organization has in hand.

Answer: FALSE Explanation: Working capital refers to current assets minus current liabilities. Cash is only one of the components of current assets.

Difficulty: 2: Moderate AACSB: Application of knowledge LO: 15.6: Explain the purpose of ratio analysis, and list the four main categories of financial ratios.

89) Quick ratio is a measure of a firm's long-term liquidity.

Answer: FALSE Explanation: Quick ratio is a measure of a firm's short-term liquidity, calculated by adding cash, marketable securities, and receivables, then dividing that sum by current liabilities.

Difficulty: 2: Moderate AACSB: Application of knowledge LO: 15.6: Explain the purpose of ratio analysis, and list the four main categories of financial ratios.

90) The accounts receivable turnover ratio is calculated by dividing sales by the average value of accounts receivable for a period.

Answer: TRUE Explanation: Accounts receivable turnover ratio is a measure of the time a company takes to turn its accounts receivable into cash, calculated by dividing sales by the average value of accounts receivable for a period.

Difficulty: 2: Moderate AACSB: Application of knowledge LO: 15.6: Explain the purpose of ratio analysis, and list the four main categories of financial ratios.

91) Leverage ratios indicate a company's ability to pay its long-term debts.

Answer: TRUE Explanation: A company's ability to pay its long-term debts is reflected in its leverage ratios. They are also known as debt ratios.

Difficulty: 2: Moderate AACSB: Application of knowledge LO: 15.6: Explain the purpose of ratio analysis, and list the four main categories of financial ratios.

92) Briefly explain trend analysis.

Answer: The process of comparing financial data from year to year is known as trend analysis. You can use trend analysis to uncover shifts in the nature of a business over time. Of course, when you are comparing one period with another, it's important to take into account the effects of extraordinary or unusual items such as the sale of major assets, the purchase of a new line of products from another company, weather, or economic conditions that may have affected the company in one period but not the next. These extraordinary items are usually disclosed in the text portion of a company's annual report or in the notes to the financial statements.

Difficulty: 2: Moderate AACSB: Analytical thinking LO: 15.6: Explain the purpose of ratio analysis, and list the four main categories of financial ratios.

93) Compare and contrast quick ratio and current ratio.

Answer: Current ratio is a measure of a firm's short-term liquidity, calculated by dividing current assets by current liabilities. Quick ratio is also a measure of a firm's short-term liquidity. It is calculated by adding cash, marketable securities, and receivables, then dividing that sum by current liabilities. Quick ratio leaves out inventories, which may often be difficult to sell. Because of this difference, quick ratio is a better indicator of a firm's ability to pay creditors than the current ratio.

Difficulty: 3: Challenging AACSB: Analytical thinking LO: 15.6: Explain the purpose of ratio analysis, and list the four main categories of financial ratios.

94) Compare and contrast different types of financial ratios.

Answer: Organizations can analyze how well a company is conducting its ongoing operations by computing profitability ratios. They show the state of the company's financial performance or how well it's generating profits.

Liquidity ratios measure a firm's ability to pay its short-term obligations. As you might expect, lenders and creditors are keenly interested in liquidity measures. A company's working capital (current assets minus current liabilities) is an indicator of liquidity because it represents current assets remaining after the payment of all current liabilities.

Activity ratios analyze how well a company is managing and making use of its assets.

A company's ability to pay its long-term debts is reflected in its leverage ratios, also known as debt ratios. Both lenders and investors use these ratios to judge a company's risk and growth potential.

Difficulty: 3: Challenging AACSB: Analytical thinking LO: 15.6: Explain the purpose of ratio analysis, and list the four main categories of financial ratios.

95) Which of the following is a type of distributed ledger technology for processing and securing transactions?

A) Quick-ratio processing B) Blockchain C) EBITDA D) Permissionless accounting E) Cryptocurrency Answer: B Explanation: If you've explored cryptocurrencies such as bitcoin, you've probably run across the term blockchain, which refers to a new way of processing and securing transactions. The specific type of distributed ledger that bitcoin uses is called blockchain, in which each new transaction is captured in a "block" that is appended to the previous block in a continuous chain.

Difficulty: 2: Moderate AACSB: Information technology LO: 15.7: Explain why businesses would be interested in blockchain and other distributed ledger technologies.

96) Which of the following replaces the traditional, individual ledgers and uses software to create a shared ledger that all cryptocurrency participants in a marketplace utilize?

A) Bitcoin B) Continuous authenticity C) Distributed ledger D) Cryptography E) Blockchain Answer: C Explanation: To ensure that this new digital currency could be created, used, and stored safely, bitcoin's creators proposed the idea of a distributed ledger, which replaces the individual ledgers of all the participants in a marketplace with a shared ledger that everyone can access.

Difficulty: 2: Moderate AACSB: Information technology LO: 15.7: Explain why businesses would be interested in blockchain and other distributed ledger technologies.

97) Which of the following is a key advantage of using blockchain to record transactions?

A) Each central bank verifies the ledger.

B) The ledger becomes public for all users to verify.

C) Intermediaries are responsible for verifying transactions.

D) No single entity can control the ledger.

E) Permission to alter the ledger is difficult to obtain, ensuring greater accuracy.

Answer: D Explanation: All the participants can verify the authenticity of each transaction, and new transactions aren't added to the chain until they have been verified. Once they're added, transactions can't be modified. With this approach, no single entity can control the ledger—or be a point of catastrophic failure—and everyone can see and back-trace every transaction.

Difficulty: 2: Moderate AACSB: Information technology LO: 15.7: Explain why businesses would be interested in blockchain and other distributed ledger technologies.

98) Which of the following is true when using blockchain for business?

A) There is no single point of attack for network security.

B) Cost of use is higher than traditional methods.

C) Auditing procedures become complex and time consuming.

D) There is less immutability.

E) Tangible assets are more easily converted to intangible assets.

Answer: A Explanation: There are many benefits from blockchain, including tighter network security, tighter data security, easier auditing, and greater transparency.

Difficulty: 2: Moderate AACSB: Information technology LO: 15.7: Explain why businesses would be interested in blockchain and other distributed ledger technologies.

99) Blockchain can be used whenever tangible or intangible assets are involved.

Answer: TRUE Explanation: Because blockchain can be applied whenever tangible or intangible assets are involved, it can potentially be used for everything from leasing equipment to trading derivatives and other financial contracts.

Difficulty: 2: Moderate AACSB: Information technology LO: 15.7: Explain why businesses would be interested in blockchain and other distributed ledger technologies.

100) Discuss ways in which blockchain changing the financial services industry.

Answer: Blockchain is already disrupting financial services, and many banks recognize that they need to adapt before they get cut out of, or disintermediated, from many financial transactions (as has already happened with cryptocurrencies, for instance).

Because blockchain can be applied whenever tangible or intangible assets are involved, it can potentially be used for everything from leasing equipment to trading derivatives and other financial contracts.

Although many elements of banking and other financial services have been computerized for years, some major aspects are still surprisingly slow and effort-intense. When banks transact with each other, for instance, transactions can take up to several days to finalize, a time window known as settlement. During settlement, money is tied up in unproductive limbo, and there is the risk that either party in a transaction could back out. Settlement is such a problem that it costs financial institutions many billions of dollars per year, in fact.

Blockchain promises to sharply reduce settlement delays and costs, resulting in a much more efficient financial system.

To simplify global banking transactions, some of the world's largest banks are collaborating on their own cryptocurrency, called the Utility Settlement Coin (USC).

