Test Bank for Better Business, 7th edition Michael R. Solomon Mary Anne Poatsy Kendall Martin

TEST BANK FOR Better Business, 7th edition Michael R. Solomon Mary Anne Poatsy Kendall Martin Chapters 1-16 Chapter 1 Business Basics 1) When a company's revenue is greater than its expenses, it means that ________.

A) the company earns a profit B) the company spends more than it earns C) the company's income is decreasing D) the company needs to increase its spending Answer: A Explanation: A) A company earns a profit when it takes in more revenue (earnings) than it spends. If a company spends more than it earns, it does not make a profit. A company can make a profit even if its income is decreasing, as long as its earnings continue to exceed its expenses.

A profitable company may or may not need to increase its spending, depending on its business goals.

Diff: 1 Page Ref: 3 AACSB: Reflective Thinking Objective: 1-1 What are profits, and how do businesses and nonprofit organizations compare?

Skill: Conceptual 2) The physical products that a business offers are called ________.

A) goods B) services C) assets D) devices Answer: A Explanation: A) By definition, physical products that a business offers are called goods.

Services are nontangible products, for example, hair styling or bookkeeping. A physical product may be an asset to the business or the purchaser, but it is a more general term that could include any valuable product or aspect of the business. A device is a physical product, but not all physical products are devices. For instance, pizza would be considered a physical product, but a pizza is not a device.

Diff: 1 Page Ref: 4 AACSB: Reflective Thinking Objective: 1-2 What is the difference between a good and a service, and what are the factors of production?

Skill: Conceptual

3) Emma bought an MP3 player and a portable DVD player. These products are called goods because ________.

A) they do a good job of satisfying a customer's needs B) they are physical or tangible products C) they are produced in an economical offshore factory D) they can be sold either in a store or online Answer: B Explanation: B) Goods are physical or tangible products offered by a business. They may or may not do a good job of satisfying a customer's needs, although they must do so if a business is to be successful. Goods are typically produced in a factory, but not in any particular location. It is true that goods can be sold either in a store or online, or by other means, such as direct marketing; however, other business offerings, such as services, can also be sold in a store or online.

Diff: 1 Page Ref: 3 AACSB: Reflective Thinking Objective: 1-2 What is the difference between a good and a service, and what are the factors of production?

Skill: Conceptual 4) Jose called an electrician to repair some appliances in his home. Which of the following terms BEST describes the electrician's repairs?

A) a service B) a good C) a benefit D) an appointment Answer: A Explanation: A) An electrical repair is an example of a nontangible business product called a service. An electrical repair is not a good, which is a tangible physical product. Although the repair might involve the installation of a physical product, or good, the primary offering of the electrician is the service he provides by coming to a location, identifying the problem, and if necessary, making a repair. Such a service may be a benefit to the customer, but any business offering, physical or nontangible, could be a benefit. Although electricians typically provide services by appointment, "appointment" does not define the type of product the electrician provides.

Diff: 1 Page Ref: 3 AACSB: Reflective Thinking Objective: 1-2 What is the difference between a good and a service, and what are the factors of production?

Skill: Conceptual

5) Chris orders a salad at a restaurant. What is the BEST definition of what he is buying?

A) Chris is buying a good.

B) Chris is buying a service.

C) Chris is buying both a good and a service.

D) Chris is buying neither a good nor a service.

Answer: C Explanation: C) Chris is buying a combination of products offered by the restaurant. He is buying a good (the salad) as well as the services of preparing and serving the salad.

Diff: 1 Page Ref: 3 AACSB: Reflective Thinking Objective: 1-2 What is the difference between a good and a service, and what are the factors of production?

Skill: Application 6) Profits allow a company to ________.

A) increase productivity B) lower employee wages C) reduce its span of operations D) disregard concern about expenses Answer: A Explanation: A) Profits allow a company to reward employees, increase productivity, and expand into new areas. To maintain productivity, a company would need to remain concerned about controlling expenses, and maintain or increase employee wages. Profits would be likely to allow for growth in its operations, not a reduction.

Diff: 2 Page Ref: 3 AACSB: Reflective Thinking, Analytic Skills Objective: 1-1 What are profits, and how do businesses and nonprofit organizations compare?

Skill: Application 7) Nina's furniture store has had a successful year and made a significant profit. Which of the following actions using Nina’s store profits would BEST increase productivity?

A) Pay for utilities and inventory in advance.

B) Develop a Web site that would enable customers to place orders online.

C) Hire more staff.

D) Create an emergency fund.

Answer: B Explanation: B) A Web site with an online shopping function would increase productivity by generating sales without requiring additional staff time. It might also provide more options for customers, since the online store could carry more items than could be viewed in the store.

Hiring more staff could reduce productivity by increasing the labor costs associated with selling items. Paying for expenses in advance or creating an emergency fund would have neither a positive nor negative impact on productivity.

Diff: 2 Page Ref: 3 AACSB: Reflective Thinking Objective: 1-1 What are profits, and how do businesses and nonprofit organizations compare?

Skill: Application

8) A ________ seeks primarily to service its community through social, educational, or political means.

A) limited liability company B) mutual fund C) nonprofit organization D) competitive organization Answer: C Explanation: C) By definition, an organization whose primary goal is to serve its community is called a nonprofit organization. A limited liability company, like other commercial businesses, has a primary goal of earning profits, although it may also lend some support to community needs. A mutual fund is a type of financial investment whose goal is to increase its financial value. A competitive organization is one focused primarily on earning profits by outperforming its business competitors, not through community service.

Diff: 2 Page Ref: 4 AACSB: Reflective Thinking Objective: 1-1 What are profits, and how do businesses and nonprofit organizations compare?

Skill: Conceptual 9) Which of the following statements is true of a nonprofit organization?

A) It makes profits.

B) It does not pay expenses.

C) It can earn excess revenue.

D) It cannot operate like a business.

Answer: C Explanation: C) A nonprofit organization does not make profits. However it does pay expenses, and it may operate like a business in most respects. A nonprofit that takes in more earnings than it needs to spend on expenses will use that excess revenue to further its stated mission.

Diff: 2 Page Ref: 4 AACSB: Reflective Thinking Objective: 1-1 What are profits, and how do businesses and nonprofit organizations compare?

Skill: Conceptual

10) The various resources used to create a company's goods and services are collectively referred to as ________.

A) raw material B) factors of production C) supplies D) inventory Answer: B Explanation: B) Factors of production are the resources used to product goods and services.

They include five factors: labor, natural resources, capital, entrepreneurial talent, and technology.

Raw material, supplies, and inventory might be included in the natural resources factor, but do not encompass all the resources needed for production.

Diff: 1 Page Ref: 4 AACSB: Reflective Thinking Objective: 1-2 What is the difference between a good and a service, and what are the factors of production?

Skill: Conceptual 11) Labor is a factor of production that refers to any physical or ________ work people contribute to a business's production.

A) intellectual B) emotional C) unionized D) entrepreneurial Answer: A Explanation: A) Labor is a factor of production that refers to any physical or intellectual work that people contribute to a business's production. Entrepreneurial work might be included in a company's labor costs, but such work could be either physical or intellectual, and therefore would not necessarily describe a type of work that was not physical. A company's labor force could be either unionized or nonunionized, independent of the type of work, whether physical or intellectual. Emotional work is not considered part of a business's labor requirements.

Diff: 1 Page Ref: 4 AACSB: Reflective Thinking Objective: 1-2 What is the difference between a good and a service, and what are the factors of production?

Skill: Conceptual

12) Which of the following is an example of real capital?

A) a business loan B) computer software C) natural gas D) a manufacturing plant Answer: D Explanation: D) Real capital refers to the physical facilities used to produce goods and services.

Thus, a manufacturing plant would be an example of a business's real capital. Computer software is an example of the technology factor of production. Natural gas is an example of the natural resources factor of production. A business loan is an example of capital, but of financial capital rather than real capital.

Diff: 2 Page Ref: 4 AACSB: Reflective Thinking Objective: 1-2 What is the difference between a good and a service, and what are the factors of production?

Skill: Conceptual 13) Teresa and Luis are getting married next month. Which of the following elements of their wedding does NOT require a natural resource for its production?

A) the wedding rings B) the wedding vows C) the wedding cake D) the bridesmaids' dresses Answer: B Explanation: B) The wedding vows are intangible statements created in the minds of the bride and groom and do not require a physical raw material for their production. Wedding rings are composed of natural resources such as metal or gems. The cake is made from agricultural ingredients that depend on natural resources such as soil. The bridesmaids' dresses may be made from natural fabrics, such as cotton, which requires soil for growing, or synthetic fabrics whose production depends on water and natural energy sources.

Diff: 2 Page Ref: 4 AACSB: Reflective Thinking Objective: 1-2 What is the difference between a good and a service, and what are the factors of production?

Skill: Application

14) Robert wants to upgrade his real estate company's computer systems. Which of the following factors of production would Robert find LEAST useful for his project?

A) financial capital B) technology C) real capital D) labor Answer: C Explanation: C) Robert is not producing any products with his upgrade project, so he would not require real capital, that is, a facility for producing goods. Financial capital, labor, and technology would all be necessary to develop or purchase and install the upgraded computer systems.

Diff: 2 Page Ref: 4 AACSB: Reflective Thinking Objective: 1-2 What is the difference between a good and a service, and what are the factors of production?

Skill: Conceptual 15) Melinda is a store owner who buys items online to sell in her shop. Which of the following factors of production is BEST illustrated in Melinda's use of the Internet?

A) capital B) labor C) technology D) entrepreneurs Answer: C Explanation: C) Technology refers to items and services such as smartphones, computer software, and digital broadcasting that make businesses more efficient. Melinda's use of the Internet for purchasing store inventory reflects her use of technology. Since Melinda is making the purchases herself, labor is not a factor. Capital may be involved in the purchase, but that would be true of any purchase, not specifically online purchases. Melinda may be an entrepreneur, but her online purchasing behavior is not a defining characteristic of entrepreneurship.

Diff: 1 Page Ref: 4 AACSB: Reflective Thinking Objective: 1-2 What is the difference between a good and a service, and what are the factors of production?

Skill: Conceptual

Better Business, 7e (Solomon) Chapter 2 Economics 1) Microeconomics is the study of the behavior of the overall economies of small countries.

Answer: FALSE Explanation: Microeconomics is the study of how individual businesses, households, and consumers make decisions to allocate their resources in the exchange of goods and services.

Macroeconomics is the study of the behavior of the overall economy.

Diff: 1 Page Ref: 29 AACSB: Analytic Skills Objective: 2-1 What is economics, and what are the different types of economic systems?

Skill: Conceptual 2) Macroeconomics is the study of how certain occurrences affect the economy as a whole.

Answer: TRUE Explanation: Macroeconomics is the study of the behavior of the overall economy.

Diff: 1 Page Ref: 29 AACSB: Analytic Skills Objective: 2-1 What is economics, and what are the different types of economic systems?

Skill: Conceptual 3) The supply of services is not part of the study of economies because it does not involve the exchange of goods.

Answer: FALSE Explanation: The supply of services is part of the study of economics because services are exchanged for resources the same way goods are.

Diff: 1 Page Ref: 29 AACSB: Analytic Skills Objective: 2-1 What is economics, and what are the different types of economic systems?

Skill: Conceptual 4) Economics is the study of how goods and services are exchanged between individuals, businesses, and governments.

Answer: TRUE Explanation: Economics is the study of how individuals and businesses make decisions to best satisfy wants, needs, and desires.

Diff: 1 Page Ref: 29 AACSB: Analytic Skills Objective: 2-1 What is economics, and what are the different types of economic systems?

Skill: Conceptual

5) Traditional economies are the most common economies found in the world today.

Answer: FALSE Explanation: Traditional economies were agrarian in nature and were based on strong social networks. They are very uncommon today. Most economies today are either mixed economies or market economies.

Diff: 1 Page Ref: 30 AACSB: Analytic Skills Objective: 2-1 What is economics, and what are the different types of economic systems?

Skill: Conceptual 6) In a planned economy, an individual's personal income dictates this or her spending choices.

Answer: FALSE Explanation: In a planned economy, the government determines wages and sets prices, and resources are distributed throughout the group. In a market economy, the individual's personal income controls their purchasing decisions.

Diff: 1 Page Ref: 30-31 AACSB: Analytic Skills Objective: 2-1 What is economics, and what are the different types of economic systems?

Skill: Conceptual 7) Although the United States comes close to being a capitalist economy, it is considered a mixed economy because there is some government intervention.

Answer: TRUE Explanation: Capitalism is an economic system that allows freedom of choice for both buyers and sellers and encourages private ownership of resources. However, it is a mixed economy because its government does collect and distribute some resources under certain circumstances.

Diff: 1 Page Ref: 31 AACSB: Reflective Thinking Objective: 2-1 What is economics, and what are the different types of economic systems?

Skill: Conceptual 8) Business managers do not need to be aware of the decisions of collective businesses outside their own industry.

Answer: FALSE Explanation: Business managers need to be aware of any decisions by the government (e.g., a change in interest rates) or by collective businesses (e.g., the level of unemployment) that may impact the economy as a whole.

Diff: 1 Page Ref: 32 AACSB: Reflective Thinking Objective: 2-1 What is economics, and what are the different types of economic systems?

Skill: Conceptual

9) The value of currency is based on an underlying commodity.

Answer: TRUE Explanation: Currency is a unit of exchange for the transfer of goods or services. Goods and services are assigned values against the value of a consistent standard, which itself is based on an underlying commodity such as gold.

Diff: 1 Page Ref: 33 AACSB: Reflective Thinking Objective: 2-2 What are the principles of supply and demand and the factors that affect each principle?

Skill: Conceptual 10) The price of a product or service is based entirely on its actual value.

Answer: FALSE Explanation: The price of a product or service is based ultimately on supply and demand, or how much of that product or service is available against the degree to which individuals or business need or want it.

Diff: 1 Page Ref: 33 AACSB: Reflective Thinking Objective: 2-2 What are the principles of supply and demand and the factors that affect each principle?

Skill: Conceptual 11) Supply refers to how much of a product or service is available for purchase at a given time.

Answer: TRUE Explanation: Supply is the availability of a given item or service. It is dependent on a number of factors, including the resources required to produce or offer it.

Diff: 1 Page Ref: 34 AACSB: Reflective Thinking Objective: 2-2 What are the principles of supply and demand and the factors that affect each principle?

Skill: Conceptual 12) The law of demand states that as the price for an item or service increases, so will the supply and that if the price is lower, the supply will also be less.

Answer: FALSE Explanation: This statement does not reflect the law of demand but rather the law of supply. The more money a business can get for its good or service, the more of its product it is willing to supply. In economic terms, the amount supplied will increase as the price increases; also, if the price is lower, less of the product is supplied.

Diff: 1 Page Ref: 34 AACSB: Reflective Thinking Objective: 2-2 What are the principles of supply and demand and the factors that affect each principle?

Skill: Conceptual

13) Mae bakes 100 cinnamon rolls each day to sell at her café, and each day she sells out before breakfast is over. Many of her customers ask for, but don't get one. Her customers ask that she bake more cinnamon rolls each day. This is an example of a shortage.

Answer: TRUE Explanation: The need for an item is demand, and the availability of that item is supply. Because the number of people who want the cinnamon rolls is greater than the number of cinnamon rolls available, the supply does not meet the demand, and there is a shortage.

Diff: 1 Page Ref: 35 AACSB: Analytic Skills Objective: 2-2 What are the principles of supply and demand and the factors that affect each principle?

Skill: Application 14) Holding all other factors constant, prices are set slightly above the point where supply equals demand.

Answer: FALSE Explanation: Holding all other factors constant, prices are set at a point where supply equals demand. This is known as the market price.

Diff: 1 Page Ref: 35 AACSB: Reflective Thinking Objective: 2-2 What are the principles of supply and demand and the factors that affect each principle?

Skill: Conceptual 15) The price at which supply of an item or service equals the demand for that item is known as the market price.

Answer: TRUE Explanation: Holding all other factors constant, prices are set at a point where supply equals demand.

Diff: 1 Page Ref: 35 AACSB: Reflective Thinking Objective: 2-2 What are the principles of supply and demand and the factors that affect each principle?

Skill: Conceptual 16) Changes in the price of resources do not help determine supply because those resources can be replaced by substitute goods.

Answer: FALSE Explanation: Changes in resource prices help determine supply by altering the price of production. An increase in resource prices increases the cost of production and reduces profits, thus lowering the incentive to supply a product.

Diff: 1 Page Ref: 36 AACSB: Reflective Thinking Objective: 2-2 What are the principles of supply and demand and the factors that affect each principle?

Skill: Conceptual

17) Population changes are a key determinant of demand for goods and services.

Answer: TRUE Explanation: Population changes help determine demand by increasing or reducing the amount of goods and services a given location can supply and still maintain economic equilibrium.

Diff: 1 Page Ref: 38 AACSB: Reflective Thinking Objective: 2-2 What are the principles of supply and demand and the factors that affect each principle?

Skill: Conceptual 18) Mae's Restaurant is the only establishment in town that sells cinnamon rolls. Mae therefore has a monopoly on the cinnamon roll business in town.

Answer: TRUE Explanation: A monopoly occurs when there is only one provider of a good or service and no substitutes for that good or service exist.

Diff: 1 Page Ref: 40 AACSB: Reflective Thinking Objective: 2-3 What are the four degrees of competition, and does competition affect supply?

Skill: Conceptual 19) Competition in an oligopoly is centered more on making one product stand out from another than it is on price.

Answer: TRUE Explanation: Because there is little differentiation between products, competition in an oligopoly is strong and prices differ only slightly.

Diff: 2 Page Ref: 41 AACSB: Reflective Thinking Objective: 2-3 What are the four degrees of competition, and does competition affect supply?

Skill: Conceptual 20) Competition affects demand by changing the number of substitute goods in a given market.

Answer: TRUE Explanation: In oligopolies and monopolistic competition, suppliers of goods and services seek to achieve greater demand for their products by differentiating them from their competitors in various ways, including changing consumers' perceptions of nearly identical products and lowering prices. Demand for a business's products will decrease if their competitors' products are seen to be superior in quality or are less expensive.

Diff: 2 Page Ref: 40 AACSB: Reflective Thinking Objective: 2-3 What are the four degrees of competition, and does competition affect supply?

Skill: Conceptual

21) Products manufactured in foreign countries by U.S. companies are included in the U.S.'s gross domestic product (GDP).

Answer: FALSE Explanation: The GDP is based on products manufactured domestically, that is, within the country. All goods manufactured in a country are included in that country's GDP, no matter the nationality of the parent company.

Diff: 1 Page Ref: 43 AACSB: Reflective Thinking Objective: 2-4 How do economic indicators particularly the gross domestic product (GDP), price indexes, the unemployment rate, and productivity reflect economic health?

Skill: Conceptual 22) The consumer price index (CPI) tracks changes in price at the wholesale level.

Answer: FALSE Explanation: The consumer price index (CPI) tracks changes in price at the consumer level. The producer price index (PPI) tracks changes in price at the wholesale, or seller's, level.

Diff: 1 Page Ref: 44 AACSB: Reflective Thinking Objective: 2-4 How do economic indicators particularly the gross domestic product (GDP), price indexes, the unemployment rate, and productivity reflect economic health?

Skill: Conceptual 23) Change in prices is an important economic indicator because it is a measurement of consumer's purchasing power.

Answer: TRUE Explanation: When prices increase, the purchasing power of the dollar decreases. This eventually leads to an increase in wages in order to compensate. Businesses must then increase the prices of their goods and services in order to cover the higher cost of labor.

Diff: 2 Page Ref: 44 AACSB: Reflective Thinking Objective: 2-4 How do economic indicators particularly the gross domestic product (GDP), price indexes, the unemployment rate, and productivity reflect economic health?

Skill: Conceptual 24) Cyclical unemployment measures those out of work during the off-season, such as those employed in agriculture and snow-, beach-, or holiday-related industries.

Answer: FALSE Explanation: Cyclical unemployment measures unemployment caused by lack of demand for those who want to work. It generally follows the economy. Seasonal unemployment measures those out of work due to their being employed in seasonal industries like landscaping or agricultural harvesting.

Diff: 1 Page Ref: 45 AACSB: Reflective Thinking Objective: 2-4 How do economic indicators particularly the gross domestic product (GDP), price indexes, the unemployment rate, and productivity reflect economic health?

Skill: Conceptual 25) Higher productivity results in higher costs and higher prices, resulting in lower income and

lower profitability.

Answer: FALSE Explanation: Higher productivity results in lower costs and lower prices because higher productivity indicates that workers are producing more goods and services in a certain amount of time than previously. Higher productivity thus generates more business income and profitability.

Diff: 1 Page Ref: 46 AACSB: Reflective Thinking Objective: 2-4 How do economic indicators particularly the gross domestic product (GDP), price indexes, the unemployment rate, and productivity reflect economic health?

Skill: Conceptual 26) A recession is a decline in the gross national product (GNP) over two or more consecutive quarters of the year.

Answer: FALSE Explanation: A recession is a decline in the gross domestic product (GDP) over two or more consecutive quarters of the year.

Diff: 1 Page Ref: 47 AACSB: Reflective Thinking Objective: 2-5 What are the four stages of the business cycle?

Skill: Conceptual 27) The government can influence the economy through its fiscal policy by making changes in the money supply.

Answer: FALSE Explanation: A government's fiscal policy determines the appropriate level of taxes and spending but does not directly influence changes in the money supply. A government's monetary policy, on the other hand, is the medium through which it may make changes in the money supply.

Diff: 2 Page Ref: 48 AACSB: Reflective Thinking Objective: 2-6 How does the government use both fiscal policy and monetary policy to control swings in the business cycle?

Skill: Conceptual 28) When the Federal Reserve Bank buys or sells U.S. securities, it changes the level of reserves in the banking system, which has an effect on interest rates.

Answer: TRUE Explanation: When the Fed buys securities, it adds reserves to the system, making it easier to obtain money through loans, etc., and interest rates drop. When the Fed sells securities, it removes money from the system, money becomes harder to obtain, and interest rates rise.

Diff: 2 Page Ref: 50 AACSB: Analytic Skills Objective: 2-6 How does the government use both fiscal policy and monetary policy to control swings in the business cycle?

Skill: Application 29) The discount rate is the interest rate banks are charged when they borrow money from the Fed.

Answer: TRUE Explanation: The discount rate may be confused with the Federal Funds rate, which is the interest rate that banks charge other banks when they borrow funds overnight from each other in order to maintain their reserves.

Diff: 1 Page Ref: 51 AACSB: Reflective Thinking Objective: 2-6 How does the government use both fiscal policy and monetary policy to control swings in the business cycle?

Skill: Conceptual 30) The Fed relies primarily on changes in the reserve requirement (the minimum amount of money banks must hold in reserve to cover deposits) to ease or tighten the money supply.

Answer: FALSE Explanation: The Fed only rarely makes changes in the reserve requirement. When they do, they lower the reserve requirement to increase the money supply and increase it to decrease the money supply.

Diff: 1 Page Ref: 51 AACSB: Reflective Thinking Objective: 2-6 How does the government use both fiscal policy and monetary policy to control swings in the business cycle?

Skill: Conceptual 31) The main function of economics is to study ________.

A) the exchange of goods and services between individuals, businesses, and nations B) the exchange of cultural information in a diverse society C) the stock exchange D) the exchange of diplomatic relations between nations Answer: A Explanation: A) Economicsis the study of how individuals and businesses make decisions to best satisfy wants, needs, and desires with limited resources. It is about businesses making goods or supplying servicesthat we want or need to buy.

Diff: 1 Page Ref: 29 AACSB: Reflective Thinking Objective: 2-1 What is economics, and what are the different types of economic systems?

Skill: Conceptual

32) Celeste is interested in studying the effects that natural disasters have on the value of goods and services in the affected areas. Her area of study should be ________.

A) marketing B) microeconomics C) macroeconomics D) sociology Answer: B Explanation: B) Microeconomics is the study of how individuals, businesses, households, and consumers allocate their resources in exchange for goods and services. Marketing is the process or technique of selling goods to consumers. Macroeconomics is the study of the behavior of the economy as a whole. Sociology is the study of social relations and change.

Diff: 2 Page Ref: 29 AACSB: Reflective Thinking Objective: 2-1 What is economics, and what are the different types of economic systems?

Skill: Application 33) Joseph took a class in macroeconomics, which means that he was studying the behavior of ________.

A) individual businesses B) people with limited resources C) the overall economy D) corporate executives Answer: C Explanation: C) Macroeconomics is the study of the behavior of the economy as a whole. The study of behavior of individual businesses, people with limited resources, and corporate executives would fall under the area of microeconomics.

Diff: 1 Page Ref: 29-30 AACSB: Reflective Thinking Objective: 2-1 What is economics, and what are the different types of economic systems?

Skill: Conceptual 34) A free market economy is one in which ________.

A) the government or other centralized group determines what to produce B) individuals determine what to produce with some level of government involvement C) a tightly knit social network barters and trades for goods at a market D) individuals and private firms make decisions based on consumer needs and wants Answer: D Explanation: D) A market economy is run entirely by individuals and businesses with no government involvement. Responses A) refers to a planned economy; B) to a mixed economy; and C) to a traditional economy.

Diff: 1 Page Ref: 31 AACSB: Reflective Thinking Objective: 2-1 What is economics, and what are the different types of economic systems?

Skill: Conceptual

35) A mixed economy is one in which ________.

A) both resources and means of production are extremely limited and generally confined to agricultural produce B) the government or other centralized group determines and controls all resources and means of production C) both individuals and government control resources and determine production methods D) either individuals or private firms control resources and determine production methods Answer: C Explanation: C) A mixed economy is one in which individuals, businesses, and government share responsibility for determining allocation of resources and methods of production.

Responses A) refers to a traditional economy; B) to a planned economy; and D) to a market economy.

Diff: 1 Page Ref: 31 AACSB: Reflective Thinking Objective: 2-1 What is economics, and what are the different types of economic systems?

Skill: Conceptual 36) A planned economy is one in which ________.

A) the government or other centralized group determines wages, sets prices, and distributes resources and products to the common group B) individuals produce enough for personal survival with few resources or goods left over to trade or barter C) individual income ultimately controls purchasing decisions D) government distributes some goods and services through selected social programs, and individual income determines purchasing decisions for other goods and services Answer: A Explanation: A) A planned economy is one in which the government controls the distribution of goods and resources. Responses B) refers to a traditional economy; C) to a market economy; and D) to a mixed economy Diff: 1 Page Ref: 30 AACSB: Reflective Thinking Objective: 2-1 What is economics, and what are the different types of economic systems?

Skill: Conceptual

37) John is an employee at a car manufacturer. Today he has come into work to find that production has stopped because the government has determined that the steel used in the cars will be better used in the manufacture of a new railway line. John doesn't mind, because although his wages are low, he gets paid whether there is any work for him to do or not. John MOST likely lives in a ________.

A) traditional economy B) planned economy C) market economy D) mixed economy Answer: B Explanation: B) In a planned economy, government determines what to produce, controls the resources and means of production, and determines wages. Resources and products are distributed to the common group.

Diff: 2 Page Ref: 30-31 AACSB: Analytic Skills Objective: 2-1 What is economics, and what are the different types of economic systems?

Skill: Application 38) Socialism is similar to communism in that ________.

A) the government provides all of the social services B) the governments fail under economic stress C) the government distributes goods and services D) the government experiences shortages of goods and services Answer: C Explanation: C) In both socialist and communist states, the government is responsible for distributing both goods and services. However, in a communist state, the entire responsibility for the distribution is in the hands of the government, whereas in a socialist state, the government traditionally runs some of the social services and utilities but also allows for some private enterprise.

Diff: 1 Page Ref: 31 AACSB: Analytic Skills Objective: 2-1 What is economics, and what are the different types of economic systems?

Skill: Application

39) Which of the following statements is NOT true of a market economy?

A) The pricing of goods is determined by what sellers wish to charge and buyers wish to pay.

B) The system encourages private ownership of resources.

C) The individual makes his or her own economic decisions.

D) The government may supply some goods or services Answer: D Explanation: D) In a free market economy, the government does not intervene in the production of goods or services. Most modern economies, including that of the U.S., are mixed economies of privately owned businesses and some government control of social services.

Diff: 2 Page Ref: 31 AACSB: Reflective Thinking Objective: 2-1 What is economics, and what are the different types of economic systems?

Skill: Conceptual 40) ________ is the country closest to having a planned economy, and ________ is the country closest to having a market economy.

A) Russia; United States B) India; Japan C) Russia; Japan D) Cuba; United States Answer: D Explanation: D) According to Figure 2.1, the order of countries ranging from a planned economy to a market economy are Cuba, Russia, India, United Kingdom, Japan, United States.

Diff: 1 Page Ref: 32 AACSB: Reflective Thinking Objective: 2-1 What is economics, and what are the different types of economic systems?

Skill: Conceptual

41) Which transaction best describes bartering?

A) an exchange of goods for currency, in which the price of something is determined by establishing its value against an underlying commodity B) a transfer of goods without an exchange of currency, in which the price of something is determined by the seller, and the buyer agrees to pay him at a later time C) an exchange of goods without an exchange of currency, in which the price of something is determined by the needs and resources of each person involved in the exchange D) an exchange of goods for currency, in which the price of something is determined by what buyers are willing to pay Answer: C Explanation: C) The barter system involved a trading of goods without an exchange of money where the price was determined by the needs and resources of each person taking part in the exchange. Response A refers to the use of currency in a transaction in which the price of an item depends on its value relative to a consistent standard; Response B to a transaction involving credit; and Response D to a transaction in which the price is set by the law of demand.

Diff: 2 Page Ref: 33 AACSB: Analytic Skills Objective: 2-2 What are the principles of supply and demand and the factors that affect each principle?

Skill: Conceptual 42) Mae's Country Kitchen sells out of her cinnamon rolls every morning before 8:30 a.m., and her later customers ask her to make more. The next day, Mae makes an additional two dozen cinnamon rolls and raises the price of an individual cinnamon roll by 50¢. She sells all but one of them. Mae has found the ________ price of her cinnamon rolls.

A) market B) supply C) demand D) determinant Answer: A Explanation: A) The market price is the price at which everyone who wants the item can get it without surplus or further demand.

Diff: 2 Page Ref: 33 AACSB: Analytic Skills Objective: 2-2 What are the principles of supply and demand and the factors that affect each principle?

Skill: Application

43) The amount of a product or service that is available for purchase at any given time is called ________.

A) commodity B) surplus C) supply D) demand Answer: C Explanation: C) Supply is the amount of a product or service available; commodities are particular economic goods; a surplus is the amount of supply over the demand; demand is the need for an item.

Diff: 1 Page Ref: 33 AACSB: Reflective Thinking Objective: 2-2 What are the principles of supply and demand and the factors that affect each principle?

Skill: Conceptual 44) Prices become higher when a unique and highly desirable item is auctioned ________.

A) because the supply and demand are equal B) because the demand is higher than the supply C) because the supply is higher than the demand D) because the supply and demand are kept unknown Answer: B Explanation: B) Prices increase depending on demand, therefore, the greater the demand the higher the price. If similar or identical items are offered for auction, there is less demand, therefore, the selling price is likely to be lower than for the unique and highly desirable item.

Diff: 1 Page Ref: 33-34 AACSB: Reflective Thinking Objective: 2-2 What are the principles of supply and demand and the factors that affect each principle?

Skill: Conceptual

45) According to the law of supply, the amount of a good or service supplied will increase as the price increases, and decrease as the price decreases. This direct relationship exists because ________.

A) supply is not dependent on the resources required to produce the product B) supply is derived from a producer's desire to maximize profit C) supply is affected by the number of suppliers D) supply is not affected by the quantity of similar or substitute products Answer: B Explanation: B) All else held constant, supply is derived from a producer’s desire to maximize profits. The more money a business can get for its good or service, the more of its product it is willing to supply. Responses A and D are untrue. C is true but does not explain the relationship between price and supply.

Diff: 2 Page Ref: 34 AACSB: Analytic Skills Objective: 2-2 What are the principles of supply and demand and the factors that affect each principle?

Skill: Application 46) A supply curve illustrates ________.

A) that as supply decreases, demand decreases B) the effects of price on quantity supplied C) the effects of price on quantity demanded D) that as supply increases, the price stays the same Answer: B Explanation: B) Supply curves illustrate that supply increases as prices increase.The more a supplier can charge for a product, the more of that product he will want to supply.

Diff: 1 Page Ref: 34 AACSB: Reflective Thinking Objective: 2-2 What are the principles of supply and demand and the factors that affect each principle?

Skill: Conceptual 47) ________ refers to how much of a product or service people want to buy at any given time.

A) Commodity B) Surplus C) Supply D) Demand Answer: D Explanation: C) Demand refers to how much of a product or service people want to buy at any given time. Commodities are particular economic goods. A surplus is the amount of supply that exceeds market demand; supply is the amount of the item available.

Diff: 1 Page Ref: 34 AACSB: Reflective Thinking Objective: 2-2 What are the principles of supply and demand and the factors that affect each principle?

Skill: Conceptual

48) A demand curve illustrates ________.

A) the effects of price on quantity demanded B) that as price increases, demand stays the same C) the effects of supply on quantity demanded D) that as demand decreases, the price increases Answer: A Explanation: A) Demand curves illustrate that demand increases as prices decrease by showing the relationship between price and quantity demanded.

Diff: 1 Page Ref: 34 AACSB: Reflective Thinking Objective: 2-2 What are the principles of supply and demand and the factors that affect each principle?

Skill: Conceptual 49) When the supply curve and the demand curve for a single product or service are shown on the same graph, the point at which the curves intersect identifies the ________.

A) total profit earned by the producers B) market price of the good C) quality of the good or service being purchased D) amount of the surplus to be anticipated Answer: B Explanation: C) The market price of an item is the price at which supply equals demand.

Therefore, the market price is the point at which the supply curve and the demand curve intersect.

Diff: 1 Page Ref: 35 AACSB: Reflective Thinking Objective: 2-2 What are the principles of supply and demand and the factors that affect each principle?

Skill: Conceptual

50) The following is NOT an example of a factor that would determine supply of a product: A) an increase in the construction of apartment buildings B) A new robotic system for assembling automobiles has been adopted by a car manufacturer.

C) The price of lumber has decreased, making it more affordable for a developer to build new homes.

D) Higher unemployment would ultimate increase the price of home entertainment systems.

Answer: D Explanation: D) Higher unemployment is unlikely to increase the price of home entertainment systems since unemployed consumers would be less able to afford such items, causing demand though not necessarily supply to eventually decrease. Responses A, B, and C are all examples of key determinants of supply: An increase in construction of apartment buildings is an example of the factor of price of substitute goods in this case, potentially affecting the purchase price of homes. A new auto assembly system is an example of a technology change that could increase supply of new automobiles. A reduction in price of lumber is a change in resource pricing that could increase supply of new buildings.

Diff: 2 Page Ref: 35-36 AACSB: Analytic Skills Objective: 2-2 What are the principles of supply and demand and the factors that affect each principle?

Skill: Application 51) Which of the examples given below illustrates how changes in resource prices help determine supply?

A) An increase in the cost of oil reduces the numbers of trucks carrying goods to certain locations.

B) An increase in the number of trucks carrying goods to certain locations increases the number of goods available in those areas.

C) An anticipated decrease in the costs of truck maintenance may indicate a future decrease in the number of trucks carrying goods.

D) The establishment of high-speed railways with energy-efficient freight trains may render trucks obsolete.

Answer: A Explanation: A) An increase in resource prices increases the cost of production and reduces profits, thus lowering the incentive to supply the product. Response B is incorrect because it illustrates how changes in the number of suppliers, not the price of resources, determine supply; Response C is incorrect because a decrease in costs of truck maintenance would be more likely to increase the number of trucks carrying goods. Response D is a description of technology changes, not impact of resource price changes.

Diff: 3 Page Ref: 36 AACSB: Analytic Skills Objective: 2-2 What are the principles of supply and demand and the factors that affect each principle?

Skill: Application

52) Taken together, iPod and iTunes are ________.

A) substitute goods B) complementary goods C) competitive goods D) monopolistic goods Answer: B Explanation: B) Products or services that go with each other and are consumed together, such as the iPod and iTunes, are considered complementary goods. The demand for iTunes is great as long as consumers are buying and using iPods and other portable media devices. These two products do not substitute for or compete with one another. Apple, their manufacturer, is successful in the market, but is not a monopoly, since there are substitute produces that consumers may choose to purchase.

Diff: 1 Page Ref: 38 AACSB: Reflective Thinking Objective: 2-2 What are the principles of supply and demand and the factors that affect each principle?

Skill: Conceptual 53) Pilar's daughter wants a Betty the Builder doll for Christmas. When Pilar gets to the toy store, they are sold out, so she goes to another store, where they tell her that they have a limited quantity, which will go on special sale at 6 a.m. the next morning and that she'd better get in line early. This is an example of which of the following determinants of demand?

A) complementary goods B) population changes C) substitute goods D) consumer preference Answer: D Explanation: D) Consumer preference drives demand by increasing popularity of the item.

Diff: 1 Page Ref: 38 AACSB: Reflective Thinking Objective: 2-2 What are the principles of supply and demand and the factors that affect each principle?

Skill: Conceptual

54) One example of complementary goods is ________.

A) cheese and crackers B) cable television and Internet service C) dog food and a dog bowl D) a cell phone and wireless phone service Answer: D Explanation: D) Complementary goods go with each other and are consumed together, and if new technology renders one obsolete, the demand for the other goes down. Responses A and C are inaccurate because, though they describe items that go with each other and are consumed together, the obsolescence of one does not lead to less demand of the other. Response B is incorrect because although cable TV and Internet may be consumed at the same time and are often bundled together by service providers, neither is necessary to the operation of the other.

Diff: 1 Page Ref: 38 AACSB: Reflective Thinking Objective: 2-2 What are the principles of supply and demand and the factors that affect each principle?

Skill: Conceptual 55) What are substitute goods?

A) goods that can be used in place of others B) goods that can be modified to replace others C) goods that complement others D) goods that can be used to repair others Answer: A Explanation: A) Substitute goods can be used in place of others, such as cola-type soft drinks Coke or Pepsi.

Diff: 1 Page Ref: 38 AACSB: Reflective Thinking Objective: 2-2 What are the principles of supply and demand and the factors that affect each principle?

Skill: Conceptual 56) What best determines the level of competition?

A) the amount of population change B) the amount of substitutes for a certain product or service C) the amount of change in the level of income D) the amount of complementary products or service Answer: B Explanation: B) Competition is driven by substitute goods and services, one of the factors of demand. The greater the number of substitute products, the more competition a product faces.

Diff: 2 Page Ref: 40 AACSB: Reflective Thinking Objective: 2-3 What are the four degrees of competition, and does competition affect supply?

Skill: Conceptual

57) A(n) ________ occurs when there is only one provider of a service or product and no substitutes for the service or product exist.

A) duopoly B) monopoly C) oligopoly D) perfect competition Answer: B Explanation: B) True monopolies are rare and the FTC regulates business mergers carefully to prevent the formation of monopolies.

Diff: 1 Page Ref: 40 AACSB: Reflective Thinking Objective: 2-3 What are the four degrees of competition, and does competition affect supply?

Skill: Conceptual 58) The ________ reviews mergers between large competitors to determine whether the combined firm would be a monopolistic corporation.

A) Federal Trade Commission B) Internal Revenue Service C) Federal Reserve Bank D) Federal Court system Answer: A Explanation: A) Federal Trade Commission reviews proposed mergers to ensure that such a merger would not be disadvantageous to consumers. The IRS, Federal Reserve Bank, and the Federal Court system are not charged with evaluating proposed mergers to determine the potential impact on consumers.

Diff: 1 Page Ref: 40 AACSB: Reflective Thinking Objective: 2-3 What are the four degrees of competition, and does competition affect supply?

Skill: Conceptual 59) The government allows ________ companies to operate as regulated monopolies.

A) airline B) mining C) utility D) timber Answer: C Explanation: C) Utility companies are often permitted to operate as regulated monopolies because they deal with limited supplies of resources like water. However, although they are allowed to run as monopolies, the government will regulate their prices to ensure that they do not inflate prices.

Diff: 1 Page Ref: 40 AACSB: Reflective Thinking Objective: 2-3 What are the four degrees of competition, and does competition affect supply?

Skill: Conceptual

60) What is the MOST likely scenario in a monopoly, where only one seller supplies a product or service?

A) Demand may be low.

B) Demand may vary.

C) Supply may be abundant.

D) Supply may be limited.

Answer: D Explanation: D) Supply may be limited, potentially increasing cost of products to consumers Diff: 1 Page Ref: 40 AACSB: Reflective Thinking Objective: 2-3 What are the four degrees of competition, and does competition affect supply?

Skill: Conceptual 61) A(n) ________ occurs when there are a few sellers in a given market and each seller has a fairly large share of that market.

A) monopolistic competition B) monopoly C) oligopoly D) perfect competition Answer: C Explanation: C) An oligopoly is a competition in which only a few sellers exist.

Diff: 1 Page Ref: 41 AACSB: Reflective Thinking Objective: 2-3 What are the four degrees of competition, and does competition affect supply?

Skill: Conceptual 62) Which of the following industries is LEAST likely to form an oligopoly?

A) airline B) automobile C) tobacco D) consulting Answer: D Explanation: D) Typically, oligopolies occur in industries in which there is a high investment to enter, so oligopolies are often major corporations in certain areas such as the airline, automobile, high-tech, pharmaceutical, and tobacco industries. Because consulting is knowledge intensive rather than resource intensive, it is least likely to become part of an oligopoly.

Diff: 1 Page Ref: 41 AACSB: Reflective Thinking Objective: 2-3 What are the four degrees of competition, and does competition affect supply?

Skill: Conceptual

63) A(n) ________ occurs when there are many buyers and sellers and little differentiation between products, but perceived differences between products among consumers.

A) monopolistic competition B) monopoly C) oligopoly D) perfect competition Answer: A Explanation: A) Monopolistic competition occurs when there are many buyers and sellers and little differentiation between the products themselves (e.g. coffee versus coffee), but there is a perceived difference among consumers, who thereby favor one product offering over another.

Diff: 1 Page Ref: 41 AACSB: Reflective Thinking Objective: 2-3 What are the four degrees of competition, and does competition affect supply?

Skill: Conceptual 64) In what way does monopolistic competition favor consumers?

A) A limited number of sellers differentiate their products or services by offering better quality items and/or greater incentives to purchase them.

B) A large number of sellers providing virtually identical products means that no single seller can set the price.

C) A large number of sellers and products increases supply of similar, but not identical, products and services, so to increase demand sellers are likely to reduce prices.

D) A single seller or provider ensures consistency of product quality and regulated pricing.

Answer: C Explanation: C) Monopolistic competition is characterized by a market in which there are a large number of sellers providing similar goods to consumers whose purchasing choices are based on perceived differences between them. Price is often the distinction.

Diff: 2 Page Ref: 41 AACSB: Analytic Skills Objective: 2-3 What are the four degrees of competition, and does competition affect supply?

Skill: Application 65) A(n) ________ occurs when there are many buyers and sellers of products that are virtually identical and any seller can easily enter and exit the market.

A) monopolistic competition B) monopoly C) oligopoly D) perfect competition Answer: D Explanation: D) Perfect competition occurs when there are many buyers and sellers of products that are virtually identical and any seller can easily enter and exit the market. When these conditions exist, no single supplier can influence the price.

Diff: 1 Page Ref: 41-42 AACSB: Reflective Thinking Objective: 2-3 What are the four degrees of competition, and does competition affect supply?

Skill: Conceptual

66) What is the purpose of the U.S. government's regulation of monopolies?

A) to ensure that there are as many opportunities for perfect competition as possible B) to ensure that no single seller can drastically increase the price of a given product or service C) to ensure that no one industry has control of the entire national economy D) to ensure that local businesses are always the preferred provider of products consumers want Answer: B Explanation: B) Formation of monopolies is regulated so that a potential monopolistic supplier can not charge an excessive price or be unresponsive to consumer needs. In the United States, as well as in other countries, large monopolies are rarely allowed.

Diff: 1 Page Ref: 40 AACSB: Reflective Thinking Objective: 2-3 What are the four degrees of competition, and does competition affect supply?

Skill: Conceptual 67) What is an economic indicator?

A) a business expert who understands the economy and can advise managers how best to handle their companies B) a formula used by accountants to determine their company's net profit C) an aspect of the economy that can be measured in order to determine a country's overall economic health D) a way of identifying whether a given market is an oligopoly or monopolistic competition Answer: C Explanation: C) Economic indicators are used to determine how well businesses are performing overall.

Diff: 1 Page Ref: 42 AACSB: Reflective Thinking Objective: 2-4 How do economic indicators particularly the gross domestic product (GDP), price indexes, the unemployment rate, and productivity reflect economic health?

Skill: Conceptual 68) The gross domestic product (GDP) measures ________.

A) the overall market value of final goods and services produced in a country in a given year B) the overall gross profit a country earns in a given year C) a country's overall income resulting from production in a year D) a country's overall expenditures in a given year Answer: A Explanation: A) GDP measures market value of all goods and services produced in a country, including goods and services produced by foreign-owned companies that operate in the country.

Diff: 1 Page Ref: 43 AACSB: Reflective Thinking Objective: 2-4 How do economic indicators particularly the gross domestic product (GDP), price indexes, the unemployment rate, and productivity reflect economic health?

Skill: Conceptual

69) ArmiLiza, a popular United States-based brand of handbags, has built a second factory in Mexico. The majority of the new factory's employees are Mexican citizens or Honduran immigrants. On which country's gross domestic product will the second factory's goods be counted?

A) the United States B) Mexico C) Honduras D) All of the above Answer: B Explanation: B) GDP measures market value of all goods and services produced in a country, including goods and services produced by foreign-owned companies.

Diff: 2 Page Ref: 43 AACSB: Reflective Thinking Objective: 2-4 How do economic indicators particularly the gross domestic product (GDP), price indexes, the unemployment rate, and productivity reflect economic health?

Skill: Conceptual 70) The ________ is the most widely used indicator of economic growth in the world today.

A) gross national product B) consumer price index C) producer price index D) gross domestic product Answer: D Explanation: D) Most countries use the GDP to measure their economic health.

Diff: 1 Page Ref: 43 AACSB: Reflective Thinking Objective: 2-4 How do economic indicators particularly the gross domestic product (GDP), price indexes, the unemployment rate, and productivity reflect economic health?

Skill: Conceptual 71) The gross national product (GNP) measures ________.

A) the overall market value of final goods and services produced in a country in a year B) the overall gross profit a country earns in a year C) a country's overall income resulting from production in a year D) a country's overall amount a country is able to spend in a year Answer: C Explanation: C) The GNP attributes earnings to the country where the company is owned, not where the product was manufactured. Therefore, Toshiba television sets made in Tennessee would be included in Japan's GNP, Toshiba's home country.

Diff: 1 Page Ref: 43 AACSB: Reflective Thinking Objective: 2-4 How do economic indicators particularly the gross domestic product (GDP), price indexes, the unemployment rate, and productivity reflect economic health?

Skill: Conceptual

72) A rise in the general level of prices over time is called ________.

A) deflation B) inflation C) disinflation D) deflection Answer: B Explanation: B) Inflation is a rise in the general level of prices over time. Deflation is a decrease in general level of prices over time. Disinflation is a decrease in the rate of inflation over time.

Deflection is not an economic term.

Diff: 1 Page Ref: 43 AACSB: Reflective Thinking Objective: 2-4 How do economic indicators particularly the gross domestic product (GDP), price indexes, the unemployment rate, and productivity reflect economic health?

Skill: Conceptual 73) ________ is a decrease in the rate of inflation.

A) Deflation B) Inflation C) Disinflation D) Deflection Answer: C Explanation: C) By definition, disinflation is a decrease in the rate of inflation over time.

Diff: 1 Page Ref: 43 AACSB: Reflective Thinking Objective: 2-4 How do economic indicators particularly the gross domestic product (GDP), price indexes, the unemployment rate, and productivity reflect economic health?

Skill: Conceptual 74) A continuous decrease in the level of prices over time is called ________.

A) deflation B) inflation C) disinflation D) deflection Answer: A Explanation: A) By definition, deflation is a decrease in general level of prices over time.

Diff: 1 Page Ref: 43 AACSB: Reflective Thinking Objective: 2-4 How do economic indicators particularly the gross domestic product (GDP), price indexes, the unemployment rate, and productivity reflect economic health?

Skill: Conceptual

75) What does the monthly consumer price index (CPI) measure?

A) the changes in prices of goods and services as determined by the sellers B) the amount of products and services manufactured domestically C) the number of new products purchased by consumers D) the changes in prices of goods and services purchased by households Answer: D Explanation: D) CPI is a benchmark used to track changes over a period of time in the price of goods and services that consumers purchase. The CPI measures price changes by creating a ―market basket‖ of a specified set of goods and services that represent the average buying pattern of urban households. The value of this market basket is determined by the combined prices of these goods and services and is compared to its value in a prior period (generally a month), and the change is noted.

Diff: 1 Page Ref: 43 AACSB: Reflective Thinking Objective: 2-4 How do economic indicators particularly the gross domestic product (GDP), price indexes, the unemployment rate, and productivity reflect economic health?

Skill: Conceptual 76) The value of the CPI's "market basket" is determined by ________.

A) the combined prices of a specified set of goods and services, including taxes B) the net profit earned by businesses selling a specified set of goods and services C) the price of all goods and services, including taxes, purchased in a particular period D) the cost of production for a specified set of goods and services in a given market Answer: A Explanation: A) The value of the market basket is determined by the prices of a certain set of goods and services, including taxes. The value of the market basket in a given period (e.g., a month) is then compared to its value in a prior period.

Diff: 1 Page Ref: 44 AACSB: Reflective Thinking Objective: 2-4 How do economic indicators particularly the gross domestic product (GDP), price indexes, the unemployment rate, and productivity reflect economic health?

Skill: Conceptual

77) Why does the U.S. Bureau of Labor Statistics evaluate the CPI's "market basket"?

A) to ensure that it reflects current trends in the production of goods and services B) to ensure that it reflects current consumer spending habits C) to ensure that it reflects current wholesale spending habits D) to ensure that it reflects current consumer demand Answer: B Explanation: B) The Bureau of Labor Statistics evaluates the market basket as a way to track spending habits of many different families and thus get a better idea of what people are spending money on. This helps determine how the economy is doing and how inflation rates are affecting spending habits in specific areas of the economy.

Diff: 2 Page Ref: 44 AACSB: Reflective Thinking Objective: 2-4 How do economic indicators particularly the gross domestic product (GDP), price indexes, the unemployment rate, and productivity reflect economic health?

Skill: Conceptual 78) The average total of goods and services required to maintain a particular standard of living is called ________.

A) the cost of living B) total household expenditure C) the cost of fundamental human needs D) the cost/price index Answer: A Explanation: A) The cost of living is the average monetary costs of the goods and services required to maintain a particular standard of living. It is closely related to the CPI. In fact, to keep up with inflation, the Social Security Administration calculates automatic cost of living adjustments to Social Security benefits based on annual percentage increases in the CPI. As you can imagine, the cost of living varies greatly by state and city. For example, the cost of living in New York City or San Francisco is much higher than in Topeka, Kansas, or Little Rock, Arkansas.

Diff: 1 Page Ref: 44 AACSB: Reflective Thinking Objective: 2-4 How do economic indicators particularly the gross domestic product (GDP), price indexes, the unemployment rate, and productivity reflect economic health?

Skill: Conceptual

79) The producer price index tracks the average change in prices from the ________ perspective.

A) government's B) buyer's C) seller's D) economist's Answer: C Explanation: C) The PPI tracks the prices of goods sellers use to create their products, such as raw materials, product components that require further processing, and finished goods sold to retailers. The PPI excludes energy prices and prices for services. The PPI tracks the prices of goods sellers use to create their products, such as raw materials, product components that require further processing, and finished goods sold to retailers. The PPI excludes energy prices and prices for services.

Diff: 1 Page Ref: 44 AACSB: Reflective Thinking Objective: 2-4 How do economic indicators particularly the gross domestic product (GDP), price indexes, the unemployment rate, and productivity reflect economic health?

Skill: Conceptual 80) Goods tracked by the PPI include ________ and ________.

A) education; medical care B) recreation; apparel C) transportation; communication D) raw materials; finished goods sold to retailers Answer: D Explanation: D) PPI does not track consumer goods or services, but rather the cost of the resources, such as raw materials used to produce consumer goods.

Diff: 2 Page Ref: 44 AACSB: Reflective Thinking Objective: 2-4 How do economic indicators particularly the gross domestic product (GDP), price indexes, the unemployment rate, and productivity reflect economic health?

Skill: Conceptual

81) ________ unemployment measures unemployment caused by lack of demand for those who want to work; it generally follows the economy.

A) Seasonal B) Frictional C) Structural D) Cyclical Answer: D Explanation: D) Cyclical unemployment measures unemployment caused by a lack of demand for those who want to work. This generally follows the economy. Companies must cut back their workforce when there is a downturn in the business cycle. Once the demand for goods and services increases, companies begin to hire again.

Diff: 1 Page Ref: 45 AACSB: Reflective Thinking Objective: 2-4 How do economic indicators particularly the gross domestic product (GDP), price indexes, the unemployment rate, and productivity reflect economic health?

Skill: Conceptual 82) ________ unemployment measures those out of work during the off-season, such as those employed in snow- or beach-related industries, agriculture, and/or holiday activities.

A) Seasonal B) Frictional C) Structural D) Cyclical Answer: A Explanation: A) Seasonal unemployment is somewhat cyclical in that the seasonal economy takes a downturn at the end of the season. However, in the strictest definition of the term it refers only to workers who hold seasonal jobs as their primary source of income.

Diff: 1 Page Ref: 45 AACSB: Reflective Thinking Objective: 2-4 How do economic indicators particularly the gross domestic product (GDP), price indexes, the unemployment rate, and productivity reflect economic health?

Skill: Conceptual

83) ________ unemployment refers to a temporary state of unemployment in which workers move between jobs, careers, and locations.

A) Seasonal B) Frictional C) Structural D) Cyclical Answer: B Explanation: B) Frictional unemployment measures temporary unemployment in which workers move between jobs, careers, and locations.

Diff: 1 Page Ref: 45 AACSB: Reflective Thinking Objective: 2-4 How do economic indicators particularly the gross domestic product (GDP), price indexes, the unemployment rate, and productivity reflect economic health?

Skill: Conceptual 84) ________ unemployment measures permanent unemployment associated with massive industry-wide changes that lead to complete elimination of the positions formerly held.

A) Seasonal B) Frictional C) Structural D) Cyclical Answer: C Explanation: C) Structural unemployment measures permanent unemployment associated when an industry changes in such a way that jobs are terminated completely. For instance, many steel workers and miners lost their jobs when there was a decline in those industries. Likewise, robots have replaced many automobile workers, and computers have replaced many newspapers.

Diff: 1 Page Ref: 45 AACSB: Reflective Thinking Objective: 2-4 How do economic indicators particularly the gross domestic product (GDP), price indexes, the unemployment rate, and productivity reflect economic health?

Skill: Conceptual

85) Mae's oven bakes 50 cinnamon rolls an hour. She bakes 200 cinnamon rolls a day. The cost of power for running her oven each day is $30. Mae has decided that she would like to bake the same amount of cinnamon rolls in less time in order to save on energy costs. What should she do?

A) Increase productivity by baking more cinnamon rolls per hour.

B) Increase efficiency by beginning her baking operations earlier in the day.

C) Increase profitability by charging more money per cinnamon roll.

D) Manage competition by baking muffins as well as cinnamon rolls.

Answer: A Explanation: A) Although all responses represent potential ways to improve Mae's profitability, by definition, the only way to make more cinnamon rolls in less time is to bake more cinnamon rolls per hour.

Diff: 1 Page Ref: 46 AACSB: Reflective Thinking Objective: 2-4 How do economic indicators particularly the gross domestic product (GDP), price indexes, the unemployment rate, and productivity reflect economic health?

Skill: Application 86) The term "business cycle" refers to ________.

A) periodic increase and decrease of the economy B) periodic purchases of goods and services by the government C) the increase and decrease of the rate of inflation D) the periodic growth of the Federal Reserve system Answer: A Explanation: A) Over time, the economy naturally goes through periodic increases and decreases in what is known as the business cycle.

Diff: 1 Page Ref: 47 AACSB: Reflective Thinking Objective: 2-5 What are the four stages of the business cycle?

Skill: Conceptual 87) The government determines the appropriate level of taxes and spending through its ________.

A) monetary policy B) domestic policy C) foreign policy D) fiscal policy Answer: D Explanation: D) Fiscal policy involves raising and spending money; monetary policy involves managing the supply of money.

Diff: 1 Page Ref: 48 AACSB: Reflective Thinking Objective: 2-6 How does the government use both fiscal policy and monetary policy to control swings in the business cycle?

Skill: Conceptual 88) Decreasing taxes can stimulate the economy by ________.

A) allowing consumers more money to spend B) decreasing the amount of money the government is able to spend C) directly influencing the consumer price index D) controlling the money supply Answer: A Explanation: A) Decreasing taxes means that consumers have more money to spend. However, consumers may save money that accrues as a result of tax decreased, which would not stimulate the economy, which relies on consumer spending.

Diff: 1 Page Ref: 48 AACSB: Reflective Thinking Objective: 2-6 How does the government use both fiscal policy and monetary policy to control swings in the business cycle?

Skill: Conceptual 89) Through the 2009 Cash for Clunkers program, the United States government offered incentives to consumers who traded in older cars for new, more fuel-efficient vehicles. This program is an example of ________.

A) tax relief to promote consumer saving B) government spending to increase economic cash flow C) limiting the supply of cash in the economy D) government regulation of the auto industry Answer: B Explanation: B) The United States government spends money on programs like Cash for Clunkers in order to stimulate the economy as quickly as possible by encouraging consumer spending.

Diff: 2 Page Ref: 48 AACSB: Reflective Thinking Objective: 2-6 How does the government use both fiscal policy and monetary policy to control swings in the business cycle?

Skill: Application 90) What is the money supply?

A) the total amount of money held in the Federal Reserve Bank B) the combined amount of money available in privately owned accounts C) the combined amount of money available within the economy D) the amount of money the government is allowed to spend to stimulate economic growth Answer: C Explanation: C) The money supply is defined as all available money within the economy.

Diff: 2 Page Ref: 49-50 AACSB: Reflective Thinking Objective: 2-6 How does the government use both fiscal policy and monetary policy to control swings in the business cycle?

Skill: Conceptual

91) The government manages the supply of money through its ________.

A) monetary policy B) domestic policy C) foreign policy D) fiscal policy Answer: A Explanation: A) Monetary policy involves managing the supply of money; fiscal policy involves raising and spending money.

Diff: 1 Page Ref: 50 AACSB: Reflective Thinking Objective: 2-6 How does the government use both fiscal policy and monetary policy to control swings in the business cycle?

Skill: Conceptual 92) The Federal Reserve System (the Fed) manages the country's money supply through its monetary policy to control inflation by doing all of the following EXCEPT ________.

A) buying and selling government securities B) trading in foreign exchange markets C) changing certain interest rates D) increasing taxes Answer: D Explanation: D) Increasing taxes is not within the power of the Federal Reserve System, nor does it fall under monetary policy. It is a fiscal decision, not a monetary one.

Diff: 2 Page Ref: 50 AACSB: Reflective Thinking Objective: 2-6 How does the government use both fiscal policy and monetary policy to control swings in the business cycle?

Skill: Conceptual

93) All of the following statements about open market operations are true EXCEPT ________.

A) they are used by the Federal Reserve to change the Federal Funds Rate B) they are used by the Federal Reserve to change the discount rate C) they are used by the Federal Reserve to buy and sell mutual funds D) they are used by the Federal Reserve to transact with securities dealers Answer: B Explanation: B) The primary tool the Fed uses in its monetary policy is open market operations buying and selling U.S. Treasury and federal agency bonds on the ―open market.‖ When the Fed buys securities, it adds reserves to the system, money is said to be ―easy,‖ and interest rates drop. Lower interest rates help stimulate the economy by decreasing the desire to save and increasing the demand for loans such as home mortgages. Open market operations would not change the discount rate, the interest rate charged by the Fed to banks in order to maintain their reserve funds.

Diff: 1 Page Ref: 50-51 AACSB: Reflective Thinking Objective: 2-6 How does the government use both fiscal policy and monetary policy to control swings in the business cycle?

Skill: Conceptual 94) In which part of the business cycle is the Federal Reserve most likely to increase the discount rate to discourage banks from borrowing?

A) trough B) expansion C) peak D) recession Answer: B Explanation: B) During expansion, banks are discouraged from seeking loans from the Federal Reserve at higher discount rates, thereby slowing the addition of funds into the economy, which keeps the economy from expanding too rapidly.

Diff: 2 Page Ref: 51 AACSB: Reflective Thinking Objective: 2-6 How does the government use both fiscal policy and monetary policy to control swings in the business cycle?

Skill: Application

95) The reserve requirement is defined as ________.

A) the maximum amount of money banks can borrow from the Federal Reserve B) the maximum amount of money banks can borrow from one another C) the minimum amount of money banks hold in reserve to cover deposits D) the minimum amount of money that can be deposited by banks in the Federal Reserve Answer: C Explanation: C) By definition, the reserve requirement is the minimum amount of money banks must hold in reserve to cover deposits. The Federal Reserve can raise or lower the reserve requirement to ensure that banks have enough money to cover deposits.

Diff: 1 Page Ref: 51 AACSB: Reflective Thinking Objective: 2-6 How does the government use both fiscal policy and monetary policy to control swings in the business cycle?

Skill: Conceptual 96) Define economics and explain the difference between microeconomics and macroeconomics.

Answer: Economics is the study of how governments, businesses, and individuals make decisions to best satisfy their wants and needs. Microeconomics focuses on how individual businesses and consumers make decisions to allocate their resources. Macroeconomics focuses on the behavior of the overall economy.

Diff: 1 Page Ref: 29-30 AACSB: Reflective Thinking Objective: 2-1 What is economics, and what are the different types of economic systems?

Skill: Conceptual 97) Explain the differences between how a market economy and a mixed economy decide what to produce, how to produce it, and for whom to produce it.

Answer: In a market economy, individuals and private firms make decisions about what to produce based on consumer needs and wants with no government involvement. Individuals and private firms determine production methods based on calculations of efficiency and profitability.

Individual income ultimately controls purchasing decisions. In a mixed economy, individuals and private firms make decisions about what to produce, but the government is involved in providing services and regulation some aspects of conducting business. Individuals and private firms determine production methods, but may be influenced or regulated by the government.

Government distributes some goods and services through social programs, but individual income informs most purchasing decisions.

Diff: 2 Page Ref: 31-32 AACSB: Reflective Thinking Objective: 2-1 What is economics, and what are the different types of economic systems?

Skill: Conceptual

98) Mae is considering raising the price of her cinnamon rolls in order to maximize her profits.

Describe the factors that will help her determine the best price for her cinnamon rolls.

Answer: Mae should take into consideration the basic conflict of price-setting, which is that the higher the price of an item, the more likely she is to supply the product, but that the lower the price, the more likely the product is to be purchased. Mae must consider whether the demand for her cinnamon rolls is high enough that customers will still want to buy them at a higher price.

Diff: 2 Page Ref: 34-35 AACSB: Analytic Skills Objective: 2-2 What are the principles of supply and demand and the factors that affect each principle?

Skill: Application 99) How might a decrease in income levels lead to population changes?

Answer: A decrease in income levels might lead to population changes when it becomes necessary for people to sell their homes and/or move to another community in search of employment.Income losses also affect discretionary spending. For instance, people who have had a decrease in income are less likely to go on vacation and take part in seasonal rentals or activities. This might then negatively impact the economy in seasonal towns, leading to additional decreases of income in regions that rely on tourism.

Diff: 3 Page Ref: 38 AACSB: Analytic Skills Objective: 2-2 What are the principles of supply and demand and the factors that affect each principle?

Skill: Application 100) How do consumer preferences for popular goods affect the demand curve? Give an example using a specific product.

Answer: When consumers show a high rate of preference for a particular product or service, the quantity of demand for that item increases and the demand curve shifts to the right (toward more demand.) Examples will vary, but students should identify a product with high initial demand, or a demand that grew noticeably stronger over time such as Nintendo Wii, Apple iPad, and TickleMe-Elmo dolls.

Diff: 1 Page Ref: 38 AACSB: Reflective Thinking Objective: 2-2 What are the principles of supply and demand and the factors that affect each principle?

Skill: Conceptual

101) Describe how each of the four degrees of competition affect supply and demand.

Answer: (1) In a monopoly, there is only one supplier of a good or service. Supply is not as high as it would be in a different form of competition, but demand for that good or service will be very high. (2) In an oligopoly, there is more supply than in a monopoly and more competition.

Prices tend to be very similar between products because the products themselves are similar.

Competition is centered on product differentiation in order to capture a larger share of the market rather than on price. (3) In a monopolistic competition, there are many buyers and sellers and both supply and demand are high. Monopolistic competition is driven by the differences consumers perceive between similar products. This perceived distinction between products is often driven by differences in price. (4) In a perfect competition, there are many buyers and sellers of virtually identical products. Supply and demand are both high, but because consumers do not differentiate between products and there are so many products available, no single seller can set the price.

Diff: 3 Page Ref: 39-42 AACSB: Analytic Skills Objective: 2-3 What are the four degrees of competition, and does competition affect supply?

Skill: Conceptual 102) Explain the relationship between monopoly as a form of economic competition and the failures of communism as an economic system.

Answer: A monopoly occurs when there is only one provider of a good or service and no substitutes for the good or service exist. Because there is only one supplier, there is less abundant supply in general and the supplier is more susceptible changes in resource prices. In the communist system, the government is the sole supplier of all goods and services across the economic spectrum and is responsible as well for controlling prices and distributing those goods and services. The entire economy (rather than just a single product or service) is therefore in some sense a monopoly, and because competition is limited to nonexistent, incentives to produce goods are limited and severe shortages of goods and services may result.

Diff: 3 Page Ref: 31, 36-37, 40 AACSB: Analytic Skills Objective: 2-3 What are the four degrees of competition, and does competition affect supply?

Skill: Conceptual

103) Divya owns a small boutique in a busy neighborhood. She has been thinking of expanding her business hours and hiring a sales associate to work evenings and weekends. She sees on the news that the GDP is down and decides to hold off on expanding her business for the time being.

Why? Answer: A downward-moving GDP indicates problems with the economy. The GDP moves down because fewer goods are being produced and fewer services being sold. This means that the businesses that produce these goods and services will have less profit and may need to lay off workers. The change in income for these workers means that they will spend less money overall, which means she may not have enough customers to make the expansion worthwhile.

Diff: 2 Page Ref: 43 AACSB: Analytic Skills Objective: 2-4 How do economic indicators particularly the gross domestic product (GDP), price indexes, the unemployment rate, and productivity reflect economic health?

Skill: Application 104) Describe how the consumer price index (CPI) uses the "market basket" to measure price changes.

Answer: The CPI measures price changes by creating a "market basket" of a specified set of goods and services (including taxes) that represent the average buying pattern of urban households. The value of this market basket, as determined by the combined prices of these goods and services, is compared to its value in a prior period (generally a month) and the change is noted.

Diff: 2 Page Ref: 43-44 AACSB: Reflective Thinking Objective: 2-4 How do economic indicators particularly the gross domestic product (GDP), price indexes, the unemployment rate, and productivity reflect economic health?

Skill: Conceptual 105) What does the consumer price index (CPI) tell us about the purchasing power of the dollar?

How does it function as an economic indicator?

Answer: During periods of increasing prices as reflected by the CPI, the purchasing power of the dollar decreases, meaning that less can be bought with a dollar today than yesterday. This functions as an economic indicator by showing that inflation is on the rise and that businesses should prepare for increases in the cost of labor and production.

Diff: 3 Page Ref: 43-44 AACSB: Reflective Thinking Objective: 2-4 How do economic indicators particularly the gross domestic product (GDP), price indexes, the unemployment rate, and productivity reflect economic health?

Skill: Conceptual

106) What are some consequences of a high unemployment rate? What are some consequences of a low unemployment rate?

Answer: High unemployment results in an increase in government spending on unemployment benefits and social services. It can also bring about increases in stress, mental illness, and crime throughout a population. Low unemployment means that workers have increased buying power and spend more, which can lead to a higher inflation rate. Also, it is costly for businesses to lay off workers and then, as the economy improves eventually, hire and train new employees.

Diff: 1 Page Ref: 45-46 AACSB: Reflective Thinking Objective: 2-4 How do economic indicators particularly the gross domestic product (GDP), price indexes, the unemployment rate, and productivity reflect economic health?

Skill: Conceptual 107) Name the four parts of the business cycle and describe how they relate to each other.

Answer: The peak of a business cycle occurs when the economy is at its strongest. The peak occurs when expansion ends and recession begins. A recession is a decline in GDP for two or more consecutive quarters and is characterized by a decline in corporate profits and a rise in unemployment. The trough is the point in the cycle at which the economy is at its weakest. The trough occurs when recession ends and recovery begins. Recovery, or expansion, is a growth in GDP and is characterized by rising profits and reduced unemployment.

Diff: 2 Page Ref: 47-48 AACSB: Reflective Thinking Objective: 2-5 What are the four stages of the business cycle?

Skill: Conceptual 108) Define open market operations and describe how the Federal Reserve Bank uses them to control the money supply.

Answer: Open market operations are the buying and selling by the Federal Reserve Bank of U.S. Treasury and federal agency bonds on the open market. Securities dealers compete in these transactions to get the best deal. When the Fed buys or sells U.S. securities, it is changing the level of reserves in the banking system. When it buys securities, it adds reserves to the banking system, thereby increasing the money supply and lowering interest rates. When it sells securities, it decreases the amount of reserves in the system, thereby reducing the money supply and causing interest rate increases.

Diff: 2 Page Ref: 50-51 AACSB: Reflective Thinking Objective: 2-6 How does the government use both fiscal policy and monetary policy to control swings in the business cycle?

Skill: Conceptual

109) What are the possible consequences of a continual expansion in the money supply?

Answer: If the money supply continues to expand, eventually there may not be enough goods and services to satisfy demand. When demand is high, prices will rise. An overall rise in price results in inflation, which leads to a decrease in the purchasing power of the dollar. To compensate, businesses increase wages to compensate for the price increases and eventually increase prices to compensate for the expanded costs of production.

Diff: 3 Page Ref: 50 AACSB: Analytic Skills Objective: 2-6 How does the government use both fiscal policy and monetary policy to control swings in the business cycle?

Skill: Application 110) How does lowering the discount rate enable the Fed to stimulate the economy? How does raising the discount rate enable the Fed to control too robust an economy?

Answer: The Fed lowers the discount rate on loans to banks to stimulate the economy by making it easier for banks to obtain additional reserves. The banks can then lend this money out to businesses, thereby stimulating the economy by adding funds into the economy. When the economy is too robust, the Fed can increase the discount rate, making it harder for banks to get loans and discouraging businesses from taking out loans at the higher interest rate, thereby slowing the addition of funds to the economy.

Diff: 2 Page Ref: 51 AACSB: Analytic Skills Objective: 2-6 How does the government use both fiscal policy and monetary policy to control swings in the business cycle?

Skill: Application Better Business, 7e (Solomon) Chapter 3 Ethics in Business 1) If you are developing your own personal ethical system, which of the following would NOT be appropriate to include in your evaluation?

A) your beliefs B) your age C) your behavior D) your character Answer: B Explanation: B) When you set out to analyze your own ethical system, the aspects you want to examine are your character, your beliefs, and your behavior. Your age should be irrelevant to your personal ethical system.

Diff: 2 Page Ref: 62 AACSB: Ethical Understanding and Reasoning Abilities Objective: 3-1 What are ethics and different ethical systems?

Skill: Conceptual 2) According to moral relativism ________.

A) gossiping creates a more divisive workplace B) everyone is equal in the eye of the law

C) no single view is more valid than any other D) people make decisions based on specific situation instead of universal laws Answer: C Explanation: C) Moral relativism is an ethical system that professes that there is no universal moral truth. Instead only people's individual beliefs, perspectives, and values are important and no single view is more valid than any other.

Diff: 3 Page Ref: 61 AACSB: Ethical Understanding and Reasoning Abilities Objective: 3-1 What are ethics and different ethical systems?

Skill: Conceptual 3) Unethical behavior is defined as behavior that does not conform to a set of approved standards of ________ behavior.

A) amoral B) diplomatic C) social D) religious Answer: C Explanation: C) Unethical behavior does not conform to a set of approved standards of social or professional behavior. Even though at times an unethical decision will produce some benefit, still the social norm dictates that the behavior is wrong.

Diff: 1 Page Ref: 62 AACSB: Ethical Understanding and Reasoning Abilities Objective: 3-1 What are ethics and different ethical systems?

Skill: Conceptual 4) Situational ethics encourages people to ________.

A) create a personal code of ethics based on their family background B) make ethical decisions based upon the circumstances of a particular experience, not upon fixed laws C) evaluate how they can best meet their individual needs in any particular situation D) apply the basic values shared all major religious traditions to a variety of situations Answer: B Explanation: B) Joseph Fletcher who developed situational ethics believed that applying the Golden Rule, treating others as you would like to be treated yourself, was more important in making ethical decisions than following the rules set out by society. This ethical approach encourages people to make ethical decisions based upon the circumstances of a particular experience, not upon fixed laws because it implies that universal rules either do not exist or are not valid. This was considered a very controversial approach.

Diff: 2 Page Ref: 61 AACSB: Ethical Understanding and Reasoning Abilities Objective: 3-1 What are ethics and different ethical systems?

Skill: Conceptual 5) Situational ethics was considered very controversial when it was established by Joseph Fletcher because it challenged the idea that ________.

A) universal rules exist and can be applied to every situation

B) people make decisions based on a specific situation no matter what the consequences are C) people make decisions based on a specific situation instead of universal laws D) most people act in their own self interest when making decisions Answer: A Explanation: A) Fletcher believed it was more important to apply the Golden Rule, treat others as you would like to be treated, than to apply any complex set of moral rules. The idea that people would make decisions based on specific situations rather than by following universal laws was controversial at the time.

Diff: 2 Page Ref: 64 AACSB: Ethical Understanding and Reasoning Abilities Objective: 3-1 What are ethics and different ethical systems?

Skill: Conceptual

6) Patricia often acts without thinking of the consequences. She usually comes home late and even skips her turn to do household chores. When someone asks her if she thinks what she does is right or wrong, she says she doesn't really know and she doesn't really care. Patricia's behavior can be classified as ________.

A) amoral B) unethical C) ethical D) moral Answer: A Explanation: A) Amoral behavior is very different from unethical behavior. An unethical act does not conform to the social norm and breaks rules that are considered ethically correct by most people. Amoral behavior, on the other hand, recognizes no right or wrong and the person behaves with no interest in the moral consequences of the questionable actions taken. When Patricia does not understand or care about the consequences of her actions she is not acting according to any ethical or moral standards or code. Her behavior can only be considered to be amoral.

Diff: 1 Page Ref: 62 AACSB: Ethical Understanding and Reasoning Abilities Objective: 3-1 What are ethics and different ethical systems?

Skill: Application 7) Living ethically can provide all of the following benefits EXCEPT ________.

A) reduced stress-related ailments B) improved personal happiness C) heightened agreement between personal and communal values D) improved capability of dealing with challenging situations Answer: C Explanation: C) Our personal ethical beliefs may not always be consistent with those of others in our personal and professional lives. Living ethically, however, can often improve personal health and happiness, and enhance our ability to determine our options in complex or challenging situations Diff: 2 Page Ref: 63-64 AACSB: Ethical Understanding and Reasoning Abilities Objective: 3-1 What are ethics and different ethical systems?

Skill: Application

8) Cindy is a popular actress and has won countless acting awards in her 15 years in the industry.

People always ask her what her secret is, and Cindy tells them, "Hard work always pays off!"

She adds that each time she acts she's giving her all. Cindy's belief is most likely in line with her ________.

A) social ethics B) personal ethics C) political ethics D) religious ethics Answer: B Explanation: B) Cindy has a very strong belief that her hard work is well worth the effort. Her principles are clear and she is consistent in her behavior. This reflects a strong sense of personal ethics. As a person chooses the words to use and the actions to take, this is how one follows a set of personal ethics.

Diff: 1 Page Ref: 62 AACSB: Ethical Understanding and Reasoning Abilities Objective: 3-2 How does a person create a personal code of ethics?

Skill: Application 9) Which of the following questions enables a person to BEST understand her behavior from an ethical perspective?

A) What are the most important beliefs you hold and use to make decisions in your life?

B) What characteristics would others use to describe you?

C) How do your relationships reflect your character and beliefs?

D) Where did your beliefs and your view of your character come from?

Answer: C Explanation: C) Relationships are formed by interacting, or behaving, with other people.

Therefore, in order to understand behavior one must understand relationships.

Diff: 2 Page Ref: 63 AACSB: Ethical Understanding and Reasoning Abilities Objective: 3-2 How does a person create a personal code of ethics?

Skill: Application

10) A new school of psychology, established by Dr. Martin Seligman of the University of Pennsylvania, addresses the causes of happiness instead of looking into treatments for mental dysfunctions. This area of psychology is called ________.

A) evaluative therapy B) positivism C) the happiness factor D) positive psychology Answer: D Explanation: D) Dr. Seligman pioneered the field of positive psychology, which aims to discover the causes of happiness instead of addressing the causes and treatment of mental dysfunctions.

Diff: 2 Page Ref: 64 AACSB: Ethical Understanding and Reasoning Abilities Objective: 3-2 How does a person create a personal code of ethics?

Skill: Application 11) "Nice guys finish last." and "Hard work always pays off" are examples of ________.

A) goals B) beliefs C) virtues D) behaviors Answer: B Explanation: B) These are beliefs. Examining the beliefs that influence your decision-making is part of the process of clarifying your code of personal ethics.

Diff: 1 Page Ref: 63 AACSB: Ethical Understanding and Reasoning Abilities Objective: 3-2 How does a person create a personal code of ethics?

Skill: Conceptual 12) Which of the following ethical issues should be of the LEAST concern to a business?

A) A customer has failed to report all of her income to the IRS. B) An employee uses recreational drugs on the weekends.

C) A manager is having a romantic relationship with one of his team members.

D) An employee who operates equipment drinks several beers while offsite eating lunch.

Answer: A Explanation: A) In today's business environment, anything an employee does at or away from the workplace could have potential ethical consequences. A customer may be engaging in unethical behavior, but as long as the behavior has nothing to do with the customer's interaction with the business, it should not be an ethical concern of the business.

Diff: 1 Page Ref: 64-68 AACSB: Ethical Understanding and Reasoning Abilities Objective: 3-3 How might personal ethics play a role in the workplace?

Skill: Conceptual

13) In business relations all of the following are influenced by our personal ethics EXCEPT ________.

A) actions B) job titles C) thoughts D) words Answer: B Explanation: B) Our actions, thoughts, and words are all influenced by our personal ethics. Our job titles are not influenced by our personal ethics, they reflect the responsibilities we carry in the workplace and our role in relation to others in the organization.

Diff: 1 Page Ref: 65 AACSB: Ethical Understanding and Reasoning Abilities Objective: 3-3 How might personal ethics play a role in the workplace?

Skill: Conceptual 14) When the wife of Mark Whitacre, who was involved in illegal activities at Archer Daniels Midland (ADM), threatened to divorce him if he did not end his involvement with the price fixing, she demonstrated an example of ________.

A) flexible ethical standards B) strong personal ethics C) compromised business ethics D) legal oversight Answer: B Explanation: B) Mark Whitacre was a senior executive with Archer Daniels Midland and he became involved with their multinational price-fixing scheme. His wife was aware of his involvement and because of her own strong sense of personal ethics she threatened to divorce him if he did not end this involvement. In this case, it is easy to get confused by his situation and hers. Mark Whitacre was demonstrating flexible ethical standards that could be considered compromised business ethics. The legal oversight needed to identify the price-fixing scheme that was going on was nonexistent at the time so it was only those close to the company or inside one of the companies involved with the scheme who could identifying the criminal activity that was taking place.

Diff: 2 Page Ref: 67 AACSB: Ethical Understanding and Reasoning Abilities Objective: 3-3 How might personal ethics play a role in the workplace?

Skill: Application

15) Which of the following would LEAST likely be a source of a company's values and principles?

A) the company's code of ethics B) the company's marketing campaign C) the company's mission statement D) the owner's behaviors and priorities Answer: B Explanation: B) A company's code of ethics states the company's commitment to ethical practices and specifies the ethical values that will be adhered to as a matter of company policy.

The company's mission statement defines the core purposes and values of the organization and identifies goals and hopes. The behavior and priorities of the owner will influence the company's values, not only at the time when the company is founded, but also as the company develops. A marketing campaign will not be a source of a company's values and principles, however, it may draw from those sources mentioned in promoting the goods and services offered by the company.

Diff: 2 Page Ref: 67 AACSB: Ethical Understanding and Reasoning Abilities Objective: 3-4 How can you evaluate company's ethical code using available resources such as a mission statement?

Skill: Conceptual 16) Many firms have a statement that defines the core purpose of the organization and its values.

Which of the following would LEAST likely include that statement?

A) corporate vision B) operations manual C) mission statement D) code of ethics Answer: B Explanation: B) A statement of the core purpose of the organization is usually included in a company's corporate vision, mission statement, or code of ethics. This core purpose is one of the key reasons these documents are produced and made available. The operations manual is usually a more technical document that describes procedures and practical matters so the core purpose of the organization and its values may not be included.

Diff: 2 Page Ref: 67 AACSB: Ethical Understanding and Reasoning Abilities Objective: 3-4 How can you evaluate company's ethical code using available resources such as a mission statement?

Skill: Conceptual

17) The responsibility of cultivating a company’s ethics MOST often rests on ________.

A) conscientious leaders B) a good marketing strategy C) a productive workforce D) stringent but coherent rules Answer: A Explanation: A) The leadership of a company carries the responsibility for establishing the ethical culture of a company, encouraging ethical conduct in all of the employees, and the responsibility for modeling ethical behavior and recognizing breaches in ethical conduct. The practices of the leadership have an effect on the workforce and influence the ethical culture on an ongoing basis.

Diff: 2 Page Ref: 65 AACSB: Ethical Understanding and Reasoning Abilities Objective: 3-4 How can you evaluate company's ethical code using available resources such as a mission statement?

Skill: Conceptual 18) Victor is using the Internet to research past charges that have been filed against the pharmaceutical company Pharmacure. Victor is primarily trying to find out about Pharmacure's ________.

A) code of ethics B) corporate vision C) record of legal compliance D) mission statement Answer: C Explanation: C) Victor is taking advantage of the resources available to check the legal compliance of the pharmaceutical company he's interested in. He can research actual charges that have been filed against the company and he can find judgments that have been made in lawsuits.

Diff: 1 Page Ref: 67 AACSB: Ethical Understanding and Reasoning Abilities Objective: 3-4 How can you evaluate company's ethical code using available resources such as a mission statement?

Skill: Application

19) Corporate social responsibility can be defined as a company's obligation to ________.

A) blend its activities into the social fabric of whatever country it conducts business in B) include social networking and society events that bring in prominent members of the community C) conduct its activities with the aim of achieving social, environmental, and economic development D) behave in whatever manner is necessary to earn the highest profit for owners Answer: C Explanation: C) No matter how small or large a company is, all businesses have a corporate responsibility. Some companies take this responsibility very seriously and have a desire to make a positive impact. Decisions have to be made regarding corporate social responsibility and companies must consider their impact on other people and the environment including social, environmental, and economic development.

Diff: 1 Page Ref: 68-69 AACSB: Ethical Understanding and Reasoning Abilities Objective: 3-5 How do a company's policies and decisions affect its achievement of corporate social responsibility?

Skill: Conceptual 20) Which of the following is NOT an example of how corporate social responsibility can be consistent with profitability?

A) using recycled styrofoam as cups in a coffee shop B) offering bonuses to employees who embellish profit and loss statements C) paying employees in a developing nation more than the minimum D) encouraging employees to volunteer within the local community Answer: B Explanation: B) Offering bonuses to employees who embellish profit and loss statements, or write them inaccurately, is not an example of promoting corporate social responsibility consistently with profitability. The other examples describe situations in which companies can promote social responsibility and profitability at the same time.

Diff: 3 Page Ref: 73 AACSB: Ethical Understanding and Reasoning Abilities Objective: 3-5 How do a company's policies and decisions affect its achievement of corporate social responsibility?

Skill: Application

21) When Shell Oil works toward reducing emissions of nitrous oxide and sulfur dioxide from its facilities, this is NOT an example of which of the following pillars of corporate social responsibility?

A) community and "good neighbor" policies B) marketing and consumer issues C) ethical sourcing and procurement D) environmental, health, and safety concerns Answer: C Explanation: C) One action, reducing emissions of nitrous oxide and sulfur dioxide, can make an impact in several major areas of corporate responsibility. This action does not involve the sourcing or the procurement of any materials, though, so this is one of the five pillars of corporate social responsibility that Shell Oil's action will not contribute to. The reduction of these emissions will help reduce the environmental toxicity of smog and acid rain.

Diff: 3 Page Ref: 70 AACSB: Ethical Understanding and Reasoning Abilities Objective: 3-5 How do a company's policies and decisions affect its achievement of corporate social responsibility?

Skill: Application 22) Since goods are more widely manufactured and sold in the global marketplace, this has caused U.S. companies to ________.

A) have more control over ethical standards in other countries since governments are eager to meet the expectations of companies that wish to operate within their borders B) close down offshore manufacturing facilities because of different ethical standards C) respect and care for their employees in the U.S. with higher ethical standards D) face difficult decisions about working with companies in other countries that do not meet U.S. standards for human rights and employment standards in the workplace Answer: D Explanation: D) When a U.S. company owns an assembly plant in another country, for example, that company is tied to the social conditions in that country and often must make difficult decisions. Other countries do not always adhere to U.S. standards for human rights and employment standards in the workplace so the business has to make choices about setting standards of its own within the workplace or following the standards of the country or region where the workplace is located. U.S. companies do not always have a great impact on influencing ethical standards in other countries. U.S. companies are not likely to close down a facility for ethical reasons, and unless they own the facility, may not have the power to do so.

The variation in cultures has not particularly caused U.S. company to respect and care for their employees here in the U.S. with higher ethical standards either.

Diff: 3 Page Ref: 70 AACSB: Ethical Understanding and Reasoning Abilities Objective: 3-5 How do a company's policies and decisions affect its achievement of corporate social responsibility?

Skill: Application

23) When the banana supplier Chiquita begins to improve conditions for its workers by constructing schools for employees' families, this is an example of which of the following pillars of corporate social responsibility?

A) human rights and employment standards in the workplace B) environmental, health, and safety concerns C) ethical sourcing and procurement D) marketing and consumer issues Answer: C Explanation: C) When a business like Chiquita is hiring workers in a different country, they are tied to the social concerns in that location. This is part of the process of finding sources for raw materials and making agreements to make it possible to transport the materials to the U.S. and other markets. To keep its suppliers operating or keep an assembly plant running smoothly, the company has a vested interest in the quality of the schools in that area so that the local workforce is educated. Chiquita made the very sound ethical decision to construct schools for employees' families.

Diff: 2 Page Ref: 70 AACSB: Ethical Understanding and Reasoning Abilities Objective: 3-5 How do a company's policies and decisions affect its achievement of corporate social responsibility?

Skill: Application 24) When a magazine refuses to accept advertisements featuring "size zero" models on the grounds that it could encourage eating disorders in young women, this is an example of paying attention to which pillar of corporate social responsibility?

A) marketing and consumer issues B) human rights and employment standards in the workplace C) community and good neighbor policies D) ethical sourcing and procurement Answer: A Explanation: A) When a company considers the ethical issues surrounding certain forms of advertising, it is addressing the marketing and consumer issues that are a pillar of corporate social responsibility.

Diff: 1 Page Ref: 70 AACSB: Ethical Understanding and Reasoning Abilities Objective: 3-5 How do a company's policies and decisions affect its achievement of corporate social responsibility?

Skill: Application

25) Which of the following is least likely to be an environmental, health, or safety concern for a farmer?

A) the operation of heavy machinery in harvesting crops B) the runoff of pesticides from fields C) the shipping of harvested crops in containerized trucks D) the construction of steel-walled barns to replace old wood barns Answer: D Explanation: D) The construction of steel-walled barns to replace old wood barns is an improvement for a farm that will provide for better shelter for animals, equipment, and hay or other grains that may be stored there. The other choices mentioned are more likely to have negative impacts on the environment, the health of the farmer, or the farmer's safety. The operation of heavy machinery is a dangerous enterprise. The runoff of pesticides from fields is an environmental concern and a health concern as well. And the shipping of harvested crops in containerized trucks to distant locations can be accomplished with less impact on the environment using freight trains.

Diff: 2 Page Ref: 70 AACSB: Ethical Understanding and Reasoning Abilities Objective: 3-5 How do a company's policies and decisions affect its achievement of corporate social responsibility?

Skill: Application 26) When a community gives Wal-Mart subsidies to attract them to the area and then the workers are paid so poorly that they have to apply for public assistance, this is an example of the failure of which of the pillars of corporate social responsibility?

A) community and "good neighbor" policies B) human rights and employment standards in the workplace C) environmental, health, and safety concerns D) marketing and consumer issues Answer: A Explanation: A) Corporate social responsibility (CSR) is concerned with how a company such as Wallmart affects the community surrounding its outlets. This concern is included in the pillar of CSR referred to as community and "good neighbor" policies.

Diff: 2 Page Ref: 70-71 AACSB: Ethical Understanding and Reasoning Abilities Objective: 3-5 How do a company's policies and decisions affect its achievement of corporate social responsibility?

Skill: Application

27) A corporation's first responsibility is ________.

A) to the society at large B) to its employees C) to its stockholders D) to the government Answer: C Explanation: C) A company is expected to make a profit at the end of each year. If a company is not profitable it cannot afford to exist. Because of the need for this financial survival, a corporation's first responsibility is to its stockholders and it is difficult to measure whether that necessity of making a profit is of greater import than the long-term responsibility the company has to the community or the planet.

Diff: 2 Page Ref: 71 AACSB: Ethical Understanding and Reasoning Abilities Objective: 3-5 How do a company's policies and decisions affect its achievement of corporate social responsibility?

Skill: Application 28) The primary mission of most corporations is ________.

A) to make a profit B) to produce products that the public will find useful C) to provide jobs to workers D) to create a stable balance sheet between income and expenses Answer: A Explanation: A) Without a profit, a corporation does not exist and cannot produce the products or offer the benefits it can offer when it is financial sound.

Diff: 2 Page Ref: 71 AACSB: Ethical Understanding and Reasoning Abilities Objective: 3-5 How do a company's policies and decisions affect its achievement of corporate social responsibility?

Skill: Conceptual 29) Which of the following is NOT a benefit of corporate social responsibility?

A) Sales increase through environmentally and ethically conscious labeling.

B) lower costs for materials and labor C) Efficiency increases when companies use materials efficiently and minimize waste.

D) The best available talent is retained.

Answer: B Explanation: B) Corporate social responsibility may result in some higher costs for materials and labor. However, ethical practices overall will often result in increased sales, greater efficiency and ability to attract and retain the most talented workers.

Diff: 3 Page Ref: 71 AACSB: Ethical Understanding and Reasoning Abilities Objective: 3-5 How do a company's policies and decisions affect its achievement of corporate social responsibility?

Skill: Conceptual

30) Corporate social responsibility is mainly concerned with how a company affects the ________.

A) family B) investor C) community D) vendors Answer: C Explanation: C) Whether it is human rights and employment standards in the workplace, ethical sourcing and procurement, marketing and consumer issues, or environmental concerns, community, and "good neighbor" policies, corporate social responsibility is concerned with how a company affects the community surrounding it and the community comprising those who work for the company and their families. Concerns for the investor, for employees, and for the families of employees are just parts of that greater concern for community.

Diff: 2 Page Ref: 70 AACSB: Ethical Understanding and Reasoning Abilities Objective: 3-5 How do a company's policies and decisions affect its achievement of corporate social responsibility?

Skill: Application 31) Which of the following is an internal examination by a company to measure its performance in relation to corporate social responsibility?

A) a corporate watchdog analysis B) self-reporting C) a social audit D) public ratings and rankings Answer: C Explanation: C) Measuring the degree of corporate social responsibility a company is engaged in can present helpful information about the company. One type of study that measures how well a company is meeting those responsibilities is a social audit. This is an internal systematic examination that measures and monitors the goals a company has set, the progress the company has made on those goals, and how the assets of the company are being applied to meeting those goals.

Diff: 1 Page Ref: 71 AACSB: Ethical Understanding and Reasoning Abilities Objective: 3-5 How do a company's policies and decisions affect its achievement of corporate social responsibility?

Skill: Application

32) How do companies conduct a social audit?

A) They submit their corporate social responsibility portfolios to third-party companies that rate and rank them against other companies.

B) They file reports to their stockholders and investors about proposed corporate social responsibility activities related to social work and environmental conservation.

C) They partner with charitable organizations that interact with the local community and employee relations on their behalf.

D) They conduct an internal systematic examination that measures and monitors the progress of the company in meeting its corporate social responsibility goals.

Answer: D Explanation: D) A social audit is an internal process as described in choice D. Diff: 1 Page Ref: 71 AACSB: Ethical Understanding and Reasoning Abilities Objective: 3-5 How do a company's policies and decisions affect its achievement of corporate social responsibility?

Skill: Application 33) The Calvert Company assigns companies scores between 1 and 5 on which of the following categories?

A) freedom of information B) transparency C) community relations D) truth in advertising Answer: C Explanation: C) The impact a company makes on the community and the ethical codes followed within the company and among companies are key facets of corporate social responsibility. The Calvert Investment Company provides corporate social responsibility ratings and reports to consumers and assigns scores in the categories of environment, workplace, business practices, human rights, and community relations. There are no scores related to freedom of information, transparency, or truth in advertising.

Diff: 1 Page Ref: 72 AACSB: Ethical Understanding and Reasoning Abilities Objective: 3-5 How do a company's policies and decisions affect its achievement of corporate social responsibility?

Skill: Application

34) Which of the following best defines the essential task of self-reporting?

A) to define values and ethical standards in the workplace B) to report the company's actions regarding corporate social responsibility to its stockholders C) to donate profits or resources to socially conscious and environmental organizations D) to submit all financial accounts to public scrutiny Answer: B Explanation: B) Self-reporting by companies of their own efforts to apply corporate social responsibility is increasingly prevalent.

Diff: 2 Page Ref: 72 AACSB: Ethical Understanding and Reasoning Abilities Objective: 3-5 How do a company's policies and decisions affect its achievement of corporate social responsibility?

Skill: Application 35) Which of the following is the practice of reporting to stockholders about corporate social responsibility and the ethical advances of a company?

A) a corporate watchdog analysis B) self-reporting C) a social audit D) public ratings and rankings Answer: B Explanation: B) When companies want to let their stockholders know about their actions regarding corporate social responsibility, self-reporting is an increasingly prevalent option.

Diff: 2 Page Ref: 72 AACSB: Ethical Understanding and Reasoning Abilities Objective: 3-5 How do a company's policies and decisions affect its achievement of corporate social responsibility?

Skill: Application

36) Which of the following is an example of ratings and rankings of the level of corporate social responsibility of companies?

A) a Time Warner press release discussing advances in corporate citizenship B) The founder of Clif Bar, Inc. won the Business Ethics Award given by Business Ethics magazine.

C) A regional heating fuel supplier performs a social audit of how resources such as funding and manpower have been applied to the goals of corporate social responsibility.

D) The Bill and Melinda Gates Foundation, started by Microsoft chairman Bill Gates, has begun an initiative for a malaria vaccine, which has had a positive impact on the public perception of Microsoft.

Answer: B Explanation: B) The Business Ethics Award given out by Business Ethics magazine is an honor that recognizes the efforts companies are making in the area of corporate social responsibility.

Clif Bar is known for giving employees extended sabbaticals and the company is powered exclusively by renewable energy. The products are organic and the owner who had founded the company refused to sell the company when he learned that the potential new owners would be laying off all current employees. This award is a good example of a type of rating and ranking of companies in terms of their level of corporate social responsibility.

Diff: 3 Page Ref: 72 AACSB: Ethical Understanding and Reasoning Abilities Objective: 3-5 How do a company's policies and decisions affect its achievement of corporate social responsibility?

Skill: Application 37) When Gary Erickson, the founder of Clif Bar, Inc., was about to accept an offer of $120 million for the company, he changed his mind because ________.

A) the offer was too high B) the offer was too low C) the purchasers were planning to move Clif Bar out of state and fire all current employees D) the purchasers were not intending to use renewable energy as the main power source for the company Answer: C Explanation: C) Clif Bar is known for treating employees well, including giving them extended sabbaticals. When the founder learned at the last minute that the potential new owner would not only be moving the company out of state but also firing all current employees, he could not ethically accept such a crisis to happen in the lives of so many people who had worked for him, so he refused to sell the company.

Diff: 2 Page Ref: 72 AACSB: Ethical Understanding and Reasoning Abilities Objective: 3-5 How do a company's policies and decisions affect its achievement of corporate social responsibility?

Skill: Application

38) Which is an example of using social networking to foster corporate social responsibility?

A) Burger King's use of YouTube to advertise its brand B) Toyota's Auto-biography Facebook campaign where Toyota owners can discuss their experiences C) Pepsi RefreshEverything's Web site where people from across the country can post their project proposals for meeting community needs D) American Express awards grants to nonprofit organizations as part of its Corporate Responsibility program Answer: C Explanation: C) Pepsi's RefreshEverything Web site is designed so that all involved parties can see and comment on proposed community projects, giving the public input into the money Pepsi eventually gives out to fund winning projects. Burger King's and Toyota's use of social networking sites is for the purpose of brand marketing. American Express's Corporate Responsibility grants do not have a social networking component.

Diff: 2 Page Ref: 72-73 AACSB: Ethical Understanding and Reasoning Abilities Objective: 3-5 How do a company's policies and decisions affect its achievement of corporate social responsibility?

Skill: Application 39) When a pharmaceutical company develops a new drug to fight malaria and ships it out to a region of the world where the populace cannot afford to buy the drug, this is an example of ________.

A) an action intended to tease B) an ethical dilemma C) a quality issue D) a global marketing conflict Answer: B Explanation: B) The pharmaceutical company must balance its need to respond to investors by making a profit with the goal of fighting diseases among people who do not have the means to afford the drug. This poses a dilemma for the company. And the ethical issues are challenging for the company to address. It would not be an unprofitable solution unless the company decided to sell drugs below cost or give away the drugs. It wold be a quality issue only if development, production, and distribution of the drug resulted in some problems with the effectiveness of the drug. The problem is of global proportions and is a conflict. However the question of marketing the new drug is not crucial to this dilemma. The top management must balance the responsibilities involved in having the ability to help many people while knowing that those people could not purchase the drug themselves with their responsibilities to other stakeholders.

Diff: 3 Page Ref: 73 AACSB: Ethical Understanding and Reasoning Abilities Objective: 3-6 What challenges does a company face in balancing the demands of social responsibility with successful business practices?

Skill: Application

40) A toy company regularly donates some of its profits to charitable organizations. This company is exercising ________.

A) self-reporting B) corporate philanthropy C) social audits D) public ratings and rankings Answer: B Explanation: B) When companies donate part of their profits or resources to charitable organizations, they are participating in corporate philanthropy. This is one of the most direct ways a company can practice corporate social responsibility and make a positive impact on a community.

Diff: 1 Page Ref: 72 AACSB: Ethical Understanding and Reasoning Abilities Objective: 3-6 What challenges does a company face in balancing the demands of social responsibility with successful business practices?

Skill: Application 41) Which of the following is not an environmentally based corporate social responsibility issue?

A) allowing chemical contaminants to enter the local groundwater system B) trucking toxic substances to Mexico to regions where it is legal to recycle them C) exposing employees to potentially hazardous materials D) effects on employees of a negative corporate culture Answer: D Explanation: D) Allowing contaminants to enter the groundwater system, trucking toxic substances out of the country and exposing employees to hazardous materials all pose ethical issues related to the environment. A negative corporate culture would affect employee morale but not a physical environment.

Diff: 2 Page Ref: 70 AACSB: Ethical Understanding and Reasoning Abilities Objective: 3-6 What challenges does a company face in balancing the demands of social responsibility with successful business practices?

Skill: Application

42) When a business implements a strong corporate social responsibility plan, it will MOST likely ________.

A) ensure its long-term sustainability B) cause the business to be financially unstable C) cause the prices of the products of that business to rise D) limit the long-term investment potential of the company Answer: A Explanation: A) Corporate social responsibility has strong positive effects for businesses overall and the long-term sustainability of the company's operations is one of the most likely effects.

Although participating in corporate social responsibility can have costs attached to it, this is unlikely to cause a business to become financially unstable unless it was unstable before. Prices of products are not likely to rise since increased productivity, a better image to the public, and more sustainable operations all are factors contributing to the stability of pricing. The long-term investment potential will almost certainly increase because investors will recognize the benefits of corporate social responsibility for the health and future potential of the business.

Diff: 2 Page Ref: 71 AACSB: Ethical Understanding and Reasoning Abilities Objective: 3-6 What challenges does a company face in balancing the demands of social responsibility with successful business practices?

Skill: Application 43) Socially responsible investing (SRI) is defined as investing only in companies that have met a certain standard of ________.

A) social acceptability B) global impact C) corporate social responsibility D) financial transparency Answer: C Explanation: C) Socially responsible investing gives those who invest money in mutual funds and the stock market the chance to support companies they feel are meeting worthy standards of corporate social responsibility. Investors and funds managers look at the actions companies take and examine the ethical implications in order to evaluate whether the company offers a sound investment opportunity and is aligned with the personal ethics of those investing.

Diff: 2 Page Ref: 75 AACSB: Ethical Understanding and Reasoning Abilities Objective: 3-6 What challenges does a company face in balancing the demands of social responsibility with successful business practices?

Skill: Application

44) Tools like the Hogan Personal Inventory assess a job candidate in areas such as ________.

A) math abilities B) business background C) stress tolerance D) morning routines Answer: C Explanation: C) When hiring employees it is important for a company to be sure that the individual being considered has a sense of personal ethics that matches the corporate values of the company. Tools like the Hogan Personal Inventory facilitate that evaluation by assessing candidates in areas such as interpersonal sensitivity, stress tolerance, and learning approach.

Skills like math abilities and business background are not relevant to these sorts of ethical concerns. And personal information about daily routines carried out outside of the workplace is also a violation of a person's privacy.

Diff: 2 Page Ref: 74 AACSB: Ethical Understanding and Reasoning Abilities Objective: 3-6 What challenges does a company face in balancing the demands of social responsibility with successful business practices?

Skill: Application 45) Which of the following is NOT a legal right?

A) the right to be heard B) the right to bear witness C) the right to safety D) the right to choose Answer: B Explanation: B) In 1962 the Consumer Bill of Rights was passed. The legal rights it includes are the right to safety, the right to choose, the right to information, and the right to be heard. The right to bear witness is not one of these rights.

Diff: 2 Page Ref: 76 AACSB: Ethical Understanding and Reasoning Abilities Objective: 3-7 What is legal compliance, and how does it affect ethical conduct?

Skill: Conceptual

46) To have a product certified as organic, a company must ________.

A) charge more for the product than for a comparable non-organic product B) allow the Food and Drug Administration (FDA) to conduct routine, frequent inspections C) meet annual inspections by the USDA to check on standards D) produce only organic products in its facilities Answer: C Explanation: C) The USDA's Organic seal assures consumers that organic products have met certain quality standards and have been produced under conditions set by the USDA. There are annual and random inspections to check on these standards. These inspections are not frequent and the standards set by the USDA are flexible enough that at the facilities where organic products are produced, non-organic products can also be produced. Organic products are not necessarily more expensive than non-organic products and certainly do not have to be more expensive to be certified as organic.

Diff: 2 Page Ref: 76 AACSB: Ethical Understanding and Reasoning Abilities Objective: 3-7 What is legal compliance, and how does it affect ethical conduct?

Skill: Conceptual 47) ________ are the laws that govern the products and processes of an industry.

A) Legal regulations B) Ethical standards C) Ethical codes D) Legal standards Answer: A Explanation: A) Legal compliance refers to the operating of businesses according to the legal regulations of the industry. Ethical standards and ethical codes do not have to be met to ensure legal compliance. And legal standards are not laws and regulations.

Diff: 1 Page Ref: 76 AACSB: Ethical Understanding and Reasoning Abilities Objective: 3-7 What is legal compliance, and how does it affect ethical conduct?

Skill: Conceptual

48) Conducting a business within the boundaries of all laws that govern that industry is referred to as ________.

A) legal excellence B) legal compliance C) legal adaptation D) legal integrity Answer: B Explanation: B) By definition, legal compliance refers to the operation of a business so that all legal regulations of the industry are being followed. Legal excellence. legal adaptation and legal integrity are intriguing terms that may imply that laws are being respected but are not substitute terms for legal compliance.

Diff: 1 Page Ref: 76 AACSB: Ethical Understanding and Reasoning Abilities Objective: 3-7 What is legal compliance, and how does it affect ethical conduct?

Skill: Conceptual 49) The Equal Employment Opportunity Commission (EEOC) monitors legal compliance by investigating complaints of violations of federal laws on a variety of issues, NOT including ________.

A) sexual harassment B) compliance with Americans with Disabilities Act C) discrimination D) criminal fraud Answer: D Explanation: D) Criminal fraud is a violation of laws that are not concerns of the Equal Employment Opportunity Commission (EEOC). The EEOC provides guidance on issues such as discrimination, sexual harassment, or violations of the Americans with Disabilities Act. Diff: 1 Page Ref: 76 AACSB: Ethical Understanding and Reasoning Abilities Objective: 3-7 What is legal compliance, and how does it affect ethical conduct?

Skill: Conceptual

50) Jeremy is a telemarketer who is hearing impaired. His hearing aid helps him take calls at work and this compensates for his disability. He accidentally broke his hearing aid and did not have the money to replace it. He asked for an advance on salary and was refused. He asked for a loan and was refused. As a result, Jeremy was unable to take calls from customers and he was fired from his job because of "poor performance." Which government agency shall he call to help Jeremy in this situation?

A) the Securities and Exchange Commission B) the Equal Employment Opportunity Commission C) the United States Congress D) the Department of Health and Human Services Answer: B Explanation: B) The Equal Employment Opportunity Commission will help Jeremy sort out the legal ramifications of his situation based on the Americans with Disabilities Act and such issues as discrimination in the workplace. His hearing impairment is a disability and therefore he is protected in the workplace by laws created for the benefit of Americans with disabilities.

Diff: 1 Page Ref: 76 AACSB: Ethical Understanding and Reasoning Abilities Objective: 3-7 What is legal compliance, and how does it affect ethical conduct?

Skill: Application 51) Which of the following companies has NOT been involved in a major legal battle over ethical issues in recent years?

A) MCI WorldCom B) Archer Daniels Midland C) Verizon D) Arthur Anderson Answer: C Explanation: C) In 2003 MCI WorldCom was fined $750 million because of accounting fraud.

Archer Daniel Midlands was involved in a multinational price-fixing scheme for many years.

The accounting and auditing firm Arthur Andersen was convicted of obstruction of justice for destroying thousands of documents related to its work with Enron, which went bankrupt as a result of fraudulent activities. Verizon has not been involved in a major legal battle over ethical issues in recent years.

Diff: 2 Page Ref: 77 AACSB: Ethical Understanding and Reasoning Abilities Objective: 3-7 What is legal compliance, and how does it affect ethical conduct?

Skill: Application

52) Which of the following companies, formerly in the top 25 of Fortune magazine's 100 Best Companies to Work For, no longer is in business because of flagrant legal and ethical violations?

A) Verizon B) Exxon-Mobil C) Enron D) Archer Daniels Midland Answer: C Explanation: C) Enron was at one time America's seventh largest company. And the company's values encompassed respect, integrity, and excellent. However, the company went bankrupt after years of fraudulent activities were revealed. Some of those activities include hiding debts in order to inflate its own stock price, manipulating the Texas and California power markets, and bribing foreign governments to win contracts abroad.

Diff: 2 Page Ref: 77 AACSB: Ethical Understanding and Reasoning Abilities Objective: 3-7 What is legal compliance, and how does it affect ethical conduct?

Skill: Application 53) The Sarbanes-Oxley Act requires that ________.

A) companies be held financially responsible for environmental damage caused by their actions B) CEOs verify their companies’ financial statements and vouch for their accuracy with the SEC C) all food packaging displays complete nutritional information D) investment bankers disclose the percentage of their assets that are considered high risk Answer: B Explanation: B) Under the Sarbanes-Oxley Act of 2002, CEOs are required to verify their companies’ financial statements and vouch for their accuracy with the SEC. Enron and other corporate scandals had such an impact on the business community and on the government regulatory agencies that the Sarbanes-Oxley Act was enacted to try to prevent scandals of this magnitude from occurring again.

Diff: 2 Page Ref: 77 AACSB: Ethical Understanding and Reasoning Abilities Objective: 3-7 What is legal compliance, and how does it affect ethical conduct?

Skill: Conceptual

54) Several investors are looking for information about an up-and-coming soft drink company, Soft Sip. Which government agency ensures that the investors have access to this information?

A) the Equal Employment Opportunity Commission B) the Securities and Exchange Commission C) the United States Department of Agriculture D) the United States Congress Answer: B Explanation: B) The Securities and Exchange Commission (SEC) governs the securities industry and makes sure the all investors have equal access to information about companies they are interested in. With this information the investors can make a well-informed decision about whether to invest in this young company.

Diff: 2 Page Ref: 79 AACSB: Ethical Understanding and Reasoning Abilities Objective: 3-7 What is legal compliance, and how does it affect ethical conduct?

Skill: Application 55) When shoppers boycotted Target because the chain had a policy of not allowing solicitors, including the Salvation Army, to collect money outside their doors, Target responded by ________.

A) donating $9 million to the Salvation Army B) launching an advertising campaign claiming that the company supported a variety of charities and did not include the Salvation Army C) creating a department in its stores for inexpensive used goods D) allowing solicitors, including the indigent homeless, to solicit money just inside the front entrances to their stores Answer: A Explanation: A) When the Salvation Army was banned from collecting contributions outside the doors of Target stores, they claimed that they had lost more than $9 million in possible donations. Shoppers were angered by this and boycotted Target stores, which sent the company a strong message, and Target chose to respond by working with the Salvation Army. First, they donated the lost $9 million directly. Then, Target created an online "Wish List" that shoppers could use to donate toys, clothing, and household items to needy families during the holiday season. By recovering from the boycott in this positive way, Target was able to avoid further negative impact of the situation they had created with their policy of not allowing solicitors to collect donations outside their doors.

Diff: 2 Page Ref: 78 AACSB: Ethical Understanding and Reasoning Abilities Objective: 3-8 What strategies can a company use to recover from ethical lapses?

Skill: Application

56) In June 2006, Bank of America offered over 21,000 employees in three cities $3,000 toward the purchase of hybrid vehicles. Bank of America’s offer shows the bank's commitment to ________.

A) ethical sourcing and procurement B) community and good neighbor policies C) environmental, health, and safety concerns D) marketing and consumer issues Answer: C Explanation: C) Bank of America was interested in demonstrating its commitment to environmental concerns. The company piloted a program in 2006 that offered over 21,000 associates in Boston, Charlotte, and Los Angeles $3,000 toward the purchase of a new hybrid vehicle. This initiative helped boost employee morale at the same that it helped reduce toxic emissions through the use of fuel-efficient cars.

Diff: 2 Page Ref: 70 AACSB: Ethical Understanding and Reasoning Abilities Objective: 3-9 How can companies apply ethical standards to create new business opportunities?

Skill: Application 57) Which of the following is LEAST likely to create an opportunity for a business to expand or improve its products or services?

A) redesigning the business so that there is no longer a negative impact on the environment B) creating new markets with an ethical focus C) using ethical challenges as a tool to unite and empower employees D) sending out public relations statements saying the company is against the deforestation of the Amazon rainforest Answer: D Explanation: D) Though it may be admirable for a company to oppose deforestation of the Amazon rainforest, the company has taken no action that will reduce its own impact on the environment nor is it encouraging its employees to do so either. The statement is a public relations gesture and less effective than an overhaul of the entire firm so that its operations do not harm the environment. More effective strategies would be to create new markets with an ethical focus and use ethical challenges as a tool to unite and empower employees.

Diff: 2 Page Ref: 81-82 AACSB: Ethical Understanding and Reasoning Abilities Objective: 3-9 How can companies apply ethical standards to create new business opportunities?

Skill: Application

58) What does it mean when a firm goes "green"?

A) It becomes eco-friendly.

B) It becomes political.

C) The business shifts to bigger profit goals.

D) The type of product sold by the business changes.

Answer: A Explanation: A) "Green" businesses are focused on reducing the impact they have on the environment and encourage others to take responsibility for stewardship of the environment. The term eco-friendly refers to the aim of being ecologically friendly by eliminating waste and toxic substances from products, using renewable energy, using less fossil fuels, reducing carbon emissions, and taking other steps to reduce a company's environmental footprint.

Diff: 1 Page Ref: 81-82 AACSB: Ethical Understanding and Reasoning Abilities Objective: 3-9 How can companies apply ethical standards to create new business opportunities?

Skill: Application 59) Which of the following is NOT a way for a company to reduce its environmental footprint?

A) reduce carbon emissions B) increase use of postal mail C) increase recycling D) increase use of email Answer: B Explanation: B) A company that increases its use of postal mail is printing and distributing more paper. This is not a way to reduce an environmental footprint.

Diff: 1 Page Ref: 81 AACSB: Ethical Understanding and Reasoning Abilities Objective: 3-9 How can companies apply ethical standards to create new business opportunities?

Skill: Application

60) Which of the following steps would be LEAST likely to improve the culture of ethical and responsible conduct in a business?

A) Calendars with the mission statement of the company can be printed and distributed for all employees to use at home and to give away at holiday time.

B) The mission statement can be posted throughout the workplace.

C) Managers can set clear examples for the standards of behavior expected.

D) Orientation programs can be offered to inform new employees of ethical standards in place and conduct expected of them.

Answer: A Explanation: A) The mission statement of a company, the example of behavior set by management, and the application of orientation programs to inform new employees of ethical standards and conduct expected of them are all means of improving the culture of ethical and responsible conduct in a business. These mission statement posted in the workplace is a good reminder of the goals and values of the business. When the mission statement is printed on a document and taken out of the workplace, it has less value on ethics in the workplace.

Distributing calendars with the mission statement of the company for employees to take home and use or to give away at holiday time will not improve the culture of the business ethically and may have a negative impact on the environment because of its unneccesary use of paper resources.

Diff: 2 Page Ref: 83 AACSB: Ethical Understanding and Reasoning Abilities Objective: 3-10 What approaches can a company use to develop and maintain an ethical environment?

Skill: Application 61) In effect, ethics are the guidelines you use to make daily decisions.

Answer: TRUE Explanation: Ethics refers to the study of morals and of moral behavior and choices made by individuals. This then provides guidelines to use in making daily decisions.

Diff: 1 Page Ref: 61 AACSB: Ethical Understanding and Reasoning Abilities Objective: 3-1 What are ethics and different ethical systems?

Skill: Conceptual 62) Moral relativism is a perspective that holds that there is a universal moral truth that is modified by individuals to suit differing circumstances.

Answer: FALSE Explanation: Moral relativism holds that there is no universal moral truth; therefore, no single view is more valid than any other. Instead, each person has his or her own ideas of right and wrong.

Diff: 1 Page Ref: 61 AACSB: Ethical Understanding and Reasoning Abilities Objective: 3-1 What are ethics and different ethical systems?

Skill: Conceptual

63) The decision to abide by the speed limit when driving is not an ethical decision.

Answer: FALSE Explanation: Traffic rules including speed limit laws are part of society's set of rules of conduct or laws. Choices you make about the speed you drive could have significant impact on your well-being and the safety of others. Ignoring these laws will affect your personal life and complying with these laws will make your life much simpler. This is an application of ethics in personal life.

Diff: 1 Page Ref: 61 AACSB: Ethical Understanding and Reasoning Abilities Objective: 3-2 How does a person create a personal code of ethics?

Skill: Application 64) Telecommuting is one instance when a person's employer may influence how an employee behaves at home.

Answer: TRUE Explanation: It might seem that a business owner or manager would have no influence over an employee's behavior when that employee is outside the office. However, when the employee is working from home, the employer has a right to expect behavior that would be in compliance with the ethics and culture of the business. Today's business environment has expanded to include home offices and other locations where employees perform their job requirements.

Diff: 2 Page Ref: 65 AACSB: Ethical Understanding and Reasoning Abilities Objective: 3-3 How might personal ethics play a role in the workplace?

Skill: Application 65) Sexual conduct outside the office will never impact the professional role of the employee involved.

Answer: FALSE Explanation: When an employee who is married is having an affair with another employee of the firm, for example, this will impact the professional roles of both employees. For example, when a married Boeing executive was discovered to be having an affair with a female employee, it posed a conflict between the personal ethics of the executive who had created a code of conduct for the company and his role in business. His affair with an employee impacted his professional life, the professional life of the female employee, and other employees who worked with either party.

Diff: 2 Page Ref: 65 AACSB: Ethical Understanding and Reasoning Abilities Objective: 3-3 How might personal ethics play a role in the workplace?

Skill: Application

66) The Americans with Disabilities Act is a federal law that upholds ethical standards.

Answer: TRUE Explanation: The Americans with Disabilities Act of 1990 requires that companies make reasonable accommodation to the known disabilities of an applicant or employee. Thus, ethical standards in the workplace are upheld.

Diff: 1 Page Ref: 66 AACSB: Ethical Understanding and Reasoning Abilities Objective: 3-3 How might personal ethics play a role in the workplace?

Skill: Application 67) Consumers have limited resources for determining whether a company has engaged in unlawful actions or has been irresponsible in its activities.

Answer: FALSE Explanation: Web sites like www.findlaw.com provide data about ethics violations that have resulted in court cases. Such sites allow you to research actual charges that have been filed or cases that have been judged against a company.

Diff: 2 Page Ref: 67 AACSB: Ethical Understanding and Reasoning Abilities Objective: 3-4 How can you evaluate company's ethical code using available resources such as a mission statement?

Skill: Conceptual 68) A company's track record of legal compliance can be used to evaluate a company's ethical conduct.

Answer: TRUE Explanation: Checking on company's record of legal compliance is an effective way to evaluate the ethics and corporate social responsibility of a company.

Diff: 1 Page Ref: 67 AACSB: Ethical Understanding and Reasoning Abilities Objective: 3-4 How can you evaluate company's ethical code using available resources such as a mission statement?

Skill: Application 69) Companies with a strong sense of corporate social responsibility are obligated to understand the work structure of their suppliers.

Answer: TRUE Explanation: Ethical sourcing and procurement are key elements in a company's corporate social responsibility. When making agreements with suppliers, it is advisable to learn about the ethics of those suppliers, especially in the global marketplace where a company may be working with an international supplier. Once materials are being purchased from a supplier, the company purchasing those supplies is tied to the environmental and social concerns in the area where the supplies originate.

Diff: 2 Page Ref: 70 AACSB: Ethical Understanding and Reasoning Abilities Objective: 3-5 How do a company's policies and decisions affect its achievement of corporate social responsibility?

Skill: Application

70) United States companies that locate their operations in less developed parts of the world are required to enforce U.S. standards regarding child labor, pollution, fair wages, and human rights.

Answer: FALSE Explanation: Companies operating outside of their home country are only required to adhere to local laws and standards. Therefore, companies must make ethical decisions about setting policies in areas such as child labor, pollution, fair wages and human rights.

Diff: 2 Page Ref: 69 AACSB: Ethical Understanding and Reasoning Abilities Objective: 3-5 How do a company's policies and decisions affect its achievement of corporate social responsibility?

Skill: Application 71) The environmental and social concerns of the Amazon Basin would be taken into consideration when a socially responsible U.S. manufacturer of furniture is making the decision about whether to purchase wood from that region.

Answer: TRUE Explanation: A business using ethical sourcing and procurement practices will be tied to the environmental and social concerns of the region where materials are being purchased and will make every effort to be sure that working conditions and the life of the workers there are meeting acceptable standards.

Diff: 1 Page Ref: 70 AACSB: Ethical Understanding and Reasoning Abilities Objective: 3-5 How do a company's policies and decisions affect its achievement of corporate social responsibility?

Skill: Application 72) Educating the local workforce is part of a thorough corporate social responsibility commitment.

Answer: TRUE Explanation: It is in the best interest of a company to provide an education for the local workforce if no education is available in the region. Improving the quality of education in an area will improve the productivity and the attitudes of the workforce and the surrounding community.

Diff: 2 Page Ref: 70 AACSB: Ethical Understanding and Reasoning Abilities Objective: 3-5 How do a company's policies and decisions affect its achievement of corporate social responsibility?

Skill: Application

73) The production of toxic materials is moving at a far faster pace than the growth of proper storage facilities and techniques, so disposal becomes more and more expensive.

Answer: TRUE Explanation: Toxic materials are being produced at a far faster pace than the growth of proper storage families and techniques. Disposal of toxic materials becomes more expensive and many businesses must make difficult decisions about the environment and the safety of workers and the community because of materials used in their businesses that are toxic to begin with or become toxic after processing.

Diff: 1 Page Ref: 70 AACSB: Ethical Understanding and Reasoning Abilities Objective: 3-5 How do a company's policies and decisions affect its achievement of corporate social responsibility?

Skill: Application 74) Walmart's behavior demonstrates that it places great value on the importance of corporate social responsibility.

Answer: FALSE Explanation: Walmart workers are paid so little that the community must provide medical benefits to their families. This inevitably increases the Medicaid expenditures in the area. The opening of a Walmart store also forces other local businesses to close which means a reduction in income for the families who were working at those businesses, in some cases leaving those workers unemployed and needing benefits to live on. And in some cases, when a Walmart store has come to an area, the local community will provide subsidies to attract the store to the area, causing a further loss of financial resources in the community.

Diff: 2 Page Ref: 70-71 AACSB: Ethical Understanding and Reasoning Abilities Objective: 3-5 How do a company's policies and decisions affect its achievement of corporate social responsibility?

Skill: Application 75) Companies must uphold their moral and ethical obligations to consumers above their need to respond to investors.

Answer: FALSE Explanation: Companies must make a profit in order to exist. Investors demand that companies make a profit in order for them to get a return on their investment. The moral and ethical obligations that a company upholds must be met only after the profit-making of the initiatives of the company have succeeded. Otherwise the operations of the business are not sustainable and there will be no financially stable company to be concerned with ethics.

Diff: 2 Page Ref: 71 AACSB: Ethical Understanding and Reasoning Abilities Objective: 3-5 How do a company's policies and decisions affect its achievement of corporate social responsibility?

Skill: Conceptual

76) As a consequence of The Bill and Melinda Gates Foundation work to upgrade public access to technology, Microsoft's leadership has demonstrated its high regard for CSR. Answer: TRUE Explanation: The Bill and Melinda Gates Foundation, started by Microsoft chairman Bill Gates, is working to upgrade public access to technology. And even though the foundation is not directly associated with Microsoft, Microsoft has benefited from the positive impact on public perception that these initiatives have engendered.

Diff: 2 Page Ref: 72 AACSB: Ethical Understanding and Reasoning Abilities Objective: 3-5 How do a company's policies and decisions affect its achievement of corporate social responsibility?

Skill: Application 77) Intel consistently scores high as an industry leader in its commitment to strong CSR practices because it supports many charitable groups and is responsive to the needs of the communities where it has facilities.

Answer: TRUE Explanation: Intel has shown a strong commitment to corporate social responsibility. Besides the human right policies it has put in place in all of the countries where it operates, Intel donates computer equipment to many organizations, supports many charitable groups with donations, and is responsive to the needs of the communities where it has facilities.

Diff: 3 Page Ref: 73 AACSB: Ethical Understanding and Reasoning Abilities Objective: 3-6 What challenges does a company face in balancing the demands of social responsibility with successful business practices?

Skill: Application 78) At the Kaplan Thaler advertising agency, one of the firm's ethical principles is that their employees are expected to be helpful to their colleagues.

Answer: TRUE Explanation: The core philosophy of the business is that it pays to be nice. The firm is committed to the principles of being empathetic and the founders believe people who are emotionally well-adjusted earn higher incomes and live longer, more satisfying lives.

Diff: 1 Page Ref: 74 AACSB: Ethical Understanding and Reasoning Abilities Objective: 3-6 What challenges does a company face in balancing the demands of social responsibility with successful business practices?

Skill: Application

79) When you agree to work for a company, you're saying that you agree with its mission and ethics.

Answer: TRUE Explanation: The choices a person makes about where to work, what to spend money on, and how to spend time reflect an individual's personal ethics. Choosing a job implies you support the mission and ethics of the company where you will be employed.

Diff: 2 Page Ref: 75 AACSB: Ethical Understanding and Reasoning Abilities Objective: 3-6 What challenges does a company face in balancing the demands of social responsibility with successful business practices?

Skill: Conceptual 80) Legal compliance refers to conducting a business within the boundaries of all the legal regulations of that industry.

Answer: TRUE Explanation: By definition, legal compliance refers to conducting a business within the boundaries of all the legal regulations of that industry.

Diff: 1 Page Ref: 76 AACSB: Ethical Understanding and Reasoning Abilities Objective: 3-7 What is legal compliance, and how does it affect ethical conduct?

Skill: Conceptual 81) If a company violates a law unknowingly there are usually reduced penalties, particularly if it occurs as a result of a lapse in understanding of the ethical principles involved.

Answer: FALSE Explanation: Companies are responsible for knowing and understanding laws and will suffer penalties or other punitive consequence when the laws are violated. It doesn't matter how complex or subtle the laws are, and a lapse in understanding of ethics is no excuse. Legal compliance is required of businesses and ignoring ethical conduct can have very damaging consequences.

Diff: 1 Page Ref: 76 AACSB: Ethical Understanding and Reasoning Abilities Objective: 3-7 What is legal compliance, and how does it affect ethical conduct?

Skill: Conceptual 82) When enough people feel that a particular ethical standard is important, it eventually becomes law.

Answer: TRUE Explanation: One example of this establishment of a set of laws in response to public sentiment is the Consumer Bill of Rights. The public felt that certain ethical standards needed to be protected by law and so, in 1962, the Consumer Bill of Rights was passed protecting the right to safety, the right to choose, the right to information, and the right to be heard.

Diff: 2 Page Ref: 76 AACSB: Ethical Understanding and Reasoning Abilities Objective: 3-7 What is legal compliance, and how does it affect ethical conduct?

Skill: Conceptual

83) The right to be heard is one of the four ethical standards made into a legal right by the 1962 Consumer Bill of Rights.

Answer: TRUE Explanation: The other three ethical standards protected by the Consumer Bill of Rights are the right to safety, the right to information, and the right to choose.

Diff: 1 Page Ref: 76 AACSB: Ethical Understanding and Reasoning Abilities Objective: 3-7 What is legal compliance, and how does it affect ethical conduct?

Skill: Conceptual 84) The Securities and Exchange Commission (SEC) makes sure that all investors have the same access to information about companies.

Answer: TRUE Explanation: The Securities and Exchange Commission (SEC) governs the securities industry and guarantees all investors that they will have the same access to information about companies.

The SEC also provides guidance to companies to help them maintain legal compliance.

Diff: 1 Page Ref: 76 AACSB: Ethical Understanding and Reasoning Abilities Objective: 3-7 What is legal compliance, and how does it affect ethical conduct?

Skill: Conceptual 85) Enron's unethical actions not only resulted in criminal convictions and huge fines, but were devastating to many thousands of people.

Answer: TRUE Explanation: When Enron committed criminal fraud on a broad scale, the penalties they paid for their unethical actions were devastating on a broad scale, too. The company had inflated its own stock price, manipulated the Texas and California power markets, and bribed foreign governments to win contracts abroad. Thousands of employees within the firm lost their pensions and financial consequences to the families and the number of communities affected by these scandals was enormous. The company dissolved in bankruptcy and outside agencies levied huge penalties on Enron and on its accounting and auditing firm, Arthur Andersen.

Diff: 2 Page Ref: 77 AACSB: Ethical Understanding and Reasoning Abilities Objective: 3-7 What is legal compliance, and how does it affect ethical conduct?

Skill: Application

86) Sergeant Joseph Darby, who sent information to the U.S. Army Criminal Investigation Command that sparked an investigation that eventually revealed to the public the abuses at Abu Ghraib prison in Iraq, lives as a hero, celebrated for his good deeds and further contributing to the welfare of his community.

Answer: FALSE Explanation: Sergeant Joseph Darby was a whistleblower. He sent an anonymous note and a set of images to the U.S. Army Criminal Investigation Command. His actions sparked an investigation that eventually revealed the abuses at Abu Ghraib to the public. And Darby later received a John F. Kennedy Profile in Courage award. But he and his wife were forced to live in protective custody in an undisclosed location because of threats made against them.

Whistleblowers who report misconduct risk their jobs and sometimes their lives when taking action against unethical conduct.

Diff: 2 Page Ref: 78 AACSB: Ethical Understanding and Reasoning Abilities Objective: 3-8 What strategies can a company use to recover from ethical lapses?

Skill: Application 87) A common strategy for companies recovering from scandals is to replace the CEO with someone who is regarded as trustworthy and ethical by the public.

Answer: TRUE Explanation: When a company seeks to recover from publicized scandals it is often a long battle to renew customer loyalty and revitalize the company's reputation. Finding a new leader who will set an example of the new ethical image of the company is often a good first step. A new CEO who is regarded as trustworthy and ethical by the public will serve this aim well.

Diff: 1 Page Ref: 78 AACSB: Ethical Understanding and Reasoning Abilities Objective: 3-8 What strategies can a company use to recover from ethical lapses?

Skill: Conceptual 88) One example of a business opportunity created by a concern for ethics and human rights is a company that created a technology to access internet sites that have been censored by the Chinese government.

Answer: TRUE Explanation: The Chinese government has different ideas about human rights and censorship than those of the many Western nations. For example, the Chinese government will put Web sites on a censored list and deny user access to them. When a site is placed on the list of censored sites by the Chinese government, Dynamic Internet Technology (DIT) combats this by creating a new, uncensored Web address that points users to the same material.

Diff: 2 Page Ref: 80-81 AACSB: Ethical Understanding and Reasoning Abilities Objective: 3-9 How can companies apply ethical standards to create new business opportunities?

Skill: Application

89) The world's largest commercial carpet manufacturer, Interface, demonstrates its commitment for "green" by having a mission statement that reads "Our promise is to eliminate any negative impact our company may have on the environment by the year 2020."

Answer: TRUE Explanation: The CEO of Interface, Ray Anderson, read The Ecology of Commerce by Paul Hawken and was inspired to use the principles of sustainability to protect and enhance life support systems on Earth. As a result, he wrote the optimistic mission statement quoted in the question. And the company is taking into consideration every aspect of its operations to reach its goal of having a positive impact on the planet.

Diff: 1 Page Ref: 81 AACSB: Ethical Understanding and Reasoning Abilities Objective: 3-9 How can companies apply ethical standards to create new business opportunities?

Skill: Application 90) When companies apply "green," ecologically friendly technologies, customers may see the value in these choices and go green themselves.

Answer: TRUE Explanation: When companies focus on ethical and environmental issues, when they make efforts to limit negative impact on the environment, when they benefit the environment and boost employee morale, this is likely to be an inspiration to customers who are made aware of these practices. Customers will be more likely to see the value in these choices and go green themselves.

Diff: 1 Page Ref: 81 AACSB: Ethical Understanding and Reasoning Abilities Objective: 3-9 How can companies apply ethical standards to create new business opportunities?

Skill: Conceptual 91) Actions like purchasing energy from wind farms and choosing suppliers that are ecologically friendly to balance out the necessary carbon dioxide produced in other stages of manufacturing are examples of how socially responsible practices can threaten the profitability of a a company.

Answer: FALSE Explanation: Actions like purchasing energy from wind farms and choosing suppliers that are ecologically friendly to balance out the necessary carbon dioxide produced in other stages of manufacturing are examples of the benefits of doing business in a socially responsible way.

Diff: 2 Page Ref: 79-82 AACSB: Ethical Understanding and Reasoning Abilities Objective: 3-9 How can companies apply ethical standards to create new business opportunities?

Skill: Application

92) A business can improve its culture of ethics by ensuring that a strict code of ethics and a meaningful and current mission statement is in place and that both are clearly communicated to employees when they start working at an organization.

Answer: TRUE Explanation: One of the best ways to improve the ethical culture of a business is to demonstrate how seriously it takes its mission and code of ethics. Posting mission statements and codes of ethics is one way to continuously remind employees of the ethical standards under which the business operates.

Diff: 1 Page Ref: 83 AACSB: Ethical Understanding and Reasoning Abilities Objective: 3-10 What approaches can a company use to develop and maintain an ethical environment?

Skill: Conceptual 93) Low-level employees at companies that have ongoing ethics training programs learn how to decide whether to follow the advice of their leaders.

Answer: TRUE Explanation: Employees cannot make the assumption that those who work above them, in positions of management or other broader responsibilities, necessarily adhere to ethical standards. In certain cases, if the low-level employees have undergone ethics training, they may be better judges of ethical conduct than those above them in the organization.

Diff: 2 Page Ref: 83-84 AACSB: Ethical Understanding and Reasoning Abilities Objective: 3-10 What approaches can a company use to develop and maintain an ethical environment?

Skill: Application 94) It is ethically advisable to create a hotline for employees to anonymously report violations of the ethics code and make sure the allegations are followed up on.

Answer: TRUE Explanation: When employees have a hotline that they can use to anonymously report on violations of the ethics code, they are empowered to communicate the problems that they observe knowing that they will not be penalized for being whistleblowers. It is important to make sure the allegations are followed up on so that the violations are corrected or the situation is improved somehow, otherwise the employee who made the report will not trust the system any longer.

Diff: 1 Page Ref: 84 AACSB: Ethical Understanding and Reasoning Abilities Objective: 3-10 What approaches can a company use to develop and maintain an ethical environment?

Skill: Application

95) What are some of the basic values of Judeo-Christian ethics, shared by both Jewish and Christian religious traditions?

Answer: respect for property and relationships, respect for parents, and being kind to others Diff: 2 Page Ref: 62 AACSB: Ethical Understanding and Reasoning Abilities Objective: 3-1 What are ethics and different ethical systems?

Skill: Conceptual 96) Describe the difference between unethical behavior and amoral behavior.

Answer: Unethical behavior is behavior that does not conform to a set of approved standards of social or professional behavior. Amoral behavior, on the other hand, is behavior where a person has no sense of right and wrong and no interest in the moral consequences of his or her actions.

Therefore, with amoral behavior there is no set of approved standards of social or professional behavior that is taken into consideration.

Diff: 2 Page Ref: 62 AACSB: Ethical Understanding and Reasoning Abilities Objective: 3-1 What are ethics and different ethical systems?

Skill: Conceptual 97) How can the creation of a personal ethical system be of assistance in making decisions?

Answer: If you have a clear idea of which values are most important to you, it will be easier to handle situations in your personal and professional life that require you to make complex ethical decisions. A personal analysis of your own ethical system will help you meet those challenges.

Diff: 2 Page Ref: 62 AACSB: Ethical Understanding and Reasoning Abilities Objective: 3-2 How does a person create a personal code of ethics?

Skill: Conceptual 98) Betty's son Bobby is suffering from a sore throat and a runny nose. However, Betty has an important presentation to make at work today. So Betty decides to send Bobby to school. How does this situation relate to the discussion of ethics?

Answer: Betty is feeling a conflict between what she values, the care and well-being of her son, and the actions she feels forced to take, the important presentation she's expected to make, and this is creating an ethical dilemma for her. She is probably feeling that she is not living ethically when she sends her son to school when he's sick.

Diff: 3 Page Ref: 62-63 AACSB: Ethical Understanding and Reasoning Abilities Objective: 3-2 How does a person create a personal code of ethics?

Skill: Application

99) What are some ethical issues involved in price fixing?

Answer: Price fixing occurs when a group of companies agree among themselves to set the products' prices, independent of market demand or supply. It is illegal and it is also unethical, because it causes customers to have to pay more than fair market value for goods they may need.

Individuals asked to participate in price fixing would have personal ethical issues to face as well.

They may feel pressured to cooperate with company actions that violated their own personal ethical standards. Students may refer to the Arthur Daniels Midland example in which the wife of a senior executive threatened to divorce him unless he found a way to end his involvement in a price fixing scheme.

Diff: 2 Page Ref: 66 AACSB: Ethical Understanding and Reasoning Abilities Objective: 3-3 How might personal ethics play a role in the workplace?

Skill: Conceptual 100) What is the significance of a company like Fetzer Vineyards having a company-wide English as a Second Language training program offered as part of its education package to employees?

Answer: Many American vineyards are in California where there are many Mexican and other Hispanic groups who have taken up U.S. residency for better-paying jobs than in their native countries. They may work picking grapes, handling trucks and other equipment, processing the grapes, working in the administration of the business, or a in variety of other jobs for the company. Since there may be a large number of Spanish-speaking employees, it will help the employees as well as helping the company to teach them English. However, it is also done at an expense to Fetzer Vineyards. This is ethically a positive action to take on behalf of the employees and to improve the culture and the productivity of the company itself.

Diff: 3 Page Ref: 67 AACSB: Ethical Understanding and Reasoning Abilities Objective: 3-4 How can you evaluate company's ethical code using available resources such as a mission statement?

Skill: Application 101) What are some ethical issues that Wal-Mart should consider when opening a new store?

Answer: Finding a way to be good corporate neighbor is important to avoid the tensions and bad publicity that Wal-Mart has struggled against. Wal-Mart pays its associates so little that the arrival of a Wal-Mart outlet in a community actually costs the community. Because workers are paid poorly and are not offered medical benefits to cover their children, Medicaid expenditures increase. In addition, many local and smaller businesses cannot compete with the giant and are forced to close. Adding insult to injury, often a community has given Wal-Mart subsidies to attract them to the area.

Diff: 3 Page Ref: 70-71 AACSB: Ethical Understanding and Reasoning Abilities Objective: 3-5 How do a company's policies and decisions affect its achievement of corporate social responsibility?

Skill: Application

102) When the Nobel Prize-winning economist Milton Friedman said, "Asking a corporation to be socially responsible makes no more sense than asking a building to be," what did he mean?

Answer: He argued that an abstract idea, like a corporation, cannot perform human functions, such as meeting responsibilities.

Diff: 2 Page Ref: 71 AACSB: Ethical Understanding and Reasoning Abilities Objective: 3-5 How do a company's policies and decisions affect its achievement of corporate social responsibility?

Skill: Application 103) What are the benefits to a company of paying attention to corporate social responsibility?

Answer: Having a strong and clear ethical policy helps a business in a number of ways: A company develops a positive reputation in the marketplace. A company enjoys strong recruitment and retention of the best available talent. Efficiency increases when companies use materials efficiently and minimize waste. And sales increase through new product innovations and environmentally and ethically conscious labeling.

Diff: 2 Page Ref: 71 AACSB: Ethical Understanding and Reasoning Abilities Objective: 3-6 What challenges does a company face in balancing the demands of social responsibility with successful business practices?

Skill: Conceptual 104) Name at least three of the ways it is possible to measure a company's level of corporate social responsibility.

Answer: Four ways to measure a company's corporate social responsibility are social audits (an internal systematic examination measuring and monitoring what goals the company has set, what progress has been made, and how resources have been applied to those goals); ratings and rankings (such as the Boston College's Center for Corporate Citizenship findings and the Calvert Investment Company ratings and reports); self-reporting; and corporate philanthropy (donating profits or resources to charitable organizations).

Diff: 3 Page Ref: 71-72 AACSB: Ethical Understanding and Reasoning Abilities Objective: 3-5 How do a company's policies and decisions affect its achievement of corporate social responsibility?

Skill: Conceptual

105) Seventy percent of the population of sub-Saharan Africa exists on less than $2 a day and is unable to pay for medications at a price point that would reimburse pharmaceutical companies for their research investment in medications to treat AIDS, tuberculosis, and malaria. How does this relate to the demands of corporate social responsibility?

Answer: Pharmaceutical companies are businesses facing ethical dilemmas in this situation. The question is: What is their exact moral and ethical obligation with regard to the AIDS pandemic in sub-Saharan Africa that killed 1.6 million people in Africa in 2007? Tuberculosis killed approximately 550,000 that same year, and at least 1 million people die from malaria each year, mostly children. It is a challenge for modern business leaders to balance their need to respond to investors and produce a profit with their desire to alleviate human suffering. Students do not need to remember exact statistics; however, an understanding of the scope of the problem and the sense of the moral and ethical challenges can be stated in reply to the question.

Diff: 2 Page Ref: 73 AACSB: Ethical Understanding and Reasoning Abilities Objective: 3-6 What challenges does a company face in balancing the demands of social responsibility with successful business practices?

Skill: Application 106) Name and describe an aspect of corporate social responsibility that the semiconductor manufacturers in the Silicon Valley area around San Francisco need to address.

Answer: Semiconductor manufacturers need to be concerned about the effect on the environment of their operations. People living in the Silicon Valley area near San Francisco rely on groundwater for their main supply of water. This leaves the entire Silicon Valley area dependent on proper industry practices by the many semiconductor manufacturers in the area. If these companies allow chemical contaminants to enter the groundwater system, the entire region suffers.

Diff: 2 Page Ref: 74 AACSB: Ethical Understanding and Reasoning Abilities Objective: 3-6 What challenges does a company face in balancing the demands of social responsibility with successful business practices?

Skill: Application

107) What are some of the ethical issues global businesses face, and what strategies can help them address those issues?

Answer: Free trade in which countries produce and sell products anywhere in the world can export pollution to less developed countries. Companies could move ―dirty industries‖ those that have a high risk of pollution, danger to workers, or toxic damage of the environment to a country where environmental regulations are lacking. Free trade may also make it easier for workers' human rights to be violated. Issues such as child labor, reasonable wages, and overall working conditions must be considered when a company conducts business in countries where protective regulations do not meet Western standards. To ensure that companies make ethical decisions about their global operations, it is increasingly important for industry leaders to have some structured ethical system.

Diff: 3 Page Ref: 74 AACSB: Reflective Thinking, Ethical Understanding and Reasoning Abilities Objective: 3-6 What challenges does a company face in balancing the demands of social responsibility with successful business practices?

Skill: Application 108) On what basis do fund managers who are working with clients who are interested in socially responsible investing decide which companies to include and exclude from the investment fund portfolio?

Answer: They look at the social and environmental behavior of companies and invest only in companies that have met a certain standard of corporate social responsibility.

Diff: 1 Page Ref: 75 AACSB: Ethical Understanding and Reasoning Abilities Objective: 3-6 What challenges does a company face in balancing the demands of social responsibility with successful business practices?

Skill: Application 109) Jeffrey Wigand is a vice president of a tobacco company who revealed that his company was deliberately manipulating the effect of the nicotine in its cigarettes to promote addiction.

What term best describes him?

Answer: whistleblower Diff: 2 Page Ref: 78 AACSB: Ethical Understanding and Reasoning Abilities Objective: 3-8 What strategies can a company use to recover from ethical lapses?

Skill: Application

110) What are at least two of the strategies that companies that are attempting to recover from a scandal follow?

Answer: They work to find a leader who will set an example of the new ethical image of the company. They restructure their internal operation to empower all employees to consider ethical implications of decisions and to feel free to speak up when they spot a concern. They redesign internal rewards for example, restructuring the incentive package for a sales department so that there is a financial reward to building an ongoing relationship with a client rather than just closing a sale one time.

Diff: 3 Page Ref: 78 AACSB: Ethical Understanding and Reasoning Abilities Objective: 3-8 What strategies can a company use to recover from ethical lapses?

Skill: Conceptual 111) What are two ways that companies apply ethical standards to create new business opportunities?

Answer: Some businesses are tackling ethical issues and offering consumers more ethical choices through their businesses while others are attempting to reduce the negative impact they have on the environment.

Diff: 3 Page Ref: 79-82 AACSB: Ethical Understanding and Reasoning Abilities Objective: 3-9 How can companies apply ethical standards to create new business opportunities?

Skill: Conceptual 112) What is sustainability?

Answer: the process of working to improve the quality of life in ways that simultaneously protect and enhance the earth's life support systems Diff: 3 Page Ref: 81 AACSB: Ethical Understanding and Reasoning Abilities Objective: 3-9 How can companies apply ethical standards to create new business opportunities?

Skill: Conceptual 113) Interface, a carpet manufacturer, produced a product called COOL carpet and, from its manufacture through its delivery, the carbon dioxide emissions over the full life cycle of the carpet are offset. What does this mean?

Answer: Actions like purchasing energy from wind farms and choosing suppliers that are "green" ecologically friendly balance out the necessary carbon dioxide emitted during the process of production.

Diff: 2 Page Ref: 81 AACSB: Ethical Understanding and Reasoning Abilities Objective: 3-9 How can companies apply ethical standards to create new business opportunities?

Skill: Application

114) How can a clearly stated mission statement improve the culture of ethical and responsible conduct for a business?

Answer: A mission statement can be communicated throughout the many levels of a business, and when it discusses issues of ethics and is posted through the workplace, it can influence everyone's actions.

Diff: 1 Page Ref: 83 AACSB: Ethical Understanding and Reasoning Abilities Objective: 3-10 What approaches can a company use to develop and maintain an ethical environment?

Skill: Application 115) How do games help companies instill ethical decision-making in their employees? Provide an example of a company that uses games for this purpose.

Answer: The use of multimedia and a gaming environment promotes a stronger dialog and builds insight into the practical ways to address the complex issues of corporate ethics and social responsibility. For example, Cadbury Schweppes, an international confectionery and beverage company, has created a board game called ―Ethical Risk‖ that its employees play to help bridge the gap between the values the company wants to achieve and the day-to-day decision-making and practices of its managers. Lockheed Martin uses a computer game called ―Gray Matters,‖ which presents a series of ethical dilemmas. Group discussion with a facilitator leads to a better understanding of how to resolve complex ethical issues. Many other companies offer self-paced online training in ethics awareness issues.

Diff: 3 Page Ref: 83 AACSB: Ethical Understanding and Reasoning Abilities Objective: 3-10 What approaches can a company use to develop and maintain an ethical environment?

Skill: Application 116) What other types of organizations, in addition to businesses, need to be concerned about ethics?

Answer: State and government organizations also need to be concerned with fostering ethical decision making in their ranks. Many law enforcement agencies including local police, state police, and the FBI have ethics training programs to help officers deal with cases in which there may be no clear response. For example, when an officer responds to a domestic disturbance call but decides no crime has been committed, does he or she have a responsibility to try to prevent a potential escalation into a future criminal incident? By discussing, role-playing, and writing about these scenarios, the officers are more prepared for the ethical dilemmas facing them on the job.

Diff: 2 Page Ref: 84 AACSB: Ethical Understanding and Reasoning Abilities Objective: 3-10 What approaches can a company use to develop and maintain an ethical environment?

Skill: Application

117) What are three approaches that companies can use to maintain a policy of ethical conduct in its workplace?

Answer: Managers check sporadically to determine that a code of ethics is being followed.

Managers should focus on ethics themselves, setting clear examples for the standards of behavior expected at all levels of the organization. Companies should offer ethics training programs designed to boost the awareness of their employees about ethical issues. Companies should create a hotline for employees to anonymously report violations of the ethics code and make sure the allegations are followed up on. Managers should communicate with employees regularly about acceptable and unacceptable business practices.

Diff: 3 Page Ref: 83-84 AACSB: Ethical Understanding and Reasoning Abilities Objective: 3-10 What approaches can a company use to develop and maintain an ethical environment?

Skill: Application Better Business, 7e (Solomon) Chapter 4 Business in a Global Economy 1) Localization is the movement toward a more interconnected and interdependent world economy.

Answer: FALSE Explanation: This is the definition of globalization, which reflects the great influence of the U.S. economy on the rest of the world and the effects of other countries on the U.S. economy.

Diff: 1 Page Ref: 93 AACSB: Analytic Skills, Dynamics of the Global Economy Objective: 4-1 What are the implications of the globalization of markets and the globalization of production?

Skill: Conceptual 2) The assigning of certain tasks, such as production or accounting, to an outside company or organization is called outsourcing.

Answer: TRUE Explanation: In order to cut costs or increase efficiencies, firms may contract with outside resources. This is outsourcing.

Diff: 1 Page Ref: 94 AACSB: Analytic Skills, Dynamics of the Global Economy Objective: 4-1 What are the implications of the globalization of markets and the globalization of production?

Skill: Conceptual 3) When a country drops its rule preventing the imports of foreign-made cars, it is increasing globalization through technological innovation.

Answer: FALSE Explanation: Trade barriers prevent the flow of goods and services across national boundaries.

A decline in trade barriers, such as allowing imports of cars, makes global business much cheaper and easier. This change in rules would be considered a reduction in barriers, not technological innovation.

Diff: 1 Page Ref: 95 AACSB: Reflective Thinking, Dynamics of the Global Economy Objective: 4-2 Why has globalization accelerated so rapidly?

Skill: Application 4) The purchasing of property and businesses in foreign nations is called globalization of markets.

Answer: FALSE Explanation: The purchasing of property and businesses in foreign nations is called foreign direct investment.

Diff: 1 Page Ref: 96 AACSB: Analytic Skills, Dynamics of the Global Economy Objective: 4-2 Why has globalization accelerated so rapidly?

Skill: Conceptual 5) When all countries focus on producing those products for which they have a comparative advantage, collectively, they will produce more products.

Answer: TRUE Explanation: The theory of comparative advantage suggests that a country should sell to other countries the goods that it manufactures most efficiently and effectively and buy from other countries the goods it cannot manufacture as efficiently or effectively. If this method is practiced, each nation will have a greater quantity and variety of higher-quality products to consume at lower prices.

Diff: 1 Page Ref: 97 AACSB: Analytic Skills, Dynamics of the Global Economy Objective: 4-3 What are the costs and benefits of international trade?

Skill: Conceptual 6) One way for a country to improve its competitiveness is to invest in worker training.

Answer: TRUE Explanation: Governments invest in health, education, and training designed to increase the productivity of their labor forces. All international businesses are constantly looking for good workers, and each country wants to attract businesses to enhance employment opportunities for its citizens. Moreover, high wages can only be sustained in a global labor market when justified by high productivity.

Diff: 2 Page Ref: 98 AACSB: Reflective Thinking, Dynamics of the Global Economy Objective: 4-3 What are the costs and benefits of international trade?

Skill: Application 7) The president of the nation of Gamma asks you if the benefits of international trade are greater than the costs. You should answer that it depends on one's perspective.

Answer: TRUE Explanation: International trade has both advantages and disadvantages. Consumers often appreciate international trade because it makes more products available at lower costs.

Businesses, on the other hand, might dislike international trade because it increases competition and lowers the amount that can be charged.

Diff: 2 Page Ref: 99 AACSB: Reflective Thinking, Dynamics of the Global Economy Objective: 4-3 What are the costs and benefits of international trade?

Skill: Application 8) Tariffs are a type of trade barrier.

Answer: TRUE Explanation: The types of trade barriers include tariffs, subsidies, quotas, embargoes, and administrative trade barriers.

Diff: 1 Page Ref: 100 AACSB: Analytic Skills, Dynamics of the Global Economy Objective: 4-4 What are the different types of trade barriers?

Skill: Conceptual

9) A quota is a total restriction on an import or export.

Answer: FALSE Explanation: A quota is a quantity limitation on the amount of an import allowed to enter a country. For example, a quota on French wine might limit the quantity to 10,000 cases per day.

Diff: 1 Page Ref: 100 AACSB: Analytic Skills, Dynamics of the Global Economy Objective: 4-4 What are the different types of trade barriers?

Skill: Conceptual 10) The U.S. total ban on importing Cuban cigars is an example of an embargo.

Answer: TRUE Explanation: The most heavy-handed government trade barrier is an embargo, a total restriction on an import (or export). The United States has imposed an embargo on most goods that could have otherwise been traded with Cuba since the 1960s.

Diff: 1 Page Ref: 100 AACSB: Reflective Thinking, Dynamics of the Global Economy Objective: 4-4 What are the different types of trade barriers?

Skill: Application 11) Even though the nation of Lambda lost in the arbitration of a WTO trade dispute, Lambda can ignore the result because the WTO has no enforcement power.

Answer: FALSE Explanation: The WTO does not allow losing parties to ignore its arbitration reports. The WTO has the power to enforce decisions.

Diff: 1 Page Ref: 103 AACSB: Reflective Thinking, Dynamics of the Global Economy Objective: 4-4 What are the different types of trade barriers?

Skill: Application 12) A free trade area is a compact abolishing trade barriers among member countries.

Answer: TRUE Explanation: Many nations have been so eager to achieve the higher standards of living associated with free trade that they have struck out on their own by creating free trade areas, or compacts abolishing trade barriers among member countries.

Diff: 1 Page Ref: 104 AACSB: Analytic Skills, Dynamics of the Global Economy Objective: 4-4 What are the different types of trade barriers?

Skill: Conceptual

13) The EU is currently the world's largest single market.

Answer: TRUE Explanation: The EU is currently the world's largest single market, surpassing the United States.

The EU accounts for approximately one-third of the world's total production. The EU is the largest exporter in the world and the second largest importer.

Diff: 1 Page Ref: 104 AACSB: Analytic Skills, Dynamics of the Global Economy Objective: 4-4 What are the different types of trade barriers?

Skill: Conceptual 14) Companies that sell a single product throughout the entire world follow a transnational strategy.

Answer: FALSE Explanation: Companies that pursue a transnational strategy offer a customized product while simultaneously selling it at the lowest possible price.

Diff: 1 Page Ref: 107 AACSB: Analytic Skills, Dynamics of the Global Economy Objective: 4-5 What are the three basic strategies of international business?

Skill: Conceptual 15) By differentiating its products to meet unique local needs, tastes, or preferences, a company follows a multidomestic strategy.

Answer: TRUE Explanation: A basic strategy of international business is the multidomestic strategy competing primarily by customizing or differentiating the product to meet unique local needs, tastes, or preferences. Firms pursuing a multidomestic strategy face relatively low pressures for cost reduction because the price is often of secondary concern to buyers. Instead, what is important to customers is whether the product meets their needs or is distinct from the product of competitors.

Diff: 2 Page Ref: 107 AACSB: Reflective Thinking, Dynamics of the Global Economy Objective: 4-5 What are the three basic strategies of international business?

Skill: Application 16) If a restaurant chain sells the use of its brand name to a Singaporean investor in exchange for a fee and a percentage of sales, the restaurant is entering a foreign market through exporting.

Answer: FALSE Explanation: This restaurant is franchising not exporting. Franchising involves selling the use of a well-known brand name or a proven method of doing business to an investor in exchange for a fee and a percentage of sales or profits. The seller is the franchisor, and the buyer is the franchisee.

Diff: 2 Page Ref: 108 AACSB: Reflective Thinking, Dynamics of the Global Economy Objective: 4-6 How can international firms successfully enter foreign markets?

Skill: Application

17) Contract manufacturing occurs when a firm pays another firm to produce part or all of its goods as an alternative to the payer owning and operating its own production facility.

Answer: TRUE Explanation: Contract manufacturing allows international business to enter a foreign market by placing its label on the good and selling it in the foreign market where it was produced. Contract manufacturing also enables a firm to test market its product in a foreign market with very little expense compared with the high startup costs of building its own facility.

Diff: 2 Page Ref: 109 AACSB: Analytic Skills, Dynamics of the Global Economy Objective: 4-6 How can international firms successfully enter foreign markets?

Skill: Conceptual 18) Exchange rates are the rates at which currencies are converted into another currency.

Answer: TRUE Explanation: Foreign exchange markets determine exchange rates, the rates at which currencies are converted into another currency. An example is the number of Japanese yen required to obtain one U.S. dollar.

Diff: 1 Page Ref: 111 AACSB: Analytic Skills, Dynamics of the Global Economy Objective: 4-7 What are exchange rates and how do they affect international business?

Skill: Conceptual 19) The value of a country's imports exceeds the value of its exports; therefore, the country has a trade deficit.

Answer: TRUE Explanation: A trade deficit exists when the value of a country's imports exceeds the value of its exports.

Diff: 1 Page Ref: 112 AACSB: Reflective Thinking, Dynamics of the Global Economy Objective: 4-7 What are exchange rates and how do they affect international business?

Skill: Application 20) Exchange rates can be manipulated or fixed by governments.

Answer: TRUE Explanation: Exchange rates can be manipulated or fixed by governments. For example, China has fixed its currency to a rate that is weak compared to the dollar. This means that Chinese exports to the United States are cheap and Chinese imports from the United States are expensive.

Diff: 1 Page Ref: 112 AACSB: Analytic Skills, Dynamics of the Global Economy Objective: 4-7 What are exchange rates and how do they affect international business?

Skill: Conceptual

21) A measure that divides a worker's wages by the average productivity of that worker is unit labor cost.

Answer: TRUE Explanation: Unit labor cost is a measure that divides a worker's wages by the average productivity of that worker. Global companies are concerned with labor costs when looking for lowest-cost locations to establish production facilities.

Diff: 1 Page Ref: 114 AACSB: Analytic Skills, Dynamics of the Global Economy Objective: 4-8 What economic factors and challenges play a role in conducting business on a global scale?

Skill: Conceptual 22) Culture is the complex set of values, behaviors, lifestyles, arts, beliefs, and institutions of a population that are passed on from generation to generation.

Answer: TRUE Explanation: Culture is the complex set of values, behaviors, lifestyles, arts, beliefs, and institutions of a population that are passed on from generation to generation. Culture impacts all aspects of business, from managing workers and production techniques to marketing and beyond.

Diff: 1 Page Ref: 115 AACSB: Analytic Skills, Dynamics of the Global Economy Objective: 4-9 What are the sociocultural, political, legal, and ethical challenges to conducting business in a global marketplace?

Skill: Conceptual 23) Different types of body language mean the same things throughout the world.

Answer: FALSE Explanation: Unspoken language, or body language, differs significantly around the world.

Although the world is getting smaller and a global culture is emerging, there are still profound and significant differences in culture, including unspoken language.

Diff: 1 Page Ref: 117 AACSB: Analytic Skills, Dynamics of the Global Economy Objective: 4-9 What are the sociocultural, political, legal, and ethical challenges to conducting business in a global marketplace?

Skill: Conceptual 24) Since consumers simply want to purchase the best product at the lowest prices, companies need not worry about aesthetics when working internationally.

Answer: FALSE Explanation: Aesthetics refers to what is considered beautiful or in good taste. Consumers will not purchase products if the products, or even marketing of the product, violate their sense of aesthetics.

Diff: 1 Page Ref: 116 AACSB: Analytic Skills, Dynamics of the Global Economy Objective: 4-9 What are the sociocultural, political, legal, and ethical challenges to conducting business in a global marketplace?

Skill: Conceptual

25) Bribery is illegal all around the world.

Answer: FALSE Explanation: Different laws govern bribes throughout the world. In many places in the world bribes are not uncommon and may even be necessary to do business.

Diff: 2 Page Ref: 118 AACSB: Reflective Thinking, Dynamics of the Global Economy Objective: 4-9 What are the sociocultural, political, legal, and ethical challenges to conducting business in a global marketplace?

Skill: Application 26) The link between labor costs in China and the price of MP3 music players in the U.S. is an example of ________.

A) localization B) monetization C) globalization D) nationalization Answer: C Explanation: C) By definition, the word globalization refers to the interconnected and interdependent world economy.

Diff: 1 Page Ref: 93 AACSB: Reflective Thinking, Dynamics of the Global Economy Objective: 4-1 What are the implications of the globalization of markets and the globalization of production?

Skill: Application 27) The growing demand for biofuels in the U.S. that has led to a growing supply of soybeans from Brazil is an example of all of the following EXCEPT ________ economies.

A) localized B) globalized C) interconnected D) interdependent Answer: A Explanation: A) A localized economy is one in which trade takes place in a small space such as a single state. Economic interaction between two different countries is not localized.

Diff: 1 Page Ref: 93 AACSB: Reflective Thinking, Dynamics of the Global Economy Objective: 4-1 What are the implications of the globalization of markets and the globalization of production?

Skill: Application

28) Apple's selling iPhones to customers in Africa, Asia, and Europe is an example of the globalization of ________.

A) production B) markets C) offshoring D) manufacturing Answer: B Explanation: B) The globalization of markets refers to thinking of the economic market as consisting of the entire world.

Diff: 2 Page Ref: 94 AACSB: Reflective Thinking, Dynamics of the Global Economy Objective: 4-1 What are the implications of the globalization of markets and the globalization of production?

Skill: Application 29) An example of globalization of ________ is Toyota opening a factory in Kentucky.

A) production B) markets C) retailing D) selling Answer: A Explanation: A) The globalization of production refers to the trend of individual firms moving production to different locations around the globe.

Diff: 2 Page Ref: 94 AACSB: Reflective Thinking, Dynamics of the Global Economy Objective: 4-1 What are the implications of the globalization of markets and the globalization of production?

Skill: Application 30) A term that describes the movement of production away from a domestic production site to a foreign location is ________ outsourcing.

A) domestic B) offshore C) production D) onshore Answer: B Explanation: B) General outsourcing is the assigning of certain tasks to an outside company or organization. When faced with intense foreign competition, U.S. firms may be forced to relocate some of their production to another country, or offshore.

Diff: 1 Page Ref: 94 AACSB: Analytic Skills, Dynamics of the Global Economy Objective: 4-1 What are the implications of the globalization of markets and the globalization of production?

Skill: Conceptual

31) The developing country of Alpha had a rule that none of its factories could be owned by companies from the developed country of Beta. If Alpha drops this rule, this would be an example of a(n) ________.

A) decline in trade and investment barriers B) globalization of markets C) technological innovation D) increase in tariffs Answer: A Explanation: A) Investment barriers prevent the flow of financial capital across national boundaries, such as the funds necessary to purchase a factory. A decline in trade and investment barriers lets international firms move their production to a less-cost location, such as from Beta to Alpha.

Diff: 2 Page Ref: 95 AACSB: Reflective Thinking, Dynamics of the Global Economy Objective: 4-2 Why has globalization accelerated so rapidly?

Skill: Application 32) An engineering team has members from Egypt, Malaysia, Australia, Argentina, and the U.S. They communicate by email and videoconference. The work of this globalized team is made easier because of ________.

A) technological innovation B) declines in trade barriers C) increases in quotas D) increases in democratization Answer: A Explanation: A) Dramatic technological advances in communication have made it possible to manage the global production of products. People are able to share information more rapidly and cheaply.

Diff: 2 Page Ref: 95 AACSB: Reflective Thinking, Dynamics of the Global Economy Objective: 4-2 Why has globalization accelerated so rapidly?

Skill: Application 33) Which of the following is contributing to the acceleration of globalization?

A) increasing democratization B) rising number of non-U.S. small, local businesses C) restricting foreign direct investment D) dominating U.S. economic system Answer: A Explanation: A) With the movement toward democratization and the adoption of free-market economies around the globe, many more nations are becoming involved in the global economy.

Diff: 1 Page Ref: 96 AACSB: Analytic Skills, Dynamics of the Global Economy Objective: 4-2 Why has globalization accelerated so rapidly?

Skill: Conceptual

34) All of the following contribute to accelerating globalization EXCEPT ________.

A) a growing role for developing nations B) a rise in non-U.S. foreign direct investment C) an increase in democratization D) a rise in non-U.S. small, local businesses Answer: D Explanation: D) Four global business trends are (1) a growing role for developing nations, (2) a rise in non-U.S. foreign direct investment, (3) a rise in non-U.S. multinational enterprises, and (4) increasing democratization.

Diff: 1 Page Ref: 95-96 AACSB: Analytic Skills, Dynamics of the Global Economy Objective: 4-2 Why has globalization accelerated so rapidly?

Skill: Conceptual 35) Brazil has experienced rapid economic growth and increased sales of its products to other countries. This is an example of a(n) ________.

A) increase in democratization B) growing role for developing nations C) rise in non-U.S. multinational enterprises D) rise in non-U.S. foreign direct investment Answer: B Explanation: B) The rapid economic growth of developing nations such as Brazil has accelerated globalization.

Diff: 2 Page Ref: 95-96 AACSB: Reflective Thinking, Dynamics of the Global Economy Objective: 4-2 Why has globalization accelerated so rapidly?

Skill: Application

36) The nation of Baa-Baa raises sheep relatively more efficiently than the nation of Snuggle.

Snuggle weaves woolen blankets relatively more efficiently than Baa-Baa. Baa-Baa decides to specialize in sheep raising, to sell wool to Snuggle, and to buy blankets from Snuggle. Snuggle decides to specialize in blanket weaving, to sell blankets to Baa-Baa, and to buy wool from BaaBaa. This international trade illustrates ________ advantage.

A) international B) comparative C) globalization D) absolute Answer: B Explanation: B) To possess a comparative advantage means that a country can produce a good or service relatively more efficiently compared with other countries. The theory of comparative advantage suggests that a country should sell to other countries the goods that it manufactures most efficiently and effectively and buy from other countries the goods it cannot manufacture as efficiently or effectively. If this method is practiced, each nation will have a greater quantity and variety of higher-quality products to consume at lower prices.

Diff: 2 Page Ref: 97 AACSB: Reflective Thinking, Dynamics of the Global Economy Objective: 4-3 What are the costs and benefits of international trade?

Skill: Application 37) If the U.S. has the ability to produce more steel than any other country in the world, the U.S. has a(n) ________ advantage in steel production.

A) relative B) globalized C) absolute D) comparative Answer: C Explanation: C) A comparative advantage should not be confused with an absolute advantage, which is the ability to produce more of a good or service than any other country. Just because a large country can produce more of a good than a small country does not necessarily mean it is relatively more efficient at producing that good.

Diff: 2 Page Ref: 97 AACSB: Reflective Thinking, Dynamics of the Global Economy Objective: 4-3 What are the costs and benefits of international trade?

Skill: Application

38) A country's launching of a government-owned telecommunications satellite is an example of investing in ________.

A) labor B) natural resources C) infrastructure D) private capital Answer: C Explanation: C) To give their nations a competitive edge, governments invest in public capital, which is sometimes called infrastructure. Infrastructure includes roads, bridges, dams, electric grid lines, and telecommunication satellites that enhance productivity. Governments also try to promote technological advances.

Diff: 1 Page Ref: 98 AACSB: Reflective Thinking, Dynamics of the Global Economy Objective: 4-3 What are the costs and benefits of international trade?

Skill: Application 39) A business can create a competitive or comparative advantage by doing all of the following EXCEPT ________.

A) shifting funding from worker training in order to increase profits B) promoting innovation throughout their organization C) accessing cheap raw materials D) purchasing state-of-the-art capital Answer: A Explanation: A) Successful firms try to gain access to cheap raw materials, invest in their workers' training, and purchase state-of-the-art capital (plant and equipment). Successful companies also invest in cutting-edge technology in their research and development departments.

Finally, they promote innovativeness throughout their organizations.

Diff: 2 Page Ref: 98 AACSB: Reflective Thinking, Dynamics of the Global Economy Objective: 4-3 What are the costs and benefits of international trade?

Skill: Application 40) According to the theory of comparative advantage, if the U.S. and Mexico increase their trade with each other, the two countries will experience ________ standards of living.

A) no change in B) higher C) rapidly decreasing D) slightly lower Answer: B Explanation: B) The theory of comparative advantage indicates that countries that participate in international trade will experience higher standards of living because of the greater quantity and variety of higher-quality products offered at lower prices. These results stem from the increased competition associated with more open trade.

Diff: 1 Page Ref: 97 AACSB: Reflective Thinking, Dynamics of the Global Economy Objective: 4-3 What are the costs and benefits of international trade?

Skill: Application

41) A U.S. consumer electronics company has to shut down because it cannot compete against foreign manufacturers. For the U.S., this is an example of a(n) ________ of international trade.

A) benefit B) cost C) theory D) cause Answer: B Explanation: B) The costs of international trade are borne by those businesses and their workers whose livelihoods are threatened by foreign competition. Some domestic businesses may lose market share to foreign companies, stunting their profitability and ability to create jobs. Other firms may be so clobbered by foreign competitors that they're driven out of business entirely.

Diff: 1 Page Ref: 99 AACSB: Reflective Thinking, Dynamics of the Global Economy Objective: 4-3 What are the costs and benefits of international trade?

Skill: Application 42) U.S. farmers export canned sweet corn to Germany, which lowers the price to a German consumer by a few cents. The benefits to Germany of this international trade deal are ________.

A) concentrated in the hands of a few German farmers B) nonexistent C) spread out among millions of German consumers D) immeasurable Answer: C Explanation: C) The benefits of international trade are not always easily recognizable, as they are spread out among millions of consumers. People benefit from lower-priced products, although the price reductions may only save people a few cents. But the sum of these lower prices for the public at large can be dramatic especially over time.

Diff: 1 Page Ref: 99 AACSB: Reflective Thinking, Dynamics of the Global Economy Objective: 4-3 What are the costs and benefits of international trade?

Skill: Application 43) As an economist, Susan Mukulu MOST LIKELY believes that over time the benefits of free trade ________ the costs.

A) are far outweighed by B) far outweigh C) are equal to D) only slightly outweigh Answer: B Explanation: B) Virtually all economists are free-trade advocates because they argue that over time the benefits far outweigh the costs for the nation as a whole.

Diff: 2 Page Ref: 100 AACSB: Analytic Skills, Dynamics of the Global Economy Objective: 4-4 What are the different types of trade barriers?

Skill: Conceptual

44) Who benefits from trade barriers?

A) domestic consumers B) domestic producers C) foreign workers D) foreign producers Answer: B Explanation: B) Domestic producers benefit from trade barriers because these barriers make it more expensive to purchase products produced outside of the country. Since it is more expensive to purchase products produced outside of the country, people tend to purchase more products purchased by domestic producers.

Diff: 1 Page Ref: 100 AACSB: Analytic Skills, Dynamics of the Global Economy Objective: 4-4 What are the different types of trade barriers?

Skill: Conceptual 45) If the nation of Epsilon places a tax on all grapes imported from the nation of Zeta, Epsilon has imposed a ________.

A) quota B) subsidy C) embargo D) tariff Answer: D Explanation: D) The most common trade barrier is the tariff, a tax imposed on an imported good or service, like grapes. Governments prefer to impose tariffs because they raise tax revenues.

Diff: 1 Page Ref: 100 AACSB: Reflective Thinking, Dynamics of the Global Economy Objective: 4-4 What are the different types of trade barriers?

Skill: Application 46) Which of the following is an example of a local content requirement?

A) China requires that a specific percentage of its domestically manufactured wind turbines be sold in China.

B) China requires a specific percentage of foreign-manufactured wind turbines be produced in China.

C) China requires only a small percentage of foreign-manufactured wind turbines be bought in China.

D) China requires that a specific percentage of foreign-manufactured wind turbines be sold in China.

Answer: B Explanation: B) A local content requirement is a requirement that some portion of a good be produced domestically. This usually drives up the cost of the import.

Diff: 1 Page Ref: 101 AACSB: Reflective Thinking, Dynamics of the Global Economy Objective: 4-4 What are the different types of trade barriers?

Skill: Application

47) As a result of their influence on the quantity, variety, and quality of products, trade barriers ________ consumers.

A) give an absolute advantage to B) hurt C) have no effect on D) help Answer: B Explanation: B) Trade barriers hurt consumers because the overall quantity, variety, and quality of products are lower as a result of curtailing foreign competition. For any nation, the economic costs of protectionism outweigh the economic benefits over time.

Diff: 1 Page Ref: 101 AACSB: Analytic Skills, Dynamics of the Global Economy Objective: 4-4 What are the different types of trade barriers?

Skill: Conceptual 48) The country of Theta restricts the activities of foreign insurance companies in order to give Theta's insurance industry a chance to grow and develop. Theta's actions are an example of the ________ argument in favor of protectionism.

A) cheap foreign labor B) national security C) threat of retaliation D) infant-industry Answer: D Explanation: D) The infant-industry argument states that an undeveloped domestic industry needs time to grow and develop in order to acquire a comparative advantage in the global economy. The protected time to grow will allow plenty of opportunities for the industry to make the investments needed to become innovative.

Diff: 1 Page Ref: 101 AACSB: Reflective Thinking, Dynamics of the Global Economy Objective: 4-4 What are the different types of trade barriers?

Skill: Application 49) The cheap foreign labor argument for protectionism relates to ________.

A) an undeveloped domestic industry's workers B) a lower wage often earned by many foreign workers C) a trading partner increasing trade barriers on work done by citizens D) an industry critical to national security being protected from foreign workers Answer: B Explanation: B) The cheap foreign labor argument centers on the sometimes significantly lower wages paid to workers of foreign companies. How can domestic companies compete with these low wages? Sometimes they can't, which motivates government leaders to impose trade restrictions.

Diff: 1 Page Ref: 101-102 AACSB: Analytic Skills, Dynamics of the Global Economy Objective: 4-4 What are the different types of trade barriers?

Skill: Conceptual

50) The nations of Tweedle-dee and Tweedle-dum do not trust each other. Tweedle-dee is convinced that if it lowers its trade barriers, Tweedle-dum will not lower its barriers. Therefore, Tweedle-dee keeps its trade barriers high. This is an example of the ________ argument in favor of protectionism.

A) threat of retaliation B) infant-industry C) national security D) cheap foreign labor Answer: A Explanation: A) The threat of retaliation argument says that if Country B increases its trade barriers on Country A's exports, or fails to reduce trade barriers as Country A reduces its own barriers, then an uneven, unfair playing field is created. Therefore, it is justified for Country A to protect its trade with barriers.

Diff: 1 Page Ref: 102 AACSB: Reflective Thinking, Dynamics of the Global Economy Objective: 4-4 What are the different types of trade barriers?

Skill: Application 51) The country of Kappa sells pizza for $1.00 each within its borders. But Kappa exports pizzas at a price of $0.30. This is an example of a(n) ________.

A) dumping B) administrative trade barrier C) embargo D) local content requirement Answer: A Explanation: A) Dumping refers to selling a product at a price below the price charged in the producing country. The intent of dumping is to dominate an industry and then control it.

Diff: 1 Page Ref: 106 AACSB: Reflective Thinking, Dynamics of the Global Economy Objective: 4-4 What are the different types of trade barriers?

Skill: Application 52) GATT stands for ________ on Tariffs and Trade.

A) General Agreement B) General Argument C) Global Agreement D) Global Argument Answer: A Explanation: A) The General Agreement on Tariffs and Trade (GATT) was created in 1948 with 23 member nations and grew to a membership of 123 by 1994. Although GATT was not an organization with any real enforcement powers, its eight rounds of negotiated agreements or treaties were very successful in reducing tariffs and other obstacles to free trade on goods. This, in turn, spurred significant world economic growth.

Diff: 1 Page Ref: 103 AACSB: Analytic Skills, Dynamics of the Global Economy Objective: 4-4 What are the different types of trade barriers?

Skill: Conceptual

53) If Ecuador has a dispute with France over the importation of bananas, from which agency can Ecuador seek arbitration?

A) GATT B) NAFTA C) WTO D) APEC Answer: C Explanation: C) The World Trade Organization (WTO) has strengthened the world trading system by extending GATT rules to services and increasing protection for intellectual property rights. But, perhaps of most significance, the WTO has taken on the responsibility for arbitrating trade disputes and monitoring the trade policies of member countries.

Diff: 2 Page Ref: 103 AACSB: Reflective Thinking, Dynamics of the Global Economy Objective: 4-4 What are the different types of trade barriers?

Skill: Application 54) A free trade area that includes 27 independent states is the ________.

A) European Union (EU) B) MERCOSUR C) North American Free Trade Agreement (NAFTA) D) Association of Southeast Asian Nations (ASEAN) Answer: A Explanation: A) The greatest free trade area exists among member nations of the European Union (EU), which is the oldest and largest free trade area. The EU can trace its roots to 1957 with the creation of the European Economic Community (or Common Market), which consisted of the six founding countries of Belgium, France, Germany, Italy, Luxembourg, and the Netherlands. Although many obstacles had to be overcome, like the concern over the potential loss of national sovereignty, the EU has grown to its current membership of 27 independent states, including Portugal and Estonia.

Diff: 2 Page Ref: 104 AACSB: Reflective Thinking, Dynamics of the Global Economy Objective: 4-4 What are the different types of trade barriers?

Skill: Application 55) A free trade area that includes Canada and the U.S., but not Japan, is the ________.

A) North American Free Trade Agreement (NAFTA) B) Association of Southeast Asian Nations (ASEAN) C) MERCOSUR D) European Union (EU) Answer: A Explanation: A) The North American Free Trade Agreement (NAFTA) is an ongoing agreement to move the United States, Mexico, and Canada closer to true free trade. NAFTA was established on January 1, 1994, after considerable political opposition.

Diff: 2 Page Ref: 104-105 AACSB: Reflective Thinking, Dynamics of the Global Economy Objective: 4-4 What are the different types of trade barriers?

Skill: Application

56) Airbus competes on the basis of price while selling a standardized or homogeneous product.

The company is using a ________ strategy.

A) transnational B) global C) multidomestic D) domestic Answer: B Explanation: B) A basic strategy of international business is the global strategy competing primarily on the basis of price while selling a standardized (or homogeneous) product.

Standardized products are basic products that meet universal needs.

Diff: 1 Page Ref: 107 AACSB: Reflective Thinking, Dynamics of the Global Economy Objective: 4-5 What are the three basic strategies of international business?

Skill: Application 57) A consumer products company competes around the world primarily by customizing or differentiating its products to meet unique local needs, tastes, or preferences. The company is using a ________ strategy.

A) global B) multidomestic C) transnational D) domestic Answer: B Explanation: B) A basic strategy of international business is the multidomestic strategy competing primarily by customizing or differentiating the product to meet unique local needs, tastes, or preferences. Firms pursuing a multidomestic strategy face relatively low pressures for cost reduction because the price is often of secondary concern to buyers. Instead, what is important to customers is whether the product meets their needs or is distinct from the product of competitors.

Diff: 1 Page Ref: 107 AACSB: Reflective Thinking, Dynamics of the Global Economy Objective: 4-5 What are the three basic strategies of international business?

Skill: Application

58) American Express competes around the world by offering a customized product while simultaneously selling at the lowest possible price. The company is using a ________ strategy.

A) transnational B) global C) multidomestic D) domestic Answer: A Explanation: A) A basic strategy of international business is the transnational strategy competing by offering a customized product while simultaneously selling at the lowest possible price. The strong cost pressures and strong pressures for differentiation that motivate this type of strategy are typically incongruent. Therefore, the successful pursuit of this type of strategy is extremely difficult in practice.

Diff: 1 Page Ref: 107 AACSB: Reflective Thinking, Dynamics of the Global Economy Objective: 4-5 What are the three basic strategies of international business?

Skill: Application 59) With a global strategy for conducting business internationally, a company competes ________.

A) primarily on the basis of price while selling a standardized product B) primarily by customizing or differentiating its product to meet unique local needs, tastes, or preferences C) primarily by offering a customized product while simultaneously selling at the lowest possible price D) primarily by offering a homogeneous product while simultaneously selling at a high price Answer: A Explanation: A) A basic strategy of international business is the global strategy competing primarily on the basis of price while selling a standardized (or homogeneous) product.

Standardized products are basic products that meet universal needs.

Diff: 1 Page Ref: 107 AACSB: Analytic Skills, Dynamics of the Global Economy Objective: 4-5 What are the three basic strategies of international business?

Skill: Conceptual

60) What is the term for the sale of a domestically produced good in a foreign market?

A) exporting B) turnkey project C) joint venture D) licensing Answer: A Explanation: A) Exporting is the sale of a domestically produced good in a foreign market. Most businesses typically begin serving a foreign market by exporting and only later switch to another mode to expand sales abroad.

Diff: 1 Page Ref: 108 AACSB: Analytic Skills, Dynamics of the Global Economy Objective: 4-6 How can international firms successfully enter foreign markets?

Skill: Conceptual 61) When Mu Manufacturing Co. exports their technological know-how in exchange for a fee, they are entering foreign markets through a ________.

A) strategic alliance B) turnkey project C) franchise D) wholly-owned subsidiary Answer: B Explanation: B) When firms export their technological know-how in exchange for a fee, they have implemented a turnkey project. Turnkey projects are common in the production of sophisticated and complex manufacturing facilities.

Diff: 2 Page Ref: 108 AACSB: Reflective Thinking, Dynamics of the Global Economy Objective: 4-6 How can international firms successfully enter foreign markets?

Skill: Application 62) An agreement in which a domestic company's intangible property may be sold or made available to a foreign company in exchange for a royalty fee is called a(n) ________.

A) strategic alliance B) franchise C) license D) wholly-owned subsidiary Answer: C Explanation: C) Licensing is an agreement in which the licensor's intangible property patents, trademarks, service marks, copyrights, trade secrets, or other intellectual property may be sold or made available to a licensee in exchange for a royalty fee.

Diff: 2 Page Ref: 108 AACSB: Analytic Skills, Dynamics of the Global Economy Objective: 4-6 How can international firms successfully enter foreign markets?

Skill: Conceptual

63) An American company enters the Mexican market by sharing ownership of a subsidiary firm with a Mexican company. This is an example of a(n) ________.

A) contract manufacturing arrangement B) joint venture C) strategic alliance D) export agreement Answer: B Explanation: B) Joint ventures involve shared ownership in a subsidiary firm. International joint venture partners involve an international business teaming up with a local partner in order to enter a foreign market.

Diff: 2 Page Ref: 108-109 AACSB: Reflective Thinking, Dynamics of the Global Economy Objective: 4-6 How can international firms successfully enter foreign markets?

Skill: Application 64) Cooperative arrangements between actual or potential competitors in which each partner retains its business independence are known as ________.

A) contract manufacturing B) licensing agreements C) turnkey projects D) strategic alliances Answer: D Explanation: D) Strategic alliances are cooperative arrangements between actual or potential competitors. Unlike a joint venture, each partner retains its business independence. Strategic alliances are typically agreements for a specific period of time or for only the duration of a particular project.

Diff: 2 Page Ref: 109 AACSB: Analytic Skills, Dynamics of the Global Economy Objective: 4-6 How can international firms successfully enter foreign markets?

Skill: Conceptual 65) In order to enter the Spanish market, a Moroccan firm establishes a store that is entirely owned by the Moroccan firm. This is an example of a(n) ________.

A) strategic alliance B) wholly-owned subsidiary C) exporting agreement D) joint venture Answer: B Explanation: B) A wholly-owned subsidiary involves establishing a foreign facility that is owned entirely by the investing firm. The advantages of this entry choice include total control over foreign operations and technological know-how. The disadvantage is that the parent company must bear all of the costs and risks of entering a foreign market.

Diff: 2 Page Ref: 109 AACSB: Reflective Thinking, Dynamics of the Global Economy Objective: 4-6 How can international firms successfully enter foreign markets?

Skill: Application

66) The ratio at which Australian dollars are converted into Indonesian rupiah is known as the ________ rate.

A) interest B) exchange C) international D) export Answer: B Explanation: B) The dollar is the currency of Australia. The rupiah is the currency of Indonesia.

Foreign exchange markets determine exchange rates, the rates at which currencies are converted into another currency.

Diff: 2 Page Ref: 111 AACSB: Reflective Thinking, Dynamics of the Global Economy Objective: 4-7 What are exchange rates and how do they affect international business?

Skill: Application 67) U.S. exporters prefer a(n) ________ dollar.

A) strong B) appreciating C) exchange D) weak Answer: D Explanation: D) U.S. exporters prefer a weak dollar because their products will be more affordable to foreigners. A weak dollar causes U.S. exports to become cheaper and more marketable.

Diff: 1 Page Ref: 111 AACSB: Analytic Skills, Dynamics of the Global Economy Objective: 4-7 What are exchange rates and how do they affect international business?

Skill: Conceptual 68) U.S importers prefer a(n) ________ dollar.

A) international B) weak C) depreciating D) strong Answer: D Explanation: D) U.S. importers prefer a strong dollar because the cost of importing foreign goods is cheaper. If goods are imported cheaply, then those savings can be either passed on to the consumer or kept as higher profits.

Diff: 1 Page Ref: 111 AACSB: Analytic Skills, Dynamics of the Global Economy Objective: 4-7 What are exchange rates and how do they affect international business?

Skill: Conceptual

69) A U.S. company exports products to Russia. The prices of the U.S. products in Russia are going up because the value of the dollar has ________ against Russia's currency.

A) depreciated B) stabilized C) risen D) fallen Answer: C Explanation: C) Suppose that the value of the dollar rises or gets stronger against the ruble (the currency of Russia). Goods exported from the United States will become more expensive because the Russians will now have to come up with more rubles to purchase each dollar.

Diff: 2 Page Ref: 111-112 AACSB: Reflective Thinking, Dynamics of the Global Economy Objective: 4-7 What are exchange rates and how do they affect international business?

Skill: Application 70) An example of currency ________ would be if the value of the U.S dollar rises against the Malagasy ariary (the currency of Madagascar).

A) internalization B) globalization C) appreciation D) depreciation Answer: C Explanation: C) Currency appreciation is an increase in the exchange rate value of a nation's currency. Appreciation causes the relative price of imports to fall as the relative price of exports rises. When currency appreciates, the currency becomes stronger.

Diff: 2 Page Ref: 111-112 AACSB: Reflective Thinking, Dynamics of the Global Economy Objective: 4-7 What are exchange rates and how do they affect international business?

Skill: Application 71) If the value of the nation of Nu's exports is greater than the value of its imports, Nu has a trade ________.

A) balance B) currency C) surplus D) deficit Answer: C Explanation: C) A trade surplus occurs when the value of a country's exports exceeds the value of its imports.

Diff: 1 Page Ref: 112 AACSB: Reflective Thinking, Dynamics of the Global Economy Objective: 4-7 What are exchange rates and how do they affect international business?

Skill: Application

72) Most countries operate under a(n) ________ exchange rate system.

A) fixed B) freely floating C) stable D) immeasurable Answer: B Explanation: B) Most countries operate under a freely floating (or flexible) exchange rate system, a system in which the global supply and demand for currencies determine exchange rates. Many specific factors affect the demand and supply of a nation's currency, such as changing interest rates, tax rates, and inflation rates. But generally, changes in exchange rates in a freely floating exchange rate system reflect the country's current economic health and its outlook for growth and investment potential.

Diff: 2 Page Ref: 113 AACSB: Analytic Skills, Dynamics of the Global Economy Objective: 4-7 What are exchange rates and how do they affect international business?

Skill: Conceptual 73) What would prompt a nation to invest in a sovereign wealth fund (SWF)?

A) trade deficit B) trade surplus C) trade balance D) trade growth Answer: B Explanation: B) Often countries that trade in raw materials, such as oil or diamonds, find the price of the commodity fluctuates a great amount from year to year. So, taking the pool of money that exists in the year of a trade surplus and investing it would be a good strategy. Sovereign wealth funds (SWFs) are government investment funds that do just that.

Diff: 2 Page Ref: 112 AACSB: Reflective Thinking, Dynamics of the Global Economy Objective: 4-4 What are the different types of trade barriers?

Skill: Application 74) What is a valid explanation as to why some nations retain nonconvertible currency?

A) desire to work with other countries B) increased academic achievement C) fear of capital flight D) reliance on foreign loans Answer: C Explanation: C) Some countries retain nonconvertible currency because they fear that if their currency could be converted into other currencies businesses and consumers would stop purchasing products produced within the nation.

Diff: 2 Page Ref: 113 AACSB: Reflective Thinking, Dynamics of the Global Economy Objective: 4-4 What are the different types of trade barriers?

Skill: Application

75) What is the opposite of nonconvertible currency?

A) countertrade currency B) freely floating currency C) gold coin currency D) unregulated currency Answer: B Explanation: B) While nonconvertible currency is not exchanged for other currency on the international market, freely floating currency is exchanged for other currency.

Diff: 2 Page Ref: 113 AACSB: Reflective Thinking, Dynamics of the Global Economy Objective: 4-4 What are the different types of trade barriers?

Skill: Application 76) The nation of North Xi has a ________ currency that cannot be exchanged in a foreign exchange market.

A) countertrade B) nonconvertible C) flexible D) fixed Answer: B Explanation: B) Most countries operate under a freely floating (or flexible) exchange rate system, a system in which the global supply and demand for currencies determine exchange rates. However, some countries do not allow their currency to be exchanged in this system. This currency is called nonconvertible.

Diff: 2 Page Ref: 113 AACSB: Reflective Thinking, Dynamics of the Global Economy Objective: 4-7 What are exchange rates and how do they affect international business?

Skill: Application 77) Global companies can still do business with countries that have nonconvertible currencies through the use of ________.

A) appreciation B) countertrade C) depreciation D) currency Answer: B Explanation: B) Global companies can still do business with countries that have nonconvertible currencies through the use of countertrade. Countertrade is a form of international barter, the swapping of goods and services for other goods and services.

Diff: 2 Page Ref: 113-114 AACSB: Analytic Skills, Dynamics of the Global Economy Objective: 4-7 What are exchange rates and how do they affect international business?

Skill: Conceptual

78) The nation of South Pi is experiencing rapid increases in business activity, but still lacks sufficient infrastructure and modern communication systems. Which challenge to conducting international business is the PRIMARY one faced by exporters to Pi? A) nonconvertible currency B) government economic policies C) economic growth and development D) socioeconomic factors Answer: C Explanation: C) Many developing countries lack the basic infrastructure necessary for effective transportation of goods and/or lack access to dependable electricity. They have insufficient economic growth and development. They may also be lacking in modern communication systems.

Diff: 2 Page Ref: 118 AACSB: Reflective Thinking, Dynamics of the Global Economy Objective: 4-8 What economic factors and challenges play a role in conducting business on a global scale?

Skill: Application 79) International businesses prefer ________ economies to ________ economies because the bureaucratic hassles associated with government intervention drive costs up.

A) state-run; free market B) free market; state-run C) socialized; free market D) state-run; socialized Answer: B Explanation: B) The degree to which markets are allowed to operate free from government intervention is an important economic consideration. International businesses prefer free market economies to state-run or socialized economies because the bureaucratic hassles associated with government intervention drive costs up.

Diff: 1 Page Ref: 114 AACSB: Analytic Skills, Dynamics of the Global Economy Objective: 4-8 What economic factors and challenges play a role in conducting business on a global scale?

Skill: Conceptual

80) Socioeconomic factors that must be considered by international companies include all of the following EXCEPT ________.

A) cultural behaviors B) income distribution C) birthrates D) atypical behaviors Answer: D Explanation: C) Several socioeconomic factors need to be taken into account when conducting business internationally. These include the demographics of population density and age distribution. The birthrates of many developing countries are high and offer exciting opportunities to toy manufacturers, for example. Companies need not consider atypical behaviors of a few people when considering conducting business internationally.

Diff: 1 Page Ref: 114 AACSB: Analytic Skills, Dynamics of the Global Economy Objective: 4-8 What economic factors and challenges play a role in conducting business on a global scale?

Skill: Conceptual 81) An American businessperson who demonstrates sensitivity to and appreciation for Chilean culture possesses ________.

A) cross-cultural detachment B) cross-cultural awareness C) ethnocentrism D) cultural intervention Answer: B Explanation: B) Most international businesses fail because they suffer from a lack of crosscultural awareness, which is an understanding, appreciation, and sensitivity to foreign culture.

Ethnocentrism, a belief that one's own culture is superior to all other cultures, is a guaranteed recipe for disaster when undertaking international business.

Diff: 1 Page Ref: 116 AACSB: Reflective Thinking, Dynamics of the Global Economy Objective: 4-9 What are the sociocultural, political, legal, and ethical challenges to conducting business in a global marketplace?

Skill: Application

82) Aesthetics encompasses all of the following EXCEPT ________.

A) etiquette B) religion C) language D) protocol Answer: B Explanation: B) Aesthetics refers to what is considered beautiful or in good taste. Aesthetics encompasses etiquette, customs, and protocol. Few things are more embarrassing than violating a sense of good taste. While religion should be respected, it is not a part of aesthetics.

Diff: 2 Page Ref: 116 AACSB: Reflective Thinking, Dynamics of the Global Economy Objective: 4-9 What are the sociocultural, political, legal, and ethical challenges to conducting business in a global marketplace?

Skill: Application 83) Which of the following BEST demonstrates that different countries have different attitudes toward work?

A) different religious traditions B) different aesthetic norms C) different vacation policies D) different language standards Answer: C Explanation: C) Different vacation policies, across different countries, demonstrate different attitudes toward work. For example, Europeans expect four to six weeks of vacation per year.

Compare this to the two weeks on average a person in the United States gets. Europeans value time away from work more than Americans.

Diff: 1 Page Ref: 116 AACSB: Analytic Skills, Dynamics of the Global Economy Objective: 4-9 What are the sociocultural, political, legal, and ethical challenges to conducting business in a global marketplace?

Skill: Conceptual

84) If a Turkish company closes its U.S. offices on Easter Sunday, the company is giving PRIMARY consideration to ________.

A) aesthetics B) language C) religion D) attitudes Answer: C Explanation: C) Religion plays a profound role in shaping a culture. International businesses are therefore well advised to educate themselves on varying religious value systems, customs, and practices if they do not wish to offend customers and employees.

Diff: 1 Page Ref: 116-117 AACSB: Reflective Thinking, Dynamics of the Global Economy Objective: 4-9 What are the sociocultural, political, legal, and ethical challenges to conducting business in a global marketplace?

Skill: Application 85) An American executive who studies Italian before making a sales trip to Rome is showing consideration for ________.

A) language B) attitudes C) religion D) aesthetics Answer: A Explanation: A) Language is extremely important. A lack of cross-cultural and language awareness can lead to international business blunders.

Diff: 1 Page Ref: 117 AACSB: Reflective Thinking, Dynamics of the Global Economy Objective: 4-9 What are the sociocultural, political, legal, and ethical challenges to conducting business in a global marketplace?

Skill: Application 86) Generally, international businesses thrive in nations that have all of the following EXCEPT a ________.

A) government-controlled economy B) firm commitment to free market principles C) stable government D) democratically elected government Answer: A Explanation: A) Generally, international businesses thrive in nations that have a firm commitment to free market principles with a stable, democratically elected government.

Diff: 1 Page Ref: 117 AACSB: Analytic Skills, Dynamics of the Global Economy Objective: 4-9 What are the sociocultural, political, legal, and ethical challenges to conducting business in a global marketplace?

Skill: Conceptual

87) All of the following are legal challenges to conducting business in a foreign country EXCEPT ________.

A) cross-cultural awareness B) contracts C) product safety and liability standards D) property rights Answer: A Explanation: A) Cross-cultural awareness supports international business efforts. It does not pose a legal challenge.

Diff: 2 Page Ref: 118 AACSB: Analytic Skills, Dynamics of the Global Economy Objective: 4-9 What are the sociocultural, political, legal, and ethical challenges to conducting business in a global marketplace?

Skill: Conceptual 88) All of the following are ethical challenges to conducting business in a foreign country EXCEPT ________.

A) conforming to home country environmental standards B) doing business with repressive totalitarian regimes C) exceeding product safety standards D) protecting property rights Answer: D Explanation: D) Unique differences in economic conditions and cultural values give rise to many ethical dilemmas surrounding global business. For example, should a firm conform to its home country's environmental, workplace, and product safety standards even though it's not legally required to do so while operating in another country? Should a company do business with a repressive totalitarian regime?

Diff: 2 Page Ref: 118 AACSB: Analytic Skills, Dynamics of the Global Economy Objective: 4-9 What are the sociocultural, political, legal, and ethical challenges to conducting business in a global marketplace?

Skill: Conceptual 89) Give an example of globalization of markets.

Answer: Student answers will vary, but should demonstrate an understanding that many companies seek customers beyond their local areas and national borders.

Diff: 2 Page Ref: 93 AACSB: Reflective Thinking, Dynamics of the Global Economy Objective: 4-1 What are the implications of the globalization of markets and the globalization of production?

Skill: Application

90) What are multinational enterprises? How have they contributed to the growth of globalization?

Answer: Multinational enterprises manufacture and market products in two or more countries.

Through their presence in multiple countries, multinational enterprises increase the globalization of markets and production.

Diff: 2 Page Ref: 97 AACSB: Analytic Skills, Dynamics of the Global Economy Objective: 4-2 Why has globalization accelerated so rapidly?

Skill: Conceptual 91) The country of Delta removes its dictator and moves toward democracy and a free market.

Predict what happens to Delta's connection to the global economy.

Answer: Delta will become more involved in the global economy, becoming not only a market for products from other countries and a recipient of foreign direct investment but also an exporter of its products and perhaps an investor in production in other countries.

Diff: 3 Page Ref: 98 AACSB: Analytic Skills, Dynamics of the Global Economy Objective: 4-2 Why has globalization accelerated so rapidly?

Skill: Application 92) Describe the theory of comparative advantage.

Answer: The theory of comparative advantage states that a country should sell to other countries the goods that it manufactures most efficiently and effectively and buy from other countries the goods it cannot manufacture as efficiently or effectively. If this method is practiced, each nation will have a greater quantity and variety of higher-quality products to consume at lower prices.

Diff: 1 Page Ref: 97 AACSB: Analytic Skills, Dynamics of the Global Economy Objective: 4-3 What are the costs and benefits of international trade?

Skill: Application 93) What would cause a nation to lose its comparative (or competitive) advantage?

Answer: In many nations, governments focus on improving the nation's resources natural resources, labor, capital (plant, equipment, and infrastructure), technology, and innovation and entrepreneurialism to improve competitiveness. If a nation has lost its comparative (or competitive) advantage, then it probably failed in one or more of these areas. Alternatively, the foreign competition (companies or nations) may have simply done a better job of improving in one or more of these areas. Remember, comparative advantage is really a relative advantage relative to the competition.

Diff: 3 Page Ref: 97 AACSB: Reflective Thinking, Dynamics of the Global Economy Objective: 4-3 What are the costs and benefits of international trade?

Skill: Application

94) Describe the difference in attitude between most economists and most government leaders with regard to free trade.

Answer: Virtually all economists are free-trade advocates because they argue that over time the benefits far outweigh the costs for the nation as a whole. However, all real-world governments have trade barriers in place to protect selected domestic industries from foreign competition.

Diff: 1 Page Ref: 100 AACSB: Analytic Skills, Dynamics of the Global Economy Objective: 4-4 What are the different types of trade barriers?

Skill: Conceptual 95) Give an example of a subsidy used as a trade barrier.

Answer: Student answers will vary, but should demonstrate understanding that subsidies are government payments to domestic producers.

Diff: 3 Page Ref: 100 AACSB: Reflective Thinking, Dynamics of the Global Economy Objective: 4-4 What are the different types of trade barriers?

Skill: Application 96) What does national security have to do with trade barriers?

Answer: The national security argument states that certain industries critical to national security should be protected from foreign competition. For example, the United States would not want to become dependent on another nation for a critical component of national defense.

Diff: 1 Page Ref: 101 AACSB: Analytic Skills, Dynamics of the Global Economy Objective: 4-4 What are the different types of trade barriers?

Skill: Conceptual 97) How do most economists feel about protectionist trade barriers?

Answer: Most economists are free-trade advocates because they believe that the economic benefits of free trade outweigh the economic costs. Economists insist that the best way to address the concerns of those industries and their workers whose livelihoods are threatened by foreign competition is not to impose protectionist trade barriers. Instead, these displaced individuals need to be equipped with the education, training, and skills necessary to smooth their transition into a line of business or work in which the nation has a comparative advantage and demand is rising.

Diff: 2 Page Ref: 102 AACSB: Analytic Skills, Dynamics of the Global Economy Objective: 4-4 What are the different types of trade barriers?