Unlike other cryptocurrencies, USC is backed by cash holdings, and when a bank spends USC, it is spending its real-world currency. The USC group is working with regulators and the central banks of various nations to integrate it more fully in the global financial system. Whereas bitcoin and other cryptocurrencies are "anti-establishment" currencies created to operate outside regulatory regimes, USC is very much the "establishment" cryptocurrency.

Difficulty: 3: Challenging AACSB: Information technology LO: 15.7: Explain why businesses would be interested in blockchain and other distributed ledger technologies.

Business in Action, 9e (Bovee/Thill) Chapter 16 Financial Management and Financial Markets 1) Accounts receivable refers to ________.

A) the total of owner's funds invested in a business B) the total annual revenue of a company C) amounts that a firm owes to other parties D) the money owed to a firm by its customers E) the total interest payments made by the firm Answer: D Explanation: Accounts receivable is the amounts that are currently owed to a firm. It refers to the money owed to a firm by its customers.

Difficulty: 2: Moderate AACSB: Application of knowledge LO: 16.1: Identify three fundamental concepts that affect financial decisions, and describe the primary responsibilities of a financial manager.

2) Which of the following is a component of a firm's working capital account?

A) Long-term loans B) Debentures C) Inventory

D) Mortgage bonds E) Convertible bonds Answer: C Explanation: The working capital accounts represent a firm's cash on hand as well as economic value that can be converted to cash (inventory) or is expected from customers (accounts receivable), minus what it is scheduled to pay out (accounts payable).

Difficulty: 2: Moderate AACSB: Analytical thinking LO: 16.1: Identify three fundamental concepts that affect financial decisions, and describe the primary responsibilities of a financial manager.

3) The ________ includes all other budgets to present a complete and comprehensive view of the company's financial position.

A) capital budget B) operating budget C) zero-based budget D) master budget E) financial budget Answer: D Explanation: The working capital accounts represent a firm's cash on hand as well as economic value that can be converted to cash (inventory) or is expected from customers (accounts receivable), minus what it is scheduled to pay out (accounts payable).

Difficulty: 2: Moderate AACSB: Application of knowledge LO: 16.1: Identify three fundamental concepts that affect financial decisions, and describe the primary responsibilities of a financial manager.

4) In order to fill orders in a timely fashion, at the lowest cost, what must a company determine?

A) Economic order quantity B) Working capital C) Cash flow D) Accounts payable E) Financial plan Answer: A Explanation: A firm's goal is to maintain enough inventory to fill orders in a timely fashion at the lowest cost. To achieve this goal, financial managers work with operations managers and marketing managers to determine the economic order quantity (EOQ), or quantity of materials that, when ordered regularly, results in the lowest ordering and storage costs.

Difficulty: 2: Moderate AACSB: Analytical thinking LO: 16.1: Identify three fundamental concepts that affect financial decisions, and describe the primary responsibilities of a financial manager.

5) Successful financial management starts with an outline of funds needed for a period of time, along with sources and intended uses of those funds, referred to as a(n) ________.

A) economic order B) financial plan

C) strategic plan D) financial statement E) risk/return trade-off analysis Answer: B Explanation: Successful financial management starts with a financial plan, a document that outlines the funds a firm will need for a certain period of time, along with the sources and intended uses of those funds.

Difficulty: 2: Moderate AACSB: Analytical thinking LO: 16.1: Identify three fundamental concepts that affect financial decisions, and describe the primary responsibilities of a financial manager.

6) A company that is highly leveraged is considered to have ________.

A) high risk with high reward B) low risk with high reward C) high debt D) a liquidity crisis E) high accounts receivable Answer: C Explanation: Companies that are highly leveraged (that is, carrying a lot of debt) are forced to devote more of their cash flow to debt service and therefore can't spend that money on advertising, staffing, or product development.

Difficulty: 2: Moderate AACSB: Analytical thinking LO: 16.1: Identify three fundamental concepts that affect financial decisions, and describe the primary responsibilities of a financial manager.

7) What is a company faced with when it doesn't have enough cash to meet short-term needs?

A) Strong economic order B) Poor risk/return trade-off C) Becoming highly leveraged D) Liquidity crisis E) High accounts receivables Answer: D Explanation: Companies that don't keep a close eye on cash flow can find themselves facing a liquidity crisis, having insufficient cash to meet their short-term needs. In the worst-case scenario, a firm in a liquidity crisis finds itself in a credit crisis, too, meaning it doesn't have the cash it needs and can't borrow any more.

Difficulty: 2: Moderate AACSB: Analytical thinking LO: 16.1: Identify three fundamental concepts that affect financial decisions, and describe the primary responsibilities of a financial manager.

8) A ________ is a planning and control tool that reflects expected revenues, operating expenses, and cash receipts and outlays.

A) data structure B) financial plan C) cash flow

D) budget E) capital structure Answer: D Explanation: In addition to developing a financial plan and monitoring cash flow, financial managers are responsible for developing a budget. A budget is a planning and control tool that reflects expected revenues, operating expenses, and cash receipts and outlays.

Difficulty: 2: Moderate AACSB: Application of knowledge LO: 16.1: Identify three fundamental concepts that affect financial decisions, and describe the primary responsibilities of a financial manager.

9) Hedging refers to forming contracts that allow a company to ________.

A) obtain funds for a short period without paying interest B) buy supplies in the future at designated prices C) finance long-term debt on a continuous basis D) engage in buyer-seller relationships with many firms E) issue letters of credit to buyers outside of the home country Answer: B Explanation: Hedging refers to protecting against cost increases with contracts that allow a company to buy supplies in the future at designated prices.

Difficulty: 2: Moderate AACSB: Application of knowledge LO: 16.1: Identify three fundamental concepts that affect financial decisions, and describe the primary responsibilities of a financial manager.

10) A company can use a(n) ________ to identify all sources of revenue and coordinate the spending of those funds throughout the coming year.

A) launch budget B) start-up budget C) capital budget D) project budget E) operating budget Answer: E Explanation: An operating budget identifies all sources of revenue and coordinates the spending of those funds throughout the coming year.

Difficulty: 1: Easy AACSB: Application of knowledge LO: 16.1: Identify three fundamental concepts that affect financial decisions, and describe the primary responsibilities of a financial manager.

11) What type of budget is used to identify all sources of raising funds and coordinates the spending of those funds throughout the company?

A) Start-up B) Capital C) Launch D) Project E) Operating Answer: E

Explanation: The operating budget is a detailed financial plan that identifies all the revenues and expenses the company expects to see over a certain time frame. A company may have multiple department or functional budgets that roll up into a combined operating budget.

Difficulty: 3: Challenging AACSB: Analytical thinking LO: 16.1: Identify three fundamental concepts that affect financial decisions, and describe the primary responsibilities of a financial manager.

12) The ________ outlines expenditures for real estate, new facilities, major equipment, and other such investments.

A) operating budget B) project budget C) master budget D) capital budget E) start-up budget Answer: D Explanation: The capital budget outlines expenditures for real estate, new facilities, major equipment, and other capital investments. For smaller capital purchases, a company might designate a certain percentage of its annual operating budget for capital items every year.

Difficulty: 2: Moderate AACSB: Application of knowledge LO: 16.1: Identify three fundamental concepts that affect financial decisions, and describe the primary responsibilities of a financial manager.

13) Because it can be difficult to predict long-term revenue and cost accurately, managers can use ________ to identify several ways events could unfold and how to budget for each of those potential outcomes.

A) factoring B) leveraging C) bottom-up budgeting D) zero-based budgeting E) scenario planning Answer: E Explanation: Volatile and uncertain situations can make conventional forecasting a dicey proposition because planners often can't make solid assumptions about major factors in their forecasting models. A useful approach in these circumstances is scenario planning, in which managers identify two or more possible ways that events and scenarios could unfold and have a budgetary response ready for each one. Scenario planning is particularly valuable for long-range planning because the longer the time frame, the harder it is to pin down revenues and costs with any degree of accuracy.

Difficulty: 3: Challenging AACSB: Application of knowledge LO: 16.1: Identify three fundamental concepts that affect financial decisions, and describe the primary responsibilities of a financial manager.

14) A budget reflects expected revenues, cash receipts, and outlays.

Answer: TRUE

Explanation: Budget is a planning and control tool that reflects expected revenues, operating expenses, and cash receipts and outlays.

Difficulty: 2: Moderate AACSB: Application of knowledge LO: 16.1: Identify three fundamental concepts that affect financial decisions, and describe the primary responsibilities of a financial manager.

15) Hedging refers to selling a product at a higher rate than what was determined.

Answer: FALSE Explanation: Hedging refers to protecting against cost increases with contracts that allow a company to buy supplies in the future at designated prices.

Difficulty: 2: Moderate AACSB: Application of knowledge LO: 16.1: Identify three fundamental concepts that affect financial decisions, and describe the primary responsibilities of a financial manager.

16) An operational budget outlines expenditures for real estate, new facilities, and major equipment.

Answer: FALSE Explanation: A capital budget outlines expenditures for real estate, new facilities, major equipment, and other capital investments.

Difficulty: 2: Moderate AACSB: Application of knowledge LO: 16.1: Identify three fundamental concepts that affect financial decisions, and describe the primary responsibilities of a financial manager.

17) Highly leveraged companies will have adequate funds to spend on advertising, staffing, and product development.

Answer: FALSE Explanation: Companies that are highly leveraged carrying a lot of debt) are forced to devote more of their cash flow to debt service and therefore can't spend that money on advertising, staffing, or product development.

Difficulty: 1: Easy AACSB: Application of knowledge LO: 16.1: Identify three fundamental concepts that affect financial decisions, and describe the primary responsibilities of a financial manager.

18) A financial plan outlines the funds needed for a certain period of time.

Answer: TRUE Explanation: A financial plan is a document that outlines the funds needed for a certain period of time, along with the sources and intended uses of those funds.

Difficulty: 2: Moderate AACSB: Application of knowledge LO: 16.1: Identify three fundamental concepts that affect financial decisions, and describe the primary responsibilities of a financial manager.

19) Accounts receivable refers to the money owed to a firm by its customers.

Answer: TRUE Explanation: The money owed to a firm by its customers is referred to as accounts receivable.

Difficulty: 1: Easy AACSB: Application of knowledge LO: 16.1: Identify three fundamental concepts that affect financial decisions, and describe the primary responsibilities of a financial manager.

20) Inventory represents a cost while it is waiting to be sold.

Answer: TRUE Explanation: Inventory is another area in which financial managers can fine-tune the firm's cash flow. Inventory represents a cost while it's sitting there waiting to be sold. It has the potential to be converted to cash but must be sold first.

Difficulty: 2: Moderate AACSB: Application of knowledge LO: 16.1: Identify three fundamental concepts that affect financial decisions, and describe the primary responsibilities of a financial manager.

21) Explain the concept of risk/return trade-off.

Answer: Most financial decisions involve balancing potential risks against potential rewards, known as a risk/return trade-off. Generally speaking, the higher the perceived risk, the higher the potential reward, and vice versa. However, this situation doesn't always hold true. For example, a company with free cash could (a) invest it in the stock market, which offers potentially high returns but at moderate to high risk; (b) put the money in a bank account, which has little to no risk but very low return; or (c) invest in a new facility or a new product, which could yield high returns, moderate returns, or no returns at all.

Difficulty: 2: Moderate AACSB: Analytical thinking LO: 16.1: Identify three fundamental concepts that affect financial decisions, and describe the primary responsibilities of a financial manager.

22) Identify the factors involved in a company being highly leveraged and how they might minimize the ownership shares.

Answer: Companies that are highly leveraged (carrying a lot of debt) are forced to devote more of their cash flow to debt service and, therefore, can't spend that money on advertising, staffing, or product development. Heavy debt loads and low cash flow make a company especially vulnerable to economic downturns, too. In contrast, companies with lots of cash on hand can weather tough times and make strategic moves that their debt-constrained competitors can't make. Companies should strike a balance between leveraging and funding from internal sources.

Difficulty: 3: Challenging AACSB: Analytical thinking LO: 16.1: Identify three fundamental concepts that affect financial decisions, and describe the primary responsibilities of a financial manager.

23) Identify and explain the three roles of financial management.

Answer: Planning for a firm's money needs and managing the allocation and spending of funds are the foundations of financial management, or finance. First, if the firm spends too much money meeting short-term demands, it won't have enough to make strategic investments for the future, such as building new facilities, developing the next generation of products, or being able to jump on a strategic acquisition. Conversely, if the firm spends too little in the short term, it can lose key employees to better-paying competitors, compromise product quality or customer service, or create other problems with long-term consequences. Second, most financial decisions involve balancing potential risks against potential rewards, known as a risk/return trade-off. Generally speaking, the higher the perceived risk, the higher the potential reward, and vice versa. Third, financial choices can have a tremendous impact on a company's flexibility and resilience. For example, companies that are highly leveraged (that is, carrying a lot of debt) are forced to devote more of their cash flow to debt service and therefore can't spend that money on advertising, staffing, or product development. Heavy debt loads and low cash flow make a company especially vulnerable to economic downturns, too. In contrast, companies with lots of cash on hand can weather tough times and make strategic moves that their debt-constrained competitors can't make.

Difficulty: 3: Challenging AACSB: Analytical thinking LO: 16.1: Identify three fundamental concepts that affect financial decisions, and describe the primary responsibilities of a financial manager.

24) Explain why companies form hedging agreements with their suppliers.

Answer: Companies protect themselves against future price increases by hedging, arranging contracts that allow them to buy supplies in the future at designated prices. The obvious risk of hedging against rising prices is that prices could instead drop over the duration of the contract, leaving a company paying more than it would have to otherwise.

Difficulty: 2: Moderate AACSB: Analytical thinking LO: 16.1: Identify three fundamental concepts that affect financial decisions, and describe the primary responsibilities of a financial manager.

25) Compare and contrast various types of budgets.

Answer: A start-up budget is a budget that identifies the money a new company will need to spend to launch operations.

An operating budget is a budget that identifies all sources of revenue and coordinates the spending of those funds throughout the coming year.

A capital budget outlines expenditures for real estate, new facilities, major equipment, and other capital investments.

A project budget is a budget that identifies the costs needed to accomplish a particular project.

Difficulty: 3: Challenging AACSB: Analytical thinking LO: 16.1: Identify three fundamental concepts that affect financial decisions, and describe the primary responsibilities of a financial manager.

26) Equity financing refers to arranging funding by ________.

A) borrowing money from institutions B) selling corporate bonds C) selling ownership shares D) issuing commercial papers E) borrowing money from individuals Answer: C Explanation: Equity financing refers to arranging funding by selling ownership shares in the company. Ownership shares can be sold publicly or privately.

Difficulty: 1: Easy AACSB: Application of knowledge LO: 16.2: Compare the advantages and disadvantages of debt and equity financing, and explain the two major considerations in choosing from financing alternatives.

27) Short-term financing is financing that will typically be repaid within ________.

A) one year B) two years C) three years D) five years E) ten years Answer: A Explanation: Short-term financing is financing that will typically be repaid within one year. It is used to cover current expenses.