Skill: Conceptual

98) How has the European Union affected international business worldwide?

Answer: The European Union's economic power and political clout has a huge influence on international businesses worldwide. For example, some international businesses have been motivated to invest in production facilities within the EU to hedge against any potential trade barriers. The EU has also established many legal, regulatory, and technical standards for imports to the EU market. In addition, the EU's antitrust rulings have significantly affected foreign businesses.

Diff: 3 Page Ref: 104 AACSB: Reflective Thinking, Dynamics of the Global Economy Objective: 4-4 What are the different types of trade barriers?

Skill: Application 99) Describe the two major factors that determine an international firm's strategy.

Answer: Two major factors determine an international firm's strategy. The first factor involves how important it is for a business to keep its costs down and, therefore, its prices low. The second factor is how necessary it is for a company to customize or differentiate its product to adapt to different customer tastes and preferences around the globe.

Diff: 1 Page Ref: 107 AACSB: Analytic Skills, Dynamics of the Global Economy Objective: 4-5 What are the three basic strategies of international business?

Skill: Conceptual 100) List the six methods for entering foreign markets.

Answer: The six methods for entering foreign markets are (1) exporting; (2) turnkey projects; (3) franchising; (4) entering into a licensing agreement, a joint venture, or a strategic alliance; (5) contract manufacturing; and (6) a wholly-owned subsidiary.

Diff: 1 Page Ref: 107-109 AACSB: Analytic Skills, Dynamics of the Global Economy Objective: 4-6 How can international firms successfully enter foreign markets?

Skill: Conceptual 101) Describe an exporting relationship between a Brazilian manufacturing and an Australian retailer.

Answer: The Brazilian manufacturer would produce its product in Brazil and sell it to the Australian retailer.

Diff: 2 Page Ref: 107 AACSB: Reflective Thinking, Dynamics of the Global Economy Objective: 4-6 How can international firms successfully enter foreign markets?

Skill: Application

102) What are the advantages and disadvantages of joint ventures?

Answer: The advantages of a joint venture include gaining local knowledge of the economic, social, and political landscape while sharing the costs and risks of accessing a foreign market.

The disadvantage of a joint venture is losing control over the company because compromise with the partner is inevitable. The risk of losing proprietary technology in the event of dissolution or "divorce" of the joint venture is also a major drawback.

Diff: 2 Page Ref: 108-109 AACSB: Analytic Skills, Dynamics of the Global Economy Objective: 4-6 How can international firms successfully enter foreign markets?

Skill: Conceptual 103) What would be the impact on U.S. exporters if the value of the U.S. dollar rose against the Mexican peso?

Answer: Suppose that the value of the dollar rises or gets stronger against the peso (the currency of Mexico). Products exported from the United States will become more expensive because Mexicans will now have to come up with more pesos to purchase each dollar. Mexican consumers will buy fewer U.S. products and exports to Mexico will fall.

Diff: 3 Page Ref: 111-112 AACSB: Reflective Thinking, Dynamics of the Global Economy Objective: 4-7 What are exchange rates and how do they affect international business?

Skill: Application 104) What are the effects of depreciation of the U.S. dollar?

Answer: Currency depreciation, a decrease in the exchange rate value of a nation's currency, causes exports to become cheaper and imports to become more expensive. Americans will have to come up with more dollars to purchase foreign products. On the other hand, foreign buyers will be able to purchase more U.S. products.

Diff: 3 Page Ref: 112 AACSB: Reflective Thinking, Dynamics of the Global Economy Objective: 4-7 What are exchange rates and how do they affect international business?

Skill: Application 105) Which is better: a strong U.S. dollar or a weak U.S. dollar?

Answer: Student answers will vary. Can students distinguish between U.S. exporters and their employees who benefit from a weak dollar and U.S. importers and their employees who benefit from a strong dollar? Consumers usually prefer a strong dollar. Effects on society as a whole are mixed.

Diff: 3 Page Ref: 111-113 AACSB: Reflective Thinking, Dynamics of the Global Economy Objective: 4-7 What are exchange rates and how do they affect international business?

Skill: Application

106) In addition to exchange rates, what are three economic challenges to conducting international business?

Answer: (1) Economic growth and development; (2) Government economic policies and the economic environment; (3) Socioeconomic factors.

Diff: 1 Page Ref: 114 AACSB: Reflective Thinking, Dynamics of the Global Economy Objective: 4-8 What economic factors and challenges play a role in conducting business on a global scale?

Skill: Application 107) In what way does a demand for a bribe by an international business partner present an ethical challenge to a U.S. businessperson?

Answer: Bribery is illegal according to U.S. law, but is not necessarily illegal everywhere else.

A bribe may be necessary to doing business. A U.S. businessperson will have to decide whether or not to "pay to play."

Diff: 2 Page Ref: 118 AACSB: Reflective Thinking, Dynamics of the Global Economy Objective: 4-9 What are the sociocultural, political, legal, and ethical challenges to conducting business in a global marketplace?

Skill: Application Better Business, 7e (Solomon) Chapter 5 Small Business and the Entrepreneur 1) A(n) ________ is someone who takes the risk of creating, organizing and operating a business, usually to satisfy an unmet need in the marketplace.

A) business owner B) entrepreneur C) venture capitalist D) innovator Answer: B Explanation: B) An entrepreneur is someone who takes the risk of creating, organizing and operating a business, usually to satisfy an unmet need in the marketplace. Business owners may not have created the business they own.

Diff: 1 Page Ref: 140 AACSB: Reflective Thinking Objective: 5-1 What are the traits of an effective entrepreneur, and how do these characteristics often lead to business success?

Skill: Conceptual 2) James lives near a university and observes that almost every student uses a cell phone. He decides to open a small shop offering repair services for cell phones. His shop is an instant success. James has satisfied an area of need called ________.

A) the marketplace B) fertile ground C) an unconscious demand D) an opportunity niche

Answer: D Explanation: D) The area of need that entrepreneurs try to satisfy when they start a business is called an opportunity niche.

Diff: 1 Page Ref: 141 AACSB: Reflective Thinking Objective: 5-1 What are the traits of an effective entrepreneur, and how do these characteristics often lead to business success?

Skill: Conceptual

3) Which of the following is LEAST likely to be a characteristic of successful entrepreneurs?

A) likes to take risks B) motivated to succeed C) prefers not to work around other people D) prefers not to work for other people Answer: C Explanation: C) Successful entrepreneurs are not necessarily solo performers. They typically work well with others, possess good leadership skills, and are systems thinkers who see the big picture of their business.

Diff: 1 Page Ref: 141 AACSB: Reflective Thinking Objective: 5-1 What are the traits of an effective entrepreneur, and how do these characteristics often lead to business success?

Skill: Conceptual 4) Which of the following is the BEST example of entrepreneurial innovation?

A) launching the first Starbucks store B) opening a new landscaping business C) buying a McDonald's franchise D) providing financing for a startup business Answer: A Explanation: A) Entrepreneurial innovation happens when entrepreneurs see problems to be solved or opportunities that aren't being addressed in the marketplace. Although Starbucks is a large company now, it was initially a new idea created by entrepreneurs who took the risk that people would pay premium prices for inventive coffee drinks that they could enjoy in a comfortable environment. Someone who opens a new landscaping business or buys an existing franchise is an entrepreneur, but is offering products and services for which there is an established demand in the marketplace. Providing financing for a startup is not an example of innovation, although the company that is receiving the financing may be engaged in an entrepreneurial innovation.

Diff: 2 Page Ref: 141 AACSB: Reflective Thinking Objective: 5-1 What are the traits of an effective entrepreneur, and how do these characteristics often lead to business success?

Skill: Application

5) Before Fred started a new business venture, he weighed the factors that could help him succeed as well as the difficulties or setbacks he might face. Which characteristic of a successful entrepreneur is Fred demonstrating?

A) systems thinking B) motivation C) discomfort with uncertainty D) calculated risk taking Answer: D Explanation: D) Fred took a calculated risk when he decided to start his business, because he carefully considered both positive and negative factors that could affect the success of his potential new business.

Diff: 2 Page Ref: 142 AACSB: Reflective Thinking Objective: 5-1 What are the traits of an effective entrepreneur, and how do these characteristics often lead to business success?

Skill: Conceptual 6) Amy is the founder of a small IT firm that specializes in social networking applications. She meets weekly with the members of her development team to solicit their ideas, address any problems they are having, and provide motivation and encouragement. Amy is demonstrating which characteristic of a successful entrepreneur?

A) risk-taking and financial thinking B) leadership and communication skills C) introversion and intellectual capacity D) technical skills and expertise Answer: B Explanation: B) Amy demonstrates good leadership and communication skills because she meets regularly with her work associates to discuss issues and provide encouragement.

Diff: 2 Page Ref: 143 AACSB: Communication Abilities, Reflective Thinking Objective: 5-1 What are the traits of an effective entrepreneur, and how do these characteristics often lead to business success?

Skill: Conceptual

7) Kyle is an entrepreneur who runs his own advertising agency. He can see the whole picture of what is involved in growing his company, and he has developed a solid plan for every aspect of the business, including production, financing, and marketing. This approach to his business indicates that Kyle is a ________.

A) system thinker B) holistic owner C) visionary D) producer Answer: A Explanation: A) System thinkers focus on everything involved in running a business in order to succeed and use their ability to see the whole picture to create solid business plans.

Diff: 2 Page Ref: 143 AACSB: Reflective Thinking Objective: 5-1 What are the traits of an effective entrepreneur, and how do these characteristics often lead to business success?

Skill: Conceptual 8) Which statement BEST describes why a successful entrepreneur needs to be flexible?

A) Starting a new business often leads to envy in the wider business community.

B) People with whom entrepreneurs work are often opinionated and rigid.

C) Entrepreneurial ventures involve risky situations and unexpected events.

D) Initial business revenues tend to be low and may remain low for several years.

Answer: C Explanation: C) Flexibility is essential to the successful entrepreneur because the nature of a new business is that events are unpredictable and the entrepreneur must be able to adapt effectively to quickly changing circumstances.

Diff: 2 Page Ref: 142-143 AACSB: Reflective Thinking Objective: 5-1 What are the traits of an effective entrepreneur, and how do these characteristics often lead to business success?

Skill: Conceptual 9) Lifestyle entrepreneurs ________.

A) create upscale products and services that appeal to affluent customers B) want flexibility and freedom in the way they balance their personal and work lives C) create programs that help people live in a more environmentally responsible manner D) anticipate and take advantage of upcoming trends in fashion and home design Answer: B Explanation: B) Lifestyle entrepreneurs choose entrepreneurship to satisfy their desire for a personal life that allows for freedom and flexibility. Because their personal lifestyle is their highest priority, lifestyle entrepreneurs may be less motivated by other factors, such as earning a high income or building a large business than traditional entrepreneurs.

Diff: 1 Page Ref: 143 AACSB: Reflective Thinking Objective: 5-1 What are the traits of an effective entrepreneur, and how do these characteristics often lead to business success?

Skill: Conceptual

10) A(n) ________ is a type of entrepreneur who prefers to keep his or her business small.

A) intrapreneur B) minipreneur C) nanopreneur D) micropreneur Answer: D Explanation: D) Micropreneurs have no desire to grow a large business or manage large numbers of employees. Their reasons for becoming entrepreneurs are varied, including a desire to preserve a balanced life or to maintain control over the details of the business.

Diff: 1 Page Ref: 144 AACSB: Reflective Thinking Objective: 5-1 What are the traits of an effective entrepreneur, and how do these characteristics often lead to business success?

Skill: Conceptual 11) Which of the following types of entrepreneurs does NOT become involved in starting his or her own business?

A) growth entrepreneur B) intrapreneur C) quasipreneur D) contract entrepreneur Answer: B Explanation: B) An intrapreneur works in an entrepreneurial way within an established organization, including developing creative approaches to meet market needs. However, they are paid employees who do not own their own business or assume the financial risks of the typical entrepreneur.

Diff: 1 Page Ref: 144-145 AACSB: Reflective Thinking Objective: 5-1 What are the traits of an effective entrepreneur, and how do these characteristics often lead to business success?

Skill: Conceptual 12) A ________ business is one that has at least 20 percent sales growth per year for five years, starting with a base of at least $100,000.

A) cheetah B) hyper-growth C) consistent-growth D) gazelle Answer: D Explanation: D) By definition, a gazelle business is one that has at least 20 percent sales growth per year for five years, starting with a base of at least $100,000.

Diff: 1 Page Ref: 144 AACSB: Reflective Thinking Objective: 5-1 What are the traits of an effective entrepreneur, and how do these characteristics often lead to business success?

Skill: Conceptual

13) Maggie wants to start a fine dining restaurant in her town and dreams someday of having a chain of restaurants all over the country. She can be considered a growth entrepreneur because she ________.

A) hopes that her restaurant will attract customers B) believes that revenues from her restaurant will grow rapidly C) plans to have her business expand beyond her local area D) understands that there is an increasingly large market for dining experiences Answer: C Explanation: C) A growth entrepreneur wants to expand his or her business. Maggie wants to open chains all over the country, which would be a large expansion. All entrepreneurs would like to attract customers and grow revenues.

Diff: 1 Page Ref: 144 AACSB: Reflective Thinking Objective: 5-1 What are the traits of an effective entrepreneur, and how do these characteristics often lead to business success?

Skill: Conceptual 14) An entrepreneurial team is ________.

A) a group of individuals with varied experiences and skills that come together to form a new venture B) a strategic alliance among two or more companies who collaborate to launch a new product C) a group of individuals who come together to discuss their feelings about working for their employer D) a group of individuals who meet regularly to provide mutual support to group members Answer: A Explanation: A) By definition, an entrepreneurial team is a group of qualified individuals with varied experiences and skills that come together to form a new venture. Within the entrepreneurial team are all the necessary skills and traits to manage a successful project from the idea generation stage to a successful business offering.

Diff: 1 Page Ref: 145 AACSB: Reflective Thinking Objective: 5-1 What are the traits of an effective entrepreneur, and how do these characteristics often lead to business success?

Skill: Conceptual

15) Marge designs an innovative and fashionable laptop bag, but feels she lacks experience to turn her creation into a viable business. Marge's BEST option is to ________.

A) license the idea for selling an innovative bag to someone else B) recognize that she lacks the business savvy to start a business C) put together an entrepreneurial team to market the bag D) overcome her doubts and try to market the bag herself Answer: C Explanation: C) If an entrepreneur lacks any of the skills needed to make a venture successful, an ideal solution would be to pull together a team that collectively possesses all the skills that are needed to help a new business succeed. In this case, Marge would benefit from others' expertise while maintaining control of her innovation. If Marge were to license the bag design, she would earn some predictable revenue, but might lose a significant portion of the potential financial benefits of her unique creation.

Diff: 3 Page Ref: 145 AACSB: Reflective Thinking Objective: 5-1 What are the traits of an effective entrepreneur, and how do these characteristics often lead to business success?

Skill: Application 16) A(n) ________ is defined as a business that is independently owned and operated and is not dominant in its field of operations.

A) incubating business B) small business C) noncompetitive business D) minority-owned business Answer: B Explanation: B) According to the Small Business Administration, a small business is one that is independently owned and operated and is not dominant in its field of operations. Some, but not all, small businesses may be part of a business incubator and could be minority owned.

Diff: 1 Page Ref: 135 Objective: 5-2 What is the role and structure of the small business within the U.S. economy?

Skill: Conceptual

17) Small businesses are important to the economy because ________.

A) they are more innovative than larger companies B) they improve productivity by hiring less-expensive staff in countries outside the United States C) they employ approximately 50 percent of the private workforce in the United States D) they produce annual revenues equal to the economy of the European Union Answer: C Explanation: C) Small businesses are important to the economy in large part because they employ approximately 50 percent of the private workforce. In addition, they provide more than 40 percent of private sales in the country and account for more than half of America's economic output. Annual revenues are significant, but do not equal that of the European Union. Small businesses are sometimes, but not necessarily, more innovative than larger companies, nor do they necessarily have overseas staff.

Diff: 2 Page Ref: 136 AACSB: Reflective Thinking Objective: 5-2 What is the role and structure of the small business within the U.S. economy?

Skill: Conceptual 18) Which of the following is an example of the role that small businesses can play in fostering innovation?

A) Dell Computer's sale of computers directly to consumers B) Hewlett-Packard's sale of computers to small retail establishments C) Intel's invention of the Pentium processor D) Sony's invention of the PlayStation video game device Answer: A Explanation: A) Dell Computer was a fledgling startup business when it shook up the computer retail industry by selling computers directly to consumers via the Internet, rather than retail stores. Today, Dell's competitors large companies such as Hewlett-Packard, Toshiba and Sony offer their own online customized shopping options.

Diff: 2 Page Ref: 136 AACSB: Reflective Thinking Objective: 5-2 What is the role and structure of the small business within the U.S. economy?

Skill: Conceptual

19) Which of the following BEST explains why small businesses can be so effective in fostering innovation?

A) SBA's venture capital program provides funding needed for rapid new product development.

B) Entrepreneurs typically prefer to work in small businesses rather than large ones.

C) Employees of small businesses tend to be more creative than those of large businesses.

D) Small business' flexibility allows them to react quickly to changing market needs and trends.

Answer: D Explanation: D) Smaller companies are often better poised to take risks, more flexible to explore innovative technologies, and better equipped to push through inventions than larger firms with bureaucracy and culture that may make them more resistant to change.

Diff: 2 Page Ref: 136 AACSB: Reflective Thinking Objective: 5-2 What is the role and structure of the small business within the U.S. economy?

Skill: Conceptual 20) Which of the following statements is FALSE about the kind of workers that small businesses employ?

A) Small businesses employ a larger proportion of younger workers than larger firms.

B) Small businesses employ a larger proportion of foreign nationals than larger firms.

C) Small businesses employ a smaller proportion of part-time workers than larger firms.

D) Small businesses employ a growing percentage of minorities and women.

Answer: C Explanation: C) Small businesses hire a larger proportion of part-time workers than larger firms, providing more work flexibility for millions of people who would not fit into a traditional corporate structure.

Diff: 1 Page Ref: 137 AACSB: Reflective Thinking Objective: 5-2 What is the role and structure of the small business within the U.S. economy?

Skill: Conceptual 21) Technology has had a significant impact on small businesses because ________.

A) the PC and the Internet have made starting a new business much easier B) the failure of so many Web-based businesses in the late 1990s made capital unavailable C) the information technology market has become oversaturated and unfriendly D) most small businesses cannot afford the high costs of new technologies to help run their businesses Answer: A Explanation: A) The PC and the Internet have made starting a new business much easier. In addition, there are vast opportunities that technology creates for new business startups.

Diff: 2 Page Ref: 138 AACSB: Reflective Thinking, Use of Information Technology Objective: 5-2 What is the role and structure of the small business within the U.S. economy?

Skill: Conceptual

22) All of the following are reasons why people start small businesses EXCEPT ________.

A) financial independence B) reduced levels of responsibility C) more control of business decisions D) lack of other employment opportunities Answer: B Explanation: B) People may start a small business because of opportunity, financial independence, control, flexibility, or unemployment. Since a small-business owner is in control of the entire business, he or she would expect to have more responsibility as a business owner than as an employee of someone else's business.

Diff: 1 Page Ref: 139 AACSB: Reflective Thinking Objective: 5-2 What is the role and structure of the small business within the U.S. economy?

Skill: Conceptual 23) Ever since Kim opened her own nail salon, she has made all important decisions about how it is run. She recently launched a Web site to market her services and a new line of organic nail products. Which reason for starting a small business is BEST displayed by Kim's situation?

A) financial independence B) flexibility C) control D) marketplace need Answer: C Explanation: C) A small business owner has control over his or her own business, including decisions about products and services, and marketing. Since Kim is making decisions about how the salon will operate and be marketed, Kim is demonstrating control over her business.

Diff: 2 Page Ref: 139 AACSB: Reflective Thinking Objective: 5-2 What is the role and structure of the small business within the U.S. economy?

Skill: Application

24) Since Ben opened his own computer repair business, he has had to take a lot of time off to care for his mother who has been seriously ill. In his old job, he would not have been allowed to take so much time off. What advantage of owning a small business is BEST displayed by Ben's situation?

A) financial independence B) opportunity C) less bureaucracy D) flexibility Answer: D Explanation: D) Small business owners have the flexibility to adjust schedules based on circumstances. Since Ben is his own boss, it is not a problem for him to be with his mother while she is ill.

Diff: 2 Page Ref: 139 AACSB: Reflective Thinking Objective: 5-2 What is the role and structure of the small business within the U.S. economy?

Skill: Conceptual 25) If you are planning to start a new business, how long should you realistically expect it to take for your business to earn a profit?

A) six to twelve months B) one to two years C) three to five years D) more than five years Answer: C Explanation: C) Most small businesses do not start out as profitable ventures. Traditionally, it takes three to five years for new businesses to become profitable.

Diff: 1 Page Ref: 153 AACSB: Reflective Thinking Objective: 5-2 What is the role and structure of the small business within the U.S. economy?

Skill: Conceptual

26) Harvard student Mark Zuckerberg came up with the idea for Facebook as a way to provide a forum for students on his college campus to network and display pictures of themselves and their friends. Today, Facebook has a market value of approximately $750 million and media giants such as Google and Yahoo have been trying to outbid each other for ownership. What reason for starting a small business does the creation of Facebook BEST represent?

A) financial independence B) unemployment C) service orientation D) opportunity knocks Answer: D Explanation: D) A small business often starts when "opportunity knocks;" that is, when an individual sees an opportunity to create a product or service that isn't being offered yet. For Mark Zuckerberg, opportunity knocked when he saw an unmet need for students to network and share pictures, and was able to envision a web-based service that would meet that need.

Diff: 2 Page Ref: 139 AACSB: Reflective Thinking Objective: 5-2 What is the role and structure of the small business within the U.S. economy?

Skill: Application 27) The quickest and easiest way to start a small business is by establishing a ________.

A) sole proprietorship B) general partnership C) limited liability company D) corporation Answer: A Explanation: A) Operating as a sole proprietorship does not require the business owner to file any legal documents in order to establish or maintain the business; therefore, it is the quickest and easiest method of starting a small business. Although a general partnership also has minimal documentation requirements, because it would require coordination with at least one other owner, it would not be as easy as forming a sole proprietorship. Limited liability companies and corporations require the time and expense of preparing and submitting legal documents.

Diff: 1 Page Ref: 139 AACSB: Reflective Thinking Objective: 5-2 What is the role and structure of the small business within the U.S. economy?

Skill: Conceptual

28) Aside from legal liability, what other primary factor should a small-business owner consider before deciding which structure to choose for his business?

A) type of product or service B) which structure would best appeal to investors C) tax considerations D) anticipated number of employees Answer: C Explanation: C) Tax considerations are one of two key considerations when structuring a new business. Different business structures have different tax advantages and disadvantages that can affect the financial health of the business.

Diff: 2 Page Ref: 140 AACSB: Reflective Thinking Objective: 5-2 What is the role and structure of the small business within the U.S. economy?

Skill: Conceptual 29) A franchise is a method of doing business in which ________.

A) an entrepreneur sets up and manages a small business based on an innovative idea or product B) a company's products or services are sold to independent third-party operators under the company's name C) a company buys ownership of another company and absorbs its employees and customer base into its own structure D) a business is able to achieve rapid sales growth in the service sector due to taking advantage of many advertising opportunities Answer: B Explanation: B) By definition, a franchise is a method of doing business in which the franchiser sells a company's products or services under the franchiser's name to independent third-party operators called franchisees.

Diff: 1 Page Ref: 147 AACSB: Reflective Thinking Objective: 5-3 What are the advantages and disadvantages of franchising within the context of entrepreneurship?

Skill: Conceptual 30) The majority of franchises operate within which industry?

A) fast food B) full-service restaurants C) automotive D) real estate Answer: A Explanation: A) More than half of all franchises are in the fast food industry, including businesses such as McDonald's, Dairy Queen, and Subway.

Diff: 1 Page Ref: 147 AACSB: Reflective Thinking Objective: 5-3 What are the advantages and disadvantages of franchising within the context of entrepreneurship?

Skill: Conceptual

31) Which of the following statements is TRUE about franchising?

A) Franchisees enjoy guaranteed minimum annual revenues based on their territory.

B) Franchisers encourage franchisees to be independent and creative in running their operations.

C) Franchisees have relatively lower risk than other small business startups.

D) Franchisers conduct local market research for each of their franchisees.

Answer: C Explanation: C) A successful franchiser has determined, through trial and error, the best system of daily operations for the established business. New franchisees can therefore avoid many of the common startup mistakes of new business owners. Because the franchise's success rests on a proven business model, franchisees are discouraged from making creative changes to operating methods. Franchisers do not guarantee minimum revenues to their franchisees, nor do they necessarily conduct any local market research on their behalf.

Diff: 2 Page Ref: 148 AACSB: Reflective Thinking Objective: 5-3 What are the advantages and disadvantages of franchising within the context of entrepreneurship?

Skill: Conceptual 32) Which of the following does a franchise company offer to people who want to start a business?

A) creative control and flexibility B) lower initial costs than when starting a business from scratch C) guaranteed freedom from local competition D) marketing and financial tools to run a business Answer: D Explanation: D) Franchisees are usually provided marketing materials generated by the corporation, as well as standardized financial and accounting systems. Franchisees are not offered creative control and flexibility in running their business, nor are there guarantees that they will have no competition from other franchisees. Initial costs are often higher when compared with independent startups because franchisers charge significant up-front fees and monthly royalties.

Diff: 2 Page Ref: 148 AACSB: Reflective Thinking Objective: 5-3 What are the advantages and disadvantages of franchising within the context of entrepreneurship?

Skill: Conceptual

33) Martha has just bought a video store franchise. Which of the following factors probably did NOT affect her decision to buy a franchise instead of starting up her own business?

A) availability of training B) higher franchise startup costs C) the brand name of the franchiser D) marketing support from other area franchisees Answer: B Explanation: B) Franchise startup costs are often higher than independent business start ups, with over 70 percent of franchisees paying more than $50,000 to start, plus monthly royalty fees.

Of the four response choices, (B) was the only option that might be considered a negative factor in a decision about whether or not to buy a franchise. Since Martha bought a franchise, the probable higher startup costs did not appear to affect her decision. But she was likely attracted by the franchise's brand name, availability of training, and marketing support.

Diff: 2 Page Ref: 148 AACSB: Reflective Thinking Objective: 5-3 What are the advantages and disadvantages of franchising within the context of entrepreneurship?

Skill: Application 34) Peter has applied for a loan to purchase a franchise of a popular convenience store in an area that is experiencing rapid population growth. If the loan is approved, it will MOST likely be because ________.

A) there is less risk associated with a franchise than with an independent business startup B) the franchise company will provide the financing C) the population growth justifies the market need for the store D) the franchise company will prevent other franchisees from operating in the same area Answer: A Explanation: A) As a franchisee, it is often easier to get approved for a business loan because lending institutions view franchisees as carrying fewer risks than independent small businesses.

A franchise company does not typically provide funding, nor would it necessarily prevent other franchisees from operating in the same area. Population growth would be a less important consideration for the lender, because there may be other similar stores competing with the new business to satisfy any increased demand for convenience store products.

Diff: 2 Page Ref: 149 AACSB: Reflective Thinking Objective: 5-3 What are the advantages and disadvantages of franchising within the context of entrepreneurship?

Skill: Application

35) Which of the following is NOT a disadvantage of franchising?

A) lack of control B) work load C) competition D) brand recognition Answer: D Explanation: D) Lack of control, heavy work load, and competition from other franchisees are all potential disadvantages of franchising. Because franchise owners are able to capitalize on consumers' familiarity with the franchise company's name, brand recognition would be an advantage rather than a disadvantage of franchising.

Diff: 1 Page Ref: 149 AACSB: Reflective Thinking Objective: 5-3 What are the advantages and disadvantages of franchising within the context of entrepreneurship?

Skill: Conceptual 36) Isaac is a franchise owner of a fast food restaurant. When another franchisee is accused of using artificial meat in its hamburgers, sales at Isaac's franchise location drop dramatically. What disadvantage of franchising is BEST demonstrated by Isaac's situation?

A) competition B) sharing common problems C) lack of advertising support D) lack of control Answer: B Explanation: B) Because franchises share a company name, any problem that affects one franchise affects other franchisees. In this case, Isaac would lack control of the situation caused by another franchise operator, but lack of control over external events is a problem any business could face whether it is a franchise or independently owned.

Diff: 2 Page Ref: 149 AACSB: Reflective Thinking Objective: 5-3 What are the advantages and disadvantages of franchising within the context of entrepreneurship?

Skill: Conceptual

37) Regardless of how well or poorly a franchise business is doing, franchisees must give the franchiser a monthly ________.

A) financial statement B) marketing plan C) royalty fee D) inventory report Answer: C Explanation: C) The franchise is obligated to pay a set monthly royalty fee, no matter how the business is doing financially.

Diff: 1 Page Ref: 149 Objective: 5-3 What are the advantages and disadvantages of franchising within the context of entrepreneurship?

Skill: Conceptual 38) Since Donna was laid off from her job a few months ago, she has enjoyed having more time to relax, exercise, and be with her family. Now she is wondering whether she should start her own business. Donna should consider purchasing a franchise ONLY if she ________.

A) does not have enough capital to start an independent business B) is prepared to handle the heavy workload that comes with a franchise C) wants the protection from competition that the franchiser would provide D) is interested in the products sold by a particular franchise Answer: B Explanation: B) Franchisees spend a lot of time managing a business, as all new business owners must; therefore, a franchisee must be prepared for a heavy workload. If Donna does not have enough funds to start an independent business, she may have even more difficulty funding a franchise, since franchises often cost more to start up than comparable independent businesses.

Donna also should not expect that a franchiser would protect her territory from competition by other franchisees. Donna may consider a franchise of a product in which she is interested, but should realize that her personal interest in the product may have little to do with her satisfaction or success in running a business offering that product.

Diff: 2 Page Ref: 149 AACSB: Reflective Thinking Objective: 5-3 What are the advantages and disadvantages of franchising within the context of entrepreneurship?

Skill: Conceptual

39) Joe is very confident about his purchase of a franchise from a well-known full-service restaurant company. What is one of the things he MOST likely did before he bought the franchise?

A) spent months researching the franchiser's background and track record B) developed a menu of innovative dishes that would differentiate his restaurant from competitors C) came up with a unique plan to streamline the daily operations of the franchise D) trained staff to help him run the business Answer: A Explanation: A) Joe's ultimate success depends on choosing the right franchise for his situation and learning everything he can about the business he is purchasing. Therefore, one of the most important things Joe could have done was to thoroughly researched the franchise company.

Preparing an innovative menu would be unnecessary, since the franchise company would require that Joe offered their standard menu items. Joe also would not need to develop his own plan of operations, since the franchise provides well-established methods of operation that Joe is expected to follow. Finally, Joe would not be in a position to hire or train any staff unless he had already bought the franchise, so it is unlikely that he would train staff prior to purchase.

Diff: 2 Page Ref: 150 AACSB: Reflective Thinking Objective: 5-3 What are the advantages and disadvantages of franchising within the context of entrepreneurship?

Skill: Conceptual 40) Which of the following is NOT an advantage of buying an existing business?

A) It is simpler than beginning a new business from scratch.

B) There is a reduction in startup time and energy.

C) An existing business has less competition.

D) An existing business has an existing customer base.

Answer: C Explanation: C) An existing business does not necessarily have less competition than any other type of business. It may or may not have a product or service that is better than that of its competitors. In either case, it is important to gather information about the competitive environment of any business one is considering buying. Buying an existing business is often simpler than beginning a new business from scratch. An existing business has an existing method of operating, experienced staff and a customer base; therefore, it can take less time and energy for the new ownership to get established.

Diff: 2 Page Ref: 150-151 AACSB: Reflective Thinking Objective: 5-3 What are the advantages and disadvantages of franchising within the context of entrepreneurship?

Skill: Conceptual

41) In determining the value of an existing business, one of the potential sources of value is the current owner's goodwill. In this case, goodwill refers to ________.

A) the location of the business in a desirable area B) intangible assets such as customer service C) donations to local charities D) the current owners' membership in professional associations Answer: B Explanation: B) By definition, goodwill refers to the intangible assets represented by the business's name, customer service, employee morale, and other factors that might be lost with a change in ownership.

Diff: 1 Page Ref: 151 AACSB: Reflective Thinking Objective: 5-3 What are the advantages and disadvantages of franchising within the context of entrepreneurship?

Skill: Conceptual 42) Which of the following statements BEST explains why an initial purchase price of an existing business could be higher than the immediate up-front costs associated with a startup?

A) Existing businesses provide less risk than a franchise within a competitive market.

B) A strategic plan is in place to increase customer satisfaction.

C) A guaranteed customer base is in place to facilitate taking over the business.

D) Suppliers, staff, equipment and inventory are in place to facilitate taking over the business.

Answer: D Explanation: D) The costs of buying an existing business are often higher than those involved in a startup because in an existing business the elements necessary to operate are typically in place, such as suppliers, equipment and inventory. Experienced employees are also usually in place, and should be treated with care so that they continue to perform needed services during the transition from one owner to another. An existing business does not necessarily involve less risk than that of a franchise, but can be less risky than starting a new business from scratch. There is no guarantee that the prior owner's strategic plans would be successful or that the business's prior customers would continue to patronize the business.

Diff: 2 Page Ref: 151 AACSB: Reflective Thinking Objective: 5-3 What are the advantages and disadvantages of franchising within the context of entrepreneurship?

Skill: Conceptual

43) ________ is the process of performing research and analysis of a business to uncover any hidden problems associated with it.

A) Business assessment B) Due diligence C) Risk auditing D) Valuation Answer: B Explanation: B) By definition, due diligence is the process designed to uncover any hidden problems in a business under consideration for purchase.

Diff: 1 Page Ref: 151 AACSB: Reflective Thinking Objective: 5-3 What are the advantages and disadvantages of franchising within the context of entrepreneurship?

Skill: Conceptual 44) Which of the following questions would provide the BEST information to help you decide whether or not to buy a business?

A) Why did the current owner start the business?

B) Why is the business for sale?

C) What are the demographics of the current customer base?

D) How is employee morale?

Answer: B Explanation: B) It is essential to ask an owner why a business is for sale, since an owner may wish to sell a business for reasons that would make the business undesirable for a prospective buyer. It may also be useful to ask questions about customer demographics and employee morale. However, those factors would probably not pose significant risks for a new owner who would have the ability to influence customer behavior and employee morale. Knowing why the current owner started the business may be interesting, but probably would not provide information about potential business risks.

Diff: 1 Page Ref: 151 AACSB: Reflective Thinking Objective: 5-3 What are the advantages and disadvantages of franchising within the context of entrepreneurship?

Skill: Conceptual

45) When naming a business, which of the following approaches would NOT be a mistake?

A) hiring a company to create a name B) using geographic names C) involving employees or clients in the naming decision D) using a generic name Answer: A Explanation: A) In today's competitive environment, creating a memorable business name is challenging. A business's name should communicate the key elements of your business; therefore, using a generic name, such as "General Electric," would be a mistake. Involving employees or clients in the naming decision is also a mistake, since the resulting name may lack your unique perspective on the business. Using a geographic name is also a mistake, unless you are certain that you will always be located in a particular geographic area. Given how difficult it is to create a distinctive name for your business, hiring a company to create your business's name would be a wise move.

Diff: 2 Page Ref: 152 AACSB: Reflective Thinking Objective: 5-3 What are the advantages and disadvantages of franchising within the context of entrepreneurship?

Skill: Conceptual 46) Joanne is considering purchasing an existing day spa. Which of the following should she assume about the current employees of the day spa?

A) Since all employees have been working at the spa for at least a year, they are likely to be competent employees.

B) Since the current owner has indicated that employee morale is high, it is unlikely that there would be problems with the current employees.

C) There may be unanticipated problems with the current employees that Joanne could inherit if she buys the day spa.

D) Most, if not all, of the current employees will choose to stay if Joanne buys the day spa.

Answer: C Explanation: C) The only assumption that a prospective buyer of an existing business can safely make about the staff of the existing business is that there might be potential difficulties with employees once new ownership takes over.

Diff: 2 Page Ref: 151 Objective: 5-3 What are the advantages and disadvantages of franchising within the context of entrepreneurship?

Skill: Conceptual

47) Which of the following is ALWAYS TRUE about the purchases of existing businesses?

A) Once under new ownership, existing businesses outperform initial revenue projections.

B) Once under new ownership, any underlying problems are the responsibility of the new owner.

C) Once under new ownership, consumer curiosity about the new ownership will cause a spike in sales.

D) Once under new ownership, remaining staff are suspicious or fearful of the new owner.

Answer: B Explanation: B) There is no way to predict in advance exactly how a business will perform once it is purchased. Some business will do better than expected; others may initially do worse. Any problems that do arise are the responsibility of the new owner; therefore, a careful due diligence process prior to purchase is essential.

Diff: 2 Page Ref: 151 Objective: 5-3 What are the advantages and disadvantages of franchising within the context of entrepreneurship?

Skill: Conceptual 48) ________ of all startups fail in two years.

A) 20 percent B) 40 percent C) 50 percent D) 66 percent Answer: D Explanation: D) Starting a business is hard work and comes with no guarantee of success. Twothirds of all startups fail within two years.

Diff: 1 Page Ref: 153 AACSB: Reflective Thinking Objective: 5-4 Why is a business plan crucial to small-business success, and what factors lead to small-business failure?

Skill: Conceptual 49) Of the following four reasons why new small businesses may fail, which is the MOST common?

A) not enough revenue B) too much debt C) poor planning D) inexperienced management Answer: B Explanation: B) Small businesses fail most often because of too much debt. Poor planning, inexperienced management, and insufficient revenues also may play a role in the failure of so many small business startups.

Diff: 1 Page Ref: 153 AACSB: Reflective Thinking Objective: 5-4 Why is a business plan crucial to small-business success, and what factors lead to small-business failure?

Skill: Conceptual

50) Fred started his new landscaping business with a commercial loan. He uses his credit card to pay for weekly supplies such as fertilizer and mulch. Business growth has been slow and Fred is having a difficult time keeping up with his monthly loan and credit card payments. He is now considering borrowing against his home to stay current with his initial loan and for other needed expenses. Fred's business is MOST at risk because ________.

A) Fred has not acquired enough customers.

B) Fred's home may not have enough equity to qualify him for an additional loan.

C) Fred is taking on too much debt.

D) Fred's business does not have enough revenue.

Answer: C Explanation: C) While Fred's business may be at risk for a number of reasons, the most significant risk factor is that he has taken on too much debt relative to his business's income.

Diff: 1 Page Ref: 153 AACSB: Reflective Thinking Objective: 5-4 Why is a business plan crucial to small-business success, and what factors lead to small-business failure?

Skill: Conceptual 51) If a business is at risk of failing because it has taken on too much debt, the root cause of such excess debt is MOST likely to be ________.

A) poor business management B) easy lending practices C) inadequate business revenue D) unexpected expenses Answer: A Explanation: A) High levels of debt are frequently a sign of poor financial and business management. It is important that financial statements and budgets are created and adhered to honestly and accurately.

Diff: 1 Page Ref: 153 AACSB: Reflective Thinking Objective: 5-4 Why is a business plan crucial to small-business success, and what factors lead to small-business failure?

Skill: Conceptual

52) Jodi owns a business that designs and creates lingerie. In an effort to get her product into as many stores as possible, Jodi has been lenient on the terms of collection, allowing stores at least 30 days credit. As a result, it is taking her too long to collect payments and her revenues are very low. What is the MOST likely cause of Jodi's business difficulties?

A) Jodi is not developing enough goodwill.

B) Jodi is trying to expand her business too rapidly.

C) Jodi is not adequately managing the financial aspects of her business.

D) Jodi is spending too much of her time on product design.

Answer: C Explanation: C) Jodi's lenient credit terms are putting her business at risk of failing, which indicates that she is not properly managing the financial aspects of her business.

Diff: 2 Page Ref: 153 AACSB: Reflective Thinking Objective: 5-4 Why is a business plan crucial to small-business success, and what factors lead to small-business failure?

Skill: Conceptual 53) Many e-commerce businesses failed in the late 1990s because ________.

A) their online stores were a source of identity fraud B) they were owned by young entrepreneurs C) there was an economic decline called the "dot-com bust" D) they did not plan for rapid growth and lacked sufficient inventory to fulfill orders Answer: D Explanation: D) Many e-commerce firms were initially successful, but failed because they did not anticipate or plan for rapid growth in the demand for their products. Thus, they did not have sufficient quantities of products to fulfill all the orders they received.

Diff: 2 Page Ref: 153 AACSB: Reflective Thinking Objective: 5-4 Why is a business plan crucial to small-business success, and what factors lead to small-business failure?

Skill: Conceptual 54) A ________ is a formal document that states the goals of the business as well as the intended process for reaching those goals.

A) strategy B) business plan C) prospectus D) vision statement Answer: B Explanation: B) By definition, a business plan is a formal document that states the goals of the business as well as the plan for reaching those goals.

Diff: 1 Page Ref: 154 AACSB: Reflective Thinking Objective: 5-4 Why is a business plan crucial to small-business success, and what factors lead to small-business failure?

Skill: Conceptual

55) Sam is eager to start a local magazine that will include articles about health and fitness and provide a place for local health and fitness professionals to advertise their services. Which of the following does he NOT need to include in his business plan?

A) risk analysis B) financial plan C) product plan D) operational plan Answer: C Explanation: C) By definition, a business plan does not include a separate Product Plan. The major sections of a business plan are Company Information, Marketing Plan, Operational Plan, Financial Plan, and Risk Analysis.

Diff: 1 Page Ref: 154 AACSB: Reflective Thinking Objective: 5-4 Why is a business plan crucial to small-business success, and what factors lead to small-business failure?

Skill: Conceptual 56) Which of the following should a business owner create monthly?

A) marketing and operational plans B) financial statements and budget reports C) mission statement D) risk analysis Answer: B Explanation: B) Financial statements and budgets should be prepared and reviewed monthly.

Elements of the business plan, such as marketing and operational plans, mission statement, and risk analysis, are not created monthly.

Diff: 1 Page Ref: 153 AACSB: Reflective Thinking Objective: 5-4 Why is a business plan crucial to small-business success, and what factors lead to small-business failure?

Skill: Conceptual 57) Identifying your competitors is part of a(n) ________.

A) operational plan B) risk analysis C) financial plan D) marketing plan Answer: D Explanation: D) By definition, a marketing plan includes analysis of competitors.

Diff: 1 Page Ref: 151 AACSB: Reflective Thinking Objective: 5-4 Why is a business plan crucial to small-business success, and what factors lead to small-business failure?

Skill: Conceptual

58) Alisha has just completed a program in floral design and plans to open her own business as a florist. As part of her preparation, Alisha is working on her operational plan. Which of the following aspects of her business would be included in her operational plan?

A) staffing B) funding needs C) pricing D) risk management plan Answer: A Explanation: A) Staffing is part of an operational plan. Funding, pricing, and risk management are included in other sections of an overall business plan.

Diff: 2 Page Ref: 154 AACSB: Reflective Thinking Objective: 5-4 Why is a business plan crucial to small-business success, and what factors lead to small-business failure?

Skill: Conceptual 59) Which of the following is NOT a symptom of potential small business failure?

A) The owner is ignoring the warning signs that the business is at risk.

B) The owner is attributing business problems to the wrong reasons.

C) The owner lacks college-level business training.

D) The owner does not appear to be in control of the business.

Answer: C Explanation: C) The absence of formal business training does not mean that the small business owner is not an effective business owner or that the business would be at greater risk. However, certain owner behaviors are symptoms of a looming business failure, including ignoring warning signs of business risks, not recognizing the true causes of problems, and seeming absent or not in control of the business.

Diff: 2 Page Ref: 153 AACSB: Reflective Thinking Objective: 5-4 Why is a business plan crucial to small-business success, and what factors lead to small-business failure?

Skill: Conceptual

60) Maria is the owner of Pet Heaven, a new pet daycare, grooming and boarding business.

Maria envisions her business expanding to five locations in her state within three years. To help her succeed, which of the following does Maria MOST need?

A) familiarity with state licensing requirements B) a formal business plan C) more customers D) a business partner Answer: B Explanation: B) A formal business plan states the goals of the business as well as the plan for reaching those goals. Neglecting to create a formal plan could doom Maria's desire to expand.

Diff: 2 Page Ref: 154 AACSB: Reflective Thinking Objective: 5-4 Why is a business plan crucial to small-business success, and what factors lead to small-business failure?

Skill: Conceptual 61) Rashan has been working as a pharmacist at a large drug store chain. He would like to open his own small pharmacy but is not sure if he could be successful given the predominance of large competitors. What part of his business plan would best address his concern?

A) company information B) risk analysis C) marketing plan D) operational plan Answer: C Explanation: C) The marketing plan section of a business plan would include a competitive analysis, thus helping Rashan answer questions about whether or not he could compete successfully with larger businesses.

Diff: 3 Page Ref: 154 AACSB: Reflective Thinking Objective: 5-4 Why is a business plan crucial to small-business success, and what factors lead to small-business failure?

Skill: Conceptual 62) Which of the following statements about small business failure is FALSE? A) Business owners may fail if they do not anticipate necessary personal sacrifices.

B) Business owners may fail if they take excessive time in creating a business plan.

C) Business owners may fail if they are not prepared to invest their money and time.

D) Business owners may fail if they are unable to take on multiple responsibilities.

Answer: B Explanation: B) A business plan should be done carefully, spending as much time and allocating as many resources as are necessary to ensure that there is a realistic plan for business success.

Diff: 2 Page Ref: 153 AACSB: Reflective Thinking Objective: 5-4 Why is a business plan crucial to small-business success, and what factors lead to small-business failure?

Skill: Conceptual

63) The government agency whose sole purpose is to cater to the needs of small businesses is ________.

A) the Small Business Agency B) Business.gov C) Enterprise.org D) the Small Business Administration Answer: D Explanation: D) By definition, the Small Business Administration is an independent agency of the U.S. government whose purpose is to address the needs of small businesses.

Diff: 1 Page Ref: 155 AACSB: Reflective Thinking Objective: 5-5 How do resources, including the Small Business Administration, mentoring sources such as SCORE, business incubators, and advisory boards, provide assistance and guidance to small business owners?

Skill: Conceptual 64) Which of the following statements is TRUE? A) The Small Business Administration provides tax credits for small businesses.

B) The Small Business Administration provides administrative services to small businesses.

C) The Small Business Administration offers free online training to small business owners.

D) The Small Business Administration works to increase regulatory requirements for small businesses.

Answer: C Explanation: C) The SBA offers free online training on topics such as creating a business plan, financial analysis, and launching a business. It does not provide tax credits or administrative services to small businesses, and it works to reduce, not increase, regulatory requirements for small businesses.

Diff: 2 Page Ref: 155 AACSB: Reflective Thinking Objective: 5-5 How do resources, including the Small Business Administration, mentoring sources such as SCORE, business incubators, and advisory boards, provide assistance and guidance to small business owners?

Skill: Conceptual

65) Gary Smith, owner of a small business in San Diego, heard that the Small Business Administration will hold a series of workshops in his city. Which of the following topics is MOST likely to be included in the Small Business Administration's workshops?

A) creating a business plan B) lobbying C) filing for unemployment D) retirement planning Answer: A Explanation: A) Creating a business plan is a common topic covered in SBA workshops. Other topics would likely not be covered in a workshop about small businesses.

Diff: 2 Page Ref: 155 AACSB: Reflective Thinking Objective: 5-5 How do resources, including the Small Business Administration, mentoring sources such as SCORE, business incubators, and advisory boards, provide assistance and guidance to small business owners?

Skill: Conceptual 66) The Service Corp of Retired Executives is composed of ________ who can provide advice to small business owners.

A) part-time employees B) full-time employees C) freelance executives D) volunteers Answer: D Explanation: D) By definition, the Service Corp of Retired Executives is composed of volunteers who can provide advice to small business owners.

Diff: 1 Page Ref: 155 AACSB: Reflective Thinking Objective: 5-5 How do resources, including the Small Business Administration, mentoring sources such as SCORE, business incubators, and advisory boards, provide assistance and guidance to small business owners?

Skill: Conceptual

67) Small business owners can seek professional advice at no cost through ________.

A) the Service Corp of Retired Executives B) Fortune 500 companies C) the Volunteer Corp of America D) McKinsey & Company management consulting Answer: A Explanation: A) The Service Corp of Retired Executives is made up of volunteers who offer counseling to small businesses at no cost. Neither Fortune 500 companies nor McKinsey & Company are known to offer free counseling services to small business owners.

Diff: 1 Page Ref: 155 AACSB: Reflective Thinking Objective: 5-5 How do resources, including the Small Business Administration, mentoring sources such as SCORE, business incubators, and advisory boards, provide assistance and guidance to small business owners?

Skill: Conceptual 68) Volunteers from the Service Corp of Retired Executives provide a variety of services to small businesses. However, volunteers do NOT ________.

A) help with tax planning B) participate in decision making C) review business plans D) offer new ideas and fresh insights Answer: B Explanation: B) SCORE volunteers provide consulting and counseling, but do not actively participate in a business; therefore, they do not make any decisions.

Diff: 2 Page Ref: 155 AACSB: Reflective Thinking Objective: 5-5 How do resources, including the Small Business Administration, mentoring sources such as SCORE, business incubators, and advisory boards, provide assistance and guidance to small business owners?

Skill: Conceptual

69) Timothy is the 60-year-old founder of a publishing company that has over $2 million in annual gross sales. Is he eligible to have a mentor through the Entrepreneurs Organization?

A) Yes, because his company makes more than $1 million annually.

B) Yes, because there are no specific requirements for mentoring.

C) No, because he is over 50 years old.

D) No, because his company can no longer be considered a startup.

Answer: C Explanation: C) To qualify for mentoring through the Entrepreneurs Organization, a business must make a minimum of $1 million in annual gross sales and the owner must be younger than 50 years old. Timothy's business meets the gross sales requirement, but he is ineligible because of his age. Although Timothy's company may no longer be considered a startup, the mentoring program sets no requirements based on stage of the business.

Diff: 2 Page Ref: 155 AACSB: Reflective Thinking Objective: 5-5 How do resources, including the Small Business Administration, mentoring sources such as SCORE, business incubators, and advisory boards, provide assistance and guidance to small business owners?

Skill: Conceptual 70) ________ support(s) startup businesses by offering resources such as administrative and technical support and business networking.

A) Advisory boards B) Virtual assistants C) Partners D) Business incubators Answer: D Explanation: D) Business incubators are designed to provide groups of startup businesses a place where they can get administrative and technical support and engage in business networking. Neither advisory boards nor partners provide administrative or technical support, though they may provide business networking. Virtual assistants may provide administrative or technical support, but would not provide business networking.

Diff: 2 Page Ref: 156 AACSB: Reflective Thinking Objective: 5-5 How do resources, including the Small Business Administration, mentoring sources such as SCORE, business incubators, and advisory boards, provide assistance and guidance to small business owners?

Skill: Conceptual

71) Alex Garcia has an idea for an internet technology business that involves innovative search engine tools. He was referred to an organization that helps startup businesses by offering resources such as administrative services, technical support, and business networking. This type of organization is called ________.

A) a business incubator B) the Service Corp of Retired Executives C) an angel investor group D) the Entrepreneurs Organization Answer: A Explanation: A) Business incubators are organizations that provide support for startup businesses including administrative and technical support and business networking. Neither the Service Corp of Retired Executives, the Entrepreneurs Organization, nor an angel investor would provide the full range of support services offered by a business incubator.

Diff: 1 Page Ref: 156 AACSB: Reflective Thinking Objective: 5-5 How do resources, including the Small Business Administration, mentoring sources such as SCORE, business incubators, and advisory boards, provide assistance and guidance to small business owners?

Skill: Conceptual 72) Studies show participation in an incubation program ________.

A) increase the success rate of a startup company by as much as 50 percent B) increase the success rate of a startup company by as much as 60 percent C) increase the success rate of a startup company by as much as 70 percent D) increase the success rate of a startup company by as much as 90 percent Answer: D Explanation: D) Incubator participants must eventually run on their own, but participation in an incubation program increases the success rate of a startup company by as much as 90 percent.

Diff: 1 Page Ref: 156 AACSB: Reflective Thinking Objective: 5-5 How do resources, including the Small Business Administration, mentoring sources such as SCORE, business incubators, and advisory boards, provide assistance and guidance to small business owners?

Skill: Conceptual

73) Which of the following is NOT true of business incubators?

A) Some business incubators have been started by cities in developing countries.

B) Some business incubators have been started by universities.

C) Some business incubators have been started by the Small Business Administration.

D) Some business incubators have been started by private individuals or organizations.

Answer: C Explanation: C) The Small Business Administration provides many services that assist individuals in starting new businesses, but it does not sponsor business incubators. Business incubators have been started by cities in both developed and developing countries, as well as by universities, research institutions, and private individuals or organizations.

Diff: 2 Page Ref: 156 AACSB: Reflective Thinking Objective: 5-5 How do resources, including the Small Business Administration, mentoring sources such as SCORE, business incubators, and advisory boards, provide assistance and guidance to small business owners?

Skill: Conceptual 74) Rhonda does not know how to go about finding financing for her struggling new business.

Which of the following resources would be the BEST place for her to learn more about obtaining financing?

A) a venture capital company B) a business incubator C) the Small Business Administration D) Entrepreneurs Organization Answer: C Explanation: C) The Small Business Administration is dedicated solely to helping small businesses. Among its many services, the Small Business Administration connects business owners with a variety of lending programs. Venture capital companies and business incubators may provide lending to certain businesses they view as promising, but since Rhonda doesn't know where to find assistance, the Small Business Administration is the best place to start her search for financing. The Entrepreneurs Organization does not provide financial assistance to businesses, only mentoring.

Diff: 3 Page Ref: 155 AACSB: Reflective Thinking Objective: 5-5 How do resources, including the Small Business Administration, mentoring sources such as SCORE, business incubators, and advisory boards, provide assistance and guidance to small business owners?

Skill: Conceptual

75) An advisory board is composed of ________.

A) a group of experts who make decisions on behalf of the new business owner B) a group of individuals who offer guidance to the new business owner C) a group of professionals who provide expertise in return for a share of the new business's profits D) a group of individuals who fill in for management team members when needed Answer: B Explanation: B) An advisory board provides advice and guidance to a business owner. Such boards are similar to boards of directors in publicly held companies except that they do not have the authority to make decisions. An advisory board member may or may not have a financial interest in the company, nor would an advisory board member be expected to fill in for an employee of the firm.

Diff: 2 Page Ref: 156 AACSB: Reflective Thinking Objective: 5-5 How do resources, including the Small Business Administration, mentoring sources such as SCORE, business incubators, and advisory boards, provide assistance and guidance to small business owners?

Skill: Conceptual 76) Advisory boards generally do NOT have the authority to ________.

A) offer guidance B) make decisions C) provide financial knowledge D) suggest operational improvements Answer: B Explanation: B) Advisory boards may offer suggestions and recommendations on any aspect of a business, including operations and finance. Unlike a board of directors, however, an advisory board does not have the authority to make decisions.

Diff: 1 Page Ref: 156 AACSB: Reflective Thinking Objective: 5-5 How do resources, including the Small Business Administration, mentoring sources such as SCORE, business incubators, and advisory boards, provide assistance and guidance to small business owners?

Skill: Conceptual

77) A(n) ________ offers the company expertise that a new business owner does not possess in exchange for a share in its profits and liabilities.

A) partner B) angel investor C) advisory board D) stockholder Answer: A Explanation: A) A partner offers a company expertise that the owner does not possess and also shares in the company's profits and liabilities. An advisory board also offers needed expertise, but does not necessarily share in profits or liabilities. An angel investor provides financial support, but no guidance. A stockholder shares in the company's profits or liabilities, but is not typically asked for guidance or expertise.

Diff: 1 Page Ref: 156 AACSB: Reflective Thinking Objective: 5-5 How do resources, including the Small Business Administration, mentoring sources such as SCORE, business incubators, and advisory boards, provide assistance and guidance to small business owners?

Skill: Conceptual 78) What would be the GREATEST advantage of having a partner as opposed to having an advisory board?

A) A partner would be less likely to disagree with the other owner's ideas.

B) A partner would be more committed to the success of the business than an advisory board.

C) A partner would be able to make decisions that differed from that of the other owner.

D) A partner would provide more varied perspectives than that of an advisory board.

Answer: B Explanation: B) Because a partner shares in the company's profits and liabilities, a partner would likely be more committed to the success of the business than would members of an advisory board. Having a partner who did not disagree with the other owner could be detrimental to the business, since a primary benefit of having a partner is that a partner can offer different perspectives. But it would not be an advantage to have a partner making decisions that are at odds with those of the other partner. Finally, it is unlikely that a single partner would offer more varied perspectives than that of a group of advisory board members.

Diff: 2 Page Ref: 156 AACSB: Reflective Thinking Objective: 5-5 How do resources, including the Small Business Administration, mentoring sources such as SCORE, business incubators, and advisory boards, provide assistance and guidance to small business owners?

Skill: Conceptual

79) Which of the following is a potential disadvantage of teaming up with a business partner?

A) A partner is able to offer only financial help, not practical advice.

B) A partner gains full control of the business's decision-making process.

C) A partner expects a share of the business profits.

D) A partner is not responsible for any of a business's liabilities.

Answer: C Explanation: C) Having a partner is a good idea if the business owner does not possess all the necessary strengths required to run the business. A partner is able to offer financial help and practical advice. In return, a partner shares both profits and liabilities of the business.

Diff: 2 Page Ref: 156 AACSB: Reflective Thinking Objective: 5-5 How do resources, including the Small Business Administration, mentoring sources such as SCORE, business incubators, and advisory boards, provide assistance and guidance to small business owners?

Skill: Conceptual 80) What is the most common reason small business owners neglect to seek outside help when starting a business?

A) They assume that no one outside of their family would be interested in helping them.

B) They believe that professional advice is not necessary.

C) They believe that it is exclusively up to the business owner to make a small business succeed.

D) They think that they cannot afford professional advice.

Answer: D Explanation: D) Most small business owners do not think they can afford to pay for professional advice. So they rely on their own efforts, advice from family and friends, and trial and error.

Diff: 1 Page Ref: 157 AACSB: Reflective Thinking Objective: 5-5 How do resources, including the Small Business Administration, mentoring sources such as SCORE, business incubators, and advisory boards, provide assistance and guidance to small business owners?

Skill: Conceptual

81) The major advantage of borrowing money from friends or family to start a business is ________.

A) they will be aware of all credit problems that might affect financing B) they will not expect to be repaid C) they will not usually expect a high rate of return on their investment D) they will ensure that you do not overestimate your initial funding needs Answer: C Explanation: C) Family and friends are often good sources of financing a small business, because unlike banks or other lending institutions, they often do not require a high rate of return or demand to see the business turn a quick profit. Yet family members do expect to be repaid.

Since family and friends do not use the same process as a bank would for deciding whether or not to approve a loan, it is less likely that family or friends would be aware of all credit problems affecting business funding or that they would be able to help you accurately estimate your funding needs.

Diff: 1 Page Ref: 157-158 AACSB: Reflective Thinking Objective: 5-6 What are the potential benefits and drawbacks of each major source of small business funding?

Skill: Conceptual 82) When borrowing money from friends or family members, you should ________.

A) ask for more money than you think you will need so that you have room to negotiate, recognizing that if they give all that you ask for you do not need to accept all of it B) provide the person from whom you borrowed money a document indicating how and when you intend to pay them back C) ask the person from whom you borrow money for advice about how to run your business since they obviously know how to make money D) provide the person from whom you borrow money a monthly financial report and budget and always ask their opinions before making business decisions Answer: B Explanation: B) When borrowing from friends and family, it is important that you treat them as professionally as possible. Therefore, you should be honest with them about your actual financial needs and not inflate your funding request as a bargaining tool. Most importantly, you should give them a document that indicates how you intend to pay them back and some sort of a contingency plan if things go wrong. In addition, they should be kept informed of any risks of the venture. However, it is not necessary to ask for their advice as a condition of the loan, nor is it necessary to provide them with formal monthly reporting documents.

Diff: 2 Page Ref: 158 AACSB: Reflective Thinking Objective: 5-6 What are the potential benefits and drawbacks of each major source of small business funding?

Skill: Application

83) Which of the following should you do when borrowing money from friends or family to finance a new business?

A) assure them that your business will quickly become profitable B) take steps to protect them from any business liabilities C) provide them with a contingency plan for repayment D) assure them that you have done comprehensive market research Answer: C Explanation: C) Even if the money you use to finance your business comes from friends or family, you still must treat them as professionally as possible regarding the financing agreement.

Therefore, it is important to provide them with a contingency plan for how you will repay them if something goes wrong. It would be a mistake to claim that your business will become profitable quickly; in fact, an advantage of turning to friends or family for financing is that they are usually more lenient than lending institutions in their expectations about how quickly your business will turn a profit. If you have done comprehensive market research, it is fine to tell them so, but that is still no guarantee that your business will be successful. As lenders rather than business owners, they are already protected from responsibility for any of your business's liabilities; therefore no further action on your part is necessary.

Diff: 2 Page Ref: 158 AACSB: Reflective Thinking Objective: 5-6 What are the potential benefits and drawbacks of each major source of small business funding?

Skill: Conceptual 84) What is the worst thing that could happen to small business owners who use credit cards as a source of financing?

A) They might have to get a second credit card to pay for additional expenses.

B) They might need to significantly increase their revenues.

C) They might pay fines for using personal cards for business purchases.

D) They might spend more than they can afford to pay back.

Answer: D Explanation: D) Credit cards can be a good source of funds if the business owner can afford to pay off the balance every month. If this is not possible, then applying for an additional credit card is likely to compound the problem, increasing the amount of money that the business owner cannot afford to repay. There is no official entity that would assess a fine for making business purchases on a personal credit card, although such a practice might make business recordkeeping more difficult. The worst thing that can happen if a person who uses credit cards as a source of financing is not being able to pay the money back.

Diff: 2 Page Ref: 158 AACSB: Reflective Thinking Objective: 5-6 What are the potential benefits and drawbacks of each major source of small business funding?

Skill: Application

85) Johanna plans on being the sole proprietor of a home-based sales consulting business. Since she will work out of her home, her startup costs should be low. Which type of financing would be BEST for her to use for the start up of her business?

A) personal savings B) bank loan C) loan from friends D) venture capitalist Answer: A Explanation: A) Most business owners tap into their own savings when they initially invest in their business. Since Johanna is a sole proprietor who works out of her home, her startup costs would probably have been modest, and it is likely that her personal savings would be sufficient to get the business started. Therefore, other source of financing would probably not be necessary.

Diff: 2 Page Ref: 157 AACSB: Reflective Thinking Objective: 5-6 What are the potential benefits and drawbacks of each major source of small business funding?

Skill: Application 86) All of the following are potential benefits of using credit cards to obtain funds for starting a business EXCEPT ________.

A) credit card funds are obtained quickly B) credit cards have low interest rates on unpaid balances C) credit cards may have a zero-percent interest rate D) credit cards are convenient to use Answer: B Explanation: B) Low interest rates on credit card balances are not guaranteed and can change over time. For instance, zero-percent interest rates are usually offered for a limited period of time. Therefore, new business owners could ultimately face high interest rates on unpaid balances. As long as business owners are able to pay their credit card balances in full each month, credit cards are convenient to use and provide quick access to funds.

Diff: 2 Page Ref: 158 AACSB: Reflective Thinking Objective: 5-6 What are the potential benefits and drawbacks of each major source of small business funding?

Skill: Conceptual

87) Banks may offer lines of credit to help the new business owner ________.

A) create a business plan B) find an angel investor C) avoid borrowing from a savings and loan association D) make payroll when business is slow Answer: D Explanation: D) Banks offer lines of credit to help business owners keep their businesses running. A common use of lines of credit is to help the new small business owner pay employees when business is slow. Although a business owner may want to create a business plan or find an angel investor, neither represents a significant cost that would require a line of credit. Banks extend lines of credit only when the business owner qualifies, not because they fear that business owners would go to a different lending institution.

Diff: 2 Page Ref: 161 AACSB: Reflective Thinking Objective: 5-6 What are the potential benefits and drawbacks of each major source of small business funding?

Skill: Conceptual 88) Janet planned to purchase a McDonald's franchise. Meanwhile, Jason decided to open his own sandwich shop. Both decided to finance their new business ventures by applying for bank loans. Janet's loan application was approved, but Jason's was denied. Which of the following is the most likely explanation for these results?

A) Banks view franchises as having fewer risks than other startup businesses.

B) Banks can charge higher interest rates when financing franchisees.

C) Banks consider women business owners to present fewer risks than those who are men.

D) Banks prefer to lend to companies that have the potential of a public stock offering.

Answer: A Explanation: A) Banks view franchises as having fewer risks because of the assumption that such businesses are unlikely to fail because of their established brand. Banks do not charge higher interest rates to franchises, nor is there any evidence that bank lending practices discriminate against male entrepreneurs. Since McDonald's is already a publicly traded company, the bank could not make a lending decision based on the potential of a future stock offering.

Diff: 2 Page Ref: 148 AACSB: Reflective Thinking Objective: 5-6 What are the potential benefits and drawbacks of each major source of small business funding?

Skill: Conceptual

89) Small business owners interested in venture capital funding should know that venture capitalists ________.

A) charge interest rates for balances owed and set monthly minimum repayment requirements B) fund multiple projects but only with a limited amount of money for each C) provide funding only for capital expenses such as buildings and equipment D) look for the potential of a public stock offering before investing in a company Answer: D Explanation: D) Venture capitalists provide funding with no contractual obligation to pay back the money. Venture capitalists contribute money to a business in return for some form of ownership in the business. To increase the odds of a positive return on their investment, venture capitalists look for businesses with the potential of a public stock offering. The amount of funding they would provide is not arbitrarily limited in amount, nor is it restricted to fund only certain types of business expenses.

Diff: 1 Page Ref: 159 AACSB: Reflective Thinking Objective: 5-6 What are the potential benefits and drawbacks of each major source of small business funding?

Skill: Application 90) If you were a venture capitalist, which of the following startup businesses would you be most likely to fund?

A) a Domino's Pizza franchisee B) a modern art gallery within a shopping center C) a producer of unique iPhone applications D) a private accountant's office Answer: C Explanation: C) Venture capitalists are very selective about their investments: They look for the potential of a public stock offering; therefore, a venture capitalist would likely provide financing only to businesses that have the potential to become larger regional or national companies. A company that makes unique iPhone applications is the most likely of the four choices to progress to a public stock offering. A pizza franchisee would not be eligible for a public stock option, since the franchisee does not control many aspects of the franchise company's brand. Neither a modern art gallery nor a private accountant represent distinctive businesses that would be likely to appeal to a venture capitalist.

Diff: 3 Page Ref: 159 AACSB: Reflective Thinking Objective: 5-6 What are the potential benefits and drawbacks of each major source of small business funding?

Skill: Application

91) When a wealthy individual invests his or her own money into a business project or startup company with little intention to influence decision making, he or she is MOST often called a(n) ________.

A) angel investor B) venture capitalist C) financier D) shadow partner Answer: A Explanation: A) By definition, an angel investor is a wealthy individual who invests personal funds into an early-stage company. They tend to fund more projects with lesser amounts of money than venture capitalists. Angel investors hope for an equity return in the future, but are not partners of the company. A financier is a general term that could apply to anyone who deals in large financial operations or investments.

Diff: 1 Page Ref: 159 AACSB: Reflective Thinking Objective: 5-6 What are the potential benefits and drawbacks of each major source of small business funding?

Skill: Conceptual 92) ________ are venture capital firms licensed by the Small Business Administration to make equity capital or long-term loans available to small companies.

A) Small Business Investment Companies B) Business incubators C) Entrepreneurial lenders D) Angel investors Answer: A Explanation: A) The Small Business Investment Companies are private venture capital firms licensed by the Small Business Administration to make varied types of funding available to small companies, generally in the range of $250,000 to $5 million. They are the only venture capital firms licensed by the SBA to provide this type of funding. Business incubators, angel investors, and private entrepreneurs do not have a formal relationship with the Small Business Administration.

Diff: 1 Page Ref: 159 AACSB: Reflective Thinking Objective: 5-6 What are the potential benefits and drawbacks of each major source of small business funding?

Skill: Application

93) A system thinker is someone who focuses on the entire process of turning an idea into reality.

Answer: TRUE Explanation: Although entrepreneurs start companies based upon an idea, they must focus on the entire process of turning an idea into reality in order to succeed. Successful entrepreneurs are systems thinkers who are able to see the whole picture and develop solid plans that cover production, financing, marketing and distribution of a product or service.

Diff: 1 Page Ref: 141 AACSB: Reflective Thinking Objective: 5-1 What are the traits of an effective entrepreneur, and how do these characteristics often lead to business success?

Skill: Conceptual 94) Because entrepreneurs can hire other people to manage their business for them, they do not need strong leadership skills.

Answer: FALSE Explanation: Although some entrepreneurs may be able initially to work on their own, at some point most entrepreneurs need to hire other people with complementary skills who can help the business succeed. Thus, entrepreneurs need leadership and communication skills to help motivate employees to contribute to the success of the entrepreneurial enterprise.

Diff: 1 Page Ref: 141 Objective: 5-1 What are the traits of an effective entrepreneur, and how do these characteristics often lead to business success?

Skill: Conceptual 95) Entrepreneurs may be motivated to succeed in order to take care of their families.

Answer: TRUE Explanation: Entrepreneurs are motivated by many different factors. Some are motivated to provide for themselves and their families, while others may be motivated to succeed by the personal fulfillment they feel when they launch a business.

Diff: 1 Page Ref: 142 AACSB: Reflective Thinking Objective: 5-1 What are the traits of an effective entrepreneur, and how do these characteristics often lead to business success?

Skill: Conceptual 96) To qualify for Small Business Administration programs and benefits specifically targeted for small businesses, a business must generally have fewer than 20 employees.

Answer: FALSE Explanation: The Small Business Administration offers programs and benefits to small businesses that meet certain standards. For example, a small business generally must have fewer than 500 employees to qualify for government programs and benefits.

Diff: 1 Page Ref: 135 AACSB: Reflective Thinking Objective: 5-2 What is the role and structure of the small business within the U.S. economy?

Skill: Conceptual

97) Small businesses are important to the economy because they account for more than 90 percent of America's economic output.

Answer: FALSE Explanation: Small businesses are vital to the economy because they account for more than half of America's economic output, but not 90 percent.

Diff: 1 Page Ref: 136 Objective: 5-2 What is the role and structure of the small business within the U.S. economy?

Skill: Conceptual 98) In the United States, small businesses hire a larger proportion of part-time workers than large corporations do.

Answer: TRUE Explanation: Small businesses hire a larger proportion of part-time workers, younger workers, and older workers than large corporations, so they help employ millions who do not fit into a traditional corporate structure.

Diff: 1 Page Ref: 137 AACSB: Reflective Thinking Objective: 5-2 What is the role and structure of the small business within the U.S. economy?

Skill: Conceptual 99) The fastest way to start a business is to create a limited liability company.

Answer: FALSE Explanation: The fastest way to start a business is to create a sole proprietorship, which is a oneperson, individual business. Forming a limited liability company involves a legal process of registering a company, which involves additional time and expense. There are, however, advantages to forming a limited liability company, including protection of personal assets from claims against the company; therefore, the new business owner should carefully weigh which business structure is best.

Diff: 1 Page Ref: 139-140 AACSB: Reflective Thinking Objective: 5-3 What are the advantages and disadvantages of franchising within the context of entrepreneurship?

Skill: Conceptual 100) Franchises are independent third-party operators who market and sell a company's products or services under the company's name.

Answer: TRUE Explanation: Franchises are owned by people who pay a franchising fee and royalties in order to sell the franchise company's product or services under the company's name. Franchises are often desirable ways to start up a business because the owner can take advantage of the franchise company's reputation, training, and established operating system.

Diff: 1 Page Ref: 147 AACSB: Reflective Thinking Objective: 5-3 What are the advantages and disadvantages of franchising within the context of entrepreneurship?

Skill: Conceptual

101) An advantage of buying a franchise is that no initial training is necessary.

Answer: FALSE Explanation: An advantage of buying a franchise is that the franchiser often provides initial training in operating the business to ensure that a franchise has a successful opening.

Diff: 1 Page Ref: 148 AACSB: Reflective Thinking Objective: 5-3 What are the advantages and disadvantages of franchising within the context of entrepreneurship?

Skill: Conceptual 102) A disadvantage of buying a franchise is that some franchises do not restrict the location or number of their franchises.

Answer: TRUE Explanation: Some franchisers do not restrict the location or number of their franchise locations.

In those instances, franchisees could experience serious competition not only from another company, but also from other franchisees within the same franchise organization.

Diff: 1 Page Ref: 149 AACSB: Reflective Thinking Objective: 5-3 What are the advantages and disadvantages of franchising within the context of entrepreneurship?

Skill: Conceptual 103) Only 20 percent of small businesses survive after four years of operation.

Answer: FALSE Explanation: Just over half of all startups survive after four years of operation. This indicates that there are significant risks associated with starting a small business.

Diff: 1 Page Ref: 153 AACSB: Reflective Thinking Objective: 5-4 Why is a business plan crucial to small-business success, and what factors lead to small-business failure?

Skill: Conceptual 104) The most common factor that contributes to the failure of a small business is that the business has taken on too much debt.

Answer: TRUE Explanation: Most businesses are launched with the help of borrowed funds, and it is common for new business owners to accumulate too much debt relative to their earnings. Excess debt is involved in 28 percent of small business failures.

Diff: 1 Page Ref: 153 AACSB: Reflective Thinking Objective: 5-4 Why is a business plan crucial to small-business success, and what factors lead to small-business failure?

Skill: Conceptual

105) One of the biggest reasons that small businesses fail is that the owner spent excessive time engaged in formal planning.

Answer: FALSE Explanation: There is no evidence that spending too much time planning is a risk factor for new businesses. One of the biggest reasons businesses fail is that there was no formal plan in place to begin with. Many business owners, in the excitement of starting something new, neglect to take the "boring" but necessary steps of building an effective business plan.

Diff: 1 Page Ref: 151 AACSB: Reflective Thinking Objective: 5-4 Why is a business plan crucial to small-business success, and what factors lead to small-business failure?

Skill: Conceptual 106) The sole purpose of the Small Business Administration is to cater to the needs of small businesses.

Answer: TRUE Explanation: The Small Business Administration is an independent agency of the United States government that is exclusively dedicated to providing assistance to small businesses. The Small Business Administration offers assistance in the legalities of launching and operating a business, as well as education and training, financial assistance, disaster assistance, and counseling.

Diff: 1 Page Ref: 155 AACSB: Reflective Thinking Objective: 5-5 How do resources, including the Small Business Administration, mentoring sources such as SCORE, business incubators, and advisory boards, provide assistance and guidance to small business owners?

Skill: Conceptual 107) The Entrepreneurs Organization connects business owners with experts in their industries for individual mentoring.

Answer: TRUE Explanation: The Entrepreneurs Organization facilitates mentoring relationships between small business owners and experts in their respective industries. However, the organization limits membership to those who are currently a founder, co-founder, owner, or controlling shareholder of a business with a minimum of $1 million in annual gross sales, and who are younger than 50 years old.

Diff: 1 Page Ref: 155 AACSB: Reflective Thinking Objective: 5-5 How do resources, including the Small Business Administration, mentoring sources such as SCORE, business incubators, and advisory boards, provide assistance and guidance to small business owners?

Skill: Conceptual

108) An advisory board is responsible for making and implementing recommendations concerning varied aspects of a small business.

Answer: FALSE Explanation: An advisory board offers valuable guidance regarding the operations of a business, but does not make decisions, and therefore would not be responsible for implementing its recommendations.

Diff: 2 Page Ref: 156 AACSB: Reflective Thinking Objective: 5-5 How do resources, including the Small Business Administration, mentoring sources such as SCORE, business incubators, and advisory boards, provide assistance and guidance to small business owners?

Skill: Conceptual 109) One of the safest ways to finance your business is to borrow against a personal asset, such as your retirement account.

Answer: FALSE Explanation: When new business owners borrow against their personal assets, such as the equity in their house or against their retirement accounts, they could lose that money if their businesses fail. Safer alternatives would be to establish a line of credit from a bank or get a startup loan.

Diff: 1 Page Ref: 158 AACSB: Reflective Thinking Objective: 5-6 What are the potential benefits and drawbacks of each major source of small business funding?

Skill: Conceptual 110) Credit cards are not suitable sources of long-term funding for startup companies.

Answer: TRUE Explanation: Although credit cards are a convenient form of short-term borrowing, interest rates tend to be much higher than those of other types of funding, such as lines of credit. High credit card interest rates could cause a business owner to accumulate too much debt, putting the business at risk of failing. Therefore, credit cards should be used only if a business owner can pay the balance completely every month.

Diff: 1 Page Ref: 158 AACSB: Reflective Thinking Objective: 5-6 What are the potential benefits and drawbacks of each major source of small business funding?

Skill: Conceptual

111) Venture capitalists prefer to invest in innovative companies that have just begun operating.

Answer: FALSE Explanation: Venture capitalists generally offer funding only to businesses that have been operating for several years.

Diff: 2 Page Ref: 159 AACSB: Reflective Thinking Objective: 5-6 What are the potential benefits and drawbacks of each major source of small business funding?

Skill: Conceptual 112) What are the major traits that successful entrepreneurs have in common? Briefly describe how each of those traits contributes to entrepreneurial success.

Answer: Students should be able to identify and discuss several of the following traits: 1) They are innovative. Successful entrepreneurs see problems to be solved or opportunities that aren't being addressed in the marketplace they recognize opportunity niches. They also make improvements to existing products or systems, or they introduce something new and make profitable solutions out of problems.

2) They take risks. Being an entrepreneur involves risk, including the risk of failure, the risk of losing one's career, and, of course, financial risks. Because entrepreneurs are often creating new and innovative products, the processes they develop are also often untried and therefore involve risk. Successful entrepreneurs are aware of these risks, recognize that they can influence events but do not have complete control over them, and are willing to accept the knowledge that they may fail. Successful entrepreneurs therefore take calculated risks that is, they consider the likelihood of success before deciding whether to take a particular risk.

3) They are motivated to succeed. Entrepreneurs are motivated by many different factors. Some entrepreneurs are motivated to provide for themselves or their families. These individuals may be driven to pursue multiple ventures before uncovering a successful idea. Other entrepreneurs are motivated to succeed by the personal fulfillment they feel upon successfully launching a business.

4) They are flexible and self-directed. Because entrepreneurial ventures are subject to uncertainty and risk, entrepreneurs need to be able to react quickly to new and unexpected situations. And because entrepreneurs are their own bosses, they need to be able to make their own decisions. An entrepreneur must be able to wear many hats, acting not only as the executive, but also the sales manager, financial director, secretary, and mailroom person.

5) They have people skills and leadership skills. Entrepreneurs may come up with the initial idea behind their business, but entrepreneurs rarely work by themselves. As much as they have the capacity to wear many hats, at some point most entrepreneurs need other people with complementary skills to join them in their venture. If their business expands, they must hire employees and other managers to help them run it. Leadership and communication skills are therefore important traits of successful entrepreneurs who must motivate others to feel as passionately about the entrepreneurial enterprise as they do.

6) They are "system thinkers." Entrepreneurs must focus on the entire process of turning their idea into a business in order to succeed. Successful entrepreneurs are able to see the whole picture when they set up their businesses. They determine how to resolve a problem or to capitalize on an opportunity by developing a solid plan, including the production, financing, marketing, and distribution of the service or product.

Diff: 2 Page Ref: 141-143 AACSB: Reflective Thinking Objective: 5-1 What are the traits of an effective entrepreneur, and how do these characteristics often lead to business success?

Skill: Conceptual 113) There are a number of different categories of entrepreneurs operating today. Identify and describe the different types of entrepreneurs.

Answer: Students should be able to identify and discuss several of the following entrepreneurial types: 1) Lifestyle entrepreneurs. These are entrepreneurs who become entrepreneurs because of the personal benefits to their lives. For instance, some lifestyle entrepreneurs are looking for freedom from corporate bureaucracy or the opportunity to work at home or in a location other than an office. Others are looking for more flexibility in work hours or travel schedules.

2) Micropreneurs. Micropreneurs start their own business, but are satisfied with keeping the business small. For example, a micropreneur might open a single restaurant and be satisfied with running only that one restaurant, instead of expanding. Micropreneurs have no aspirations of growing large and/or hiring hundreds or thousands of employees.

3) Growth entrepreneurs. Growth entrepreneurs strive to create fast-growing businesses and look forward to expansion. The companies that these types of entrepreneurs create are known as gazelles. Typically, a gazelle business has at least 20 percent sales growth every year for 5 years, starting with a base of at least $100,000.

4) Intrapreneurs. Intrapreneurs are employees of a company who work in an entrepreneurial way within the organizational environment. Although employees are not separately compensated for their ideas, they are pleased that the company asks for their ideas and have responded enthusiastically.

Diff: 2 Page Ref: 143-145 AACSB: Reflective Thinking Objective: 5-1 What are the traits of an effective entrepreneur, and how do these characteristics often lead to business success?

Skill: Conceptual

114) What is an entrepreneurial team? Describe the major reasons why an entrepreneurial team might be formed.

Answer: An entrepreneurial team is a group of qualified individuals with varied experiences and skills that come together to form a new venture. The skills of the entrepreneurial team members complement one another so that, as a group, the team has the necessary skills and traits to manage a successful project. Entrepreneurial teams are also great for those who want to run their own business but perhaps lack the personal experience. For example, many college and business school students form entrepreneurial teams to get their first project launched.

Diff: 2 Page Ref: 145-146 AACSB: Reflective Thinking Objective: 5-1 What are the traits of an effective entrepreneur, and how do these characteristics often lead to business success?

Skill: Conceptual 115) Small businesses are becoming increasingly important to the economy. Describe several specific ways that small business is contributing to the American economy.

Answer: The text includes several ways that small businesses are important to the economy, including: 1) Small businesses provide a large percentage (40.9%) of private sales in the country and account for more than half of America's economic output.

2) Almost all new businesses are small; therefore, they account for a substantial portion of the newly created jobs in the United States. In fact, small businesses create over 60 percent of net new jobs every year.

3) They also help the economy by employing millions of workers who might not fit into the traditional structure of a large corporation: small businesses hire a larger proportion of younger workers, older workers, and part-time workers than large businesses do. In total, small businesses employ approximately 50 percent of the private workforce.

4) Small businesses also provide opportunities for minorities and women to contribute to the economy. The number of African American-owned businesses, Hispanic-owned businesses, and women-owned businesses is growing rapidly.

Diff: 2 Page Ref: 135-138 AACSB: Reflective Thinking Objective: 5-2 What is the role and structure of the small business within the U.S. economy?

Skill: Application

116) What is a franchise? What are the major advantages and disadvantages of owning a franchise business?

Answer: A franchise is a method of doing business whereby the business (the franchiser) sells a company's products or services under the company's name to independent third-party operators (the franchisees).

The text identifies many advantages of franchising, including: 1) It is a proven system of operation. Instead of dealing with all the uncertainties of new business ownership by themselves, franchisees benefit from the collective experience of the franchise company. The franchiser has determined, through trial and error, the best system of daily operations for the established business. New franchisees can therefore avoid many of the common startup mistakes made by new business owners since they will be working with standardized products, systems, and financial and accounting systems.

2) There is strength in numbers. You are not alone when you buy a franchise. Because as a franchisee you belong to a group, you might benefit from economies of scale achieved by purchasing materials, supplies, and services at discounted group rates. In addition, it's often easier to get approved for business loans when running a franchise, as the lending institution views less risk associated with a franchise.

3) Initial training. The franchiser offers initial training to ensure you have a successful opening and might offer ongoing training if new products or services are being incorporated into the franchise line.

4) Marketing support is provided. As a franchisee, you are often given marketing materials generated at the corporate level and have the benefit of any national advertising programs that are created. Although franchisees are expected to run your own local marketing efforts, you have the support of other franchisees in the area to help you in your efforts.

The text also identifies a number of disadvantages of franchising, including: 1) Lack of control. There is not much opportunity to contribute creatively to the franchise since the franchiser often controls the look of the store and the product or service. The franchisee, however, is expected to bring the necessary drive and spirit to make the franchise a success.

2) Startup costs. Startup costs can be quite high. For instance, 70 percent of all franchises require more than $50,000 to start. In addition, franchisees must pay a monthly royalty fee to the franchiser. The royalty fees are due regardless of how the business is doing and can be a huge overhead expense. Other costs the franchisee might incur include real estate purchase or rental, equipment purchase or rental, extra signage, and opening inventory.

3) Work load. New franchisees should expect to spend a significant amount of their time running the business.

4) Competition. Some franchises do not restrict the location or number of their franchise locations. In those instances, franchisees could experience serious competition not only from another company, but also from other franchisees in the same franchise organization. In addition, some franchises do not offer geographic or demographic studies of the best location to open a new store and instead may expect the franchisee to have completed a good market analysis and be familiar with the surrounding competition.

5) Share common problems. If the franchiser or another franchisee is having problems, all franchisees will feel its pain. For example, when a Wendy's restaurant was falsely accused of serving chili with a human thumb mixed in, business in all Wendy's restaurants plummeted.

Diff: 3 Page Ref: 147-150 AACSB: Reflective Thinking Objective: 5-3 What are the advantages and disadvantages of franchising within the context of entrepreneurship?

Skill: Conceptual 117) The decision to buy an existing business should be carefully thought out. What are the most important pros and cons that should be weighed?

Answer: The text identifies a number of advantages of buying an existing business, including: 1) It's often simpler than beginning one from scratch.

2) There is a reduction in startup time and energy if you are purchasing a business that is operational and without serious problems. This means that suppliers, existing staff and management, and equipment and inventory are all in place to help facilitate taking over the business.

3) An existing business may have an existing satisfied customer base. If no significant changes are made to drive away current customers, the business can continue to run and provide immediate cash flow.

4) If the business has had a positive track record, it might be easier to obtain financing to purchase the existing business.

The text also identifies a number of disadvantages of buying an existing business, including: 1) Because you may need to buy the owner out of the business, the initial purchase price may be high. This can be more than the immediate up-front costs associated with a startup, but not necessarily any different from a franchise. While you can easily determine the value of the physical business and its assets, it is more difficult to determine the true value of the previous owner's goodwill the intangible assets represented by the business's name, customer service, employee morale, and other factors that might be lost with a change in ownership. Often the intangible assets are overvalued, making the business cost more than it is worth.

2) With a pre-existing business, you are sometimes stuck with the previous owner's mistakes.

This means you might inherit dissatisfied customers, bad debt, and unhappy distributors or purchasing agents. You'll need to work to change the minds of people who have had a bad experience with the previous ownership.

3) There is no guarantee that existing employees, management, customers, suppliers, or distributors will continue to work with the business once new ownership takes over. If staff does stay, you might be inheriting unanticipated problems.

Diff: 3 Page Ref: 150-151 AACSB: Reflective Thinking Objective: 5-3 What are the advantages and disadvantages of franchising within the context of entrepreneurship?

Skill: Conceptual

118) Only two-thirds of startup businesses survive the first two years, and just over half survive after five years of operation. What are the most significant reasons that account for such a high rate of startup business failures?

Answer: The text identifies a number of reasons why small businesses may fail, including: 1) Accumulating Too Much Debt. Most new businesses owners begin a new business borrowing funds. Regardless of whether the loan comes from a bank, an outside investor, or a credit card company, if the new business does not generate returns quickly enough to begin to pay back the initial loan, there is temptation to take on more loans to keep the business running. Interest on loans can accumulate, too, causing an owner to become further entrenched in a potentially unrecoverable situation. What's worse is that some business owners borrow against their personal assets, putting them at risk of personal bankruptcy.

2) Inadequate Management. Although entrepreneurs and small business owners are good at coming up with ideas, they may not be great at managing the books and their employees. The fact that so many businesses fail due to high levels of debt can be a sign of poor financial and business management. For some businesses, the challenge of managing growth has driven them under when they find that they cannot handle the increase in sales. Many business owners ignore the signs of a business beginning to fail or attribute the failure to the wrong reasons. Other managers have difficulty balancing the need to form a strong team of employees without handing over all control.

3) Poor Planning. One of the biggest reasons businesses fail is that there was no formal plan in place to begin with. The old adage "failing to plan is planning to fail" certainly applies to starting a business. Many budding business owners, in the excitement of starting something new, neglect to take the "boring" but necessary steps of building an effective business plan.

4) Unanticipated Personal Sacrifices. New businesses also may fail when owners do not adequately anticipate the many personal sacrifices financial and otherwise that new business owners are forced to make. For example, the cost of health insurance and retirement accounts fall solely on the shoulders of the new business owner. Additionally, the amount of time and effort owners must invest in the business, as well as the necessity to take on multiple responsibilities, makes running your own business not for the faint of heart.

Diff: 2 Page Ref: 153-154 AACSB: Reflective Thinking Objective: 5-4 Why is a business plan crucial to small-business success, and what factors lead to small-business failure?

Skill: Conceptual

119) You have a friend who has asked for your advice about how to start a small bookkeeping business for the first time. What professional resources would you recommend to help your friend, and why?

Answer: Students can offer a number of examples of professional resources they would recommend and should be able to explain why, based on the scenario provided.

The text identifies a number of resources that would be appropriate for the prospective small business owner described in the question, including: 1) The Small Business Administration (SBA). The Small Business Administration (SBA) is an independent agency of the U.S. government whose sole purpose is to cater to the needs of small businesses. The SBA is an ideal resource for a prospective first-time business owner, because the SBA offers assistance in the legalities associated with beginning and operating a business as well as education and training, financial assistance, disaster assistance, and counseling. The SBA offers workshops in financial analysis, creating a business plan, and launching a business. It also offers free online courses and coordinates links to academic institutions that offer private online training.

2) SCORE. SBA's Service Corp of Retired Executives (SCORE) provides individual counseling to small businesses at no cost. SCORE volunteers are currently working in or have been in the field and can therefore provide advice to new or existing small business owners. They review business plans, help with tax planning, and offer new ideas and fresh insights.

3) Mentoring Sources. Industry-related conferences or seminars often present new business owners with opportunities to find others who can serve as sounding boards and mentors.

Therefore one might recommend that a would-be new business owner make a point of attending a conference in his or her field to find a mentor.

4) An Advisory Board. An advisory board is a group of individuals who offer guidance to the new business owner. Such boards are similar to boards of directors in publicly held companies except that they generally do not have the authority to make decisions. The friend described in the interview could benefit from advice and recommendations of a group of advisors.

The text identifies a number of resources that would NOT be appropriate for the prospective small business owner described in the question, including: 1) The Entrepreneurs Organization (EO), which connects business owners with experts in their industry for individual mentoring, would NOT be a correct response to the question, because its eligibility requirements (you must be a founder, co-founder, owner, or controlling shareholder of a business with a minimum of $1 million in annual gross sales and younger than 50 years old) would rule out the friend described in the question.

2) Business Incubators. A small bookkeeping business would not be the type of business that is likely to need the array of services offered by a business incubator (administrative services, technical support, and business networking), nor would it be an attractive candidate to those in charge of an incubator.

Diff: 3 Page Ref: 154-156 AACSB: Reflective Thinking Objective: 5-4 Why is a business plan crucial to small-business success, and what factors lead to small-business failure?

Skill: Application

120) If you needed significant funds to start a new business, what options would you have for borrowing startup funds? What would be the tradeoffs you would consider in deciding how to finance your new business? In an ideal case, which type or types of borrowing would you use to fund your startup?

Answer: The text identifies a number of borrowing options, including: 1) Friends and family. Personal contacts are often good sources for financing because, unlike banks or other lending institutions, they often do not require a high rate of return or demand to see the business turn a quick profit. However, borrowing from friends or family could complicate personal relationships if you are unable to repay them as agreed.

2) Credit cards. Credit cards are a convenient way to obtain funds quickly. But the risk associated with using credit cards for initial business financing is the high rate of interest charged on unpaid balances, which could cause a business owner to take on too much debt. They would be a good source of funding smaller sums that can be paid off in full each month and are not good sources of large amounts of money that would have to be paid off over a long period of time.

3) Home equity loan or line of credit or borrowing against any other personal asset such as a retirement fund. Such borrowing could make a large amount of funds available, but the consequences of the business failing are very severe since that money could be lost forever.

4) Business loans and lines of credit. Banks and savings and loan institutions offer startup loans and lines of credit to help businesses make payroll during slower periods as well as capital loans to buy equipment or machinery. Such loans or credit lines would make larger amounts of money available and at more reasonable interest rates than credit cards, and would not jeopardize personal assets. However, lending institutions do not approve all loan requests.

Of these four options, a business loan or line of credit would be the optimal choice. Both offer the most reasonable credit terms, at the least risk to personal resources or relationships.

Diff: 3 Page Ref: 154-155 AACSB: Reflective Thinking Objective: 5-6 What are the potential benefits and drawbacks of each major source of small business funding?

Skill: Application

121) If an individual needs funds to finance a small business and does not want to finance the business using loans, what other sources of funding might be available? Briefly describe each potential source of funding and indicate what kind of business enterprise would be the ideal candidate for each source of funding.

Answer: The text identifies a number of funding sources that might be available to the small business owner, including: 1) Venture Capitalists. Unlike banks, where there is a contractual agreement to pay back the money, venture capitalists contribute money to your business in return for some form of equity, or a piece of ownership. Venture capitalists are very picky about the projects in which they invest. The type of business in which they would like to invest is one which offers the potential of a public stock offering; therefore, such financing is generally only available to those businesses that have been operating for several years and that have the potential to become larger regional or national companies.

2) Small Business Investment Company (SBIC) program. SBICs are private venture capital firms licensed by the Small Business Administration to make equity capital or long-term loans available to small businesses. The size of the financing provided by SBICs is generally in the $250,000 to $5 million range; therefore, the type of business that would be a good candidate for SBIC funding would be one large enough to require a substantial amount of funding.

3) Angel Investors. Angel investors are wealthy individuals who are willing to put up their own money in hopes of a profit return later on. Angel investors tend to fund more projects with lesser amounts of money than venture capitalists. More companies would qualify for funding by an angel investor than by a venture capitalist since many angel investors are willing to provide funding at the beginning stage of a company's development.

Diff: 3 Page Ref: 159 AACSB: Reflective Thinking Objective: 5-6 What are the potential benefits and drawbacks of each major source of small business funding?

Skill: Conceptual

122) What is the purpose of a business plan, and what are the major elements that should be included in an effective business plan?

Answer: A business plan is a formal document that states the goals of the business as well as the plan for reaching those goals.

The major elements of an effective business plan are: 1) Company Information, including a Mission Statement, history, and qualifications of the owner and management team 2) Operational Plan, including plans for staffing, R&D, manufacturing, and information technology 3) Financial Plan, including current financing, including funding plan, financial history and forecasts, and company valuation 4) Marketing Plan, including competitive analysis, pricing, distribution promotion and brand development 5) Risk Analysis, including risk evaluation and a risk management plan Diff: 2 Page Ref: 154 AACSB: Reflective Thinking Objective: 5-4 Why is a business plan crucial to small-business success, and what factors lead to small-business failure?

Skill: Conceptual Better Business, 7e (Solomon) Chapter 6 Forms of Business Ownership 1) A sole proprietorship is a common form of business ownership for startup businesses.

Answer: TRUE Explanation: A sole proprietorship is a business owned, and usually operated, by a single individual. Because no legal paperwork is necessary to establish a business as a sole proprietorship, many small-business owners are sole proprietors without even knowing it.

Diff: 1 Page Ref: 167-168 AACSB: Reflective Thinking Objective: 6-1 What are the strengths and weaknesses of a sole proprietorship?

Skill: Conceptual 2) The profits of a sole proprietorship are taxed as the personal income of the owner.

Answer: TRUE Explanation: Since there is no legal distinction between the owner and the business, no separate tax return is required. As a result, the income and expenses of a sole proprietorship flow through the owner's personal tax return.

Diff: 1 Page Ref: 168 AACSB: Reflective Thinking Objective: 6-1 What are the strengths and weaknesses of a sole proprietorship?

Skill: Conceptual 3) One disadvantage of a sole proprietorship is they usually have limited access to additional financial resources.

Answer: TRUE

Explanation: The challenge in raising capital for sole proprietors occurs because banks will be lending to you personally, not to your business, so they will be more reluctant to lend large amounts, and the loan will be limited to the amount of your personal assets.

Diff: 1 Page Ref: 170 AACSB: Reflective Thinking Objective: 6-1 What are the strengths and weaknesses of a sole proprietorship?

Skill: Conceptual 4) When establishing a sole proprietorship, it may be necessary to obtain local licensing or permits.

Answer: TRUE Explanation: Although sole proprietors do not need to file special government forms in order to establish their business, they may need to obtain local licensing or permits to ensure they are operating in an area zoned for business activity.

Diff: 2 Page Ref: 168 AACSB: Reflective Thinking Objective: 6-1 What are the strengths and weaknesses of a sole proprietorship?

Skill: Conceptual

5) A sole proprietorship can have only one owner, but it can have any number of employees.

Answer: TRUE Explanation: Although the word sole implies only a single person is involved, it in fact refers only to the ownership of such a business. A sole proprietor may employ others, as long as he or she remains the only owner of the business.

Diff: 2 Page Ref: 168 AACSB: Reflective Thinking Objective: 6-1 What are the strengths and weaknesses of a sole proprietorship?

Skill: Conceptual 6) Partnerships are taxed at the lowest corporate tax rate.

Answer: FALSE Explanation: Partnerships are not a separate taxable entity. Income flows through individual partners' tax returns and each partner pays tax on his or her share of income.

Diff: 2 Page Ref: 172 AACSB: Reflective Thinking Objective: 6-2 What are the advantages and disadvantages of a partnership and a partnership agreement?

Skill: Conceptual 7) To protect partnerships and minimize misunderstandings among partners, all terms of a partnership should be spelled out in writing.

Answer: TRUE Explanation: Having a partnership agreement in writing helps to settle conflicts when they arise and may discourage small misunderstandings from erupting into larger disagreements.

Diff: 2 Page Ref: 172 AACSB: Reflective Thinking Objective: 6-2 What are the advantages and disadvantages of a partnership and a partnership agreement?

Skill: Conceptual 8) In a general partnership, all partners are entitled to an equal share of the firm's profits.

Answer: FALSE Explanation: In general partnerships, profits are divided as the partners choose. It is best to decide the division of profits prior to inception of the business in a partnership agreement.

Diff: 2 Page Ref: 173 AACSB: Reflective Thinking Objective: 6-2 What are the advantages and disadvantages of a partnership and a partnership agreement?

Skill: Conceptual

9) Tom has agreed to become a partner in a business. Since he will provide 30% of the capital to start the company, he is entitled to 30% of any profits the company earns during its first year of operation.

Answer: FALSE Explanation: Profits are divided according to the partner's designation in a partnership agreement, not necessarily in proportion to the amount of the initial investment. It is best to decide the division of profits prior to inception of the business in a partnership agreement.

Diff: 2 Page Ref: 173 AACSB: Reflective Thinking, Analytic Skills Objective: 6-2 What are the advantages and disadvantages of a partnership and a partnership agreement?

Skill: Application 10) The biggest difference between general and limited partnerships involves who accepts most of the business liability.

Answer: TRUE Explanation: A general partnership is the default arrangement for a partnership; a limited partnership is created when there is a need for additional capital. Limited partners are involved as investors; they are not involved in day-to-day business activities. They are personally liable only up to the amount of their investment in the business. General partners remain liable for all debts and obligations of the business.

Diff: 2 Page Ref: 174-175 AACSB: Reflective Thinking Objective: 6-2 What are the advantages and disadvantages of a partnership and a partnership agreement?

Skill: Conceptual 11) A limited partner is an owner who assumes no management responsibility and has no liability for losses beyond the amount invested.