Difficulty: 1: Easy AACSB: Application of knowledge LO: 16.2: Compare the advantages and disadvantages of debt and equity financing, and explain the two major considerations in choosing from financing alternatives.

28) The primary purpose of short-term financing is to ________.

A) ensure the company can meet its current liabilities B) pay for start-up costs C) raise capital to pay for expansion plans D) lower the cost of capital E) eliminate the need for collateral Answer: A Explanation: Short-term financing is financing that will be repaid within one year. It is used to cover current expenses. The primary purpose of short-term financing is to ensure that a company maintains its liquidity so that it can meet its current liabilities.

Difficulty: 2: Moderate AACSB: Application of knowledge LO: 16.2: Compare the advantages and disadvantages of debt and equity financing, and explain the two major considerations in choosing from financing alternatives.

29) Which of the following is a major difference between debt financing and equity financing?

A) Equity financing has a specific maturity period, whereas debt financing usually has no specific maturity period.

B) Repayment of debt financing is not linked to organizational performance, unlike equity financing.

C) Equity holders have primary claims on assets unlike debt financiers.

D) Payments to equity holders reduce taxable income, whereas debt payments are not tax deductible.

E) Debt financing is used to cover long-term expenses, whereas equity financing is used for current expenses.

Answer: B Explanation: The cost of debt financing is usually a recurring cost and usually fixed.

Debt obligations must be repaid, regardless of whether the company is profitable or not.

Based on management's discretion and if a company is profitable, shareholders may receive dividends after creditors have been paid. However, a company is not required to pay dividends.

Difficulty: 3: Challenging AACSB: Analytical thinking LO: 16.2: Compare the advantages and disadvantages of debt and equity financing, and explain the two major considerations in choosing from financing alternatives.

30) ________ is the total cost of using various debt and equity sources.

A) Economic surplus B) Marginal cost C) Working capital D) Cost of capital E) Economic deficit Answer: D Explanation: A company's cost of capital is the average rate of interest it must pay on its debt and equity financing. For any form of financing to make economic sense, the expected returns must exceed the cost of capital.

Difficulty: 1: Easy AACSB: Application of knowledge LO: 16.2: Compare the advantages and disadvantages of debt and equity financing, and explain the two major considerations in choosing from financing alternatives.

31) Financing will cost more if ________.

A) the opportunity cost is low for the financier B) investors lend less money C) the funding is for long-term D) the perceived risk is less E) a company is financially solid Answer: C Explanation: The cost of financing is dependent on the quality and length of time of the venture. Long-term financing generally costs a company more than short-term financing.

Difficulty: 2: Moderate AACSB: Analytical thinking LO: 16.2: Compare the advantages and disadvantages of debt and equity financing, and explain the two major considerations in choosing from financing alternatives.

32) Prime rate is the ________.

A) lowest rate of interest that banks charge for short-term loans B) average rate of interest charged by banks on their customers C) interest rate that the Federal Reserve charges on loans D) interest that the Federal Reserve pays for deposits E) interest rate banks charge to their least creditworthy customers Answer: A Explanation: Prime interest rate is the lowest rate of interest that banks charge for shortterm loans to their most creditworthy customers.

Difficulty: 2: Moderate AACSB: Application of knowledge LO: 16.2: Compare the advantages and disadvantages of debt and equity financing, and explain the two major considerations in choosing from financing alternatives.

33) Perceived risk, interest rates, and opportunity cost all determine ________.

A) factoring formulas B) leveraging C) cost of capital D) smart contracts E) leveraging opportunities Answer: C Explanation: Cost of capital depends on three main factors: the perceived risk associated with the company, the prevailing level of interest rates, and opportunity cost. A company's cost of capital is the total cost of using its various debt and equity sources.

Difficulty: 3: Challenging AACSB: Analytical thinking LO: 16.2: Compare the advantages and disadvantages of debt and equity financing, and explain the two major considerations in choosing from financing alternatives.

34) ________ is the technique of increasing the rate of return on an investment by financing it with borrowed funds.

A) Returns projection B) Budgeting C) Leveraging D) Forecasting E) Financial projection Answer: C Explanation: Leveraging is the technique of increasing the rate of return on an investment by financing it with borrowed funds. Leverage magnifies the power of the borrower to generate profits.

Difficulty: 2: Moderate AACSB: Application of knowledge LO: 16.2: Compare the advantages and disadvantages of debt and equity financing, and explain the two major considerations in choosing from financing alternatives.

35) Capital structure is ________.

A) the original monetary value of an economic item B) a statement of the financial position of a company C) the summary of the financial balances of a business D) a firm's mix of debt and equity financing E) a combination of operational expenses and capital expenses Answer: D Explanation: Capital structure is a firm's mix of debt and equity financing. Capital structure helps firms identify how much should be raised, by what means, and when.

Difficulty: 2: Moderate AACSB: Application of knowledge LO: 16.2: Compare the advantages and disadvantages of debt and equity financing, and explain the two major considerations in choosing from financing alternatives.

36) When comparing internal and external financing, what is the value of the most appealing alternative from among those that were not chosen?

A) Rate of return B) Leverage C) Capital structure D) Opportunity cost E) Factoring Answer: D Explanation: Internal financing is not free; using money for any particular purpose has an opportunity cost, defined as the value of the most appealing alternative from among those that weren't chosen.

Difficulty: 2: Moderate AACSB: Analytical thinking LO: 16.2: Compare the advantages and disadvantages of debt and equity financing, and explain the two major considerations in choosing from financing alternatives.

37) The maturity date is the date on which ________.

A) the yield will be adjusted to reflect new market value B) interest will be paid C) a bond will be converted to a common stock D) the debt must be repaid E) an installment of interest will be paid to investors of bonds Answer: D Explanation: In most cases, a contract specifies date by which debt must be repaid. This is referred to as the maturity date.

Difficulty: 2: Moderate AACSB: Application of knowledge LO: 16.2: Compare the advantages and disadvantages of debt and equity financing, and explain the two major considerations in choosing from financing alternatives.

38) Equity financing refers to arranging funding by selling ownership shares in the company.

Answer: TRUE Explanation: Equity financing refers to arranging funding by selling ownership shares in the company. Shares can be sold publicly or privately.

Difficulty: 1: Easy AACSB: Application of knowledge LO: 16.2: Compare the advantages and disadvantages of debt and equity financing, and explain the two major considerations in choosing from financing alternatives.

39) A business can use short-term financing to cover current expenses. Typically, shortterm financing will be repaid in one year.

Answer: TRUE Explanation: As a rule, short-term financing will be repaid within one year. It is used to cover current expenses.

Difficulty: 1: Easy AACSB: Application of knowledge LO: 16.2: Compare the advantages and disadvantages of debt and equity financing, and explain the two major considerations in choosing from financing alternatives.

40) Cost of capital is the average rate of interest a firm pays on its combination of debt and equity.

Answer: TRUE Explanation: A company's cost of capital is the total cost of using its various debt and equity sources. Financial managers compute the cost of each source, then combine those in a weighted total for all the sources.

Difficulty: 2: Moderate AACSB: Application of knowledge LO: 16.2: Compare the advantages and disadvantages of debt and equity financing, and explain the two major considerations in choosing from financing alternatives.

41) Leveraging is the technique of increasing the rate of return on an investment by financing it with borrowed funds.

Answer: TRUE Explanation: Internal financing is not free; using money for any particular purpose has an opportunity cost, defined as the value of the most appealing alternative from among those that weren't chosen. For instance, a company might be better off investing its excess cash in external opportunities, such as stocks of other companies, and borrowing money to finance its own growth. Doing so makes sense as long as the company can earn a greater return on those investments than the rate of interest paid on borrowed money.

This concept is called leverage because the loan acts like a lever: It magnifies the power of the borrower to generate profits.

Difficulty: 2: Moderate AACSB: Application of knowledge LO: 16.2: Compare the advantages and disadvantages of debt and equity financing, and explain the two major considerations in choosing from financing alternatives.

42) Compare and contrast debt financing and equity financing.

Answer: Debt financing refers to arranging funding by borrowing money. Equity financing refers to arranging funding by selling ownership shares in the company, publicly or privately.

Maturity is specific in debt financing. In most cases, contracts specify a date by which debt must be repaid. Equity funding does not need to be repaid.

Claim on income is nondiscretionary for debt financing. It is usually a recurring cost and fixed. Debt obligations must be repaid, regardless of whether the company is profitable.

Equity financing is a discretionary cost. At management's discretion, and if a company is profitable, shareholders may receive dividends after creditors have been paid.

Lenders have prior claims on assets. Shareholders have claims only after the firm satisfies claims of lenders. Lenders usually have no influence over management unless debit vehicles come with conditions or management fails to make payments on time. Debt payments reduce taxable income, and they lower tax obligations. Dividend payments are not tax deductible.

Difficulty: 3: Challenging AACSB: Analytical thinking LO: 16.2: Compare the advantages and disadvantages of debt and equity financing, and explain the two major considerations in choosing from financing alternatives.

43) Explain the importance of considering interest rate fluctuations in financial planning.

Answer: Regardless of how financially solid a company is, the cost of money will vary over time because interest rates fluctuate. The prime interest rate (often called simply the prime) is the lowest interest rate offered on short-term bank loans to preferred borrowers.

The prime changes irregularly and, at times, quite frequently. Sometimes it changes because of supply and demand; at other times, it changes because the prime rate is closely tied to the discount rate, the interest rate that the Federal Reserve charges on loans to commercial banks and other depository institutions.

Companies must take such interest rate fluctuations into account when making financing decisions. For instance, a company planning to finance a short-term project when the prime rate is 3 percent would want to reevaluate the project if the prime rose to 6 percent a few months later. Even though companies try to time their borrowing to take advantage of drops in interest rates, this option is not always possible.

Difficulty: 3: Challenging AACSB: Analytical thinking LO: 16.2: Compare the advantages and disadvantages of debt and equity financing, and explain the two major considerations in choosing from financing alternatives.

44) Which of the following sources of short-term debt is characterized by revolving credit terms?

A) Unsecured loan B) Secured loan C) Trade deficits D) Credit card E) Commercial paper Answer: D Explanation: Credit cards have revolving credit terms with no fixed repayment date.

They create a short-term loan every time the cardholder makes purchases or gets a cash advance.

Difficulty: 2: Moderate AACSB: Application of knowledge LO: 16.3: Identify the major categories of debt financing.

45) A callable bond allows the issuer to ________.

A) reduce the interest rate of the bond B) change the face value of the bond C) pay off the bond before maturity D) downgrade the status of the bond E) change the coupon rate of the bond Answer: C Explanation: With most bond issues, a corporation retains the right to pay off the bonds before maturity. Bonds containing this provision are known as callable bonds, or redeemable bonds.

Difficulty: 2: Moderate AACSB: Analytical thinking LO: 16.3: Identify the major categories of debt financing.

46) When a large amount of money is needed for a short amount of time, ________ is used as a short-term promissory note to repay a borrowed amount by a specified time with a specified interest rate.

A) corporate bond B) factoring C) trade credit D) lease agreement E) commercial paper Answer: E Explanation: Commercial paper refers to short-term promissory notes, or contractual agreements, to repay a borrowed amount by a specified time with a specified interest rate.

Commercial paper is usually sold only by major corporations with strong credit ratings, in denominations of $100,000 or more and with maturities of up to 270 days.

Difficulty: 2: Moderate AACSB: Application of knowledge LO: 16.3: Identify the major categories of debt financing.

47) ________ is an arrangement in which a financial institution makes money available for use at any time after the loan has been approved.

A) Corporate bond B) Factoring C) Line of credit D) Lease agreement E) Commercial paper Answer: C Explanation: Line of credit is an arrangement in which a financial institution makes money available for use at any time after the loan has been approved. It is a common example of an unsecured loan.

Difficulty: 2: Moderate AACSB: Application of knowledge LO: 16.3: Identify the major categories of debt financing.

48) A company sells its accounts receivable to an intermediary. The intermediary collects the receivables from the customer. This is an example of ________.

A) an unsecured loan B) factoring C) trade credit D) a secured loan E) a commercial paper Answer: B Explanation: Extending trade credit is often a competitive necessity, but it can create cash flow problems for sellers if accounts payable are piling up faster and coming due sooner than accounts receivable are being paid. To close the gap, many companies rely on factoring in which a third party takes over the process of getting payment from customers and, in the meantime, advances a portion of the accounts payable amounts to the seller.

Difficulty: 2: Moderate AACSB: Analytical thinking LO: 16.3: Identify the major categories of debt financing.

49) Which of the following can be used to reduce the time it takes for a company to be paid for an order, often allowing them to be paid in as little as 24 hours?

A) Leasing B) Trade credit C) Leveraging D) Factoring E) Commercial paper Answer: D Explanation: When the factoring company collects payment from the customer, it pays the balance of the invoice amount to the seller, minus its factoring fee. With this method, sellers get paid much sooner, often in as little as 24 hours, rather than in the weeks or months it might take without the factoring company's involvement.

Difficulty: 3: Challenging AACSB: Analytical thinking LO: 16.3: Identify the major categories of debt financing.

50) What is the difference between secured and unsecured loans?

A) Secured loans are only available to the best customers.

B) Secured loans are based on a general credit record.

C) Secured loans are generally for longer periods of time.

D) Secured loans have a higher interest rate.

E) Secured loans are backed by collateral.

Answer: E Explanation: Secured loans are those backed by something of value, known as collateral that may be seized by the lender in the event that the borrower fails to repay the loan.

Difficulty: 2: Moderate AACSB: Analytical thinking LO: 16.3: Identify the major categories of debt financing.

51) What do most lenders require on unsecured loans to protect themselves from default while the loan is outstanding?

A) Minimum amount of money on deposit B) Lines of credit C) Collateral D) Factoring agents E) Leverage Answer: A Explanation: To increase the returns on such loans and to obtain some protection in case of default, most lenders insist that the borrower maintain some minimum amount of money on deposit at the bank while the loan is outstanding.

Difficulty: 2: Moderate AACSB: Analytical thinking LO: 16.3: Identify the major categories of debt financing.

52) What type of unsecured loan has an agreed-on maximum a bank is willing to lend a business?

A) Compensating balance B) Line of credit C) Commercial paper D) Character loan E) Collateral free Answer: B Explanation: A common example of an unsecured loan is a line of credit, which is an agreed-on maximum amount of money a bank is willing to lend a business. Once a line of credit has been established, the business may obtain unsecured loans for any amount up to that limit.

Difficulty: 2: Moderate AACSB: Analytical thinking LO: 16.3: Identify the major categories of debt financing.

53) A loan that is paid back in installments over an extended period of time is an example of a ________.

A) lease agreement B) trade credit C) corporate bond D) long-term loan E) commercial paper Answer: D Explanation: In long-term loans, a bank or other lender provides cash to borrowers. The borrower agrees to repay according to specific terms.

Difficulty: 2: Moderate AACSB: Application of knowledge LO: 16.3: Identify the major categories of debt financing.

54) Which of the following is a source of long-term debt financing?