Answer: TRUE Explanation: Limited partners provide capital and are liable for the amount of their investment only and are not involved in the day-to-day operations.

Diff: 1 Page Ref: 175 AACSB: Reflective Thinking Objective: 6-2 What are the advantages and disadvantages of a partnership and a partnership agreement?

Skill: Conceptual

12) A corporation is a specific form of business that is legally formed under state laws and is considered a separate entity.

Answer: TRUE Explanation: Corporations are a separate entity. Business owners find this an attractive ownership structure because as a separate entity, corporations have limited liability.

Diff: 1 Page Ref: 177 AACSB: Reflective Thinking Objective: 6-3 How is a corporation formed, and how does it compare with sole proprietorships and partnerships?

Skill: Conceptual 13) If you want to terminate your ownership in a publicly traded corporation, you simply sell your shares.

Answer: TRUE Explanation: Transfer of ownership is simple and easy in a corporation. If you no longer want to be an owner, you sell your shares. The corporation has perpetual life, but your ownership does not need to be for life.

Diff: 1 Page Ref: 177 AACSB: Reflective Thinking Objective: 6-3 How is a corporation formed, and how does it compare with sole proprietorships and partnerships?

Skill: Conceptual 14) The owners of a corporation are known as general corporate partners.

Answer: FALSE Explanation: Corporate owners are called shareholders.

Diff: 1 Page Ref: 178 AACSB: Reflective Thinking Objective: 6-3 How is a corporation formed, and how does it compare with sole proprietorships and partnerships?

Skill: Conceptual 15) The organizational structure of a corporation allows for shareholders to have control over the company's daily operations.

Answer: FALSE Explanation: Shareholders elect directors who in turn elect officers. The officers manage daily operations.

Diff: 1 Page Ref: 178-179 AACSB: Reflective Thinking Objective: 6-3 How is a corporation formed, and how does it compare with sole proprietorships and partnerships?

Skill: Conceptual

16) A disadvantage of corporations is that they generally require extensive paperwork.

Answer: TRUE Explanation: Corporations do require specific federal and state filings to become incorporated.

In addition to the initial paperwork to establish corporations, other legal paperwork that must be filed includes annual reports, minutes of annual meetings as well as bookkeeping records.

Diff: 1 Page Ref: 179 AACSB: Reflective Thinking Objective: 6-3 How is a corporation formed, and how does it compare with sole proprietorships and partnerships?

Skill: Conceptual 17) S corporations are similar to C corporations because they both pay corporate income taxes.

Answer: FALSE Explanation: Because they are taxed under Subchapter S of the Internal Revenue Service code, S corporations do not pay corporate income taxes. Taxes are passed through the shareholders' personal tax returns.

Diff: 2 Page Ref: 180 AACSB: Reflective Thinking Objective: 6-4 What are the major differences between a C corporation, an S corporation, and a limited liability company?

Skill: Conceptual 18) Like partnerships, shareholders in an S corporation pay income taxes based on their proportionate share of the business profits.

Answer: TRUE Explanation: Taxes in S corporations are paid based on their proportionate share of the business profits through personal income tax filings making it a big advantage over C corporations.

Diff: 2 Page Ref: 180 AACSB: Reflective Thinking Objective: 6-4 What are the major differences between a C corporation, an S corporation, and a limited liability company?

Skill: Conceptual 19) A company with 200 shareholders can establish itself as an S corporation.

Answer: FALSE Explanation: According to the qualification requirements set forth by the U.S. Internal Revenue Code, to be an S corporation, a company may not have more than 100 shareholders.

Diff: 2 Page Ref: 181 AACSB: Reflective Thinking Objective: 6-4 What are the major differences between a C corporation, an S corporation, and a limited liability company?

Skill: Application

20) S corporations are restricted to a limited number of owners, whereas limited liability companies can have an unlimited number of owners.

Answer: TRUE Explanation: S corporations are limited to 100 owners, whereas limited liability companies can have an unlimited number of owners.

Diff: 1 Page Ref: 182 AACSB: Reflective Thinking Objective: 6-4 What are the major differences between a C corporation, an S corporation, and a limited liability company?

Skill: Conceptual 21) Not-for-profit organizations are NOT required to incorporate.

Answer: TRUE Explanation: Not-for-profit organizations are not required to file for incorporation; however, they do need to incorporate in order to become a separate entity and thus be released of unlimited liability. Additionally, once a not-for-profit is incorporated, they must apply for tax-exempt status with the federal government and sometimes the state in which they are incorporated.

Diff: 3 Page Ref: 184 AACSB: Reflective Thinking Objective: 6-5 What are the characteristics of not-for-profit corporations and cooperatives?

Skill: Application 22) Not-for-profit organizations may NOT earn a profit.

Answer: FALSE Explanation: Not-for-profit organizations may earn a profit in order to cover expenses and pay employee salaries.

Diff: 2 Page Ref: 184-185 AACSB: Reflective Thinking Objective: 6-5 What are the characteristics of not-for-profit corporations and cooperatives?

Skill: Conceptual 23) Members are the most important part of a cooperative.

Answer: TRUE Explanation: Members of a cooperative finance it by purchasing shares and may even volunteer for projects or serve on a board to support the organization. Without its members, cooperatives would not exist.

Diff: 2 Page Ref: 185 AACSB: Reflective Thinking Objective: 6-5 What are the characteristics of not-for-profit corporations and cooperatives?

Skill: Conceptual

24) In order to expand more quickly and remain competitive, companies integrate other established businesses through the process of mergers or acquisitions.

Answer: TRUE Explanation: A good corporate strategy to remain competitive is to integrate other established businesses through the process of mergers or acquisitions. This allows companies to respond quickly to market forces or grow their company to increase their competitive edge.

Diff: 2 Page Ref: 186 AACSB: Reflective Thinking Objective: 6-6 What are the different types of mergers and acquisitions, and why do they occur?

Skill: Conceptual 25) All mergers and acquisitions are mutually desired by both companies.

Answer: FALSE Explanation: Many mergers are friendly and mutually agreed upon, but often acquisitions are unfriendly. An unfriendly acquisition occurs when one company tries to take control over another company against its wishes and is referred to as a hostile takeover.

Diff: 2 Page Ref: 187 AACSB: Reflective Thinking Objective: 6-6 What are the different types of mergers and acquisitions, and why do they occur?

Skill: Conceptual 26) A conglomeration occurs when two companies selling different but related products in the same market combine.

Answer: FALSE Explanation: A conglomeration occurs when two companies that have no common or related business areas combine. When two companies selling different but related products in the same market combine it is called a product extension merger.

Diff: 2 Page Ref: 189 AACSB: Reflective Thinking Objective: 6-6 What are the different types of mergers and acquisitions, and why do they occur?

Skill: Conceptual 27) More than one-half of all mergers do not succeed in achieving greater market value.

Answer: TRUE Explanation: More than one-half of mergers do not succeed in achieving greater market value.

The reasons for this include the fact that top executives take their eyes off the day-to-day business while focusing on the merger. Revenues and profits ultimately suffer because day-today activities are neglected. Conflicts may also arise due to divided loyalties, hidden agendas, or power struggles within the newly combined management team. Employees may be nervous because most mergers result in the elimination of jobs, and more turnover may be created.

Diff: 2 Page Ref: 189 AACSB: Reflective Thinking Objective: 6-6 What are the different types of mergers and acquisitions, and why do they occur?

Skill: Conceptual

28) Lucia owns her own dog walking business and has several employees. She filed no legal paperwork and has no partners. Lucia's business is a ________.

A) limited liability company B) corporation C) sole proprietorship D) separate legal entity Answer: C Explanation: C) A sole proprietorship is a business owned, and usually operated, by a single individual. No legal paperwork is necessary to establish a sole proprietorship, therefore many small-business owners such as Lucia may be sole proprietors without even knowing it.

Moreover, sole proprietorships can have any number of employees as long as there is only one owner. It is not considered a separate entity, like corporations are, and therefore, Lucia would have unlimited liability in her business.

Diff: 1 Page Ref: 168 AACSB: Reflective Thinking Objective: 6-1 What are the strengths and weaknesses of a sole proprietorship?

Skill: Application 29) All of the following are advantages of sole proprietorship EXCEPT ________.

A) single ownership B) no special forms C) ease of formation D) limited liability Answer: D Explanation: D) Sole proprietorship has many advantages including ease of formation, direct control over business decisions because of single ownership, simplified tax filing, and minimal paperwork. The primary disadvantage is that the sole proprietor is responsible for all debt and liability of the business. Therefore, the sole proprietor's personal assets are at risk.

Diff: 1 Page Ref: 170 AACSB: Reflective Thinking Objective: 6-1 What are the strengths and weaknesses of a sole proprietorship?

Skill: Conceptual

30) One disadvantage of sole proprietorship is the ________.

A) possibility of disagreements between different owners B) unlimited liability the owner has for the debts of the company C) fact that any income earned by this type of business is taxed twice D) cost of starting or ending the company is higher than other businesses Answer: B Explanation: B) Sole proprietorships have one owner, which means there are no disagreements between owners; it also means a simple cost-free process of ending the company. Double taxation is a disadvantage of corporations; however, unlike corporations, sole proprietorships have unlimited liability.

Diff: 1 Page Ref: 170 AACSB: Reflective Thinking Objective: 6-1 What are the strengths and weaknesses of a sole proprietorship?

Skill: Conceptual 31) Paula is thinking of making homemade perfumes and selling them to her relatives. She has not filed any legal documents to start her business. Paula would be operating as a(n) ________.

A) S corporation B) corporation C) sole proprietor D) limited liability company Answer: C Explanation: C) A sole proprietorship is a business owned and operated by a single individual that can be formed without filing legal documents; whereas a corporation, S corporation and a limited liability company require paperwork to be filed with both the state and federal government.

Diff: 1 Page Ref: 168 AACSB: Analytic Skills Objective: 6-1 What are the strengths and weaknesses of a sole proprietorship?

Skill: Application 32) A sole proprietor's income and expenses flow through ________.

A) shareholders' tax returns B) individual partners' tax returns C) his or her personal tax returns D) corporate tax returns Answer: C Explanation: C) Because a sole proprietorship is not considered a separated entity, taxes are filed through the owners' personal tax returns.

Diff: 1 Page Ref: 170 AACSB: Reflective Thinking Objective: 6-1 What are the strengths and weaknesses of a sole proprietorship?

Skill: Conceptual

33) Dan is excited to start marketing and selling his new indoor practice hockey tarps and would like to start today. He already has several hockey associations waiting to make purchases. Dan's best option for starting his business quickly and hassle free is a(n) ________.

A) S corporation B) C corporation C) general partnership D) sole proprietorship Answer: D Explanation: D) Because a sole proprietorship only requires collecting income as a result of performing a service or selling a product, this is Dan's best option. Corporations require paperwork prior to doing business. Although partnerships do not require legal paperwork, it is best to take the time to write a partner agreement before beginning business, and at this point Dan is ready to get started on his own, without a partner.

Diff: 1 Page Ref: 168 AACSB: Analytic Skills Objective: 6-1 What are the strengths and weaknesses of a sole proprietorship?

Skill: Application 34) Arthur is a truck driver who owns his own business. He has been on the road for several months, and the constant wear and tear on his truck results in the need for several major mechanical repairs. This generates a loss for his business. Which of the following reflects how this will affect Arthur's tax obligation?

A) Arthur's tax obligation will be increased.

B) Arthur's tax obligation will be reduced.

C) Arthur's tax obligation will not change at all.

D) Arthur will not be required to pay his tax obligation.

Answer: B Explanation: B) When a sole proprietor incurs a loss for his or her business, the proprietor can subtract that loss from his or her personal income taxes, reducing the proprietor's tax obligation.

Diff: 3 Page Ref: 168 AACSB: Analytic Skills Objective: 6-1 What are the strengths and weaknesses of a sole proprietorship?

Skill: Application 35) Unlimited liability with respect to business ownership means ________.

A) to have an obligation to pay all business debt B) to have an obligation to pay only the money you invest in a business C) to be liable for expenses incurred only by you, not your employees D) to be liable for estimated business expenses only Answer: A Explanation: A) Unlimited liability means the owner is responsible for all the debts of the firm.

Because the liability is unlimited, the owner's personal assets may be used to pay the debts of the business.

Diff: 1 Page Ref: 170 AACSB: Reflective Thinking Objective: 6-1 What are the strengths and weaknesses of a sole proprietorship?

Skill: Conceptual

36) In a sole proprietor ownership, if business assets are not enough to pay business debts, then personal assets, such as the sole proprietor's house, personal investments, and retirement plans can be used to pay the debt. This is called ________.

A) unlimited liability B) limited liability C) non-liability D) double taxation Answer: A Explanation: A) The most significant drawback of a sole proprietorship is unlimited liability, which means that the sole proprietor is personally responsible for all business debts.

Diff: 1 Page Ref: 170 AACSB: Reflective Thinking Objective: 6-1 What are the strengths and weaknesses of a sole proprietorship?

Skill: Conceptual 37) All of the following EXCEPT ________ would be an advantage to partnership.

A) pooled skills B) increased financial resources C) increased available time D) unlimited liability Answer: D Explanation: D) Advantages of partnerships include a larger pool of skills, more time available to increase sales, marketing or income and a larger pool of financial resources. A disadvantage is unlimited liability.

Diff: 2 Page Ref: 174 AACSB: Reflective Thinking Objective: 6-2 What are the advantages and disadvantages of a partnership and a partnership agreement?

Skill: Conceptual 38) The most significant difference between a partnership and a sole proprietor is the ________.

A) amount of liability of owners B) taxation process used by owners C) number of government forms required for establishment D) number of people contributing resources Answer: D Explanation: D) The biggest difference between a partnership and a sole proprietorship is the number of people contributing to resources. In a sole proprietorship there is only one owner. In a partnership, two or more individuals share ownership and thus contribute to the starting and ongoing capital of the business as well as sharing in the workload and collaborating on business decisions.

Diff: 2 Page Ref: 171 AACSB: Reflective Thinking Objective: 6-2 What are the advantages and disadvantages of a partnership and a partnership agreement?

Skill: Conceptual

39) A good reason why partners should spell out the details of their partnership arrangements in writing is because ________.

A) the partnership is not a legally recognized business until the arrangement is in writing B) a written agreement will help reduce misunderstandings and disagreements among the partners C) putting the agreement in writing will limit the liability of each partner to a specified level D) doing so will make it easier to convert the business to a corporation at a later date Answer: B Explanation: B) A drawback of a partnership is the potential for disagreements among the partners. Spelling out the agreement in writing will help settle conflicts when they arise and may discourage small misunderstanding from erupting into larger disagreements.

Diff: 2 Page Ref: 172 AACSB: Reflective Thinking Objective: 6-2 What are the advantages and disadvantages of a partnership and a partnership agreement?

Skill: Application 40) Jenny and Rose are hairstylists that have decided to open their own salon by starting a general partnership. The first step to ensuring a successful partnership would be to ________.

A) insure they each have 25 clients to bring into the partnership B) submit the partnership formation fee to the state C) draw up a partnership agreement D) submit the limited liability forms before they see clients Answer: C Explanation: C) Although no formal documentation is required to create a partnership, it is good idea to draw up an agreement to help settle conflicts when they arise, which may discourage small misunderstanding form turning into major conflict.

Diff: 2 Page Ref: 172 AACSB: Reflective Thinking Objective: 6-2 What are the advantages and disadvantages of a partnership and a partnership agreement?

Skill: Conceptual 41) In a partnership, all profits and losses flow through each partner's ________.

A) tax returns B) savings C) liabilities D) investments Answer: A Explanation: A) Like sole proprietors, partnerships do not file a separate tax return. All profits and losses of the partnership flow through each partner's own tax return.

Diff: 1 Page Ref: 172 AACSB: Reflective Thinking Objective: 6-2 What are the advantages and disadvantages of a partnership and a partnership agreement?

Skill: Conceptual

42) Which of the following parts of a partnership agreement spells out the policy regarding partners entering into key financial or contractual agreements?

A) addition of partners B) departure of partners C) responsibilities of partners D) decision-making process Answer: C Explanation: C) Partnership agreements are written to help prevent misunderstandings.

Partnership agreements should include the terms of the decision-making process. It should define who will make the key decisions, so that when decisions on key financial or contractual agreements need to be made, the partnership is prepared. This information is contained within the section on responsibilities of partners.

Diff: 1 Page Ref: 172-173 AACSB: Reflective Thinking Objective: 6-2 What are the advantages and disadvantages of a partnership and a partnership agreement?

Skill: Conceptual 43) Policies regarding all of the following points should be included in a partnership agreement EXCEPT ________.

A) division of stock B) capital contribution C) shares of profits or losses D) decision-making process Answer: A Explanation: A) By including details about capital contributions, division of profits or losses, and the decision-making processes, partners can avoid misunderstandings from erupting into larger disagreements. There is no stock involved in a partnership so stock need not be included in the agreement, however, division of capital contributions should be clearly defined.

Diff: 1 Page Ref: 172 AACSB: Reflective Thinking Objective: 6-2 What are the advantages and disadvantages of a partnership and a partnership agreement?

Skill: Conceptual

44) Jaden and Noel are starting a computer repair business together. Jaden insists on outlining rules for the departure of partners in the partnership agreement, although Noel does not think it is necessary. Which of the following statements might Jaden use to explain his insistence to Noel?

A) Provisions to remove a partner's ownership interest are necessary so the business would not have to liquidate.

B) Determining the allocation of profits to new, junior partners is important to eliminate future potential conflicts.

C) Responsibilities must be clearly delineated to avoid the possibility of one partner overstepping his or her bounds.

D) As the partnership matures and ages, defining how profits and losses will be distributed must be made.

Answer: A Explanation: A) The departure of partners is one of several points that should be covered in a partnership agreement. It is likely that over time, the composition of partners will change; stipulations should be made in advance that clearly outline how this event will be handled.

Diff: 3 Page Ref: 173 AACSB: Analytic Skills Objective: 6-2 What are the advantages and disadvantages of a partnership and a partnership agreement?

Skill: Application 45) In a partnership, the type of partner that is responsible for all claims against the company is called a(n) ________.

A) investor B) general partner C) unlimited partner D) limited partner Answer: B Explanation: B) In a partnership business structure, general partners have unlimited liability.

Limited partners are responsible only up to the amount of funds they have invested in the company.

Diff: 1 Page Ref: 174 AACSB: Reflective Thinking Objective: 6-2 What are the advantages and disadvantages of a partnership and a partnership agreement?

Skill: Conceptual

46) Kris and Amy own a workout facility in which they are co-owners. Both take an active role in the management of the business and each accepts unlimited liability. Kris and Amy operate as a ________.

A) joint venture B) general partnership C) limited partnership D) cooperative Answer: B Explanation: B) Since Kris and Amy operate the business as co-owners, they have formed a general partnership. Since both will manage the firm and accept unlimited liability, they are both general partners. If either Kris or Amy were investors in the company and also did not have active roles in the company they would be referred to as limited partners.

Diff: 2 Page Ref: 174 AACSB: Analytic Skills Objective: 6-2 What are the advantages and disadvantages of a partnership and a partnership agreement?

Skill: Application 47) A partner who invests money in a business but is not involved in the day-to-day operation and is only risking capital equal to what they have contributed is called a ________.

A) general partner B) limited partner C) partial partner D) corporate investor Answer: B Explanation: B) Sometimes a business will add limited partners, mostly to provide capital and earn a share of the profits. They are involved as investors and are personally liable only up to the amount of their investment in the business.

Diff: 1 Page Ref: 175 AACSB: Reflective Thinking Objective: 6-2 What are the advantages and disadvantages of a partnership and a partnership agreement?

Skill: Conceptual

48) Which of the following is the limit of liability of a limited partner?

A) the amount of their investment B) the amount of business capital C) the amount of their shared profits D) the amount of their personal assets Answer: A Explanation: A) Limited partners are involved as investors and are personally liable only up to the amount of their investment in the business. The remainder of the liability lies with the general partner. Limited partner's assets are not at risk.

Diff: 2 Page Ref: 175 AACSB: Reflective Thinking Objective: 6-2 What are the advantages and disadvantages of a partnership and a partnership agreement?

Skill: Conceptual 49) Alex and Bailey opened a dance studio together as general partners. They each invested $10,000 of their personal savings. After one year in business, they decided to close the doors.

Their partnership agreement said they would divide profits and losses 50/50. They have more debt than assets. Alex and Bailey will each ________.

A) lose only $10,000, the amount they invested since they agreed to share profits and losses 50/50 B) lose personal assets to repay the debt since a partnership is not considered to be a separate entity from the partners who own it C) collect the debt from their former customers since the customers accepted responsibility for the business when they purchased services D) avoid any liability for the debt since a partnership is considered to be a separate entity from the partners who own it Answer: B Explanation: B) Partnerships have unlimited liability, which means Alex and Bailey are responsible for the debt. They are not protected only to the amount they have invested as a limited partner would be. They may choose to collect from former customers if they owe Alex and Bailey, however, the debt is their responsibility, not the customers. Therefore, Alex and Bailey's personal assets will be used to repay the debt.

Diff: 3 Page Ref: 175 AACSB: Reflective Thinking, Analytic Skills Objective: 6-2 What are the advantages and disadvantages of a partnership and a partnership agreement?

Skill: Application

50) Nick is investing $25,000 in a partnership with his sister and brother. Nick does not want to be an active part of the partnership and can only afford to risk the $25,000 he is investing. His brother and sister agree to let him share a proportionate amount of the profits. Nick is a ________ in this partnership.

A) limited partner B) junior partner C) general partner D) sole partner Answer: A Explanation: A) A limited partner invests in a partnership, but has limited liability and does not take an active role in managing the business.

Diff: 2 Page Ref: 175 AACSB: Reflective Thinking Objective: 6-2 What are the advantages and disadvantages of a partnership and a partnership agreement?

Skill: Conceptual 51) Which of the following statements about the operation of a corporation is correct?

A) A corporation is a separate entity and is legally formed under state laws.

B) A corporation automatically expires in 99 years and must be renewed if a corporation wants to remain in business.

C) Owners of a corporation have unlimited liability for any claims against their company.

D) A corporation tends to be much easier to set up than a sole proprietorship or partnership.

Answer: A Explanation: A) Shareholders own a corporation, making its existence independent of its founders, easily transferable, and virtually alive forever. Corporations provide owners with no liability to any corporate debt, making their liability limited. Corporations are more difficult to set up than sole proprietorships or partnerships because they require paperwork to be filed with both state and federal agencies. Therefore, the most correct statement is that a corporation is a separate entity and is legally formed under state laws.

Diff: 1 Page Ref: 176 AACSB: Reflective Thinking Objective: 6-3 How is a corporation formed, and how does it compare with sole proprietorships and partnerships?

Skill: Application

52) All of the following are advantages of forming a corporation EXCEPT ________.

A) extended life B) capitalization C) separated liability D) ease of set up Answer: D Explanation: D) Corporations can conceptually live forever because should an owner die, shares in the company are easily transferable. Raising capital is significantly easier in a corporation than a sole proprietorship or a partnership. Liability is limited for corporations. A drawback is that the set-up process can be cumbersome and costly.

Diff: 2 Page Ref: 179 AACSB: Reflective Thinking Objective: 6-3 How is a corporation formed, and how does it compare with sole proprietorships and partnerships?

Skill: Conceptual 53) Which of the following is the MOST compelling argument for incorporating a business?

A) to hire more employees B) to avoid paying federal taxes C) to protect the owners' personal assets D) to complete minimal legal requirements Answer: C Explanation: C) Unlike sole proprietors and partnerships, a corporate structure provides limited liability, thus protecting owners' personal assets. When a corporation runs into problems, only the corporate assets are at risk. The owners are not personally liable for business debt.

Diff: 2 Page Ref: 177 AACSB: Reflective Thinking Objective: 6-3 How is a corporation formed, and how does it compare with sole proprietorships and partnerships?

Skill: Application

54) Traci and Sally have considered starting their own business but are concerned about the possibility of losing their personal assets if the business fails. One way for Traci and Sally to avoid this risk would be to organize their company as a ________.

A) general partnership B) limited partnership C) corporation D) sole proprietorship Answer: C Explanation: C) A corporation offers the advantage of limited liability for all of its owners.

Although a limited partnership also has limited liability, even a limited partnership must have at least one general partner with unlimited liability. Sole proprietors and general partnerships have 100% liability.

Diff: 2 Page Ref: 177 AACSB: Reflective Thinking Objective: 6-3 How is a corporation formed, and how does it compare with sole proprietorships and partnerships?

Skill: Conceptual 55) Ben recently purchased 100 shares of stock in Feger's Sports, Inc. Ben is a(n) ________ of Feger's Sports, Inc. A) owner B) manager C) director D) partner Answer: A Explanation: A) Shareholders are the owners of a corporation, therefore if Ben purchased stock, he became an owner.

Diff: 2 Page Ref: 178 AACSB: Reflective Thinking Objective: 6-3 How is a corporation formed, and how does it compare with sole proprietorships and partnerships?

Skill: Conceptual

56) If a corporation provides medical insurance, it will actually lower the company's taxes because ________.

A) medical insurance benefits are legally deductible expenses B) its employees will be healthy, creating higher productivity because of lower absenteeism C) it increases the company's profits D) IRS regulations allows medical benefits to be filed as a business loss Answer: A Explanation: A) Medical insurance benefits are legal tax deductions, not business losses, so it will lower the company's taxes. Although medical insurance benefits may increase profits or increase production because of lower absenteeism, the only assured benefit is reduced taxes.

Diff: 2 Page Ref: 177 AACSB: Reflective Thinking Objective: 6-3 How is a corporation formed, and how does it compare with sole proprietorships and partnerships?

Skill: Application 57) Management and ownership roles would most likely be separate in what type of business structure?

A) sole proprietorship B) general partnership C) corporation D) limited liability partnership Answer: C Explanation: C) In sole proprietorships, general partnerships, and limited liability partnerships, owners are usually the managers as well. In corporations, shareholders are the owners and usually do not participate in the management roles. Rather, they elect directors who appoint officers that manage the day-to-day operations.

Diff: 2 Page Ref: 178-179 AACSB: Reflective Thinking Objective: 6-3 How is a corporation formed, and how does it compare with sole proprietorships and partnerships?

Skill: Application 58) Owners of limited liability companies are referred to as ________, while owners of corporations are called ________.

A) partners; shareholders B) shareholders; partners C) shareholders; members D) members; shareholders Answer: D Explanation: D) In corporations, stock ownership is the way to become an owner, therefore, corporate owner are referred to as shareholders. LLC owners are referred to as members.

Diff: 1 Page Ref: 178, 182 AACSB: Reflective Thinking Objective: 6-3 How is a corporation formed, and how does it compare with sole proprietorships and partnerships?

Skill: Application

59) In a large corporation, shareholders responsibilities include ________.

A) making major business and financing decisions B) authorizing the issuance of stock C) electing corporate officers D) electing a board of directors Answer: D Explanation: D) Shareholders are responsible for electing and overseeing a board of directors, bylaws and the articles of the organization. They also vote on major corporate issues. It is the directors' job to elect corporate officers, authorize the issuance of stock, make major business and financing decisions, and decide on major real estate transactions.

Diff: 2 Page Ref: 178 AACSB: Reflective Thinking Objective: 6-3 How is a corporation formed, and how does it compare with sole proprietorships and partnerships?

Skill: Conceptual 60) The Sarbanes-Oxley Act of 2002 was enacted to provide a new set of standards of accountability for ________.

A) corporate officers B) board of directors C) shareholders D) business owners Answer: B Explanation: B) To prevent scandals such as those of Enron, WorldCom and Tyco from occurring, accountability was placed on the board of directors. If the members of a board of directors ignore their responsibilities, they incur the risk of fines and even prison sentences.

Diff: 2 Page Ref: 178 AACSB: Reflective Thinking Objective: 6-3 How is a corporation formed, and how does it compare with sole proprietorships and partnerships?

Skill: Conceptual 61) Which of the following is a benefit of forming a corporation?

A) Corporations can be double taxed.

B) Owners of a corporation are passive investors.

C) Owners of a corporation are subject to unlimited liability.

D) Corporations can offer stock options to employees.

Answer: D Explanation: D) Double taxation is a disadvantage of corporations. Owners of corporations have limited liability and, due to stock options and other benefits, employees of corporations are quite often shareholders, and thus/owners, of the corporations as well. Corporations can offer stock options (the right to purchase shares of the corporation for a fixed price) to employees.

Diff: 3 Page Ref: 177, 182 AACSB: Reflective Thinking Objective: 6-3 How is a corporation formed, and how does it compare with sole proprietorships and partnerships?

Skill: Conceptual

62) Which of the following tasks is NOT the responsibility of the board of directors?

A) setting policies for the corporation B) authorizing the issuance of stock C) electing corporate officers D) managing the company's daily operations Answer: D Explanation: D) Although the board of directors is responsible for setting corporate policy, electing officers, and making major business and finance decisions, they do not actually manage day-to-day operations. However, they are responsible for ensuring those who do manage daily operations are doing their jobs.

Diff: 2 Page Ref: 178, 179 AACSB: Reflective Thinking Objective: 6-3 How is a corporation formed, and how does it compare with sole proprietorships and partnerships?

Skill: Conceptual 63) Which of the following is a disadvantage of forming a corporation?

A) unlimited liability of owners B) difficult transfer of ownership C) limited life D) double taxation Answer: D Explanation: D) Corporations provide owners with no liability to any corporate debt, making limited liability an advantage. Shareholders own a corporation, making its existence independent of its founding members and easily transferable and virtually alive forever. Double taxation occurs when taxes are paid twice on the same asset. For example, a corporation is taxed on its net income, which is then redistributed to its owners as dividends. The income from the dividends is taxed again on the owner's personal income tax filings. Therefore, double taxation is a drawback to corporate structure. Although double taxation is a disadvantage, it only affects about 39% of corporations that pay dividends.

Diff: 2 Page Ref: 179-180 AACSB: Reflective Thinking Objective: 6-3 How is a corporation formed, and how does it compare with sole proprietorships and partnerships?

Skill: Conceptual

64) Leslie is excited to begin a personal shopping business. She is planning on having employees and is concerned about losing personal assets should something happen to the business. She would like to focus on profits and building a business but she does not want her business to pay its own taxes. What ownership structure is Leslie's best choice?

A) sole proprietor B) C corporation C) S corporation D) cooperative Answer: C Explanation: C) Sole proprietorship would allow Leslie to file company taxes through her own personal taxes, but she would have unlimited liability. C corporations would provide Leslie the limited liability she is looking for, but she would need to pay corporate taxes. With an S corporation she has the limited liability she is looking for and can pay company taxes through her personal taxes. Because Leslie is not looking to involve others in the ownership, cooperative would not be a fit.

Diff: 2 Page Ref: 180 AACSB: Reflective Thinking Objective: 6-4 What are the major differences between a C corporation, an S corporation, and a limited liability company?

Skill: Application 65) Which of the following statements about S corporations is MOST accurate?

A) S corporations enable owners to avoid the problem of double taxation.

B) S corporations can have an unlimited number of owners.

C) S corporations must have fewer than 5 employees.

D) S corporation are easier to set up than sole proprietorships and partnerships.

Answer: A Explanation: A) S corporations are not taxed as an entity. Therefore, owner profits are only taxed in individual tax returns, thus avoiding double taxation. An S corporation is limited to 100 owners. The set up process for S corporations requires submitting paperwork, unlike the ease of forming a sole proprietorship or partnership.

Diff: 3 Page Ref: 180-181 AACSB: Reflective Thinking Objective: 6-4 What are the major differences between a C corporation, an S corporation, and a limited liability company?

Skill: Conceptual

66) Many new business owners prefer a limited liability structure because there are ________.

A) fewer corporate formalities B) fewer lawsuits C) typically higher profits than other forms of ownership D) more informal agreements Answer: A Explanation: A) Although the limited liability structure involves more formal paperwork than a sole proprietorship or partnership, it is still a far simpler structure than a corporation and thus easier for new business owners to navigate.

Diff: 2 Page Ref: 181 AACSB: Reflective Thinking Objective: 6-4 What are the major differences between a C corporation, an S corporation, and a limited liability company?

Skill: Conceptual 67) Which of the following types of ownership is limited to 100 owners?

A) C corporation B) S corporation C) sole proprietor D) limited liability company Answer: B Explanation: B) According to the IRS, to be considered an S corporation the company must not have more than 100 shareholders Diff: 1 Page Ref: 181 AACSB: Reflective Thinking Objective: 6-4 What are the major differences between a C corporation, an S corporation, and a limited liability company?

Skill: Conceptual

68) Compared to the C corporation, the limited liability company is an attractive form of business ownership because ________.

A) a limited liability company may be more expensive to form but it has a longer life than a C corporation B) a limited liability company allows only one owner, whereas a C corporation requires over 100 owners C) a limited liability company provides owners with protection of their personal assets; whereas C corporation owner's personal assets are at risk D) a limited liability company does not require the firm to hold annual meetings and it can avoid double taxation Answer: D Explanation: D) The costs involved in forming both types are ownership are similar since they both must file articles of organization. Limited liability forms of ownership can have an unlimited number of owners. Personal assets are protected by both forms of ownership. Limited liabilities, if structured properly, will not be taxed as an entity, giving the option to avoid double taxation. Unlike C corporations, limited liability companies do not hold annual meetings, nor do they need to file annually.

Diff: 2 Page Ref: 181 AACSB: Reflective Thinking Objective: 6-4 What are the major differences between a C corporation, an S corporation, and a limited liability company?

Skill: Application 69) A disadvantage of a limited liability company is that it ________.

A) requires earnings to be taxed at the corporate rate B) must dissolve when an owner leaves the company C) requires the division of profits in a fixed proportion D) has more restrictive ownership rules than S corporations Answer: B Explanation: B) Unlike corporations, when an owner leaves an LLC, the LLC must dissolve.

Some states also require that a dissolution date be listed in the articles of organization, so an LLC has a limited life span.

Diff: 2 Page Ref: 182 AACSB: Reflective Thinking Objective: 6-4 What are the major differences between a C corporation, an S corporation, and a limited liability company?

Skill: Conceptual

70) Limited liability companies are unable to offer stock options or stock bonus incentives to their employees because ________.

A) benefits such as these are too costly for these types of startup companies B) extra profits are reinvested into the company, not into company stocks C) limited liability companies do not have shareholders or stock D) approval of stock benefits is difficult due to the number of members Answer: C Explanation: C) LLC's are attractive to many new business owners because they are simpler to maintain than corporations; however, one drawback is that limited liability companies are unable to offer certain fringe benefits, including stock options, to members.

Diff: 2 Page Ref: 182 AACSB: Reflective Thinking Objective: 6-4 What are the major differences between a C corporation, an S corporation, and a limited liability company?

Skill: Conceptual 71) Becca and Bob own a car rental business. Becca contributes 75 percent of the capital but does only 20 percent of the work, while Bob contributes 25 percent of the capital but does 80 percent of the work. Both decide on a 50/50 allocation of profits. In which types of business structures would this arrangement be possible?

A) limited liabilities and partnerships B) S corporations and partnerships C) sole proprietorships and limited liabilities D) S corporations, limited liabilities and partnerships Answer: A Explanation: A) LLC's and partnerships may allocate profits in whatever manner best suits the owners. However, S corporations must allocate profits in direct proportion to shareholder's interest. Sole proprietorships are owned by single individuals.

Diff: 3 Page Ref: 182 AACSB: Reflective Thinking, Analytic Skills Objective: 6-4 What are the major differences between a C corporation, an S corporation, and a limited liability company?

Skill: Application

72) All of the following are reasons business owners consider using a corporation structure of ownership EXCEPT ________.

A) the appearance of stability and legitimacy B) protection from significant loss of personal assets C) ease of forming and setting up the structure D) eased ability of raising capital Answer: C Explanation: C) Some businesses decide to incorporate to appear more stable and legitimate, which can help in gaining clients and lenders. It is much easier to raise capital through the sale of stock. Because corporations have limited liability, owner's personal assets are protected.

However, set-up can be cumbersome.

Diff: 2 Page Ref: 179 AACSB: Reflective Thinking Objective: 6-4 What are the major differences between a C corporation, an S corporation, and a limited liability company?

Skill: Conceptual 73) The following are characteristics shared by both for-profit and not-for-profit corporations EXCEPT ________.

A) electing a board of directors to run the organization B) offering employee fringe benefits C) having limited liability protection D) issuing shares of stock Answer: D Explanation: D) The major distinctions between for-profit and not-for profit corporations is that a not-for-profit may not form for the purpose of personal gain, which means it does not issue stock. Not-for-profit corporations share many of the other benefits of a for-profit organization including election of directors, limited liability, and fringe benefits for employees.

Diff: 2 Page Ref: 182 AACSB: Reflective Thinking Objective: 6-5 What are the characteristics of not-for-profit corporations and cooperatives?

Skill: Conceptual

74) Which of the following statements BEST describes the distinction between a not-for-profit corporation and a for-profit corporation?

A) Not-for-profits do not pay their employees.

B) Not-for-profits cannot be organized for any person's private gain.

C) Not-for-profits have to dissolve when the owner leaves or dies.

D) Not-for-profits cannot hire executive officers to run the business.

Answer: B Explanation: B) Not-for profits maintain several of the same benefits as for-profit corporations such as employee salaries, ease of transferring ownership, and hiring officers to run the business.

A not-for-profit may not, however, organize for the purpose of personal gain.

Diff: 2 Page Ref: 184 AACSB: Reflective Thinking Objective: 6-5 What are the characteristics of not-for-profit corporations and cooperatives?

Skill: Conceptual 75) When a not-for-profit corporations dissolves, its assets are ________.

A) transferred to the government B) distributed among major donors C) passed to the owners' families D) given to a similar not-for-profit group Answer: D Explanation: D) If a not-for profit dissolves it must give its assets to a similar nonprofit group.

Diff: 1 Page Ref: 184 AACSB: Reflective Thinking Objective: 6-5 What are the characteristics of not-for-profit corporations and cooperatives?

Skill: Conceptual 76) Which of the following methods do not-for-profit corporations primarily use to generate revenues?

A) withholding employees' salaries B) scaling down big-budget projects C) organizing fund-raising events D) issuing shares of corporate stock Answer: C Explanation: C) Not-for-profit organizations depend primarily on fund-raising in order to generate the revenues they need to continue operating and advancing their goals.

Diff: 1 Page Ref: 184-185 AACSB: Reflective Thinking Objective: 6-5 What are the characteristics of not-for-profit corporations and cooperatives?

Skill: Conceptual

77) A not-for-profit corporation such as a church or ministry may be exempt from ________.

A) inheritance tax B) property tax C) dividend tax D) value-added tax Answer: B Explanation: B) Not-for-profit organizations are exempt from paying most federal and/or state corporate income taxes and may also be exempt from most state sales and property taxes.

Diff: 1 Page Ref: 185 AACSB: Reflective Thinking Objective: 6-5 What are the characteristics of not-for-profit corporations and cooperatives?

Skill: Application 78) A cooperative is a type of business that is owned by ________ who use its products or services.

A) members B) shareholders C) directors D) partners Answer: A Explanation: A) Members are the most important part of a cooperative. They not only own the organization but may volunteer for projects supported by the cooperative and serve on boards and committees.

Diff: 1 Page Ref: 185 AACSB: Reflective Thinking Objective: 6-5 What are the characteristics of not-for-profit corporations and cooperatives?

Skill: Conceptual 79) Mr. Gonzales wants to help fellow farmers in his community, but he is not interested in making a personal profit. His main goal is to join with other farmers so they can have better bargaining power when purchasing supplies. Which of the following business types will Mr. Gonzales MOST likely form?

A) general partnership B) sole proprietorship C) cooperative D) not-for-profit corporation Answer: C Explanation: C) A cooperative is a type of business that is owned and governed by members who use its products and services. It is not motivated by profits, whereas profits is the goal of general partnerships and sole proprietorships.

Diff: 2 Page Ref: 185 AACSB: Reflective Thinking Objective: 6-5 What are the characteristics of not-for-profit corporations and cooperatives?

Skill: Conceptual

80) A(n) ________ occurs when two companies of about the same size mutually agree to create a new combined company.

A) merger B) acquisition C) takeover D) synergy Answer: A Explanation: A) Mergers happen when two companies come together to form one company.

This differs from an acquisition, which happens when one company purchases another company.

The purchased company ceases to exist and operates under the buying company's name.

Sometimes mergers and acquisitions are not friendly and are referred to as hostile takeovers.

Synergy can be a goal of mergers and acquisitions.

Diff: 1 Page Ref: 186 AACSB: Reflective Thinking Objective: 6-6 What are the different types of mergers and acquisitions, and why do they occur?

Skill: Conceptual 81) Companies MOST often resort to mergers and acquisitions when they want to expand their markets and product lines because ________.

A) it minimizes conflicts that are rooted on hidden agendas and power struggles B) it minimizes time and investment to research and develop new products C) upper management prefers to concentrate on day-to-day activities D) employees are motivated to work harder because of the resulting stability Answer: B Explanation: B) In order to remain competitive, companies must expand quickly. As a result, mergers and acquisitions provide the best option for companies looking to develop new products and expand their markets quickly and efficiently. Some of the risks involved in mergers and acquisitions include reduced morale and motivation of employees resulting from a sense of instability, which can increase turnover. Also, the focus may, in error, be entirely on the process of the merger or acquisition resulting in a neglect of the day-to-day activities.

Diff: 2 Page Ref: 186 AACSB: Reflective Thinking Objective: 6-6 What are the different types of mergers and acquisitions, and why do they occur?

Skill: Conceptual

82) A proxy fight occurs when a company attempts to persuade the target company's shareholders to replace the existing management with one that is ________ the goals of the acquiring company.

A) unaware of B) hostile toward C) familiar with D) sympathetic to Answer: D Explanation: D) A proxy fight is a form of hostile takeover in which the acquiring company attempts to persuade the target company shareholders to vote out existing management and replace them with management that is sympathetic to the goals of the acquiring company.

Diff: 2 Page Ref: 187 AACSB: Reflective Thinking Objective: 6-6 What are the different types of mergers and acquisitions, and why do they occur?

Skill: Application 83) Which of the following moves would MOST likely initiate a hostile takeover?

A) The buying company offers to buy the target company's stocks at a price higher than their current value.

B) The buying company delivers an ultimatum to the target company's shareholders to give up their shares.

C) The target company's shareholders offer their company's stocks at an attractive rate to the buying company.

D) The target company's shareholders agree to sell their company's stocks all at the same time.

Answer: A Explanation: A) An unfriendly or hostile acquisition attempt usually occurs through a tender offer, in which the acquiring firm offers to buy the target company's stocks at a price higher than their current value. If a target company's shareholders offer their company's stock at an attractive rate, it would most likely indicate a friendly merger.

Diff: 1 Page Ref: 187 AACSB: Reflective Thinking Objective: 6-6 What are the different types of mergers and acquisitions, and why do they occur?

Skill: Conceptual

84) Lizzie is the CEO of a large corporation that offers accounting services to several companies.

She has tried to acquire her closest rival, but her rival's management is opposed to the idea. In order to gain a competitive edge, Lizzie starts a campaign to persuade her rival company's shareholders to vote out its existing management in the hopes of replacing it with a management team more sympathetic to the goals of the acquiring company. Which method of acquiring a company is Lizzie using?

A) conglomeration B) proxy fight C) tender offer D) synergistic value Answer: B Explanation: B) One goal, not a strategy, of mergers and acquisitions is to gain a synergistic value. A conglomeration occurs when two companies that have no common business areas merge. Lizzie is planning a hostile takeover, taking control of a company against its wishes. The two most common methods of a hostile takeover are a tender offer and a proxy fight. A tender offer occurs when the acquiring company offers to buy the target company's stock at a price higher than market value. Lizzie is planning a proxy fight, a plan to persuade the target company's shareholders to vote out existing management and to introduce management that is sympathetic to the goals of her company.

Diff: 2 Page Ref: 187 AACSB: Reflective Thinking, Analytic Skills Objective: 6-6 What are the different types of mergers and acquisitions, and why do they occur?

Skill: Application 85) A(n) ________ acquisition occurs when one company tries to take control over another company against its wishes.

A) proxy B) hostile C) horizontal D) extension Answer: B Explanation: B) Many mergers are friendly and mutually agreed upon, but often acquisitions are unfriendly. An unfriendly acquisition occurs when one company tries to take control over another company against its wishes and is referred to as hostile.

Diff: 1 Page Ref: 187 AACSB: Reflective Thinking Objective: 6-6 What are the different types of mergers and acquisitions, and why do they occur?

Skill: Conceptual

86) At a meeting to announce a merger with another company, which of the following buzzwords is a business leader MOST likely to use to justify the decision?

A) accountability B) bottom line C) streamline D) synergy Answer: D Explanation: D) Although accountability, bottom line and streamlining could all be reasons for a merger, the buzzword most often used today to justify mergers is synergy. Synergy refers to the concept of two companies merging so that each company can achieve more than they could individually. It is often used to justify mergers and acquisitions because combined firms often succeed in lowering costs by reducing staff, sharing resources, and otherwise achieving economies of scale.

Diff: 2 Page Ref: 187 AACSB: Reflective Thinking Objective: 6-6 What are the different types of mergers and acquisitions, and why do they occur?

Skill: Conceptual 87) A merger involving a computer manufacturer and an electronics retailer that sells its computers would be an example of a ________.

A) vertical merger B) horizontal merger C) product extension merger D) conglomeration Answer: A Explanation: A) When two companies that have a company/customer relationship or a company/supplier relationship merge it is called a vertical merger. In this example, the computer manufacturer sells its product to the electronics retailer. Therefore, they have a company/supplier relationship making this merger a vertical merger.

Diff: 3 Page Ref: 188 AACSB: Reflective Thinking, Analytic Skills Objective: 6-6 What are the different types of mergers and acquisitions, and why do they occur?

Skill: Application

88) When two companies in entirely different industries combine, it is known as a ________.

A) vertical merger B) horizontal merger C) product extension merger D) conglomeration Answer: D Explanation: D) Conglomerations occur when two companies that have no common business merge to obtain diversification. Horizontal mergers occur when two companies that share the same product lines combine. A product extension merger is the combining of two companies selling different but related products. Last, a vertical merger occurs when two companies that have a company/customer relationship or a company/supplier relationship combine.

Diff: 1 Page Ref: 189 AACSB: Reflective Thinking Objective: 6-6 What are the different types of mergers and acquisitions, and why do they occur?

Skill: Conceptual 89) A dance studio and a dancewear manufacturer decide to combine. This type of merger is called a ________.

A) vertical merger B) horizontal merger C) product extension merger D) conglomeration Answer: A Explanation: A) A vertical merger occurs when two companies that have a company/customer relationship or a company/supplier relationship combine. The dance studio purchases dance wear from the manufacturer creating a company/supplier relationship, thus this would be classified as a vertical merger.

Diff: 2 Page Ref: 188 AACSB: Reflective Thinking Objective: 6-6 What are the different types of mergers and acquisitions, and why do they occur?

Skill: Conceptual 90) Explain what is involved in starting a business as a sole proprietor and the advantages to choosing this form of ownership.

Answer: A person starts business as a sole proprietor by simply collecting income for a product or a service by himself. The advantages of establishing a business as a sole proprietor include the ease of startup, minimal forms, no special taxes, no special government reporting and filing, and full control of management and operations.

Diff: 1 Page Ref: 168-170 AACSB: Reflective Thinking Objective: 6-1 What are the strengths and weaknesses of a sole proprietorship?

Skill: Conceptual

91) Diane and Julie own a coffee shop. Due to the growing number of customers, they need to hire. At the beginning of their partnership it was agreed that Diane would manage human resources. Diane independently interviewed and hired two servers. What makes Diane and Julie's partnership successful in this situation?

Answer: Diane is able to interview and hire new employees without consulting Julie because they made a partnership agreement when their business was established outlining their responsibilities. Outlining the responsibilities of each person in a partnership helps to avoid future conflict and keep partners focused on their own field of responsibility.

Diff: 2 Page Ref: 172-173 AACSB: Reflective Thinking, Analytic Skills Objective: 6-2 What are the advantages and disadvantages of a partnership and a partnership agreement?

Skill: Application 92) Melissa and Claudia are considering becoming business partners and establishing a clothing boutique. They agree that they need to have a partnership agreement before they start the business. What factors should Melissa and Claudia consider when writing their partnership agreement?

Answer: Melissa and Claudia should consider the amount of capital that each of them will contribute to the business. They should also agree on the responsibilities each of them will be accountable for, how decisions will be made, how profits and losses will be shared, and what should happen if one of them decides to leave the business or if a new partner is invited to join.

Forming a partnership agreement before entering into a partnership will help to settle any conflict that may arise and establishes an effective working relationship.

Diff: 2 Page Ref: 172-173 AACSB: Reflective Thinking, Analytic Skills Objective: 6-2 What are the advantages and disadvantages of a partnership and a partnership agreement?

Skill: Application 93) What is the difference between a general partnership and a limited partnership? What would be some reasons for choosing a limited partnership?

Answer: In a general partnership, each partner has unlimited liability and is active in managing the business. In a limited partnership, partners invest money in the business and share in the profits, but have limited liability and cannot legally assume any management responsibility.

Someone may enter into a limited liability partnership because they want to share in the profits without taking on the risks to personal assets or the role of managing responsibilities.

Diff: 2 Page Ref: 174-175 AACSB: Reflective Thinking Objective: 6-2 What are the advantages and disadvantages of a partnership and a partnership agreement?

Skill: Conceptual

94) What is a C corporation and what are the advantages of this type of business ownership?

Answer: A C corporation is a form of business organization that is a separate entity apart from its owner, legally formed under state laws. Advantages of C corporations include the following: Limited liability: The personal assets of the owners are not at risk.

Company paid fringes: C corporations are allowed to provide benefits to its employees, which can reduce the company's tax obligation by using the fringe benefits as legal deductible expenses.

Tax saving: C corporations are taxed at 15% for the first $50,000 of profits, creating a nice tax benefit for smaller corporations.

Capital: Obtaining capital is easier through the sale of stock.

Diff: 2 Page Ref: 177 AACSB: Reflective Thinking, Analytic Skills Objective: 6-3 How is a corporation formed, and how does it compare with sole proprietorships and partnerships?

Skill: Conceptual 95) A small group of businesspeople decide that the best way to do business, while simultaneously protecting their own assets, is to form a corporation. What steps do they need to take in order to successfully establish a corporation?

Answer: To establish a corporation, the group should choose a name for the corporation, appoint directors, file articles of incorporation, draft bylaws, hold a board meeting, issue stock, and, finally, obtain business permits and licenses. They also need to file paperwork with both state and federal agencies.

Diff: 2 Page Ref: 176-183 AACSB: Reflective Thinking Objective: 6-3 How is a corporation formed, and how does it compare with sole proprietorships and partnerships?

Skill: Conceptual 96) Brian establishes a small shoe factory that specializes in custom-made shoes. As a sole proprietor, he is immediately able to set up his business without needing to consult other people to make decisions and establish policies. How would the establishment of policies be different for Brian if he were a board member in a corporation?

Answer: Unlike a sole proprietorship, a corporation has a more complex organizational structure. Brian would not be able to make decisions as easily if his business were a corporation.

In corporations, the major decisions are made by a board of directors. The directors set the policies of the company. Brian would have to meet with the board of directors to set his company's policies and make any financial decisions.

Diff: 2 Page Ref: 178 AACSB: Reflective Thinking Objective: 6-3 How is a corporation formed, and how does it compare with sole proprietorships and partnerships?

Skill: Application

97) As a shareholder of an S corporation, Dave is entitled to a profit proportionate to his interest in the corporation. How would Dave pay his taxes for the profits from his shares in the S corporation?

Answer: As a shareholder of an S corporation, Dave needs to file and pay his taxes based on his shares' income through his personal tax return. An S corporation passes the obligation of paying taxes from corporation profits to the shareholders' individual tax returns.

Diff: 1 Page Ref: 180 AACSB: Reflective Thinking Objective: 6-4 What are the major differences between a C corporation, an S corporation, and a limited liability company?

Skill: Conceptual 98) An advantage of S corporations over C corporations is they avoid double taxation. Explain how this works.

Answer: In a C corporation, profits are taxed through corporate tax files. Next, the profits may be distributed to the shareholders, who must include this income on their personal tax reports; thus the profits are taxed twice. Because all profits in an S corporation flow through directly to the owners, taxation occurs only once, on the owners' personal tax filings.

Diff: 2 Page Ref: 179-180 AACSB: Reflective Thinking Objective: 6-4 What are the major differences between a C corporation, an S corporation, and a limited liability company?

Skill: Conceptual 99) Sarah, Mike and Mark are dentists who would like to form a partnership. They have decided to form a limited liability corporation. Explain why this is a good choice for their dental practice.

Answer: As an LLC, they will enjoy the benefits of limited liability protection not provided in a general partnership but the same tax advantages of a general partnership. They also have the option of adding an unlimited number of owners, whereas an S corporation would limit the number of owners.

Diff: 2 Page Ref: 181-182 AACSB: Reflective Thinking Objective: 6-4 What are the major differences between a C corporation, an S corporation, and a limited liability company?

Skill: Application

100) Emily wants to open a chain of sandwich shops and hopes to attract investors to help finance growth. She considered forming a C corporation but wants to have more flexibility about how the new business will be taxed. She also wants to offer investors limited liability. What form of ownership will best meet Emily's objectives?

Answer: A limited liability company would be the best option for Emily. LLCs offer limited liability protection while allowing the company the choice of being taxed as a corporation or as a partnership. Also, an S corporation has more stringent ownership rules.

Diff: 2 Page Ref: 181-182 AACSB: Reflective Thinking Objective: 6-4 What are the major differences between a C corporation, an S corporation, and a limited liability company?

Skill: Conceptual 101) Jose lives in Mexico City and is a Mexican citizen. He has several friends in the United States who own a company. If Jose wanted to invest in the company, why would it matter if the company was an S corporation as opposed to a limited liability company?

Answer: One ownership restriction of an S corporation is that all owners must be U.S. citizens or permanent residents of the United States. Jose would be able to invest in an LLC based in the United States as they do not have the same ownership restrictions.

Diff: 2 Page Ref: 182 AACSB: Reflective Thinking, Analytic Skills Objective: 6-4 What are the major differences between a C corporation, an S corporation, and a limited liability company?

Skill: Application 102) Henry decides to become a member of a limited liability company (LLC). What will happen to the company if Henry withdraws his membership and invests in other businesses?

Answer: If Henry decides to withdraw his membership from the limited liability company, the LLC will have to dissolve. An LLC has a short life span because, unlike an S or C corporation, it must dissolve when a member decides to leave. Some states also require that an LLC list a dissolution date in the articles of organization.

Diff: 2 Page Ref: 182 AACSB: Reflective Thinking Objective: 6-4 What are the major differences between a C corporation, an S corporation, and a limited liability company?

Skill: Conceptual

103) After a successful five years, Double Z, LLC (a retirement ranch for race horses) thinks it may be able to attract donations from animal activist groups and even the federal government if it becomes a nonprofit corporation. Explain what changes the owners of Double Z would need to make in order to be a not-for-profit corporation?

Answer: If Double Z decides to change its form of business ownership to a not-for-profit corporation, it will not seek personal profits for its owners. If the owners work in the business, they can expect a salary. The company cannot distribute any additional income to owners. It must put all revenues and/or contributions back into the business.

Diff: 2 Page Ref: 184-185 AACSB: Reflective Thinking Objective: 6-5 What are the characteristics of not-for-profit corporations and cooperatives?

Skill: Conceptual 104) Many citrus farmers and growers in the United States have direct and low-cost access to packing houses. As such, they are able to directly process their harvest through these packing houses, limiting the cost of production of packed citrus products. What attribute of a cooperative is shown in this situation?

Answer: Cooperatives provide services to members through the pooling of finances and purchasing of equipment that will benefit the members. People with common business interests can form cooperatives and use the benefit of group power to negotiate within their marketplace.

Members enjoy reduced costs due to the greater bargaining power and market strength associated with big groups.

Diff: 2 Page Ref: 185 AACSB: Reflective Thinking Objective: 6-5 What are the characteristics of not-for-profit corporations and cooperatives?

Skill: Application 105) In September 2001, technology company Hewlett-Packard (HP) announced a proposal to acquire Compaq Computer Corporation for $25 billion in stock. It offered shareholders a deal whereby they could exchange one Compaq share for one HP share. At the time, HP shares were worth 18% more than Compaq shares. In March 2002, shareholders narrowly approved the takeover. What type of acquisition took place in this situation? Explain what happens in this type of an acquisition.

Answer: By offering Compaq shareholders a chance to exchange their shares for shares of a higher value, Hewlett-Packard made a tender offer, initiating a hostile takeover. Shareholders were persuaded to sell their shares, allowing HP to acquire Compaq against the company's wishes.

Diff: 2 Page Ref: 187 AACSB: Reflective Thinking Objective: 6-6 What are the different types of mergers and acquisitions, and why do they occur?

Skill: Application

106) Mergers and acquisitions occur when two companies decide to combine resources and work toward a common goal. Although a number of acquisitions may not be friendly, they still help to keep businesses alive. What are some of the factors that may influence one company to merge with another?

Answer: Companies are often looking for opportunities to expand quickly. To research and develop new products or to locate and build in new areas is time-consuming and costly. It is often easier to merge with a company that is already established. The objective of a merger is for both companies to achieve more while functioning as a single entity than they would as two individual units. If a company believes that it will be able to achieve synergy with another company, it may choose to merge. Obtaining a competitive advantage is another reason that may influence a company to merge with another. If two rival companies join together to become a dominant force in the market, the results can be mutually beneficial. Other companies may merge in order to acquire the innovativeness of a smaller company or to give themselves the opportunity to go public. Although mergers are often unsuccessful in achieving greater market value, the benefits when they do succeed often make the process a worthwhile risk.

Diff: 3 Page Ref: 187-188 AACSB: Reflective Thinking Objective: 6-6 What are the different types of mergers and acquisitions, and why do they occur?

Skill: Application 107) Delta and Northwest Airlines merged in April 2008, creating an airline with a fleet of 800 planes. The merger took place amid widespread concern about rising fuel prices. What type of merger took place between Delta and Northwest? Explain this type of merger.

Answer: The Delta and Northwest merger was a horizontal merger, as both companies were airlines competing for the same customers. In a horizontal merger, two companies that share the same product lines and market and are in direct competition with each other combine forces.

Diff: 2 Page Ref: 188 AACSB: Reflective Thinking, Analytic Skills Objective: 6-6 What are the different types of mergers and acquisitions, and why do they occur?

Skill: Application 108) A corporation that owns a chain of pastry shops on the west coast has seen a decrease in revenue in recent months due to an increase in the price of flour. The company is considering merging with another company in order to combine resources and save on costs. Which type of merger would be most beneficial for the corporation and why?

Answer: The corporation would benefit most from a vertical merger. This is when two companies, one a buyer and the other a supplier, merge to form a single company. This type of merger cuts down on costs for the buyer company since it now gets its supplies from within its own company and not from an outside supplier. As a result, production costs will be lowered. In this instance, the pastry company could look to merge with a flour producer in order to combine resources and lower its costs.

Diff: 2 Page Ref: 188 AACSB: Reflective Thinking, Analytic Skills Objective: 6-6 What are the different types of mergers and acquisitions, and why do they occur?

Skill: Application Better Business, 7e (Solomon)

Chapter 7 Business Management and Organization 1) ________ is the process of working with people and resources to accomplish the goals of an organization.

A) Human resources B) Organization C) Management D) Intellectualizing Answer: C Explanation: C) Management is the process of working with people and resources to accomplish the goals of an organization.

Diff: 2 Page Ref: 207 AACSB: Analytic Skills Objective: 7-1 In what ways do managers apply technical, interpersonal, decision-making, conceptual, and time management skills to business?

Skill: Application 2) Which of the following is NOT a key management skill?

A) organizing and leading the members of a group to accomplish a goal B) knowing exactly what has to be done to accomplish a goal within an organization C) assessing the resources available to accomplish a goal within an organization D) having the ability to accomplish goals without the participation of others Answer: D Explanation: D) Having the ability to lead other group members to achieve a goal is one of the strengths of a good manager. And achieving goals without the participation of others is less likely to succeed and also does not indicate good management skills. Interpersonal skills are key to successful management. Knowing what has to be accomplished and assessing the resources available to achieve a goal are two other skills of a successful manager.

Diff: 2 Page Ref: 208 AACSB: Analytic Skills Objective: 7-1 In what ways do managers apply technical, interpersonal, decision-making, conceptual, and time management skills to business?

Skill: Conceptual

3) Which of the following is NOT one of the basic resources of a company?

A) human resources B) design resources C) financial resources D) technological resources Answer: B Explanation: B) Three of a company's key resources are human, financial, and technological.

The four primary functions of management integrate all of these resources. Design resources may be significant in certain firms in the areas of product development, advertising, or for technical or other purposes, however, they are not one of the basic resources of a company.

Diff: 2 Page Ref: 207 AACSB: Reflective Thinking Objective: 7-1 In what ways do managers apply technical, interpersonal, decision-making, conceptual, and time management skills to business?

Skill: Application 4) Technical skills may include ________.

A) the ability to operate a printing press B) the ability to recruit new employees C) the ability to create and communicating goals D) the ability to monitor the performance of employees Answer: A Explanation: A) The skills involved in recruiting new employees are important for human resources personnel and include interpersonal skills. Skills in creating and communicating goals are crucial for managers. An aptitude in monitoring performance is also useful for human resources personnel and managers. None of these is a technical skill. The operation of certain machinery, such as a printing press, is, however, a technical skill.

Diff: 2 Page Ref: 210 AACSB: Reflective Thinking Objective: 7-1 In what ways do managers apply technical, interpersonal, decision-making, conceptual, and time management skills to business?

Skill: Application

5) Lower-level managers must use interpersonal skills for a variety of reasons in the workplace, however, they do not need to ________.

A) build morale B) communicate with investors C) motivate employees D) train workers Answer: B Explanation: B) Lower-level managers must be able to motivate employees, build morale, and train and support those who perform the daily tasks of the organizations. However, they do not need to communicate with investors. That is the responsibility of top managers.

Diff: 1 Page Ref: 209 AACSB: Reflective Thinking Objective: 7-1 In what ways do managers apply technical, interpersonal, decision-making, conceptual, and time management skills to business?

Skill: Application 6) Sally Hodges manages the housekeeping staff at a luxury resort. Most of the workers she interacts with are originally from Guatemala. Sally has decided to take a course in Spanish in order to communicate better with her staff. She is developing her ________ skills.

A) interpersonal B) technical C) leadership D) conceptual Answer: A Explanation: A) Interpersonal skills help a manager develop trust and loyalty with employees and can motivate the employees to perform better. It is increasingly important for managers to recognize the different cultures and backgrounds of employees in an organization. Sally is making an important step toward communicating better with her employees and acknowledging their cultural differences. These interpersonal or human relations skills will help her achieve higher goals with her staff.

Diff: 1 Page Ref: 211 AACSB: Reflective Thinking Objective: 7-1 In what ways do managers apply technical, interpersonal, decision-making, conceptual, and time management skills to business?

Skill: Application

7) Which of the following processes best describes how managers identify unseen problems?

A) looking at the most recent sales figures B) listening to messages on the consumer complaint line C) analyzing data and searching for trends D) looking at sales projections and comparing current figures Answer: C Explanation: C) By analyzing data including sales figures a manager is able to pinpoint inconsistencies in performance. Then by searching for trends in that analysis of the data a manager is able to identify problems that have developed.

Diff: 2 Page Ref: 210 AACSB: Reflective Thinking Objective: 7-1 In what ways do managers apply technical, interpersonal, decision-making, conceptual, and time management skills to business?

Skill: Application 8) Diane Pollock was recently promoted to middle management based on her excellent interpersonal skills. These skills help her because one of the primary roles of a middle manager is to ________.

A) develop software to maximize the company's efficiency B) act as a liaison among different groups in the company C) understand how world events will affect the company's growth D) draft a handbook that outlines the company's rules and regulations Answer: B Explanation: B) Middle managers must communicate with all levels of management and communication is a key element in interpersonal skills. Developing software, have an understanding of world events, and drafting a handbook on company rules and regulations are not primary roles for a middle manager.

Diff: 1 Page Ref: 211 AACSB: Reflective Thinking Objective: 7-1 In what ways do managers apply technical, interpersonal, decision-making, conceptual, and time management skills to business?

Skill: Application

9) At what stage in the decision-making process would managers be most likely to seek customer or market opinion?

A) when identifying problems B) when generating alternative solutions C) when evaluating the alternatives D) when choosing the best plan of action Answer: D Explanation: D) There are five stages in the decision-making process. First the problem is identified. Then managers must generate alternative solutions. After generating them, managers must evaluate the alternatives. Once the alternatives have been evaluated they choose the best plan of action. The final step is to evaluate the decision. It is at the stage of choosing the best plan of action that management may seek customer or market opinion on the chosen plan of action before committing to it.

Diff: 2 Page Ref: 210-211 AACSB: Reflective Thinking Objective: 7-1 In what ways do managers apply technical, interpersonal, decision-making, conceptual, and time management skills to business?

Skill: Application 10) Tasty Pastry Bakery Shop is having problems with its sticky buns. The bottoms are burning and the customers are complaining. They have identified the problem and they are looking into possible alternative solutions. They could change the recipe and reduce the sugar, which burns quickly. They could change the type of pan they are using. They could lower the heat of the oven. They have tried changing the type of pan from steel cookie sheets to glass pans; however, the buns are still burning. What must they do now?

A) evaluate the alternatives again B) generate more alternative solutions C) implement a new plan of action D) revisit the process of identifying the problem Answer: D Explanation: D) In this scenario, changing the type of pan used was chosen as the best plan of action and they implemented the plan of action. They evaluated the decision and determined that the buns were still burning. Therefore, the decision-making process must now become cyclical and the Tasty Pastry Bakery staff will have to begin again with identifying the problems. Perhaps on reexamining that stage of the decision-making process some new alternative solutions may be determined. Management will have to take the time to explore all alternatives thoroughly. In any case a new best plan of action will have to be tried to solve the problem or problems.

Diff: 3 Page Ref: 210-211 AACSB: Reflective Thinking Objective: 7-1 In what ways do managers apply technical, interpersonal, decision-making, conceptual, and time management skills to business?

Skill: Application

11) To make good decisions, a successful manager must be able to think abstractly in order to picture the organization as a whole and to understand its relationship to the rest of the business community. In other words, the manager must have ________.

A) conceptual skills B) decision-making skills C) interpersonal skills D) community relations skills Answer: A Explanation: A) Conceptual skills include understanding the relationships between the parts of an organization itself, understanding the relationship of the organization to the rest of the business community, and the ability to picture the organization as a whole.

Diff: 2 Page Ref: 210 AACSB: Analytic Skills Objective: 7-1 In what ways do managers apply technical, interpersonal, decision-making, conceptual, and time management skills to business?

Skill: Application 12) The BEST way to describe the conceptual skills that a good manager must develop is to state that these skills must include understanding the relationships between ________.

A) product designs and product manufacturing B) the different parts of the organization C) the legal firms who represent the company D) machinery workers and machine service workers Answer: B Explanation: B) A good manager will often develop conceptual skills with time and experience.

These skills will allow a manager to understand the relationships within the organization between the different parts of the organization itself.

Diff: 3 Page Ref: 210 AACSB: Analytic Skills Objective: 7-1 In what ways do managers apply technical, interpersonal, decision-making, conceptual, and time management skills to business?

Skill: Application

13) There are several steps that are crucial to effective time management. One of the following steps will NOT improve the productivity of a business.

A) answering all emails as soon as they arrive B) determining the level of urgency of paperwork C) identifying clear agendas for meetings D) crossing off tasks on the schedule as soon as they are completed Answer: A Explanation: A) A successful manager makes better use of time by designating a particular time to address all messages that are not urgent. Organizing emails into categories, answering nonurgent emails, and returning phone calls at designated times will improve the productivity of a business. Answering email as soon as they arrive will not improve productivity.

Diff: 2 Page Ref: 210 AACSB: Reflective Thinking Objective: 7-1 In what ways do managers apply technical, interpersonal, decision-making, conceptual, and time management skills to business?

Skill: Application 14) Goals are broad accomplishments that an organization wants to achieve within a certain time frame in most companies, this is about ________.

A) three months B) one year C) five years D) ten years Answer: C Explanation: C) Most companies create long-term goals with a time frame of five years in mind.

Diff: 2 Page Ref: 212 AACSB: Reflective Thinking Objective: 7-2 What strategies do managers use to establish the corporate vision and mission statement and keep the company on task?

Skill: Application

15) ________ and organizing are two of a manager's most important responsibilities.

A) Planning B) Recruiting C) Training D) Writing Answer: A Explanation: A) Planning is the process of establishing goals and objectives and determining the best ways to accomplish them. Planning happens at all levels of an organization. Recruiting and training of new employees are important, however, these tasks are chiefly handled by human resources personnel. Managing is a general term that can be applied to the tasks performed by a manager. However, the actual responsibilities fall more specifically into the categories of planning, organizing, leading, and controlling.

Diff: 2 Page Ref: 207 AACSB: Analytic Skills Objective: 7-2 What strategies do managers use to establish the corporate vision and mission statement and keep the company on task?

Skill: Conceptual 16) Short-term targets a company implements that are designed to help realize the plans that have been made are called ________.

A) goals B) objectives C) benchmarks D) strategic plans Answer: B Explanation: B) Goals are long-term accomplishments an organization wants to achieve.

Objectives are the short-term targets that can make these goals possible.

Diff: 1 Page Ref: 212 AACSB: Analytic Skills Objective: 7-2 What strategies do managers use to establish the corporate vision and mission statement and keep the company on task?

Skill: Application 17) In business planning, what is the main course of action created by top-level managers?

A) a financial analysis B) a marketing plan C) a strategic plan D) a SWOT analysis Answer: C Explanation: C) A strategic plan is the main course of action created by top-level managers that sets the approach for achieving the long-term goals and objectives of the organization.

Diff: 2 Page Ref: 212 AACSB: Analytic Skills Objective: 7-2 What strategies do managers use to establish the corporate vision and mission statement and keep the company on task?

Skill: Application

18) Mission statements reflect the personality of ________.

A) a company B) a typical customer of a company C) the owner of a company D) the spokesperson for a company Answer: A Explanation: A) Mission statements reflect the personality of a company; therefore, they can be very different in design and content from those of other companies, even when the companies produce similar products.

Diff: 1 Page Ref: 213-214 AACSB: Reflective Thinking Objective: 7-2 What strategies do managers use to establish the corporate vision and mission statement and keep the company on task?

Skill: Application 19) The vision of a company is directed toward ________.

A) customers B) employees C) news media D) human resources Answer: B Explanation: B) The vision identifies what the business wants to be in the future. This statement of the corporate purpose is intended to motivate and guide employees in fulfilling the ultimate goals for the company.

Diff: 2 Page Ref: 214 AACSB: Reflective Thinking Objective: 7-2 What strategies do managers use to establish the corporate vision and mission statement and keep the company on task?

Skill: Application 20) The mission statement for a company MOST often appears on ________.

A) internal memos B) advertising materials C) company stationery D) sales contracts Answer: B Explanation: B) The mission statement is often used on actual products and on advertising materials. It is not usually part of the branding of the company used on stationery, memos, contracts, and other printed documents, as the logo and typeface for the company would be.

Diff: 2 Page Ref: 214 AACSB: Reflective Thinking Objective: 7-2 What strategies do managers use to establish the corporate vision and mission statement and keep the company on task?

Skill: Application

21) Once a company's vision and mission statement have been articulated, management must assess a company's SWOT, which stands for ________.

A) strengths, weaknesses, operations, and targets B) strengths, world view, obligations, and tasks C) strengths, weaknesses, opportunities, and threats D) strengths, weaknesses, organization, and threats Answer: C Explanation: C) When a company has formulated its vision and created a mission statement, management must analyze the company's internal resources, including finances, human resources, marketing, operations, and technological resources in order to assess the company's strengths and weaknesses. Management must also evaluate the company's business threats and opportunities by assessing external elements, such as economic, political, and regulatory environments, as well as social, demographic, macroeconomic, and technological factors that could affect the company and industry.

Diff: 2 Page Ref: 214 AACSB: Analytic Skills Objective: 7-3 What are the implications of tactical plans, operational plans, and contingency plans within the context of management?

Skill: Application 22) Once long-term goals and objectives have been determined, middle management generates ________.

A) strategic plans B) short-term targets C) tactical plans D) resource evaluations Answer: C Explanation: C) Tactical plans specifically determine the resources and actions required to implement particular aspects of the strategic plan. The difference between a strategic plan and a tactical plan is that tactical plans are made with a one- to three-year plan in mind, while strategic plans set goals and objectives that are long-term.

Diff: 2 Page Ref: 215 AACSB: Analytic Skills Objective: 7-3 What are the implications of tactical plans, operational plans, and contingency plans within the context of management?

Skill: Application

23) Conditions that could negatively affect a company's competitive capability are called ________.

A) extreme circumstances B) external threats C) internal weaknesses D) tactical nightmares Answer: B Explanation: B) External threats can negatively affect a company's competitive capability. These threats include intense price competition, political problems, and coordinated competition from other companies, amongst others.

Diff: 1 Page Ref: 215 AACSB: Reflective Thinking Objective: 7-3 What are the implications of tactical plans, operational plans, and contingency plans within the context of management?

Skill: Application 24) Which of the following types of plans represents a set of instructions for employees?

A) strategic B) operational C) tactical D) vision Answer: B Explanation: B) A company's operational plans represent a set of instructions for employees.

The operational plan offers the most specific statements as to how the company's vision is to be realized.

Diff: 2 Page Ref: 216 AACSB: Analytic Skills Objective: 7-3 What are the implications of tactical plans, operational plans, and contingency plans within the context of management?

Skill: Application

25) ________ plans depend on daily or weekly schedules and focus on specific departments or employees.

A) Operational B) Tactical C) Strategic D) Contingency Answer: A Explanation: A) Strategic plans set long-term goals and objectives. Tactical plans use a one- to three-year time frame. Contingency plans come into play when extreme circumstances arise and an alternative plan must be ready. Operational plans determine the process by which tactical plans can be achieved and depend on daily or weekly schedules to actualize those plans.

Diff: 2 Page Ref: 216 AACSB: Analytic Skills Objective: 7-3 What are the implications of tactical plans, operational plans, and contingency plans within the context of management?

Skill: Application 26) When is the annual budget for an organization developed?

A) during strategic planning B) during tactical planning C) during operational planning D) during contingency planning Answer: B Explanation: B) Determining the company's annual budget is one function of a tactical plan.

Tactical plans specifically determine the resources and the actions required to implement particular aspects of a strategic plan.

Diff: 2 Page Ref: 215 AACSB: Reflective Thinking Objective: 7-3 What are the implications of tactical plans, operational plans, and contingency plans within the context of management?

Skill: Application 27) Which of these falls directly under the responsibility of first-line managers?

A) yearly evaluation report B) day-to-day operations C) annual budget allocation D) department restructuring Answer: B Explanation: B) First-line managers are the ones who are responsible for the day-to-day operations of the company. They supervise the employees who perform the day-to-day tasks of the company.

Diff: 2 Page Ref: 209 AACSB: Reflective Thinking Objective: 7-3 What are the implications of tactical plans, operational plans, and contingency plans within the context of management?

Skill: Application

28) The specifics of carrying out tactical plans are ________.

A) strategies B) internal strengths C) operational plans D) objectives Answer: C Explanation: C) First-line managers precisely determine the process by which tactical plans can be achieved when formulating operational plans. Operational plans lay out the specifics for those tactical plans.

Diff: 3 Page Ref: 216 AACSB: Analytic Skills Objective: 7-3 What are the implications of tactical plans, operational plans, and contingency plans within the context of management?

Skill: Application 29) Which type of plan will keep an organization running in the event of a disruption?

A) tactical B) contingency C) strategic D) operational Answer: B Explanation: B) Contingency plans are created so that a company can continue to function when there are extreme circumstances such as a natural disaster or a political disruption. Tactical plans, strategic plans, and operational plans are part of the normal process of running a business.

Contingency plans are activated when conditions are not normal.

Diff: 2 Page Ref: 216 AACSB: Analytic Skills Objective: 7-3 What are the implications of tactical plans, operational plans, and contingency plans within the context of management?

Skill: Application

30) Which type of plan acts as a framework for decisions and assists in setting corporate benchmarks?

A) operational B) tactical C) contingency D) strategic Answer: D Explanation: D) Strategic plans set the approach for achieving long-term objectives and act as a framework for making decisions throughout the organization. Strategic plans also assist in setting corporate benchmarks. Operational plans and tactical plans have shorter time frames in which they are relevant therefore they are not appropriate for performing these functions.

Contingency plans are only used during crises.

Diff: 2 Page Ref: 212 AACSB: Analytic Skills Objective: 7-3 What are the implications of tactical plans, operational plans, and contingency plans within the context of management?

Skill: Application 31) If a computer virus spreads rapidly through a company's computer system and threatens to shut down all internal and external lines of communication, the company will likely put a ________ into effect.

A) strategic plan B) emergency plan C) healthcare plan D) contingency plan Answer: D Explanation: D) A computer virus affecting a company's computer system is just the sort of crisis that would require a contingency plan to be activated since normal tasks could not be performed as they usually are. The organization must keep running, even though the computer virus has created an extreme circumstance. Therefore, a plan is needed to make that functionality possible.

Diff: 1 Page Ref: 216 AACSB: Reflective Thinking Objective: 7-3 What are the implications of tactical plans, operational plans, and contingency plans within the context of management?

Skill: Application

32) Organizational structure depends on a variety of factors NOT including ________.

A) the number of employees in the organization B) the location(s) of business operations C) the speed at which decisions are made D) the collaborative nature of the work Answer: B Explanation: B) In order to put plans into action, managers must structure the capital, personnel, raw materials, and other resources to carry out those plans so that the company performs at its highest potential. The location or locations of the business's operations is not a key factor in the establishment of that organizational structure. The nature of the work, the numbers of employees, how much the business is subject to rapid change, and the speed at which decisions need to be made are key factors.

Diff: 2 Page Ref: 218 AACSB: Reflective Thinking Objective: 7-4 What is the significance of organizing, and how is most management organized?

Skill: Conceptual 33) Which of the following would NOT be considered a middle manager?

A) a supervisor B) a sales manager C) a controller D) an operations manager Answer: A Explanation: A) First-line managers are in a supervisory role in an organization. They supervise employees who perform the day-to-day tasks that keep the company running. Sales managers, controllers, and operations managers are all middle managers who are responsible for tactical planning and for coordinating specific plans with the established strategic vision.

Diff: 2 Page Ref: 209 AACSB: Reflective Thinking Objective: 7-4 What is the significance of organizing, and how is most management organized?

Skill: Application 34) What represents the highest level of planning in an organization?

A) strategic plan B) tactical plan C) operational plan D) contingency plan Answer: A Explanation: A) The strategic plan represents the highest level of planning within an organization. Other plans are developed to help fulfill the organizational strategy.

Diff: 2 Page Ref: 212 AACSB: Analytic Skills Objective: 7-2 What strategies do managers use to establish the corporate vision and mission statement and keep the company on task?

Skill: Conceptual

35) Tactical planning and coordinating specific plans with the established strategic vision is the task of the ________.

A) top managers B) junior managers C) middle managers D) first-line managers Answer: C Explanation: C) Middle managers generate tactical plans to carry out the goals determined by the strategic plan. These tactical plans specifically outline the means to implement particular aspects of the strategic plan with a one- to three-year horizon in mind. Top managers create the strategic plan. And first-line managers supervise the employees who carry out the daily tasks of the organization, thus implementing the tactical and operational plans.

Diff: 2 Page Ref: 209 AACSB: Reflective Thinking Objective: 7-4 What is the significance of organizing, and how is most management organized?

Skill: Application 36) The need for a business to change quickly will often help determine the ________.

A) mission statement B) vision C) compensation of employees D) organizational structure Answer: D Explanation: D) The organizational structure depends on the number of employees in the organization, the subjectivity of the business to rapid change, the collaborative nature of the work, and the speed at which decisions need to be made.

Diff: 2 Page Ref: 219 AACSB: Reflective Thinking Objective: 7-4 What is the significance of organizing, and how is most management organized?

Skill: Application 37) Division managers who are responsible for financial, marketing, sales, operations, or IT divisions and team leaders who are responsible for a group of employees are ________.

A) top managers B) first-line managers C) middle managers D) senior managers Answer: C Explanation: C) Middle managers are each responsible for just one division or part of an organization, or they are responsible for a group of employees who carry out specific tasks for the organization. First-line managers supervise employees carrying out day-to-day tasks. Top managers are in executive roles and create the strategic plan for the organization.

Diff: 1 Page Ref: 209 AACSB: Reflective Thinking Objective: 7-4 What is the significance of organizing, and how is most management organized?

Skill: Application

38) A(n) ________ organization has few people in power and many following.

A) horizontal B) flat C) circular D) vertical Answer: D Explanation: D) A vertical organization has few people in power and many following. Vertical organizations were developed during the Industrial Revolution.

Diff: 1 Page Ref: 219 AACSB: Reflective Thinking Objective: 7-4 What is the significance of organizing, and how is most management organized?

Skill: Application 39) Despite their benefits, traditional pyramidal management has been criticized as being ________.

A) top-heavy B) inflexible C) uneconomical D) impersonal Answer: B Explanation: B) By the early 1990s traditional pyramidal management structures were criticized as being overspecialized, fragmented, and inflexible. This business structure had survived successfully for a century and was not considered top-heavy or uneconomical. Any business setting can be considered impersonal, however, this is not one of the particular characteristics of the pyramidal structure.

Diff: 2 Page Ref: 219 AACSB: Reflective Thinking Objective: 7-4 What is the significance of organizing, and how is most management organized?

Skill: Application 40) In an organizational chart for a company, training will generally fall under what division?

A) human resources B) finance C) operations D) marketing Answer: A Explanation: A) The human resources division of a company is generally concerned with all issues concerning employees. Employment, the hiring and firing of employees, and training, the training of new hires and the enrichment of skills for those already employed by the organization are within the scope of the human resources division.

Diff: 1 Page Ref: 218 AACSB: Reflective Thinking Objective: 7-4 What is the significance of organizing, and how is most management organized?

Skill: Application

41) When Ford Motor Company formed management groups around areas of specific production, it was using a ________ organization structure.

A) flat B) vertical C) pyramid D) linear Answer: A Explanation: A) In a horizontal or flat organization, the management layers are collapsed. There are still some pyramidal aspects, for example, there is usually a CEO and there are often middle managers, but the responsibilities are spread across teams rather than down a line of command of employees. This organizational structure is considered more successful because each team has greater responsibility for the outcome of its work.

Diff: 3 Page Ref: 218-219 AACSB: Reflective Thinking Objective: 7-5 What are the differences among vertical organizations, horizontal organizations, and network organizations?

Skill: Application 42) When Boeing recently produced its latest airplane, the Boeing 787, parts of the plane were assembled in Italy, other parts were assembled in Wichita, Kansas, and elements of the plane were shipped to Everett, Washington, where the final assembly was completed. This is an example of ________.

A) vertical organization B) horizontal organization C) network organization D) team organization Answer: C Explanation: C) Network organizations are collections of independent firms that collaborate on a product or service. In the case of the Boeing 787, a firm in Italy assembled parts of the plane and a firm in Wichita, Kansas assembled other parts of the plane. Other firms accomplished different tasks that all contributed to the final building of the plane, which was completed in Everett, Washington.

Diff: 1 Page Ref: 221 AACSB: Reflective Thinking Objective: 7-5 What are the differences among vertical organizations, horizontal organizations, and network organizations?

Skill: Application

43) Reebok only designs and markets its products. The company does not produce any products.

This is an example of ________.

A) a network organization B) a team organization C) a vertical organization D) a flat organization Answer: A Explanation: A) A network arrangement allows a company to exist without producing any of its own products. Reebok is this type of company. It is a successful structure for Reebok because it allows the company to be as flexible and innovative as possible, to respond quickly to threats and opportunities, to save time, and to reduce costs and risks.

Diff: 1 Page Ref: 221 AACSB: Reflective Thinking Objective: 7-5 What are the differences among vertical organizations, horizontal organizations, and network organizations?

Skill: Application 44) An organization where there are fewer middle managers and employees work in groups is a ________ organization.

A) network B) vertical C) horizontal D) linear Answer: C Explanation: C) A flat or horizontal organization concentrates the majority of employees into working teams or groups. There is usually a CEO and often a layer of middle managers, though there are fewer middle managers than a vertical organization would require.

Diff: 1 Page Ref: 219 AACSB: Reflective Thinking Objective: 7-5 What are the differences among vertical organizations, horizontal organizations, and network organizations?

Skill: Application

45) Network organization is an emerging business structure in which ________ collaborate.

A) teams of employees B) a company and its distributors C) a group of companies D) a group of managers Answer: C Explanation: C) Network organizations are collections of independent, mostly single-function firms that collaborate. Using this business structure a company can rely on the expertise of many manufacturers worldwide to independently manufacture or develop parts of a product or service.

Diff: 2 Page Ref: 221 AACSB: Reflective Thinking Objective: 7-5 What are the differences among vertical organizations, horizontal organizations, and network organizations?

Skill: Application 46) A company that is organized around specific business functions and where there are several levels of first-line and middle managers is a ________ organization.

A) network B) vertical C) flat D) linear Answer: B Explanation: B) Vertical organizations typically have many levels of functioning and these companies are organized by specific divisions, for example, marketing, finance, purchasing, information technology, and human resources. In order to coordinate these many levels, there are first-line and middle managers who report to top managers.

Diff: 1 Page Ref: 219 AACSB: Reflective Thinking Objective: 7-5 What are the differences among vertical organizations, horizontal organizations, and network organizations?

Skill: Application

47) A ________ is a graph that displays the values of two variables to see if there is a relationship between the variables.

A) scatter chart B) run chart C) check sheet D) control chart Answer: A Explanation: A) A scatter chart is a graph that displays the values of two variables to see if there is a relationship between the variables. For example, in producing a ballpoint pen, how does the temperature of the plastic injected into the mold affect the amount of time required for the pen to cool before the next step in production?

Diff: 1 Page Ref: 225 AACSB: Analytic Skills Objective: 7-2 What strategies do managers use to establish the corporate vision and mission statement and keep the company on task?

Skill: Application 48) The quality initiative that is statistically based, proactive, and long-term and that is designed to look at the overall business process to prevent problems is called ________.

A) Six Sigma B) Total Quality Management C) the Control Cycle D) Performance Measurement Answer: A Explanation: A) Six Sigma is a process designed to look at an overall business process and measure quality. Defects are brought to light and a measurement of no more than 3.4 defects per million opportunities is considered an adequate achievement of the "Six Sigma standard."

Diff: 2 Page Ref: 225 AACSB: Reflective Thinking Objective: 7-7 What are the implications of control within a business?

Skill: Application 49) The skills of a manager and the process a manager goes through will be entirely different if the organization is a simple working group instead of a multibillion-dollar company.

Answer: FALSE Explanation: Though the work that managers do may differ slightly between small and large companies, all managers work with people and resources to accomplish the goals of an organization.

Diff: 2 Page Ref: 207 AACSB: Reflective Thinking Objective: 7-1 In what ways do managers apply technical, interpersonal, decision-making, conceptual, and time management skills to business?

Skill: Conceptual

50) Most people who have graduated from a reputable Master's in Business Administration program have a mastery of the basic skills a successful manager needs to possess: technical, interpersonal, conceptual, decision-making, and time management.

Answer: FALSE Explanation: It is a rare person who is master of all the skills required to be a successful manager.

Diff: 2 Page Ref: 210 AACSB: Reflective Thinking Objective: 7-1 In what ways do managers apply technical, interpersonal, decision-making, conceptual, and time management skills to business?

Skill: Application 51) It is virtually impossible to learn decision-making skills. Some people are decisive by nature and others are indecisive.

Answer: FALSE Explanation: Managers must be willing to acquire the necessary skills to fulfill their responsibilities. These skills include technical, interpersonal, conceptual, decision-making, and time management skills.

Diff: 1 Page Ref: 210 AACSB: Reflective Thinking Objective: 7-1 In what ways do managers apply technical, interpersonal, decision-making, conceptual, and time management skills to business?

Skill: Application 52) Managers do not need to be comfortable with technology because they can delegate those tasks to their information technology (IT) staff.

Answer: FALSE Explanation: Managers must be comfortable with technology and possess good analytical skills to interpret a variety of data.

Diff: 1 Page Ref: 210 AACSB: Reflective Thinking Objective: 7-1 In what ways do managers apply technical, interpersonal, decision-making, conceptual, and time management skills to business?

Skill: Application 53) It is important for a marketing manager to have strong accounting skills.

Answer: FALSE Explanation: Market analysis skills would be required for a marketing manager, however, accounting skills would not enable a marketing manager to fulfill the specific tasks of a marketing department.

Diff: 2 Page Ref: 210 AACSB: Reflective Thinking Objective: 7-1 In what ways do managers apply technical, interpersonal, decision-making, conceptual, and time management skills to business?

Skill: Application

54) The basic steps in a formal decision-making process are identifying and analyzing the problem, examining the alternatives, and finally implementing the best plan of action.

Answer: FALSE Explanation: The final step in a formal decision-making process is evaluating the results. The process described in this question is incomplete.

Diff: 3 Page Ref: 210 AACSB: Analytic Skills Objective: 7-1 In what ways do managers apply technical, interpersonal, decision-making, conceptual, and time management skills to business?

Skill: Application 55) When managers evaluate a decision and determine that it is not meeting the goals of the organization, the decision-making process may become cyclical.

Answer: TRUE Explanation: The first step, identifying problems, is critical in determining the alternative solutions. Therefore, if it will be necessary to come up with a new set of alternative solutions because the first possibilities did not meet the goals of the organizations, then it will be necessary to identify the problems again.

Diff: 3 Page Ref: 210-211 AACSB: Analytic Skills Objective: 7-1 In what ways do managers apply technical, interpersonal, decision-making, conceptual, and time management skills to business?

Skill: Application 56) Top managers learn conceptual skills in business school and then apply what they've learned in the workplace.

Answer: FALSE Explanation: Conceptual skills are often developed with time and experience.

Diff: 2 Page Ref: 210 AACSB: Reflective Thinking Objective: 7-1 In what ways do managers apply technical, interpersonal, decision-making, conceptual, and time management skills to business?

Skill: Application 57) If a business owner has a superb knowledge of business logistics, has the ability to make good decisions every day, and has excellent interpersonal skills, the business will thrive.

Answer: FALSE Explanation: This is not necessarily the case if the business owner lacks time management skills.

A business owner must make efficient use of his time and have the ability to recognize specific ways to make every task or situation productive.

Diff: 3 Page Ref: 210 AACSB: Reflective Thinking Objective: 7-1 In what ways do managers apply technical, interpersonal, decision-making, conceptual, and time management skills to business?

Skill: Application

58) Keeping a schedule is an important time management skill.

Answer: TRUE Explanation: Schedules help a manager plan and prioritize tasks. Keeping track of which tasks have been accomplished is one way of managing time and measuring productivity.

Diff: 2 Page Ref: 210 AACSB: Reflective Thinking Objective: 7-1 In what ways do managers apply technical, interpersonal, decision-making, conceptual, and time management skills to business?

Skill: Application 59) A vision statement is a current description of an organization’s purpose, basic goals, and philosophies.

Answer: FALSE Explanation: A mission statement is a current description of an organization's purpose, basic goals, and philosophies.

Diff: 3 Page Ref: 213 AACSB: Reflective Thinking Objective: 7-2 What strategies do managers use to establish the corporate vision and mission statement and keep the company on task?

Skill: Application 60) A mission statement identifies what a business wants to be in the future.

Answer: FALSE Explanation: A vision identifies what a business wants to be in the future. A mission statement is a more current description of the organization's purpose, basic goals, and philosophies.

Diff: 2 Page Ref: 213 AACSB: Reflective Thinking Objective: 7-2 What strategies do managers use to establish the corporate vision and mission statement and keep the company on task?

Skill: Application 61) An understanding of the company mission can help fuel employee enthusiasm.

Answer: TRUE Explanation: If employees feel the owner's passion for the business through the mission statement, their goals and objectives as employees of the business are incorporated into their daily work and passed on to customers and suppliers through their words and actions.

Diff: 1 Page Ref: 214 AACSB: Reflective Thinking Objective: 7-2 What strategies do managers use to establish the corporate vision and mission statement and keep the company on task?

Skill: Application

62) Only for-profit companies use mission statements.

Answer: FALSE Explanation: Just as for-profit companies use mission statements to guide their work, not-forprofit organizations can use them as well.

Diff: 3 Page Ref: 214 AACSB: Analytic Skills Objective: 7-2 What strategies do managers use to establish the corporate vision and mission statement and keep the company on task?

Skill: Application 63) Tactical plans are made with a six-month to one-year horizon in mind.

Answer: FALSE Explanation: Whereas strategic plans have a long-term focus, tactical plans are made with a oneto three-year horizon in mind.

Diff: 2 Page Ref: 215 AACSB: Analytic Skills Objective: 7-3 What are the implications of tactical plans, operational plans, and contingency plans within the context of management?

Skill: Application 64) A company might conduct full-scale practice drills, including closing a building and working from a remote location, in order to test its contingency plans.

Answer: TRUE Explanation: The Vanguard Group, an investment management company, has, for example, put their contingency plans through rigorous testing, including full-scale practice drills in which the company closes a building and works from a remote location.

Diff: 2 Page Ref: 216 Objective: 7-3 What are the implications of tactical plans, operational plans, and contingency plans within the context of management?

Skill: Application 65) Almost all businesses are organized the same way, in a vertical, hierarchical structure.

Answer: FALSE Explanation: The traditional way of organizing management falls into a vertically structured managerial pyramid; however, there are also horizontal and network organizations.

Diff: 2 Page Ref: 218 AACSB: Reflective Thinking Objective: 7-4 What is the significance of organizing, and how is most management organized?

Skill: Conceptual

66) Smaller companies that have relatively few employees tend to be organized in the same way as large corporations.

Answer: FALSE Explanation: Small companies tend to have much simpler structures than large companies.

Diff: 2 Page Ref: 218 AACSB: Reflective Thinking Objective: 7-4 What is the significance of organizing, and how is most management organized?

Skill: Application 67) When each division or group within a company with a horizontal structure works autonomously, it can create barriers to coordination across functions.

Answer: TRUE Explanation: In essence, each division or group works like a separate mini-company. When a company is divided into teams, groups, or divisions where employees work just one product line or each team specializes in one geographic region or works through just one manufacturing process these barriers can be created.

Diff: 2 Page Ref: 220 AACSB: Analytic Skills Objective: 7-5 What are the differences among vertical organizations, horizontal organizations, and network organizations?

Skill: Application 68) The benefit of a horizontal organization is that each team has more responsibility for the outcome of its work.

Answer: TRUE Explanation: Within horizontal organizations, there are fewer layers of management, so fewer reporting issues arise, and, if needed, the bosses' approval can be sought and received much faster.

Diff: 2 Page Ref: 220 AACSB: Analytic Skills Objective: 7-5 What are the differences among vertical organizations, horizontal organizations, and network organizations?

Skill: Application 69) Xerox maintains a flat organizational structure organized by product category and by region.

Answer: TRUE Explanation: The company takes into consideration its global presence and each individual group has its own set of financial reports, and factories are focused on individual product lines.

Diff: 2 Page Ref: 220 AACSB: Analytic Skills Objective: 7-5 What are the differences among vertical organizations, horizontal organizations, and network organizations?

Skill: Application

70) The majority of companies are structured with the more traditional vertical structure or the group-oriented horizontal structure.

Answer: TRUE Explanation: Most products are produced and services provided by one company, which is responsible for all functions, and these companies are generally either vertical organizations or horizontal organizations.

Diff: 2 Page Ref: 218 AACSB: Reflective Thinking Objective: 7-5 What are the differences among vertical organizations, horizontal organizations, and network organizations?

Skill: Application 71) Successful managers, those who are rapidly and consistently promoted, are also the managers who are most effective.

Answer: FALSE Explanation: The two types of managers, effective managers and successful managers, have little in common, according to a study by Fred Luthans at the University of Nebraska-Lincoln.

Those who were successful spent most of their time networking; however, the effective managers spent most of their time performing communication and human resources management activities.

Diff: 2 Page Ref: 208 AACSB: Reflective Thinking Objective: 7-6 What makes a good leader, and what are the various styles of leadership?

Skill: Application 72) Most companies have control systems that help measure the plans they set in place to carry out the goals and objectives of the organization. This control system generally forms a cycle.

Answer: TRUE Explanation: The cycle begins when performance standards are set, then performance is measured and compared against the standard, then adjustments are made, and finally the cycle begins again.

Diff: 2 Page Ref: 223 AACSB: Reflective Thinking Objective: 7-7 What are the implications of control within a business?

Skill: Application 73) What are the four primary functions of management?

Answer: The four primary functions of management are planning, organizing, leading, and controlling.

Diff: 2 Page Ref: 207-208 AACSB: Reflective Thinking Objective: 7-1 In what ways do managers apply technical, interpersonal, decision-making, conceptual, and time management skills to business?

Skill: Conceptual

74) What are at least three of the interpersonal skills that a top manager must develop in order to work successfully with people both inside and outside an organizations?

Answer: A top manager must develop trust and loyalty with the people he interacts with often.

He must motivate and encourage employees to work together. He must be able to communicate with the board of directors, investors, and other leaders in the business community. He must be able to communicate with middle managers in order to clearly understand the goals and strategies of the organization. He must take into consideration the needs, background, and experiences of many different people.

Diff: 3 Page Ref: 211 AACSB: Reflective Thinking Objective: 7-1 In what ways do managers apply technical, interpersonal, decision-making, conceptual, and time management skills to business?

Skill: Application 75) Once managers have identified several alternative solutions, they must evaluate those alternatives based on various criteria. Name at least four of those criteria.

Answer: Student answers will vary. However, their answers should include four of the following: cost, feasibility, time, resources needed, market acceptance, and compatibility with the company's mission, values, and goals.

Diff: 3 Page Ref: 210-211 AACSB: Analytic Skills Objective: 7-1 In what ways do managers apply technical, interpersonal, decision-making, conceptual, and time management skills to business?

Skill: Application 76) At what stage in the decision-making process do the company's mission, values, and goals play the most important role?

Answer: A company's mission, values, and goals play the most important role when managers are evaluating the alternatives that have been generated in response to a problem being identified.

Diff: 2 Page Ref: 214 AACSB: Analytic Skills Objective: 7-1 In what ways do managers apply technical, interpersonal, decision-making, conceptual, and time management skills to business?

Skill: Application 77) Whenever new market opportunities or potential threats arise, managers rely on their ________ to help them analyze the impending outcomes of their decisions.

Answer: conceptual skills Diff: 1 Page Ref: 210 AACSB: Analytic Skills Objective: 7-1 In what ways do managers apply technical, interpersonal, decision-making, conceptual, and time management skills to business?

Skill: Application

78) ________ requires that managers have the ability to recognize specific ways in which they can make every task or situation productive.

Answer: Time management Diff: 2 Page Ref: 210 AACSB: Analytic Skills Objective: 7-1 In what ways do managers apply technical, interpersonal, decision-making, conceptual, and time management skills to business?

Skill: Application 79) Explain the acronym SMARTER. It should be kept in mind by managers when designing and wording goals and objectives.

Answer: S = Specific, M = Measurable, A = Acceptable, R = Realistic, T = Timely, E = Extending, and R = Rewarding Diff: 3 Page Ref: 215 AACSB: Reflective Thinking Objective: 7-2 What strategies do managers use to establish the corporate vision and mission statement and keep the company on task?

Skill: Application 80) Explain at least three ways that the vision and mission statement are critically important for an organization.

Answer: They help keep management on track. They help inspire employees working for the organization. They indicate to investors or consumers what type of organization they are investing in. They provide a guide for management as they evaluate alternative plans and strategies to ensure they are consistent with the organization's current and future direction.

Diff: 2 Page Ref: 214 AACSB: Reflective Thinking Objective: 7-2 What strategies do managers use to establish the corporate vision and mission statement and keep the company on task?

Skill: Application 81) What does an analysis of a company's strengths, weaknesses, opportunities, and threats help determine?

Answer: A SWOT analysis helps determine the strategic fit between an organization's internal, distinctive capabilities, and external possibilities relative to the business and economic environments.

Diff: 2 Page Ref: 214-215 AACSB: Reflective Thinking Objective: 7-3 What are the implications of tactical plans, operational plans, and contingency plans within the context of management?

Skill: Application

82) In analyzing a company's strengths and weakness, management must analyze the company's internal resources. Name at least three aspects of these internal resources.

Answer: Internal resources include finances, human resources, marketing, operations, and technological resources.

Diff: 2 Page Ref: 215 AACSB: Reflective Thinking Objective: 7-3 What are the implications of tactical plans, operational plans, and contingency plans within the context of management?

Skill: Application 83) Name at least three of the external factors that affect a company and its success.

Answer: External factors that affect a company and its success include the economic environment, political environment, and regulatory environment, as well as social, demographic, macroeconomic, and technological factors and the state of the industry and market and the company's competitors.

Diff: 2 Page Ref: 215 AACSB: Reflective Thinking Objective: 7-3 What are the implications of tactical plans, operational plans, and contingency plans within the context of management?

Skill: Application 84) Name the four types of plans used to carry out goals.

Answer: The four types of plans used to carry out goals are strategic plans, tactical plans, operational plans, and contingency plans.

Diff: 3 Page Ref: 212-213, 215-216 AACSB: Reflective Thinking Objective: 7-3 What are the implications of tactical plans, operational plans, and contingency plans within the context of management?

Skill: Application 85) What are some of the aspects of internal and external communication in contingency planning?

Answer: Internally, management must inform its employees how they should continue to do their jobs. Externally, an organization must have a plan in place to deal with requests for information either from employees or their families, or even the media. The company will have to determine what departments are vital to the immediate needs in an unexpected crisis and that must be communicated.

Diff: 2 Page Ref: 216 AACSB: Reflective Thinking Objective: 7-3 What are the implications of tactical plans, operational plans, and contingency plans within the context of management?

Skill: Application

86) ________ is the process of structuring the capital, personnel, raw materials, and other resources to carry out the plans in a way that best matches the nature of the work.

Answer: Organizing Diff: 1 Page Ref: 218 AACSB: Analytic Skills Objective: 7-4 What is the significance of organizing, and how is most management organized?

Skill: Conceptual 87) Why is the traditional way of organizing shaped like a pyramid where the top is much narrower than the bottom?

Answer: because there are far fewer top managers generating strategic plans and making longterm goals in a traditional organization than there are supervisors and department heads who are carrying out operational planning and supervising employees involved in the daily operations of the company Diff: 2 Page Ref: 218-219 AACSB: Analytic Skills Objective: 7-4 What is the significance of organizing, and how is most management organized?

Skill: Conceptual 88) The strategic vision is set by the ________.

Answer: top managers Diff: 1 Page Ref: 209 AACSB: Reflective Thinking Objective: 7-4 What is the significance of organizing, and how is most management organized?

Skill: Application 89) ________ organization usually calls for long lines of communication and "reporting up."

Answer: Vertical Diff: 1 Page Ref: 219 AACSB: Reflective Thinking Objective: 7-4 What is the significance of organizing, and how is most management organized?

Skill: Application 90) Sometimes when companies have grown very large they restructure from a vertical organization to a horizontal one. Why? Answer: When there are a variety of product lines, geographic regions, or manufacturing processes that can be difficult to manage, managers find that they can streamline functions using a horizontal structure to make management easier. For example, they might structure the organization into divisions of employees who work on just one product line. Or they might divide the company into teams in which each team specializes in just one geographic region or works through just one manufacturing process. In essence, these divisions work like separate mini-companies.

Diff: 3 Page Ref: 220 AACSB: Analytic Skills Objective: 7-4 What is the significance of organizing, and how is most management organized?

Skill: Application

91) In a ________ or ________ organization the traditional managerial pyramid is flattened and the management layers are collapsed.

Answer: horizontal; flat (or flat; horizontal) Diff: 1 Page Ref: 219 AACSB: Analytic Skills Objective: 7-5 What are the differences among vertical organizations, horizontal organizations, and network organizations?

Skill: Application 92) How are companies able to be more responsive when they have a horizontal structure?

Answer: Individuals in a horizontal organization are more empowered to make decisions, enabling them to be more responsive to customer needs.

Diff: 3 Page Ref: 220 AACSB: Analytic Skills Objective: 7-5 What are the differences among vertical organizations, horizontal organizations, and network organizations?

Skill: Application 93) Why are horizontal structures called the "model for the knowledge age"?

Answer: They are suitable for industries that require rapid responses to quick changes.

Diff: 2 Page Ref: 220 AACSB: Analytic Skills Objective: 7-5 What are the differences among vertical organizations, horizontal organizations, and network organizations?

Skill: Application 94) Why did Xerox make the shift from being a vertical organization to a horizontal one?

Answer: Xerox made the shift to allow the business to become closer to the customer.

Diff: 2 Page Ref: 220 AACSB: Analytic Skills Objective: 7-5 What are the differences among vertical organizations, horizontal organizations, and network organizations?

Skill: Application 95) Describe the structure of network organizations.

Answer: Network organizations are collections of independent, mostly single-function firms that collaborate on a product or service.

Diff: 3 Page Ref: 221 AACSB: Analytic Skills Objective: 7-5 What are the differences among vertical organizations, horizontal organizations, and network organizations?

Skill: Application

96) Companies that need to be as flexible and innovative as possible, to respond quickly to threats and opportunities, to save time, and to reduce costs and risks will be most successful with a ________ structure.

Answer: network Diff: 2 Page Ref: 221 AACSB: Analytic Skills Objective: 7-5 What are the differences among vertical organizations, horizontal organizations, and network organizations?

Skill: Application 97) ________ helps to identify and correct weaknesses and errors in the system by ensuring that plans and strategies set in place by management are properly carried out.

Answer: Controlling Diff: 2 Page Ref: 222 AACSB: Reflective Thinking Objective: 7-7 What are the implications of control within a business?

Skill: Application Better Business, 7e (Solomon) Chapter 8 Motivation, Leadership, and Teamwork 1) Brenda is a clerk at a greeting card store. She finds the work so simple that she finishes her duties quickly and uses the extra time in her work day to complete personal tasks. Brenda is in a flow state.

Answer: FALSE Explanation: In a state of flow, employees feel a strong match between their abilities and the challenges of their assigned work tasks. Simple tasks may lead to boredom.

Diff: 2 Page Ref: 236 AACSB: Reflective Thinking Objective: 8-1 How do motivation and work environment encourage "flow"?

Skill: Application 2) Organizational psychology is the study of how to create a workplace that fosters motivation and productivity among employees.

Answer: TRUE Explanation: Organizational psychology concerns itself with the creation of the kind of workplace that helps motivate employees and increases productivity.

Diff: 1 Page Ref: 236 Objective: 8-1 How do motivation and work environment encourage "flow"?

Skill: Conceptual 3) Mario works as an accountant for a large firm. He frequently sends email messages to coworkers that contain jokes about disgruntled employees and their difficult bosses. He interrupts meetings with random complaints about the company and often tries to coax fellow accountants to join him for long lunches. According to the Q12, Mario is an "actively disengaged" employee.

Answer: TRUE Explanation: The Q12 classifies "actively disengaged" employees as those who work in a

disruptive manner, are unhappy with the company, and combat the efforts of engaged workers.

Diff: 2 Page Ref: 236 AACSB: Reflective Thinking Objective: 8-1 How do motivation and work environment encourage "flow"?

Skill: Application 4) The Q12 classifies employees who work with passion and add to the success of the company as "engaged."

Answer: TRUE Explanation: "Engaged" employees work with a passion, feel connected and obligated to the company, and add to its success.

Diff: 1 Page Ref: 236 Objective: 8-1 How do motivation and work environment encourage "flow"?

Skill: Conceptual

5) According to Maslow, esteem needs are satisfied by establishing safe and stable places to work.

Answer: FALSE Explanation: Esteem needs are met by mastering a skill and by the attention and recognition of others.

Diff: 1 Page Ref: 238 Objective: 8-2 What are the intricacies of Maslow's hierarchy of needs, McClelland's "three needs" theory, and Herzberg's motivator-hygiene theory?

Skill: Conceptual 6) Rosa has a challenging job at a company that she respects. Her only regret is that her supervisor does not seem to appreciate her accomplishments and work ethic. According to Maslow, Rosa will strive to satisfy her esteem needs before addressing her self-actualization needs.

Answer: TRUE Explanation: Maslow's hierarchy of needs holds that employees will strive to satisfy lower-level needs before higher-level needs are addressed. Rosa's esteem needs will be met through the attention and recognition of her supervisor. Only then can she focus on her self-actualization needs.

Diff: 2 Page Ref: 237 AACSB: Reflective Thinking Objective: 8-2 What are the intricacies of Maslow's hierarchy of needs, McClelland's "three needs" theory, and Herzberg's motivator-hygiene theory?

Skill: Application 7) According to McClelland's "three needs" theory, when an individual has multiple needs, one need tends to dominate the others.

Answer: TRUE Explanation: According to McClelland, which need someone decides to satisfy will depend on a variety of factors, such as cultural background. Often one need dominates the others and accounts for the differences in motivation among co-workers.

Diff: 1 Page Ref: 238 Objective: 8-2 What are the intricacies of Maslow's hierarchy of needs, McClelland's "three needs" theory, and Herzberg's motivator-hygiene theory?

Skill: Conceptual

8) Monica enjoys her job and her co-workers. She feels her work environment is safe and her salary is a good one. Her benefits, though, are inadequate for her family's situation. According to Herzberg, Monica will not be motivated by the hygiene factors she experiences because she takes them for granted.

Answer: FALSE Explanation: When hygiene factors safe working environment, proper pay and benefits, and positive relationships with co-workers are in place, they may be taken for granted and will not motivate an employee. However, since Monica's benefits are inadequate, she likely will be motivated to find a way to meet her family's need for better benefits.

Diff: 2 Page Ref: 226 AACSB: Reflective Thinking Objective: 8-2 What are the intricacies of Maslow's hierarchy of needs, McClelland's "three needs" theory, and Herzberg's motivator-hygiene theory?

Skill: Application 9) Both extrinsic motivators and intrinsic motivators are within a manager's control.

Answer: FALSE Explanation: Extrinsic motivators include such things as pay, promotion, and verbal praise.

These are all within a manager's control. Intrinsic motivators are not. They are internal to the individual employee and include a person's interest in his/her job and the value the person feels in the work being accomplished.

Diff: 1 Page Ref: 238 Objective: 8-3 What are the distinguishing factors between extrinsic and intrinsic motivators?

Skill: Conceptual 10) The vice president at Steve's company recently assigned him a very challenging project.

Steve successfully completed it on time and within budget. The feeling of satisfaction he has for this job well done is an extrinsic motivator for Steve.

Answer: FALSE Explanation: Extrinsic motivators include such things as pay, promotion, and verbal praise.

These are all within a manager's control. Intrinsic motivators are internal to the individual employee and include a person's interest in his/her job and the value the person feels in the work being accomplished.

Diff: 2 Page Ref: 239 AACSB: Reflective Thinking Objective: 8-3 What are the distinguishing factors between extrinsic and intrinsic motivators?

Skill: Application

11) Chris owns a small grocery store. He notices that his employees seem unmotivated to work harder during peak times in his business. Chris increases the number of bonuses each employee may earn during those seasons. Chris is assuming his employees are motivated intrinsically.

Answer: FALSE Explanation: Extrinsic motivators include such things as pay, promotion, and verbal praise.

These are all within a manager's control. Intrinsic motivators are not. They are internal to the individual employee and include a person's interest in his/her job and the value the person feels in the work being accomplished.

Diff: 2 Page Ref: 239 AACSB: Reflective Thinking Objective: 8-3 What are the distinguishing factors between extrinsic and intrinsic motivators?

Skill: Application 12) Sandra is an office manager. She believes her employees are unmotivated and cannot adequately complete the simplest tasks without written, step-by-step instructions from her. She knows that if she leaves the office for even the shortest amount of time, her employees will goof off and accomplish nothing. Sandra most likely operates under the management style model, Theory X. Answer: TRUE Explanation: The Theory X model suggests that people inherently dislike work and will seek to avoid it; therefore, people need to be coerced and controlled by management in order to be productive employees.

Diff: 2 Page Ref: 239 AACSB: Reflective Thinking Objective: 8-4 What are the implications of Theory X, Theory Y, Theory Z, and the Vroom Model?

Skill: Application 13) Companies who use the Theory Z management style model tend to see high turnover and low morale in the workforce.

Answer: FALSE Explanation: In the Theory Z model, one employee tends to be responsible for many different aspects of a single project. It offers long-term employment with an emphasis on individual responsibility. As a result, turnover rates are generally low, productivity rates are high, and there is a strong morale among the workforce.

Diff: 1 Page Ref: 240 Objective: 8-4 What are the implications of Theory X, Theory Y, Theory Z, and the Vroom Model?

Skill: Conceptual

14) Teresa likes her job and believes that the tasks she completes each day actually make a difference to the success of her company. She thinks there's always a good chance she'll be rewarded in some way for her work, perhaps even with a very large raise. According to Vroom's model, Teresa's motivation is high.

Answer: TRUE Explanation: Vroom's model of expectancy theory holds that motivation = expectancy x instrumentality x valence. Employees who are highly motivated believe that their efforts have an effect on a situation, either through success or failure. They believe the outcome of the situation is related to rewards or punishment and they believe that the expected outcomes are important.

Diff: 2 Page Ref: 240 AACSB: Reflective Thinking Objective: 8-4 What are the implications of Theory X, Theory Y, Theory Z, and the Vroom Model?

Skill: Application 15) Programs that identify employees' talents and skills and then support efforts to further develop them are called strength-based management systems.

Answer: TRUE Explanation: Strength-based management systems believe that the best way to develop employees is to determine their skills and then further develop them. This has a greater impact than attempting to improve an employee's area of weakness.

Diff: 1 Page Ref: 241 Objective: 8-4 What are the implications of Theory X, Theory Y, Theory Z, and the Vroom Model?

Skill: Conceptual 16) Frederick Taylor encouraged managers to use scientific study to determine the best methods to complete tasks and then train their employees in these methods.

Answer: TRUE Explanation: Based on research and experimentation, Taylor proposed ways managers could increase productivity. He published his findings in The Principles of Scientific Management, in which he encouraged managers to train their employees in the best methods to complete tasks.

Diff: 1 Page Ref: 241 Objective: 8-5 How have motivational theories and industrial psychology changed the work environment since the early 20th century?

Skill: Conceptual

17) Denise is working on a project for her psychology class and has decided to replicate, on a small scale, Elton Mayo's work. If her results match his, then the production outputs will fall.

Answer: FALSE Explanation: Elton Mayo studied the physical influences and the psychological aspects of the workplace. His major finding was that, no matter what experimental changes were made, workers' production improved, just because they were being studied. This is now known as the Hawthorne effect.

Diff: 3 Page Ref: 241 AACSB: Reflective Thinking Objective: 8-5 How have motivational theories and industrial psychology changed the work environment since the early 20th century?

Skill: Application 18) Dwayne's company asks every employee to help make important decisions. Once the final decision is reached, every employee is polled to see if this decision is acceptable. Dwayne's company is attempting to work under the modern system of sociocracy.

Answer: TRUE Explanation: Sociocracy is a system of organization and management that attempts to serve everyone's interests equally. All members of the organization are involved in decision making and the final decision must be acceptable to all.

Diff: 2 Page Ref: 242 AACSB: Reflective Thinking Objective: 8-5 How have motivational theories and industrial psychology changed the work environment since the early 20th century?

Skill: Application 19) The Motorola team that developed the Razr cell phone was a good, working team because they agreed on the objectives at hand and on the best approach to solve the problem. In management terms, this phenomenon is called groupthink.

Answer: FALSE Explanation: People who are from similar backgrounds and sectors of a company tend to have a set of familiar ideas and work with the same set of unspoken assumptions.They may reject different ideas without careful consideration.

Diff: 1 Page Ref: 251 AACSB: Reflective Thinking Objective: 8-7 What are the best ways to create, manage, and participate in teams, taking into account factors such as technology, group flow, Belbin's nine team roles, and Covey's Seven Habits model?

Skill: Application

20) Gen-Xers are the focus of most marketing efforts because they are the biggest spenders in history.

Answer: FALSE Explanation: Millennials are the focus of most marketing efforts because they are the biggest spenders in history. They most often make co-purchases with their parents.

Diff: 1 Page Ref: 252 Objective: 8-7 What are the best ways to create, manage, and participate in teams, taking into account factors such as technology, group flow, Belbin's nine team roles, and Covey's Seven Habits model?

Skill: Conceptual 21) Global Tech, Inc. has employees all over the world. Employees have face-to-face meetings on occasion, but they mostly communicate with each other via conference call, email, and Web casts. These employees form a virtual team.

Answer: TRUE Explanation: Virtual teams have grown out of the increased globalization of businesses. They communicate using email, conference calls, video conferencing, Web casts, etc. They have faceto-face meetings occasionally in order to build social connections.

Diff: 2 Page Ref: 254 AACSB: Reflective Thinking Objective: 8-7 What are the best ways to create, manage, and participate in teams, taking into account factors such as technology, group flow, Belbin's nine team roles, and Covey's Seven Habits model?

Skill: Application 22) The most important aspect of Stephen Covey's Seven Habits model is thinking in terms of win-win because most achievements are based on cooperative efforts.

Answer: TRUE Explanation: In his Seven Habits model, Stephen Covey describes the seven habits of behavior that are exhibited by successful people. The fourth habit in this model is "think win-win," which is most important because it recognizes that most achievements are based on cooperative efforts.

Diff: 1 Page Ref: 255 Objective: 8-7 What are the best ways to create, manage, and participate in teams, taking into account factors such as technology, group flow, Belbin's nine team roles, and Covey's Seven Habits model?

Skill: Conceptual

23) Effective leaders do not challenge accepted beliefs so that their leadership is not put into question.

Answer: FALSE Explanation: Leaders set goals and have a vision of the future that may be different from the norm; therefore, they must challenge accepted beliefs in order to solve problems and find effective ways to reach goals.

Diff: 3 Page Ref: 246 AACSB: Reflective Thinking Objective: 8-6 What are the various identifiable leadership styles and personality traits, and how do they affect business leadership?

Skill: Application 24) Strong leadership often comes at the expense of others.

Answer: FALSE Explanation: Leaders delegate authority and responsibility to others to promote their success also. They are the catalysts for positive action.

Diff: 3 Page Ref: 246 AACSB: Reflective Thinking Objective: 8-6 What are the various identifiable leadership styles and personality traits, and how do they affect business leadership?

Skill: Application 25) Eric's new job really interests him. He finds himself completely immersed in his work and so focused that the tasks seem effortless. What term describes this state of rapt attention?

A) flow B) expectancy C) resonance D) valence Answer: A Explanation: A) Eric is in a flow state. He has found a pace and level of engagement that allows him to work efficiently and productively each day.

Diff: 2 Page Ref: 236 AACSB: Reflective Thinking Objective: 8-1 How do motivation and work environment encourage "flow"?

Skill: Application

26) Which of the following is the best example of an employee in a flow state?

A) Gloria finds her job tasks more challenging than she expected, which often leads to her frustration.

B) Pedro finds his job tasks much simpler than he expected, which sometimes leads to boredom.

C) Diana feels in control of her job situation, which often leads to her producing her best work.

D) Yuki feels her job is adequately challenging but does not make the best use of her skills.

Answer: C Explanation: C) In a state of flow, employees feel a strong match between their abilities and the challenges of their assigned work tasks.

Diff: 1 Page Ref: 236 Objective: 8-1 How do motivation and work environment encourage "flow"?

Skill: Application 27) Anna, a psychology major, has decided to specialize in the study of how to create a workplace that fosters motivation and productivity among employees. This is known as ________ psychology.

A) social B) organizational C) developmental D) personal Answer: B Explanation: B) Organizational psychology concerns itself with the creation of the kind of workplace that helps motivate employees and increases productivity.

Diff: 1 Page Ref: 236 Objective: 8-1 How do motivation and work environment encourage "flow"?

Skill: Conceptual 28) Luis works as a marketing manager for a consumer products company. He feels strongly about the product lines he manages and is dedicated to the company's mission and ideals. Luis' product lines are among the best sellers in the company. According to the Q12, Luis is classified as ________.

A) engaged B) not engaged C) actively disengaged D) moderately disengaged Answer: A Explanation: A) Engaged employees work with passion, feel connected and obligated to the company, and add to its success.

Diff: 2 Page Ref: 236 AACSB: Reflective Thinking Objective: 8-1 How do motivation and work environment encourage "flow"?

Skill: Application

29) The Q12 identified Sarah as an employee who is not engaged. Which of the following statements is TRUE? A) Sarah feels obligated to the company.

B) Sarah makes little contribution to the company.

C) Sarah works in a disruptive manner.

D) Sarah combats the efforts of engaged workers.

Answer: B Explanation: B) Employees who are not engaged work with minimal effort, are indifferent to the company, and make little or no contribution to the company.

Diff: 1 Page Ref: 236 Objective: 8-1 How do motivation and work environment encourage "flow"?

Skill: Conceptual 30) Andre had a difficult time finding a job after college. Eventually he found work selling office equipment, which did not interest him much. Andre's sales are low and so is his motivation to do more for the company for which he works. According to the Q12, Andre is classified as ________.

A) engaged B) not engaged C) actively disengaged D) highly engaged Answer: B Explanation: B) Employees who are not engaged work with minimal effort, are indifferent to the company, and make little or no contribution to the company.

Diff: 2 Page Ref: 236 AACSB: Reflective Thinking Objective: 8-1 How do motivation and work environment encourage "flow"?

Skill: Application 31) The Q12 has identified Miranda as an actively disengaged employee. Which of the following statements is TRUE? A) Miranda does not hinder others' work.

B) Miranda is indifferent to the company.

C) Miranda adds to the success of the company.

D) Miranda combats the efforts of engaged employees.

Answer: D Explanation: D) Employees who are actively disengaged work in a disruptive manner, are unhappy with the company, and combat the efforts of engaged workers.

Diff: 1 Page Ref: 236 Objective: 8-1 How do motivation and work environment encourage "flow"?

Skill: Conceptual

32) Emi has worked as a computer programmer for the same company for five years. She is actively looking for another job and spends a great deal of her work day scanning want ads, making phone calls, and chatting with her co-workers. She completes none of her work tasks and is secretly pleased to negatively affect the company with whom she is employed. According to the Q12, Emi is classified as ________.

A) engaged B) not engaged C) actively disengaged D) highly engaged Answer: C Explanation: C) Employees who are actively disengaged work in a disruptive manner, are unhappy with the company, and combat the efforts of engaged workers.

Diff: 2 Page Ref: 236 AACSB: Reflective Thinking Objective: 8-1 How do motivation and work environment encourage "flow"?

Skill: Application 33) According to Maslow, which need are people striving to satisfy when they seek stable places to live and work?

A) belonging B) esteem C) physiological D) safety Answer: D Explanation: D) People looking for stable places to live and work are looking for safety. These needs are the second stage of Maslow's hierarchy of needs, right after basic physiological needs like food and shelter.

Diff: 1 Page Ref: 237 Objective: 8-2 What are the intricacies of Maslow's hierarchy of needs, McClelland's "three needs" theory, and Herzberg's motivator-hygiene theory?

Skill: Conceptual 34) After accepting a new job and moving to a new city, Tania felt isolated and unhappy. After a few months, she became friends with some of her co-workers and joined a book club. According to Maslow, Tania fulfilled her need for ________.

A) safety B) belonging C) self-actualization D) physiological Answer: B Explanation: B) Tania fulfilled her need to belong to a group and to be accepted when she became friends with her co-workers and met others in a club.

Diff: 2 Page Ref: 237 AACSB: Reflective Thinking Objective: 8-2 What are the intricacies of Maslow's hierarchy of needs, McClelland's "three needs" theory, and Herzberg's motivator-hygiene theory?

Skill: Application

35) According to Maslow, which need are people striving to satisfy when they seek to maximize their own potential?

A) esteem B) physiological C) self-actualization D) safety Answer: C Explanation: C) When people want to maximize their potential, they've reached the highest point of Maslow's hierarchy, self-actualization. Before this stage, they are concentrating on mastering skills and gaining recognition, or esteem.

Diff: 1 Page Ref: 237 Objective: 8-2 What are the intricacies of Maslow's hierarchy of needs, McClelland's "three needs" theory, and Herzberg's motivator-hygiene theory?

Skill: Conceptual 36) Martin was named "Employee of the Month" for his outstanding customer service.

According to Maslow, this award may help satisfy Martin's need for ________.

A) esteem B) belonging C) self-actualization D) safety Answer: A Explanation: A) Because Martin was recognized for his work, his need for esteem may be satisfied. Once his needs for esteem are met completely, he will begin to strive to satisfy his selfactualization needs.

Diff: 2 Page Ref: 237 AACSB: Reflective Thinking Objective: 8-2 What are the intricacies of Maslow's hierarchy of needs, McClelland's "three needs" theory, and Herzberg's motivator-hygiene theory?

Skill: Application 37) In Maslow's hierarchy, the need for water, food, and sleep are classified as ________.

A) self-actualization needs B) safety needs C) belonging needs D) physiological needs Answer: D Explanation: D) Maslow believed that the first needs that must be met are inborn and basic for survival. People cannot think of anything else in their lives until these needs are met.

Diff: 1 Page Ref: 237 Objective: 8-2 What are the intricacies of Maslow's hierarchy of needs, McClelland's "three needs" theory, and Herzberg's motivator-hygiene theory?

Skill: Conceptual

38) Which of the following best defines McClelland's need for achievement?

A) It is the need to accomplish something difficult on one's own.

B) It is the need to form close relationships with others.

C) It is the need to be able to control the behavior of others.

D) It is the need to establish safe and stable places to live and work.

Answer: A Explanation: A) According to McClelland's "three needs" theory, the need for achievement means that a person seeks out difficult tasks to accomplish by his/her self.

Diff: 1 Page Ref: 238 Objective: 8-2 What are the intricacies of Maslow's hierarchy of needs, McClelland's "three needs" theory, and Herzberg's motivator-hygiene theory?

Skill: Conceptual 39) The need for affiliation in McClelland's "three-needs" theory most closely resembles which need in Maslow's hierarchy?

A) safety B) belonging C) self-actualization D) esteem Answer: B Explanation: B) Both Maslow and McClelland studied a person's need to form close personal relationships.

Diff: 2 Page Ref: 238 AACSB: Reflective Thinking Objective: 8-2 What are the intricacies of Maslow's hierarchy of needs, McClelland's "three needs" theory, and Herzberg's motivator-hygiene theory?

Skill: Application 40) Bert owns a company that provides institutional cleaning services. He likes things done to his exact standards and does not tolerate any other methods. According to McClelland's "three needs" theory, Bert's dominate need is ________.

A) achievement B) safety C) power D) affiliation Answer: C Explanation: C) McClelland's "three needs" theory believes that a person with a dominant need for power seeks to be able to control the behaviors of others.

Diff: 2 Page Ref: 238 AACSB: Reflective Thinking Objective: 8-2 What are the intricacies of Maslow's hierarchy of needs, McClelland's "three needs" theory, and Herzberg's motivator-hygiene theory?

Skill: Application

41) Which of the following is NOT a hygiene factor according to Herzberg?

A) safe working environment B) promotion opportunities C) proper pay and benefits D) positive relationships Answer: B Explanation: B) According to Herzberg's motivator-hygiene theory, hygiene factors include a safe working environment, proper pay and benefits, and positive relationships with co-workers.

When these factors are present, they are ignored or taken for granted. If any are found lacking, they may motivate an employee to satisfy them.

Diff: 1 Page Ref: 238 Objective: 8-2 What are the intricacies of Maslow's hierarchy of needs, McClelland's "three needs" theory, and Herzberg's motivator-hygiene theory?

Skill: Conceptual 42) Regina enjoys her work and feels her salary and benefits are excellent. Unfortunately, Regina shares an office with a co-worker she finds extremely difficult. Regina finds herself dreading heading off to work each morning. According to Herzberg, ________.

A) Regina will take her hygiene factors for granted and not be motivated to make any changes in her work environment B) Regina will be motivated to improve her hygiene factors and seek a way to work in a more positive environment C) Regina will focus her efforts on motivator factors and seek recognition for what she accomplishes in her difficult environment D) Regina will focus her efforts on motivator factors and seek to improve her sense of responsibility Answer: B Explanation: B) According to Herzberg's motivator-hygiene theory, hygiene factors include a safe working environment, proper pay and benefits, and positive relationships with co-workers.

When these factors are present, they are ignored or taken for granted. If any are found lacking, they may motivate an employee to satisfy them.

Diff: 2 Page Ref: 238 AACSB: Reflective Thinking Objective: 8-2 What are the intricacies of Maslow's hierarchy of needs, McClelland's "three needs" theory, and Herzberg's motivator-hygiene theory?

Skill: Application

43) Antonio owns a small auto body shop. He is concerned with apathy among his employees and decides to add some extrinsic motivators in hopes of increasing performance. Which of the following is NOT an extrinsic motivator Antonio may try?

A) increased pay for specific work B) promotional opportunities within the company C) an "employee of the month" program D) offering work employees may find more satisfying Answer: D Explanation: D) Extrinsic motivators include such things as pay, promotion, and verbal praise.

These are all within a manager's control. Intrinsic motivators are not. They are internal to the individual employee and include a person's interest in his/her job and the value the person feels in the work being accomplished.

Diff: 2 Page Ref: 239 AACSB: Reflective Thinking Objective: 8-3 What are the distinguishing factors between extrinsic and intrinsic motivators?

Skill: Application 44) Ken owns a food services company and recently negotiated a contract with a new restaurant chain. The satisfaction Ken feels for this success is a(n) ________.

A) intrinsic motivator B) extrinsic motivator C) resonance motivator D) virtual motivator Answer: A Explanation: A) Extrinsic motivators include such things as pay, promotion, and verbal praise.

Intrinsic motivators are internal to the individual employee and include a person's interest in his/her job and the value the person feels in the work being accomplished.

Diff: 2 Page Ref: 239 AACSB: Reflective Thinking Objective: 8-3 What are the distinguishing factors between extrinsic and intrinsic motivators?

Skill: Application 45) Natalia is a new employee in the sales department. Her early results are so tremendous that the regional sales manager sent an email to the sales department praising Natalia's work. To Natalia, this could be a(n) ________.

A) intrinsic motivator B) extrinsic motivator C) resonance motivator D) virtual motivator Answer: B Explanation: B) Extrinsic motivators include such things as pay, promotion, and verbal praise.

Intrinsic motivators are internal to the individual employee and include a person's interest in his/her job and the value the person feels in the work being accomplished.

Diff: 2 Page Ref: 239 AACSB: Reflective Thinking Objective: 8-3 What are the distinguishing factors between extrinsic and intrinsic motivators?

Skill: Application

46) Karen is an accountant for a large construction company. Her supervisor decides to reward Karen's excellent performance with a one-time bonus. To Karen, this could be a(n) ________.

A) intrinsic motivator B) extrinsic motivator C) resonance motivator D) virtual motivator Answer: B Explanation: B) Extrinsic motivators include such things as pay, promotion, and verbal praise.

Intrinsic motivators are internal to the individual employee and include a person's interest in his/her job and the value the person feels in the work being accomplished.

Diff: 2 Page Ref: 239 AACSB: Reflective Thinking Objective: 8-3 What are the distinguishing factors between extrinsic and intrinsic motivators?

Skill: Application 47) Barbara is a high school teacher and just completed her master's degree in education. Her department head rewards her with an increase in salary. To Barbara, this could be a(n) ________.

A) intrinsic motivator B) extrinsic motivator C) resonance motivator D) virtual motivator Answer: B Explanation: B) Extrinsic motivators include such things as pay, promotion, and verbal praise.

Intrinsic motivators are internal to the individual employee and include a person's interest in his/her job and the value the person feels in the work being accomplished.

Diff: 2 Page Ref: 239 AACSB: Reflective Thinking Objective: 8-3 What are the distinguishing factors between extrinsic and intrinsic motivators?

Skill: Application 48) In which type of business would you most likely find a Theory X style of management?

A) District Attorney's office B) social think tank C) mass manufacturing company D) long-term care hospital Answer: C Explanation: C) The Theory X model suggests that people inherently dislike work and will seek to avoid it; therefore, people need to be coerced and controlled by management in order to be productive employees. Theory X is authoritarian and hard line and is often seen in large-scale operations like mass manufacturing.

Diff: 1 Page Ref: 240 Objective: 8-4 What are the implications of Theory X, Theory Y, Theory Z, and the Vroom Model?

Skill: Conceptual

49) Eva runs a housecleaning business. She provides each employee with a written set of stepby-step instructions for how to use each cleaner and how to clean every aspect of a client's home.

Eva routinely drops in unannounced to make sure her employees are doing as they're told. Eva knows her employees seek only the security of a job with a paycheck and do not care about the quality of the work they produce. Eva's management style can be classified as ________.

A) Theory X B) Theory Y C) Theory Z D) Expectancy Theory Answer: A Explanation: A) The Theory X model suggests that people inherently dislike work and will seek to avoid it; therefore, people need to be coerced and controlled by management in order to be productive employees.

Diff: 2 Page Ref: 239 AACSB: Reflective Thinking Objective: 8-4 What are the implications of Theory X, Theory Y, Theory Z, and the Vroom Model?

Skill: Application 50) Which statement about a Theory Y management style is FALSE? A) People see work as a natural part of life.

B) Managers allow employees to create their own motivation.

C) People mainly want security in their jobs.

D) People will inherently seek responsibility.

Answer: C Explanation: C) The Theory Y style of management holds that people are naturally motivated to work, that managers do not need to use heavy controls, that people are willing leaders and creative problem solvers, that people seek out responsibility, and that people need to be intellectually stimulated and feel their ideas are utilized.

Diff: 1 Page Ref: 239-240 Objective: 8-4 What are the implications of Theory X, Theory Y, Theory Z, and the Vroom Model?

Skill: Conceptual

51) Doug runs a lawn care company. He believes his employees are motivated to do a good job for the customer without his having to constantly involve himself in their work. He does do some spot checks, but mainly to show his support for his employees. He knows his employees will go the extra mile for the customer and treat lawn problems they notice along the way. Doug's management style can be classified as ________.

A) Theory X B) Theory Y C) Theory Z D) Expectancy Theory Answer: B Explanation: B) The Theory Y style of management holds that people are naturally motivated to work, that managers do not need to use heavy controls, that people are willing leaders and creative problem solvers, that people seek out responsibility, and that people need to be intellectually stimulated and feel their ideas are utilized.

Diff: 2 Page Ref: 239-240 AACSB: Reflective Thinking Objective: 8-4 What are the implications of Theory X, Theory Y, Theory Z, and the Vroom Model?

Skill: Application 52) Which statement about Theory Z is FALSE? A) It is based on a Japanese management style.

B) It relies on collaborative decision making.

C) It often creates high productivity.

D) It often creates high turnover.

Answer: D Explanation: D) The Theory Z management style model was created by Ouchi and based on a Japanese management style, which relies heavily on collaborative decision making. Employees are responsible for many different aspects of a single project. As a result, companies tend to see low turnover, high productivity, and strong morale among the workforce.

Diff: 1 Page Ref: 240 Objective: 8-4 What are the implications of Theory X, Theory Y, Theory Z, and the Vroom Model?

Skill: Conceptual

53) InfoTech offers its employees long-term employment with a focus on individual responsibility. As a result, its workers are loyal to the organization, are highly productive, and have strong morale. The management style InfoTech most likely is applying is ________.

A) Theory X B) Theory Y C) Theory Z D) Expectancy Theory Answer: C Explanation: C) The Theory Z management style model was created by Ouchi and based on a Japanese management style, which relies heavily on collaborative decision making. Employees are responsible for many different aspects of a single project. As a result, companies tend to see low turnover, high productivity, and strong morale among the workforce.

Diff: 2 Page Ref: 240 AACSB: Reflective Thinking Objective: 8-4 What are the implications of Theory X, Theory Y, Theory Z, and the Vroom Model?

Skill: Application 54) According to Vroom's model, which psychological force answers the question, "How great a reward will there be if my performance is exemplary?"

A) expectancy B) instrumentality C) valence D) resonance Answer: C Explanation: C) Vroom's model of expectancy theory holds that motivation = expectancy x instrumentality x valence. Valence is the importance an individual places on the expected outcome of a situation.

Diff: 1 Page Ref: 240 Objective: 8-4 What are the implications of Theory X, Theory Y, Theory Z, and the Vroom Model?

Skill: Conceptual

55) According to Vroom's model, instrumentality answers which of the following questions?

A) Does my working harder lead to a positive outcome for myself?

B) How good will I feel if I can accomplish this task?

C) How good will my reward be for my noteworthy performance level?

D) How serious a punishment do I expect if I do not perform well?

Answer: B Explanation: B) Vroom's model of expectancy theory holds that motivation = expectancy x instrumentality x valence. Instrumentality is the idea that the outcome of a situation is related to rewards or punishment. Extrinsically motivated employees will focus on material or verbal rewards. Intrinsically motivated employees will focus on their feelings regarding personal achievements.

Diff: 2 Page Ref: 240 AACSB: Reflective Thinking Objective: 8-4 What are the implications of Theory X, Theory Y, Theory Z, and the Vroom Model?

Skill: Application 56) Juan is frustrated with his job of five years. He feels like nothing he does has any effect on the company's success or failure. He believes that his personal successes probably will not benefit him and, if there is any benefit, it will be very small. According to Vroom, Juan has ________.

A) high motivation B) low motivation C) nonexistent motivation D) extreme motivation Answer: B Explanation: B) Vroom's model of expectancy theory holds that motivation = expectancy x instrumentality x valence. Employees with low motivation believe that nothing they do has an impact on the situation. They believe that even if they do a good job, they likely will not see any benefit and that the only rewards are incredibly small.

Diff: 2 Page Ref: 240 AACSB: Reflective Thinking Objective: 8-4 What are the implications of Theory X, Theory Y, Theory Z, and the Vroom Model?

Skill: Application

57) William was a factory worker in the 1920s. His company trained him in the exact sequence of steps he needed to make each day so that he would work to maximum productivity. William's company was using the principles of ________.

A) uncertainty management B) management by objectives C) strength-based management D) scientific management Answer: D Explanation: D) In the early 1900s, companies began to implement the principles of scientific management based on Taylor's experiments and research. He encouraged companies to use scientific study to determine the best methods to complete tasks and then train employees in these methods.

Diff: 2 Page Ref: 241 AACSB: Reflective Thinking Objective: 8-5 How have motivational theories and industrial psychology changed the work environment since the early 20th century?

Skill: Application 58) Anna, a psychology major, studied the history of her favorite subject. She learned that in the early 1900s, ________ psychology was created to understand scientifically how to manage employees and work optimally.

A) social B) developmental C) organizational D) industrial Answer: D Explanation: D) In the early 1900s, companies began to implement the principles of scientific management based on Taylor's experiments and research. He encouraged companies to use scientific study to determine the best methods to complete tasks and then train employees in these methods. The field of industrial psychology was created to further study of these ideas.

Diff: 1 Page Ref: 241 Objective: 8-5 How have motivational theories and industrial psychology changed the work environment since the early 20th century?

Skill: Conceptual

59) According to the Hawthorne effect, ________.

A) workers will be more productive when the physical influences on the workplace suit them B) workers will be more productive when the psychological influences on the workplace suit them C) workers will be more productive when they know they are being studied D) workers will be less productive when they know they are being studied Answer: C Explanation: C) Elton Mayo studied the physical influences and the psychological aspects of the workplace. His major finding was that, no matter what experimental changes were made, workers' production improved just because they were being studied. This is now known as the Hawthorne effect.

Diff: 1 Page Ref: 241 Objective: 8-5 How have motivational theories and industrial psychology changed the work environment since the early 20th century?

Skill: Conceptual 60) For her psychology project, Melissa has decided to study the production levels of cooks at a local fast food restaurant. She expects the cooks in her study group to outperform the cooks in her control group because of ________.

A) the Hawthorne effect B) the Taylor effect C) intrinsic motivators D) extrinsic motivators Answer: A Explanation: A) Elton Mayo studied the physical influences and the psychological aspects of the workplace. His major finding was that, no matter what experimental changes were made, workers' production improved just because they were being studied. This is now known as the Hawthorne effect.

Diff: 2 Page Ref: 241 AACSB: Reflective Thinking Objective: 8-5 How have motivational theories and industrial psychology changed the work environment since the early 20th century?

Skill: Application

61) ________ is the motivational theory that suggests people react strongly to situations they judge to be unfair and these reactions influence their job satisfaction and performance.

A) Sociocracy management theory B) Uncertainty management theory C) Theory X management theory D) Theory Z management theory Answer: B Explanation: B) Uncertainty management is a modern theory and suggests that when people face uncertain situations, fairness becomes very important to them. They have strong reactions to things they feel are unfair and these reactions affect their performance and job satisfaction.

Diff: 1 Page Ref: 242 Objective: 8-5 How have motivational theories and industrial psychology changed the work environment since the early 20th century?

Skill: Conceptual 62) Isabella has been assigned a job in a completely new division and is unsure of what the future holds for her and her career. Isabella was surprised that the company's newest hire was named division head. She feels this promotion was unfair and that others deserved it more.

Isabella is beginning to feel so dissatisfied with the new situation that she completes less and less work each day. The motivational theory that attempts to understand Isabella's situation is ________.

A) sociocracy management theory B) Theory X management theory C) Theory Z management theory D) uncertainty management theory Answer: D Explanation: D) Uncertainty management is a modern theory and suggests that when people face uncertain situations, fairness becomes very important to them. They have strong reactions to things they feel are unfair and these reactions affect their performance and job satisfaction.

Diff: 2 Page Ref: 242 AACSB: Reflective Thinking Objective: 8-5 How have motivational theories and industrial psychology changed the work environment since the early 20th century?

Skill: Application

63) ________ is the motivational theory that suggests that all members of an organization should be involved in decision making and all members should support, in some manner, the final decision.

A) Sociocracy B) Uncertainty C) Theory X D) Theory Z Answer: A Explanation: A) Sociocracy is a system of organization and management that attempts to serve everyone's interests equally. All members of the organization are involved in decision making and the final decision must be acceptable to all.

Diff: 1 Page Ref: 242 Objective: 8-5 How have motivational theories and industrial psychology changed the work environment since the early 20th century?

Skill: Conceptual 64) Jack works for a small software company. The owner asks Jack and his co-workers to brainstorm ways to improve customer satisfaction and to vote on which ones they'd like to implement. Once the final decisions are made, the owner asks Jack for his acceptance. The owner of the software company is attempting to implement which motivational theory?

A) uncertainty B) sociocracy C) Theory X D) Theory Y Answer: B Explanation: B) Sociocracy is a system of organization and management that attempts to serve everyone's interests equally. All members of the organization are involved in decision making and the final decision must be acceptable to all.

Diff: 2 Page Ref: 242 AACSB: Reflective Thinking Objective: 8-5 How have motivational theories and industrial psychology changed the work environment since the early 20th century?

Skill: Application

65) Timothy is president of a large company. He is known for being an excellent listener and collaborator. He believes that the working environment would improve if employees were organized into cross-functional work teams instead of functional departments. In order to build a consensus for this new environment, Timothy asks for employee input and participation. Which of the following best describes Timothy's leadership style?

A) visionary B) democratic C) pacesetting D) commanding Answer: B Explanation: B) A democratic leader is a superb listener, team worker, collaborator, and influencer. He/she values people's input and gets commitment through participation. The style is appropriate when a leader needs to build buy-in or consensus and when employee input is needed.

Diff: 2 Page Ref: 244 AACSB: Reflective Thinking Objective: 8-6 What are the various identifiable leadership styles and personality traits, and how do they affect business leadership?

Skill: Application 66) Jeffrey runs a small magazine, which has always been printed and mailed to subscribers.

Jeffrey has dreamed of creating a way to provide customers with an inexpensive, portable, electronic resource for reading magazines. To inspire his employees and move them toward sharing in his dream, he holds small group meetings to explain how their efforts can contribute to his goals. Which of the following best describes Jeffrey's leadership style?

A) visionary B) democratic C) pacesetting D) affiliative Answer: A Explanation: A) A visionary leader inspires, believes in his/her own vision, is empathetic, and explains how employee efforts contribute to the dream. He/she moves people toward shared dreams. This style is appropriate when changes require a new vision or when there is radical change.

Diff: 2 Page Ref: 245 AACSB: Reflective Thinking Objective: 8-6 What are the various identifiable leadership styles and personality traits, and how do they affect business leadership?

Skill: Application

67) Christina supervises a group of employees at a company that just went through a downsizing.

Many other supervisors are no longer with the company and their employees have been assigned to Christina. Her group has doubled in size and there are some hard feelings among the employees. Christina decides to hold group breakfast meetings once a week to connect people to one another and to boost morale. She is an empathetic leader who listens to her employees and helps solve conflicts. Which of the following best describes Christina's leadership style?

A) visionary B) commanding C) pacesetting D) affiliative Answer: D Explanation: D) An affiliative leader promotes harmony, is empathetic, boosts morale, and solves conflicts. He/she creates harmony by connecting people to one another. This style is appropriate for healing rifts in a team, for motivating employees during stressful times, or for strengthening connections.

Diff: 2 Page Ref: 245 AACSB: Reflective Thinking Objective: 8-6 What are the various identifiable leadership styles and personality traits, and how do they affect business leadership?

Skill: Application 68) Donald was just assigned supervisory responsibilities for two problem employees. Donald tends to use tight controls and closely monitors employees' work. He believes threats are the best motivation tool out there. Which of the following best describes Donald's leadership style?

A) coaching B) democratic C) autocratic D) pacesetting Answer: C Explanation: C) An autocratic leader tends to use threats and tight controls, closely monitoring employees' actions. This style of leadership is appropriate in times of crisis or with problem employees. The style can build resonance by soothing fear with clear directions in an emergency.

Diff: 2 Page Ref: 244-245 AACSB: Reflective Thinking Objective: 8-6 What are the various identifiable leadership styles and personality traits, and how do they affect business leadership?

Skill: Application

69) Ross's work team is made up of various members of the art department who have all worked together for many years. They like that they work in synch and rarely have to explain things to each other because they are so much alike. A threat to Ross' work team is narrow mindedness caused by ________.

A) groupthink B) group flow C) virtual think D) virtual flow Answer: A Explanation: A) Groupthink is a type of narrow mindedness that can occur when teams are not carefully selected. People who are too similar tend to have familiar ideas and work from the same set of assumptions. They may reject different ideas without careful consideration.

Diff: 2 Page Ref: 251 AACSB: Reflective Thinking Objective: 8-7 What are the best ways to create, manage, and participate in teams, taking into account factors such as technology, group flow, Belbin's nine team roles, and Covey's Seven Habits model?

Skill: Application 70) Laurie is an independent thinker and enjoys change. She also values her family life over her work life. Laurie is most likely from which generation?

A) Silent B) Boomer C) Gen-X D) Millennial Answer: C Explanation: C) Gen-Xers are known for their independent thinking and hankering for change.

They are the first generation to value family life over work life.

Diff: 1 Page Ref: 252 AACSB: Reflective Thinking Objective: 8-7 What are the best ways to create, manage, and participate in teams, taking into account factors such as technology, group flow, Belbin's nine team roles, and Covey's Seven Habits model?

Skill: Application

71) Maxwell is a freshman in college and believes in his self-worth and value. He has high expectations for his achievement in his eventual career. Maxwell spends a good deal of money each month, often making "copurchases" with his parents. Maxwell is most likely from which generation?

A) Silent B) Boomer C) Gen-X D) Millennial Answer: D Explanation: D) Millennials were born between 1982 and 2002. They believe in their self-worth and value, whether deserved or not. They want their jobs to accommodate their personal lives and have high expectations for their career successes. Marketing efforts are concentrated on Millennials as they are the biggest youth spenders in history.

Diff: 1 Page Ref: 252 AACSB: Reflective Thinking Objective: 8-7 What are the best ways to create, manage, and participate in teams, taking into account factors such as technology, group flow, Belbin's nine team roles, and Covey's Seven Habits model?

Skill: Application 72) Which of the following is NOT a characteristic of a good team setting for group flow?

A) use of round tables and notepads B) displays of informational charts, graphs, and summaries C) focus on the product's target market D) use of prototypes and visualization techniques Answer: A Explanation: A) Group flow occurs when a group knows how to work together so that each individual member can achieve flow. Characteristics of a good team setting for group flow include (1) creative special arrangements that encourage standing and moving, (2) playground design, which encourages a safe space for creative thinking and effective use of wall space for informational displays, (3) constant focus on the target market, and (4) heavy use of prototyping and visualization.

Diff: 1 Page Ref: 253 Objective: 8-7 What are the best ways to create, manage, and participate in teams, taking into account factors such as technology, group flow, Belbin's nine team roles, and Covey's Seven Habits model?

Skill: Conceptual

73) Yoshi is charged with the task of forming a high-functioning work team. To accomplish this task, he must consider all of the following EXCEPT ________.

A) whether the team should be large or small B) the time frame in which a team will work C) how other teams in his company were created D) whether the team is being created formally or informally Answer: C Explanation: C) When forming work teams, managers must consider size (large vs. small), time (long term or short term), and status (formal or informal).

Diff: 1 Page Ref: 253 Objective: 8-7 What are the best ways to create, manage, and participate in teams, taking into account factors such as technology, group flow, Belbin's nine team roles, and Covey's Seven Habits model?

Skill: Conceptual 74) GlobeTrekkers, Inc. has employees all over the world. Employees have face-to-face meetings on occasion, but they communicate with each other mostly via conference call, email, and Web casts. These employees ________.

A) form a virtual team B) achieve group flow C) suffer from groupthink D) do not have resonance Answer: A Explanation: A) Virtual teams have grown out of the increased globalization of businesses. They communicate using email, conference calls, video conferencing, Web casts, etc. They have faceto-face meetings occasionally in order to build social connections.

Diff: 2 Page Ref: 254 AACSB: Reflective Thinking Objective: 8-7 What are the best ways to create, manage, and participate in teams, taking into account factors such as technology, group flow, Belbin's nine team roles, and Covey's Seven Habits model?

Skill: Application

75) Which of the following is NOT part of Stephen Covey's Seven Habits model?

A) Begin with the end in mind and stay focused on the ultimate goal.

B) Be reactive to the environment as often as possible.

C) Think about win-win solutions so all parties are content.

D) Synergize and think about creative cooperation.

Answer: B Explanation: B) In his Seven Habits model, Stephen Covey describes the seven habits of behavior that are exhibited by successful people. The habits are be proactive, begin with the end in mind, put first things first, think win-win, seek first to understand and then to be understood, synergize, and sharpen the saw.

Diff: 1 Page Ref: 255 Objective: 8-7 What are the best ways to create, manage, and participate in teams, taking into account factors such as technology, group flow, Belbin's nine team roles, and Covey's Seven Habits model?

Skill: Conceptual 76) Define the concept of flow.

Answer: Flow is a state of feeling completely involved and focused on a task. Often people produce their best work, make the best use of their skills, and feel the most pleasure when they are in a flow state.

Diff: 1 Page Ref: 236 Objective: 8-1 How do motivation and work environment encourage "flow"?

Skill: Conceptual 77) Amelia manages a group of administrative assistants. For them to create their best work, she would like to increase their motivation levels and foster an atmosphere of flow. What kinds of things can Amelia do?

Answer: Amelia can foster flow by keeping employees intellectually engaged, removing distractions, encouraging creativity and flexibility, and supporting employees in all aspects of their lives.

Diff: 2 Page Ref: 236-237 AACSB: Reflective Thinking Objective: 8-1 How do motivation and work environment encourage "flow"?

Skill: Application 78) Bernie is working as many overtime hours as he can to cover the down payment on his family's new house. According to Maslow, what needs are motivating Bernie to work extra hours?

Answer: Bernie is working to satisfy his safety needs, which mean establishing a safe and stable place to live and work. Once these needs are better met, Bernie likely will move to satisfy his need to belong.

Diff: 2 Page Ref: 237 AACSB: Reflective Thinking Objective: 8-2 What are the intricacies of Maslow's hierarchy of needs, McClelland's "three needs" theory, and Herzberg's motivator-hygiene theory?

Skill: Application

79) Celia recently received a promotion and relishes the idea of a whole new job with many difficult tasks to perform. Celia loves the feeling of accomplishment that comes from successfully completing challenging work. According to McClelland, what need is Celia attempting to satisfy? What are the other needs in McClelland's theory?

Answer: Celia is attempting to fulfill her need for achievement to accomplish something difficult on her own. The other two needs in McClelland's three needs theory are the need for affiliation to form close personal relationships and the need for power to be able to control the behavior of others.

Diff: 2 Page Ref: 238 AACSB: Reflective Thinking Objective: 8-2 What are the intricacies of Maslow's hierarchy of needs, McClelland's "three needs" theory, and Herzberg's motivator-hygiene theory?

Skill: Application 80) Dominic works in a consumer products firm. He has a safe working environment, an excellent salary, good benefits, and friendly co-workers. Dominic has recently applied for another position in another department. According to Herzberg, what is most likely motivating Dominic's interest in the other job?

Answer: Dominic's hygiene factors, safety, pay, benefits, and positive relationships with coworkers are being met in his current position, so he probably takes them for granted and is not motivated by them. In this case, there are other motivator factors in play. Dominic may be interested in a promotion, job growth, or more responsibility.

Diff: 3 Page Ref: 238 AACSB: Reflective Thinking Objective: 8-2 What are the intricacies of Maslow's hierarchy of needs, McClelland's "three needs" theory, and Herzberg's motivator-hygiene theory?

Skill: Application 81) Erica just received the "Salesperson of the Year" award for her outstanding work last year.

Erica now feels motivated to beat these numbers next year. Is Erica responding to extrinsic or intrinsic motivators? How do you know?

Answer: Erica is responding to extrinsic motivators, which are things like pay, promotions, and verbal praise. Since Erica is responding to the praise she received via her award, it's obvious she's extrinsically motivated in this case.

Diff: 2 Page Ref: 239 AACSB: Reflective Thinking Objective: 8-3 What are the distinguishing factors between extrinsic and intrinsic motivators?

Skill: Application

82) Felix just renegotiated a contract with his largest vendor. He feels a great deal of satisfaction for his success and is now reviewing other contracts. Is Felix responding to extrinsic or intrinsic motivators? How do you know?

Answer: Felix is responding to intrinsic motivators, which are internal to each employee and are based on a person's interest in his/her job and the value a person derives from work being done.

Since Felix is responding to the feeling of satisfaction for his success, it's obvious that he's intrinsically motivated in this case.

Diff: 2 Page Ref: 239 AACSB: Reflective Thinking Objective: 8-3 What are the distinguishing factors between extrinsic and intrinsic motivators?

Skill: Application 83) Georgia was just promoted to manager at a carpet cleaning company. She decides she would like to apply the Theory X management style to her job. How does Georgia view her employees?

Answer: The Theory X model suggests that managers think people inherently dislike work and will seek to avoid it; therefore, people need to be coerced and controlled in order to be productive employees.

Diff: 1 Page Ref: 239 AACSB: Reflective Thinking Objective: 8-4 What are the implications of Theory X, Theory Y, Theory Z, and the Vroom Model?

Skill: Application 84) Hector manages a locally owned bakery. He believes his employees are motivated to do a good job for the customer without his having to constantly involve himself in their work. Which of McGregor's motivational models is Hector employing? How do you know?

Answer: Hector is using the Theory Y style of management, which holds that people are naturally motivated to work, that managers do not need to use heavy controls, that people are willing leaders and creative problem solvers, that people seek out responsibility, and that people need to be intellectually stimulated and feel their ideas are utilized.

Diff: 2 Page Ref: 239-240 AACSB: Reflective Thinking Objective: 8-4 What are the implications of Theory X, Theory Y, Theory Z, and the Vroom Model?

Skill: Application 85) Describe in detail the Theory Z management style.

Answer: The Theory Z management style model was created by Ouchi and based on a Japanese management style, which relies heavily on collaborative decision making. Employees are responsible for many different aspects of a single project. As a result, companies tend to see low turnover, high productivity, and strong morale among the workforce.

Diff: 1 Page Ref: 240 Objective: 8-4 What are the implications of Theory X, Theory Y, Theory Z, and the Vroom Model?

Skill: Conceptual

86) What formula does Vroom use to describe the motivation a person feels in a given situation?

Define each factor.

Answer: Vroom's model of expectancy theory holds that motivation = expectancy x instrumentality x valence. Expectancy is the idea that a person's effort has an effect on a situation's results, whether success or failure. Instrumentality is the idea that the outcome of a situation is related to rewards or punishment. Extrinsically motivated employees will focus on material or verbal rewards. Intrinsically motivated employees will focus on their feelings regarding personal achievements. Valence is the importance an individual places on the expected outcome of a situation.

Diff: 2 Page Ref: 240 Objective: 8-4 What are the implications of Theory X, Theory Y, Theory Z, and the Vroom Model?

Skill: Conceptual 87) Compare and contrast organizational and industrial psychology.

Answer: Organizational psychology concerns itself with the creation of the kind of workplace that helps motivate employees and increases productivity. It is people-centered. The field of industrial psychology was created to further study the ideas of scientific management, which was based on Frederick Taylor's experiments and research. He encouraged companies to use scientific study to determine the best methods to complete tasks and then train employees in these methods. Both study ways to increase productivity. Organizational psychology is peopleoriented; industrial is task-oriented.

Diff: 2 Page Ref: 236/241 AACSB: Reflective Thinking Objective: 8-5 How have motivational theories and industrial psychology changed the work environment since the early 20th century?

Skill: Application 88) Irene manages bakers who work for a large bakery chain. The morning shift always seems to accomplish more than the afternoon shift. Irene decides to study the afternoon shift to see where the problem may originate. Irene is surprised to learn that the afternoon shift's productivity is now higher than that of the morning shift. Why did this happen?

Answer: This phenomenon is known as the Hawthorne effect. In 1932, Elton Mayo studied the physical influences and the psychological aspects of the workplace. His major finding was that no matter what experimental changes were made workers' production improved just because they were being studied.

Diff: 2 Page Ref: 241 AACSB: Reflective Thinking Objective: 8-5 How have motivational theories and industrial psychology changed the work environment since the early 20th century?

Skill: Application

89) Two motivational theories for the modern workplace are the uncertainty management theory and sociocracy. Define each.

Answer: Uncertainty management is a modern theory and suggests that when people face uncertain situations, fairness becomes very important to them. They have strong reactions to things they feel are unfair and these reactions affect their performance and job satisfaction.

Sociocracy is a system of organization and management that attempts to serve everyone's interests equally. All members of the organization are involved in decision making and the final decision must be acceptable to all.

Diff: 1 Page Ref: 242 Objective: 8-5 How have motivational theories and industrial psychology changed the work environment since the early 20th century?

Skill: Conceptual 90) Julio is a supervisor known for being an excellent listener and collaborator. His company will soon acquire a whole new product line, which may increase workload. In order to build a consensus for this new situation, Julio asks for employee input and participation. Which of the four leadership styles best describes Julio in this example? Why? Answer: A democratic leader is a superb listener, team worker, collaborator, and influencer.

He/she values people's input and gets commitment through participation. The style is appropriate when a leader needs to build buy-in or consensus and when employee input is needed.

Diff: 2 Page Ref: 244 AACSB: Reflective Thinking Objective: 8-6 What are the various identifiable leadership styles and personality traits, and how do they affect business leadership?

Skill: Application 91) Describe a good work team. Why are they valuable to the workplace?

Answer: In a good work team, there's agreement on objectives and on the best approach to solve the problem, teammates depend on one another's ideas and efforts to successfully complete tasks, there is a sense of accountability, and all members are committed to one another's success.

Teams can benefit the workplace by allowing creative exchanges, organization, and positive competition.

Diff: 2 Page Ref: 250-251 AACSB: Reflective Thinking Objective: 8-7 What are the best ways to create, manage, and participate in teams, taking into account factors such as technology, group flow, Belbin's nine team roles, and Covey's Seven Habits model?

Skill: Application

92) A new work team was just created. It consists of employees who have worked together for a few years in the same functional area of the company and who are from widely different age groups. What are two problems with the make-up of this work team?

Answer: The first potential problem is groupthink, which is a type of narrow mindedness that can occur when teams are not carefully selected. People who are too similar tend to have the familiar ideas and work from the same set of assumptions. They may reject different ideas without careful consideration. The second problem deals with the age differences. People in different generations tend to think and act differently. Baby boomers are the veterans in the workforce and probably have been with the company for many years. Gen-Xers are known for their independent thinking and hankering for change. They are the first generation to value family life over work life. Millennials were born between 1982 and 2002. They believe in their self-worth and value, whether deserved or not. They want their jobs to accommodate their personal lives and have high expectations for their career successes.

Diff: 2 Page Ref: 251-252 AACSB: Reflective Thinking Objective: 8-7 What are the best ways to create, manage, and participate in teams, taking into account factors such as technology, group flow, Belbin's nine team roles, and Covey's Seven Habits model?

Skill: Application 93) How is group flow achieved?

Answer: Group flow occurs when a group knows how to work together so that each individual member can achieve flow. When forming work teams, managers must consider size (large vs. small), life span (long-term or short-term), and status (formal or informal).

Diff: 1 Page Ref: 252-253 Objective: 8-7 What are the best ways to create, manage, and participate in teams, taking into account factors such as technology, group flow, Belbin's nine team roles, and Covey's Seven Habits model?

Skill: Conceptual 94) What was R. M. Belbin's contribution to the study of work teams?

Answer: Belbin outlined a model of nine team roles plant, resource investigator, coordinator, shaper, monitor evaluator, teamworker, implementer, completer finisher, and specialist. An effective team requires a variety of roles and the members must be matched carefully to the team needs.

Diff: 1 Page Ref: 253 Objective: 8-7 What are the best ways to create, manage, and participate in teams, taking into account factors such as technology, group flow, Belbin's nine team roles, and Covey's Seven Habits model?

Skill: Conceptual

95) How has technology changed the design of work teams?

Answer: Technology allows for virtual teams. Here, members are in different locations around the country or around the world. They communicate using the technologies of email, conference calls, video conferencing, Web casts, etc.

Diff: 2 Page Ref: 254 AACSB: Reflective Thinking Objective: 8-7 What are the best ways to create, manage, and participate in teams, taking into account factors such as technology, group flow, Belbin's nine team roles, and Covey's Seven Habits model?

Skill: Application 96) Think of a team of which you are, or were, a member. Think of a project you worked on or a problem you had to solve. Use Stephen Covey's Seven Habits model to discuss how you managed the project or solved the problem.

Answer: In his Seven Habits model, Stephen Covey describes the seven habits of behavior that are exhibited by successful people. The habits are be proactive, begin with the end in mind, put first things first, think win-win, seek first to understand and then to be understood, synergize, and sharpen the saw.

Diff: 2 Page Ref: 256 AACSB: Reflective Thinking Objective: 8-7 What are the best ways to create, manage, and participate in teams, taking into account factors such as technology, group flow, Belbin's nine team roles, and Covey's Seven Habits model?

Skill: Application Better Business, 7e (Solomon) Chapter 9 Human Resources Management 1) Julia is the HR manager. Before she can start hiring staff at her company, she first must assess the current supply of and demand for employees.

Answer: TRUE Explanation: Planning staffing needs is comprised of two components: (1) assessing the supply of and demand for current and future employee resources, and (2) evaluating job requirements.

Diff: 2 Page Ref: 266 AACSB: Reflective Thinking Objective: 9-1 What processes are involved in human resources management?

Skill: Application 2) Alexander needs to determine the current supply of employees. He consults a computerized file that details information about each employee ages, educational backgrounds, training, specialized skills, etc. The file Alexander consults is the workforce profile.

Answer: TRUE Explanation: A workforce profile is used to determine the current supply of employees. It is an inventory of information about each employee, such as age, education, training, experience, specialized skills, current position, and previous positions held.

Diff: 1 Page Ref: 266 AACSB: Reflective Thinking

Objective: 9-1 What processes are involved in human resources management?

Skill: Application 3) Sydney recently saw a notice in her company newsletter about a new job opening within her company. Since it was a promotion for her, she applied later that day. In this example, Sydney's company recruited externally.

Answer: FALSE Explanation: With internal recruiting, companies seek to fill job vacancies with existing employees. With external recruiting, companies look outside the organization to fill vacancies.

Diff: 1 Page Ref: 266 AACSB: Reflective Thinking Objective: 9-1 What processes are involved in human resources management?

Skill: Application

4) Jonathan is confined to a wheelchair. He was just transferred to a new office location, which is in a very old building with many steps leading to the door, but no ramp. His boss refuses to accommodate his needs. The Civil Rights Act of 1964 prohibits this kind of discrimination.

Answer: FALSE Explanation: The Americans with Disabilities Act prohibits discrimination based on disabilities.

It requires employers to make reasonable accommodations to the known disability of a qualified applicant or employee as long as it does not impose undue hardship on the operation of the business. Reasonable accommodations would include a wheelchair ramp in this case.

Diff: 2 Page Ref: 270 AACSB: Reflective Thinking Objective: 9-1 What processes are involved in human resources management?

Skill: Application 5) When Iris was trained for her new job, she was asked to respond to questions on a computerized multiple-choice test. Iris' company used the apprentice training approach.

Answer: FALSE Explanation: In the programmed learning approach, an employee is asked to perform step-bystep instructions or to respond to questions, often via computerized multiple-choice tests. These tests provide immediate feedback and allow an employee to progress at his/her own pace.

Diff: 1 Page Ref: 272 AACSB: Reflective Thinking Objective: 9-2 Why has the performance management process proven to be more effective than performance appraisals?

Skill: Application 6) Yvette was recently hired as a restaurant manager for McDonald's and must attend classes at Hamburger University. This is an example of the programmed learning approach.

Answer: FALSE Explanation: Off-the-job training and development techniques require employees to participate in outside seminars, university-conducted programs, or corporate universities.

Diff: 2 Page Ref: 274 AACSB: Reflective Thinking Objective: 9-2 Why has the performance management process proven to be more effective than performance appraisals?

Skill: Application

7) Daniel is due for his regularly scheduled performance appraisal. This is the time when Daniel receives an official evaluation of his performance, feedback about his work, and areas where improvements should be made.

Answer: TRUE Explanation: Performance appraisals evaluate an employee's performance, give feedback about how well the employee is doing, and make suggestions for changes or improvements. Results help managers make decisions about promotions, raises, additional training, or reassignments.

Diff: 1 Page Ref: 274 AACSB: Reflective Thinking Objective: 9-2 Why has the performance management process proven to be more effective than performance appraisals?

Skill: Application 8) Ramona's company has taken a new approach to the appraisal system. They combine goal setting, performance appraisals, training, and feedback into an ongoing process. This approach is called performance management.

Answer: TRUE Explanation: Performance management is an alternative to the traditional performance appraisal.

It combines goal setting, performance appraisals, training, and development into a unified and ongoing process. Employees are constantly receiving feedback on their work to make changes or necessary corrections quickly.

Diff: 2 Page Ref: 275 AACSB: Reflective Thinking Objective: 9-2 Why has the performance management process proven to be more effective than performance appraisals?

Skill: Application 9) James is a pizza delivery driver and earns just over eight dollars an hour. This compensation is known as a fixed salary.

Answer: FALSE Explanation: Compensation, payment for work performed, generally is offered through direct financial payments in the form of fixed salaries (annual pay for a specific job) or wages (payments for hourly work).

Diff: 1 Page Ref: 277 AACSB: Reflective Thinking Objective: 9-3 What are the main components of compensating and scheduling employees?

Skill: Application

10) Teresa just received a quarterly statement from the Vanguard Group, which shows earnings from investments using her pre-tax dollars. Teresa contributes a percentage of her salary to the plan and her company matches it. Teresa has a 401(k) plan.

Answer: TRUE Explanation: A 401(k) plan is a defined contribution plan in which pre-tax dollars are invested.

It is often managed by an outside investment company, such as the Vanguard Group. An employee's annual contribution is determined by the employee as a percentage of salary up to a specified legal limit.

Diff: 2 Page Ref: 277 AACSB: Reflective Thinking Objective: 9-3 What are the main components of compensating and scheduling employees?

Skill: Application 11) Mary Beth is opening her own day care center. She plans to offer her employees flexible schedules, free child care, and free memberships to the local fitness center in hopes of keeping them motivated and relaxed. Mary Beth is offering work/life benefits to her employees.

Answer: TRUE Explanation: Work/life benefits help an employee achieve balance between the demands of life both inside and outside the workplace. They include flexible work schedules, relaxed atmospheres, and child care and fitness/gym programs.

Diff: 2 Page Ref: 278 AACSB: Reflective Thinking Objective: 9-3 What are the main components of compensating and scheduling employees?

Skill: Application 12) Sandy has worked as an office manager for many years and is planning to retire soon. She decides to ease out of the job by working only on Thursdays and Fridays. Amy is hired to fulfill the duties of office manager on the days Sandy does not work. Both work eight-hour days and are considered part-time employees. Sandy and Amy are both working a compressed workweek.

Answer: FALSE Explanation: Sandy and Amy are job sharing, which is an arrangement wherein two employees work part time sharing one full-time job. In a compressed workweek, employees work more hours in fewer days (i.e., four 10-hour days).

Diff: 2 Page Ref: 280 AACSB: Reflective Thinking Objective: 9-3 What are the main components of compensating and scheduling employees?

Skill: Application

13) Victor has no desire to supervise other employees, so his company has no way to offer him promotional opportunities.

Answer: FALSE Explanation: Some companies provide two career paths for their employees one towards management and the other for "individual contributors" who do not want to manage. The latter often involves more responsibilities and titles such as "senior engineer."

Diff: 1 Page Ref: 281 Objective: 9-4 How does employee status change through promotions, transfers, retirement, and termination?

Skill: Conceptual 14) Peter is 67 years old and works for a retail firm, which is looking to cut staff. The company decides to encourage Peter to retire by offering him financial incentives. This is known as a golden parachute.

Answer: TRUE Explanation: An aging workforce presents several challenges. Some companies offer worker buyouts, which are financial incentives to encourage aging workers to retire.

Diff: 2 Page Ref: 282 AACSB: Reflective Thinking Objective: 9-4 How does employee status change through promotions, transfers, retirement, and termination?

Skill: Application 15) Patricia can resign from her job for any reason at any time because of the employment at will doctrine.

Answer: TRUE Explanation: Employment at will is a legal doctrine that states that an employer can fire an employee for any reason at any time. Likewise, an employee may resign a job for any reason at any time. Exceptions are made for such things as discrimination, whistle blowing, jury service, etc.

Diff: 1 Page Ref: 281 Objective: 9-4 How does employee status change through promotions, transfers, retirement, and termination?

Skill: Conceptual

16) Ricardo supervises a group of computer programmers. One of his employees, Natalia, frequently tells him about another employee's tardiness and penchant for two-hour lunches. After a few months, Ricardo fires this employee based on Natalia's information. Because Ricardo can back up his accusations with Natalia's statements, he would be protected in a wrongful discharge lawsuit.

Answer: FALSE Explanation: Courts have sided with terminated employees when not enough evidence of poor behavior is brought forth. Hearsay and rumors do not stand up in legal proceedings. Ricardo should have maintained solid records with documentation and evidence.

Diff: 2 Page Ref: 282 AACSB: Reflective Thinking Objective: 9-4 How does employee status change through promotions, transfers, retirement, and termination?

Skill: Application 17) Worldwide Technologies, Inc. has moved its customer service operations to India. In addition to lowering its labor costs, Worldwide also is diversifying its workforce.

Answer: TRUE Explanation: Advancements in technologies have made it possible for businesses to operate with relative ease on a global basis. Companies that offshore work to other countries also lower their labor costs and broaden their market reach.

Diff: 1 Page Ref: 283 AACSB: Multicultural and Diversity Understanding Objective: 9-5 How does incorporating diversity affect the workforce?

Skill: Application 18) Ester is reentering the workforce after spending several years at home caring for her children.

Because many things have changed since Ester last worked in an office, it is nearly impossible for her to experience any problems with sexism or salary inequities.

Answer: FALSE Explanation: Even though more women are entering the workforce than ever before, they are still experiencing sexism, salary inequities, and sexual harassment. Statistically, there are fewer female executives than is expected given the number of women in the workforce and women have been given fewer promotions than their male counterparts.

Diff: 1 Page Ref: 284 AACSB: Multicultural and Diversity Understanding Objective: 9-5 How does incorporating diversity affect the workforce?

Skill: Application

19) Archie is a new HR manager and knows that a diverse workforce can benefit his company.

The best way for Archie to create a motivated, diversified staff is to follow an affirmative action plan that prescribes a certain number of minorities and women.

Answer: FALSE Explanation: While affirmative action plans were once used to fulfill diversity requirements, they are no longer the optimal method. Companies now embrace diversity as a strategy and resource to become more competitive in the global market. It is a means to improve a company's competitiveness and its bottom line.

Diff: 2 Page Ref: 284 AACSB: Multicultural and Diversity Understanding Objective: 9-5 How does incorporating diversity affect the workforce?

Skill: Application 20) Global Tech is a new company with a diverse workforce. To avoid potential conflicts or misunderstandings, Global Tech should provide an effective diversity training program for its employees so that they can all learn to view situations from a perspective that is different from their own.

Answer: TRUE Explanation: Diversity training programs are an important part of managing a diverse workforce. They help alleviate confusion and misunderstandings that arise from differences in opinions, viewpoints, and behaviors.

Diff: 2 Page Ref: 285 AACSB: Multicultural and Diversity Understanding Objective: 9-5 How does incorporating diversity affect the workforce?

Skill: Application 21) Labor unions originated during the U.S. Industrial Revolution.

Answer: TRUE Explanation: Labor unions began as a means to protect workers from the injustices employers inflicted on them in the 19th century during the U.S. Industrial Revolution.

Diff: 1 Page Ref: 286 Objective: 9-6 What are the objectives, structures, and future of labor unions in the global business environment?

Skill: Conceptual 22) A labor union seeks to protect members from unfair labor practices and poor working conditions.

Answer: TRUE Explanation: A labor union is a legally recognized group dedicated to protecting the interests of workers. They negotiate employment issues, such as salary, benefits, and working hours.

Diff: 2 Page Ref: 286 AACSB: Reflective Thinking Objective: 9-6 What are the objectives, structures, and future of labor unions in the global business environment?

Skill: Application

23) Union representatives for the employees of a regional grocery store chain decide to negotiate with management for better hourly wages and better medical benefits. After a few meetings, they come to an agreement, which is called an arbitration.

Answer: FALSE Explanation: Collective bargaining is the process whereby management and union representatives negotiate such things as wages, benefits, working hours, and grievance procedures. A collective bargaining agreement is the result of such negotiations.

Diff: 2 Page Ref: 287 AACSB: Reflective Thinking Objective: 9-6 What are the objectives, structures, and future of labor unions in the global business environment?

Skill: Application 24) The managers of a roofing company start hearing their employees talk about approaching their local union representatives with concerns about working hours. Management legally can use a lockout to keep these employees from entering the premises.

Answer: FALSE Explanation: Management legally can use a lockout only if negotiations with a union have come to an impasse and the company is defending a legitimate position.

Diff: 2 Page Ref: 287 AACSB: Reflective Thinking Objective: 9-6 What are the objectives, structures, and future of labor unions in the global business environment?

Skill: Application 25) Both the automobile workers union and the construction trade unions have experienced dramatic reductions in membership.

Answer: TRUE Explanation: In the United States, the role of the labor union is declining. Many private sector unions have experienced dramatic reductions in membership.

Diff: 1 Page Ref: 288 Objective: 9-6 What are the objectives, structures, and future of labor unions in the global business environment?

Skill: Conceptual

26) Janet is the human resource manager for a large consumer products company. She has a great many job responsibilities. Which of the following is NOT a part of her job?

A) writing training guides B) evaluating existing employees C) managing fixed assets D) compensating all workers Answer: C Explanation: C) HR managers are responsible for planning staffing needs, recruiting and hiring, training and motivating, evaluating, compensating, and terminating and repositioning employees.

Today, HRMs also deal with diversity issues, work/lifestyle preferences, and global business considerations.

Diff: 1 Page Ref: 265 AACSB: Reflective Thinking Objective: 9-1 What processes are involved in human resources management?

Skill: Application 27) Carlos needs to assess the current supply of employees in his company. He consults a document detailing the ages, educational backgrounds, training, experiences, specialized skills, and current and previous office positions for each employee. In HR, this document is called the ________.

A) workforce profile B) workforce forecast C) job description D) development program Answer: A Explanation: A) A workforce profile is used to determine the current supply of employees. It is a personnel inventory of information about each employee, such as age, education, training, experience, specialized skills, current position, and previous positions held.

Diff: 1 Page Ref: 266 AACSB: Reflective Thinking Objective: 9-1 What processes are involved in human resources management?

Skill: Application

28) Gabrielle is in charge of hiring new employees for her company. She decides she needs to assess the future demand for employees through forecasting and sets out to learn more about it.

Which of the following statements about forecasting does Gabrielle discover is FALSE? A) Forecasting considers predicted sales of a company's products.

B) Forecasting considers the effect of technology changes on staff needs.

C) Forecasting considers the role of antidiscrimination policies at present.

D) Forecasting considers normal turnover rates and their likely effect on business.

Answer: C Explanation: C) Forecasting determines future demand for employees. It is based on predicted sales of a company's goods or services, current workforce skill level, the effect of technology changes on staff needs, and changes in employment practices. In addition, it considers staffing changes that result from normal turnover or retirement.

Diff: 2 Page Ref: 266 AACSB: Reflective Thinking Objective: 9-1 What processes are involved in human resources management?

Skill: Application 29) Lance works in HR for an accounting firm and needs to hire a few new auditors. First, Lance performs a ________ to determine the tasks the auditors need to perform and their duties. Then, Lance creates a ________ to describe each task requirement for the auditor position.

A) job description; job analysis B) job analysis; job description C) job analysis; job specification D) job description; job specification Answer: B Explanation: B) A job analysis defines in detail the particular duties and requirements of the tasks and responsibilities an employee is required to perform. In a job analysis, each task is defined by a job description, which is a formal statement that includes job responsibilities, the conditions under which the job will be performed, etc. These are not to be confused with job specifications, which are the skills, education, experience, and personal attributes that the candidate must possess to successfully fulfill the role.

Diff: 2 Page Ref: 266 AACSB: Reflective Thinking Objective: 9-1 What processes are involved in human resources management?

Skill: Application

30) Nolan is applying for a promotion within his company. The formal statement about the job says that he must have a four-year college business degree, have five years of experience with the sales force, have the ability to work under pressure, and have excellent communication and organizational skills. These statements, or ________, were made to ensure Nolan was the right person to fulfill the job's requirements.

A) job descriptions B) job analyses C) job shares D) job specifications Answer: D Explanation: D) A job analysis defines in detail the particular duties and requirements of the tasks and responsibilities an employee is required to perform. In a job analysis, each task is defined by a job description, which is a formal statement that includes job responsibilities, the conditions under which the job will be performed, etc. These are not to be confused with job specifications, which are the skills, education, experience, and personal attributes that the candidate must possess to successfully fulfill the role.

Diff: 2 Page Ref: 266 AACSB: Reflective Thinking Objective: 9-1 What processes are involved in human resources management?

Skill: Application 31) Elizabeth saw a posting for a new job on the company's intranet. She was interested in the new challenges this job could provide her, so she applied right away. Elizabeth's company was performing ________.

A) external recruiting B) internal recruiting C) simulation recruiting D) virtual recruiting Answer: B Explanation: B) With internal recruiting, companies seek to fill job vacancies with existing employees. With external recruiting, companies look outside the organization to fill vacancies.

Diff: 1 Page Ref: 266 AACSB: Reflective Thinking Objective: 9-1 What processes are involved in human resources management?

Skill: Application

32) Midori was searching for a new job. An employment agency contacted her about a job that was perfect for skill set. Midori was hired. Midori's new company was performing ________.

A) external recruiting B) internal recruiting C) simulation recruiting D) virtual recruiting Answer: A Explanation: A) With internal recruiting, companies seek to fill job vacancies with existing employees. With external recruiting, companies look outside the organization to fill vacancies.

Diff: 1 Page Ref: 267 AACSB: Reflective Thinking Objective: 9-1 What processes are involved in human resources management?

Skill: Application 33) Benito is an HR manager who is responsible for online recruitment of new employees.

Technology has created many challenges for recruiters like him. Which of the following is FALSE? A) Benito should make his company stand out from his competitors when posting job descriptions..

B) Benito must stay up to date on how to use social networking techniques and Web 2.0 techniques.

C) Benito can quickly sift through the responses to online postings to find qualified candidates.

D) Benito must create online job postings that appeal to the most qualified candidates.

Answer: C Explanation: C) Technology has created some recruiting challenges for HR professionals.

Online job postings yield a great many results and sifting through them to find qualified candidates can be time consuming. Additionally, HR managers must stay abreast of changes and updates to technologies so that they can create job postings that appeal to the most qualified candidates and that stand out from those of their competitors.

Diff: 2 Page Ref: 268 Objective: 9-1 What processes are involved in human resources management?

Skill: Conceptual

34) Roseanne is in the process of hiring a new administrative assistant. What is the last step in this hiring process?

A) conduct background checks B) monitor through probationary period C) test candidate for specific job skills D) conduct follow-up interviews Answer: B Explanation: B) There are six steps in the hiring process: determine the initial pool of candidates from applicant files, conduct initial follow-up interviews, test for specific job skills, conduct background and reference checks, make a final selection, and hire and monitor through the probationary or trial period.

Diff: 1 Page Ref: 269 Objective: 9-1 What processes are involved in human resources management?

Skill: Conceptual 35) Tyrone is an African American and, during a recent job interview, was told that he would not be hired because the interviewer had issues with the color of his skin. Which federal law was created to combat this kind of discrimination?

A) Civil Rights Act of 1964 B) American with Disabilities Act C) Age Discrimination in Employment Act D) Race Discrimination in Employment Act Answer: A Explanation: A) The Civil Rights Act of 1964 prohibits discrimination based on race, color, gender, religion, and national origin.

Diff: 2 Page Ref: 270 AACSB: Reflective Thinking Objective: 9-1 What processes are involved in human resources management?

Skill: Application 36) Kyle has just accepted a job as an accountant for a large firm. He is deaf, so his employer is expected to accommodate Kyle's needs with some modified telephone equipment. These reasonable accommodations are legislated under the ________.

A) Civil Rights Act of 1964 B) Americans with Disabilities Act C) Age Discrimination in Employment Act D) Discrimination Act of 1999 Answer: B Explanation: B) The Americans with Disabilities Act prohibits discrimination based on disabilities. It requires employers to make reasonable accommodations to the known disability of a qualified applicant or employee as long as it does not impose undue hardship on the operation of the business.

Diff: 2 Page Ref: 270 AACSB: Reflective Thinking Objective: 9-1 What processes are involved in human resources management?

Skill: Application

37) An insurance company was posting a job notice about a new position within the company.

The notice stated that a younger employee was desirable because they thought he/she would stay with the company for a longer period of time. This kind of behavior is considered illegal under the ________.

A) Civil Rights Act of 1964 B) Americans with Disabilities Act C) Age Discrimination in Employment Act D) Discrimination Act of 1999 Answer: C Explanation: C) The Age Discrimination in Employment Act makes it unlawful to discriminate against a person because of his/her age with respect to employment.

Diff: 1 Page Ref: 270 AACSB: Reflective Thinking Objective: 9-1 What processes are involved in human resources management?

Skill: Application 38) On Michaela's first day at work, she was introduced to her co-workers, was given a tour of the facilities, and was given the opportunity to ask questions. Michaela experienced a(n) ________.

A) on-the-job training program B) orientation program C) programmed learning program D) apprentice program Answer: B Explanation: B) Orientation programs familiarize the new employee with facilities, co-workers, mentors, company procedures, company mission, etc. Quality orientation programs also discuss how the new employee's contributions can add to the company's success. Failure to properly orient a new employee often leads to low retention rates.

Diff: 1 Page Ref: 271 AACSB: Reflective Thinking Objective: 9-2 Why has the performance management process proven to be more effective than performance appraisals?

Skill: Application

39) Yoshiko owns a greeting card store and recently hired a new daytime clerk. The new clerk is learning job skills by performing them under Yoshiko's informal direction. Yoshiko is conducting a(n) ________.

A) apprentice training program B) programmed learning program C) orientation program D) on-the-job training program Answer: D Explanation: D) In an on-the-job training program, other employees in the department or a mentor help the employee learn skills by having the employee perform them.

Diff: 2 Page Ref: 272 AACSB: Reflective Thinking Objective: 9-2 Why has the performance management process proven to be more effective than performance appraisals?

Skill: Application 40) Steve has a new job as a data warehouse specialist. He has attended formal classes at the local university and informal classes provided by his employer in order to learn the skills required by his new job. Steve also has learned job skills by performing them during the workday. Steve has experienced a(n) ________.

A) programmed learning approach B) orientation program C) on-the-job training program D) apprentice training program Answer: D Explanation: D) In an apprentice training program, employees are trained through classroom or formal instruction and on-the-job efforts.

Diff: 2 Page Ref: 272 AACSB: Reflective Thinking Objective: 9-2 Why has the performance management process proven to be more effective than performance appraisals?

Skill: Application

41) While training for a new job, Vincenzo was given a computerized, multiple-choice test, which provided him immediate feedback regarding his answers. Vincenzo experienced a(n) ________.

A) programmed learning approach B) on-the-job training program C) apprentice training program D) off-the-job training approach Answer: A Explanation: A) In the programmed learning approach, an employee is asked to perform stepby-step instructions or to respond to questions, often via computerized multiple-choice tests.

These tests provide immediate feedback and allow an employee to progress at his/her own pace.

Diff: 1 Page Ref: 272 AACSB: Reflective Thinking Objective: 9-2 Why has the performance management process proven to be more effective than performance appraisals?

Skill: Application 42) Simulation training is most suitable to all of the following jobs EXCEPT ________.

A) airline pilots B) astronauts C) movie directors D) surgeons Answer: C Explanation: C) Changes in technology have provided companies with additional training methods. Simulation training provides realistic job training in a manner that is challenging, but does not create the threat of failure.

Diff: 2 Page Ref: 272-273 Objective: 9-2 Why has the performance management process proven to be more effective than performance appraisals?

Skill: Conceptual

43) Kathleen wants to be a nurse manager at a local children's hospital. She is studying for this position through a distance learning program and is taking a class offered by a university in another state. The type of training Kathleen is experiencing is ________.

A) simulation B) off-the-job C) on-the-job D) online Answer: D Explanation: D) Online training allows employees to take college classes via the Internet to obtain specific job-related education. It also involves teletraining, videoconferencing, and Electronic Performance Support Systems (EPSSs).

Diff: 2 Page Ref: 273 AACSB: Reflective Thinking Objective: 9-2 Why has the performance management process proven to be more effective than performance appraisals?

Skill: Application 44) Which of the following is NOT a part of a typical management development program?

A) job rotation B) coaching/understudy program C) workforce profiles D) action learning Answer: C Explanation: C) Management development programs prepare management-trainees to become managers within the organization. The trainees participate in on-the-job training programs that may include job rotation, a coaching/understudy program, and action learning.

Diff: 2 Page Ref: 273-274 Objective: 9-2 Why has the performance management process proven to be more effective than performance appraisals?

Skill: Conceptual 45) Yvette was recently hired as a restaurant manager for McDonald's and must attend classes at Hamburger University. This is an example of ________.

A) off-the-job training B) on-the-job training C) programmed learning D) online training Answer: A Explanation: A) Off-the-job training and development techniques require employees to participate in outside seminars, university-conducted programs, or corporate universities.

Diff: 2 Page Ref: 274 AACSB: Reflective Thinking Objective: 9-2 Why has the performance management process proven to be more effective than performance appraisals?

Skill: Application

46) What is the difference between performance management and performance appraisals?

A) Performance management is an ongoing process while a typical performance appraisal happens once per year.

B) Performance management provides one-time feedback, whereas performance appraisals give employees constant feedback.

C) Performance management requires employees to be extrinsically motivated, whereas performance appraisals require employees to be intrinsically motivated.

D) Performance management often results in employee criticisms, but performance appraisals are more defensible.

Answer: A Explanation: A) A criticism of performance appraisals is that they often suggest ways to improve weak performance or to enhance solid performance, but the process does not offer the opportunity to follow up. Often, these issues are not readdressed until the next appraisal, which may be a year away. Performance management, on the other hand, is an ongoing process.

Diff: 2 Page Ref: 274-275 AACSB: Reflective Thinking Objective: 9-2 Why has the performance management process proven to be more effective than performance appraisals?

Skill: Application 47) Which of the following is NOT a problem typically encountered with performance appraisals?

A) There can be discomfort when it is necessary to make harsh comments during this review process.

B) There are often difficulties quantifying performance, so it can be difficult to defend ratings when challenged.

C) There is much administrative pressure due to the high frequency of an individual's performance appraisals in one year.

D) There is often no built-in mechanism for following up on suggestions for change or development.

Answer: C Explanation: C) Criticisms of performance appraisals include discomfort when handing out harsh comments, the difficulty in quantifying performance and in defending ratings, and the lack of opportunity for follow-up on suggestions for change or development.

Diff: 2 Page Ref: 275 Objective: 9-2 Why has the performance management process proven to be more effective than performance appraisals?

Skill: Conceptual

48) Suki earns $52,000 per year for her work as an associate marketing manager. Suki's compensation is called a ________.

A) salary B) wage C) commission D) bonus Answer: A Explanation: A) Salaries are fixed annual sums for a specific job. Wages are payments for hourly work.

Diff: 1 Page Ref: 277 AACSB: Reflective Thinking Objective: 9-3 What are the main components of compensating and scheduling employees?

Skill: Application 49) Joshua is paid the minimum hourly rate for his work as a lifeguard. Joshua's compensation is called a ________.

A) salary B) wage C) commission D) bonus Answer: B Explanation: B) Salaries are fixed annual sums for a specific job. Wages are payments for hourly work.

Diff: 1 Page Ref: 277 AACSB: Reflective Thinking Objective: 9-3 What are the main components of compensating and scheduling employees?

Skill: Application 50) Chelsea is a marketing manager and receives a lump sum payment from her company based on the company's higher-than-normal profits from last year. Chelsea's compensation is called a ________.

A) salary B) wage C) commission D) bonus Answer: D Explanation: D) A bonus is compensation based on total corporate profits and helps tie the employee's efforts to the company's bottom line.

Diff: 1 Page Ref: 277 AACSB: Reflective Thinking Objective: 9-3 What are the main components of compensating and scheduling employees?

Skill: Application

51) Oscar works in pharmaceutical sales. His base compensation is fairly low, but it is enhanced with compensation directly tied to his sales results. The incentive-based payments Oscar receives are called ________.

A) commissions B) bonuses C) wages D) salaries Answer: A Explanation: A) Commissions are incentive-based payments that are based directly on an employee's job performance. Bonuses are also incentive-based payments, but are based on total corporate profits and are meant to tie employee's efforts to the company's bottom line.

Diff: 2 Page Ref: 277 AACSB: Reflective Thinking Objective: 9-3 What are the main components of compensating and scheduling employees?

Skill: Application 52) Felix is concerned about saving money for retirement. His company offers him a plan that requires him to contribute a specific amount of money each year through payroll deductions. At retirement, Felix will receive the monies he contributed as well as the fund's investment earnings. Felix is contributing to a(n) ________.

A) profit sharing plan B) pension plan C) 401(k) plan D) ESOP Answer: B Explanation: B) Some pension plans specify the annual amount of money employees will contribute to their plan through payroll deductions. The actual amount received at retirement will depend on the amount contributed and the fund's investment earnings. These are also known as defined contribution plans. A 401(k) plan is different because there the employee decides the contribution amounts (up to a specified legal limit).

Diff: 2 Page Ref: 277 AACSB: Reflective Thinking Objective: 9-3 What are the main components of compensating and scheduling employees?

Skill: Application

53) Carson is involved in a defined contribution plan where he actually owns part of his company without his having to purchase stock. Instead his company contributes its stock to his plan. Because of this, Carson feels more connected to the business and is motivated to ensure its success. Carson is participating in a(n) ________.

A) profit sharing plan B) employee stock purchase plan C) ESOP D) 401(k) Answer: C Explanation: C) In an employee stock ownership plan (ESOP), employees own part of the company without having to purchase stock. Instead, the company contributes its stock to the plan. An advantage of ESOP is that employees tend to feel more connected to the company and are motivated to ensure it success.

Diff: 2 Page Ref: 278 AACSB: Reflective Thinking Objective: 9-3 What are the main components of compensating and scheduling employees?

Skill: Application 54) Teresa just received a quarterly statement from the Vanguard Group, which shows earnings from investments using her pre-tax dollars. Teresa contributes a percentage of her salary to the plan and her company matches it. Teresa is participating in a(n) ________.

A) pension plan B) 401(k) C) profit sharing plan D) ESOP Answer: B Explanation: B) A 401(k) plan is a defined contribution plan in which pre-tax dollars are invested. It is often managed by an outside investment company, such as the Vanguard Group.

An employee's annual contribution is determined by the employee as a percentage of salary up to a specified legal limit.

Diff: 2 Page Ref: 277 AACSB: Reflective Thinking Objective: 9-3 What are the main components of compensating and scheduling employees?

Skill: Application

55) Which of the following is also known as a "cafeteria plan"?

A) employee stock purchase plan B) employee stock ownership plan C) flexible benefit plan D) personal life benefit plan Answer: C Explanation: C) Flexible benefit plans are called cafeteria plans because employees are permitted to choose the benefits that are most important to them, while reducing the cost of offering all benefits to all employees.

Diff: 1 Page Ref: 278 Objective: 9-3 What are the main components of compensating and scheduling employees?

Skill: Conceptual 56) Kent and his wife recently adopted a baby from India. Kent's company allowed him to take six weeks of paid time off to care for the baby at home. Kent's company is part of a new trend in offering him ________.

A) domestic-partner benefits B) medical benefits C) cafeteria benefits D) paternity benefits Answer: D Explanation: D) According to the Families and Work Institute, about 15% of current companies are offering paternity and adoption benefits, which allow time off for new fathers and reimbursement and paid leave for adoption.

Diff: 2 Page Ref: 279 AACSB: Reflective Thinking Objective: 9-3 What are the main components of compensating and scheduling employees?

Skill: Application 57) Benjamin has a full-time job and has decided to work toward earning his master's degree at a local university. Some days he works from 7:00 a.m. until 3:30 p.m. so he can leave in time to attend his 4:00 p.m. classes. The rest of the week, Benjamin works from 8:00 a.m. until 4:30 p.m. From this example, we know Benjamin's company allows ________.

A) flextime schedules B) permanent part-time schedules C) compressed workweeks D) telecommuting Answer: A Explanation: A) With flextime, or alternative scheduling plans, management defines a total number of required hours as a core workday and is flexible with starting and ending times.

Flextime allows for increased productivity due to reductions in absenteeism and tardiness.

Diff: 2 Page Ref: 279 AACSB: Reflective Thinking Objective: 9-3 What are the main components of compensating and scheduling employees?

Skill: Application

58) Julia works in the HR department for a large firm. She works at her desk in the office on Tuesdays, Wednesdays, and Thursdays. She works from home on Mondays and Fridays so that she can help care for her elderly mother. From this example, we know Julia's company allows ________.

A) flextime schedules B) job sharing C) permanent part-time schedules D) telecommuting Answer: D Explanation: D) Telecommuting allows employees to work in the office part time and to work from home part time. Alternatively, employees may work from home full time with only occasional visits to the office. It reduces commuting costs and allows employees to take care of other responsibilities outside the office setting.

Diff: 2 Page Ref: 280 AACSB: Reflective Thinking Objective: 9-3 What are the main components of compensating and scheduling employees?

Skill: Application 59) Bella has two young children and a full-time job. Her day care provider cannot work on Fridays. Bella's employer allows her to work Mondays through Thursdays, as long as she puts in ten hours each day. From this example, we know Bella's employer allows (a) ________.

A) telecommuting B) compressed workweek C) permanent part time D) flextime Answer: B Explanation: B) In a compressed workweek, employees work more hours in fewer days (e.g., four 10-hour days). It reduces worker overtime and allows for longer blocks of personal time and less commuting time.

Diff: 2 Page Ref: 280 AACSB: Reflective Thinking Objective: 9-3 What are the main components of compensating and scheduling employees?

Skill: Application

60) The local library system offers some employees the opportunity to work five days per week for four hours each day. These employees also receive the same health insurance and paid time off plans that the employees working 40 hours per week receive. From this example, we know the library system is offering (a) ________.

A) flextime B) job sharing C) permanent part time D) compressed workweek Answer: C Explanation: C) Permanent part-time employees are hired on a permanent basis to work a parttime week. They receive the same benefits that full-time employees receive.

Diff: 2 Page Ref: 279 AACSB: Reflective Thinking Objective: 9-3 What are the main components of compensating and scheduling employees?

Skill: Application 61) Jamie is a school nurse and prefers to work on Mondays, Wednesdays, and Fridays. Her friend Cindy works as the school nurse on Tuesdays and Thursdays. They both work eight-hour days and are considered part-time employees. From this example, we know the school is offering (a) ________.

A) flextime B) job sharing C) telecommuting D) compressed workweek Answer: B Explanation: B) Jamie and Cindy are job sharing, which is an arrangement wherein two employees work part time sharing one full-time job. In a compressed workweek, employees work more hours in fewer days (i.e., four 10-hour days).

Diff: 2 Page Ref: 279-280 AACSB: Reflective Thinking Objective: 9-3 What are the main components of compensating and scheduling employees?

Skill: Application

62) Doreen is a marketing instructor at the branch office of a local college. When she cannot teach one of her evening classes, she hires her friend Patrick to fill in for her. In this case, Patrick is a(n) ________.

A) contingent worker B) independent contractor C) consultant D) flextime worker Answer: A Explanation: A) Contingent workers are hired on an as-needed basis and lack status as regular, full-time employees. These workers are often hired to fill in for absent workers or to augment the staff during business periods.

Diff: 2 Page Ref: 280 AACSB: Reflective Thinking Objective: 9-3 What are the main components of compensating and scheduling employees?

Skill: Application 63) Linda owns a bakery and wants to hire Bill, a Web-page developer, to create a new site for her company. Linda does not need Bill on staff permanently. Bill would be considered a(n) ________.

A) contingent worker B) independent contractor C) consultant D) flextime worker Answer: B Explanation: B) Independent contractors are hired for those jobs that commonly are hard to fill and involve state-of-the-art skills.

Diff: 2 Page Ref: 280 AACSB: Reflective Thinking Objective: 9-3 What are the main components of compensating and scheduling employees?

Skill: Application 64) Which of the following is NOT a reason to seek out temporary work?

A) to experience different types of work and to meet many people B) to gain real-world experience in a field in which you may be interested C) to join retirement and pension plans at various companies D) to earn income while maintaining a flexible schedule Answer: C Explanation: C) Temporary workers find there are many benefits in this type of work. They enjoy working for different companies, doing different jobs, and meeting new people. Some people find temporary work beneficial for earning extra income while maintaining a flexible schedule or for learning more about a potential field of interest. Temporary workers are not typically entitled to retirement and pension plans.

Diff: 2 Page Ref: 281 Objective: 9-3 What are the main components of compensating and scheduling employees?

Skill: Conceptual

65) Marvin has worked for his company for five years and feels it is time to increase his level of responsibility and stature in the company. Marvin is seeking a ________.