A) Corporate bond B) Trade credit C) Credit card D) Unsecured loan E) Commercial paper Answer: A Explanation: Corporate bond is an example of a long-term debt financing. Sources such as trade credit, credit card, unsecured loans, and commercial paper are examples of shortterm debt financing.

Difficulty: 2: Moderate AACSB: Application of knowledge LO: 16.3: Identify the major categories of debt financing.

55) ________ are unsecured bonds, backed only by the corporation's promise to pay.

A) Convertible bonds B) Protected bonds C) Bills of exchange D) Debentures E) Non-convertible bonds Answer: D Explanation: Debentures are unsecured bonds, backed only by the corporation's promise to pay. Debentures are riskier than other types of bonds.

Difficulty: 2: Moderate AACSB: Application of knowledge LO: 16.3: Identify the major categories of debt financing.

56) ________ can be exchanged at the investor's option for a certain number of shares of the corporation's common stock.

A) Collateralized bonds B) Protected bonds C) Bills of exchange D) Debentures E) Convertible bonds Answer: E Explanation: Convertible bonds can be exchanged at the investor's option for a certain number of shares of the corporation's common stock. Because of this feature, convertible bonds generally pay lower interest rates.

Difficulty: 2: Moderate AACSB: Application of knowledge LO: 16.3: Identify the major categories of debt financing.

57) With most bond issues, a corporation retains the right to pay off the bonds before maturity. Such bonds are called ________.

A) secured bonds B) fixed bonds C) debentures D) callable bonds E) convertible bonds Answer: D Explanation: With most bond issues, a corporation retains the right to pay off the bonds before maturity. Bonds containing this provision are known as callable bonds, or redeemable bonds.

Difficulty: 2: Moderate AACSB: Application of knowledge LO: 16.3: Identify the major categories of debt financing.

58) Which of the following is a potential disadvantage when considering long-term loans as an option for raising capital?

A) They cannot provide substantial sums of money to businesses.

B) They require diluting ownership in organizations.

C) They are available to firms with a weak credit rating.

D) Such loans can restrict the way an organization uses its assets.

E) Not all companies can qualify for loans and acceptable terms.

Answer: E Explanation: Not all companies can qualify for long-term loans and acceptable terms.

Payments tie up part of cash flow for the duration of the loan. Purchases made via loans require substantial down payments.

Difficulty: 2: Moderate AACSB: Analytical thinking LO: 16.3: Identify the major categories of debt financing.

59) Secured loans are backed up with assets that the lender can claim in case of default.

Answer: TRUE Explanation: Secured loans are loans backed up with assets that the lender can claim in case of default, such as a piece of property.

Difficulty: 1: Easy AACSB: Application of knowledge LO: 16.3: Identify the major categories of debt financing.

60) Commercial paper is an arrangement in which a financial institution makes money available for use at any time after the loan has been approved.

Answer: FALSE Explanation: An arrangement in which a financial institution makes money available for use at any time after the loan has been approved is referred to as line of credit.

Difficulty: 2: Moderate AACSB: Application of knowledge LO: 16.3: Identify the major categories of debt financing.

61) Factoring refers to lending a lump sum of cash via a promissory note or on-demand access without accepting any other securities.

Answer: FALSE Explanation: Factoring is a source of finance where a company sells its accounts receivable to an intermediary that collects from the customer.

Difficulty: 2: Moderate AACSB: Application of knowledge LO: 16.3: Identify the major categories of debt financing.

62) Long-term loans on real estate are called mortgages.

Answer: TRUE Explanation: Long-term loans on real estate are called mortgages. Such loans can provide substantial capital to businesses.

Difficulty: 1: Easy AACSB: Application of knowledge LO: 16.3: Identify the major categories of debt financing.

63) A lease is an agreement to use an asset in exchange for regular payment.

Answer: TRUE Explanation: A lease is an agreement to use an asset in exchange for regular payment. It is similar to renting.

Difficulty: 2: Moderate AACSB: Application of knowledge LO: 16.3: Identify the major categories of debt financing.

64) Debentures are backed by specific assets that will be given to bondholders if the borrowed amount is not repaid.

Answer: FALSE Explanation: Debentures are unsecured bonds. They are backed only by the corporation's promise to pay.

Difficulty: 2: Moderate AACSB: Application of knowledge LO: 16.3: Identify the major categories of debt financing.

65) Compare and contrast credit cards and trade credit.

Answer: Credit cards are one of the most expensive forms of financing, but they are sometimes the only form available to business owners. They create a short-term loan every time a cardholder makes purchases or gets a cash advance. They have no fixed repayment date and are widely available.

Trade credit, often called open-account purchasing, occurs when suppliers provide goods and services to their customers without requiring immediate payment. Such transactions create accounts receivable. The repayment term for trade credit is typically 30 to 90 days.

They are usually free (no interest) as long as payment is made by due date.

Difficulty: 3: Challenging AACSB: Analytical thinking LO: 16.3: Identify the major categories of debt financing.

66) Compare and contrast secured loans and unsecured loans.

Answer: Secured loans are loans backed up with assets that the lender can claim in case

of default, such as a piece of property. Unsecured loans are loans that require a good credit rating but no collateral. In a secured loan, the lender provides cash using borrower's assets (such as inventory or equipment) as collateral for up to one year. They are also known as asset-based loans. In an unsecured loan, the lender provides lump sum of cash via a promissory note or on-demand access to cash via a credit line for up to one year. Secured loans can provide financing for companies that don't qualify for unsecured loans or other alternatives but are more expensive than some other options. Unsecured loans provide cash or access to cash without requiring borrower to pledge assets as collateral. The cost varies according to borrower's credit rating; often not available to customers with unproven or poor credit history.

Difficulty: 3: Challenging AACSB: Analytical thinking LO: 16.3: Identify the major categories of debt financing.

67) Explain why businesses use factoring to raise funds.

Answer: Businesses with slow-paying trade credit customers—some organizational customers can take months to pay their bills—and tight cash flow have the option of selling their accounts receivable, a method known as factoring. Although it's not really a form of borrowing in the conventional sense, factoring is an alternative to short-term debt financing.

Difficulty: 3: Challenging AACSB: Analytical thinking LO: 16.3: Identify the major categories of debt financing.

68) Compare and contrast secured bonds and debentures.

Answer: Secured bonds, like secured loans, are backed by company-owned properties (such as airplanes or plant equipment) that pass to the bondholders if the issuer does not repay the amount borrowed. Mortgage bonds, a type of secured bond, are backed by real property owned by the issuing corporation. Debentures are unsecured bonds, backed only by the corporation's promise to pay. Because debentures are riskier than other types of bonds, the companies that issue them must pay higher interest rates to attract buyers.

Difficulty: 3: Challenging AACSB: Analytical thinking LO: 16.3: Identify the major categories of debt financing.

69) Which of the following is a major advantage of equity financing through the sale of shares of ownership?

A) Selling shares of ownership makes the company's operations less complicated.

B) Selling shares of ownership does not change the way a company is managed.

C) Selling shares of ownership consumes less time than other forms of financing.

D) Selling shares of ownership has tremendous potential to fuel organizational growth.

E) Owners do not risk their position in the firm when selling shares.

Answer: D Explanation: Equity financing, selling shares of ownership, has tremendous upside potential for the company as a whole and for any individual or organization that owns shares. Equity financing has fueled the growth of most of the major corporations in the world, and it has contributed to the financial security of millions of employees.

Difficulty: 3: Challenging AACSB: Analytical thinking LO: 16.4: Outline the advantages and disadvantages of equity financing.

70) Private equity refers to ________.

A) shares that are owned by institutions rather than individuals B) ownership in a privately held company C) preference shares issued by a corporation D) shares that are traded in stock exchanges E) shares that are owned by individuals rather than institutions Answer: B Explanation: Private equity refers to ownership assets that aren't publicly traded. It includes venture capital.

Difficulty: 2: Moderate AACSB: Application of knowledge LO: 16.4: Outline the advantages and disadvantages of equity financing.

71) Venture capital is an example of private equity.

Answer: TRUE Explanation: Private equity refers to ownership assets that aren't publicly traded. It includes venture capital.

Difficulty: 2: Moderate AACSB: Application of knowledge LO: 16.4: Outline the advantages and disadvantages of equity financing.

72) Venture capital is one of the least specialized and most widely available forms of funding.

Answer: FALSE Explanation: Venture capital is a specialized form of funding known as private equity (ownership assets that aren't publicly traded). It is one of the most specialized and least widely available forms of funding.

Difficulty: 2: Moderate AACSB: Application of knowledge LO: 16.4: Outline the advantages and disadvantages of equity financing.

73) Explain the concept of venture capital.

Answer: Venture capitalists (VCs)are a key source of equity financing for a certain class of start-up companies. In exchange for a share of ownership, VCs can invest millions of dollars in companies long before those firms can qualify for most other forms of financing, so they represent an essential form of funding for high-growth ventures. VCs also provide managerial expertise and industry connections that can be crucial to new companies. However, VCs are one of the most specialized and least widely available forms of funding, and most firms have no chance of getting venture capital. VCs typically look for privately held firms that are established enough to be able to use a significant amount of money and are positioned to grow aggressively enough to give the VCs a good shot at eventually selling their interests at an acceptable profit. Not all VC-backed firms grow enough to pay back their investors, so VCs count on getting very high returns from a handful of winners. Venture capital is a specialized form of funding known as private equity (ownership assets that aren't publicly traded), and other forms of private equity can provide funding for companies that are beyond the start-up stage.

Difficulty: 3: Challenging AACSB: Analytical thinking LO: 16.4: Outline the advantages and disadvantages of equity financing.

74) Bonds issued by cities and states to fund public projects are known as ________.

A) treasury bonds B) treasury bills C) TIPS D) treasury notes E) municipal bonds Answer: E Explanation: Municipal bonds (often informally called munis) are issued by states, cities, and various local government agencies to raise money for public projects such as building schools, highways, and airports.

Difficulty: 2: Moderate AACSB: Application of knowledge LO: 16.5: Identify the four most important financial markets for most businesses.

75) Which of the following handles the initial public offerings of stocks and bonds?

A) Derivatives market B) Primary market C) Secondary market D) Equities market E) Treasury market Answer: B Explanation: The equities market is another name for the stock market, and the securities market encompasses the stock, bond, and derivatives markets. Finally, securities markets can be divided into primary markets, which handle the IPOs of stocks and bonds, and secondary markets, which handle all the public buying and selling after that.

Difficulty: 2: Moderate AACSB: Application of knowledge LO: 16.5: Identify the four most important financial markets for most businesses.

76) ________ are contracts whose value is determined based on the value of some other

entity such as stocks pools of debt or currencies.

A) Preference shares B) Derivatives C) Equities D) Secured bonds E) Unsecured bonds Answer: B Explanation: Derivatives are contracts whose value is derived from some other entity (usually an asset of some kind, but not necessarily). It is used to hedge against or speculate on risk.

Difficulty: 2: Moderate AACSB: Application of knowledge LO: 16.5: Identify the four most important financial markets for most businesses.

77) Which of the following is the basic premise of a derivative?

A) Limiting the value of an asset B) Transferring risk from one party to another C) Linking shares of stock to governmental bonds D) Minimizing the risk for all parties involved E) Maximizing the dividend payout on equities Answer: B Explanation: The basic premise of a derivative is transferring risk from a party that wants to decrease its risk exposure to a party that is willing to increase its risk exposure in exchange for the opportunity to pursue higher profits.

Difficulty: 2: Moderate AACSB: Analytical thinking LO: 16.5: Identify the four most important financial markets for most businesses.

78) Stock exchanges are organizations that ________.

A) issue cash in exchange for pledging stock B) function as underwriters in public issues C) facilitate the buying and selling of stock D) issue stock on behalf of small companies E) combine multiple stocks to create mutual funds Answer: C Explanation: Organizations that facilitate the buying and selling of stock are known as stock exchanges. Some of these are actual physical facilities, whereas others are primarily computer networks.

Difficulty: 1: Easy AACSB: Application of knowledge LO: 16.5: Identify the four most important financial markets for most businesses.

79) ________ is comprised of individual stock exchanges and the over-the-counter market that facilitates the buying and selling of company stock.

A) Primary market B) Bond market C) Money market exchange D) Stock market E) Derivate market Answer: D Explanation: The stock market consists of individual stock exchanges (such as the NYSE and NASDAQ) and the over-the-counter market that facilitate the buying and trading of company stocks.

Difficulty: 2: Moderate AACSB: Application of knowledge LO: 16.5: Identify the four most important financial markets for most businesses.

80) In what way is a bond market different than a stock market?

A) Treasury bills and commercial papers are traded in a bond market.

B) A bond market allows only dealers to sell bonds.

C) Exchange trading of futures occurs at a bond market.

D) Most trading is done over the counter in a bond market.

E) A bond market is less diffused and centralized than the stock market.

Answer: D Explanation: Unlike the stock market, in which most buying and selling is coordinated by organizations, most trading in the bond market is over the counter, taking place outside organized exchanges.

Difficulty: 2: Moderate AACSB: Application of knowledge LO: 16.5: Identify the four most important financial markets for most businesses.

81) A(n) ________ is an over-the-counter marketplace for short-term debt instruments, allowing corporations and government agencies to meet short-term liquidity needs.

A) options market B) bond market C) money market D) stock market E) futures market Answer: C Explanation: The money market is an over-the-counter marketplace for short-term debt instruments such as Treasury bills and commercial paper. Its purpose is to help corporations and government agencies meet short-term liquidity needs.

Difficulty: 2: Moderate AACSB: Application of knowledge LO: 16.5: Identify the four most important financial markets for most businesses.

82) If an organization is facing a short-term credit crunch and wants to liquidize the treasury bills and commercial papers they have, where can the organization sell them?

A) Options market B) Bond market C) Money market D) Stock market E) Futures market Answer: C Explanation: The money market is an over-the-counter marketplace for short-term debt instruments such as Treasury bills and commercial paper. Its purpose is to help corporations and government agencies meet short-term liquidity needs.

Difficulty: 2: Moderate AACSB: Application of knowledge LO: 16.5: Identify the four most important financial markets for most businesses.

83) How are derivatives used by investors?

A) To hedge against the risk of sudden loss B) To limit long-term growth in the market C) To move stock to money markets D) To create a bull market E) To avoid using credit cards to cover short-term debt Answer: A Explanation: Derivatives can be used defensively, to protect profits by hedging a position to guard against the risk of a sudden loss, or offensively, to seek profits by speculating on future price changes.

Difficulty: 2: Moderate AACSB: Application of knowledge LO: 16.5: Identify the four most important financial markets for most businesses.

84) Which of the following allows investors to transfer risk from a party that wants to decrease risk exposure to a party that is willing to increase risk exposure to pursue higher profits?

A) Money market B) Bond market C) Stock market D) Currency market E) Derivatives market Answer: E Explanation: The basic premise of a derivative is transferring risk from a party that wants to decrease its risk exposure to a party that is willing to increase its risk exposure in exchange for the opportunity to pursue higher profits.