A) promotion B) retirement C) termination D) relocation Answer: A Explanation: A) After performing successfully in a position, many employees seek promotions to increase their levels of responsibility and stature in their firms.

Diff: 1 Page Ref: 281 Objective: 9-4 How does employee status change through promotions, transfers, retirement, and termination?

Skill: Conceptual 66) Aneal is a very successful employee in the IT department. His supervisor wishes to recognize him with a promotion to give him more responsibilities, but knows Aneal does not want to manage other employees. What option does Aneal's supervisor have?

A) She does not have any options other than allowing Aneal to remain in his current job until he changes his mind about supervising.

B) She can force Aneal to take on a supervisory role and see if he changes his mind.

C) She can offer Aneal a position on an individual contributor career track and the title of senior IT specialist.

D) She can lower Aneal's level of responsibility in his current job until Aneal is so miserable he'll do anything for a change.

Answer: C Explanation: C) Some companies provide two career paths for their employees one towards management and the other for "individual contributors" who do not want to manage. The latter often involves more responsibilities and titles such as "senior engineer."

Diff: 2 Page Ref: 281 AACSB: Reflective Thinking Objective: 9-4 How does employee status change through promotions, transfers, retirement, and termination?

Skill: Application

67) What is the retirement age in the United States?

A) 60 years old B) 62 years old C) 65 years old D) whenever the employee stops participating full-time in his/her career Answer: D Explanation: D) Retirement is the point in a person's life when he or she stops participating fulltime in his or her career. Traditionally, employees retired at the age of 65, but this is no longer the case. Financial concerns are causing many employees to continue working until much later in life.

Diff: 1 Page Ref: 282 Objective: 9-4 How does employee status change through promotions, transfers, retirement, and termination?

Skill: Conceptual 68) Nicholas works for a marketing firm, which is looking to cut staff due to financial hardships.

Since Nicholas is nearing 70 years old, the company decides to encourage him to retire by offering him various financial incentives. This worker buyout is also known as a(n) ________.

A) bonus B) golden parachute C) incentive-payment structure D) commission Answer: B Explanation: B) An aging workforce presents several challenges. Some companies offer worker buyouts, which are financial incentives, to encourage aging workers to retire. Worker buyouts are also called golden parachutes.

Diff: 2 Page Ref: 282 AACSB: Reflective Thinking Objective: 9-4 How does employee status change through promotions, transfers, retirement, and termination?

Skill: Application 69) Which of the following is NOT a legally defensible reason for terminating an employee?

A) downsizing and/or restructuring of company B) increased use of technologies replacing workers C) testifying against the company in a legal proceeding D) repeated documentation of poor performance Answer: C Explanation: C) Termination involves permanently laying off staff due to poor performance or a discontinued need for their services. Companies cannot terminate employees because of whistle blowing, filing a worker's compensation claim, jury service, or testifying against the company in a legal proceeding.

Diff: 1 Page Ref: 282 Objective: 9-4 How does employee status change through promotions, transfers, retirement, and termination?

Skill: Conceptual

70) Johanna decides she is bored with her current job and is ready to quit. She wants to take some time off and then look for a new job in a different city. Her co-worker tells Johanna to check the company handbook to make sure her reasons for quitting are acceptable. Johanna knows this is not necessary because of the legal doctrine, ________.

A) human resources B) employment at will C) affirmative action D) termination at will Answer: B Explanation: B) Employment at will is a legal doctrine that states that an employer can fire an employee for any reason at any time. Likewise, an employee may resign a job for any reason at any time. Exceptions are made for such things as discrimination, whistle blowing, jury service, etc.

Diff: 2 Page Ref: 281 AACSB: Reflective Thinking Objective: 9-4 How does employee status change through promotions, transfers, retirement, and termination?

Skill: Application 71) Which of the following is NOT a reason for greater diversity in the workplace?

A) advancements in technology throughout the world B) increased numbers of employees immigrating from other countries C) increased numbers of U.S. citizens emigrating to other countries D) increased offshoring of work to other countries Answer: C Explanation: C) Diversity is becoming more important as companies are operating on a global scale. Reasons for a more diverse workforce include advancements in technologies, increased offshoring of work to other countries, and the increased number of workers who have immigrated from other countries.

Diff: 2 Page Ref: 283 AACSB: Multicultural and Diversity Understanding Objective: 9-5 How does incorporating diversity affect the workforce?

Skill: Conceptual

72) Raheem works in the IT department of a large investment firm. His employer is very conscious of Raheem's religious needs and has been most accommodating. Which of the following is something Raheem's employer likely does NOT provide?

A) allowance for differences in dress B) financial assistance for religious pilgrimages C) time off to observe religious holidays D) cafeteria selections meeting dietary requirements Answer: B Explanation: B) A more culturally diverse workforce brings with it a wider variety of religious beliefs and practices. Employers are struggling to accommodate workers' religious needs, but also to prevent any friction from open demonstrations of religious practices. Many employers allow employees to take prayer breaks, take time off to observe religious holidays, cater to dietary requirements, and permit differences in dress.

Diff: 2 Page Ref: 284 AACSB: Multicultural and Diversity Understanding Objective: 9-5 How does incorporating diversity affect the workforce?

Skill: Application 73) Veronica is reentering the workforce after years away caring for her elderly parents. She is making many assumptions about today's workplace. Which of Veronica's assumptions is FALSE? A) Women may face sexual harassment in the workplace.

B) Women receive fewer promotions than their male counterparts.

C) Women battle sexism in the workplace.

D) Women receive pay equal to their male counterparts.

Answer: D Explanation: D) Even though more women are entering the workforce than ever before, they are still experiencing sexism, salary inequities, and sexual harassment. Statistically, there are fewer female executives than is expected given the number of women in the workforce and women have been given fewer promotions than their male counterparts.

Diff: 2 Page Ref: 284 AACSB: Multicultural and Diversity Understanding Objective: 9-5 How does incorporating diversity affect the workforce?

Skill: Application

74) Greg is 57 years old and is looking for a new job even though he knows many companies prefer not to hire older workers. Which of the following is likely a disadvantage of hiring Greg?

A) higher absenteeism B) expectation of a fairly high salary C) unwillingness to learn new skills D) lower training costs Answer: B Explanation: B) Older employees tend to expect higher salaries and better benefits than younger workers. However, they have lower turnover and absenteeism, lower training costs, and a willingness to learn new skills.

Diff: 2 Page Ref: 284 AACSB: Multicultural and Diversity Understanding Objective: 9-5 How does incorporating diversity affect the workforce?

Skill: Application 75) Barney is an HR manager and would like to see a more diversified workforce at his company. He decides the best way to do this is to follow a plan that requires the company to employ a certain number of minorities and women. This plan is otherwise known as ________.

A) affirmative action B) diverse affirmation C) employment at will D) workforce profiling Answer: A Explanation: A) Affirmative action plans set out target employment numbers for women and minorities. They were once used to fulfill diversity requirements, but they are no longer seen as the optimal method.

Diff: 2 Page Ref: 284 AACSB: Multicultural and Diversity Understanding Objective: 9-5 How does incorporating diversity affect the workforce?

Skill: Application 76) The California Nurses Association was formed to negotiate the unique salary needs and working hour structures of direct-care nurses with the hospitals in which they work. The CNA is an example of a ________.

A) special interest group B) labor union C) workforce profile D) strikebreaker Answer: B Explanation: B) A labor union is a legally recognized group dedicated to protecting the interests of workers. They negotiate employment issues, such as salary, benefits, and working hours.

Diff: 1 Page Ref: 286 AACSB: Reflective Thinking Objective: 9-6 What are the objectives, structures, and future of labor unions in the global business environment?

Skill: Application

77) Orson works with a group of employees who would like to form a union. Orson and a majority of his co-workers band together to form a group responsible for negotiating better working conditions or pay. Orson and his co-workers formed ________.

A) a strikebreakers unit B) a mediation unit C) a bargaining unit D) an arbitration unit Answer: C Explanation: C) To form a union, a majority of workers can form a bargaining unit, which is then responsible for negotiating with employers for better working conditions or pay.

Diff: 2 Page Ref: 287 AACSB: Reflective Thinking Objective: 9-6 What are the objectives, structures, and future of labor unions in the global business environment?

Skill: Application 78) When Firefighters Local 48 negotiates directly and only with its employers for better work conditions and terms of employment, it is called ________.

A) united mediation B) collaborative arbitration C) common striking D) collective bargaining Answer: D Explanation: D) Collective bargaining involves negotiations between union representatives and employers over better work conditions and terms of employment. The result may be a collective bargaining agreement, which is binding to management.

Diff: 2 Page Ref: 287 AACSB: Reflective Thinking Objective: 9-6 What are the objectives, structures, and future of labor unions in the global business environment?

Skill: Application

79) When union and management come to an impasse, Sarah works as a neutral third party who assists them privately and collectively to identify issues and to develop proposals for resolution.

This process is known as ________.

A) collective bargaining B) mediation C) arbitration D) strikebreaking Answer: B Explanation: B) Mediation is a process that involves a neutral third party that assists two parties both privately and collectively to identify issues and to develop proposals for resolution.

Diff: 2 Page Ref: 287 AACSB: Reflective Thinking Objective: 9-6 What are the objectives, structures, and future of labor unions in the global business environment?

Skill: Application 80) When union and management come to an impasse, sometimes the dispute is sent to a third party for a decision. This process is known as ________.

A) collective bargaining B) mediation C) arbitration D) strikebreaking Answer: C Explanation: C) In arbitration, the dispute is sent to an arbitrator for a decision. The parties agree in advance if the decision is binding or nonbinding.

Diff: 1 Page Ref: 287 Objective: 9-6 What are the objectives, structures, and future of labor unions in the global business environment?

Skill: Conceptual 81) Recently, negotiations between a grocery store union and their employer broke down. The employees staged an organized effort to encourage their supporters to shop for groceries elsewhere. The employees organized a ________.

A) boycott B) lockout C) strike D) picket Answer: A Explanation: A) In a boycott, unions and their supporters refuse to buy or handle the company's products or services in an effort to prompt management to accept union demands.

Diff: 2 Page Ref: 287 AACSB: Reflective Thinking Objective: 9-6 What are the objectives, structures, and future of labor unions in the global business environment?

Skill: Application

82) Recently, negotiations between a local housepainters union and their employer came to an impasse. The employer felt he had a legitimate position in the negotiations and refused to allow union member painters from entering the premises. This is called a ________.

A) boycott B) lockout C) strike D) picket Answer: B Explanation: B) In a lockout, management refuses to allow union members from entering the premises. Lockouts are legal only if negotiations have come to an impasse and if the company is defending a legitimate position.

Diff: 2 Page Ref: 287 AACSB: Reflective Thinking Objective: 9-6 What are the objectives, structures, and future of labor unions in the global business environment?

Skill: Application 83) As a last resort, union workers may choose to ________ and agree to stop working. These actions gain considerable media publicity, especially when the workers ________ by walking outside the workplace with signs that reflect employee grievances.

A) picket; strike B) strike; picket C) boycott; picket D) lockout; boycott Answer: B Explanation: B) When negotiations break down, workers may decide to strike, or to stop working. If they walk outside the workplace carrying signs displaying their grievances, they are picketing.

Diff: 1 Page Ref: 287-288 Objective: 9-6 What are the objectives, structures, and future of labor unions in the global business environment?

Skill: Conceptual

84) When plumbers from a local union stopped working during negotiations, management hired replacement plumbers so the effects on their business would be lessened. These replacement plumbers are called ________.

A) mediators B) arbitrators C) collective bargainers D) strikebreakers Answer: D Explanation: D) Strikebreakers are replacement personnel hired by management when union employees are striking.

Diff: 1 Page Ref: 288 AACSB: Reflective Thinking Objective: 9-6 What are the objectives, structures, and future of labor unions in the global business environment?

Skill: Application 85) What are the six functions of human resource management?

Answer: HRM covers every aspect of managing the people resources in a company. It involves planning for staffing needs, recruiting and hiring, training and motivating, evaluating, compensating, and terminating and repositioning.

Diff: 1 Page Ref: 265 Objective: 9-1 What processes are involved in human resources management?

Skill: Conceptual 86) Develop a workforce profile that includes yourself and your best friend as employees.

Answer: Student answers will vary. However, a workforce profile is used to determine the current supply of employees. It is a personnel inventory of information about each employee, such as age, education, training, experience, specialized skills, current position, and previous positions held.

Diff: 2 Page Ref: 266 AACSB: Reflective Thinking Objective: 9-1 What processes are involved in human resources management?

Skill: Application 87) Think of your ideal job. Write a job description and job specifications for it.

Answer: Student answers will vary. However, the job description is a formal statement that includes job responsibilities, the conditions under which the job will be performed, etc. These are not to be confused with job specifications, which are the skills, education, experience, and personal attributes that the candidate must possess to successfully fulfill the role.

Diff: 2 Page Ref: 266 AACSB: Reflective Thinking Objective: 9-1 What processes are involved in human resources management?

Skill: Application

88) Define the HR activity, recruiting. What are the two types of recruiting?

Answer: Recruiting is the process of finding, screening, and selecting people for a job. With internal recruiting, companies seek to fill job vacancies with existing employees. With external recruiting, companies look outside the organization to fill vacancies.

Diff: 2 Page Ref: 266-267 Objective: 9-1 What processes are involved in human resources management?

Skill: Conceptual 89) Define the steps in the HR activity, hiring.

Answer: There are six steps in the hiring process: determine the initial pool of candidates from applicant files, conduct initial follow-up interviews, test for specific job skills, conduct background and reference checks, make a final selection, and hire and monitor through the probationary or trial period.

Diff: 2 Page Ref: 269 Objective: 9-1 What processes are involved in human resources management?

Skill: Conceptual 90) Quinn is seeking a promotion within her company and needs to complete her master's degree. To help facilitate this, she took a marketing class over the Internet. What kind of training is Quinn receiving? How do you know?

Answer: Online training, or distance learning, allows employees to take college classes via the Internet to obtain specific job-related education. It also involves teletraining, videoconferencing, and Electronic Performance Support Systems (EPSSs).

Diff: 2 Page Ref: 273 AACSB: Reflective Thinking Objective: 9-2 Why has the performance management process proven to be more effective than performance appraisals?

Skill: Application 91) Ronald was recently hired as a restaurant manager for McDonald's and must attend classes at Hamburger University. What type of training is Ronald receiving? How do you know?

Answer: Ronald is receiving off-the-job training and development, which requires employees to participate in outside seminars, university-conducted programs, or corporate universities.

Diff: 2 Page Ref: 274 AACSB: Reflective Thinking Objective: 9-2 Why has the performance management process proven to be more effective than performance appraisals?

Skill: Application

92) Why are performance appraisals useful? What are the drawbacks?

Answer: Performance appraisals are evaluations of employee performance that give feedback and suggestions for improvement. Drawbacks to performance appraisals include the uncomfortable feelings from handing out harsh criticisms, the difficulty in quantifying performance to create defensible measurements for supervisors, and the lack of opportunity for a continuous feedback mechanism.

Diff: 2 Page Ref: 274-275 Objective: 9-2 Why has the performance management process proven to be more effective than performance appraisals?

Skill: Conceptual 93) Why might performance management systems be preferred to the performance appraisal system?

Answer: Performance management is an approach that combines goal setting, performance appraisals, and training and development into a unified and ongoing process. As such, it is more of a cyclical and fluid process than the single occurrence of a performance appraisal. This is a superior system to the one-time-per-year appraisal.

Diff: 2 Page Ref: 275 AACSB: Reflective Thinking Objective: 9-2 Why has the performance management process proven to be more effective than performance appraisals?

Skill: Application 94) Arthur is the new HR manager and is investigating the various forms of compensation the company uses for its employees. What forms of compensation might be offered at Arthur's company?

Answer: Compensation may take the form of salaries (annual pay for a specific job) or wages (payments for hourly work). It may also include incentive-based pay, such as commissions (compensation based directly on employee performance) or bonuses (compensation based on corporate profits).

Diff: 1 Page Ref: 277 AACSB: Reflective Thinking Objective: 9-3 What are the main components of compensating and scheduling employees?

Skill: Application 95) Doug's company allows him to purchase its stock for 85% of its market value. What type of financial incentive is Doug's company offering him? How do you know?

Answer: Doug's company is offering him an employee stock purchase plan. In the plan, the company will permit Doug to purchase its stock at a discount rate. Companies typically provide payroll deductions for these purchases and limit amounts to ten percent of total pay.

Diff: 2 Page Ref: 278 AACSB: Reflective Thinking Objective: 9-3 What are the main components of compensating and scheduling employees?

Skill: Application

96) What are work/life benefits? Give some examples.

Answer: Work/life benefits are benefits that help an employee achieve a balance between the demands of life both inside and outside the workplace. Examples include flexible schedules, relaxed atmospheres, child care, and fitness programs.

Diff: 1 Page Ref: 278 Objective: 9-3 What are the main components of compensating and scheduling employees?

Skill: Conceptual 97) Lauren has a full-time job. Due to an erratic child care situation, she works from 7:00 a.m. until 3:30 p.m. two days a week so she can leave in time to pick up her children at 4:00 p.m. The rest of the week, she works from 8:00 a.m. until 4:30 p.m. What type of alternative schedule arrangement does Lauren's company offer? How do you know?

Answer: With flextime, or alternative scheduling plans, management defines a total number of required hours as a core workday and is flexible with starting and ending times. Flextime allows for increased productivity due to reductions in absenteeism and tardiness.

Diff: 2 Page Ref: 279 AACSB: Reflective Thinking Objective: 9-3 What are the main components of compensating and scheduling employees?

Skill: Application 98) Why would an employee seek a promotion?

Answer: Promotions offer employees increased levels of responsibility by taking on a job with more challenging tasks and a higher stature in the company.

Diff: 1 Page Ref: 281 Objective: 9-4 How does employee status change through promotions, transfers, retirement, and termination?

Skill: Conceptual 99) Marc is not interested in taking on supervisory responsibilities. How can his company "promote" him?

Answer: Some companies provide two career paths for their employees one towards management and the other for "individual contributors" who do not want to manage. The latter often involves more responsibilities and titles such as "senior engineer."

Diff: 1 Page Ref: 281 Objective: 9-4 How does employee status change through promotions, transfers, retirement, and termination?

Skill: Conceptual

100) Charles is nearing 70 years old but is not yet ready to retire from his job. What reasons might Charles cite for his decision?

Answer: Charles may have postponed retirement to stay financially secure or to stay active and engaged.

Diff: 2 Page Ref: 282 AACSB: Reflective Thinking Objective: 9-4 How does employee status change through promotions, transfers, retirement, and termination?

Skill: Application 101) Mary Lee's company is terminating employees to reduce the size of its workforce. She is confused and asks the HR director to explain why this is happening. What reasons might the HR director give Mary Lee to explain downsizing?

Answer: The HR director may cite downsizing and restructuring, outsourcing and offshoring, pressures of global competition, and increased use of technology.

Diff: 2 Page Ref: 281 AACSB: Reflective Thinking Objective: 9-4 How does employee status change through promotions, transfers, retirement, and termination?

Skill: Application 102) Abe is a very religious man and, in today's world, expects his employer to accommodate his needs. What are some things his employer might offer him?

Answer: Abe's employer may allow him to take prayer breaks and to take time off to observe religious holidays. It also may cater to his dietary requirements and permit differences in dress.

Diff: 2 Page Ref: 284 AACSB: Multicultural and Diversity Understanding Objective: 9-5 How does incorporating diversity affect the workforce?

Skill: Application 103) What concerns do women face in today's workforce?

Answer: Even though more women are entering the workforce than ever before, they are still experiencing sexism, salary inequities, and sexual harassment. Statistically, there are fewer female executives than is expected given the number of women in the workforce and women have been given fewer promotions than their male counterparts.

Diff: 2 Page Ref: 284 AACSB: Multicultural and Diversity Understanding Objective: 9-5 How does incorporating diversity affect the workforce?

Skill: Conceptual

104) Edith is an older worker who has no interest in retiring. What benefits does the company expect from Edith's employment? What disadvantages?

Answer: Older employees tend to expect higher salaries and better benefits than younger workers. However, they have lower turnover and absenteeism, lower training costs, and a willingness to learn new skills.

Diff: 2 Page Ref: 282 AACSB: Multicultural and Diversity Understanding Objective: 9-5 How does incorporating diversity affect the workforce?

Skill: Application 105) Why is a diverse workforce beneficial?

Answer: A diverse workforce has proven to be more creative and innovative. Diversity keeps companies competitive in a global business community.

Diff: 2 Page Ref: 284 AACSB: Multicultural and Diversity Understanding Objective: 9-5 How does incorporating diversity affect the workforce?

Skill: Conceptual 106) The Screen Actors Guild protects the interests of film and television performers. SAG is an example of what kind of organization? What kinds of things do they do?

Answer: SAG is an example of a labor union, which is a legally recognized group dedicated to protecting the interests of workers. They typically negotiate issues such as salary, health benefits, and work hours.

Diff: 2 Page Ref: 286 AACSB: Reflective Thinking Objective: 9-6 What are the objectives, structures, and future of labor unions in the global business environment?

Skill: Application 107) What is collective bargaining?

Answer: Collective bargaining involves negotiations between union representatives and employers over better work conditions and terms of employment. The result is a collective bargaining agreement.

Diff: 1 Page Ref: 287 Objective: 9-6 What are the objectives, structures, and future of labor unions in the global business environment?

Skill: Conceptual

108) If the union and management come to an impasse, what options exist to bring the sides to agreement?

Answer: Mediation is a process that involves a neutral third party who assists two parties both privately and collectively to identify issues and to develop proposals for resolution. Arbitration is another option. In arbitration, the dispute is sent to an arbitrator for a decision. The parties agree in advance if the decision is binding or nonbinding.

Diff: 1 Page Ref: 287 Objective: 9-6 What are the objectives, structures, and future of labor unions in the global business environment?

Skill: Conceptual 109) What kinds of things happen when negotiations break down?

Answer: When negotiations break down, workers may decide to strike, or to stop working. If they walk outside the workplace carrying signs displaying their grievances, they are picketing.

They may also boycott, in which unions and their supporters refuse to buy or handle the company's products or services in an effort to prompt management to accept union demands. A lockout is also possible. In a lockout, management refuses to allow union members from entering the premises. Lockouts are legal only if negotiations have come to an impasse and if the company is defending a legitimate position.

Diff: 2 Page Ref: 287-288 Objective: 9-6 What are the objectives, structures, and future of labor unions in the global business environment?

Skill: Conceptual Better Business, 7e (Solomon) Chapter 10 Online Business and Technology 1) The person in charge of technology-enabled information processing in companies is most often called the ________.

A) chief communications officer B) chief executive officer C) chief information officer D) chief computing officer Answer: C Explanation: C) A company's chief information officer (CIO) is the senior executive responsible for information processing that relies on technology. A vice president of information technology would have some responsibility for computer-based information systems, but would not be ultimately responsible for technology-enabled information processing.

Diff: 1 Page Ref: 297 AACSB: Use of Information Technology Objective: 10-1 What are the functions of a company's chief information officer (CIO) and information technology (IT) department?

Skill: Conceptual 2) The following are all functions of a chief information officer (CIO) EXCEPT ________.

A) creating business opportunities B) overseeing the accounting office

C) processing information D) updating computer systems Answer: B Explanation: B) A chief information officer is responsible for creating business opportunities enabled by technology, improving the processing of information, and updating computer systems. Although a CIO is responsible for managing the IT budget, the CIO is not responsible for overseeing the accounting office.

Diff: 1 Page Ref: 297 AACSB: Use of Information Technology Objective: 10-1 What are the functions of a company's chief information officer (CIO) and information technology (IT) department?

Skill: Conceptual

3) What is the best definition for data?

A) information used to improve business practices B) representation of a fact or idea C) statement of fact or idea D) opinions about the effectiveness of a business Answer: B Explanation: B) Data is the representation of a fact or idea. Data cannot be used in the decision making process until it is edited and analyzed in such a way that it become information.

Diff: 2 Page Ref: 298 AACSB: Use of Information Technology Objective: 10-1 What are the functions of a company's chief information officer (CIO) and information technology (IT) department?

Skill: Conceptual 4) Molave Furniture Company plans to launch a new Web site. Lila, the company's CIO, thinks that the company can better reach its customers through an interactive site that allows customers to view pictures of all furniture items, schedule an appointment with a sales consultant, or order items online. Which of the following areas of responsibility is Lila most specifically addressing?

A) budget B) currency of systems C) e-commerce D) systems design Answer: C Explanation: C) Lila's focus on designing the Web site so it encourages sales, and provides a way for customers to make purchased online, is an example of her responsibility as a CIO to promote e-commerce.

Diff: 1 Page Ref: 298 AACSB: Use of Information Technology Objective: 10-1 What are the functions of a company's chief information officer (CIO) and information technology (IT) department?

Skill: Application 5) The unit in a company that is most often responsible for the hardware components, software programs, and networking strategies of a business organization is ________.

A) information technology B) operations C) finance D) marketing Answer: A Explanation: A) Information technology departments or units are in charge of all technologyrelated needs of a company, including hardware components, software programs, and networking strategies.

Diff: 1 Page Ref: 298 AACSB: Use of Information Technology Objective: 10-1 What are the functions of a company's chief information officer (CIO) and information technology (IT) department?

Skill: Conceptual

6) As a chief information officer, Bob looks for ways that his company's technological resources can generate bigger returns on its information technology investments. Which aspect of the CIO's role is he addressing?

A) currency of systems B) e-commerce C) system design D) budget Answer: D Explanation: D) Bob's budgetary responsibility as a CIO includes not only creating and managing an IT budget but evaluating IT expenditures for ways in which the money invested in IT resources can contribute to positive financial returns for the company.

Diff: 2 Page Ref: 298 AACSB: Use of Information Technology Objective: 10-1 What are the functions of a company's chief information officer (CIO) and information technology (IT) department?

Skill: Conceptual 7) Which of the following is a function of a company's IT department?

A) managing the use of mobile computing B) setting sales targets for technology products C) marketing new technologies to consumers D) identifying new locations for company offices Answer: A Explanation: A) Mobile computing, including smartphones, is an established productivity tool for many companies. Efficient IT departments create standards for mobile computing equipment used by company employees, thereby reducing the costs and security risks of supporting a large number of different mobile computing providers.

Diff: 2 Page Ref: 298 AACSB: Use of Information Technology Objective: 10-1 What are the functions of a company's chief information officer (CIO) and information technology (IT) department?

Skill: Conceptual

8) What does a management information system (MIS) do that an IT department would typically not do?

A) focus on pure technical knowledge B) focus on applying IT to solve business problems C) focus on reducing information flow among employees D) focus on identifying management problems in IT departments Answer: B Explanation: B) The goal of management information systems is to apply information technology to solve business and economic problems. MIS professionals bridge the gap between purely technical knowledge and how that knowledge can be used to impact a business.

Diff: 2 Page Ref: 298 AACSB: Use of Information Technology Objective: 10-2 How are information technology, information systems, information, and data interrelated within a business?

Skill: Conceptual 9) Which of the following BEST describes how businesses convert raw data into information?

A) asking information technology experts to review data for accuracy B) organizing the data in a way that helps make decisions C) storing the data in a data warehouse D) using the prevalent automatic process Answer: B Explanation: B) Businesses convert data into information usually with the help of software information systems that help managers understand what the significance of the raw data might be for any aspect of a firm's operations. The information thus gathered helps managers make important business decisions.

Diff: 2 Page Ref: 299 AACSB: Use of Information Technology Objective: 10-2 How are information technology, information systems, information, and data interrelated within a business?

Skill: Conceptual

10) Marianne is the payroll manager at Johnson Manufacturing. She wants to upgrade the department’s accounting systems. To whom should she send her request for an upgrade?

A) Director of Human Resources B) Vice President of Operations C) Director of Management Information Systems D) Vice President of Marketing Answer: C Explanation: C) The Management Information Systems (MIS) department is the department that bridges the gap between purely technical knowledge and how that knowledge can be used to impact a business. Therefore, the request for a payroll systems upgrade should go to MIS, since they would be able to investigate the impact of that change on other interrelated technology systems in the company and rate the amount of gain against the cost to install an upgraded payroll system.

Diff: 1 Page Ref: 298 AACSB: Use of Information Technology Objective: 10-2 How are information technology, information systems, information, and data interrelated within a business?

Skill: Application 11) Which of the following is NOT true of executive information systems?

A) They can consolidate transactions using both internal sources.

B) They are especially designed to help managers make decisions.

C) They usually display more graphics and fewer spreadsheets than other information systems.

D) They are primarily used by the CEO and other top executives.

Answer: D Explanation: D) Executive information systems are not arbitrarily restricted to the most senior manager of a business. Executive information systems are specifically designed for use by managers. They consolidate a wide array of information about all aspects of the business and include internal and external data sources. They frequently display complex information in a graphical format which makes the information easy to understand.

Diff: 2 Page Ref: 299 AACSB: Use of Information Technology Objective: 10-2 How are information technology, information systems, information, and data interrelated within a business?

Skill: Conceptual

12) Business intelligence software can help managers ________.

A) report, plan, and forecast workforce performance B) assess the level of expertise of each of a business's employees C) forecast their business's stock performance during the next fiscal year D) gain access to private information about a business's competitors Answer: A Explanation: A) Business intelligence software allows managers to report, plan, and forecast workforce performance. Among other things, business intelligence software helps managers to analyze financial states, customer satisfaction, sales, and supply chain status.

Diff: 2 Page Ref: 299 AACSB: Use of Information Technology Objective: 10-2 How are information technology, information systems, information, and data interrelated within a business?

Skill: Conceptual 13) Mason's business is making a profit, but he needs to increase his bottom line so that he can invest in his firm's growth. He decides to purchase a business intelligence software package to help him identify ways to grow his company. Which of the following questions could Mason's business intelligence software answer?

A) Which of my competitors has the least debt?

B) Which countries would provide the least expensive production facilities?

C) Who are my top 10 revenue generating customers?

D) What new technologies will be available to increase my firm's productivity?

Answer: C Explanation: C) Business intelligence software can provide information about a firm's internal operations, including current customers, and therefore could identify its top 10 revenue generating customers. Business intelligence software does not provide information about external conditions such as competitor data, potential offshore productions facilities, or forthcoming new technologies.

Diff: 1 Page Ref: 299 AACSB: Use of Information Technology Objective: 10-2 How are information technology, information systems, information, and data interrelated within a business?

Skill: Application

14) An ice cream franchise wants to know how each of its flavors is selling so that managers can make decisions about which flavors to carry and which ones to discontinue. Which of the following will BEST help the company make its decision?

A) an interview of customers B) a database management system C) a taste test by employees D) an online poll Answer: B Explanation: B) A database management system allows a business to organize data and allow simple analysis and reporting. Such a system would allow the franchise to collect sales data and information about customers that can be used to provide a basis for decisions about which flavors to carry and how much of each flavor to order.

Diff: 2 Page Ref: 299 AACSB: Use of Information Technology Objective: 10-2 How are information technology, information systems, information, and data interrelated within a business?

Skill: Conceptual 15) Database management systems are MOST useful because ________.

A) information technology managers prefer to use software systems rather than qualitative systems B) they help businesses manage vast amounts of data collected in the process of doing business C) customers prefer companies that rely on database management systems D) the company can hire more people to collect and analyze the data Answer: B Explanation: B) As companies begin to collect increasing amounts of information about customers, sales, production, etc., database management systems allow for more efficient data storage, analysis, and reporting.

Diff: 1 Page Ref: 299-300 AACSB: Use of Information Technology Objective: 10-2 How are information technology, information systems, information, and data interrelated within a business?

Skill: Conceptual

16) What best describes a data mart?

A) a store where companies can purchase data B) a collection of network servers dedicated to hosting database management systems on the Internet C) a collection of data about a single product or department that is part of a larger collection of data D) a type of business intelligence software used for making purchasing decisions Answer: C Explanation: C) A data mart is a subset of a larger set of data held in a database management system. Data marts are created to make it easier to analyze a single product or department.

Diff: 1 Page Ref: 299 AACSB: Use of Information Technology Objective: 10-2 How are information technology, information systems, information, and data interrelated within a business?

Skill: Conceptual 17) Hilde's company wants to develop an understanding of the demographics of people purchasing its new product. The company wants to target its marketing at this demographic of people. The marketing department has used a database management system to identify the characteristics of buyers. Which of the following will be MOST useful for identifying the appropriate demographic group at which to target marketing?

A) data warehousing B) data brainstorming C) data consolidation D) data mining Answer: D Explanation: D) The best approach would be for Hilde's company to take information contained in its database management system, in particular a data mart containing demographic information about customers, and use data mining to provide information, such as which demographic groups of customers are purchasing the most digital music players.

Diff: 2 Page Ref: 299-300 AACSB: Use of Information Technology Objective: 10-2 How are information technology, information systems, information, and data interrelated within a business?

Skill: Application

18) HipHop Innovations, Inc. stores massive numbers of music videos as well as data about sales and clients. The company is highly dependent on this data and cannot afford to lose it. HipHop Innovations' management is considering purchasing a hard disk drive design called RAID (redundant array of independent drives). How does a RAID system help protect a company's critical data and information?

A) by providing a large data warehouse for storing its information B) by increasing the speed of its central processing unit (CPU) C) by making a perfect backup of its data on two separate drives D) by making separate copies of data for clients and the company Answer: C Explanation: C) RAID systems use two or more computer disk drives instead of one, and automatically copy all data saved on one drive to each of the other drives. If one drive fails, HipHop Innovations would still be able to access critical data that was saved on the other backup drives.

Diff: 2 Page Ref: 301 AACSB: Use of Information Technology Objective: 10-3 How are major types of hardware, software, and networks used in business?

Skill: Application 19) Which two features of a business workstation's central processing unit (CPU) usually need to be more advanced than that of a home computer?

A) processing power and speed B) cost and design C) warranty and variety D) memory and durability Answer: A Explanation: A) Because businesses usually must perform complex data analysis, the processing power and speed of the CPU often needs to be more advanced than that of the typical home computer.

Diff: 1 Page Ref: 302 AACSB: Use of Information Technology Objective: 10-3 How are major types of hardware, software, and networks used in business?

Skill: Conceptual

20) What BEST explains why business workstations often have more random access memory (RAM) than home computers?

A) Businesses often have two or three computers linked together for every workstation.

B) Businesses annually replace their systems with the best equipment available.

C) Workstations are constantly updated and data is stored on a main computer to free space.

D) Workstations require faster overall processing speed for projects and office programs.

Answer: D Explanation: D) The more RAM, the faster a computer can process data. Therefore, business workstations typically feature more RAM than home computers because the faster data can be processed, the more can be accomplished in a workday.

Diff: 2 Page Ref: 302 AACSB: Use of Information Technology Objective: 10-3 How are major types of hardware, software, and networks used in business?

Skill: Conceptual 21) Mobile devices, global positioning system (GPS) devices, and portable printers are in common use for professional and personal use. However, this combination of devices would be MOST beneficial to ________.

A) customers B) office managers C) business travelers D) machine operators Answer: C Explanation: C) Business travelers are most likely to benefit from the combination of mobile devices, such as smartphones, GPS devices, and portable printers, all of which would allow them to be productive no matter where they traveled.

Diff: 1 Page Ref: 302 AACSB: Use of Information Technology Objective: 10-3 How are major types of hardware, software, and networks used in business?

Skill: Conceptual 22) Which of the following is an advantage of using spreadsheet programs over database programs?

A) Spreadsheets are automatically duplicated into data warehouses.

B) Spreadsheets are simple for managers to use and require no programming ability.

C) Spreadsheets are customized online to provide sophisticated analysis of the overall business.

D) Spreadsheets are only interpreted by MIS professionals.

Answer: B Explanation: B) Spreadsheet programs such as Microsoft Excel can run hundreds of different statistical and financial functions with no programming required. Spreadsheet programs are the easiest for managers to work with and allow managers to easily interpret results. However, they often are not able to provide the complexity of data analysis that can be gained from database programs.

Diff: 1 Page Ref: 302 AACSB: Use of Information Technology Objective: 10-3 How are major types of hardware, software, and networks used in business?

Skill: Conceptual

23) Manoj is the purchasing manager at a company interested in improving its internal management abilities. A manager asks Manoj to consider purchasing an HRM system. What is the BEST description for how this system would be used?

A) prioritize managerial functions for all managers B) assess workplace environment with regards to hiring C) monitor customer feedback for all issues D) organize tasks involving personnel issues Answer: D Explanation: D) An HRM system is software that organizes internal, people-related management tasks such as employee reviews, compensation calculations, and job applicant management.

Diff: 2 Page Ref: 303 AACSB: Use of Information Technology Objective: 10-3 How are major types of hardware, software, and networks used in business?

Skill: Conceptual 24) What is MOST important for cloud computing?

A) Internet B) smartphones C) wireless connections D) computer backup systems Answer: A Explanation: A) Cloud computing refers to the sharing of information, resources, and software over the Internet. Without access to the Internet, cloud computing could not work.

Diff: 2 Page Ref: 306 AACSB: Use of Information Technology Objective: 10-3 How are major types of hardware, software, and networks used in business?

Skill: Conceptual 25) Programs such as QuickBooks help businesses by ________.

A) handling financial tasks like accounting and budgeting, as well as managing other office expenses B) allowing management to monitor employee activity throughout the course of a work week.

C) allowing national and international calls to be placed quickly and cheaply over the Internet D) making it faster to track the management of knowledge workers throughout their careers Answer: A Explanation: A) QuickBooks is a popular program used by small businesses worldwide to handle budgeting and accounting needs. It is not an employee monitoring device; it does not enable Internet-based phone calls; and it does not have the ability to help monitor employees' career activity.

Diff: 1 Page Ref: 303 AACSB: Use of Information Technology Objective: 10-3 How are major types of hardware, software, and networks used in business?

Skill: Conceptual

26) All of the following are examples of green computing EXCEPT ________.

A) telecommuting B) portable printers C) power consumption monitoring D) virtual meeting environments Answer: B Explanation: B) Portable printers have not contributed to green computing. These printers make it easier to print on demand, and therefore use, paper. The excess use of paper is not a component of green computing.

Diff: 2 Page Ref: 306 AACSB: Use of Information Technology Objective: 10-3 How are major types of hardware, software, and networks used in business?

Skill: Conceptual 27) Jane has a freelance writing business and wants to stay in touch with her customers as a way of growing her business. Which of the following technologies would BEST allow her to keep her customers aware of her services?

A) VoIP B) remote conferencing C) marketing services D) data mining Answer: C Explanation: C) Marketing technologies and services, such as email companies that send messages to lists provided by business and keep track of what recipients do with the email, allow businesses to easily use the Internet as a tool for distributing information to customers about its products and services. These services also provide tools for collecting information about customers.

Diff: 1 Page Ref: 304 AACSB: Use of Information Technology Objective: 10-3 How are major types of hardware, software, and networks used in business?

Skill: Conceptual 28) Voice Over Internet Protocol (VoIP) works by ________.

A) using the Internet to transmit telephone communications B) allowing many people to join a common discussion regardless of their physical location C) creating templates for email or phone marketing campaigns that can be conducted over the Internet D) giving employees virtual whiteboards so they can work collaboratively on a single document Answer: A Explanation: A) Voice Over Internet Protocol (VoIP) is a service that enables free or inexpensive phone communication via the Internet. VoIP-based services are cheaper than traditional land-based phone networks. Skype is an example of a VoIP service that allows national and international calls to be made for free.

Diff: 1 Page Ref: 303-304 AACSB: Use of Information Technology Objective: 10-3 How are major types of hardware, software, and networks used in business?

Skill: Conceptual

29) Riley and her college friends always talked about starting a business together, but since graduating, they have all relocated to different parts of the country. Which of the following would BEST enable Riley and her friends to build a "virtual" company without living in the same geographic location?

A) blogs B) Facebook C) remote conferencing D) Twitter Answer: C Explanation: C) Remote conferencing allows many people to join a common discussion regardless of their physical location. Facebook and Twitter would both provide opportunities to communicate, but for purposes of starting a business, remote conferencing would provide the most options for collectively reviewing data, accessing information on another team member's desktop, and demonstrating features or potential product offerings.

Diff: 2 Page Ref: 304 AACSB: Use of Information Technology Objective: 10-3 How are major types of hardware, software, and networks used in business?

Skill: Application 30) What is a network?

A) a software program that accesses technical information available on the Internet B) the design and implementation of computer-based information systems C) the set of different languages that are used to transfer information across the Internet D) a system that connects computers and other devices such as printers and faxes together Answer: D Explanation: D) A network is a system of computers and other devices joined together using cables, fiber optic links, or wireless connections. This allows expensive devices such as laser printers or important collections of secure protected data to be accessed by numerous employees in an organization.

Diff: 1 Page Ref: 305 AACSB: Use of Information Technology Objective: 10-3 How are major types of hardware, software, and networks used in business?

Skill: Conceptual

31) Gina's company wants to connect several of its computers to a print station in a different part of their office. Her company can link the printer with the computers using ________.

A) remote conferencing B) networking C) sonar D) VoIP Answer: B Explanation: B) Gina's company can make efficient use of its printer by using a network to link the printer to multiple computers in the office. A network is a system of computers and other devices joined together using cables, fiber optic links, or wireless connections.

Diff: 1 Page Ref: 305 AACSB: Use of Information Technology Objective: 10-3 How are major types of hardware, software, and networks used in business?

Skill: Conceptual 32) A(n) ________ is a network that includes computers and other devices that are in close physical proximity to one another, for instance, in one office building.

A) LAN B) Extranet C) VPN D) VoIP Answer: A Explanation: A) A local area network (LAN) includes only devices that are in close proximity to one another. Computers on the network may be joined by physical cables or by using a wireless signal.

Diff: 1 Page Ref: 305 AACSB: Use of Information Technology Objective: 10-3 How are major types of hardware, software, and networks used in business?

Skill: Conceptual 33) Jacob recently began a new job at a consulting firm. He has learned that the company's network is partially accessible to outside users, as well as employees. Outsiders can view parts of the network with a valid username and password, while unauthorized users are kept out by a specialized firewall protecting the network. Which of the following terms describes the consulting firm's network?

A) intranet B) exonet C) internet D) extranet Answer: D Explanation: D) An extranet is a network that is partially accessible to outside users with valid login credentials. Extranets are a popular way that businesses can allow stakeholders, such as customers or suppliers, to access company information.

Diff: 1 Page Ref: 305 AACSB: Use of Information Technology Objective: 10-3 How are major types of hardware, software, and networks used in business?

Skill: Conceptual

34) How is the Internet2 BEST described?

A) a way of accessing encrypted information not normally available on mobile devices B) a set of different "languages" or protocols that are used to transfer information across the original Internet at varying speeds C) a network of networks that allows certain universities and businesses to transfer data at very high speeds D) a large network that connects millions of computers internationally Answer: C Explanation: C) The Internet2, a network of networks that can communicate at speeds a hundred to a thousand times faster than the original Internet, is a collaboration of over 200 universities and 120 companies. It allows projects that require incredibly high-speed transfer of data. These include real-time high definition video applications and virtual reality medical simulators.

Diff: 2 Page Ref: 306 AACSB: Use of Information Technology Objective: 10-3 How are major types of hardware, software, and networks used in business?

Skill: Conceptual 35) Hypertext transfer protocol (HTTP) is a type of computing ________ that allows users to access information available on the Internet.

A) router B) language C) business D) ISP Answer: B Explanation: B) Protocols are different "languages" that are used to transfer information across the Internet. HTTP is a specific protocol that allows users to access information available on the Internet through the World Wide Web. Diff: 2 Page Ref: 306 AACSB: Use of Information Technology Objective: 10-3 How are major types of hardware, software, and networks used in business?

Skill: Conceptual 36) Erin has just had a cable modem installed that gives her access to the Internet and email capability. Which protocol does her email service provider use to transmit the emails she sends to others across the Internet?

A) FTP B) SMTP C) HTTP D) VOIP Answer: B Explanation: B) The protocol used to handle outgoing email is the simple mail transfer protocol (SMTP.) Diff: 1 Page Ref: 306 AACSB: Use of Information Technology Objective: 10-3 How are major types of hardware, software, and networks used in business?

Skill: Conceptual

37) A city fire department might consider an investment in robotics technology because ________.

A) it could relieve firefighters of certain dangerous tasks B) it could allow the fire department to lay off fewer firefighters C) it could make the firefighters' jobs more fulfilling D) it could justify an increase in the annual department budget Answer: A Explanation: A) Robotics is one example of the many benefits of technology. In rescue operations, robots and robotic assistance have relieved human rescue personnel of some dangerous tasks. Thus a fire department could use robotic equipment to reduce danger to its personnel.

Diff: 1 Page Ref: 307 AACSB: Use of Information Technology Objective: 10-4 What are the benefits and risks of technology in the workplace, taking into account safety, creativity, communication, productivity, privacy, and ethics?

Skill: Application 38) Which of the following uses of technology would be MOST likely to contribute to a breakdown in workplace communication?

A) increase in blogging B) increase in email C) increase in gaming D) increase in simulations Answer: B Explanation: B) The increasing reliance on email can lead to a breakdown in communication because it has limitations when used excessively as a substitute for face-to-face communications.

Up to 93% of the meaning of a message is communicated in nonverbal ways through gestures, facial expressions, and body position none of which can be accessed through email. Therefore, there is much potential for email recipients to misinterpret the content and meaning of email messages, leading to miscommunication and errors.

Diff: 2 Page Ref: 307 AACSB: Use of Information Technology Objective: 10-4 What are the benefits and risks of technology in the workplace, taking into account safety, creativity, communication, productivity, privacy, and ethics?

Skill: Application

39) Amber has found it convenient to be able to access her work email and files at home, but recently she has started to feel frustrated because she is working more hours and spending less time with her family. Amber's frustration is MOST likely the result of ________.

A) an increased work effort as a result of increased compensation.

B) an increased demand on her time from her family.

C) an increased use of technology tools.

D) a decreased focus on work at the office.

Answer: C Explanation: C) Amber's situation is an example of business's increasing use of technology to produce increased output from employees. As Amber's frustration demonstrates, the increases in productivity that a company hopes for when it gives technology tools to its workers may not always materialize.

Diff: 2 Page Ref: 308 AACSB: Use of Information Technology Objective: 10-4 What are the benefits and risks of technology in the workplace, taking into account safety, creativity, communication, productivity, privacy, and ethics?

Skill: Conceptual 40) Which of the following statements is MOST accurate?

A) Research proves that IT investments increase employee productivity.

B) Research proves that IT investments reduce employee productivity.

C) Research proves that IT investments have no effect on employee productivity.

D) Research is inconclusive about the relationship between IT investments and productivity.

Answer: D Explanation: D) Some studies show that IT investments contribute to productivity, while others find that IT investments can cause a drop in productivity. At this time there is no definitive proof either way.

Diff: 2 Page Ref: 308 AACSB: Use of Information Technology Objective: 10-4 What are the benefits and risks of technology in the workplace, taking into account safety, creativity, communication, productivity, privacy, and ethics?

Skill: Conceptual 41) Knowledge-based workers contribute MOST to their companies through ________.

A) patience and adaptability B) creativity and originality C) experience and dedication D) effort and trainability Answer: B Explanation: B) Knowledge-based workers may possess many admirable traits such as patience, adaptability, experience, dedication, and effort. However, it is knowledge workers' creativity and originality that set them apart from other valuable employees.

Diff: 1 Page Ref: 308 AACSB: Use of Information Technology Objective: 10-4 What are the benefits and risks of technology in the workplace, taking into account safety, creativity, communication, productivity, privacy, and ethics?

Skill: Conceptual

42) While working for a comic book company, Jack created a character that went on to become a huge success for the business. Despite this creation, Jack was paid only his usual wages. What is the BEST explanation for why Jack did not receive any additional financial benefit as a result of the character he created?

A) Jack's company was not appreciative of his contribution to the success of the business.

B) Jack's company did not realize that his character would become so successful.

C) Jack was an employee of the company so the character belonged to the company.

D) Jack created the character so it became his intellectual property.

Answer: C Explanation: C) Jack was paid only his normal wages for creating the comic book character because by law, the character automatically became the property of the company for which he worked as an employee. Therefore, the company was not required to pay Jack any additional amount for creating the character.

Diff: 2 Page Ref: 308 AACSB: Use of Information Technology Objective: 10-4 What are the benefits and risks of technology in the workplace, taking into account safety, creativity, communication, productivity, privacy, and ethics?

Skill: Conceptual 43) ________ refers to ownership of an intangible concept or idea.

A) Intellectual property B) Tacit property C) Real property D) Innovative property Answer: A Explanation: A) Intellectual property refers to ownership of ideas and content, in contrast to other forms of property, such as objects or real estate.

Diff: 1 Page Ref: 308 AACSB: Use of Information Technology Objective: 10-4 What are the benefits and risks of technology in the workplace, taking into account safety, creativity, communication, productivity, privacy, and ethics?

Skill: Conceptual

44) Which of the following statements is TRUE about the impact of technology on employee privacy?

A) Technology makes it more difficult for companies to access private information about employees.

B) Technology ensures that individuals will have the same privacy protections at work as they do at home.

C) Technology ensures that employees can access more private information about their fellow employees.

D) Technology allows companies to access information about employees' behavior on the job.

Answer: D Explanation: D) The U.S. government guarantees specific levels of privacy in an individual's private life. In the workplace, however, privacy rights are limited. An employer has a right to monitor behavior that may interfere with the productivity of the company. Technology makes it easier to monitor these behaviors.

Diff: 1 Page Ref: 308 AACSB: Use of Information Technology Objective: 10-4 What are the benefits and risks of technology in the workplace, taking into account safety, creativity, communication, productivity, privacy, and ethics?

Skill: Conceptual 45) Employers use electronic monitoring to ________.

A) gather information about an employee's activities while on the job B) gather information about customers' attitudes about the company C) collect data on activities of competitors D) collect information about employees' activities when away from the workplace Answer: A Explanation: A) Electronic monitoring is commonly used to track employee's computer keystrokes and emails, examine their Internet browsing histories, as well as monitor cell phone and instant messaging usage. Such monitoring can help a company ensure that company resources are being used appropriately.

Diff: 1 Page Ref: 308 AACSB: Use of Information Technology Objective: 10-4 What are the benefits and risks of technology in the workplace, taking into account safety, creativity, communication, productivity, privacy, and ethics?

Skill: Conceptual

46) Terrell urgently needs to take care of some personal business using the Internet, but he is afraid that he might jeopardize his job if he is found using the company network for personal use.

Which corporate practice is causing Terrell to most likely feel this concern?

A) intellectual property monitoring B) technology auditing C) electronic monitoring D) job tracking Answer: C Explanation: C) Electronic monitoring is a common practice among employers who want to ensure that company resources are being used wisely. For instance, by tracking Internet activity, a company can determine which Web sites an employee is using and determine whether visits to that site are legitimate given an employee's work assignments.

Diff: 1 Page Ref: 308 AACSB: Use of Information Technology Objective: 10-4 What are the benefits and risks of technology in the workplace, taking into account safety, creativity, communication, productivity, privacy, and ethics?

Skill: Conceptual 47) Although electronic monitoring offers some advantages to a company, it may also result in disadvantages. Which of the following is the MOST significant disadvantage of electronic monitoring of employees?

A) Electronic monitoring may cause many employees to request decreased levels of supervision.

B) Electronic monitoring devices' electromagnetic fields can disrupt company telecommunications.

C) Electronic monitoring, even at its best, can crash computers.

D) Electronic monitoring can result in increased employee stress and anxiety.

Answer: D Explanation: D) For some employees, electronic monitoring can create an environment of distrust in which they feel unable to do their best work. Employees may feel more stressed and anxious, leading in turn to job dissatisfaction and health problems, all of which would negatively affect productivity.

Diff: 2 Page Ref: 308 AACSB: Use of Information Technology Objective: 10-4 What are the benefits and risks of technology in the workplace, taking into account safety, creativity, communication, productivity, privacy, and ethics?

Skill: Conceptual

48) Technology BEST supports whistleblowers by ________.

A) enabling distribution of business codes of conduct on the Internet B) making it possible for people to report a business's ethical violations safely and easily C) wiretapping phones of employees or executives who are suspected of being unethical D) making it difficult to violate employee privacy through electronic monitoring Answer: B Explanation: B) Companies are legally required to have procedures for handling the concerns of people who wish to report on suspected illicit activities. Technology can make it easier and safer for individuals to report such concerns. For example, the Occupational Health and Safety Administration has designed its Web site to allow people to file reports or complaints anonymously, shielding them from possible retaliation.

Diff: 1 Page Ref: 308-309 AACSB: Use of Information Technology Objective: 10-4 What are the benefits and risks of technology in the workplace, taking into account safety, creativity, communication, productivity, privacy, and ethics?

Skill: Conceptual 49) Which of the following is the BEST example of how technology supports ethical conduct in hospitals?

A) Technology ensures that the correct prescriptions are prescribed to patients.

B) Technology allows employees to report their mistakes without risking disciplinary action.

C) Technology quickly recognizes mistakes in data entry, preventing unfortunate errors.

D) Technology makes it easier to monitor the conversations of patients and visitors.

Answer: B Explanation: B) Many organizations, including hospitals, use their Intranet to allow people to report mistakes or "near misses" mistakes that could have occurred but were caught and corrected. This allows the organization to learn from mistakes or possible mistakes, but safeguards the employee from embarrassment or disciplinary action.

Diff: 2 Page Ref: 309 AACSB: Use of Information Technology Objective: 10-4 What are the benefits and risks of technology in the workplace, taking into account safety, creativity, communication, productivity, privacy, and ethics?

Skill: Conceptual

50) What is LEAST likely to jeopardize the security of a company's data?

A) crash of a single computer B) theft of a single computer C) hacking of a computer network D) use of RAID Answer: A Explanation: A) Companies back up their data. Consequently, if a single computer crashes, the data that was stored on it will remain secure. Individuals who should not have access to the data will not be able to access data from a crashed computer.

Diff: 2 Page Ref: 309-311 AACSB: Use of Information Technology Objective: 10-4 What are the benefits and risks of technology in the workplace, taking into account safety, creativity, communication, productivity, privacy, and ethics?

Skill: Conceptual 51) Which of the following statements BEST support why hackers present risks to a company’s security?

A) They distract employees from completing their assigned tasks.

B) They use encryption schemes to access corporate Web sites.

C) They gain unauthorized entry into a company’s computer system.

D) They steal important papers from workers' desks and offices.

Answer: C Explanation: C) Hackers threaten a company's security primarily because they seek to gain unauthorized entry into a computer system. Their goals may be to disrupt the operation of the system or to gain access to protected data.

Diff: 1 Page Ref: 309 AACSB: Use of Information Technology Objective: 10-4 What are the benefits and risks of technology in the workplace, taking into account safety, creativity, communication, productivity, privacy, and ethics?

Skill: Conceptual 52) Which of the following can minimize threats to a company's online security?

A) wireless networks B) security guards C) hackers D) encryption Answer: D Explanation: D) In the event that a company's IT security systems are breached, encryption software can make it difficult or impossible for an unauthorized user to understand or use private company data.

Diff: 1 Page Ref: 305 AACSB: Use of Information Technology Objective: 10-4 What are the benefits and risks of technology in the workplace, taking into account safety, creativity, communication, productivity, privacy, and ethics?

Skill: Conceptual

53) Who is encryption meant to prevent from reading private data?

A) hackers B) company employees C) customers D) the public Answer: A Explanation: A) Encyrption is meant to prevent hackers from reading a company's private data.

If employees, customers, or the public try to access and read private data they become hackers.

Companies hope that this encryption will prevent access.

Diff: 2 Page Ref: 310 AACSB: Use of Information Technology Objective: 10-4 What are the benefits and risks of technology in the workplace, taking into account safety, creativity, communication, productivity, privacy, and ethics?

Skill: Conceptual 54) ________ is the practice of shifting work from the United States to other nations.

A) Outsourcing B) Offshoring C) Contracting D) Internationalizing Answer: B Explanation: B) Offshoring is a practice in which work is shifted from the United States to other nations. Because of technology, it has become less important to conduct some business operations such as manufacturing in the United States. This allows U.S. companies to take advantage of lower labor costs in other countries.

Diff: 1 Page Ref: 312 AACSB: Use of Information Technology, Dynamics of the Global Economy Objective: 10-5 What is the impact of technology on the international business environment based on offshoring, outsourcing, and alternative methods of communication?

Skill: Conceptual 55) What technology will not benefit offshoring?

A) FTP B) VOIP C) LAN D) WAN Answer: C Explanation: C) LANs, or local area networks, enable the creation of networks within close areas. Since offshoring necessarily involves companies working together from across the world, LANs are not helpful in this work.

Diff: 1 Page Ref: 305, 312 AACSB: Use of Information Technology, Dynamics of the Global Economy Objective: 10-5 What is the impact of technology on the international business environment based on offshoring, outsourcing, and alternative methods of communication?

Skill: Conceptual

56) Offshoring is an attractive option to U.S. companies because ________.

A) executives can enjoy a higher standard of life in developing countries B) qualified personnel can provide professional services at much cheaper rates C) the politics of offshore countries are more compatible with those of company owners D) companies with extensive shorelines make it easier to ship products Answer: B Explanation: B) Countries in developing nations usually have a pool of English-speaking workers who can provide professional services at much lower labor rates than those in the United States.

Diff: 1 Page Ref: 312 AACSB: Use of Information Technology, Dynamics of the Global Economy Objective: 10-5 What is the impact of technology on the international business environment based on offshoring, outsourcing, and alternative methods of communication?

Skill: Conceptual 57) Near-shoring is a type of offshoring in which jobs are moved to countries that are ________.

A) politically different but becoming more democratized B) close to companies' other offshoring locations C) cheaper than more remote and exotic locations around the world D) linguistically and culturally similar to the domestic country Answer: D Explanation: D) Near-shoring is a form of offshoring in which a company moves jobs to a foreign location that is geographically close or linguistically and culturally similar to the domestic company. Sending work from the United States to countries such as Canada, the United Kingdom, or Australia could be considered near-shoring.

Diff: 1 Page Ref: 312 AACSB: Use of Information Technology, Dynamics of the Global Economy Objective: 10-5 What is the impact of technology on the international business environment based on offshoring, outsourcing, and alternative methods of communication?

Skill: Conceptual 58) ________ is a practice of contracting with an outside firm to handle a specific part of a business's daily activities.

A) Outsourcing B) Subsourcing C) Offshoring D) Near-shoring Answer: A Explanation: A) Outsourcing takes place when a company contracts with an outside firm to handle a specific part of its daily business activities. Most companies outsource certain aspects of their work to outside firms that can complete a job or make a product, better, faster, or cheaper than the company could do on its own.

Diff: 1 Page Ref: 313 AACSB: Use of Information Technology Objective: 10-5 What is the impact of technology on the international business environment based on offshoring, outsourcing, and alternative methods of communication?

Skill: Conceptual

59) Which of the following is NOT an example of outsourcing?

A) A company hires a staffing company to identify candidates for its open jobs.

B) A small business owner asks a local printing company to produce its marketing flyers.

C) A publishing company has a contract with a shipping provider to manage its distribution.

D) A manufacturing firm relocates a production facility to Mexico.

Answer: D Explanation: D) Outsourcing takes place when a company contracts with an outside firm to handle a specific part of its daily business activities. Outsourcing is therefore different from offshoring, which is the relocation of a part of a business to a lower-cost location typically in a foreign country. A manufacturing firm that relocates a production facility to Mexico would be offshoring, not outsourcing.

Diff: 1 Page Ref: 313 AACSB: Use of Information Technology, Dynamics of the Global Economy Objective: 10-5 What is the impact of technology on the international business environment based on offshoring, outsourcing, and alternative methods of communication?

Skill: Conceptual 60) Rosa has a successful Web-based business selling Native American crafts. Recently she has been receiving orders from people in countries outside the United States. What technological change would MOST likely attract more customers in other countries to her online business?

A) Make sure her online content is oriented primarily to her existing customers.

B) Advertise in English-speaking newspapers that are published in foreign countries.

C) Ensure her Web site supports multiple languages and culturally customized content.

D) Add wikis, a blog, and a search function to her Web site.

Answer: C Explanation: C) Since Rosa's Web site is already attracting customers from other countries, she can increase international sales by using her Web site to more actively market her products to customers in other countries. To do this, Rosa needs to upgrade her Web site so that it can be viewed in the languages of countries where she is focusing her marketing efforts. She should also provide marketing content that is culturally appropriate for prospective buyers from each of the different countries which she plans to target.

Diff: 1 Page Ref: 313 AACSB: Use of Information Technology, Dynamics of the Global Economy Objective: 10-5 What is the impact of technology on the international business environment based on offshoring, outsourcing, and alternative methods of communication?

Skill: Conceptual

61) Which of the following is NOT an example of how technology can help companies outsource and offshore work?

A) Because of time zone differences, offshoring companies can use technology to conduct business almost 24 hours a day.

B) Employees in different divisions of an international business can use technology to collaborate more effectively.

C) Technology allows innovative ideas from different regions to be more readily identified and explored.

D) Technology makes it more efficient and easier for executives to collect and analyze data that can be used in the decision-making process.

Answer: D Explanation: D) Outsourcing and offshoring are two terms that describe the process of producing work outputs. This is different than executives collecting and analyzing data to benefit the decision-making process.

Diff: 2 Page Ref: 314-315 AACSB: Use of Information Technology Objective: 10-5 What is the impact of technology on the international business environment based on offshoring, outsourcing, and alternative methods of communication?

Skill: Conceptual 62) Which of the following countries has most recently grown into a major production center for the world?

A) Japan B) China C) Kuwait D) New Zealand Answer: B Explanation: B) In the last several decades, China has grown as a production center of the world, manufacturing everything from clothing to machinery. A large labor pool of low-cost workers makes China a highly desirable location for companies interested in offshoring their production facilities.

Diff: 1 Page Ref: 314 AACSB: Use of Information Technology, Dynamics of the Global Economy Objective: 10-5 What is the impact of technology on the international business environment based on offshoring, outsourcing, and alternative methods of communication?

Skill: Conceptual

63) Which of the following statements is TRUE about the conditions of the global workplace?

A) Because of Web-based translation programs, employees will not need to be fluent in multiple languages.

B) Because there will be a larger pool of talented knowledge workers, workers with average skills may lose jobs.

C) Because of Internet-enabled communication, interpersonal communication skills will become less important.

D) Because the workplace will be more diverse, employees will be expected to work harder to maintain their own cultural identities.

Answer: B Explanation: B) Technology makes it possible for businesses to find talented workers anywhere around the world. Therefore, there will be a growing number of talented knowledge workers in the global talent pool, who may displace workers with average or marginal skills.

Diff: 2 Page Ref: 315 AACSB: Use of Information Technology Objective: 10-5 What is the impact of technology on the international business environment based on offshoring, outsourcing, and alternative methods of communication?

Skill: Conceptual 64) Arwa is a marketing specialist who was hired by a United States company with a branch in her native country of Turkey. Which of the following is the LEAST likely reason her company hired Arwa?

A) Arwa benefitted from a company hiring program that recruits minorities.

B) Arwa is fluent in English and Turkish.

C) Arwa spent a year at a university in the United States.

D) Arwa is familiar with a number of marketing technologies and services.

Answer: A Explanation: A) Arwa was most likely hired for a combination of her marketing skills, fluency in English, and cultural familiarity with the United States through her year at a U.S. college.

These skills would make her a very attractive job candidate, whether or not the company had a special minority recruiting program.

Diff: 2 Page Ref: 315-316 AACSB: Use of Information Technology Objective: 10-5 What is the impact of technology on the international business environment based on offshoring, outsourcing, and alternative methods of communication?

Skill: Conceptual

65) The chief information officer is responsible for the technology of a business, including the management and evaluation of the budget allotted for such technology.

Answer: TRUE Explanation: The chief information officer is in charge of the design and implementation of computer-based information systems and is also responsible for updating or replacing computer systems and software used by the business. The chief information officer also has the responsibility for managing the budget and judging which technology investments are worthwhile.

Diff: 1 Page Ref: 297 AACSB: Use of Information Technology Objective: 10-1 What are the functions of a company's chief information officer (CIO) and information technology (IT) department?

Skill: Conceptual 66) Chief information officers do not get involved in creating business opportunities for their companies.

Answer: FALSE Explanation: Chief information officers are senior executives who are responsible for identifying business opportunities for their companies, especially in the area of e-commerce.

Diff: 1 Page Ref: 297 AACSB: Use of Information Technology Objective: 10-1 What are the functions of a company's chief information officer (CIO) and information technology (IT) department?

Skill: Conceptual 67) IT departments must ensure that companies use the newest technology that can perform a needed business function.

Answer: FALSE Explanation: New technologies are being developed all the time, and IT departments must weigh the benefits of adopting a new technology against the additional cost of adopting a new technology. Often an existing technology is completely adequate for meeting a particular business need.

Diff: 1 Page Ref: 298 AACSB: Use of Information Technology Objective: 10-1 What are the functions of a company's chief information officer (CIO) and information technology (IT) department?

Skill: Conceptual

68) IT professionals sometimes create custom software to bridge the gaps between the software products available and the needs of the firm.

Answer: TRUE Explanation: It is usually less expensive for companies to buy ready-made computer software than develop it from scratch. Pre-made software can sometimes be customized by the IT department to make it compatible with other company software or systems. Alternately, IT professionals can create a new piece of software that can be used along with the off-the-shelf product to meet the particular needs of the firm.

Diff: 1 Page Ref: 298 AACSB: Use of Information Technology Objective: 10-1 What are the functions of a company's chief information officer (CIO) and information technology (IT) department?

Skill: Conceptual 69) As a result of technology, it is easier to protect private information today than it was in the last century.

Answer: FALSE Explanation: Technological innovations not only give businesses the ability to collect far more information than in the past, but also make it easier for the information to be inappropriately accessed or stolen. Protecting a large volume of data that can potentially be accessed by anyone with an Internet connection is a major challenged for IT departments.

Diff: 1 Page Ref: 309 AACSB: Use of Information Technology Objective: 10-2 How are information technology, information systems, information, and data interrelated within a business?

Skill: Conceptual 70) Not only can business intelligence software report past and current performance levels, but it can also forecast workforce performance.

Answer: TRUE Explanation: Business intelligence software packages allow managers to analyze financial states, customer satisfaction, sales analysis, and supply chain status. These packages also include the capability of using past measures of workforce performance along with other business productivity measures to forecast future workforce performance.

Diff: 1 Page Ref: 299 AACSB: Use of Information Technology Objective: 10-2 How are information technology, information systems, information, and data interrelated within a business?

Skill: Conceptual

71) Data mining has proven to be a poor technique for improving the effectiveness of a firm's marketing strategies.

Answer: FALSE Explanation: Data mining is a process of exploring and analyzing sets of data to uncover the relationships and patterns that will help a business. For instance, a supermarket could use data mining to find out what products are purchased by the store's most profitable customers, and keep stocking those products. Data mining has not yet proven all of its potential to help businesses increase sales. However, advances in data mining technology are making it a growing part of business decision making.

Diff: 1 Page Ref: 299-300 AACSB: Use of Information Technology Objective: 10-2 How are information technology, information systems, information, and data interrelated within a business?

Skill: Conceptual 72) It is more important for large companies than for small businesses to invest in systems that create backups of critical information.

Answer: FALSE Explanation: Every business, regardless of size, needs to establish backup systems to protect critical data and information. A large company may need to invest in more sophisticated backup technologies because of the volume of data, but that does not mean that it is less important for a small firm to have a reliable backup system in place.

Diff: 1 Page Ref: 301 AACSB: Use of Information Technology Objective: 10-3 How are major types of hardware, software, and networks used in business?

Skill: Conceptual 73) Online analysis packages (OLAPs) enable very quick analysis of multiple sources of business information in order to present a clearer picture of the state of the business.

Answer: TRUE Explanation: Online analysis packages (OLAPs) are software applications that provide very quick analysis of multiple sources of business information and are often used for tasks such as reporting sales figures and budgeting and forecasting.

Diff: 1 Page Ref: 303 AACSB: Use of Information Technology Objective: 10-3 How are major types of hardware, software, and networks used in business?

Skill: Conceptual

74) A company's marketing department tends to be more successful if it minimizes its reliance on information technology.

Answer: FALSE Explanation: Most marketing departments rely heavily on technology, especially the Internet, as a tool both for collecting information about customers and distributing information about its products and services.

Diff: 1 Page Ref: 303 AACSB: Use of Information Technology Objective: 10-3 How are major types of hardware, software, and networks used in business?

Skill: Conceptual 75) Networks are rarely used outside of the business world and academia because of the high cost of networking technologies.

Answer: FALSE Explanation: In addition to professional uses of networks, networks are used in many homes.

Networks allow families to connect multiple personal computers to a single resource such as an Internet connection or a printer. Home networking equipment is quite affordable and can save money by allowing a family to share resources.

Diff: 1 Page Ref: 304-305 AACSB: Use of Information Technology Objective: 10-3 How are major types of hardware, software, and networks used in business?

Skill: Conceptual 76) A virtual private network is one designed for noncommercial use in a private home or residence.

Answer: FALSE Explanation: A virtual private network (VPN) allows business networks to safely link to sites that are far apart geographically, by having some sections of the network joined using the Internet. Within a VPN, information sent via the Internet is protected using encryption software.

For example, if a company merged offices in two different cities into one network, a VPN would ensure secure flow of information.

Diff: 1 Page Ref: 305 AACSB: Use of Information Technology Objective: 10-3 How are major types of hardware, software, and networks used in business?

Skill: Conceptual 77) The World Wide Web is another name for the Internet.

Answer: FALSE Explanation: The World Wide Web is a way of accessing information available on the Internet.

The Internet itself is a large network that connects millions of computers internationally. The Web uses a language called a protocol to send data from place to place on the Internet.

Diff: 1 Page Ref: 306 AACSB: Use of Information Technology Objective: 10-3 How are major types of hardware, software, and networks used in business?

Skill: Conceptual

78) Although the initial costs of installing new technology can be high, these costs are usually offset by the minimal costs involved in maintaining new technology.

Answer: FALSE Explanation: It is usually expensive both to install and maintain new technology. Therefore, managers must carefully assess the benefit to the business of purchasing new technology. For instance, a manager must determine whether a certain technology that promises to increase productivity will actually deliver on that promise.

Diff: 2 Page Ref: 302 AACSB: Use of Information Technology Objective: 10-4 What are the benefits and risks of technology in the workplace, taking into account safety, creativity, communication, productivity, privacy, and ethics?

Skill: Conceptual 79) Technology's ability to process and document large amounts of data has better enabled people to understand interpersonal communication.

Answer: FALSE Explanation: The increasing use of technology tools such as email can cause breakdowns in communication between people. Much of the meaning of human interactions occurs nonverbally through gesture, body position, tone of voice, etc. Communication tools such as email cannot convey the full meaning of a message, leading to an increase in misunderstandings and work errors.

Diff: 1 Page Ref: 307 AACSB: Use of Information Technology Objective: 10-4 What are the benefits and risks of technology in the workplace, taking into account safety, creativity, communication, productivity, privacy, and ethics?

Skill: Conceptual 80) An employee cannot own an original idea that pertains to the employee's area of work, even if the employee created the idea outside of the workplace.

Answer: TRUE Explanation: Intellectual property law states that the employer owns all ideas created by an employee that are derived from or related to the business, even if the employee created the idea outside of the workplace.

Diff: 1 Page Ref: 308 AACSB: Use of Information Technology Objective: 10-4 What are the benefits and risks of technology in the workplace, taking into account safety, creativity, communication, productivity, privacy, and ethics?

Skill: Conceptual

81) Information technology has made it easier for whistleblowers to file reports about unethical business practices.

Answer: TRUE Explanation: The Sarbanes-Oxley Act includes a requirement that all public companies have procedures for handling the concerns of whistleblowers, people who report unethical or illegal activities. Many organizations have designed intranets or Web sites to allow people to file reports easily and safely, shielding them from possible retaliation.

Diff: 1 Page Ref: 308-309 AACSB: Use of Information Technology Objective: 10-4 What are the benefits and risks of technology in the workplace, taking into account safety, creativity, communication, productivity, privacy, and ethics?

Skill: Conceptual 82) A company can outsource and offshore the same job.

Answer: FALSE Explanation: Outsourcing and offshoring are two distinct business practices. Outsourcing is the delegation of work to a separate company that can do the work better, faster, or cheaper than if done internally. Offshoring involves locating a part of the business in another country where local conditions create advantages for the business. It is common for large businesses to outsource certain functions while offshoring others.

Diff: 1 Page Ref: 313 AACSB: Use of Information Technology Objective: 10-5 What is the impact of technology on the international business environment based on offshoring, outsourcing, and alternative methods of communication?

Skill: Conceptual 83) To keep up with global trends, U.S. manufacturers use offshore production activities but increasingly keep the product design functions in the United States.

Answer: FALSE Explanation: Western companies initially moved production to countries where labor was cheap, but retained knowledge work such as product design in domestic facilities. Increasingly, design work that was traditionally located in the United States and Western Europe is being shifted to offshore design centers.

Diff: 2 Page Ref: 312 AACSB: Use of Information Technology Objective: 10-5 What is the impact of technology on the international business environment based on offshoring, outsourcing, and alternative methods of communication?

Skill: Conceptual

84) Clara is the human resources manager for her company, Global Distinctions, Inc. The president of the company has just told Clara that the company needs to hire a Chief Information Officer (CIO) for the company. Clara's first step will be to write a job description for the new role. What are the major responsibilities that Clara should include in the job description for the new CIO? Answer: The text includes this description of the role of the chief information officer: The chief information officer (CIO) is in charge of information processing, including systems design and development and data center operations. He or she is responsible for updating or replacing the computer systems and the software the company uses. The CIO must also manage a budget that balances the benefits of technology against the ever-rising costs of upgrading to the latest systems. In addition, CIOs are involved in creating business and e-business opportunities.

The text outlines the four major areas of responsibility of the CIO: 1) Currency of systems, including • Update hardware and software based on company's demands • Update software to demands of the business • Determine which new technology developments have the best return on investment for the company 2) Systems design and development, including • Create specifications for programs the company needs • Create, test, and maintain the programs 3) e-Commerce • Create a Web storefront • Drive viewers to the site • Maintain customer and corporate security 4) Budget, including • Create and monitor IT budget • Evaluate for possible return on investment Diff: 2 Page Ref: 297 AACSB: Use of Information Technology Objective: 10-1 What are the functions of a company's chief information officer (CIO) and information technology (IT) department?

Skill: Conceptual

85) What is the role of the information technology (IT) department?

Answer: The IT department is responsible for everything from hardware components and software programs to networking strategies. Specific areas of responsibility include: 1) providing security both in response to computer virus attacks and emergency recovery from power outages and system failures 2) keeping current and operational all of the computers, printers, and any other technology equipment 3) managing the design of the company's networks and databases where information is stored 4) selecting the appropriate software programs as well as often providing training to employees 5) creating custom software to bridge the gaps between the products available and the needs of the firm 6) maintaining and managing the use of mobile computing throughout the company equipment includes notebook computers, tablet PCs, smartphones, and other devices 7) implementing remote access to computing resources, such as employees' access to work files or email when they are away from the office Diff: 2 Page Ref: 298 AACSB: Use of Information Technology Objective: 10-1 What are the functions of a company's chief information officer (CIO) and information technology (IT) department?

Skill: Conceptual 86) Data and information are two terms that are often used interchangeably in business settings.

Describe the differences between the two terms and provide an example to illustrate the business uses of data and information.

Answer: 1) Data are the representations of a fact or idea. They may be a number, a word, an image, or a sound. Information is data that have been organized or arranged in a way that make them useful.

2) Getting information from raw data is critical to the success of many business enterprises.

Businesses try to use all the resources at their disposal to gather raw data. For example, media, credit bureaus, and information brokers often purchase data made public in court proceedings.

3) These data are processed into useful information for that business or later resold to other companies. For example, a health club may request a list of recently divorced women from family court. The health club's plan is to process that raw data into a mailing list of a specific target audience for its membership services.

Diff: 3 Page Ref: 298-299 AACSB: Use of Information Technology Objective: 10-2 How are information technology, information systems, information, and data interrelated within a business?

Skill: Application

87) What would a management information systems (MIS) professional do that other IT professionals might not do? Provide an example of how an MIS professional could contribute to a technology-related business decision.

Answer: The main difference between an MIS professional and other IT professionals is that an MIS professional is focused on applying IT to solve business and economic problems. MIS professionals bridge the gap between purely technical knowledge that an IT professional has and an understanding of how technology can affect the business overall. For example, the payroll department may come to MIS asking for an upgrade to a new accounting system or software package. It is the role of MIS to be able to investigate the impact of that change on the other technology systems in the company and to rate the amount of gain against the cost required for the new software.

Diff: 3 Page Ref: 298 AACSB: Use of Information Technology Objective: 10-2 How are information technology, information systems, information, and data interrelated within a business?

Skill: Application 88) Why would a company want to invest in a database management system (DBMS)?

Answer: Companies that collect a lot of data, such as information about customers' past purchasing history or the volume of sales per store, need an efficient way to organize that data as well as turn that data into information using simple analysis and reporting. Database management systems answer that need. The analysis and reporting that is provided by database management systems provides valuable information that can in turn assist managers in making important business decisions.

Diff: 2 Page Ref: 299 AACSB: Use of Information Technology Objective: 10-2 How are information technology, information systems, information, and data interrelated within a business?

Skill: Application

89) Melinda has just graduated with a master's degree in information technology and has been having trouble finding a corporate job. None of the large companies she has contacted have job openings in her field. So Melinda decides to try marketing her services to some of her home town businesses. These businesses have been very slow to adopt new technology. For instance, the local hardware store runs just like it did thirty years ago, with an aging cash register and paper-based bookkeeping. She plans to talk with the store's owner about hiring her part time as its IT specialist to modernize the store's systems. What objections might the hardware store owner have to the idea of hiring an IT specialist, and what should Melinda say to convince the owner of the store that she can help increase the store's sales?

Answer: Small business owners may be reluctant to invest in IT because they often think they don't need it or think they can't afford it. Melinda can help the hardware store owner improve his sales by suggesting certain affordable technology tools to attract new business and make it more convenient for customers to do business with the store. These might include: • Creating a company Web site and email account so that the owner would better be able to stay in touch with his customers by using this technology.

• Upgrade to computerized cash registers, which would help employees process the sale and exchange of goods more efficiently.

As the store owner sees positive results from these initial IT enhancements, he may become interested in more sophisticated tools, such as a database management system that could help him collect data about customers and the business and use that information to make optimal choices about products he should carry, marketing campaigns, and management of inventory.

Diff: 3 Page Ref: 300 AACSB: Use of Information Technology Objective: 10-2 How are information technology, information systems, information, and data interrelated within a business?

Skill: Application

90) How is a business computer like a home computer? In what ways are business computers different from home computers, and why do they differ?

Answer: A well-designed computer, whether for personal or business use, has a balance between • the amount of (slow) hard disk storage • the amount of (faster) volatile memory called random access memory (RAM) • the speed of the central processing unit (CPU) However, there is a different emphasis on these capabilities depending on whether the computer is for business or personal use: • Personal computers typically emphasize entertainment features, like powerful video graphics processing for video games or 7.1 channel sound cards, which require fast RAM. • Business computers put a premium on slow hard disk storage, because if a hard drive with critical information fails, it can impact an entire organization.

• Depending on the type of analysis being done on a particular business workstation, the processing power and speed of the CPU may need to be more advanced than that of the typical home computer.

• Because the amount of RAM is also related to the overall processing speed of the system, business workstations often have more memory.

Diff: 3 Page Ref: 301 AACSB: Use of Information Technology Objective: 10-3 How are major types of hardware, software, and networks used in business?

Skill: Application 91) Cameron works as a sales agent for a beverage company. Because she was this year's top sales agent, she was awarded a smartphone. What would be a major advantage for Cameron of having a smartphone? What disadvantages of owning a smartphone might Cameron experience?

Answer: • A major advantage is that the smartphone allows her to send and receive email no matter where she is located, aiding her ability to respond promptly to customers and business needs at any time.

• A disadvantage is that the smartphone may blur the boundary between the workday and home life, since it could be much harder for Cameron to go "off-duty" from her job when she is at home.

Diff: 2 Page Ref: 302 AACSB: Use of Information Technology Objective: 10-3 How are major types of hardware, software, and networks used in business?

Skill: Application

92) Kanye recently bought a small shoe repair business in a suburb when the former owner wanted to retire. The business has been declining for the last few years. Kanye wants to analyze the business in order to determine how he can increase sales. What analytical software would you suggest he use, and why? What analytical software would you advice against, and why?

Answer: The text discusses three common analytical software tools: 1) Spreadsheet Programs. Spreadsheet programs like Microsoft Excel can run hundreds of different statistical and financial functions with no programming required. They support "what if?" calculations, allowing managers to change one or two variables and easily interpret the results.

2) Database Programs. Database programs allow businesses to quickly enter data, filter and sort information, and generate reports. Forms can be easily designed so that data can be entered and validated for accuracy. These forms such as weekly timecards or customer surveys can be delivered through email, and the responses automatically added into the database. The collected data can be queried to create lists of data that meet specific conditions, such as the addresses of all employees who worked overtime in the past week.

3) Online Analysis Packages. Online analysis packages (OLAPs) are software applications that enable very quick analysis of combinations of different business factors. OLAP systems are designed to help analysts combine multiple pieces of information into a clear picture of the state of the business. These software applications are used for tasks such as reporting sales figures and budgeting and forecasting. OLAP products in the marketplace include MS Analysis Studio, the open-source product Openi (pronounced "open eye"), and Jedox Palo software.

The student should demonstrate familiarity with these three analytical software tools. They may also reference other more sophisticated software such as decision support systems (DSSs) or executive information systems (EISs). Such tools may be more complex than would be required by a small business owner.

In Kanye's situation, there is not necessarily a single correct answer regarding which analytical software he should use. However, since he is a small business owner, it is likely he will want to choose a relatively easy, cost-effective analysis tool. Since the text does not provide cost comparisons, the student could simply suggest selecting the simplest and most affordable analysis software, allowing him to analyze the business factors that concern him. For instance, a spreadsheet program may be very economical and fairly easy to use, but may not have the functionality to create reports that shed light on what would improve Kanye's business.

Diff: 3 Page Ref: 302-303 AACSB: Use of Information Technology Objective: 10-3 How are major types of hardware, software, and networks used in business?

Skill: Application

93) Communication is essential to business. Email and instant messaging are two of the most common communications technologies used in business today. Identify and briefly describe additional communications technologies frequently used in business today.

Answer: The text notes three specific communications technologies, including: 1) VoIP. Standard telephone communications have evolved through the use of the Voice Over internet Protocol (VoIP). VoIP technology lets users check their voicemail messages from any Internet browser. Products like Skype use VoIP to allow national and international calls to be made for free or very little cost over the Internet instead of over traditional phone networks.

2) Remote Conferencing. Remote conferencing allows many people to join a common discussion regardless of their physical location. Conferences can be conducted with or without video cameras at each workstation. Participants can each work collaboratively on a single document using a common virtual whiteboard. Some products even allow a participant to take control of another's desktop to demonstrate software to the group or to make a presentation.

3) Marketing Technologies and Services. Marketing is an aspect of business that has responded to changes in business technology by redefining itself. In today's world, a marketing department must consider the Internet as a tool both for collecting information on its customers and distributing information about its products and services. Email marketing companies can organize and control mass email campaigns by providing templates for email newsletters or advice on how to create email surveys.

Diff: 2 Page Ref: 303-304 AACSB: Use of Information Technology Objective: 10-3 How are major types of hardware, software, and networks used in business?

Skill: Conceptual 94) Sean and Mack just bought a condominium in an urban neighborhood in a large city. They each own laptops and would like to buy a professional quality printer that can produce high resolution photographs from digital files. They can't afford to purchase such an expensive printer for each of them. How could they use technology to MOST conveniently share the new printer?

Answer: Sean and Mack should set up a network in their condominium. A network is a system of computers and other devices such as printers, scanners, or modems that are joined together using cables, fiber optic links, or wireless connections. A wireless network connection between their two computers and the shared printer would probably be most convenient. They could then send jobs to the printer from anywhere in the condominium without needing the computers to be connected to the network by clumsy cables. Using the network to share the computer can help them save the cost of another printer, plus the inconvenience of needing to physically connect a computer to the printer each time Sean or Mack wanted to use the printer.

Diff: 2 Page Ref: 304-305 AACSB: Use of Information Technology Objective: 10-3 How are major types of hardware, software, and networks used in business?

Skill: Application

95) What are the two types of networks most commonly used in business settings? For what purpose(s) would you use one type of business network rather than the other?

Answer: There are two types of business networks commonly used: 1) An intranet is a network that is accessible only to employees or others with authorization. An intranet's Web site looks just like any other Web site. However, specialized firewall software surrounding an intranet keeps unauthorized users from gaining access to the site.

2) An extranet is an intranet that is partially accessible to authorized outsiders. Customers or vendors with a valid username and password are able to see certain parts of the network.

Extranets are becoming a very popular means for business partners to exchange information Diff: 2 Page Ref: 305 AACSB: Use of Information Technology Objective: 10-3 How are major types of hardware, software, and networks used in business?

Skill: Conceptual 96) David is a manager at an engineering firm. He recently sent an email to Michelle, a member of his team, to provide feedback on problems with the work that she had contributed to the team.

Michelle complained to the human resources department that David was harassing her. David was completely taken aback, because he viewed the email as an objective summary of the work that Michelle had performed. What aspects of technology-enabled communication could explain the differences between David's and Michelle's perceptions about the email David sent? What would you recommend David do to prevent such a situation in the future?

Answer: Although technologies such as email have made it easier to communicate with colleagues, some uses of technology in the workplace have brought about difficult changes. The increasing reliance on email can contribute to a breakdown in communication as fewer personal exchanges take place. Communication experts agree that in face-to-face discussions, up to 93 percent of the meaning of the messages exchanged is communicated in nonverbal ways through gestures, glances, body position, and facial expression. Because email lacks that information, it opened the door for Michelle to misinterpret David's meaning and intent. Since performance feedback can always cause defensive reactions, David would have been wiser to provide feedback face-to face, when all communication channels nonverbal and verbal could be used to foster a clear and productive discussion with Michelle.

Diff: 3 Page Ref: 307 AACSB: Use of Information Technology Objective: 10-4 What are the benefits and risks of technology in the workplace, taking into account safety, creativity, communication, productivity, privacy, and ethics?

Skill: Application

97) There has been some controversy about whether giving employees new technology tools helps or hurts their productivity. Research on the relationship between technology investment and productivity has produced mixed results. What might be a reason for inconsistent data regarding the relationship between technology expenditures and employee productivity?

Answer: Although employees today have increasing access to information through technology, that does not necessarily make them more productive. It is up to the individual employee to use that information appropriately. Some employees use access to information to do a better job at work. Other employees become distracted by technology's easy access to information. When employees use business technology tools to conduct personal business, access entertainment, or engage in social networking, they are clearly reducing the productivity of the business that hired them to do a job. Individual differences in how employees use technology tools can partially explain why some research fails to find a positive link between technology investments and employee productivity.

Diff: 3 Page Ref: 308 AACSB: Use of Information Technology Objective: 10-4 What are the benefits and risks of technology in the workplace, taking into account safety, creativity, communication, productivity, privacy, and ethics?

Skill: Conceptual 98) Patrick is a quality control inspector at a pharmaceutical plant. He and his team are bound by strict quality standards to ensure that each unit is produced in a way that guarantees safety and effectiveness for the consumer. Recently, Patrick has been criticized for rejecting too many samples of the pharmaceuticals being produced. His manager has warned him that his inspection failure rate is negatively affecting the plant's productivity and that he should "reexamine" his inspection methods. Patrick does not want to be responsible for allowing an ineffective or dangerous medication to be sold to a patient, but he also does not want to lose his job. How can technology help Patrick ensure the quality of the products he is inspecting while at the same time protecting his job?

Answer: Technology allows for anonymous reporting of dangerous or illicit company practices so that employees with concerns may report them without fear of retaliation or job loss. Many organizations have designed their Web sites to allow anonymous reporting of possible illicit activity. Patrick could check to see whether his company's site has a link to anonymously report violations or concerns. If not, there may be government agencies or private watchdog organizations that would investigate potential illicit activity that is against the common interest.

Diff: 3 Page Ref: 308-309 AACSB: Use of Information Technology Objective: 10-4 What are the benefits and risks of technology in the workplace, taking into account safety, creativity, communication, productivity, privacy, and ethics?

Skill: Application

99) In 2007, a hacker broke into the accounting systems of a large retail store, which lacked protection for its online data. The hackers accessed at least 45.7 million credit and debit cards.

What technology risk did this event represent? What general strategies could retail stores use to lower the risk that a similar situation could happen again?

Answer: The hacking case involving customers' credit card information is an example of a major challenge created by information technology: security of online data. Stores could lower the risk of intrusion by hackers by ensuring that all private data stored on their systems is encrypted.

Encryption means that information is coded in such a way that it cannot be interpreted by unauthorized users. Stores could also ensure that any transmissions of private customer data are sent over secure networks.

Diff: 2 Page Ref: 305, 309-310 AACSB: Use of Information Technology Objective: 10-4 What are the benefits and risks of technology in the workplace, taking into account safety, creativity, communication, productivity, privacy, and ethics?

Skill: Application 100) What are the pros and cons of conducting business online?

Answer: Conducting business online can provide customers with easier access to products and services that they may not be able to find in a local store. It also allows retailers the opportunity to sell products without incurring the costs associated with a physical store. That can result in cost savings both for the business owner and the consumer.

Yet there are difficulties associated with doing business online. Because customers are justifiably worried about possible online threats to their privacy, every aspect of an online store must be secure and inspire consumer trust. This can create some complicated decisions for management.

For example, some companies use cookies, small text files written to a user's hard disk that track customer preferences and Web clicks, or they store previous responses to online forms. This allows a company to customize its Web storefront for each customer. This valuable information can also be sold to marketing firms. Some people feel this practice compromises their security.

Just that perception, whether it is truthful or not, can cost a company business.

Diff: 3 Page Ref: 311 AACSB: Use of Information Technology Objective: 10-4 What are the benefits and risks of technology in the workplace, taking into account safety, creativity, communication, productivity, privacy, and ethics?

Skill: Application

101) A large direct-to-consumer company is preparing for its fall collection. Executives believe that they cannot afford to continue to print their distinctive glossy catalogs in-house and are looking for a way to dramatically reduce catalog printing costs. What options does Fashions Unlimited have for reducing its printing costs?

Answer: The company has two primary choices: 1) outsource its production of the catalog to a company that specializes in printing high-end fashion catalogs. This would probably save some money over producing the catalogs in-house.

2) offshore the catalog printing to a country with the production capability to print the catalogs at a much lower labor rate.

Diff: 2 Page Ref: 312-313 AACSB: Use of Information Technology, Dynamics of the Global Economy Objective: 10-5 What is the impact of technology on the international business environment based on offshoring, outsourcing, and alternative methods of communication?

Skill: Application 102) George's community has been the proud home of a candymaking business for 100 years.

The company employs 230 people and has always offered decent salaries and benefits. Last week, the candy company announced it was relocating its production facilities to Indonesia and would be laying off 70 percent of its workforce. Briefly discuss both the positive and negative aspects of the candy company's actions.

Answer: For the candy company, the drastic difference in wages between offshore countries and the United States is the key ingredient in making offshoring a profitable choice for its business.

For instance a skilled technology worker in the United States averages a $2000-a-month income, whereas his or her counterpart in China earns $100 a month.

In the short term, this represents a painful situation for the employees of the candy factory who will be losing their jobs. When they eventually find other jobs, they can expect to see a slowing of wage growth because of competition for jobs from developing countries.

Some experts claim that U.S. workers will see benefits from offshoring. As middle-class jobs appear in India and other developing countries, the middle class in those countries will expand.

Companies and workers in the United States will benefit in the long run when more countries are politically stable and the demand for U.S. products increases.

Diff: 2 Page Ref: 312-313 AACSB: Use of Information Technology, Dynamics of the Global Economy Objective: 10-5 What is the impact of technology on the international business environment based on offshoring, outsourcing, and alternative methods of communication?

Skill: Application

103) In what ways should globalization and technology change companies' approaches to marketing their products?

Answer: In the global economy, many companies, big and small, should take advantage of the Internet to advertise to the entire world. To market globally, company Web sites should be designed to support multiple languages and offer content for consumers in different countries that is customized to appeal to their cultural attitudes and preferences.

Diff: 2 Page Ref: 313-314 AACSB: Use of Information Technology, Dynamics of the Global Economy Objective: 10-5 What is the impact of technology on the international business environment based on offshoring, outsourcing, and alternative methods of communication?

Skill: Conceptual 104) Given the increasing availability of talented workers from all over the world, what skills and characteristics do United States' workers need to compete effectively for jobs with companies doing business internationally?

Answer: The text presents these characteristics of a desirable worker in the global economy: 1) Flexibility 2) Communication skills 3) Social understanding of a range of cultures 4) Mathematical skills, which transcend language boundaries 5) Demonstrated fluency in learning new technologies, which lets employers know a prospective employee can be counted on to handle a multitude of projects 6) Knowledge of other languages in addition to English, which is a key asset to business technology employees Diff: 2 Page Ref: 315 AACSB: Use of Information Technology, Dynamics of the Global Economy Objective: 10-5 What is the impact of technology on the international business environment based on offshoring, outsourcing, and alternative methods of communication?

Skill: Conceptual Better Business, 7e (Solomon) Chapter 11 Production, Operations, and Supply Chain Management 1) Production is the process of getting a good or service to the customer.

Answer: TRUE Explanation: Every business that produces goods or provides services has a specific production process. A series of links in a production chain makes up the entire production process.

Diff: 1 Page Ref: 325 AACSB: Reflective Thinking Objective: 11-1 What are mass production, flexible production, and customer-driven production, and what are the benefits and challenges of each?

Skill: Conceptual 2) Companies that provide a service do NOT need to be concerned with efficient production processes.

Answer: FALSE

Explanation: People often think of production in terms of manufacturing a good, in which case a cost efficient production process is crucial. However, it is just as critical to have a cost efficient production process in companies that provide a service as they run the same risks of bankruptcy and driving customers away as companies that produce a good.

Diff: 2 Page Ref: 325 AACSB: Reflective Thinking Objective: 11-1 What are mass production, flexible production, and customer-driven production, and what are the benefits and challenges of each?

Skill: Conceptual 3) Mass-produced goods are usually manufactured on an automated assembly line.

Answer: TRUE Explanation: Mass production is a method of producing large quantities of goods at a low cost.

This method relies on machines and automated assembly lines to mass-produce goods that are identical and adhere to certain standards of quality.

Diff: 1 Page Ref: 334 AACSB: Reflective Thinking Objective: 11-1 What are mass production, flexible production, and customer-driven production, and what are the benefits and challenges of each?

Skill: Conceptual

4) Mass customization allow companies to respond quickly to the individual needs of consumers.

Answer: TRUE Explanation: Mass customization is the production of goods or services tailored to meet customers’ individual needs cost-effectively. It ranges from the bulk customization of industrial supplies, such as valves, switches, and instruments, to individual customization that is most often seen with clothing, shoes, glasses, and bicycles.

Diff: 2 Page Ref: 334 AACSB: Reflective Thinking Objective: 11-1 What are mass production, flexible production, and customer-driven production, and what are the benefits and challenges of each?

Skill: Conceptual 5) With a mass customization system, products are produced based on specific customer wants and needs.

Answer: TRUE Explanation: Through the use of a flexible manufacturing system, companies are able to produce products that meet specific customer wants and needs. This is called mass customization. An example of a company using this type of a system is Dell. They have created an online forum where Dell customers can offer input about the development of new products.

Diff: 2 Page Ref: 335 AACSB: Reflective Thinking Objective: 11-1 What are mass production, flexible production, and customer-driven production, and what are the benefits and challenges of each?

Skill: Conceptual 6) In addition to increased production and reduced costs in production systems, technology may also improve product quality but decrease the product variety.

Answer: FALSE Explanation: Technology in production systems will reduce costs and increase production levels. It will also most likely improve product quality and product variety, which influences customer buying decisions. To remain competitive globally, companies must remain up-to-date technically.

Diff: 2 Page Ref: 336 AACSB: Reflective Thinking Objective: 11-1 What are mass production, flexible production, and customer-driven production, and what are the benefits and challenges of each?

Skill: Conceptual 7) The addition of using robots in production systems has reduced the need for technicians and engineers.

Answer: FALSE Explanation: The use of robots may reduce some jobs in the production area, however, the need for technicians and engineers would most likely increase.

Diff: 1 Page Ref: 337 AACSB: Reflective Thinking Objective: 11-2 How does technology influence the production process?

Skill: Conceptual

8) Improvements in technology have significantly increased the quantity of products as well as helped reduce costs.

Answer: TRUE Explanation: The introduction of CAD (computer-aided design), CAM (computer-aided manufacturing), and CIM (computer integrated manufacturing) has not only increased the volume of products produced but also has increased the quality of the product. The time it takes to produce custom designed products has been decreased. It has reduced the cost of labor and decreased waste in the production process. Although technology is expensive, the benefits outweigh the initial investment.

Diff: 2 Page Ref: 338 AACSB: Reflective Thinking Objective: 11-2 How does technology influence the production process?

Skill: Conceptual 9) Manufacturers use CAM (computer aided manufacturing) to create three-dimensional designs of products before they are built.

Answer: FALSE Explanation: CAD (computer-aided design) is used to create three-dimensional designs of products before they are built. Once a design is approved, computer-aided manufacturing (CAM) uses the design data to control the machinery used in the manufacturing process.

Diff: 2 Page Ref: 338 AACSB: Reflective Thinking Objective: 11-2 How does technology influence the production process?

Skill: Conceptual 10) Transportation costs are one of the major expenses that many manufacturing companies must consider.

Answer: TRUE Explanation: The location of highways, interstates and train lines are very important for a company. Since transportation costs are a major expense for a company, proximity to major travel routes is very important. Transportation costs can account for as much as five times the cost of operating a production facility. Therefore, by locating near major modes of transportation, a manufacturer can be in the best position to maintain lower transportation costs.

Diff: 2 Page Ref: 328 AACSB: Reflective Thinking Objective: 11-3 What are the transportation, human, and physical factors that are involved in choosing a manufacturing location?

Skill: Conceptual

11) Global companies can gain a competitive edge over other large-scale companies if they can reduce transportation costs.

Answer: TRUE Explanation: Transportation costs increase in global markets. Because transportation costs can be five times the cost of operating a production facility, reducing transportation costs will significantly reduce product costs and improve customer service giving them a competitive edge over other large-scale companies.

Diff: 1 Page Ref: 328 AACSB: Reflective Thinking Objective: 11-3 What are the transportation, human, and physical factors that are involved in choosing a manufacturing location?

Skill: Conceptual 12) Richard owns a waste disposal factory that emits potentially harmful gases into the air. He decided not to open another factory that would have been close to a small town. He considered the human factor.

Answer: TRUE Explanation: Richard decided not to open the factory because it could negatively impact the environment. This is part of the human factor, which considers labor availability, living conditions, and laws and regulations.

Diff: 2 Page Ref: 329 AACSB: Reflective Thinking, Ethical Understanding and Reasoning Abilities Objective: 11-3 What are the transportation, human, and physical factors that are involved in choosing a manufacturing location?

Skill: Conceptual 13) Labor availability, living conditions, and laws and regulations are the separate but interrelated components of the human factor in location selection.

Answer: TRUE Explanation: Companies must look not only at the availability of labor when determining location, but they also need to be aware of the impact on the living conditions. Manufacturing companies can impact the living conditions of a community. Government also has a say in protecting individuals and the environment, which can play into a location decision.

Diff: 2 Page Ref: 329 AACSB: Reflective Thinking, Ethical Understanding and Reasoning Abilities Objective: 11-3 What are the transportation, human, and physical factors that are involved in choosing a manufacturing location?

Skill: Conceptual

14) A company almost never selects a location in a high labor cost community.

Answer: FALSE Explanation: It is true that the cost of labor is an important consideration in the location decision of some companies, but it is far from the only factor that companies must consider. Other considerations might include the availability of cheap resources and qualified workers, proximity to customers or to preferred modes of transportation, low taxes or special government incentives, and quality of life considerations. High wage areas that have some or all of these advantages might be attractive to many companies, despite the high labor costs.

Diff: 2 Page Ref: 329-330 AACSB: Reflective Thinking Objective: 11-3 What are the transportation, human, and physical factors that are involved in choosing a manufacturing location?

Skill: Conceptual 15) Facility layout is the function of operations management that considers the physical arrangement of resources, including people, in the production process Answer: TRUE Explanation: Facility layout refers to the physical arrangement of resources and people in the production process and how they interact. The design of a facility's layout is important to maximize efficiency and satisfy employees' needs.

Diff: 1 Page Ref: 330 AACSB: Reflective Thinking Objective: 11-4 How is a production plan developed and controlled?

Skill: Conceptual 16) The facility layout can affect employee's morale and productivity.

Answer: TRUE Explanation: Facility layout can affect the productivity of employees. Some layout designs, such as spacious cubicles, ergonomic chairs, or window views, can greatly improve the morale of office workers. The happier a company's employees are, the more productive they'll be.

Therefore, it is fair to say that it is a good investment for production managers to spend time on the layout of the employee workspace as well as the production and operations space.

Diff: 2 Page Ref: 331 AACSB: Reflective Thinking, Ethical Understanding and Reasoning Abilities Objective: 11-4 How is a production plan developed and controlled?

Skill: Conceptual

17) Cost is the only consideration when choosing a supplier.

Answer: FALSE Explanation: Cost is always a factor, but it should never be the sole factor in selecting suppliers.

For example, if several potential suppliers offer similar products with similar prices, other factors will come into play. For example, a company may need a supplier that is reliable or one that is fast. Likewise, one supplier may offer a part for significantly less but of such poor quality that later repairs or recalls would end up costing a company more than the cost of quality parts; its reputation would also be affected. Understanding these needs before choosing a supplier will make the process easier and more beneficial in the end.

Diff: 2 Page Ref: 332 AACSB: Reflective Thinking Objective: 11-4 How is a production plan developed and controlled?

Skill: Conceptual 18) Wendy is a manager at Ribbons and Bows, Inc. Her job responsibilities include production scheduling and inventory control. Wendy must hold a marketing management position.

Answer: FALSE Explanation: Wendy must be a production manager. Production managers are responsible for the overall production plan, which includes production scheduling and inventory control.

Diff: 2 Page Ref: 334 AACSB: Reflective Thinking Objective: 11-4 How is a production plan developed and controlled?

Skill: Conceptual 19) When operating with a just-in-time inventory system, suppliers deliver parts and materials right at the time that the buyer is going to use them in the production process.

Answer: TRUE Explanation: In a just-in-time inventory system, the amount of parts and materials is limited to just what is needed. Inventory arrives just as it is needed. Implementing a JIT system can greatly reduce expenses in storage costs. Some drawbacks to JIT include suppliers missing deadlines or delays in deliveries due to weather, traffic or other uncontrollable factors.

Diff: 1 Page Ref: 341 AACSB: Reflective Thinking Objective: 11-4 How is a production plan developed and controlled?

Skill: Application 20) Enterprise resource planning (ERP) is simpler and less sophisticated than manufacturing resource planning (MRP).

Answer: FALSE Explanation: MRP is simpler than ERP in the fact that MRP is limited to one area. ERP is a computer application that enables a firm to combine all of the inventory control and process scheduling for the entire enterprise including finance, human resources, and order fulfillment into a single program whereas MRP is used within manufacturing alone.

Diff: 2 Page Ref: 342 AACSB: Reflective Thinking Objective: 11-4 How is a production plan developed and controlled?

Skill: Conceptual

21) In production, scheduling refers to the efficient organization of equipment, facilities, labor, and materials.

Answer: TRUE Explanation: In production, scheduling does refer to the efficient organization of equipment, facilities, labor, and materials. Scheduling, like most functions of production, must be efficient to keep costs as low as possible.

Diff: 1 Page Ref: 339 AACSB: Reflective Thinking Objective: 11-4 How is a production plan developed and controlled?

Skill: Conceptual 22) Fiona is in charge of quality control testing for her company. Her method of quality control is to build quality into every step of the production process. This is the total quality management approach.

Answer: TRUE Explanation: Since Fiona is focusing on quality at every step of the process, she is following the total quality management approach. The old method of inspection for quality control involved checking work at the end of the production process.

Diff: 2 Page Ref: 343 AACSB: Reflective Thinking Objective: 11-5 What is quality control, and how do ISO standards help companies produce high quality goods and services?

Skill: Conceptual 23) ISO is a worldwide, independent organization that sets global measures of quality.

Answer: TRUE Explanation: The International Organization for Standardization (ISO) is an organization dedicated to creating worldwide standards of quality for goods and services. A company is scrutinized before it earns the seal of approve to call itself an ISO 9000 company.

Diff: 1 Page Ref: 344 AACSB: Reflective Thinking Objective: 11-5 What is quality control, and how do ISO standards help companies produce high quality goods and services?

Skill: Conceptual

24) A significant aspect of total quality management is catering to the customers' needs and desires.

Answer: TRUE Explanation: Implementation of total quality management (TQM) includes meeting customer needs. For example, SGL Carbon lets customers have the final say in determining whether a product meets the requirements of high-quality standards. Companies that are able to incorporate customers' desires into the production process will make a greater presence in the global marketplace.

Diff: 2 Page Ref: 344 AACSB: Reflective Thinking Objective: 11-5 What is quality control, and how do ISO standards help companies produce high quality goods and services?

Skill: Conceptual 25) A product with the ISO 9001 seal has achieved the highest quality possible.

Answer: FALSE Explanation: Certification by the International Organization for Standardization relates to the production methods and systems used to manufacture a good. The seal does not specifically relate to the product.

Diff: 2 Page Ref: 344 AACSB: Reflective Thinking Objective: 11-5 What is quality control, and how do ISO standards help companies produce high quality goods and services?

Skill: Conceptual 26) The purpose of the program evaluation and review technique PERT is to identify the minimum time needed to complete a project.

Answer: TRUE Explanation: A PERT chart is a program evaluation and review technique that maps out the various steps involved in a project. Creating a chart helps identify the critical path. This helps managers determine an overall timeline for completing a project.

Diff: 1 Page Ref: 340 AACSB: Reflective Thinking Objective: 11-5 What is quality control, and how do ISO standards help companies produce high quality goods and services?

Skill: Conceptual

27) The MOST significant effect of an inefficient production process is ________.

A) decreased profits and increased production costs B) higher employee turnover and poorly qualified staff C) decreased demand for product and lower sales D) increased levels of competition and decreased profits Answer: A Explanation: A) Inefficiency in the production process has many negative effects on a company.

A decrease in demand is not typically a factor of inefficiencies. Although employees' morale may be affected if a company has inefficient production processes, it is a less significant disadvantage, but should be addressed. The greatest disadvantage to an inefficient production process is decreased profits and increased productions costs. A cost-efficient production process is crucial to a successful business.

Diff: 1 Page Ref: 325 AACSB: Reflective Thinking Objective: 11-1 What are mass production, flexible production, and customer-driven production, and what are the benefits and challenges of each?

Skill: Conceptual 28) Jesse works for a canning factory that creates soda cans for distribution. His job is to move identically filled boxes from the end of the production line to the shipping area. He is one of only thirty employees at the factory because most of the work is done by machines. Which type of production does Jesse's company use?

A) flexible production B) market-driven production C) customer-driven production D) mass production Answer: D Explanation: D) Flexible production is a system in which machines are programmed to process different part types simultaneously allowing a manufacturer to mass produce customized products. Customer-driven production is a process that manufactures products according to the customer's requirements and can be challenging to be cost-effective. Mass production relies on machines and production lines to produce identical goods. Jesse is producing identical cans.

Most of the work is being done by machines. Jesse's company must use mass production methods.

Diff: 2 Page Ref: 334 AACSB: Reflective Thinking, Analytic Skills Objective: 11-1 What are mass production, flexible production, and customer-driven production, and what are the benefits and challenges of each?

Skill: Application

29) A company uses machines designed to do multiple tasks so that they can produce a variety of products. This company uses a ________ manufacturing process.

A) mass B) customer-driven C) flexible D) prospect-to-cash Answer: C Explanation: C) In flexible manufacturing, several machines are linked together by one central computer. All the machines in the system can process different part types simultaneously. Unlike a mass-production system, an FMS can adapt to changes in schedules and product specifications.

Mass production uses an assembly line method with machines that perform one task. Customerdriven methods adjust the process to fit customer needs. Prospect-to-cash is a process used to determine the most cost-effective way to manufacture a product.

Diff: 1 Page Ref: 335 AACSB: Reflective Thinking Objective: 11-1 What are mass production, flexible production, and customer-driven production, and what are the benefits and challenges of each?

Skill: Application 30) Jim runs a plant that produces cosmetics and uses a flexible manufacturing production process, while his brother Bill runs a plant that manufactures basic household appliances using a mass production system. The benefit Jim's plant has over Bill's plant is that Jim's plant ________.

A) can produce products with slight variations B) produces goods according to individual customers' needs C) produces a large quantity of goods quickly D) is rigid and therefore significantly less expensive Answer: A Explanation: A) Bill runs a mass production plant. Bill's plant is rigid, so it can only produce identical items. Because Jim runs a flexible production plant, he is able to create a wider variety of items to meet customer needs, giving his production an advantage over Bill's.

Diff: 2 Page Ref: 334-335 AACSB: Reflective Thinking Objective: 11-1 What are mass production, flexible production, and customer-driven production, and what are the benefits and challenges of each?

Skill: Conceptual

31) The goal achieved by using mass production is to ________.

A) produce goods of the highest possible quality B) replace all employee jobs with speedier machines C) provide the maximum flexibility in production D) produce large quantities goods at a low cost Answer: D Explanation: D) Mass production is used to produce mass quantities of identical products at a low cost. The quality is a lesser factor than volume. Although machines are used in mass production, and have reduced the number of employees needed, employees will always be needed to operate the machines used in production. Because of the assembly line method used in mass production, flexibility in meeting consumer needs is lost.

Diff: 1 Page Ref: 334 AACSB: Reflective Thinking Objective: 11-1 What are mass production, flexible production, and customer-driven production, and what are the benefits and challenges of each?

Skill: Conceptual 32) When referring to flexible manufacturing, it is TRUE that it ________.

A) relies heavily on labor, since humans are more adaptable and smarter than even the fastest machines B) uses machines designed to perform multiple tasks so they can be used to produce a variety of products C) achieves its flexibility at the cost of much slower rates of production than mass production techniques D) is only possible when using mass production processes since these processes are specifically designed to adapt Answer: B Explanation: B) Flexible production uses machines designed to perform multiple tasks all at the same time so that they can produce a variety of products. The use of machines provides for an increase in flexibility over mass production with little change in rate of production.

Diff: 1 Page Ref: 335 AACSB: Reflective Thinking Objective: 11-1 What are mass production, flexible production, and customer-driven production, and what are the benefits and challenges of each?

Skill: Conceptual

33) Flexible production is made up of four components. Which of the following is NOT a component?

A) central computers B) processing machines C) prospect-to-cash D) human labor Answer: C Explanation: C) The four components of the flexible production system include processing machines, material handling systems, central computer controls, and human labor. Prospect-tocash is a business process that outlines steps from identifying a prospect to receiving cash. It is used in conjunction with a customer-driven production system.

Diff: 2 Page Ref: 335 AACSB: Reflective Thinking Objective: 11-1 What are mass production, flexible production, and customer-driven production, and what are the benefits and challenges of each?

Skill: Conceptual 34) Which component in a flexible manufacturing system manages the system and corrects any problems?

A) central computer B) human labor C) manufacturing system D) processing machine Answer: B Explanation: B) Although machines are an essential part of an FMS, human labor is still needed to manage the system, correct any problems, and repair machinery. Human labor would oversee the central computer, manufacturing system, and processing machine.

Diff: 2 Page Ref: 335 AACSB: Reflective Thinking Objective: 11-1 What are mass production, flexible production, and customer-driven production, and what are the benefits and challenges of each?

Skill: Conceptual

35) Lentine, Inc. builds machinery and robots that can assemble a wide variety of appliances including refrigerators, stoves, microwaves, ovens, dishwashers, wash machines, and dryers.

Lentine, Inc. sells products to companies that would use a ________ production system.

A) mass B) lean C) robotic D) flexible Answer: D Explanation: D) Flexible production uses machines to do multiple tasks so that they can produce a variety of products. Mass production would utilize machinery and robots to do repetitive tasks but would not offer the flexibility required to switch to producing the variety of appliances that Lentine manufactures. Robotics is used in production systems, but is not a production system.

Diff: 3 Page Ref: 335 AACSB: Reflective Thinking Objective: 11-1 What are mass production, flexible production, and customer-driven production, and what are the benefits and challenges of each?

Skill: Conceptual 36) American Girl, Inc. manufactures dolls with a variety of hair, eye, and skin colors as well as a variety of hair styles. The consumer is able to choose the combination of features that meets their need. The doll is then manufactured according to the customer requirements. American Girl, Inc. must use ________.

A) mass production B) flexible production C) mass customization D) order management Answer: C Explanation: C) Mass customization production means tailoring products to meet the needs of individual customers. Because American Girl, Inc. manufactures dolls with individual features that the consumer selects to fit their personal needs, they are using mass customization production.

Diff: 3 Page Ref: 334 AACSB: Reflective Thinking, Analytic Skills Objective: 11-1 What are mass production, flexible production, and customer-driven production, and what are the benefits and challenges of each?

Skill: Application

37) When using a customer-driven production system, engineers would be responsible for ________ in the prospect-to cash-process.

A) providing information to the other departments so they can process the quote or fill the order B) order processing, transaction management, inventory control and shipping C) assembling materials into a product based on the specifications in the quote D) finding potential customers and new business opportunities Answer: A Explanation: A) The prospect-to-cash process when used in combination with customer-driven production can prove effective in creating cost-effective methods in producing custom consumer products. The process starts with sales finding and approving a prospect as cost-effective. Next, engineering provides information to the other departments so they can process the quote or fill the order. Next, the order management team is responsible for order processing transaction management, inventory control and shipping. Last, production occurs based on the customer's requirements.

Diff: 2 Page Ref: 309 AACSB: Reflective Thinking Objective: 11-1 What are mass production, flexible production, and customer-driven production, and what are the benefits and challenges of each?

Skill: Conceptual 38) Which business process outlines the steps from identifying a new business opportunity to receiving payment for the product?

A) customer-driven production B) customer-driven prospect C) prospect-to-cash D) prospect-to-profit Answer: C Explanation: C) Prospect-to-cash is a core business process that outlines the steps from identifying a new business prospect to receiving payment for the product. When used as part of customer-driven production, the result can be a cost-effective production process.

Diff: 1 Page Ref: 309 AACSB: Reflective Thinking Objective: 11-1 What are mass production, flexible production, and customer-driven production, and what are the benefits and challenges of each?

Skill: Application

39) In terms of the prospect-to-cash process, the area responsible for finding new customers and business opportunities is the ________ team.

A) engineering B) sales and marketing C) production D) order management Answer: B Explanation: B) The role of the engineering team is to provide information to the other departments so they can process the quote or fill the order. The production team assembles the products to meet the customer's requirements. The order management team's job includes order processing, transaction management, inventory control, and shipping. It is the sales and marketing team's job to prospect, meaning finding new customers and business opportunities, but also to ensure the prospect's request is achievable and cost effective.

Diff: 2 Page Ref: 309 AACSB: Reflective Thinking Objective: 11-1 What are mass production, flexible production, and customer-driven production, and what are the benefits and challenges of each?

Skill: Conceptual 40) The MAIN goal of utilizing a mass customization production system is to ________.

A) produce as many identical products as possible in the shortest amount of time B) utilize robots to reduce production expenses while achieving customer satisfaction regardless of production cost C) produce a customized product that will achieve customer satisfaction regardless of production costs D) produce a customized product at almost the rate of mass production while achieving customer satisfaction Answer: D Explanation: D) Producing as many identical products as possible as quickly as possible is the goal of mass production. When using mass production, demand for a product is high, making it essential to produce products quickly, however, customization may not occur. Utilizing robots may aid in achieving the goals of mass customization production systems, but is not the main goal. Producing customized products, regardless of costs, would not be a good business practice as it could bankrupt a company. The ultimate goal of utilizing a mass customization production system is to produce a customized product at almost the rate of mass production, while achieving customer satisfaction.

Diff: 2 Page Ref: 334 AACSB: Reflective Thinking Objective: 11-1 What are mass production, flexible production, and customer-driven production, and what are the benefits and challenges of each?

Skill: Conceptual

41) Which of the following refers to the use of a computer to create two-dimensional or threedimensional models of physical parts?

A) computer-aided design systems B) computer-aided manufacturing systems C) computer-designed manufacturing systems D) computer-integrated design systems Answer: A Explanation: A) Computer-aided design (CAD) refers to the use of a computer to create twodimensional or three-dimensional models of physical parts. The use of CAD in production allows a manufacturer to produce custom-designed products such as clothing and cars without incurring higher costs. It can also be used to design houses, machinery, tools, and commercial structures.

Diff: 1 Page Ref: 337 AACSB: Reflective Thinking Objective: 11-2 How does technology influence the production process?

Skill: Conceptual 42) Manufacturers that have implemented the use of robots in their production systems enjoy all of the following advantages EXCEPT a(n) ________.

A) reduced production costs B) improved precision C) protection of human workers D) reduction of technical employees Answer: D Explanation: D) The use of robots in production systems has many advantages to a company.

Robots are able to perform repetitive task for hours with increased precision and accuracy over human labor. Robots are also able to perform tasks in potentially hazardous conditions, thus protecting human workers. The use of robots may reduce some jobs; however, the need for technicians would increase.

Diff: 2 Page Ref: 337 AACSB: Reflective Thinking Objective: 11-2 How does technology influence the production process?

Skill: Conceptual

43) The demand for ________ has grown since advanced technology has become common in factories.

A) managers B) line workers C) sales people D) engineers Answer: D Explanation: D) Industrial robots may take away some production-related jobs, but the technology has also created many new jobs for technicians and engineers. Companies that can effectively apply robotic technology in their production processes are more likely to gain an economic advantage in the global marketplace.

Diff: 2 Page Ref: 337 AACSB: Reflective Thinking Objective: 11-2 How does technology influence the production process?

Skill: Conceptual 44) Software that combines computer-aided design functions with computer-aided manufacturing machines is called a(n) ________.

A) computer-integrated manufacturing B) industrial robot system C) customer-driven production D) flexible production system Answer: A Explanation: A) Computer-integrated manufacturing (CIM) goes even further than the technology of CAD and CAM. CIM systems combine design and manufacturing functions with other functions, such as order taking, shipment, and billing. CIM has allowed companies to expand business and serve more customers while continuing to offer affordable prices.

Diff: 1 Page Ref: 338 AACSB: Reflective Thinking Objective: 11-2 How does technology influence the production process?

Skill: Conceptual 45) Which of the following refers to the integration of the computer-aided design and computeraided manufacturing systems with the aspects of a firm's production process?

A) assimilation engineering B) integration engineering C) simultaneous engineering D) synchronized engineering Answer: C Explanation: C) Simultaneous engineering integrates computer-aided design and computeraided manufacturing. Once these are integrated together, they are further integrated into the company's production process.

Diff: 1 Page Ref: 338 AACSB: Reflective Thinking Objective: 11-2 How does technology influence the production process?

Skill: Conceptual

46) The impact of CAD/CAM on manufacturing ________.

A) has only been experienced by companies producing large products such as cars, boats, and large equipment B) has been to save money by replacing human labor with computers C) has been to make it possible to produce large quantities of customized products without incurring higher costs D) has been to replace the use of industrial robots with more modern machines Answer: C Explanation: C) CAD/CAM systems may be used by all manufacturers regardless of the size of the product produced. Human labor has not been entirely replaced with the addition of CAD/CAM. The human labor that is needed has shifted to the technical field. Robots are not replaced by CAD/CAM, but better utilized by the use of these systems. This software has made it possible to produce large quantities of customized products without incurring higher costs, which is the biggest advantage to using these systems.

Diff: 2 Page Ref: 337 AACSB: Reflective Thinking, Analytic Skills Objective: 11-2 How does technology influence the production process?

Skill: Application 47) A benefit of CAD (Computer Aided Design) and CAM (Computer Assisted Manufacturing) to manufacturers is it ________.

A) provides custom-designed products without incurring higher costs B) replaces the need for human labor by using robots C) reduces the costs of materials needed to be kept in the inventory D) is less complicated to operate than other manufacturing software Answer: A Explanation: A) A significant benefit of CAD (Computer Aided Design) and CAM (Computer Assisted Manufacturing) is that custom-designed products can be produced in volume without incurring higher costs. The need for human labor has not been replaced, but rather shifted to more technical in nature. The cost of materials is not impacted by CAD/CAM. The systems are complex to operate and do require well-trained technicians.

Diff: 2 Page Ref: 337 AACSB: Reflective Thinking Objective: 11-2 How does technology influence the production process?

Skill: Application

48) Dynamite Dance Wear is excited about implementation of a new system to improve its production processes. It is now able to offer custom designed costumes to its customers.

Customers are able to select the color, fabric and design, submit each dancer's measurements, and Dynamite Dance Wear will quickly produce custom-cut costumes to fit each dancer with little additional cost. Dynamite Dance Wear must be using a(n) ________ system.

A) mass production B) CAD/CAM C) DAC/DAF D) assembly line Answer: B Explanation: B) Using a mass production system would not allow Dynamite Dance Wear to provide the customization. Assembly lines are more commonly used when mass producing a product, not customizing orders as Dynamite is offering. Dynamite must be using a CAD/CAM system. CAD/CAM systems allow manufacturers to produce custom-designed products in volume without incurring higher costs.

Diff: 3 Page Ref: 337 AACSB: Reflective Thinking, Analytic Skills Objective: 11-2 How does technology influence the production process?

Skill: Application 49) Darcy is considering opening a factory near a small town in North Dakota. Of the factors listed, the MOST important factor she should consider is ________.

A) the number of qualified workers in the community B) the average level of education in the community C) the cost of living expenses within the community D) the weather patterns in the area Answer: A Explanation: A) Labor is a significant factor of production. Choosing a location for virtually any business requires finding an area with an abundance of workers who possess the necessary skills.

Research must be done to ensure the pool of potential candidates for employment exists.

Weather, cost of living expenses, and education levels are not as important in location decisions.

Diff: 2 Page Ref: 329 AACSB: Reflective Thinking Objective: 11-3 What are the transportation, human, and physical factors that are involved in choosing a manufacturing location?

Skill: Conceptual

50) Which of the following is not a component of the human factor?

A) labor availability B) living conditions C) available transportation D) laws and regulations Answer: C Explanation: C) The human factor is comprised of three distinct components: labor availability, living conditions, and laws and regulations.

Diff: 2 Page Ref: 329 AACSB: Reflective Thinking Objective: 11-3 What are the transportation, human, and physical factors that are involved in choosing a manufacturing location?

Skill: Conceptual 51) The MOST frequent reason that some corporations send their manufacturing operations outside of the United States is to find highly skilled workers who ________.

A) require lower wages than their U.S. counterparts B) require less training than their U.S. counterparts C) speak more languages than their U.S. counterparts D) commute for longer distances than their U.S. counterparts Answer: A Explanation: A) Businesses need to find a workforce that they can afford. Business owners have found that by hiring outside of the U.S., they can employ highly skilled workers who require lower wages than their U.S. counterparts. Speaking more languages may or may not be the case, but would not be a determining factor. Foreign as well as domestic employees require training.

Diff: 2 Page Ref: 329 AACSB: Reflective Thinking Objective: 11-3 What are the transportation, human, and physical factors that are involved in choosing a manufacturing location?

Skill: Conceptual 52) A factory is planning to open in a small town that is currently struggling economically. The town residents should expect a(n) ________.

A) improved economy B) reduced taxes C) increase in natural resources D) lower standards of living Answer: A Explanation: A) Once construction starts on the factory, the people can expect new jobs and a higher standard of living. The factory should help revitalize the town that was previously struggling.

Diff: 2 Page Ref: 329-330 AACSB: Reflective Thinking Objective: 11-3 What are the transportation, human, and physical factors that are involved in choosing a manufacturing location?

Skill: Conceptual

53) Utility supplies should be a consideration when determining a company location because ________.

A) it is almost impossible to find a location near water suitable for business development B) it is likely to find inexpensive utilities in remote areas, which reduces operating expenses C) it is always smart for businesses to locate near power supply, water and, communications D) it is less expensive to locate businesses near inexpensive utility resources Answer: D Explanation: D) Utility supplies are a consideration in choosing the ideal location for a company. Locating manufacturing operations in an area with easy access to utilities and resources will greatly reduces costs. For example, power and communication costs are typically more expensive in remote areas. If a manufacturer has a high demand for electricity, locating in remote area will increase operating expenses. It is not accurate to say all companies should locate near power supply, water, and communications. Company's necessary utility supplies may vary.

For example, if a company ships products overseas, they may want to locate near water to minimize land transportation costs. Each company should evaluate the utility supplies that will most affect their expenses and take those supplies into consideration when choosing a location.

Diff: 2 Page Ref: 328-329 AACSB: Reflective Thinking Objective: 11-3 What are the transportation, human, and physical factors that are involved in choosing a manufacturing location?

Skill: Conceptual 54) Utility ________ refers to the availability of public infrastructure services.

A) cache B) supply C) provision D) availability Answer: B Explanation: B) Utility supply refers to the availability of public infrastructure services. Utility supplies are a consideration in choosing the ideal location for a company. Most companies need access to inputs such as water, electricity, wood, coal, and other basic resources. Most industries can cut their costs significantly by moving to areas where such resources are abundant and inexpensive.

Diff: 2 Page Ref: 328 AACSB: Reflective Thinking Objective: 11-3 What are the transportation, human, and physical factors that are involved in choosing a manufacturing location?

Skill: Conceptual

55) The U.S. Department of Labor ________.

A) runs government owned businesses B) sets the minimum wage for workers C) monitors laws affecting workers.

D) regulates the use of resources for businesses Answer: C Explanation: C) The U.S. Department of Labor monitors laws affecting workers, such as work hours and compensation. Every state also has its own agency that regulates labor laws.

Diff: 2 Page Ref: 330 AACSB: Reflective Thinking Objective: 11-3 What are the transportation, human, and physical factors that are involved in choosing a manufacturing location?

Skill: Conceptual 56) ________ is the physical arrangement of resources in the production process.

A) Facility location B) Facility layout C) Lean production D) Lean layout Answer: B Explanation: B) Facility layout refers to the physical arrangement of resources and people in the production process and how they interact. The design of a facility's layout is important to maximize efficiency including everything from the arrangement of cubicles in an office space to the position of robotic arms in an automobile-manufacturing plants. Facility location is the process of identifying the geographic location of a company.

Diff: 2 Page Ref: 330 AACSB: Reflective Thinking Objective: 11-4 How is a production plan developed and controlled?

Skill: Conceptual 57) ________ refers to the value given to finished products.

A) Utility B) Production management C) Facility layout D) Facility utility Answer: A Explanation: A) The act of production gives finished products value, or utility, by satisfying consumers' wants or needs. It is the production manager's job to successfully develop and carry out a production plan to ensure that a product provides utility.

Diff: 3 Page Ref: 334 AACSB: Reflective Thinking Objective: 11-4 How is a production plan developed and controlled?

Skill: Conceptual

58) The production manager is responsible for all of the following EXCEPT ________.

A) setting schedules B) making buying decisions C) overseeing quality control D) preparing financial reports Answer: D Explanation: D) Production managers are in charge of setting schedules, making buying decisions, overseeing quality control, and other important issues. The scope of production planning includes making decisions involving the design and management of the many factors that affect operations. Preparing financial reports is the role of the controller.

Diff: 2 Page Ref: 334 AACSB: Reflective Thinking Objective: 11-4 How is a production plan developed and controlled?

Skill: Conceptual 59) Jeff is part of his company's production management team. His team is responsible for doing all of the following EXCEPT ________.

A) determining what to produce and where to locate the facility B) determining the size and layout of a facility C) identifying business prospects that the company will pursue D) identifying what machinery to use to minimize costs Answer: C Explanation: C) Production planning includes making decisions involving the design and management of the many factors that affect operations. These decisions include designing the size and layout of a facility, determining what to produce, where to locate the facility, and what processes and machinery to use to minimize costs. Informing the company whether the business prospect should be pursued is the responsibility of the sales and marketing team.

Diff: 2 Page Ref: 334 AACSB: Reflective Thinking Objective: 11-4 How is a production plan developed and controlled?

Skill: Conceptual 60) What statement BEST explains the decision to make or buy?

A) Price is the most important thing to consider in this decision.

B) Many factors must be considered in this decision.

C) Quality of products is the most important thing to consider in this decision.

D) Access to suppliers is the most important thing to consider in this decision.

Answer: B Explanation: B) Price and the quality of products provided by the supplier should both be considered when deciding to make or buy. In reality, many factors must be considered when making this important decision.

Diff: 2 Page Ref: 332 AACSB: Reflective Thinking Objective: 11-4 How is a production plan developed and controlled?

Skill: Application

61) Crystal is the production manager at Pawelk's, a vacuum cleaner manufacturer. When ordering from her supplier, she must ensure that it does all of the following EXCEPT ________.

A) provide trusted quality B) meet product deadlines C) deliver appropriate quantities D) receive positive recommendations Answer: D Explanation: D) Even though some of the parts for the vacuums are outsourced to suppliers, Crystal knows her customers will hold her responsible for the quality of the vacuum they purchase, making Crystal responsible for the quality of purchased supplies. Because Pawelk's reputation is at risk, Crystal needs to make sure her suppliers deliver products that are finished on time and in the appropriate quantities. The products need to have a consistent quality they can trust. While Crystal should ensure that the supplier has positive recommendations before hiring them, it is not necessary to do this during the ordering process.

Diff: 2 Page Ref: 332 AACSB: Reflective Thinking Objective: 11-4 How is a production plan developed and controlled?

Skill: Conceptual 62) Which of the following resources is NOT designed to help businesses connect with suppliers?

A) trade magazines B) the International Organization for Standardization C) the Better Business Bureau D) the local chamber of commerce Answer: B Explanation: B) Businesses have many resources to turn to when they need help connecting with suppliers. Resources include the Better Business Bureau, the local chamber of commerce, exhibitions, trade magazines, the Internet, and word of mouth recommendations. The International Organization for Standardization creates standards for quality goods and services.

Diff: 2 Page Ref: 332 AACSB: Reflective Thinking Objective: 11-4 How is a production plan developed and controlled?

Skill: Conceptual

63) ________ is the process of receiving, storing, handling, and tracking of everything in a company's stock.

A) Inventory control B) Total quality management C) Reserve stock system D) Just-in-time inventory Answer: A Explanation: A) Reserve stock system and just-in-time (JIT) inventory are both systems for managing inventory. Total quality management is a quality control approach. Inventory control is the process of receiving, storing, handling, and tracking of everything in a company's stock, from raw materials to finished products.

Diff: 1 Page Ref: 340 AACSB: Reflective Thinking Objective: 11-4 How is a production plan developed and controlled?

Skill: Conceptual 64) Retro Inc. wanted to reduce the amount of supplies it had on hand at any given time to the minimum required. To accomplish this goal, it implemented a ________ system.

A) just-in-time B) reserve stock system C) book stock D) manual eyeballing Answer: A Explanation: A) Book stock solutions, eyeballing inventory and reserve stock systems are inventory controls systems that require inventory being stored internally. In a just-in-time inventory control system, suppliers deliver just enough supplies just-in-time for their use in a production process, thus reducing the need for internal storage. While this requires frequent deliveries, it also allows the producer to greatly reduce the amount of parts and materials held in inventory.

Diff: 2 Page Ref: 341 AACSB: Reflective Thinking Objective: 11-4 How is a production plan developed and controlled?

Skill: Application

65) Jim is in charge of inventory control for his company. He has parts and materials set aside that are not to be used unless absolutely necessary. Jim uses a ________ inventory control system.

A) just-in-time B) reserve stock system C) book stock D) manual eyeballing Answer: B Explanation: A) In a just-in-time inventory control system, suppliers deliver just enough supplies just-in-time for their use in a production process. There would not be any extra materials or parts on hand. Manually eyeballing is a system in which inventory is checked and instinct is used to know when to order. It is best suited for smaller companies. Book stock is keeping physical records of how much material is stocked, in transit and in production. Jim is using a reserve stock inventory control system. He has a reserve of materials on hand at all times. As inventory gets low, he will use some of the reserves and will simultaneously place an order for more supplies. Jim should be sure to have enough materials in reserve to continue business even in the event of a delay in shipment of materials from his supplier.

Diff: 2 Page Ref: 341 AACSB: Reflective Thinking Objective: 11-4 How is a production plan developed and controlled?

Skill: Application 66) A ________ allows a computer to keep track of how many items are in stock and sold.

A) just-in-time inventory system B) reserve stock system C) radio frequency identification D) stock book solution Answer: C Explanation: C) Just-in-time is an inventory system that allows companies to minimize storage costs by ordering materials and supplies only as they are needed. The reserve stock system and stock book solution are inventory systems that are manual, not computerized, simple to implement, and work well in smaller companies. Radio frequency identification (RFID) allows a computer to keep track of the status and quantity of each item. The computerized system is able to continuously update information, such as how many items are in stock and how many have been sold.

Diff: 1 Page Ref: 341 AACSB: Reflective Thinking Objective: 11-4 How is a production plan developed and controlled?

Skill: Conceptual

67) Which of the following computer-based programs lets a manager know what resources are needed by a particular date to fill an order on time?

A) statistical process control B) computer-aided manufacturing C) materials requirement planning D) stock book solution Answer: C Explanation: C) A stock book solution is an inventory control system in which inventory on hand, in transit and sold are manually recorded in a book. Both SPC and CAM are computer software tools that aid in the production process. SPC aids in quality control and CAM aids in product manufacturing. Materials requirement planning is a computer-based program used for inventory control and production. It allows a company to know what materials need to be ordered or arranged to complete the order. This program can help determine potential parts and labor shortages before they happen.

Diff: 2 Page Ref: 341 AACSB: Reflective Thinking Objective: 11-4 How is a production plan developed and controlled?

Skill: Conceptual 68) Enterprise resource planning (ERP) takes MRP one step further because it ________.

A) electronically tracks the status and quantity of each item in the system B) allows materials to be ordered only as they are needed C) performs inventory control and process scheduling for manufacturing D) performs inventory control and process scheduling for the entire company Answer: D Explanation: D) Radio frequency identification (RFID) will electronically track the status and quantity of each item in the company's system. JIT is an inventory control system that allows materials to be ordered only as they are needed. It is a separate tool from ERP and MRP. Enterprise resource planning (ERP) is a computer application that enables a firm to combine all of the inventory control and process scheduling for the entire company including finance, human resources, and order fulfillment into a single program whereas an MRP is used within manufacturing alone.

Diff: 3 Page Ref: 342 AACSB: Reflective Thinking Objective: 11-4 How is a production plan developed and controlled?

Skill: Conceptual

69) Which of the following business management systems consolidates information into a central database that is accessible to various system modules?

A) statistical process control B) enterprise resource planning C) material requirement planning D) lean production Answer: B Explanation: B) SPC is a tool used in quality control. Materials requirement planning is a computer-based program used for inventory control and production. It allows a company to know what materials need to be order or arranged to complete the order. This program can help determine potential parts and labor shortages before they happen. Lean production is set of principles concerned with reducing waste and improving flow. Enterprise resource planning consolidates information into a central database that is accessible to various system modules.

ERP systems allow companies to streamline workflows across the entire company rather than limiting it to one function.

Diff: 2 Page Ref: 342 AACSB: Reflective Thinking Objective: 11-4 How is a production plan developed and controlled?

Skill: Conceptual 70) ________ is a set of principles concerned with reducing waste and improving flow.

A) Routing B) Quality control C) Lean production D) Customer-driven production Answer: C Explanation: C) One of the most important aspects of the production process is making sure that work gets done as efficiently as possible. Lean production is a set of principles concerned with reducing waste and improving flow. It was originally used for manufacturing, but the principles behind it are highly flexible and can be used in every step of the production process.

Diff: 1 Page Ref: 335 AACSB: Reflective Thinking Objective: 11-4 How is a production plan developed and controlled?

Skill: Conceptual

71) MRP helps managers ________.

A) identify the critical path for producing materials within a specified time B) assign the order and timing in which jobs are completed on specific projects C) make sure the right parts and materials are available at the right time D) assign jobs to specific machines so that they can be completed most efficiently Answer: C Explanation: C) The tool used to identify the critical path is called a PERT chart. Sequencing and loading are the processes that assign the order in which jobs are completed and assign jobs to a specific machine. An MRP is a computer based system used for inventory control and production planning. It can help managers make sure the right parts and materials are available at the right time.

Diff: 2 Page Ref: 341 AACSB: Reflective Thinking Objective: 11-4 How is a production plan developed and controlled?

Skill: Conceptual 72) The two components that go into making an effective schedule are ________ and ________.

A) loading; sequencing B) routing; sequencing C) loading; routing D) estimating; sequencing Answer: A Explanation: A) Routing is the way in which goods are transported and are a part of the scheduling processing. The two major components that go into making an effective schedule are loading and sequencing. Loading is assigning a job to a specific machine or entire work center.

Sequencing is assigning the order in which jobs are processed.

Diff: 1 Page Ref: 323 AACSB: Reflective Thinking Objective: 11-4 How is a production plan developed and controlled?

Skill: Conceptual 73) Companies use routing in order to ________.

A) buy B) manufacture C) outsource D) transport Answer: D Explanation: D) Routing is simply the way in which goods are transported, by water, rail, truck, or air. Product transportation is also an area where the expense involved is significantly large and takes up a huge portion of the budget. The goal is to ensure routing is done at a minimum of cost, time, and distance without sacrificing quality.

Diff: 1 Page Ref: 350 AACSB: Reflective Thinking Objective: 11-4 How is a production plan developed and controlled?

Skill: Conceptual

74) Jamie is given a routine project to manage and is told materials will become available in three weeks. She has built a strong relationship and trust level with the supplier. Her next step is to ________.

A) contact her suppliers to see if materials can be shipped sooner B) develop a schedule and determine a shipping date C) develop a schedule based on the shipping date D) determine the start date based on project completion date Answer: B Explanation: B) Jamie knows the materials will be available in three weeks. Because she knows the date the material will be available, she will need to develop a forward schedule. Forward schedules look at when materials are available and then works from there to determine the possible shipping date. Because this is a routine project, and Jamie has done her job of building a relationship with her supplier, there is no need to request materials be shipped sooner. Her trust level with the supplier gives Jamie the confidence to know supplies will be delivered timely.

Diff: 2 Page Ref: 339 AACSB: Reflective Thinking Objective: 11-4 How is a production plan developed and controlled?

Skill: Application 75) ________ is the use of techniques, activities, and processes to guarantee that a certain good or service meets a specified standard.

A) Inventory control B) Supply line control C) Quality control D) Management control Answer: C Explanation: A) Quality control is the use of techniques, activities, and processes to guarantee that a certain good or service meets a specified level of quality. Quality control has been in use since medieval times. Over the years it has evolved from having teams outside of production processes manage quality control to an internal quality control process. Companies have implemented total quality management procedures and even pursue recognition for their quality control process from the ISO. Quality control must be made a priority by companies to remain competitive.

Diff: 1 Page Ref: 343 AACSB: Reflective Thinking Objective: 11-5 What is quality control, and how do ISO standards help companies produce high quality goods and services?

Skill: Conceptual

76) The old method of quality control in the United States believed it was best to test products ________.

A) at least 3 times before completion B) during the production process C) after completion of a product D) after every step in the assembly line Answer: C Explanation: B) Prior to total quality management, a product was tested for flaws at the end of the production process. This was a very costly decision, since products with problems had to be completely scrapped or reworked.

Diff: 2 Page Ref: 343 AACSB: Reflective Thinking Objective: 11-5 What is quality control, and how do ISO standards help companies produce high quality goods and services?

Skill: Conceptual 77) Prior to the implementation of total quality management, defective items were ________.

A) sold as perfect products B) incorporated into a new product C) scrapped or reworked D) stored indefinitely Answer: C Explanation: C) Older quality control methods did find defects, however, they were found after the fact rather than during the production process. Since products were not inspected until they were finished, defective items had to be either reworked or scrapped. Because this was a costly process, many companies have enjoyed cost savings as a result of implementing total quality management.

Diff: 1 Page Ref: 343 AACSB: Reflective Thinking Objective: 11-5 What is quality control, and how do ISO standards help companies produce high quality goods and services?

Skill: Conceptual

78) Which statement BEST describes the concept of "total quality"?

A) Total quality is about reaching a peak level of quality and maintaining it.

B) Total quality is about building quality into every step of the production process.

C) Total quality is about shifting the responsibility for quality control to one team.

D) Total quality is about inspecting products when they are finished.

Answer: B Explanation: B) The older techniques of quality control revolved around the idea of having the responsibility for quality control be with one team. This method was not only found to be costly, but not as effective as possible. The main reason for its ineffectiveness was because the inspection happened after completion of the product, thus not allowing for corrections along the way. The goal of quality control is to reach a peak level of quality and maintain it, even improve it, but that is not attainable without building quality into every step of the production process.

TQM requires building quality into every step of the production process.

Diff: 2 Page Ref: 343 AACSB: Reflective Thinking Objective: 11-5 What is quality control, and how do ISO standards help companies produce high quality goods and services?

Skill: Conceptual 79) Kim is implementing the concept of total quality management within her company. The results she expects include ________.

A) a higher standard of products and increased cost savings B) higher prices for products due to the extra process involved C) a one-time product improvement unlikely to reproduce D) a limited presence in the global marketplace Answer: A Explanation: A) Kim would most likely not see an increase in prices of the products but rather a decrease. Although extra processes will be implemented during production, the result will actually reduce expenses because of the reduction in errors. Kim should expect the implementation of total quality management to provide long-term results, not a one-time improvement. Because total quality management improves processes and lowers error rates, Kim should expect being able to offer high-quality products at lower prices. This helps to improve competitiveness, leading to a strong presence in the global market.

Diff: 2 Page Ref: 343 AACSB: Reflective Thinking Objective: 11-5 What is quality control, and how do ISO standards help companies produce high quality goods and services?

Skill: Conceptual

80) The six sigma approach to quality control ________.

A) requires a team to inspect products at the end of production B) finds potential problems early to prevent recurrence C) views quality control as a marketing role D) allows six errors per batch Answer: B Explanation: B) The six sigma approach is a method that seeks to eliminate defects by removing variation in outcomes and measuring and analyzing manufacturing processes to see if standards are being met. A company with six sigma quality produces at a low defect rate of just 3.4 defects per million opportunities.

Diff: 1 Page Ref: 343 AACSB: Reflective Thinking, Analytic Skills Objective: 11-5 What is quality control, and how do ISO standards help companies produce high quality goods and services?

Skill: Application 81) The overall purpose of the plan-do-check-act cycle is to ________.

A) better accommodate employee needs B) improve products and services by reducing potential errors C) minimize production costs D) maximize production with the fewest employees Answer: B Explanation: B) When using the plan-do-check-act (PDCA), organizations first formulate a plan to reduce potential errors, carry out the plan on a small scale, check the outcome and effectiveness of the change, and then implement the plan on a larger scale while monitoring results continually. If this cycle takes place on a continual basis, the company will be able to consistently improve products and services by reducing potential errors.

Diff: 1 Page Ref: 343 AACSB: Reflective Thinking Objective: 11-5 What is quality control, and how do ISO standards help companies produce high quality goods and services?

Skill: Conceptual

82) Which quality control approach involves eliminating defects by removing variations in outcomes?

A) total quality management B) statistical quality control C) statistical process control D) six sigma processes Answer: C Explanation: C) Statistical quality is the quality control process that eliminates defects by removing variations in outcomes. Statistical quality control is a process in which all processes are continually monitored within production to ensure quality is built into the product from the beginning.

Diff: 2 Page Ref: 343 AACSB: Reflective Thinking Objective: 11-5 What is quality control, and how do ISO standards help companies produce high quality goods and services?

Skill: Conceptual 83) The objective of the International Organization for Standardization is to develop production processes that are ________.

A) dependent on the participating country's capability B) equal in quality and capability in all participating countries C) higher in quality for developed countries D) lower in quality for developed countries Answer: B Explanation: B) The objective of ISO is to develop production processes that are equal in quality and capability in all participating countries. The organization has published more than 10,000 standards. The ISO standards apply not to the products themselves, but to the production methods and systems used to manufacture them, as well as other areas, such as communication within the company and leadership.

Diff: 2 Page Ref: 344 AACSB: Reflective Thinking Objective: 11-5 What is quality control, and how do ISO standards help companies produce high quality goods and services?

Skill: Conceptual

84) After a company earns ISO certification, a registrar visits the company to ensure continued quality. What kind of warning does the company receive before these visits?

A) 1 month warning B) 1 week warning C) 24 hour warning D) no warning Answer: D Explanation: D) After certification, the registrar returns to the company twice a year to make sure the company is still in compliance with ISO standards. These spot-checks are conducted without advance warning, and the registrar focuses on areas that were notably weak during the initial assessment.

Diff: 2 Page Ref: 345 AACSB: Reflective Thinking Objective: 11-5 What is quality control, and how do ISO standards help companies produce high quality goods and services?

Skill: Conceptual 85) A Gantt chart is a tool used by project managers to ________.

A) identify the critical path for completing projects B) provide a quick and easy visual schedule of progress C) measure quality control within each production process D) gain ISO certification for a company's manufacturing process Answer: B Explanation: B) A PERT chart is a program evaluation and review technique that helps managers identify the critical path. A Gantt chart is a method for keeping tabs on the progress of a given project. Project managers and manufacturers can see at a glance which tasks have been completed and whether these tasks were completed on schedule.

Diff: 2 Page Ref: 339 AACSB: Reflective Thinking Objective: 11-5 What is quality control, and how do ISO standards help companies produce high quality goods and services?

Skill: Conceptual

86) In a potato chip factory, chips are mass-produced along an automated assembly line. A machine cooks the chips in large volumes, while another machine weighs and distributes the chips into foil-lined packages. Another machine seals the packages, arranges them, and packs them in boxes for delivery. What type of production system is used here and what is the major disadvantage of this type of production?

Answer: The production system used by the potato chip factory is mass production. The main disadvantage of mass production is its inflexibility. If one machine breaks down, the whole assembly process is delayed until the machine is fixed. After a production line is established, it is very difficult to change or alter the process if an unexpected problem occurs. Because machines can only perform one particular task, they are inflexible. An alternative production process that provides flexibility is the flexible production process, however, this is not the choice production process for a high demand, high volume product, like potato chips.

Diff: 2 Page Ref: 334 AACSB: Reflective Thinking Objective: 11-1 What are mass production, flexible production, and customer-driven production, and what are the benefits and challenges of each?

Skill: Conceptual 87) Sam owns a factory that manufactures screen doors. He is currently thinking about changing his production system. His customers' orders vary from square to round openings and from plain weaving to twilled weaving. Sam also notices that customer demand for wire screens increases in the spring and summer and dwindles during fall and winter. Which type of production system would be BEST for his factory?

Answer: The demand for Sam's screen doors varies throughout the year and there is a need for customized products. His screen doors also have a wide variety of specifications. Flexible manufacturing, or mass customization, is the best choice when demand for the goods is low to medium, when changes in demand are frequent and when a wider variety of customized products is necessary. Sam's factory does fit these criteria. Unlike mass production, a flexible manufacturing system can adapt to changes in schedules and product specifications. Sam's factory would most benefit from a flexible manufacturing system. Because an FMS can adapt to product specifications, Sam may be able to produce other products when the demand for screen doors is low.

Diff: 2 Page Ref: 334-335 AACSB: Reflective Thinking Objective: 11-1 What are mass production, flexible production, and customer-driven production, and what are the benefits and challenges of each?

Skill: Conceptual

88) What are industrial robots, and how would a company benefit by including them as part of its production system?

Answer: An industrial robot is any device that performs automatically, typically completing repetitive tasks. They are able to perform repetitive tasks for hours with precision and accuracy.

Companies that use robots in production are able to reduce production costs, raise productivity, and produce high quality products. This can give a company an economic advantage in the marketplace.

Diff: 2 Page Ref: 336 AACSB: Reflective Thinking Objective: 11-2 How does technology influence the production process?

Skill: Conceptual 89) What effect has the introduction of CAD and CAM had on production?

Answer: The introduction of CAD and CAM into the production process has dramatically improved the process of producing goods. Their introduction has reduced the time between design and manufacturing. A cost savings is gained when the time to produce a good is reduced.

CAD and CAM have also opened the doors to more advanced use of automated machinery.

Diff: 1 Page Ref: 337-338 AACSB: Reflective Thinking Objective: 11-2 How does technology influence the production process?

Skill: Conceptual 90) Dan is opening a new restaurant specializing in barbecued ribs. He is looking for the perfect location for his rib restaurant. What transportation factor should he consider?

Answer: Dan should consider the diner's proximity to its market. Because his business needs steady customers, he should choose an area where his diner is visible to passing cars and pedestrians. Restaurants, supermarkets, and service businesses should be situated in a location with a high potential customer base in order to gain an advantage in attracting business. If a location is tucked away in remote area, few people will see it, which may lead to poor business.

Diff: 2 Page Ref: 327-328 AACSB: Reflective Thinking, Analytic Skills Objective: 11-3 What are the transportation, human, and physical factors that are involved in choosing a manufacturing location?

Skill: Conceptual

91) Explain what human factors should be considered when determining where to locate an electronics manufacturer.

Answer: Human factors means considering how the location decision affects the people in a community. As an electronics manufacturer, skilled labor will be needed. Finding a community near skilled labor will be important. Many companies are locating overseas as a way to obtain skilled labor at a lower cost. Considerations as to how the living conditions of the community will be affected are important. Last, government laws may play a role in location. Researching laws and how they may affect business operations up-front can avoid unexpected surprises that may cost.

Diff: 2 Page Ref: 329-330 AACSB: Reflective Thinking, Analytic Skills Objective: 11-3 What are the transportation, human, and physical factors that are involved in choosing a manufacturing location?

Skill: Application 92) In 2006, Apple was accused of poor working and living conditions at an iPod manufacturing plant in China. After an investigation by Apple, it was determined no laws were violated; however, some violation of its codes had taken place. What responsibility do companies have to a community?

Answer: Student answers will vary. However, one possible answer might state: When choosing a facility location, the human factor is important. A company should take a look at how it will impact the living conditions of a community. It may ask, "Will we have a positive impact or a negative impact on this community?" It must be mindful of its impact on a community when making location choices. In the case of Apple, although there were no laws violated, Apple does have an ethical responsibility to do the right thing and it did work to improve the working and living conditions at its China plant.

Diff: 2 Page Ref: 329-330 AACSB: Reflective Thinking, Analytic Skills, Ethical Reasoning Objective: 11-3 What are the transportation, human, and physical factors that are involved in choosing a manufacturing location?

Skill: Application 93) Betsy is a production manager. She just completed a new facility layout. Because of the need for more warehousing space, employee workspaces were cut in half and some were relocated to a supply closet. The break room was converted into more warehousing space, and five employees now share cubicles. What effects will Betsy's layout decision have on the company?

Answer: Because of the need for additional warehousing space, Betsy chose to eliminate employee workspace, which may not be the best business choice. Facility layout has a direct effect on productivity of employees. Because some employees are located in a closet, most likely without windows, and others now need to share space, it is likely that morale and productivity will decrease. Happy employees are productive employees. The best layout for improving morale and productivity is a layout that includes a spacious cubicle, window views, ergonomically correct furniture and equipment, and an appealing break room.

Diff: 3 Page Ref: 331 AACSB: Reflective Thinking, Analytic Skills, Ethical Reasoning Objective: 11-4 How is a production plan developed and controlled?

Skill: Application

94) Bill is a production manager at a bicycle manufacturing company and needs to find a new supplier. Explain the steps he should take in choosing the best supplier.

Answer: To find the best supplier for his company, Bill should start by making a list of three to five suppliers. He should provide a summary of his needs to each potential supplier and then ask the suppliers for quotes, samples and even a tour of their facility. After receiving the information from the supplier, Bill should have the information he needs to narrow down his decision. It is a good idea to have more than one supplier to eliminate total dependency on one company. Bill should work to build a strong relationship with his suppliers.

Diff: 2 Page Ref: 332 AACSB: Reflective Thinking Objective: 11-4 How is a production plan developed and controlled?

Skill: Application 95) Wilks, Inc. manufactures small kitchen appliances with low production levels. It is expanding operations to include larger household appliances. Wilks has been able to utilize a stock book approach to inventory; however, with the expansion it does not have the storage space for the necessary parts and materials needed for the larger appliances. What might be a good inventory approach for Wilks, Inc.?

Answer: The stock book approach was working for Wilks since it had low production levels and was able to store materials and parts in a small warehouse. With the expansion into larger appliances, Wilks no longer has the warehouse space for the parts and materials needed to produce the large appliances. Wilks could investigate the costs of expanding its warehouse, but a better option would be to implement a JIT system. A JIT system would allow Wilks to order materials as they are needed, eliminating the need for a larger warehouse and thus saving costs associated with storage.

Diff: 2 Page Ref: 341 AACSB: Reflective Thinking, Analytic Skills Objective: 11-4 How is a production plan developed and controlled?

Skill: Application 96) Carla's company is spending a large percentage of its annual budget on transportation costs.

Her manager asks her to determine ways the company may reduce its transportation costs. How should Carla approach this task?

Answer: Carla should reevaluate the company's routing guide, which is a document providing detailed information about all the transportation options pertinent to the company. Carla may then be able to investigate cheaper alternatives. Carla should ensure that any transportation of goods is done at a minimum of cost, time, and distance without sacrificing quality.

Diff: 1 Page Ref: 328 AACSB: Reflective Thinking Objective: 11-4 How is a production plan developed and controlled?

Skill: Application

97) How has quality control evolved over the years?

Answer: In the United States, quality control was performed by a separate quality control department, which was a check performed at the end of the production line. However, this approach had drawbacks, the most significant being that finding the error involved in the process was expensive and costly as well as reactive versus proactive. The drawbacks led to the realization that quality control should be viewed as a never-ending process of continually improving what the company produces. Today, production managers incorporate quality control into the entire production process rather than an inspection at the end of the production line.

Many American companies have adopted a total quality management system, originally introduced in Japan. Total quality management is a proactive approach to address not only the resulting concerns with errors but to implement processes to prevent errors.

Diff: 3 Page Ref: 343 AACSB: Reflective Thinking Objective: 11-5 What is quality control, and how do ISO standards help companies produce high quality goods and services?

Skill: Application 98) Rita was recently promoted to chief executive officer of an automotive parts company. The previous chief executive officer had been at the company for over 30 years and rigidly stuck to the inspection method of quality control. Rita wants to introduce the concept of total quality management. What methods should she use?

Answer: Rita can undertake a plan-do-check-act (PDCA) cycle when attempting new processes.

This involves formulating a plan to reduce potential errors, implementing it on a small scale, checking the results, and implementing it on a larger scale if successful. If this cycle takes place on a continual basis, the company will be able to consistently improve quality. The company should also implement statistical quality control (SQC), in which it consistently monitors each stage of the production process to make sure that standards are being met. Rita may also like to use statistical process control (SPC), in which the company samples products at every phase of production and displays the results on a graph to check for potential variations that need to be corrected. Also, incorporating the six sigma method through SPC and total quality management (TQM) can drastically cut defect rates and help the company consistently achieve high standards of quality.

Diff: 2 Page Ref: 343 AACSB: Reflective Thinking, Analytic Skills Objective: 11-5 What is quality control, and how do ISO standards help companies produce high quality goods and services?

Skill: Application

99) What are ISO standards?

Answer: The International Organization for Standardization (ISO) is an organization dedicated to creating worldwide standards of quality for goods and services. The objective of ISO is to develop production processes that are equal in quality and capability in all participating countries. The ISO standards apply to the production methods and systems used to manufacture them, not to the product themselves. They also apply to other areas, such as communication within the company and leadership.

Diff: 2 Page Ref: 344 AACSB: Reflective Thinking Objective: 11-5 What is quality control, and how do ISO standards help companies produce high quality goods and services?

Skill: Application 100) Explain what a Gantt chart is and how it is beneficial in production management.

Answer: A Gantt chart is a tool used to track the progress of projects. It is constructed with horizontal bar graphs and includes each task on a project, the order they must be completed, and how long each task should take. It is a helpful tool for production managers because it provides an instant visual as to the progress of a project by allowing them to see what tasks are completed and if they are completed as scheduled.

Diff: 2 Page Ref: 339 AACSB: Reflective Thinking Objective: 11-5 What is quality control, and how do ISO standards help companies produce high quality goods and services?

Skill: Conceptual Better Business, 7e (Solomon) Chapter 12 Marketing and Consumer Behavior 1) Marketing departments do NOT serve which of the following functions?

A) establish desirable pricing strategies B) establish meaningful relationships with customers to instill loyalty C) determine what products to produce and what products not to produce D) promote an organization by persuading customers that their products are the best Answer: C Explanation: C) Marketing departments are responsible for staying aware of people's needs and desires. Though marketing is a field known for its job of promoting companies and their products by persuading customers to make purchases, marketers also must participate in the process of establishing pricing strategies that will benefit the company as well as be attractive to the customers. When customers develop relationships with the company and its products, it is the task of the marketing department to turn those relationships into meaningful ones, ensure repeat business, and to instill loyalty. Marketing departments do not determine the specific products that a company will produce.

Diff: 2 Page Ref: 363-364 Objective: 12-1 How has marketing evolved over the production concept era, the sales concept era, the marketing concept era, and the customer relationship era?

Skill: Conceptual

2) The main function of marketing is A) to contribute to the accuracy of a business's strategic plan.

B) to successfully establish meaningful relationships with customers to ensure loyalty and repeat business.

C) to develop the business's mission and vision.

D) to ensure that manufacturing capacity of a firm is aligned with consumer demand.

Answer: B Explanation: B) Marketing does have a role to play in providing input into a firm's strategic plan, mission and vision, pricing strategies, and decisions about how much product to produce.

However, the main function of marketing, as reflected in the America Marketing Association's most recent definition of marketing, is to successfully establish meaningful long-term relationships with customers.

Diff: 2 Page Ref: 363 AACSB: Communication Abilities Objective: 12-1 How has marketing evolved over the production concept era, the sales concept era, the marketing concept era, and the customer relationship era?

Skill: Conceptual

3) Marketing creates value for the customer by ________.

A) identifying and meeting human needs and wants B) offering customers surveys and other feedback tools C) creating advertisements in major newspaper chains D) using television spots to get the product message across Answer: A Explanation: A) The intense focus on customer satisfaction that marketing provides for companies has increased in recent years. Marketers increasingly must recognize the importance of managing customer relationships while at the same time creating value for the buying public.

Advertising in its various forms and the surveys and feedback tools that marketers employ only assist in realizing the broader goal of identifying and meeting human needs and wants.

Diff: 1 Page Ref: 363 Objective: 12-1 How has marketing evolved over the production concept era, the sales concept era, the marketing concept era, and the customer relationship era?

Skill: Conceptual 4) Marketing has evolved over which four general eras?

A) innovation, production, sales concept, customer relationship B) production concept, production, sales concept, marketing concept C) production concept, sales concept, marketing concept, customer relationship D) innovation, production concept, sales concept, marketing concept Answer: C Explanation: C) The first of the four general eras is the production concept era when companies focused primarily on production. This era lasted from the Industrial Revolution until the 1920s.

The second of these eras is the sales concept era, which lasted from the mid-1920s through the early 1950s. During this period production increased more sharply than demand for goods and services. The third of these eras is the marketing concept era. From the 1950 into the 1990s, businesses learned that they had to determine what products customers wanted and then produce them. The customer relationship era began in the late 1990s and continues today with the focus being customer relationship management retaining customers rather than acquiring ones.

Diff: 2 Page Ref: 364 Objective: 12-1 How has marketing evolved over the production concept era, the sales concept era, the marketing concept era, and the customer relationship era?

Skill: Conceptual

5) In a "seller's market" ________.

A) demand exceeds supply B) suppliers are anxiously looking for a wider range of outlets for their goods and services C) customers have the final choice on product specifications D) there is a limited demand for good quality products Answer: A Explanation: A) When customer demands are greater than the supply of goods offered, the suppliers of those good have the advantage. This is called a "seller's market" and it means that the demand is greater than the supply. Sellers can call the shots, as it were, by pricing to their own advantage and creating products that suit their production demands rather than the demands of the buyers. During the production concept era, it was a seller's market and the prevailing business sense was that good-quality products would sell themselves.

Diff: 3 Page Ref: 364 AACSB: Analytic Skills Objective: 12-1 How has marketing evolved over the production concept era, the sales concept era, the marketing concept era, and the customer relationship era?

Skill: Application 6) The era when companies believed that a good quality product would simply sell itself ran ________.

A) from the 1950s until the early 1980s B) from the Industrial Revolution until the 1920s C) from the mid-1920s until the 1950s D) from the mid-1980s until the late-1990s Answer: B Explanation: B) This was during the production concept era, which lasted from the Industrial Revolution until the 1920s. The belief held up during this period because there was a strong demand for products and a limited supply of goods on the market.

Diff: 2 Page Ref: 364 Objective: 12-1 How has marketing evolved over the production concept era, the sales concept era, the marketing concept era, and the customer relationship era?

Skill: Conceptual

7) When U.S. soldiers returned home from World War II, they influenced the marketing of products by ________.

A) refusing to purchase any products made in the United States B) taking an innovative approach to marketing when they took jobs in advertising agencies C) getting married, starting families, and having the willingness to spend money D) being easily convinced to purchase new products on the market Answer: C Explanation: C) During the marketing concept era, soldiers returning from World War II were willing to spend their money on goods and services and also had very specific needs for their families. Companies realized that they had to determine what those needs were and then produce the products that the customers would be interested in buying.

Diff: 2 Page Ref: 364-365 AACSB: Reflective Thinking Objective: 12-1 How has marketing evolved over the production concept era, the sales concept era, the marketing concept era, and the customer relationship era?

Skill: Application 8) When competition for customers became more intense during the Sales Concept Era, businesses began to ________.

A) undertake aggressive sales tactics to "push" their products B) focus on quality control measures to produce better quality products C) use marketing concepts from an earlier era D) take advantage of opportunities to market on the Internet Answer: A Explanation: A) From the mid-1920s until the early 1950s it became clear to companies that it was no longer a seller's market. Production had increased in a greater degree than the demand for goods and services thanks to technological advances. Competition for customers was greater and companies had to launch persuasive advertising campaigns and use other aggressive sales tactics to sell their existing products. Improving the quality of their products was not of concern.

Advertising and marketing strategies had to be strong, persuasive, and aggressive.

Diff: 3 Page Ref: 364 AACSB: Analytic Skills Objective: 12-1 How has marketing evolved over the production concept era, the sales concept era, the marketing concept era, and the customer relationship era?

Skill: Application

9) The marketing concept changed the focus from finding the right customer for a product to producing the right product for a customer and doing it better than the competition by specifically focusing on all of the following EXCEPT ________.

A) realizing a profit by satisfying customers over the long term B) creating one product designed to meet the needs of all customers C) aligning all functions of the organization to meet or exceed customer needs D) identifying customer needs before the product is designed and produced Answer: B Explanation: B) Customer retention was not a primary focus during the marketing concept era.

Acquiring customers was more important. In order to acquire new customers, companies had to determine what customers wanted before the product was designed and produced. The organization aligned its functions to meet or exceed those customer needs as well. A profit could by achieved by satisfying customer needs over the long term. However, the retention of those customers was not the key. The ability to meet customer needs was far more important. Since customers desired different products, companies learned to develop multiple products to meet different customer tastes.

Diff: 2 Page Ref: 366 AACSB: Reflective Thinking Objective: 12-1 How has marketing evolved over the production concept era, the sales concept era, the marketing concept era, and the customer relationship era?

Skill: Application 10) When companies constantly take the pulse of changing customer needs and wants, then quickly adapt to meet them, they are able to ________.

A) create marketing after products are developed and produced B) create a buyer's market C) convince customers to buy existing products D) satisfy customer preferences before they are expressed or even known by customers Answer: D Explanation: D) When a company anticipates the changing preferences of its customers and satisfies these preferences before its competitors, those companies are poised for success. They do not work backwards in dealing with the public by developing and producing products and then creating the marketing for those products after the fact. They do not create a buyer's market where the demand is high and the supply is low because companies cannot shape the market in that way. And they have a greater advantage in adapting to meet the needs of customers that they have identified and are better able to satisfy those customer preferences.

Diff: 3 Page Ref: 365 AACSB: Reflective Thinking Objective: 12-1 How has marketing evolved over the production concept era, the sales concept era, the marketing concept era, and the customer relationship era?

Skill: Conceptual

11) During which era did businesses switch their focus to place special emphasis on pleasing customers after the sale?

A) customer relationship era B) production concept era C) marketing concept era D) societal marketing era Answer: A Explanation: A) CRM, or customer relationship management, is the process of establishing long-term relationships with individual customers to foster loyalty and repeat business. CRM goes one step further than the marketing concept by attempting to please customers after they have purchased products. In the sales concept era, public advertising was used heavily to increase the initial sale of products. And in the production concept era, it was a seller's market so the companies that produced the products had a strong customer base because demand was greater than supply.

Diff: 1 Page Ref: 366 AACSB: Reflective Thinking Objective: 12-1 How has marketing evolved over the production concept era, the sales concept era, the marketing concept era, and the customer relationship era?

Skill: Conceptual 12) CRM stands for ________.

A) consumer relations manager B) customer relationship management C) communications, retailing, marketing D) customized relationship management Answer: B Explanation: B) Customer relationship management is the process by which existing customers of products are encouraged to remain loyal to the companies and products that they are already familiar with. The aim is to stimulate future sales of products from that company. Customers are kept up to date on sales and promotions and informed about new products coming on the market.

A consumer relations manager would likely be an employee of a company who deals with issues regarding customer dissatisfaction. A communications, retailing, and marketing initiative would not be aimed at retaining customers. And customized relationship management would be adapted to individuals or selected groups whose relationships with the company would be handled in unique ways.

Diff: 2 Page Ref: 366 Objective: 12-1 How has marketing evolved over the production concept era, the sales concept era, the marketing concept era, and the customer relationship era?

Skill: Conceptual

13) Which of the following tools is NOT used to retain customers in order to stimulate future sales of similar or supplementary products?

A) heavy public advertising B) IT C) marketing communications D) customer service Answer: A Explanation: A) In the customer relationship era, CRM combines computer information technology with customer service and advances in marketing communications in order to retain customers for the purpose of stimulating future sales of similar or supplementary products that a company offers. Public advertising may attract new customers; however, CRM is primarily concerned with nurturing relationships with existing customers to foster loyalty and repeat business.

Diff: 2 Page Ref: 366 AACSB: Reflective Thinking Objective: 12-1 How has marketing evolved over the production concept era, the sales concept era, the marketing concept era, and the customer relationship era?

Skill: Application 14) Which of the following is NOT a function of CRM software, which would help a company to learn as much as possible about customers and create a meaningful one-on-one interaction with each of them?

A) personalizing customer email so that it addresses their particular needs B) quickly identifying customers who call for customer service C) calling customers at their homes to promote the latests products D) offering products tailored specifically to customers' needs and desires Answer: C Explanation: C) Using CRM software, companies can personalize email to customers. Using CRM databases, companies can quickly and easily recognize customers who call the customer service center. Products also can be tailored specifically to customers' needs and desires with CRM software. However, CRM software does not call customers at their homes to promote the latest products. This would not help a company to learn about its customers.

Diff: 2 Page Ref: 366 AACSB: Communication Abilities Objective: 12-1 How has marketing evolved over the production concept era, the sales concept era, the marketing concept era, and the customer relationship era?

Skill: Application

15) Which of the following is NOT an example of how not-for-profit organizations use marketing?

A) A museum conducts a city-wide mailing to attract new membership.

B) The Red Cross is investigating the use of alcohol-based drugs for children's diseases.

C) A Belgium cultural society wants to inform American tourists that French fries were invented there.

D) The Sierra Club is holding a masked costume ball for Halloween in San Francisco.

Answer: B Explanation: B) Many not-for-profit organizations, such as the Sierra Club and the Red Cross, use marketing to enhance their public image, raise awareness of the causes they support, and increase donations. Some of these not-for-profit organizations, museums, for example, have a need to expand their membership in order to meet their operating costs. Countries, states, and cities use marketing to attract tourism and inform the public about their history and culture.

However, when there is an investigation going on into scientific or public health issues, such as the use of alcohol-based drugs for children's diseases, this is not done for marketing purposes. It is done for humanitarian purposes and to improve the quality of life for people.

Diff: 3 Page Ref: 366 AACSB: Reflective Thinking Objective: 12-2 What are the benefits of marketing to customers, sellers, investors, employees, and society at large, and what are the criticisms of marketing?

Skill: Application 16) How does marketing MOST benefit consumers?

A) by convincing consumers that they have needs of which they were previously not aware B) by promoting healthy business competition C) by responding to consumer needs in an effort to satisfy those needs D) by minimizing the retail price of desirable products Answer: C Explanation: C) Marketing benefits consumers most by satisfying buyers' needs. Although marketing may at times create an appetite for products that consumers did not previously need, and contribute to competition which may in turn lower retail prices of comparable goods, its primary benefits to consumers is to identify and satisfy genuine consumer needs.

Diff: 3 Page Ref: 367 AACSB: Analytic Skills Objective: 12-2 What are the benefits of marketing to customers, sellers, investors, employees, and society at large, and what are the criticisms of marketing?

Skill: Conceptual

17) When the marketers for Quiznos try to convince you to buy their sandwiches instead of Subway sandwiches, they are ________.

A) responding to a need B) creating a need C) differentiating between needs and desires D) satisfying a need Answer: A Explanation: A) When a company's marketers inform you about a product and encourage you to purchase that product from them, they are responding to a need for that product. When they are encouraging you to purchase that product from them instead of their competitor, they are still responding to that same need. If that company were creating a need, it would not be letting the customer know that it can satisfy an existing need with its products. If the company were differentiating between needs and desires, it would not present its products as better than a competitor's product. It would instead try to convert an existing need into a desire for its products and in this case, the need is assumed when comparing the Quiznos sandwiches to the Subway sandwiches. And when the marketers are trying to convince the buying public to buy something they are not satisfying a need. The product ultimately satisfies the need when it is purchased.

Diff: 3 Page Ref: 367 AACSB: Analytic Skills Objective: 12-2 What are the benefits of marketing to customers, sellers, investors, employees, and society at large, and what are the criticisms of marketing?

Skill: Application 18) Form utility refers to ________.

A) a product produced from raw materials that pleases the customer B) stocking and displaying products C) the means of ordering products D) the benefits of practicality when a product can be used with no assembly required Answer: A Explanation: A) When a product takes on a form that is pleasing to the customer this is called form utility. The stocking, displaying, and ordering of products is entirely irrelevant to this term.

And the fact that a product can or cannot be used with assembly of parts or with no assembly required is also irrelevant.

Diff: 3 Page Ref: 367 AACSB: Analytic Skills Objective: 12-2 What are the benefits of marketing to customers, sellers, investors, employees, and society at large, and what are the criticisms of marketing?

Skill: Conceptual

19) Which of the following is the BEST example of ownership utility?

A) A law firm believes that it will be more profitable it if owns rather than leases its office space.

B) A collectible item decreases in value over time.

C) A store sells a swimsuit to a customer.

D) A customer benefits from purchasing ski equipment near the beginning of the winter season.

Answer: C Explanation: C) Ownership utility is the satisfaction that the buyer receives from owning a product. Therefore, a store that sells a swimsuit to a customer provides ownership utility to the buyer of the swimsuit. The law firm would only gain ownership utility if it actually buys the office space. A collectible item may have offered ownership utility at the time of its purchase, but not after its purchase and decline in value. Being able to buy ski equipment at the start of the winter season is an example of time utility.

Diff: 3 Page Ref: 367 AACSB: Analytic Skills Objective: 12-2 What are the benefits of marketing to customers, sellers, investors, employees, and society at large, and what are the criticisms of marketing?

Skill: Conceptual 20) The market mechanism benefits society by ensuring that ________.

A) more people will want to buy more BlackBerrys B) society will maintain the current standard of living C) resources are used to increase the benefits of low-value products D) scarce resources are channeled into products most desired by society Answer: D Explanation: D) When scarce resources are used for the production of products that the public wants, the profits of the companies producing those products will increase and the company will have a greater capacity to produce more products that the public wants. This is the market mechanism. The business becomes more profitable, the public demands more of the desired products, the resources and labor are used, which then raises prices and wages, and more resources flow into the production of the highly desired products. The market mechanism does not ensure that more people will want to buy more BlackBerrys or any other desirable product.

The market mechanism has nothing to do with the standard of living for the society overall. And the use of resources to increase the benefits of low-value products is actually reduced due to falling demand.

Diff: 1 Page Ref: 368 AACSB: Reflective Thinking Objective: 12-2 What are the benefits of marketing to customers, sellers, investors, employees, and society at large, and what are the criticisms of marketing?

Skill: Application

21) In the age of identity theft, customers feel that marketers are violating their privacy when they ________.

A) use high-pressure selling techniques B) ask for a price that is considered unfair C) resell information from marketing surveys without permission D) direct marketing at children Answer: C Explanation: C) When companies conduct marketing surveys to find out marital status, annual income, age, sex, race, and other personal details about a customer, those customers would not want that information made available to other businesses. However, this does happen and when it does, customers feel that their privacy has been violated and the information has been misused.

In the age of identity theft there is the danger that this data will be used with criminal intent by another person so the reselling of personal information is particularly disturbing. Customers are not concerned that their privacy is being violated when marketers use high-pressure selling techniques, nor are they very concerned about this issue when a marketer names a price for a product that is considered unfair or when marketing is directed at children.

Diff: 2 Page Ref: 368 AACSB: Ethical Understanding and Reasoning Abilities Objective: 12-2 What are the benefits of marketing to customers, sellers, investors, employees, and society at large, and what are the criticisms of marketing?

Skill: Application 22) A marketing strategy consists of the following elements: ________.

A) the target market, the marketing mix, and the product placement B) the target market and the product placement C) the target market and the marketing mix D) the marketing mix, the product placement, and the potential customer base Answer: C Explanation: C) The marketing strategy consists of the target market, the product, the price, the promotion and the place. The marketing mix refers to four factors, called the "4 Ps" of marketing, which include the product that customers need and want, the price they will pay for it, the promotion of the product and the place or how the product is distributed or where it is located so that the customer can purchase it. Product placement is part of the marketing mix and the potential customer base is similar to the target market.

Diff: 2 Page Ref: 369 AACSB: Reflective Thinking Objective: 12-3 What are the two basic elements of a marketing strategy and the 4 Ps of the marketing mix?

Skill: Conceptual

23) A ________ is a name, term, symbol, or design that distinguishes a company and its products from all others.

A) logo B) brand C) business monogram D) Web site URL Answer: B Explanation: B) A brand can take the form of a logo or a business monogram. A Web site URL is a way to find a company on the Internet; however, this is not the name, term, symbol, or design that distinguishes a company and its products from all others. A brand performs those functions.

Diff: 1 Page Ref: 371 Objective: 12-3 What are the two basic elements of a marketing strategy and the 4 Ps of the marketing mix?

Skill: Application 24) Which of the following is NOT a promotional method used to inform and persuade targeted customers to buy a product?

A) personal selling B) publicity C) distribution D) direct marketing Answer: C Explanation: C) Promotion is the part of the marketing mix that consists of the various methods of informing the public about products and persuading targeted customers to buy products, as well as the means of promoting positive customer relationships. Advertising in all its forms, personal selling, publicity, and direct marketing are all part of that effort. However, distribution of products is not part of the promotion of a product.

Diff: 2 Page Ref: 371 AACSB: Communication Abilities Objective: 12-3 What are the two basic elements of a marketing strategy and the 4 Ps of the marketing mix?

Skill: Conceptual

25) The middlemen in a distribution channel are sometimes called ________.

A) wholesalers B) clerks C) salespeople D) assembly line workers Answer: A Explanation: A) In order to get the product into the hands of customers it is often necessary to deliver that product through a distribution channel. When some goods go through various wholesalers before reaching the retail outlet where the customer will buy the product, the individuals who participate in that flow of the product are called middlemen or wholesalers.

Grocery store goods are examples of products that will flow through wholesale outlets before reaching retail stores and that is where the term wholesaler comes from. Clerks and salespeople work in retail outlets. Ordering agents may work for wholesalers or retailers.

Diff: 2 Page Ref: 371 Objective: 12-3 What are the two basic elements of a marketing strategy and the 4 Ps of the marketing mix?

Skill: Application 26) The first step in the marketing process is to ________.

A) conduct market research B) identify an unfilled market need C) determine costs in relation to potential benefits of the product D) establish brand recognition Answer: B Explanation: B) Before a company can begin to develop a profitable business, an unfilled market need must be identified. There is no point in conducting market research or determining the costs of a product in relation to its potential benefits, nor is there a purpose for establishing brand recognition if the company does not know that the market has a need that can be met with its product.

Diff: 2 Page Ref: 372 AACSB: Analytic Skills Objective: 12-4 How do firms implement a marketing strategy by applying the five steps of the marketing process?

Skill: Application

27) When you have already determined that there is demand for the services of your potential business, your next step is to ________.

A) identify an unfilled market need B) identify target customers C) implement the marketing mix D) conduct market research Answer: D Explanation: D) The first step is to identify an unfilled market need. This will determine that there is demand for the services of your potential business. The next step will be to conduct the market research necessary to learn whether this demand is sufficient to launch a potentially profitable business and use that information to develop a marketing plan. Identifying target customers is the third step in the marketing process. It is only later in the process that the marketing mix can be implemented.

Diff: 3 Page Ref: 372 AACSB: Analytic Skills Objective: 12-4 How do firms implement a marketing strategy by applying the five steps of the marketing process?

Skill: Conceptual 28) The most visible part of the marketing mix, which is also often the most expensive, is ________.

A) promotion B) market research C) market plan development D) target market selection Answer: A Explanation: A) Promotion includes marketing and advertising and is often the most expensive part of the marketing mix. This is how the public is persuaded to choose your business's products instead of a competitor's products. It is also through promotion efforts that the public is informed about the benefits of the products. Market research, market plan development, and target market selection are not part of the marketing mix, although they are elements in the overall marketing process.

Diff: 2 Page Ref: 372 AACSB: Reflective Thinking Objective: 12-4 How do firms implement a marketing strategy by applying the five steps of the marketing process?

Skill: Application

29) The final step in the marketing process is ________.

A) promotion B) target marketing C) product placement D) nurture good customer relationships Answer: D Explanation: D) Once the marketing mix has been implemented, including promotion and product placement, and target marketing has been used to reach the targeted customers, the final step in the marketing process is nurturing positive customer relationships. This step enables a business to ensure that customers remain satisfied and that there will be repeat business.

Diff: 3 Page Ref: 372 AACSB: Reflective Thinking Objective: 12-4 How do firms implement a marketing strategy by applying the five steps of the marketing process?

Skill: Conceptual 30) Which of the following is NOT a good way to develop rapport with clients?

A) establishing relationships with other businesses that cater to the same clientele B) responding to suggestions from customers on how to improve services C) providing high quality products without a money-back guarantee D) offering discounts to a few, select customers Answer: C Explanation: C) Even if a product is high quality, offering unsatisfied customers with a moneyback guarantee will help to create trust and help the business make improvements to products based on what customers find to be unsatisfactory. Establishing relationships with other businesses that cater to the same clientele will broaden the base of positive relationships for the business. Responding to suggestions from customers on how to improve services is one of the best ways to improve rapport with customers and clients, especially when other customers or clients are made aware that changes have been made in response to requests from customers.

And offering discounts to customers, whether it is a few select customers or to all customers will build rapport with those customers who receive the discounts.

Diff: 3 Page Ref: 373 AACSB: Reflective Thinking Objective: 12-4 How do firms implement a marketing strategy by applying the five steps of the marketing process?

Skill: Application

31) ________ is the process of surveying the market environment to assess external threats and opportunities.

A) Distributing B) Environmental scanning C) Business planning D) Overseeing Answer: B Explanation: B) The market environment must be assessed periodically in order to determine whether changes occurring make it necessary to adjust the marketing mix. This is called environmental scanning. There are many environmental influences that are outside the firm's control that must be monitored and assessed because of possible external threats and opportunities. These influences include the competitive, economic, technological, sociocultural, and political, legal, and regulatory environments.

Diff: 2 Page Ref: 373 AACSB: Analytic Skills Objective: 12-5 How do the various factors in the marketing environment influence a firm's ability to manipulate its marketing mix?

Skill: Application 32) Which of the following is NOT one of the factors in the economic environment that will affect customers' willingness and ability to spend their money on a firm's product?

A) changes in government fiscal and monetary policies B) changes in the interest rates on credit cards C) changes in the amount of bonuses paid to bank executives D) changes in the unemployment rates Answer: C Explanation: C) Changes in government fiscal and monetary policies represent economic, political, and regulatory environments. Changes in interest rates represent the economic environment. Changes in the unemployment rates reflect the economic environment as well.

However, changes in the amount of bonuses paid to bank executives only demonstrates a small stratum of the economic market and does not reflect the economic environment overall.

Diff: 1 Page Ref: 375 AACSB: Dynamics of the Global Economy Objective: 12-5 How do the various factors in the marketing environment influence a firm's ability to manipulate its marketing mix?

Skill: Conceptual

33) The fact that modern, sophisticated manufacturing innovations have enabled many firms to more easily customize their products and to offer them at dramatically reduced prices to satisfy the varying tastes of targeted customers represents the impact of the ________ on the marketing of products.

A) economic environment B) competitive environment C) technological environment D) 4 Ps Answer: C Explanation: C) With advances in technology, manufacturers have been able to improve their manufacturing processes so that products can be created for less cost while being easily customized. This has allowed companies to satisfy the ever-changing tastes of target customers.

Diff: 3 Page Ref: 375 AACSB: Reflective Thinking Objective: 12-5 How do the various factors in the marketing environment influence a firm's ability to manipulate its marketing mix?

Skill: Application 34) In the sociocultural environment, businesses can avoid business blunders and find opportunities by doing all of the following EXCEPT: A) understanding cultural differences.

B) hiding from the political process.

C) adapting to different attitudes.

D) keeping up with demographic shifts.

Answer: B Explanation: B) Many international business blunders have resulted from a lack of sensitivity or an understanding of cultural differences. Businesses must realize that culture is dynamic, and effective marketers must be able to adapt to different attitudes and keep up with changing social trends in order to be successful. Demographic shifts such as age, gender, ethnicity, and marital status and changing values can signal opportunities for businesses.

Diff: 3 Page Ref: 375 AACSB: Analytic Skills Objective: 12-5 How do the various factors in the marketing environment influence a firm's ability to manipulate its marketing mix?

Skill: Application

35) Which of the following is not provided by market research?

A) the profitability of a venture B) the cost of producing the product C) the target market D) the marketing plan Answer: B Explanation: B) Once a market need is identified, a firm needs to know whether the venture is likely to generate a profit. The marketing plan is the roadmap that will help carry out the strategies as determined by market research. The cost of producing the product is not a factor when conducting market research.

Diff: 1 Page Ref: 378 AACSB: Analytic Skills Objective: 12-6 What is the marketing research process and what are the elements of a good marketing plan?

Skill: Conceptual 36) When eight to ten potential customers are asked for feedback on a good or service, advertisement, idea, or packaging by a company, they are called a ________.

A) target market B) focus group C) control group D) consumer advocacy group Answer: B Explanation: B) When conducting market research, a focus group can be very helpful. This is typically a group of eight to ten potential customers who are used in test-marketing an idea or new product. A target market is the group of potential customers to whom the product is ultimately intended to be sold. A control group would be a group of customers who are not participating in the research. And a consumer advocacy group would be a group of consumers or people who are organized on behalf of consumers in order to promote the interests of consumers.

Diff: 2 Page Ref: 378 AACSB: Reflective Thinking Objective: 12-6 What is the marketing research process and what are the elements of a good marketing plan?

Skill: Conceptual

37) Which of the following is NOT a primary source of data?

A) interviews B) controlled experiments C) accounting records D) sampling Answer: C Explanation: C) Primary data is raw data collected by a researcher and can come from interviews, controlled experiments, and sampling. However accounting records will not provide primary source data for market research. Accounting records would already exist and thus are considered a secondary source of data.

Diff: 2 Page Ref: 378 AACSB: Reflective Thinking Objective: 12-6 What is the marketing research process and what are the elements of a good marketing plan?

Skill: Application 38) The New York Times is a ________.

A) secondary source of data B) primary source of data C) focus group data D) primary and secondary source of data Answer: A Explanation: A) Secondary sources of data include government publications, commercial publications, organizational publications, magazines and newspapers, and internal sources. The New York Times is a newspaper, and therefore would be a secondary source.

Diff: 1 Page Ref: 379 AACSB: Reflective Thinking Objective: 12-6 What is the marketing research process and what are the elements of a good marketing plan?

Skill: Application 39) An ideal marketing objective is ________.

A) idealistic, quantifiable, and consumer-oriented B) realistic, qualitative, and competitive C) time specific, realistic, and quantifiable D) quantifiable, research-based, and without regard to ethics Answer: C Explanation: C) A marketing objective that is realistic is attainable. This is not true for an idealistic objective. A marketing objective that is quantifiable can be measured. A marketing objective that is time specific means that a firm knows whether their goals are being met in a timely manner. These are the best qualities of a marketing objective.

Diff: 2 Page Ref: 381 AACSB: Reflective Thinking Objective: 12-6 What is the marketing research process and what are the elements of a good marketing plan?

Skill: Conceptual

40) The competitive advantages or core competencies that a company has at its disposal to meet a specified marketing objective are called its ________.

A) opportunities B) consumer confidence level C) marketing mix D) internal strengths Answer: D Explanation: D) The core competencies of a company provide customer benefits and set the company apart from the competition because they are not easily imitated. These are the internal strengths of a company and they can be used to meet a specified marketing objective. The opportunities for a company are external factors that could not be considered core competencies.

The consumer confidence level is, again, an outside factor and communicates the attitude consumers have about the economy or a specific industry or company. The marketing mix includes the 4 Ps and these do not reflect the competitive advantages or core competencies that a company has at its disposal.

Diff: 2 Page Ref: 381 AACSB: Reflective Thinking Objective: 12-6 What is the marketing research process and what are the elements of a good marketing plan?

Skill: Conceptual 41) When a company performs an audit of current managerial expertise, manufacturing and financing capabilities, and the organization's execution of the 4 Ps in the marketing mix, it is primarily interested in assessing its ________.

A) reputation B) internal strengths and weaknesses C) profit and losses D) external environment Answer: B Explanation: B) A company must periodically assess its internal weakness and this means the company must perform an audit of current managerial expertise, manufacturing and financing capabilities, and the organization's execution of the marketing mix. This audit is not performed to determine any factor in the external environment, such as reputation or market share.

Diff: 2 Page Ref: 381 AACSB: Reflective Thinking Objective: 12-6 What is the marketing research process and what are the elements of a good marketing plan?

Skill: Conceptual

42) Once an organization has performed a complete situational analysis, including an evaluation of its internal strengths and weaknesses and the external opportunities and threats of the market environment, then it is ready to ________.

A) do market research B) expand sales over the Internet C) select its target market D) perform an audit of the organization's execution of its marketing mix Answer: C Explanation: C) Once a company has performed a situational analysis, the company is ready to determine its target market in order to focus its promotion of products on individuals who are interested in them. Market research should have been thoroughly completed by this stage. An audit of the organization's execution of its marketing mix should have been done in assessing the organization's weaknesses. And it will be at a later stage that sales can be expanded over the Internet.

Diff: 3 Page Ref: 382 AACSB: Analytic Skills Objective: 12-6 What is the marketing research process and what are the elements of a good marketing plan?

Skill: Conceptual 43) Galaxy Lighting is a new company creating chandeliers specifically to be used in hotel lobbies. Since its potential customers are very narrowly defined, it must undertake ________ to focus its marketing efforts.

A) niche marketing B) situational analysis C) careful analysis of statistics D) a search for the appropriate distribution channel Answer: A Explanation: A) Niche marketing is another term for target marketing, the process of identifying the customers who are interested in the products. Market research is an earlier stage in the marketing process when the types of products offered would be determined. A careful analysis of statistics will not provide the guidance a company needs to locate the potential customers for these specialized products. And a search for the appropriate distribution channel will be helpful at a later stage, after the target or niche market has been located.

Diff: 2 Page Ref: 382 AACSB: Reflective Thinking Objective: 12-6 What is the marketing research process and what are the elements of a good marketing plan?

Skill: Application

44) Which of the following is NOT one of the most common consumer market segmentation classifications?

A) behavioral B) home ownership C) psychographic D) demographic Answer: B Explanation: B) Behavioral segmentation is based on characteristics of consumers related to brand loyalty, benefits sought, price sensitivity, and other behavioral characteristics of customers. Psychographic segmentation is based on the lifestyles, personalities, motives, and values of customers. Demographic segmentation is based on people's age, gender, race, religion, and other similar variables. However, the question of whether or not a person owns their home does not fall into any of these categories of segmentation, nor into the category of geographic segmentation.

Diff: 3 Page Ref: 383 AACSB: Analytic Skills Objective: 12-6 What is the marketing research process and what are the elements of a good marketing plan?

Skill: Conceptual 45) Snow blowers are sold in areas where there is a longer cold season and the likelihood of snow. The consumer market for snow blowers is an example of ________.

A) demographic segmentation B) geographic segmentation C) competitive advantages D) external business advantages Answer: B Explanation: B) Geographic segmentation takes into consideration region and climate; therefore, the market for snow blowers is defined by its geographic segmentation when there is a longer cold season and the likelihood of snow in places where they are sold.

Diff: 2 Page Ref: 383 AACSB: Reflective Thinking Objective: 12-6 What is the marketing research process and what are the elements of a good marketing plan?

Skill: Application

46) Which of the following is an example of a situational factor that could affect a consumer's buying decision?

A) the buyer's social class B) the layout of a store C) the buyer's motivations D) the price of a product Answer: B Explanation: B) The physical surroundings of a store is one example of situational factors that could influence a consumer's buying decision. Buyer's social class is an example of a cultural factor; the buyer's motivation is an example of personal attitudes that could affect a buying decision. And the price of a product is an example of how a marketing mix could influence purchasing decisions.

Diff: 3 Page Ref: 386 AACSB: Analytic Skills Objective: 12-7 How do the buying decisions and marketing processes in B2B markets compare to those in the consumer market?

Skill: Conceptual 47) Which of the following is NOT one of the aspects of the marketing mix influences in consumer purchases?

A) distribution B) promotion C) price D) public perception Answer: D Explanation: D) The marketing mix influences are based on the 4 Ps. Distribution or place, promotion, and price are all part of the marketing mix. However, public perception is not one of the 4 Ps and therefore is not one of the aspects of the marketing mix influences in consumer purchases.

Diff: 3 Page Ref: 386 AACSB: Reflective Thinking Objective: 12-7 How do the buying decisions and marketing processes in B2B markets compare to those in the consumer market?

Skill: Conceptual

48) Which of the following is a typical characteristic of a business-to-business market?

A) many customers who purchase in small quantities B) geographically dispersed buyers C) complex buying decisions D) an individual makes the purchasing decision Answer: C Explanation: C) In the business-to-business market there are generally a few buyers that purchase in large quantities. Most buyers are concentrated in a few of the most industrialized states. Purchasing decisions are typically made by a team of individuals in a purchasing department. And buying decisions are complex.

Diff: 1 Page Ref: 388 AACSB: Analytic Skills Objective: 12-7 How do the buying decisions and marketing processes in B2B markets compare to those in the consumer market?

Skill: Application 49) Which of the following is NOT a criticism of marketing?

A) catering to an exclusively up-scale clientele B) price gouging C) confusing advertisements D) the promotion of unsafe children's toys Answer: A Explanation: A) Catering to an exclusively up-scale clientele is appropriate when this is the target market and it is not a criticism of marketing. However, price gouging (asking for a price that is considered unfair), running confusing advertisements, and the production of unsafe children's toys are all legitimate criticisms of marketing.

Diff: 3 Page Ref: 390 AACSB: Reflective Thinking Objective: 12-7 How do the buying decisions and marketing processes in B2B markets compare to those in the consumer market?

Skill: Application

50) Which of the following is NOT a strong ingredient for marketing success?

A) identifying a need B) aggressive advertising C) a "fair" price D) employee satisfaction Answer: D Explanation: A) Identifying the needs of consumers is an important strategy for marketers.

B) Aggressive advertising and sales tactics help businesses "push" their products.

C) A "fair" price, one that is considered so by consumers, is always an ingredient in marketing success. Niche marketing, aggressive advertising, and geographic segmentation may be factors in marketing successes, however, they are not so broadly applied since they are not always appropriate to the product or the company.

D) Employee satisfaction is not required to successfully market or sell a product.

Diff: 2 Page Ref: 390 AACSB: Reflective Thinking Objective: 12-7 How do the buying decisions and marketing processes in B2B markets compare to those in the consumer market?

Skill: Conceptual 51) Marketing departments are responsible for distributing products to customers at a place and time most suitable to the customer.

Answer: TRUE Explanation: The definition of marketing according to the American Marketing Association is "an organizational function and a set of processes for creating, communicating, and delivering value to customers and for managing customer relationships in ways that benefit the organization and its stakeholders." This includes the distribution of products to customers so that the location of the purchase and the time the product is available to the customer are suitable to the customer's needs and desires.

Diff: 2 Page Ref: 363 Objective: 12-1 How has marketing evolved over the production concept era, the sales concept era, the marketing concept era, and the customer relationship era?

Skill: Application 52) Marketing departments can do little to promote the intangible benefits derived from the consumption of a product, such as the brand. Instead they are promoting the tangible goods, services, or ideas available for purchase in a market.

Answer: FALSE Explanation: Marketing departments are responsible for persuading customers that the products available for purchase in the market as well as the intangible benefits derived from the purchase of the product are the best and most desirable. By identifying and meeting human needs and implementing the marketing mix, a marketing department can do this very successfully.

Diff: 1 Page Ref: 363 AACSB: Analytic Skills Objective: 12-1 How has marketing evolved over the production concept era, the sales concept era, the marketing concept era, and the customer relationship era?

Skill: Conceptual

53) In the 1950s, when production continued to expand more quickly than the growth in demand for goods and services, companies realized that they needed to produce products and then try to convince customers to buy them.

Answer: FALSE Explanation: In the 1950s production did continue to expand more quickly than the growth in demand for goods and services and this created a "buyer's market." Companies had to begin to determine what customers wanted and then produce products that suited those needs and desires.

To do this the other way around, to produce products and then try to convince customers to buy them, would have led to business failures.

Diff: 2 Page Ref: 364 AACSB: Analytic Skills Objective: 12-1 How has marketing evolved over the production concept era, the sales concept era, the marketing concept era, and the customer relationship era?

Skill: Application 54) The marketing concept changed the focus from producing the right product for a customer to finding the right customer for a product using sophisticated marketing techniques.

Answer: FALSE Explanation: The marketing concept changed the emphasis from selling existing products and using aggressive sales tactics to sell them to the process of determining customer needs and desires and producing products to meets those needs and desires.

Diff: 2 Page Ref: 364 AACSB: Reflective Thinking Objective: 12-1 How has marketing evolved over the production concept era, the sales concept era, the marketing concept era, and the customer relationship era?

Skill: Conceptual 55) CRM is part of why airlines offer frequent flyer programs to all customers and why credit card companies offer low-interest balance transfers only to certain targeted customers Answer: TRUE Explanation: Frequent flyer programs are offered to customers, and credit card companies offer customized services and low-interest balance transfer only to certain targeted customers. This is because one of the goals of CRM is to learn as much as possible about customers and create meaningful interactions with each of them that will vary depending on the needs and desires of specific customers. Therefore, frequent flyer programs and low-interest balance transfers are products that have been tailored to meet specific customer needs and desires.

Diff: 3 Page Ref: 366 AACSB: Analytic Skills Objective: 12-1 How has marketing evolved over the production concept era, the sales concept era, the marketing concept era, and the customer relationship era?

Skill: Application

56) "Place marketing" refers to the significance of good placement of print, television, and Web site ads in order to generate the best response rate.

Answer: FALSE Explanation: "Place marketing" refers to the marketing undertaken by zoos, museums, and other not-for-profit organizations or destinations of interest where the emphasis is on the value of visiting their locations.

Diff: 2 Page Ref: 366 AACSB: Reflective Thinking Objective: 12-2 What are the benefits of marketing to customers, sellers, investors, employees, and society at large, and what are the criticisms of marketing?

Skill: Conceptual 57) When we interview for a job, we are marketing ourselves.

Answer: TRUE Explanation: Marketing is not limited to businesses or not-for-profit organizations. It is also possible to market individuals, such as politicians, elite athletes, and celebrities. When you applied for admission to a college or university, and when you apply for a job, you are marketing yourself.

Diff: 2 Page Ref: 366 AACSB: Reflective Thinking Objective: 12-2 What are the benefits of marketing to customers, sellers, investors, employees, and society at large, and what are the criticisms of marketing?

Skill: Application 58) Successful marketing identifies many ways to increase value to customers, including increasing the perceived benefits of a product whether or not those benefits will actually be experienced by the customer after purchasing the product.

Answer: TRUE Explanation: The value of a product is measured by comparing the benefits with the costs. A high-value product may have only perceived benefits that may not be experienced by the customer after purchasing the product. However, if the customer is convinced of the value, that customer may still consider the purchase to have been successful. Successful marketing finds ways to increase the value of products.

Diff: 2 Page Ref: 367 AACSB: Reflective Thinking Objective: 12-2 What are the benefits of marketing to customers, sellers, investors, employees, and society at large, and what are the criticisms of marketing?

Skill: Conceptual

59) The value of a product equals the ratio of the product's benefits to its costs.

Answer: TRUE Explanation: A high value product is one in which its benefits to the customer far exceed its costs, while a low-value product has few benefits relative to its costs. The value of a product can be measured by calculating the ratio of the product's benefits to what it costs a customer to buy it.

Diff: 2 Page Ref: 367 Objective: 12-2 What are the benefits of marketing to customers, sellers, investors, employees, and society at large, and what are the criticisms of marketing?

Skill: Conceptual 60) Maximizing convenience is one way to increase the value of a product.

Answer: TRUE Explanation: Maximizing convenience and reducing costs are the two best means to increase value.

Diff: 1 Page Ref: 367 AACSB: Reflective Thinking Objective: 12-2 What are the benefits of marketing to customers, sellers, investors, employees, and society at large, and what are the criticisms of marketing?

Skill: Conceptual 61) All companies have a code of ethics in place to curb unethical behavior within their organizations.

Answer: FALSE Explanation: Unfortunately, not all companies subscribe to a code of ethics, and this failure allows for questionable products to be marketed, and for questionable practices to occur, such as hidden fees or misuse of personal information.

Diff: 1 Page Ref: 369 AACSB: Ethical Understanding and Reasoning Abilities Objective: 12-2 What are the benefits of marketing to customers, sellers, investors, employees, and society at large, and what are the criticisms of marketing?

Skill: Application 62) A target market is a group of people who have completed surveys, questionnaires, or other response forms and have indicated an interest in the production of a new product.

Answer: FALSE Explanation: A target market is a specific group of people who might be potential customers for a product. A marketing strategy will develop a marketing mix to meet the needs of that target market. The group of people who have completed surveys, questionnaires, or other response forms are a focus group.