Difficulty: 2: Moderate AACSB: Application of knowledge LO: 16.5: Identify the four most important financial markets for most businesses.

85) A stock exchange is an organization that buys and sells securities on behalf of individual and institutional investors.

Answer: FALSE Explanation: Stock exchanges are organizations that facilitate the buying and selling of stock.

Difficulty: 2: Moderate AACSB: Application of knowledge LO: 16.5: Identify the four most important financial markets for most businesses.

86) Most trading in the bond market occurs over the counter and takes place outside organized exchanges.

Answer: TRUE Explanation: The bond market is the collective buying and selling of bonds; most bond trading is done over the counter, rather than in organized exchanges.

Difficulty: 2: Moderate AACSB: Application of knowledge LO: 16.5: Identify the four most important financial markets for most businesses.

87) The derivatives market is an over-the-counter marketplace for short-term debt instruments such as Treasury bills and commercial paper.

Answer: FALSE Explanation: The money market is an over-the-counter marketplace for short-term debt instruments such as Treasury bills and commercial paper. Its purpose is to help corporations and government agencies meet short-term liquidity needs.

Difficulty: 2: Moderate AACSB: Application of knowledge LO: 16.5: Identify the four most important financial markets for most businesses.

88) The derivatives market includes both exchange-traded and over-the-counter derivatives.

Answer: TRUE Explanation: The derivatives market is as diverse as derivatives themselves and includes both exchange-traded and OTC derivatives. Futures and some options are traded on organized exchanges with time-tested financial controls and government regulation.

Difficulty: 2: Moderate AACSB: Application of knowledge LO: 16.5: Identify the four most important financial markets for most businesses.

89) Compare and contrast stock market and bond markets.

Answer: Organizations that facilitate the buying and selling of stock are known as stock exchanges. Some of these are actual physical facilities, whereas others are primarily computer networks. The most famous of the physical variety is the New York Stock Exchange. Stocks that don't meet the listing requirements of an exchange are sold over the counter (OTC). Together, the various stock exchanges around the world and the OTC market make up the overall stock market.

Unlike the stock market, in which most buying and selling is coordinated by organizations such as the NYSE and NASDAQ, most trading in the bond market is over the counter, taking place outside organized exchanges. Consequently, the bond market is much more diffuse and decentralized than the stock market, and the processes for buying and selling depends on the type of bond. In the primary market, new issues of bonds can be purchased. In the secondary market, bonds are traded through a wide variety of brokers, agents, and dealers.

Difficulty: 3: Challenging AACSB: Analytical thinking LO: 16.5: Identify the four most important financial markets for most businesses.

90) Compare and contrast a money market and derivatives market.

Answer: The money market is an over-the-counter marketplace for short-term debt instruments such as Treasury bills and commercial paper. Its purpose is to help corporations and government agencies meet short-term liquidity needs. Individuals can invest indirectly by purchasing money market mutual funds. These funds generally offer low returns.

The derivatives market is as diverse as derivatives themselves and includes both exchange-traded and OTC derivatives. Futures and some options are traded on organized exchanges with time-tested financial controls and government regulation. All other derivatives, including the credit default swaps that made headlines in recent years, are traded over the counter.

Difficulty: 3: Challenging AACSB: Analytical thinking LO: 16.5: Identify the four most important financial markets for most businesses.

91) Asset allocation is performed to ________.

A) protect against significant declines in any one investment vehicle B) maximize the returns from any one vehicle C) reduce the load that intermediaries charge D) maximize the earning potential of a portfolio E) maximize the earning potential of an investment vehicle Answer: A Explanation: Managing a portfolio to balance potential returns with an acceptable level of risk is known as asset allocation, dividing investments among cash instruments such as money-market mutual funds, income instruments such as government and corporate bonds, and equities (mainly common stock).

Difficulty: 2: Moderate AACSB: Analytical thinking LO: 16.6: Describe four major steps required to become an investor.

92) If stock prices have been increasing over an extended period of time, what type of market is being experienced?

A) Partial bear market B) Bull market C) Derivative market D) Bear market E) Commodity market Answer: B Explanation: A bull market is a market situation in which most stocks are increasing in value over a long period of time.

Difficulty: 2: Moderate AACSB: Analytical thinking LO: 16.6: Describe four major steps required to become an investor.

93) A bear market is characterized by ________.

A) a long-term trend of stable stock prices B) a long-term trend of rising stock prices C) a short-term trend of volatile stock prices D) a long-term trend of falling stock prices E) a short-term trend of stable stock prices Answer: D Explanation: A bear market is characterized by a long-term trend of falling stock prices.

Difficulty: 2: Moderate AACSB: Analytical thinking LO: 16.6: Describe four major steps required to become an investor.

94) Short selling refers to selling ________.

A) a stock priced much higher than the market price B) stocks sold from an investor's portfolio C) buying and selling stock borrowed from a broker D) a contract to sell a product at a later date, and at a lower price E) a stock priced below the market price Answer: C Explanation: If you believe that a stock's price is about to drop, you may choose a trading procedure known as short selling, or "going short." With this procedure, you sell stock you borrow from a broker in the hope of buying it back later at a lower price. After you return the borrowed stock to the broker, you keep the price difference.

Difficulty: 2: Moderate AACSB: Analytical thinking LO: 16.6: Describe four major steps required to become an investor.

95) Margin trading occurs when a ________.

A) buyer pays the broker immediately after buying a stock B) broker does not charge brokerage fee for a transaction C) buyer pays the broker before placing an order D) broker gives volume discounts to a good buyer E) buyer borrows money from the broker to buy stock Answer: E Explanation: Margin trading occurs when buyers borrow money from brokers to buy stock. Buyers pay interest on the borrowed money and leave the stock with the broker as collateral.

Difficulty: 2: Moderate AACSB: Analytical thinking LO: 16.6: Describe four major steps required to become an investor.

96) During a bear market, most stocks increase in value.

Answer: FALSE Explanation: Bear market refers to a market situation in which most stocks are decreasing in value.

Difficulty: 1: Easy AACSB: Application of knowledge LO: 16.6: Describe four major steps required to become an investor.

97) The rate of return is the gain or loss of an investment over time.

Answer: TRUE Explanation: As with most everything in finance, risk is inversely related to potential rate of return, the gain (or loss) of an investment over time.

Difficulty: 2: Moderate AACSB: Application of knowledge LO: 16.6: Describe four major steps required to become an investor.

98) Dividing investments among cash instruments, income instruments and equities is the basis of portfolio planning.

Answer: FALSE Explanation: Managing a portfolio to balance potential returns with an acceptable level of risk is known as asset allocation, dividing investments among cash instruments such as money-market mutual funds, income instruments such as government and corporate bonds, and equities (mainly common stock).

Difficulty: 2: Moderate AACSB: Application of knowledge LO: 16.6: Describe four major steps required to become an investor.

99) Describe a bull market and a bear market.

Answer: A market situation in which most stocks are increasing in value is called a bull market. A bear market refers to a market situation in which most stocks are decreasing in value.

Difficulty: 2: Moderate AACSB: Analytical thinking LO: 16.6: Describe four major steps required to become an investor.

100) Which of the following allows digital agreements to be carried out when all criteria are fulfilled by incoming data?

A) Immutability B) Quorums C) Ethereum blockchains D) Smart contracts E) Asset allocation Answer: D Explanation: An important emerging application running on blockchain is the smart contract, which is a digital agreement that automatically executes when its criteria are fulfilled by incoming data.

Difficulty: 2: Moderate AACSB: Information technology LO: 16.7: Explain how businesses can use smart contracts to facilitate transactions.