Diff: 2 Page Ref: 378 Objective: 12-3 What are the two basic elements of a marketing strategy and the 4 Ps of the marketing mix?

Skill: Conceptual

63) The automobile industry is an example of a business that skips the wholesaler in the distribution channel.

Answer: FALSE Explanation: Automobiles typically move from the manufacturer to a wholesaler the car dealership and then on to the consumer.

Diff: 1 Page Ref: 385 AACSB: Reflective Thinking Objective: 12-3 What are the two basic elements of a marketing strategy and the 4 Ps of the marketing mix?

Skill: Application 64) Marketing is an ongoing process of tweaking a business to satisfy customers in order to ensure quality, value, and repeat business.

Answer: TRUE Explanation: Identifying customer needs and desires and then coming up with the products and marketing to satisfy those needs and desires means constant tweaking in order to keep quality standards up, to balance costs with benefits, and to retain customers for repeat business.

Diff: 1 Page Ref: 373 AACSB: Reflective Thinking Objective: 12-4 How do firms implement a marketing strategy by applying the five steps of the marketing process?

Skill: Conceptual 65) The value of the U.S. dollar on the international market is example of an environmental influence.

Answer: TRUE Explanation: The value of the U.S. dollar on the international market is an aspect of the economic and regulatory environments. These are aspects of the marketing environment and will influence the performance of a company in the global economy.

Diff: 2 Page Ref: 373 AACSB: Dynamics of the Global Economy Objective: 12-5 How do the various factors in the marketing environment influence a firm's ability to manipulate its marketing mix?

Skill: Application 66) Environmental influences are variables under the direct control of an organization.

Answer: FALSE Explanation: Environmental influences are external to an organization and are not under its direct control.

Diff: 2 Page Ref: 373 AACSB: Reflective Thinking Objective: 12-5 How do the various factors in the marketing environment influence a firm's ability to manipulate its marketing mix?

Skill: Conceptual

67) Prudent firms follow domestic markets exclusively in order to keep their focus on immediate sales and to avoid the additional expenses incurred in the global marketplace.

Answer: FALSE Explanation: Because of globalization, it is critical that firms follow global economic trends as well as domestic trends. This is the best strategy for all firms, however, it is most important for firms involved in international business.

Diff: 3 Page Ref: 375 AACSB: Dynamics of the Global Economy Objective: 12-5 How do the various factors in the marketing environment influence a firm's ability to manipulate its marketing mix?

Skill: Conceptual 68) Marketing managers are responsible for making decisions about the marketing mix (the blend of the four Ps).

Answer: TRUE Explanation: It is one of the responsibilities of marketing managers to manipulate the marketing mix, depending on the marketing strategy and environmental factors.

Diff: 2 Page Ref: 374 Objective: 12-5 How do the various factors in the marketing environment influence a firm's ability to manipulate its marketing mix?

Skill: Conceptual 69) A rising inflation rate increases the purchasing power of money.

Answer: FALSE Explanation: When the inflation rate rises, sales may fall because the purchasing power of money is reduced.

Diff: 1 Page Ref: 375 AACSB: Analytic Skills Objective: 12-5 How do the various factors in the marketing environment influence a firm's ability to manipulate its marketing mix?

Skill: Conceptual 70) Marketers need to be aware of cultural and social differences before launching their products and campaigns.

Answer: TRUE Explanation: Because of the increase in world trade, marketers need to take a more global perspective in many of their campaigns.

Diff: 2 Page Ref: 377 AACSB: Ethical Understanding and Reasoning Abilities Objective: 12-5 How do the various factors in the marketing environment influence a firm's ability to manipulate its marketing mix?

Skill: Application

71) Secondary marketing data, which has already been collected and processed, is usually more expensive to obtain than primary data.

Answer: FALSE Explanation: Secondary data has already been collected and processed and is usually cheaper to obtain than primary data. The collecting and processing of primary data through observation, questionnaires, surveys, focus groups, interviews, customer feedback, samples, and controlled experiments is usually more expensive to obtain.

Diff: 3 Page Ref: 378 AACSB: Analytic Skills Objective: 12-6 What is the marketing research process and what are the elements of a good marketing plan?

Skill: Conceptual 72) A marketing plan is best provided as an oral presentation so that employees can grasp concepts through visual aids and ask questions in a question-and-answer session.

Answer: FALSE Explanation: A marketing plan is a written document so that the details can be referred to again and so that written objectives can be compared with measurements taken as marketing is implemented to see whether objectives are being met.

Diff: 3 Page Ref: 380 AACSB: Analytic Skills Objective: 12-6 What is the marketing research process and what are the elements of a good marketing plan?

Skill: Application 73) The objectives of a firm must be measurable in order to determine its success in following the marketing plan.

Answer: TRUE Explanation: When objectives are measurable or quantifiable, it is possible to compare results later to see whether the objectives are being achieved and how successful the firm is in meeting its objectives as outlined in the marketing plan.

Diff: 1 Page Ref: 381 AACSB: Reflective Thinking Objective: 12-6 What is the marketing research process and what are the elements of a good marketing plan?

Skill: Conceptual

74) Core competencies are easily imitated by other companies, particularly competitors in the same industry.

Answer: FALSE Explanation: Core competencies, or competitive advantages, set a company apart from competitors. These are a company's internal strengths that allow the company to meet a specified marketing objective.

Diff: 2 Page Ref: 381 AACSB: Reflective Thinking Objective: 12-6 What is the marketing research process and what are the elements of a good marketing plan?

Skill: Conceptual 75) The process of developing a unique marketing mix that best satisfies a target market is known as positioning.

Answer: TRUE Explanation: For each target market, a company will try to blend the 4 Ps of the market mix in a unique way to satisfy those targeted customers. This unique marketing mix is known as positioning.

Diff: 1 Page Ref: 382 Objective: 12-6 What is the marketing research process and what are the elements of a good marketing plan?

Skill: Conceptual 76) Social media sites such as Facebook and Twitter are unreliable sources of market research data because few customers use such sites to discuss business issues.

Answer: FALSE Explanation: Social media sites such as Facebook and Twitter are growing in popularity and are valuable sources of information about what the public is saying about their products and their competition.

Diff: 2 Page Ref: 380 AACSB: Reflective Thinking Objective: 12-6 What is the marketing research process and what are the elements of a good marketing plan?

Skill: Conceptual 77) Ethnicity is an example of geographic market segmentation.

Answer: FALSE Explanation: Ethnicity is an example of demographic market segmentation. Geographic market segmentation has to do with region, climate, urban or rural, and other geographic characteristics.

Diff: 1 Page Ref: 383 AACSB: Reflective Thinking Objective: 12-6 What is the marketing research process and what are the elements of a good marketing plan?

Skill: Conceptual

78) Unlike geographic variables, variables based on customer lifestyles, personality traits, motives, and values can be manipulated by the efforts of sophisticated marketers.

Answer: TRUE Explanation: By closely examining customers' lifestyles, personality traits, motives, and values, marketers can offer goods or services to satisfy the real or perceived need based on what the consumers may value. The needs may be related to quality, social status, safety, health, or any of a number of other needs.

Diff: 2 Page Ref: 383 AACSB: Reflective Thinking Objective: 12-6 What is the marketing research process and what are the elements of a good marketing plan?

Skill: Conceptual 79) The more loyal a traveler is to a certain hotel chain, the more sensitive he or she is to the room rate at hotels in that chain.

Answer: FALSE Explanation: A traveler who is loyal to a certain hotel chain will likely choose a room at a hotel in that chain with less concern for the room rate than the same traveler would be concerned with for a different hotel chain or for an independent hotel. The traveler is thus likely to be a less discriminating customer when it comes to consideration for room rates because of brand loyalty.

Diff: 2 Page Ref: 383 AACSB: Analytic Skills Objective: 12-5 How do the various factors in the marketing environment influence a firm's ability to manipulate its marketing mix?

Skill: Application 80) When a woman buys a handbag with a Chanel logo, this status symbol is an example of a personal lifestyle influence on her purchasing choice.

Answer: TRUE Explanation: This purchasing choice is made with the sociocultural influence of the buyer's culture, subculture, social class, family, and peers. This decision may also be made based on personal influences such as age, economic situation, lifestyle, and personality.

Diff: 3 Page Ref: 386 AACSB: Reflective Thinking Objective: 12-7 How do the buying decisions and marketing processes in B2B markets compare to those in the consumer market?

Skill: Application

81) In business-to-business (B2B) market purchases, purchasing agents often weigh the benefits and the costs in a more systematic fashion than buyers in consumer markets; therefore, sellers don't have to pitch their products at such a sophisticated level as is done in competitive consumer markets.

Answer: FALSE Explanation: While it's true that in B2B market, purchasing agents do often weigh the benefits and the costs in a more systematic fashion and are less influenced by emotional factors than buyers in consumers markets, sellers must pitch their products to these more highly trained buyers, which means using a more highly sophisticated level of marketing expertise than is required in consumer markets.

Diff: 3 Page Ref: 388 AACSB: Reflective Thinking Objective: 12-7 How do the buying decisions and marketing processes in B2B markets compare to those in the consumer market?

Skill: Conceptual 82) The five-step decision-making process used by consumers is used in business purchasing decisions because B2B purchases are generally more complicated than those made by consumers.

Answer: FALSE Explanation: For B2B markets, the decision-making process remains the same: businesses begin by recognizing a need; they seek out information to aid them in the purchase decision; evaluate alternatives; decide to either purchase or not to purchase; and undertake a postpurchase evaluation. This is the same decision-making process that is applied to consumer markets.

Diff: 2 Page Ref: 389 AACSB: Analytic Skills Objective: 12-7 How do the buying decisions and marketing processes in B2B markets compare to those in the consumer market?

Skill: Conceptual 83) During the sales concept era, technological advances meant that production increased more sharply than demand for goods and services.

Answer: TRUE Explanation: During the sales concept era, from the 1920s through the early 1950s, production expanded more quickly than the growth in demand for goods and services.

Diff: 1 Page Ref: 390 AACSB: Reflective Thinking Objective: 12-1 How has marketing evolved over the production concept era, the sales concept era, the marketing concept era, and the customer relationship era?

Skill: Conceptual

84) During the marketing concept era, demand for goods and services expanded more quickly than production.

Answer: FALSE Explanation: During the marketing concept era, from the 1950s through the 1990s, production continued to expand more quickly than the growth in demand for goods and services.

Diff: 2 Page Ref: 390 AACSB: Reflective Thinking Objective: 12-1 How has marketing evolved over the production concept era, the sales concept era, the marketing concept era, and the customer relationship era?

Skill: Conceptual 85) The marketing concept changed the focus from producing the right product for a customer to finding the right customer for a product.

Answer: FALSE Explanation: The marketing concept changed the focus from finding the right customer for a product to producing the right product for a customer and doing it better than the competition.

Diff: 3 Page Ref: 365 AACSB: Reflective Thinking Objective: 12-1 How has marketing evolved over the production concept era, the sales concept era, the marketing concept era, and the customer relationship era?

Skill: Conceptual 86) The two basic elements of a marketing strategy are the market research and the marketing mix.

Answer: FALSE Explanation: The two basic elements of a marketing strategy are the target market and the marketing mix.

Diff: 2 Page Ref: 390 AACSB: Analytic Skills Objective: 12-3 What are the two basic elements of a marketing strategy and the 4 Ps of the marketing mix?

Skill: Conceptual 87) Marketing research may suggest better ways and opportunities to provide services to customers.

Answer: TRUE Explanation: Marketing research is an ongoing process of gathering and analyzing market information to gauge changing market conditions that may suggest better ways and opportunities to provide services to customers.

Diff: 1 Page Ref: 391 AACSB: Reflective Thinking Objective: 12-6 What is the marketing research process and what are the elements of a good marketing plan?

Skill: Conceptual

88) There are many more consumer markets than business-to-business (B2B) markets.

Answer: FALSE Explanation: There are many more B2B markets compared to consumer markets because virtually all consumer products go through a number of distributors or wholesalers before reaching the final consumer at a retail outlet. Each time an unfinished product is bought and sold through the many stages of a product's development, a separate B2B market exists. This creates many transactions and markets.

Diff: 2 Page Ref: 391 AACSB: Reflective Thinking Objective: 12-7 How do the buying decisions and marketing processes in B2B markets compare to those in the consumer market?

Skill: Conceptual 89) In B2B markets, products typically go through many wholesalers before a product arrives at the end user.

Answer: FALSE Explanation: Buyers in B2B markets often purchase directly from sellers, as opposed to consumer markets, where products typically go through many wholesalers before a product arrives at the end user.

Diff: 2 Page Ref: 388 AACSB: Reflective Thinking Objective: 12-7 How do the buying decisions and marketing processes in B2B markets compare to those in the consumer market?

Skill: Application 90) The marketing process is different for B2B markets than it is for consumer markets.

Answer: FALSE Explanation: The marketing process remains the same for all markets: identify a need, undertake research to come up with a marketing plan, select a target market, implement and control the marketing mix, and nurture customer relationships.

Diff: 2 Page Ref: 389 AACSB: Reflective Thinking Objective: 12-7 How do the buying decisions and marketing processes in B2B markets compare to those in the consumer market?

Skill: Application

91) From the mid-1920s through the early 1950s, marketing generally took place after the product was developed and produced. What era is this in marketing history? Discuss the role of marketing during this time.

Answer: This was the sales concept era. Marketing was primarily associated with selling or advertising. The use of heavy public advertising in all available forms of media became prevalent. Technological advances during this period meant that production increased more sharply than demand for goods and services. The competition for customers became more intense, and businesses began to undertake aggressive sales tactics to sell or "push" their products. Heavy emphasis was placed on selling existing products.

Diff: 3 Page Ref: 390 AACSB: Reflective Thinking Objective: 12-1 How has marketing evolved over the production concept era, the sales concept era, the marketing concept era, and the customer relationship era?

Skill: Conceptual 92) The process of establishing long-term relationships with individual customers to foster loyalty and repeat business is called ________.

Answer: customer relationship marketing (CRM), which is the process of establishing longterm relationships with individual customers to foster loyalty and repeat business Diff: 1 Page Ref: 366 Objective: 12-1 How has marketing evolved over the production concept era, the sales concept era, the marketing concept era, and the customer relationship era?

Skill: Conceptual 93) CRM is helpful to organizations because it helps them to learn as much as possible about customers and create a meaningful one-on-one interaction with each of them. Discuss some of the ways CRM accomplishes this.

Answer: CRM is the process of establishing long-term relationships with individual customers to foster loyalty and repeat business. For example, when customers join a mailing list, they may receive coupons or information about sales and promotions. CRM often involves the sales force gathering information about specific customers to create a customer database. CRM software allows email or other communications to be personalized. It enables the company to offer products tailored to these specific customers' needs and desires. CRM databases also mean that customers visiting the organization's Web site or customer service call center can be quickly and easily recognized, and offerings can be adapted to their preferences.

Diff: 3 Page Ref: 366 AACSB: Reflective Thinking Objective: 12-1 How has marketing evolved over the production concept era, the sales concept era, the marketing concept era, and the customer relationship era?

Skill: Conceptual

94) Describe the four kinds of utility that marketing provides to customers.

Answer: First, when a company produces a product from raw materials, like a designer swimsuit from fabric and raw materials, it creates form utility. The product takes on a form that pleases the customer. Second, when the store sells the swimsuit, it transfers ownership from the store to the customer, creating ownership utility. The buyer derives satisfaction from owning the latest swimwear. Third, when the business makes the swimsuit available in time for summer, it creates time utility because the swimwear is available for sale at a time when it's most needed. And fourth, when the swimsuit is stocked and placed on display at your local department store, it creates place utility by making the product available for purchase at a place that's convenient for buyers. Note that student doesn't need to use the swimwear example.

Diff: 3 Page Ref: 367 AACSB: Analytic Skills Objective: 12-2 What are the benefits of marketing to customers, sellers, investors, employees, and society at large, and what are the criticisms of marketing?

Skill: Conceptual 95) How do employees benefit from successful marketing?

Answer: Their jobs and livelihoods are more secure. In addition, new job opportunities are created as production expands to satisfy the growing demand for high-value products created by successful marketing.

Diff: 1 Page Ref: 367, 368 AACSB: Reflective Thinking Objective: 12-2 What are the benefits of marketing to customers, sellers, investors, employees, and society at large, and what are the criticisms of marketing?

Skill: Application 96) Name and provide a brief description of the 4 Ps of marketing.

Answer: The description of the 4 Ps are: Product Distinguish your product from that of your competitors. Product differentiation is critical.

Price The product must be competitively priced to appeal to customers.

Promotion Consists of all methods to inform and persuade targeted customers to buy a product and build positive customer relationships.

Place The place (or distribution) component of the marketing mix refers to all the methods involved in getting a product into the hands of customers.

Diff: 2 Page Ref: 370 Objective: 12-3 What are the two basic elements of a marketing strategy and the 4 Ps of the marketing mix?

Skill: Conceptual

97) What does the term "purple cow" refer to? Provide an example.

Answer: A "purple cow" is something that makes your business or product stand apart from the competition. A company that has attained success using a ―purple cow‖ is the Geek Squad computer service. What makes it stand apart is its image. Geek Squad employees make house calls, driving PT cruisers with Geek Squad logos. The IT world is considered a nerdy field, and the Geek Squad embraces that image and runs with it. As a result of its unique marketing approach, Geek Squad is one of the most recognizable technical service businesses.

Diff: 2 Page Ref: 371 AACSB: Reflective Thinking Objective: 12-3 What are the two basic elements of a marketing strategy and the 4 Ps of the marketing mix?

Skill: Application 98) What is a distribution channel?

Answer: a series of firms or individuals that participate in the flow of a product from manufacturer to consumer Diff: 1 Page Ref: 371 Objective: 12-3 What are the two basic elements of a marketing strategy and the 4 Ps of the marketing mix?

Skill: Conceptual 99) What are the five steps in the marketing process?

Answer: 1. Identify a market need 2. Conduct market research and develop a marketing plan 3. Identify target customers 4. Implement the marketing mix, or the 4 Ps 5. Nurture customer relationships Diff: 2 Page Ref: 372 Objective: 12-4 How do firms implement a marketing strategy by applying the five steps of the marketing process?

Skill: Conceptual 100) What are some approaches a business could take to nurture good customer relationships?

Answer: A business needs to take steps to foster long-term, trusting relationships with its customers. For example, a business should gather information about repeat customers so that it can tailor its products or services to best meet their needs. A business should solicit and respond to suggestions by customers on how to improve their offerings. It should offer customers their money back it they are unsatisfied. And it should consider giving discounts to select customers.

Diff: 2 Page Ref: 372 AACSB: Analytic Skills Objective: 12-4 How do firms implement a marketing strategy by applying the five steps of the marketing process?

Skill: Conceptual

101) Name at least four of the environment influences outside a firm's control that constrain an organization's ability to manipulate its marketing mix.

Answer: Environment influences include competitive, economic, technological, social and cultural (or sociocultural), political, legal, regulatory, and global environments.

Diff: 3 Page Ref: 373 AACSB: Reflective Thinking Objective: 12-5 How do the various factors in the marketing environment influence a firm's ability to manipulate its marketing mix?

Skill: Conceptual 102) Why is it important for a business to analyze the competition?

Answer: Analyzing the degree of competition facing a firm is critical to creating an effective marketing mix. The degree of competition affects a firm's production, pricing, promotion, and place (distribution) strategies. A successful business must be aware of the competition and always try to stay one step ahead.

Diff: 2 Page Ref: 374 AACSB: Reflective Thinking Objective: 12-5 How do the various factors in the marketing environment influence a firm's ability to manipulate its marketing mix?

Skill: Conceptual 103) Identify an aspect of the technological environment that has enabled many small businesses to compete with large corporations around the world by marketing and selling their products online.

Answer: the Internet Explanation: The internet is an example of a modern, sophisticated manufacturing innovation that has enabled many firms to more easily customize their products and offer them at dramatically reduced prices to satisfy the varying tastes of targeted customers.

Diff: 1 Page Ref: 375 AACSB: Reflective Thinking Objective: 12-5 How do the various factors in the marketing environment influence a firm's ability to manipulate its marketing mix?

Skill: Application 104) Name at least three of the regulatory agencies that enforce laws and regulations constraining marketing efforts.

Answer: These include the Environmental Protection Agency (EPA), the Consumer Product Safety Commission (CPSC), the Food and Drug Administration (FDA), and the Federal Trade Commission (FTC).

Diff: 2 Page Ref: 377 Objective: 12-5 How do the various factors in the marketing environment influence a firm's ability to manipulate its marketing mix?

Skill: Application

105) What are the four steps involved in conducting market research?

Answer: 1. Define the marketing need or opportunity 2. Collect the relevant data 3. Analyze and interpret the data 4. Act on conclusions Diff: 3 Page Ref: 378 Objective: 12-6 What is the marketing research process and what are the elements of a good marketing plan?

Skill: Conceptual 106) How can social media be used in market research?

Answer: Social media sites, such as Facebook and Twitter, can help companies find out what is being said about their products and their competition. Unlike focus groups, which require a lot of planning and can be very expensive to implement, social media networks allow businesses to gather candid feedback from audiences very quickly and inexpensively.

Diff: 2 Page Ref: 380 AACSB: Reflective Thinking Objective: 12-6 What is the marketing research process and what are the elements of a good marketing plan?

Skill: Application 107) What is the central purpose of marketing research?

Answer: The central purpose of marketing research is to point managers towards better marketing decisions.

Diff: 2 Page Ref: 380 AACSB: Reflective Thinking Objective: 12-6 What is the marketing research process and what are the elements of a good marketing plan?

Skill: Conceptual 108) What are the four elements of a good marketing plan?

Answer: 1. A clearly written marketing objective 2. Performance of situational analysis 3. Selection of a target market 4. Implementation, evaluation, and control of the marketing mix (the four Ps) Diff: 3 Page Ref: 381 Objective: 12-6 What is the marketing research process and what are the elements of a good marketing plan?

Skill: Conceptual 109) What do the letters S, W, O, and T stand for in the term SWOT when it is applied to situational analysis?

Answer: S is strengths, W is weaknesses, O is opportunities, and T is threats.

Diff: 2 Page Ref: 381 Objective: 12-6 What is the marketing research process and what are the elements of a good marketing plan?

Skill: Conceptual

110) What is a market segment and what do marketers look for when defining a market segment?

Answer: A market segment is a subgroup of potential customers who share similar characteristics and therefore have similar product needs and preferences. Marketers choose those market segments that offer the greatest profit potential, and these become the target markets.

Diff: 2 Page Ref: 384 AACSB: Reflective Thinking Objective: 12-6 What is the marketing research process and what are the elements of a good marketing plan?

Skill: Conceptual 111) Why is it becoming more common to find labels on products published in Spanish, Spanish language television stations and newspapers, and companies marketing their products to the Spanish-speaking population in the United States?

Answer: Americans of Hispanic origin are a growing market segment. It is estimated that by the year 2020, one in five Americans will be of Hispanic origin. Few businesses want to miss out on this growing market opportunity.

Diff: 2 Page Ref: 383 AACSB: Reflective Thinking Objective: 12-6 What is the marketing research process and what are the elements of a good marketing plan?

Skill: Application 112) What is the type of market segmentation based on lifestyles called? Provide an example of a retailer who would segment the market based on lifestyles.

Answer: Market segmentation based on lifestyles, personality traits, motives, and values is called psychographic segmentation. Whole Foods Market and Trader Joe's focus on consumers interested in healthier, organic foods.

Diff: 1 Page Ref: 383 Objective: 12-6 What is the marketing research process and what are the elements of a good marketing plan?

Skill: Application 113) Market segmentation based on consumer characteristics such as benefit sought, brand loyalty, price sensitivity, and how a product is used are examples of what type of consumer market segmentation?

Answer: Behavioral. The market segmentation based on certain consumer behavior characteristics and the ways in which a product is used. For example, a company that produces herbal supplements is appealing to the specific benefits sought by its consumers. Brand loyalty is another form of behavioral segmentation.

Diff: 2 Page Ref: 384 Objective: 12-6 What is the marketing research process and what are the elements of a good marketing plan?

Skill: Conceptual

114) What do we mean when we use the term "consumer behavior"?

Answer: Consumer behavior refers to the ways individuals or organizations search for, evaluate, purchase, use, and dispose of goods and services. Consumer behavior involves the study of individual consumers or business organizations as buyers in the market.

Diff: 2 Page Ref: 385 AACSB: Reflective Thinking Objective: 12-7 How do the buying decisions and marketing processes in B2B markets compare to those in the consumer market?

Skill: Application 115) What are some of the ways that automobile manufacturers can use their knowledge of consumers' changing attitudes and behavior?

Answer: One example of changing consumer behavior is that consumers are becoming increasingly concerned about gas mileage. Automobile makers can respond by creating more gas efficient cars or drop the prices on less efficient models to compensate for poor gas mileage.

Diff: 1 Page Ref: 386 Objective: 12-7 How do the buying decisions and marketing processes in B2B markets compare to those in the consumer market?

Skill: Application 116) What are the five steps in the consumer buying process?

Answer: 1. Need recognition 2. Information search 3. Evaluation of alternatives 4. Purchase or no purchase decision 5. Postpurchase evaluation Diff: 2 Page Ref: 372 Objective: 12-7 How do the buying decisions and marketing processes in B2B markets compare to those in the consumer market?

Skill: Conceptual 117) What are some of the situational influences that can affect how buyers behave? Name at least two.

Answer: physical surroundings, social surroundings, and the type of product purchased Diff: 1 Page Ref: 386 Objective: 12-7 How do the buying decisions and marketing processes in B2B markets compare to those in the consumer market?

Skill: Conceptual

118) Discuss some of the differences between consumer markets and business-to-business (B2B) markets and in doing so describe some of the characteristics of B2B markets.

Answer: The differences hinge on who is doing the buying. If a business purchases a good or service for further processing, for resale, or to facilitate general business activity, this is a B2B market purchase. In B2B markets, typically a few buyers purchase in large quantities, the buyers are highly trained, purchasing decisions are made by a group, there are close customer relationships, most buyers are geographically concentrated, and there is direct purchasing.

Diff: 3 Page Ref: 385-387 AACSB: Analytic Skills Objective: 12-7 How do the buying decisions and marketing processes in B2B markets compare to those in the consumer market?

Skill: Conceptual 119) What factors do B2B purchasers typically take into consideration when making a purchasing decision?

Answer: B2B purchases are generally objective decisions based on various influences, such as the state of the economy; technological factors; the degree of competition; political and regulatory concerns; and organizational objectives, policies and procedures.

Diff: 1 Page Ref: 388 AACSB: Ethical Understanding and Reasoning Abilities Objective: 12-7 How do the buying decisions and marketing processes in B2B markets compare to those in the consumer market?

Skill: Conceptual Better Business, 7e (Solomon) Chapter 13 Product Development, Branding, and Pricing Strategies 1) Consumers only need to consider tangible benefits when buying products.

Answer: FALSE Explanation: Consumers buy products for a number of tangible and intangible benefits. When a consumer buys a car, he or she is not just buying a mode of transportation, the consumer is also buying some intangible benefits, such as style or an image.

Diff: 1 Page Ref: 397 AACSB: Analytic Skills Objective: 13-1 What are the definitions of a product and a total product offer?

Skill: Conceptual 2) An augmented product consists of the core product and the actual product plus other real or perceived benefits that provide additional value to the customer's purchase.

Answer: TRUE Explanation: The augmented product consists of the core product and the actual product plus other real or perceived benefits that provide additional value to the customer's purchase. These benefits might include customer service and support, delivery, installation, a warranty, or favorable credit terms. The value-enhancing elements of an actual product are an important part of the total product offering because they help provide a more satisfying customer experience.

Diff: 1 Page Ref: 398 AACSB: Analytic Skills

Objective: 13-1 What are the definitions of a product and a total product offer?

Skill: Conceptual 3) Customer input and feedback have no effect on how companies shape their products.

Answer: FALSE Explanation: Companies rely on customer input and feedback to help shape their products.

Listening to customers and incorporating their suggestions are effective ways to foster good customer relationships, which is a critical component in establishing repeat business and longterm success.

Diff: 1 Page Ref: 399 AACSB: Analytic Skills Objective: 13-2 What is product differentiation, and what role does it play in product development?

Skill: Conceptual

4) Consumer products are goods and services that are purchased by businesses for further processing or resale or are used in facilitating business operations.

Answer: FALSE Explanation: Consumer products are goods and services purchased by households for personal consumption. They are traded in consumer markets.

Diff: 1 Page Ref: 400 AACSB: Analytic Skills Objective: 13-3 What are the different classifications of consumer products and business-tobusiness products?

Skill: Conceptual 5) Business-to-business (B2B) products are goods and services purchased by households for personal consumption.

Answer: FALSE Explanation: Business-to-business (B2B) products (sometimes called industrial products) are goods and services that are purchased by businesses for further processing or resale or are used in facilitating business operations. They are traded in B2B markets.

Diff: 1 Page Ref: 400 AACSB: Analytic Skills Objective: 13-3 What are the different classifications of consumer products and business-tobusiness products?

Skill: Conceptual 6) A Ferrari sports car is an example of an unsought good.

Answer: FALSE Explanation: Unsought goods and services are products buyers do not usually think about buying, do not know exist, or buy only when a specific problem arises.

Diff: 2 Page Ref: 401 AACSB: Reflective Thinking Objective: 13-3 What are the different classifications of consumer products and business-tobusiness products?

Skill: Application 7) At an auto repair shop, wrenches are an example of MRO products.

Answer: TRUE Explanation: Maintenance, repair, and operating (MRO) products facilitate production and operations, but do not become a part of the finished product. They include printing paper, pens, cleaning materials, tools, and lubricants for machines.

Diff: 2 Page Ref: 402 AACSB: Reflective Thinking Objective: 13-3 What are the different classifications of consumer products and business-tobusiness products?

Skill: Application

8) Branding increases the risks involved in some purchases for which buyers are unable to determine quality objectively.

Answer: FALSE Explanation: Branding actually reduces the risks involved in some purchases for which buyers are unable to determine quality objectively. We rely on established brands to consistently deliver an expected level of quality.

Diff: 1 Page Ref: 404 AACSB: Analytic Skills Objective: 13-4 Why is branding beneficial to both buyers and sellers, and what are some different types of brands?

Skill: Conceptual 9) The fact that Bob will only buy Lands' End jeans is an example of brand loyalty.

Answer: TRUE Explanation: A major benefit of branding for sellers is the creation of brand loyalty, the degree to which customers consistently prefer one brand over all others. In fact, companies hope their brands are not just recognized (brand recognition) and then preferred (brand preference), but that customers will eventually insist on their brand name (brand insistence).

Diff: 1 Page Ref: 404-405 AACSB: Reflective Thinking Objective: 13-4 Why is branding beneficial to both buyers and sellers, and what are some different types of brands?

Skill: Application 10) Brand awareness refers to the extent to which a particular brand name is familiar within a particular product category.

Answer: TRUE Explanation: Brand awareness refers to the extent to which a particular brand name is familiar within a particular product category. Companies participate in mass advertising as a way to help their product's brand name become synonymous with the actual name of the product.

Diff: 1 Page Ref: 405 AACSB: Analytic Skills Objective: 13-4 Why is branding beneficial to both buyers and sellers, and what are some different types of brands?

Skill: Conceptual 11) Brand awareness involves connecting a brand with other positive attributes.

Answer: FALSE Explanation: Brand association involves connecting a brand with other positive attributes, including image, product features, usage situations, organizational associations, brand personality, and symbols. Hiring celebrities to endorse a product can be an effective tool for nurturing brand associations.

Diff: 1 Page Ref: 405 AACSB: Analytic Skills Objective: 13-4 Why is branding beneficial to both buyers and sellers, and what are some different types of brands?

Skill: Conceptual

12) With toys, movies, amusement parks, TV shows, and more, Disney uses brand extension.

Answer: TRUE Explanation: A family brand is a brand that markets several different products under the same brand name. Established companies are able to penetrate new markets successfully with their brand names. This is known as brand extension, marketing a product using the same brand-name image in a different product category.

Diff: 1 Page Ref: 406 AACSB: Reflective Thinking Objective: 13-4 Why is branding beneficial to both buyers and sellers, and what are some different types of brands?

Skill: Application 13) Use and convenience are unimportant when planning packaging for products.

Answer: FALSE Explanation: Packaging should facilitate use and convenience. Sellers want packages that are easy to ship, store, and stock on shelves. More importantly, consumers want products that handle easily, open and reseal, store conveniently, and have a long shelf life.

Diff: 1 Page Ref: 408 AACSB: Analytic Skills Objective: 13-4 Why is branding beneficial to both buyers and sellers, and what are some different types of brands?

Skill: Conceptual 14) The package design, shape, color, and texture all influence buyers' perceptions, but do not influence buying behavior.

Answer: FALSE Explanation: The package design, shape, color, and texture all influence buyers' perceptions and buying behavior.

Diff: 1 Page Ref: 409 AACSB: Analytic Skills Objective: 13-4 Why is branding beneficial to both buyers and sellers, and what are some different types of brands?

Skill: Conceptual 15) Product labels enable consumers to always clearly understand what they are purchasing.

Answer: FALSE Explanation: Labels can be confusing and misleading. For example, the FDA criticized General Food’s claims that Cheerios, the best-selling cereal in the world, lowers cholesterol and treats heart disease.

Diff: 2 Page Ref: 410 AACSB: Reflective Thinking Objective: 13-4 Why is branding beneficial to both buyers and sellers, and what are some different types of brands?

Skill: Application

16) Developing quality products is a two-step process that requires a great investment of resources.

Answer: FALSE Explanation: Developing quality products is actually a seven-step process that requires a great investment of resources.

Diff: 1 Page Ref: 411-412 AACSB: Analytic Skills Objective: 13-5 What steps take place during new product development, and what is the product life cycle?

Skill: Conceptual 17) During product development and concept testing, ideas that survive the screening and analysis steps are analyzed further.

Answer: TRUE Explanation: During the step of product development and concept testing, product ideas that survive the screening and analysis steps are analyzed further. This often begins with a physical prototype of the good. In the testing phase of a new service offering, management determines the details concerning staffing needs and equipment requirements to ensure the service is delivered properly.

Diff: 2 Page Ref: 412 AACSB: Analytic Skills Objective: 13-5 What steps take place during new product development, and what is the product life cycle?

Skill: Conceptual 18) Maturity is a stage in the product life cycle.

Answer: TRUE Explanation: The four stages of the product life cycle are (1) introductory, (2) growth, (3) maturity, and (4) declining.

Diff: 1 Page Ref: 413 AACSB: Analytic Skills Objective: 13-5 What steps take place during new product development, and what is the product life cycle?

Skill: Conceptual 19) Packaging milk in a sealed bag that does not require refrigeration is an example of creating new markets.

Answer: FALSE Explanation: An example of creating new markets is a building supply store offering do-ityourself training classes. Sealed bags for milk is an example of repackaging.

Diff: 2 Page Ref: 414 AACSB: Reflective Thinking Objective: 13-5 What steps take place during new product development, and what is the product life cycle?

Skill: Application

20) Profit equals the price multiplied by the number of units sold or services performed.

Answer: FALSE Explanation: Revenue to a business equals the price multiplied by the number of units sold or services performed. Profit equals total revenue minus total costs.

Diff: 1 Page Ref: 416 AACSB: Analytic Skills Objective: 13-6 What are some pricing objectives, and how do they relate to the marketing mix?

Skill: Conceptual 21) If a company sets its price to increase its percentage of total industry sales, the company is using the pricing objective of maximizing profits.

Answer: FALSE Explanation: Pricing to increase the percentage of total industry sales is pricing to achieve greater market share. Achieving greater market share does not always translate into higher profits.

Diff: 2 Page Ref: 416 AACSB: Reflective Thinking Objective: 13-6 What are some pricing objectives, and how do they relate to the marketing mix?

Skill: Application 22) Demand-based pricing (sometimes called value-based pricing) is pricing a good or service based on the demand for the product or its perceived value.

Answer: TRUE Explanation: Under demand-based pricing, a high price will be charged when demand or the perceived value of the product is high, and a lower price will be charged when demand or perceived value is low. This pricing strategy assumes firms can accurately estimate perceived value or the demand for their goods or services.

Diff: 1 Page Ref: 417 AACSB: Analytic Skills Objective: 13-7 What are the three major approaches to pricing strategy, and what are some pricing tactics used to launch a new product, to adjust prices, and to impact price perceptions?

Skill: Conceptual 23) Rebates are partial refunds on what a customer has already paid for a product.

Answer: TRUE Explanation: Another way to adjust prices is to use rebates. Rebates are partial refunds on what a customer has already paid for a product. An example is mail-in rebates, where the manufacturer writes a check to the customer after the customer provides proof of purchase.

Diff: 1 Page Ref: 421 AACSB: Analytic Skills Objective: 13-7 What are the three major approaches to pricing strategy, and what are some pricing tactics used to launch a new product, to adjust prices, and to impact price perceptions?

Skill: Conceptual

24) Downloading a song for 99 cents is an example of psychological pricing.

Answer: TRUE Explanation: A pricing strategy that impacts price perceptions is psychological pricing (sometimes called odd or fractional pricing), the practice of charging a price just below a whole number to give the appearance of a significantly lower price. For example, charging $9.99 as opposed to $10.00 is an example of psychological pricing.

Diff: 2 Page Ref: 419 AACSB: Reflective Thinking Objective: 13-7 What are the three major approaches to pricing strategy, and what are some pricing tactics used to launch a new product, to adjust prices, and to impact price perceptions?

Skill: Application 25) All the benefits associated with a good, service, or idea that affect a consumer's purchasing decision are known as the total ________.

A) product benefit B) product package C) market offer D) product offer Answer: D Explanation: D) The total product offer consists of all the benefits associated with a good, service, or idea that impact a consumer's purchasing decision. When a consumer buys a car, she or he is not just buying a mode of transportation, the consumer is also buying some intangible benefits, such as style or an image.

Diff: 1 Page Ref: 397 AACSB: Analytic Skills Objective: 13-1 What are the definitions of a product and a total product offer?

Skill: Conceptual 26) All of the following are aspects of a total product offering EXCEPT the ________ product.

A) core B) value C) actual D) augmented Answer: B Explanation: B) When planning a total product offering, marketers think about products on three levels: the core product, the actual product, and the augmented product. Each level adds more value to a product.

Diff: 1 Page Ref: 398 AACSB: Analytic Skills Objective: 13-1 What are the definitions of a product and a total product offer?

Skill: Conceptual

27) The ________ product of a fast food meal is the calories and relief from hunger provided.

A) augmented B) value C) core D) actual Answer: C Explanation: C) The core product provides the core benefit or service that satisfies the basic need or want that motivates the consumer's purchase. The core product is intangible. You can't touch it. This is because the core product is the basic benefit the product provides.

Diff: 2 Page Ref: 398 AACSB: Reflective Thinking Objective: 13-1 What are the definitions of a product and a total product offer?

Skill: Application 28) The ________ product of a fast food meal is the sandwich, side dish, and drink.

A) augmented B) value C) core D) actual Answer: D Explanation: D) The actual product is the tangible aspect of the purchase that you can touch, see, hear, smell, or taste. It provides core benefits when it is used. Consumers often assess the tangible benefits of actual products by comparing brands, quality (often associated with a brand's reputation), features, styling, or packaging.

Diff: 1 Page Ref: 398 AACSB: Reflective Thinking Objective: 13-1 What are the definitions of a product and a total product offer?

Skill: Application 29) The process of distinguishing a product from its competition in real or perceived terms to attract customers is called product ________.

A) coring B) differentiation C) actualization D) development Answer: B Explanation: B) Product differentiation is the process of distinguishing a product from its competition in real or perceived terms to attract customers. A company can distinguish a product from its competitors by establishing concrete or intangible differences between similar products.

Diff: 1 Page Ref: 398 AACSB: Analytic Skills Objective: 13-2 What is product differentiation, and what role does it play in product development?

Skill: Conceptual

30) A group of similar products marketed to one general market is called a product ________.

A) mix B) length C) line D) width Answer: C Explanation: C) A product line is a group of similar products marketed to one general market.

For example, Toyota offers a financial-services product line to dealers and their customers for the purchase or lease of Toyota vehicles.

Diff: 1 Page Ref: 399 AACSB: Analytic Skills Objective: 13-2 What is product differentiation, and what role does it play in product development?

Skill: Conceptual 31) Ford offers several categories of vehicles: cars, minivans, trucks, and SUVs. All of these vehicles categories together make up Ford's product ________.

A) length B) line C) depth D) mix Answer: D Explanation: D) A product mix is the combination of all product lines offered for sale by a company. For example, Toyota offers a full line of automotive products, which can be broken down into various product lines, including its cars, minivans, trucks, SUVs, motorcycles, ATVs, and vehicle-related parts and accessories.

Diff: 2 Page Ref: 399 AACSB: Reflective Thinking Objective: 13-2 What is product differentiation, and what role does it play in product development?

Skill: Application 32) Product line length is the ________, A) length in feet of a company's assembly line B) average length in inches of a company's best-selling product C) number of different product lines a company offers D) number of items in any given product line Answer: D Explanation: D) Product line length is the number of items in any given product line. Product line length is determined by how the addition or removal of items from a product line affects profits.

Diff: 1 Page Ref: 399 AACSB: Analytic Skills Objective: 13-2 What is product differentiation, and what role does it play in product development?

Skill: Conceptual

33) The many product lines at Procter & Gamble are an example of product ________.

A) mix width B) line width C) mix length D) line width Answer: A Explanation: A) Product mix width refers to the number of different product lines a company offers. This is determined by profitability.

Diff: 1 Page Ref: 400 AACSB: Reflective Thinking Objective: 13-2 What is product differentiation, and what role does it play in product development?

Skill: Application 34) Which of the following is a consumer product classification?

A) raw and processed materials B) MRO products C) equipment D) unsought goods and services Answer: D Explanation: D) The four consumer product classifications are (1) convenience goods and services, (2) shopping goods and services, (3) specialty goods and services, and (4) unsought goods and services.

Diff: 1 Page Ref: 400 AACSB: Analytic Skills Objective: 13-3 What are the different classifications of consumer products and business-tobusiness products?

Skill: Conceptual 35) Downloading a song from iTunes is an example of a(n) ________ service.

A) convenience B) shopping C) specialty D) unsought Answer: A Explanation: A) Convenience goods and services are those that the customer purchases frequently, immediately, and effortlessly. These purchases are usually based on habitual behavior, meaning consumers routinely purchase a particular brand with which they are familiar and comfortable. Convenience goods and services are relatively low-priced items.

Diff: 2 Page Ref: 400-401 AACSB: Reflective Thinking Objective: 13-3 What are the different classifications of consumer products and business-tobusiness products?

Skill: Application

36) A dishwasher is an example of a(n) ________ good.

A) convenience B) shopping C) specialty D) unsought Answer: B Explanation: B) Shopping goods and services are products that are purchased less frequently than convenience goods and services and typically require more effort and time for comparison.

Shopping goods are typically durable goods, goods that can be used repeatedly over a long period of time. These products are often sold at shopping centers that allow for easy comparison between stores.

Diff: 2 Page Ref: 401 AACSB: Reflective Thinking Objective: 13-3 What are the different classifications of consumer products and business-tobusiness products?

Skill: Application 37) A consultation with a world-famous surgeon is an example of a(n) ________ service.

A) specialty B) unsought C) convenience D) shopping Answer: A Explanation: A) Specialty goods and services are unique to the point that buyers are willing to spend a considerable amount of time and effort searching for particular brands or styles.

Customers know exactly what they want and they will not accept substitutes. Examples of specialty services include the services of prestigious medical and legal experts.

Diff: 2 Page Ref: 401 AACSB: Reflective Thinking Objective: 13-3 What are the different classifications of consumer products and business-tobusiness products?

Skill: Application 38) Which of the following is an example of a B2B product?

A) specialty goods B) convenience services C) component parts D) shopping goods Answer: C Explanation: C) The five business-to-business (B2B) classifications are (1) equipment; (2) maintenance, repair, and operating (MRO) products; (3) raw and processed materials; (4) component parts; and (5) specialized professional services.

Diff: 1 Page Ref: 402 AACSB: Analytic Skills Objective: 13-3 What are the different classifications of consumer products and business-tobusiness products?

Skill: Conceptual

39) A bulldozer is an example of ________.

A) raw and processed materials B) equipment C) component parts D) MRO products Answer: B Explanation: B) Equipment, also known as installations or capital items, includes all the physical facilities of a business, such as factories, warehouses, office buildings, heavy equipment, and other less costly equipment like computers, printers, and copiers. Many of these capital items are expensive, unique, and intended to last for a long time.

Diff: 2 Page Ref: 402 AACSB: Reflective Thinking Objective: 13-3 What are the different classifications of consumer products and business-tobusiness products?

Skill: Application 40) Sheets of copper shipped to a factory for plumbing pipes are an example of ________.

A) raw and processed materials B) component parts C) MRO products D) specialized professional services Answer: A Explanation: A) Raw and processed materials are the basic inputs that become part of a finished good. Raw materials like wood and processed materials like steel are used to make a variety of products, such as buildings or bridges.

Diff: 2 Page Ref: 402 AACSB: Reflective Thinking Objective: 13-3 What are the different classifications of consumer products and business-tobusiness products?

Skill: Application 41) Outsourced accounting is an example of ________.

A) equipment B) component parts C) MRO products D) specialized professional services Answer: D Explanation: D) Specialized professional services help support a firm's operations. They include advertising, management consulting, legal, accounting, and information technology services.

Managers compare the costs and the quality of these specialized services with their in-house operations before deciding whether to outsource these activities.

Diff: 2 Page Ref: 402-403 AACSB: Reflective Thinking Objective: 13-3 What are the different classifications of consumer products and business-tobusiness products?

Skill: Application

42) A brand can be any of the following EXCEPT a ________.

A) name B) term C) symbol D) price Answer: D Explanation: D) A brand is a name, term, symbol, or design that distinguishes a company and its products from all others. Branding is one of the most important tools of product differentiation, and it benefits both buyers and sellers.

Diff: 1 Page Ref: 403 AACSB: Analytic Skills Objective: 13-4 Why is branding beneficial to both buyers and sellers, and what are some different types of brands?

Skill: Conceptual 43) Branding benefits ________.

A) both buyers and sellers B) only buyers C) only sellers D) neither buyers nor sellers Answer: A Explanation: A) A brand is a name, term, symbol, or design that distinguishes a company and its products from all others. Branding is one of the most important tools of product differentiation, and it benefits both buyers and sellers.

Diff: 1 Page Ref: 403-404 AACSB: Analytic Skills Objective: 13-4 Why is branding beneficial to both buyers and sellers, and what are some different types of brands?

Skill: Conceptual

44) Which of the following is a benefit of branding?

A) Well-recognized brands increase the shopping time necessary to find the quality and consistency buyers desire in a product.

B) Branding reduces the risks involved in some purchases for which buyers are unable to determine the quality objectively.

C) Brands communicate no information about the consumers who buy the brands.

D) Brands hide a product's special qualities.

Answer: B Explanation: B) For buyers, well-recognized brands reduce the shopping time necessary to find the quality and consistency they desire in a product. Branding reduces the risks involved in some purchases for which buyers are unable to determine quality objectively. Consumers are able to express themselves by buying brand names with which they wish to be identified. Branding also helps sellers define their products' special qualities.

Diff: 1 Page Ref: 404 AACSB: Analytic Skills Objective: 13-4 Why is branding beneficial to both buyers and sellers, and what are some different types of brands?

Skill: Conceptual 45) A legally protected brand is called a(n) ________.

A) equity B) knockoff C) trademark D) recognized brand Answer: C Explanation: C) Well-branded companies usually establish trademarks so their products are easily identifiable. A trademark, a legally protected brand, can benefit sellers by distinguishing products from competitors' knockoff brands, or illegal copies or cheap imitations of a product.

Diff: 1 Page Ref: 404 AACSB: Analytic Skills Objective: 13-4 Why is branding beneficial to both buyers and sellers, and what are some different types of brands?

Skill: Conceptual 46) All of the following are degrees of brand loyalty EXCEPT brand ________.

A) recognition B) preference C) insistence D) license Answer: D Explanation: D) The three degrees of brand loyalty are (1) brand recognition, (2) brand preference, and (3) brand insistence.

Diff: 2 Page Ref: 404-405 AACSB: Analytic Skills Objective: 13-4 Why is branding beneficial to both buyers and sellers, and what are some different types of brands?

Skill: Conceptual

47) A snack food bag is white with plain black letters spelling, "Corn Chips." This is an example of a ________ brand.

A) family B) generic C) manufacturer's D) co-brand Answer: B Explanation: B) A generic brand is a product that has no brand at all. The product's contents are frequently identified by black stenciled lettering on white packages. A generic brand may mimic a branded product, but the generic brand is not associated with the branded product's manufacturer.

Diff: 2 Page Ref: 407 AACSB: Reflective Thinking Objective: 13-4 Why is branding beneficial to both buyers and sellers, and what are some different types of brands?

Skill: Application 48) A bag of snack food is bright and colorful and says, "Fritos." This is an example of a(n) ________ brand.

A) family B) manufacturer's C) individual D) co-brand Answer: B Explanation: B) A manufacturer's brand is a brand created by producers. Manufacturer's brands are also known as national brands even though they may be distributed globally.

Diff: 2 Page Ref: 406 AACSB: Reflective Thinking Objective: 13-4 Why is branding beneficial to both buyers and sellers, and what are some different types of brands?

Skill: Application

49) A bag of snack food says, "Walmart's Corn Chips." This is an example of a(n) ________ brand.

A) generic B) individual C) family D) private Answer: D Explanation: D) A private brand is a brand created by a distributor, or middleman. These middlemen can be wholesalers, dealers, or retail stores. The key characteristic of a private brand is that the manufacturer is not identified on the product.

Diff: 2 Page Ref: 406-407 AACSB: Reflective Thinking Objective: 13-4 Why is branding beneficial to both buyers and sellers, and what are some different types of brands?

Skill: Application 50) A whole shelf of snack food bags is marked, "Frito-Lay." This is an example of a(n) ________ brand.

A) co-brand B) individual C) private D) family Answer: D Explanation: D) A family brand is a brand that markets several different products under the same brand name. Consumers are more likely to try new products from an established brand that is familiar and trusted. These established companies are able to penetrate new markets successfully with their brand names.

Diff: 2 Page Ref: 406 AACSB: Reflective Thinking Objective: 13-4 Why is branding beneficial to both buyers and sellers, and what are some different types of brands?

Skill: Application

51) A brand assigned to each product within a company's product mix is a(n) ________ brand.

A) generic B) individual C) co-brand D) family Answer: B Explanation: B) An individual brand is a brand assigned to each product within a company's product mix. For example, Sara Lee uses individual brands among its many food, beverage, household, and personal care products.

Diff: 2 Page Ref: 406 AACSB: Analytic Skills Objective: 13-4 Why is branding beneficial to both buyers and sellers, and what are some different types of brands?

Skill: Conceptual 52) A package contains a snack food bag with a manufacturer's brand and a container of dip with the brand of a different manufacturer. This is an example of a(n) ________ brand.

A) generic B) private C) individual D) co-brand Answer: D Explanation: D) A co-brand is the use of one or more brands affiliated with a single product.

The objective is to combine the prestige of two brands to increase the price consumers are willing to pay.

Diff: 2 Page Ref: 407 AACSB: Reflective Thinking Objective: 13-4 Why is branding beneficial to both buyers and sellers, and what are some different types of brands?

Skill: Application 53) An agreement between the owner of a brand and another company or individual who pays a royalty for the use of the brand in association with a new product is brand ________.

A) extension B) awareness C) licensing D) association Answer: C Explanation: C) Brand licensing is an agreement between the owner of a brand and another company or individual who pays a royalty for the use of the brand in association with a new product. Brand owners use licensing to extend a trademark or character onto different products.

Diff: 1 Page Ref: 404 AACSB: Analytic Skills Objective: 13-4 Why is branding beneficial to both buyers and sellers, and what are some different types of brands?

Skill: Conceptual

54) If a package prevents tampering with a product, which purpose of packaging is being performed?

A) to facilitate use and convenience B) to contain and protect the product C) to promote the product D) to be environmentally friendly Answer: B Explanation: B) Packaging should preserve and protect the product. This is the most obvious purpose of packaging. Most products are handled several times as they are distributed from the manufacturing site to the final consumer. Many of these products need to be protected from heat, cold, light, spoilage, infestation, and many other conditions. Packaging must also protect the product from tampering.

Diff: 1 Page Ref: 408 AACSB: Reflective Thinking Objective: 13-4 Why is branding beneficial to both buyers and sellers, and what are some different types of brands?

Skill: Application 55) A ________ prevents a brand from becoming generic and public property.

A) brand extension B) private brand C) trademark D) license Answer: C Explanation: C) All companies want to guard against their brand name becoming a generic description for a product category because then their brand name becomes public property, which means the owner loses all rights to it! This happened to Q-tips. If companies trademarked their brand names, they can prevent them from becoming public property and preserve their product differentiation.

Diff: 1 Page Ref: 404 AACSB: Analytic Skills Objective: 13-4 Why is branding beneficial to both buyers and sellers, and what are some different types of brands?

Skill: Conceptual

56) The blue Tiffany & Co. box is an example of which purpose of packaging?

A) to contain and protect the product B) to facilitate use and convenience C) to be environmentally friendly D) to promote the product Answer: D Explanation: D) Getting the consumer to notice a product and pick it up from crowded shelves is extremely important. The package design, shape, color, and texture all influence buyers' perceptions and buying behavior. Luxury items such as jewelry or high-end cosmetics typically package their products to create an impression of extravagance, sophistication, and exclusiveness. The little blue box from Tiffany & Co. is an example of an iconic package that promotes both a brand and a lifestyle.

Diff: 1 Page Ref: 409 AACSB: Reflective Thinking Objective: 13-4 Why is branding beneficial to both buyers and sellers, and what are some different types of brands?

Skill: Application 57) When companies respond to complaints that packaging is excessive and wasteful, which purpose of packaging is being considered?

A) to contain and protect the product B) to be environmentally friendly C) to facilitate use and convenience D) to promote the product Answer: B Explanation: B) A growing concern among many consumers is whether a product and its package are environmentally sound. Some people have been critical of the excessive and wasteful packaging of products. Consequently, many companies are going "green." Increased effort is being placed on recycling and in developing new products that are eco-friendly.

Diff: 1 Page Ref: 409 AACSB: Reflective Thinking Objective: 13-4 Why is branding beneficial to both buyers and sellers, and what are some different types of brands?

Skill: Application

58) The two functions of labels are ________.

A) inform and facilitate use B) inform and persuade C) protect the product and persuade D) facilitate use and be environmentally friendly Answer: B Explanation: B) Labeling serves two functions: to inform and to persuade.

Diff: 1 Page Ref: 410 AACSB: Analytic Skills Objective: 13-4 Why is branding beneficial to both buyers and sellers, and what are some different types of brands?

Skill: Conceptual 59) The Fair Packaging and Labeling Act of 1966 requires companies to identify all of the following EXCEPT the ________.

A) product B) name and place of business of the manufacturer C) formula by which the product was manufactured D) net quantity of the contents Answer: C Explanation: C) The Fair Packaging and Labeling Act of 1966 requires companies to identify the (1) product; (2) name and place of business of the manufacturer, packer, or distributor; and (3) net quantity of the contents.

Diff: 1 Page Ref: 410 AACSB: Analytic Skills Objective: 13-4 Why is branding beneficial to both buyers and sellers, and what are some different types of brands?

Skill: Conceptual 60) If a label represents consistent quality and dependability, then the label can perpetuate a(n) ________ brand-name image.

A) neutral B) immeasurable C) positive D) negative Answer: C Explanation: C) Labels are used to promote and to persuade customers to buy the product.

Labels can educate consumers of the features and other benefits of the product. Many companies label their products with their brand logo to distinguish their product from their competitors'. If the label comes to represent consistent quality and dependability, then the label can perpetuate a positive brand-name image.

Diff: 1 Page Ref: 410 AACSB: Analytic Skills Objective: 13-4 Why is branding beneficial to both buyers and sellers, and what are some different types of brands?

Skill: Conceptual

61) All of the following are steps in new product development EXCEPT ________.

A) product analysis B) idea screening C) brand awareness D) commercialization Answer: C Explanation: C) The seven steps in new product development are (1) idea generation, (2) idea screening, (3) product analysis, (4) product development and concept testing, (5) product and marketing mix development, (6) market testing, and (7) commercialization.

Diff: 2 Page Ref: 411-412 AACSB: Analytic Skills Objective: 13-5 What steps take place during new product development, and what is the product life cycle?

Skill: Conceptual 62) Salespeople bringing suggestions for a new fast food item to the headquarters of their food manufacturer is an example of ________.

A) product analysis B) commercialization C) idea generation D) idea screening Answer: C Explanation: C) Ideas for entirely new products or improved versions of existing products are often generated by listening closely to customers or focus groups. In fact, customer complaints may signal a need for a new product. Suppliers, employees, and salespeople also generate ideas by assessing the competition and through trade shows.

Diff: 2 Page Ref: 411 AACSB: Reflective Thinking Objective: 13-5 What steps take place during new product development, and what is the product life cycle?

Skill: Application

63) A food manufacturer doing market research on the possible customer demand for a new fast food item is an example of ________.

A) idea generation B) idea screening C) product development and concept testing D) commercialization Answer: B Explanation: B) The objective of idea screening is to eliminate unsound concepts before devoting costly resources to their development. Screening involves estimating the level of consumer demand for the product, its profitability, and its production feasibility given the company's current technical capabilities.

Diff: 2 Page Ref: 412 AACSB: Reflective Thinking Objective: 13-5 What steps take place during new product development, and what is the product life cycle?

Skill: Application 64) A fast food manufacturer estimating a new food item's production costs, selling price, and sales volume is an example of ________.

A) idea screening B) product development and concept testing C) product analysis D) commercialization Answer: C Explanation: C) Product analysis estimates costs of production, selling price, sales volume, and profitability. Costs of production depend on the features of the product deemed necessary to meet the targeted customers' needs. The selling price, sales volume, and profitability may depend on the degree of competition in the market.

Diff: 2 Page Ref: 412 AACSB: Reflective Thinking Objective: 13-5 What steps take place during new product development, and what is the product life cycle?

Skill: Application

65) A theoretical model describing a product's sales and profits over the course of its existence is known as the product ________.

A) lifetime B) life cycle C) pricing plan D) rollout Answer: B Explanation: B) Once a product is developed, it begins the product life cycle. A product life cycle is a theoretical model describing a product's sales and profits over the course of its lifetime.

Diff: 1 Page Ref: 413 AACSB: Analytic Skills Objective: 13-5 What steps take place during new product development, and what is the product life cycle?

Skill: Conceptual 66) All of the following are stages in the product life cycle EXCEPT ________.

A) packaging B) growth C) maturity D) declining Answer: A Explanation: A) The four stages of the product life cycle are (1) introductory, (2) growth, (3) maturity, and (4) declining.

Diff: 1 Page Ref: 413 AACSB: Analytic Skills Objective: 13-5 What steps take place during new product development, and what is the product life cycle?

Skill: Conceptual 67) To avoid the declining stage of the product life cycle, a consumer electronics company used its smartphone technology to create a handheld computer. This can BEST be described as ________.

A) creating new markets B) extending technology C) creating a new use D) repackaging Answer: B Explanation: B) Stretching out the product life cycle with extended technology occurs when a manufacturer applies its existing knowledge to new products.

Diff: 2 Page Ref: 414-415 AACSB: Reflective Thinking Objective: 13-5 What steps take place during new product development, and what is the product life cycle?

Skill: Application

68) An advertising campaign that attempts to sell a product to a new subgroup of the existing market is an example of ________.

A) creating a new use B) repackaging C) repositioning D) extended technology Answer: C Explanation: C) Advertising to a new subgroup of an existing market is an example of repositioning.

Diff: 2 Page Ref: 415 AACSB: Reflective Thinking Objective: 13-5 What steps take place during new product development, and what is the product life cycle?

Skill: Application 69) In order for customers to acquire a total product offering, they must offer the ________.

A) distribution or place B) product C) promotion D) price Answer: D Explanation: D) Price is what must be given up in order to acquire a total product offering. Price is the only revenue-generating component of the marketing mix. Product, promotion, and distribution strategies are all cost components.

Diff: 1 Page Ref: 415 AACSB: Analytic Skills Objective: 13-6 What are some pricing objectives, and how do they relate to the marketing mix?

Skill: Conceptual 70) The only revenue-generating component of the marketing mix is ________.

A) distribution B) price C) product D) promotion Answer: B Explanation: B) Price is what must be given up in order to acquire a total product offering. Price is the only revenue-generating component of the marketing mix. Product, promotion, and distribution strategies are all cost components.

Diff: 1 Page Ref: 415 AACSB: Analytic Skills Objective: 13-6 What are some pricing objectives, and how do they relate to the marketing mix?

Skill: Conceptual

71) People selling stock operate in very competitive market and have little to no control over their prices. Such sellers are price- ________.

A) setters B) takers C) makers D) strategizers Answer: B Explanation: B) Some companies operating in very competitive markets may have little to no control over their price. Instead, price is determined in the market through the interaction of demand and supply. These companies may therefore be called price-takers.

Diff: 2 Page Ref: 416 AACSB: Reflective Thinking Objective: 13-6 What are some pricing objectives, and how do they relate to the marketing mix?

Skill: Application 72) A store that sets its prices at the same level as the store across the mall is using the pricing objective of ________.

A) creating an image B) status quo pricing C) achieving greater market share D) achieving social objectives Answer: B Explanation: B) The objective of status quo pricing is simply to match competitors' prices, possibly to avoid a price war that could be damaging to everyone.

Diff: 2 Page Ref: 416 AACSB: Reflective Thinking Objective: 13-6 What are some pricing objectives, and how do they relate to the marketing mix?

Skill: Application 73) A new freelance writer who sets a price at a level to generate just enough revenues to pay expenses is using the pricing objective of ________.

A) cutting costs to survive B) creating an image C) achieving social objectives D) maximizing profits Answer: A Explanation: A) If a company or professional is struggling to survive and build a customer base, the seller may choose to set prices to generate just enough revenues to cover costs.

Diff: 2 Page Ref: 416 AACSB: Reflective Thinking Objective: 13-6 What are some pricing objectives, and how do they relate to the marketing mix?

Skill: Application

74) A manufacturer of yachts sets its prices high above its competitors. This is an example of the pricing objective of ________.

A) achieving social objectives B) creating an image C) cutting costs to survive D) building traffic Answer: B Explanation: B) Some products are priced high because firms hope that consumers will associate high prices with high quality. This is the case for many specialty goods.

Diff: 2 Page Ref: 416 AACSB: Reflective Thinking Objective: 13-6 What are some pricing objectives, and how do they relate to the marketing mix?

Skill: Application 75) A manufacturer produces 200 units of a product at a cost of $1,000. If the manufacturer wants to make a markup of 10 percent, the price would be ________.

A) $5.00 B) $5.50 C) $4.50 D) $0.50 Answer: B Explanation: B) This is an example of cost-based pricing. The average total cost is total cost, $1,000, divided by the number of units produced, 200, or $5. The markup is 10 percent, or $0.50.

The cost-based price is $5.00 + $0.50 = $5.50.

Diff: 2 Page Ref: 417 AACSB: Reflective Thinking Objective: 13-7 What are the three major approaches to pricing strategy, and what are some pricing tactics used to launch a new product, to adjust prices, and to impact price perceptions?

Skill: Application 76) Total fixed costs are $300. The selling price is $15. Average variable costs are $5. The break-even volume of production is ________ units.

A) 30 B) 20 C) 60 D) 15 Answer: A Explanation: A) The break-even volume of production is found by (Total Fixed Costs)/(Price Average Variable Costs).

Diff: 2 Page Ref: 420 AACSB: Reflective Thinking Objective: 13-7 What are the three major approaches to pricing strategy, and what are some pricing tactics used to launch a new product, to adjust prices, and to impact price perceptions?

Skill: Application

77) Charging different prices to different customers when these price differences are not a reflection of cost differences is called price ________.

A) discrimination B) targeting C) valuation D) costing Answer: A Explanation: A) A demand-based pricing technique is price discrimination, charging different prices to different customers when these price differences are not a reflection of cost differences.

Successful price discrimination charges higher prices to targeted customers who are price insensitive and lower prices to other targeted customers who are more price sensitive.

Diff: 1 Page Ref: 418 AACSB: Analytic Skills Objective: 13-7 What are the three major approaches to pricing strategy, and what are some pricing tactics used to launch a new product, to adjust prices, and to impact price perceptions?

Skill: Conceptual 78) A pricing strategy based on what the competition is charging is known as ________ -based pricing.

A) cost B) demand C) competition D) supply Answer: C Explanation: C) Competition-based pricing is a pricing strategy based on what the competition is charging. Revenues and costs are secondary. The degree of competition in markets affects a company's price-setting ability.

Diff: 1 Page Ref: 418 AACSB: Analytic Skills Objective: 13-7 What are the three major approaches to pricing strategy, and what are some pricing tactics used to launch a new product, to adjust prices, and to impact price perceptions?

Skill: Conceptual

79) The Crusher Corp. charges very low prices to drive its only competitor out of business. This is an example of ________ pricing.

A) demand-based B) brand C) predatory D) penetration Answer: C Explanation: C) In some extreme cases, monopolies may have captured their markets through predatory pricing, the practice of charging very low prices with the intent to destroy the competition.

Diff: 1 Page Ref: 418 AACSB: Reflective Thinking Objective: 13-7 What are the three major approaches to pricing strategy, and what are some pricing tactics used to launch a new product, to adjust prices, and to impact price perceptions?

Skill: Application 80) Price ________ involves charging a high price for a product initially, then lowering the price over time.

A) discrimination B) penetrating C) predation D) skimming Answer: D Explanation: D) One pricing strategy for introducing a new product is price skimming. It involves charging a high price for a product initially, then lowering the price over time. Price skimming coincides with the introductory stage of a product's life cycle during which there are few, if any, competitors.

Diff: 1 Page Ref: 419 AACSB: Analytic Skills Objective: 13-7 What are the three major approaches to pricing strategy, and what are some pricing tactics used to launch a new product, to adjust prices, and to impact price perceptions?

Skill: Conceptual

81) An e-commerce Web site gives frequent shoppers a deduction from its regular prices. This is an example of ________.

A) bundling B) rebates C) dynamic pricing D) discounts Answer: D Explanation: D) Most businesses adjust their prices to promote their products. Several tactics are used. One way is to use discounts, a deduction from the regular price charged.

Diff: 2 Page Ref: 420 AACSB: Reflective Thinking Objective: 13-7 What are the three major approaches to pricing strategy, and what are some pricing tactics used to launch a new product, to adjust prices, and to impact price perceptions?

Skill: Application 82) Each of the following is a form of discount EXCEPT ________.

A) packaging discounts B) cash discounts C) seasonal discounts D) quantity discounts Answer: A Explanation: A) The four forms of discount are (1) quantity discounts, (2) cash discounts, (3) seasonal discounts, and (4) forms of allowance.

Diff: 2 Page Ref: 420 AACSB: Analytic Skills Objective: 13-7 What are the three major approaches to pricing strategy, and what are some pricing tactics used to launch a new product, to adjust prices, and to impact price perceptions?

Skill: Conceptual 83) Everyday low pricing is a strategy of ________.

A) charging inexpensive prices with few, if any, special promotional sales B) determining prices directly between the seller and buyer C) combining two or more complementary products into a single package D) providing partial refunds on what a customer has already paid for a product Answer: A Explanation: A) Some retail stores choose not to adjust their prices at all, but instead offer everyday low pricing (EDLP), a strategy of charging low prices with few, if any, special promotional sales.

Diff: 1 Page Ref: 418 AACSB: Analytic Skills Objective: 13-7 What are the three major approaches to pricing strategy, and what are some pricing tactics used to launch a new product, to adjust prices, and to impact price perceptions?

Skill: Conceptual

84) A company that charges a high price to invoke perceptions of high quality is using ________ pricing.

A) psychological B) prestige C) dynamic D) reference Answer: B Explanation: B) Prestige pricing (also known as premium pricing) is the practice of charging a high price to invoke perceptions of high quality and privilege. The higher perceived value because of the higher price actually increases demand and creates a higher price that becomes self-sustaining.

Diff: 2 Page Ref: 419 AACSB: Reflective Thinking Objective: 13-7 What are the three major approaches to pricing strategy, and what are some pricing tactics used to launch a new product, to adjust prices, and to impact price perceptions?

Skill: Application 85) A company that announces a manufacturer's suggested retail price and then offers a discount off that price is using ________ pricing.

A) psychological B) dynamic C) reference D) prestige Answer: C Explanation: C) Reference pricing refers to listing an inflated price (the "regular retail price" or "manufacturer's suggested retail price") that is then discounted to appear as if it is a good value.

Diff: 2 Page Ref: 419 AACSB: Reflective Thinking Objective: 13-7 What are the three major approaches to pricing strategy, and what are some pricing tactics used to launch a new product, to adjust prices, and to impact price perceptions?

Skill: Application 86) What are the tangible and intangible benefits of a spring break vacation?

Answer: Student answers will vary. Possible tangible benefits are the quality of the hotel room and the restaurant food. Intangible benefits include relaxation, fun, and companionship.

Diff: 2 Page Ref: 397 AACSB: Reflective Thinking Objective: 13-1 What are the definitions of a product and a total product offer?

Skill: Application

87) How does a company benefit from product differentiation?

Answer: Product differentiation is critical for a product's success. If a product does not possess qualities that make it stand out, then customers will not be motivated to buy that product instead of a competitor's product.

Diff: 1 Page Ref: 398 AACSB: Analytic Skills Objective: 13-2 What is product differentiation, and what role does it play in product development?

Skill: Conceptual 88) Distinguish between product line length and product mix width.

Answer: Product line length is the number of items in any given product line. Product line length is determined by how the addition or removal of items from a product line affects profits.

Product mix width refers to the number of different product lines a company offers. This, too, is determined by profitability.

Diff: 1 Page Ref: 399-400 AACSB: Analytic Skills Objective: 13-2 What is product differentiation, and what role does it play in product development?

Skill: Conceptual 89) Describe a product that is sold in both consumer and B2B markets.

Answer: Student answers will vary. The example in the text is a lawnmower that could be used by a homeowner or a lawn care company.

Diff: 2 Page Ref: 400 AACSB: Reflective Thinking Objective: 13-3 What are the different classifications of consumer products and business-tobusiness products?

Skill: Application 90) What is an unsought service? Provide an example.

Answer: Student answers will vary. Unsought services are products that buyers do not usually think about buying, do not know exist, or buy only when a specific problem exists. The examples in the text are emergency medical services and automobile repairs, unsought purchases where prepurchase planning is rarely considered. In these cases, resolving the immediate problem is more important than comparison shopping based on price or other features.

Diff: 3 Page Ref: 401 AACSB: Reflective Thinking Objective: 13-3 What are the different classifications of consumer products and business-tobusiness products?

Skill: Application

91) What is a component part? Provide an example.

Answer: Student answers will vary. Component parts are assembled portions of the finished product. Examples include brakes, engines, transmissions, and steering columns for a car or lumber, cement, drywall, and electrical wire for a house.

Diff: 2 Page Ref: 402 AACSB: Reflective Thinking Objective: 13-3 What are the different classifications of consumer products and business-tobusiness products?

Skill: Application 92) What are the benefits of branding?

Answer: For buyers, well-recognized brands reduce the shopping time necessary to find the quality and consistency they desire in a product. Branding reduces the risks involved in some purchases for which buyers are unable to determine quality objectively. Consumers are able to express themselves by buying brand names with which they wish to be identified. Branding also helps sellers define their products' special qualities.

Diff: 2 Page Ref: 403-404 AACSB: Analytic Skills Objective: 13-4 Why is branding beneficial to both buyers and sellers, and what are some different types of brands?

Skill: Conceptual 93) What is brand equity?

Answer: Strong brand loyalty contributes to brand equity, the overall value of a brand's strength in the market. Perceptions of quality contribute significantly to brand equity. Quality products are not just free from defects; they consistently perform at high levels.

Diff: 1 Page Ref: 405 AACSB: Analytic Skills Objective: 13-4 Why is branding beneficial to both buyers and sellers, and what are some different types of brands?

Skill: Conceptual 94) What does a brand manager do?

Answer: Branding has become such an important part of marketing that businesses have created brand manager (or product manager) positions within their organizations. A brand manager is responsible for managing the marketing mix for a specific product or product line. Brand managers attempt to increase a product’s perceived value to customers to increase brand equity.

Brand managers are also responsible for new product development.

Diff: 2 Page Ref: 405 AACSB: Analytic Skills Objective: 13-4 Why is branding beneficial to both buyers and sellers, and what are some different types of brands?

Skill: Conceptual

95) How does convenient packaging affect sales?

Answer: Packages that are convenient to use and are also physically attractive sell better.

Packaging should facilitate use and convenience. Sellers want packages that are easy to ship, store, and stock on shelves. More importantly, consumers want products that handle easily, open and reseal, store conveniently, and, for perishable items, have a long shelf life.

Diff: 2 Page Ref: 408-409 AACSB: Analytic Skills Objective: 13-4 Why is branding beneficial to both buyers and sellers, and what are some different types of brands?

Skill: Conceptual 96) Why is labeling important to establishing a brand image?

Answer: Labels are used to promote and to persuade customers to buy the product. Labels can educate consumers of the features and other benefits of the product. Many companies label their products with their brand logo to distinguish their product from their competitors'. If the label comes to represent consistent quality and dependability, then the label can perpetuate a positive brand-name image.

Diff: 2 Page Ref: 410 AACSB: Analytic Skills Objective: 13-4 Why is branding beneficial to both buyers and sellers, and what are some different types of brands?

Skill: Conceptual 97) What are the seven steps in new product development?

Answer: The seven steps in new product development are (1) idea generation, (2) idea screening, (3) product analysis, (4) development and testing, and (5) product and marketing mix development, (6) market testing, and (7) commercialization.

Diff: 1 Page Ref: 411-412 AACSB: Analytic Skills Objective: 13-5 What steps take place during new product development, and what is the product life cycle?

Skill: Conceptual 98) Describe the commercialization step of product development.

Answer: Commercialization is the decision to market a product. Introducing a new product can be costly due to manufacturing investments, advertising, personal selling, and other promotional activities. The returns from such investments can take time. This may explain why many companies introduce their new products in one region at a time sometimes called rolling out the product.

Diff: 2 Page Ref: 412 AACSB: Analytic Skills Objective: 13-5 What steps take place during new product development, and what is the product life cycle?

Skill: Conceptual

99) List five methods for extending a product life cycle.

Answer: Five methods for extending a product life cycle are (1) creating a new use, (2) creating new markets, (3) extending technology, (4) repackaging, and (5) repositioning.

Diff: 2 Page Ref: 414-415 AACSB: Analytic Skills Objective: 13-5 What steps take place during new product development, and what is the product life cycle?

Skill: Conceptual 100) Why is setting the right price a challenge to marketers?

Answer: Trying to set the right price can be a real challenge for marketers. The price of a product has to be low enough to generate enough value to customers to motivate sales, yet high enough to enable the company to cover costs and earn a profit. Setting the right price is challenging because market conditions are always changing.

Diff: 3 Page Ref: 415-416 AACSB: Analytic Skills Objective: 13-6 What are some pricing objectives, and how do they relate to the marketing mix?

Skill: Conceptual 101) Give an example of a company following the pricing objective of maximizing profits.

Answer: Student answers will vary. The company will set its price so that total revenue exceeds total cost by the greatest amount.

Diff: 2 Page Ref: 416 AACSB: Reflective Thinking Objective: 13-6 What are some pricing objectives, and how do they relate to the marketing mix?

Skill: Application 102) Give an example of a company following the pricing objective of building traffic.

Answer: Student answers will vary. Many retail stores, like grocery stores, pharmacies, hardware stores, and department stores, may advertise a sale price on a few goods to increase traffic in their stores and build a stronger customer base. They also hope customers will purchase other, more profitable, items while they are shopping for the bargains.

Diff: 2 Page Ref: 416 AACSB: Reflective Thinking Objective: 13-6 What are some pricing objectives, and how do they relate to the marketing mix?

Skill: Application

103) What is penetration pricing? Give an example.

Answer: Student answers will vary. Penetration pricing is a strategy of charging the lowest possible price for a new product. This pricing strategy is designed to build market share for the product quickly. If the increased production to satisfy growing sales results in lower per unit costs, then profits can actually rise even though the price is lower. Penetration pricing is appropriate during the growth stage of a product's life cycle and when customers are price sensitive. It may also create goodwill among consumers and inhibit competitors from entering the market.

Diff: 2 Page Ref: 419 AACSB: Reflective Thinking Objective: 13-7 What are the three major approaches to pricing strategy, and what are some pricing tactics used to launch a new product, to adjust prices, and to impact price perceptions?

Skill: Application 104) Give an example of a company that uses the pricing strategy of bundling.

Answer: Student answers will vary. In bundling, two or more products that usually complement one another are combined and sold at a single price. Examples in the text include the fast-food industry, cable or satellite TV sales, and vacation packages.

Diff: 2 Page Ref: 421 AACSB: Reflective Thinking Objective: 13-7 What are the three major approaches to pricing strategy, and what are some pricing tactics used to launch a new product, to adjust prices, and to impact price perceptions?

Skill: Application 105) Give an example of a loss leader.

Answer: Student answers will vary. A loss leader is a product that is priced below its costs.

Stores use loss leaders to attract customers and motivate them to buy more expensive items as well.

Diff: 2 Page Ref: 419 AACSB: Reflective Thinking Objective: 13-7 What are the three major approaches to pricing strategy, and what are some pricing tactics used to launch a new product, to adjust prices, and to impact price perceptions?

Skill: Application Better Business, 7e (Solomon) Chapter 14 Promotion and Distribution 1) Promotion is designed to increase brand awareness, sales, and ________.

A) identification of target B) brand loyalty C) distribution D) market share Answer: B Explanation: B) Promotion is one of the most visible components of the marketing mix.

Identifying a target market will take place at an earlier stage. Increasing market share is not a goal of promotion. Enhancing distribution is not a function of promotion. However, increasing brand loyalty is a key part of persuading targeted customers to purchase the product.

Diff: 2 Page Ref: 429 AACSB: Reflective Thinking Objective: 14-1 What is a promotional mix, and what is its function in a promotional campaign?

Skill: Conceptual 2) The ________ is the strategic combination of tools used to reach targeted customers to achieve marketing objectives.

A) marketing mix B) marketing toolbox C) sales pitch D) promotional mix Answer: D Explanation: D) The 4 Ps, or marketing mix, include many more factors than just the promotional tools. The marketing toolbox also encompasses a much broader scope of marketing.

The sales pitch is one narrow aspect of the marketing approach. The promotional mix, however, does comprise promotional tools that are used to reach targeted customers.

Diff: 2 Page Ref: 429 AACSB: Reflective Thinking Objective: 14-1 What is a promotional mix, and what is its function in a promotional campaign?

Skill: Conceptual

3) A company decides to offer discounts to customers on their products to help increase business.

This is an example of ________.

A) advertising B) personal selling C) public relations D) sales promotions Answer: D Explanation: D) Sales promotions are used to promote products to customers. Discounts are a perfect example of this. Discounts and advertising are two different promotional tools. Personal selling is the direct communication between salespeople and potential buyers and is very different from discounts although during the process of personal selling discounts may be offered. Public relations is a management function and public relations tools are essentially news messages. Discounts are not news messages, they are sales promotions.

Diff: 1 Page Ref: 431 AACSB: Reflective Thinking Objective: 14-1 What is a promotional mix, and what is its function in a promotional campaign?

Skill: Application 4) A perfume company plans on using its products as promotional tools. Which of the following strategies might they employ to reach this goal?

A) write a press release describing the process of making the perfumes B) give away free perfume samples C) hire salespeople knowledgeable in the field D) air a television commercial with a celebrity endorsement Answer: B Explanation: B) When a product itself is a promotional tool the marketing and sales staff will make every attempt to put the product itself into the hands of potential buyers. Therefore, giving away free samples of the product is an ideal way to use the product as a promotional tool. No other choice provided uses the product itself as a promotional tool.

Diff: 2 Page Ref: 429, 445 AACSB: Reflective Thinking Objective: 14-1 What is a promotional mix, and what is its function in a promotional campaign?

Skill: Application

5) Jack is the leader of a team in charge of developing a new promotion for a sports drink. Which of the following represents the first step Jack and his team will MOST LIKELY take?

A) design the marketing message B) implement the promotional campaign C) evaluate and adjust the marketing efforts D) identify the target market Answer: D Explanation: D) The very first step in any promotional campaign is to identify the target market, the group of potential customers marketing efforts will be geared toward. Designing the marketing message, implementing the campaign, and evaluating and adjusting the marketing efforts all happen at later stages.

Diff: 1 Page Ref: 430 AACSB: Reflective Thinking Objective: 14-1 What is a promotional mix, and what is its function in a promotional campaign?

Skill: Application 6) Building traffic, increasing brand awareness, responding to an attack by a competitor, or introducing a new product are all examples of possible ________.

A) organizational weaknesses B) marketing objectives C) market distribution D) promotional tools Answer: B Explanation: B) When a business is embarking on a promotional campaign, goals or marketing objectives must be determined to ensure the success of the campaign and in order to be able to assess the effectiveness of the efforts made. Building traffic, increasing brand awareness, responding to an attack by a competitor, and introducing a new product are all viable goals. They are not, however, promotional tools or characteristics of market distribution; nor are they symptoms of a strengthening market, and they are certainly not examples of organizational weaknesses. They represent challenges to be met and goals to be achieved.

Diff: 2 Page Ref: 430 AACSB: Reflective Thinking Objective: 14-1 What is a promotional mix, and what is its function in a promotional campaign?

Skill: Conceptual

7) After a marketing objective is defined, what should marketers do next?

A) design the marketing message B) determine the marketing budget C) evaluate the components of the promotion D) identify the target market Answer: A Explanation: A) The steps in a promotional campaign, in order, are 1) to identify the target market, 2) to determine marketing objectives, 3) to design the message, and 4) to determine the budget. Therefore, once goals are set when the marketing objective is defined, the marketing message can be designed. It is certainly not the phase in the marketing when the components of the promotion will be evaluated.

Diff: 1 Page Ref: 430 Objective: 14-1 What is a promotional mix, and what is its function in a promotional campaign?

Skill: Conceptual 8) Which of the following is the final step involved in a promotional campaign?

A) identification of target market B) determination of strategy C) evaluation and adjustment D) implementation and execution Answer: C Explanation: C) Once a promotional campaign has been implemented and all other steps taken, it is essential to evaluate how effective those efforts have been and to make any necessary adjustments needed for the next campaign. The product may have changed, the marketing objectives may be different by the time the promotional campaign has been implemented, the different types of promotional tools used may need to be used differently or in a different balance, and, of course, any promotional techniques that were not effective will have to be adjusted. Identification of the target market is the first step, not the final step. Strategy must be determined at an earlier stage and implementation and execution must be accomplished before the promotional campaign can be evaluated and necessary adjustments made.

Diff: 1 Page Ref: 431 Objective: 14-1 What is a promotional mix, and what is its function in a promotional campaign?

Skill: Conceptual

9) When staging a promotional campaign, each element, as well as the entire combination, will need to be adjusted as necessary for all of the following reasons EXCEPT a(n) ________.

A) continuous growth B) additional staff member C) marketing objectives changes D) ineffective promotional techniques Answer: B Explanation: B) Growth, changing marketing objective, and the correction of ineffective promotional techniques are all key elements to be evaluated and adjusted in staging a successful promotional campaign. Any new staff member must be competent and have the necessary skills and enthusiasm to ensure the success of the promotional campaign that is designed and implemented. It is not the promotional campaign that must adapt to the staff member, it is the staff that must adapt to the needs of the campaign.

Diff: 1 Page Ref: 431 Objective: 14-1 What is a promotional mix, and what is its function in a promotional campaign?

Skill: Conceptual 10) Members of the marketing team are MOST often involved with ________.

A) personal selling, licensing contracts, and advertising B) advertising, human resources, and customer relations C) distribution channels, customer relations, and information technology D) sales promotions, public relations, and advertising Answer: D Explanation: D) Sales promotions, public relations, and advertising are all concerns of the marketing team. Licensing contracts would be a legal concern for an organization. Human resources are handled by a department concerned with staffing, compensation, and benefits.

Information technology is part of the business that affects the marketing team since the Internet and computer databases are tools used by the market team, however marketing professionals are not directly involved with that area of the organization.

Diff: 2 Page Ref: 431 AACSB: Reflective Thinking Objective: 14-1 What is a promotional mix, and what is its function in a promotional campaign?

Skill: Conceptual

11) When different members of an organization's marketing team are each allowed to develop their own unique communication with customers, this MOST often promotes ________.

A) diversity in the workplace B) consumer confusion C) improved employee relations D) improved customer relations Answer: B Explanation: B) Promotional efforts should always be integrated. When different salespeople are communicating different objectives to the potential customers they come in contact with, those customers will ultimately become confused. This holds true for the different promotional tools used. When an advertisement promotes different aspects of a product from the aspects promoted by the press releases the company sends out, this will send mixed messages to the public. It is the marketing staff that must adapt to the promotional campaign, not the campaign that must adapt to the staff. Customer relations will certainly not be improved. And if there is greater diversity in the workplace or improved employee relations because employees have been given more autonomy in communicating promotional messages about products, it will be to the detriment of the promotional campaign, which is ultimately to the detriment of the objectives of the organization. Therefore, unique communication is not worth it.

Diff: 2 Page Ref: 431 AACSB: Reflective Thinking Objective: 14-1 What is a promotional mix, and what is its function in a promotional campaign?

Skill: Conceptual 12) Sally's Chocolate Heaven has just produced a new mocha truffle. Just in time for Christmas purchases, the store is offering discounts on the new product at the same time that Sally has launched a series of advertisements in the local newspapers and while she's sending out a new 4color brochure. This is an example of a(n) ________.

A) personal selling B) integrated marketing C) niche marketing D) direct marketing Answer: B Explanation: B) Sally is using her available promotional tools in the most effective way: integrating them and coordinating her campaign. She is using the sales promotion tool of discounts at the same time that she is using advertising and the direct marketing technique of creating a brochure and sending it out. Personal selling and direct marketing are two of the tools she is using, and she is presumably using niche marketing in having determining her target customers. However, overall, she has coordinated all these efforts with an integrated marketing communication about her new mocha truffle.

Diff: 2 Page Ref: 431 AACSB: Analytic Skills Objective: 14-1 What is a promotional mix, and what is its function in a promotional campaign?

Skill: Application

13) The advertising campaign "Beef, It's What's for Dinner," is an example of ________.

A) product advertising B) corporate advertising C) advocacy advertising D) business-to-business advertising Answer: B Explanation: B) Corporate or institutional advertising focuses on creating a positive public response toward an industry, such as the business of promoting the sales of beef products for consumption. There are many products that fall into this category; therefore, it is not product advertising. Advocacy advertising promotes an organization's position on a public issue, however, the consumption of beef is not at this time considered a public issue like clean air or water campaigns. Business-to-business advertising is not directed toward the public and "Beef, It's What's for Dinner" is an advertising campaign directed at individual consumers.

Diff: 3 Page Ref: 433 AACSB: Reflective Thinking Objective: 14-2 What are the different categories of advertising, and what role do these categories play in business and society?

Skill: Application 14) When the state of Montana runs an advertising campaign inviting the public to visit "Big Sky Country," it's an example of ________.

A) comparative advertising B) public service advertising C) interactive advertising D) corporate advertising Answer: D Explanation: D) Corporate or institutional advertising that focuses on creating a positive public response to an industry is also used by government entities such as states that want to promote the benefits of visiting their states or moving businesses there. These campaigns promote tourism and business growth for states and have similar marketing objectives to other corporate or institutional entities. Comparative advertising compares one brand to another and this is not the objective of the state of Montana in this example. Public service advertising is undertaken to promote a good cause; however, tourism and business growth are not causes that benefit the health and welfare of the public as public service advertisements do. Interactive advertising uses interactive media and this example does not specify whether interactive media is being used for this campaign.

Diff: 3 Page Ref: 433 AACSB: Reflective Thinking Objective: 14-2 What are the different categories of advertising, and what role do these categories play in business and society?

Skill: Application

15) Gail's Gears is a new company selling accessories for bicycles. Its new advertising campaign features instructions on how to assemble various accessories, including flashing lights for traffic safety, gear boxes to mount on the handlebars, and other products to attach to the seat over the back tire. This advertising campaign is an example of ________.

A) retail advertising B) public service advertising C) product advertising D) interactive advertising Answer: C Explanation: C) The accessories Gail's Gears is promoting are products; therefore, this is an example of product advertising, pure and simple. Retail or local advertising focuses on attracting customers to a fixed location. Gail's Gears is not aiming its advertising efforts at bringing customers to a particular store. Public service advertising promotes good causes and this advertising is promoting products. Interactive advertising uses interactive media and this example does not specify whether interactive media is being used for this campaign.

Diff: 2 Page Ref: 433 AACSB: Reflective Thinking Objective: 14-2 What are the different categories of advertising, and what role do these categories play in business and society?

Skill: Application 16) John Deere, the farm equipment company, directs its advertising toward farmers. This is an example of ________.

A) nonprofit advertising B) business-to-business advertising C) retail advertising D) interactive advertising Answer: B Explanation: B) Farmers run businesses, their farms, which must make a profit in order to survive. Therefore when John Deere, the farm equipment company, directs the advertising of its products toward farmers it is engaging in business-to-business advertising. Since farms and farmers operate for profit, John Deere would not implement nonprofit advertising. John Deere does not direct farmers to purchase equipment from specific, fixed locations and therefore has not employed retail advertising. Instead they are focused on promoting the benefits of their equipment for the objectives of the farmers' businesses. And it is unlikely that John Deere would employ interactive advertising since interactive media will not inform farmers better about the effectiveness of their equipment by promoting the success of farms and how their equipment will help farmers create that success.

Diff: 2 Page Ref: 433 AACSB: Reflective Thinking Objective: 14-2 What are the different categories of advertising, and what role do these categories play in business and society?

Skill: Application

17) Which of the following is NOT a form of advertising?

A) the name of the manufacturer on a bottle of dishwashing detergent B) the name of a local hardware store painted on a fence behind a Little League baseball field C) the name of the owner of a trucking company on the side of one of his trucks D) the name of the driver of a car on the side of her car with the words "Real Estate Agent" Answer: A Explanation: A) The name of the manufacturer on a bottom of dishwashing detergent is brand identification and may promote repeat business and brand loyalty; however, it is not a form of advertising. A fence behind a Little League baseball field that is viewed by many people is a prime location for advertising and painting the name of the local hardware store will help persuade the people at games, a target audience, to frequent that hardware store. It creates a positive image of the hardware store as well because it lets people know that this hardware store encourages the promotion of outdoor sports for local children. When the owner of a trucking company has his name written on the side of one of his trucks, it is a moving advertisement for him and his business every time someone sees his truck pass by. And a real estate agent will do well to have their name and the information that they are a real estate agent on the side of their car for the same reason: it provides an advertisement in motion every time the car is driven and even when the car is parked and people walk by and read the name. For the trucker and the real estate agent, it helps if the truck and the car are attractive and in good shape!

Diff: 3 Page Ref: 434 AACSB: Reflective Thinking Objective: 14-2 What are the different categories of advertising, and what role do these categories play in business and society?

Skill: Application 18) Which of the following is NOT one of the most recent trends in advertising?

A) infomercials B) product placement C) skywriting D) global advertising Answer: C Explanation: C) Skywriting, a form of outdoor media, has been around for a long time. Product placement, infomercials, and global advertising are recent trends.

Diff: 2 Page Ref: 436 AACSB: Reflective Thinking Objective: 14-2 What are the different categories of advertising, and what role do these categories play in business and society?

Skill: Conceptual

19) Which of the following is LEAST LIKELY to be used on a product placement banner in a sports stadium to advertise a product?

A) brand name or logo B) symbol C) three-sentence endorsement D) catchy short slogan Answer: C Explanation: C) A banner in a sports stadium should use visual elements that are short, easy to recall, and uncomplicated. A three-sentence product endorsement would not be read by viewers in the stadium and, if a game played in the stadium was televised, could not be read by television viewers. The brand name, a symbol, and a catchy short slogan are all effective elements to use on a banner.

Diff: 1 Page Ref: 436 AACSB: Reflective Thinking Objective: 14-2 What are the different categories of advertising, and what role do these categories play in business and society?

Skill: Application 20) Which of the following is NOT a reason why companies prefer to use the same message when launching a global advertising campaign?

A) to satisfy the regulatory standards of different governments B) to lower the cost by using the same message in a marketing campaign C) to allow for a more globally integrated message D) to create a more compelling message can be designed by pooling talent Answer: A Explanation: A) It is true that companies tailor products to meet the tastes, preferences, and cultural sensitivities of customers in foreign locations and that there are varying regulatory standards in different countries around the world. These factors would create the need for different messages to be used in different countries or regions around the world. Nonetheless, advertisers have many reasons why they prefer to use the same message whenever possible in all locations. This is because it is cheaper, the message created can be a more globally integrated communication, and, by pooling talent from various locations where the product is needed or desired, a more compelling message can be designed.

Diff: 3 Page Ref: 437 AACSB: Dynamics of the Global Economy Objective: 14-2 What are the different categories of advertising, and what role do these categories play in business and society?

Skill: Application

21) The phrase that BEST describes the purpose of public relations is ________.

A) to persuade potential customers to buy products B) to create and sustain brand recognition in the eyes of the general public C) to create and maintain a relationship between the organization and its stakeholders D) to inform the public about the products and services offered by an organization Answer: C Explanation: C) Public relations is the management function that establishes and maintains mutually beneficial relationships between an organization and its stakeholders, including consumers, stockholders, employees, suppliers, the government, and the public in general. In other words, public relations promotes the image of a company or an individual.

Diff: 3 Page Ref: 437-438 AACSB: Reflective Thinking Objective: 14-3 What are the various public relations tools essential to the marketing mix?

Skill: Conceptual 22) Which of the following is NOT one of the common public relations tools?

A) globally integrated messages B) controlled messages C) publicity messages D) semicontrolled messages Answer: A Explanation: A) Globally integrated communication messages are part of the promotional mix used to promote companies that are interested in informing a global audience about their products and persuading people in many parts of the world to purchase their products. Public relations uses controlled messages, semicontrolled messages, and publicity to create and maintain a positive business image. News about the business is transmitted in a controlled, semicontrolled, or uncontrolled way. Publicity is an uncontrolled means of transmitting information about a business through mass media at no charge.

Diff: 2 Page Ref: 438 AACSB: Reflective Thinking Objective: 14-3 What are the various public relations tools essential to the marketing mix?

Skill: Conceptual 23) Annual reports are an example of ________.

A) publicity campaigns B) controlled messages C) globally integrated messages D) print advertising Answer: B Explanation: B) A company may disseminate annual reports, brochures, flyers, and newsletters or provide films or speakers to send a controlled message to targeted audiences.

Diff: 2 Page Ref: 438 AACSB: Reflective Thinking Objective: 14-3 What are the various public relations tools essential to the marketing mix?

Skill: Application

24) Publicity that is made available to the mass media is an example of ________.

A) controlled messages B) uncontrolled messages C) globally integrated messages D) semicontrolled messages Answer: B Explanation: B) Public relations tools can be classified as either controlled, semicontrolled, or uncontrolled by the organization. Controlled messages are created by the organizations internally and the organization decides when the message will be delivered to the targeted audience.

Semicontrolled messages are placed on Web sites, in chat rooms, and on blogs, or they take the form of sponsorships of events, and thus what people say about the company is not regulated.

When people view these messages is also not controlled by the organization. Uncontrolled messages generally are in the form of publicity, which is made available to the mass media. The media can then use that publicity in any form and at any time it chooses to, and this is not controlled by the organization.

Diff: 3 Page Ref: 438 AACSB: Reflective Thinking Objective: 14-3 What are the various public relations tools essential to the marketing mix?

Skill: Conceptual 25) Which of the following is NOT an element of the promotional mix?

A) ethical hiring B) publicity C) advertising D) public relations Answer: A Explanation: A) Ethical hiring practices are a human resources concern. Public relations, using publicity and other tools, and advertising are key elements in the promotional mix.

Diff: 1 Page Ref: 429 AACSB: Reflective Thinking Objective: 14-3 What are the various public relations tools essential to the marketing mix?

Skill: Conceptual

26) When an Italian printing company hires an American salesperson to visit American publishers and present the advantages of printing with this Italian company, this is an example of ________.

A) public relations B) product advertising C) personal selling D) global thinking Answer: C Explanation: C) Personal selling is the direct communication between a salesperson and potential buyers. An American salesperson visiting publishers, who are potential buyers, is demonstrating personal selling for the Italian company that offers printing services. It is an example of operating in the global marketplace, however, it is not an example of global thinking because the American salesperson is acting on the part of the foreign company. Personal selling is very different from public relations and product advertising, which are different elements in the promotional mix.

Diff: 3 Page Ref: 440 AACSB: Reflective Thinking Objective: 14-4 What are the six steps in the personal selling process?

Skill: Application 27) ________ MOST effectively represent their companies by establishing good customer relationships that foster repeat business and long-term company success.

A) Company executives B) Salespeople C) Public relations staff D) Celebrities Answer: B Explanation: B) It is the job of salespeople to establish positive customer relationships. Public relations staff create messages, news, and publicity in various forms to promote a positive public image of the company; however, they rarely, if ever, come into direct contact with the public.

Company executives must promote a positive image of the business as well, however, the job of developing customer relationships is for the most part delegated to salespeople. Celebrities who provide company endorsements are not typically making one-on-one contact with customers. By establishing good customer relationships, salespeople are able to foster repeat business and thus contribute to long-term company success.

Diff: 3 Page Ref: 441 AACSB: Reflective Thinking Objective: 14-4 What are the six steps in the personal selling process?

Skill: Conceptual

28) Which of the following characteristics is NOT necessary in a truly professional salesperson?

A) the ability to deliver carefully prepared presentations B) the ability to negotiate details with skill C) the ability to express a vast range of product facts quickly D) being well-educated and well-trained Answer: C Explanation: C) The stereotype of the fast-talking salesperson is understandably a negative image because the faster a sales consultant is delivering a pitch, the less effective that effort will likely be. Customers expect a higher degree of professionalism and a salesperson must establish rapport with customers. A rapid delivery does not serve the purposes of personal selling well.

The ability to deliver carefully prepared presentations, the ability to negotiate details with skill, and being well-educated will contribute in a positive manner to the personal selling process.

Diff: 2 Page Ref: 441 AACSB: Reflective Thinking Objective: 14-4 What are the six steps in the personal selling process?

Skill: Application 29) The task referred to as creative selling is MOST often done by ________.

A) an order taker B) an order getter C) support personnel D) a sales clerk Answer: B Explanation: B) An order getter is able to increase a company's sales by selling to new customers and by increasing sales to existing customers. This task is also called creative selling.

An order taker is a salesperson who handles repeat sales and builds positive customer relationships. A sales clerk is an example of an order taker. Support personnel have the expertise to assist current customers with technical matters.

Diff: 2 Page Ref: 441 AACSB: Reflective Thinking Objective: 14-4 What are the six steps in the personal selling process?

Skill: Application 30) An example of business-to-business sales is ________.

A) selling grocery items to grocery stores B) selling evening gowns to Oscar award nominees C) selling a washing machine to a theatre company D) selling automobile insurance to a pet shop owner Answer: A Explanation: A) The sale of grocery items to grocery stores is the only example given that is not a retail sale. A business that sells grocery items to grocery stores is selling to another business, the grocery store, that will then sell the products at retail to consumers. All of the other examples include a purchaser that is the final consumer of the goods or services offered.

Diff: 1 Page Ref: 442 AACSB: Reflective Thinking Objective: 14-4 What are the six steps in the personal selling process?

Skill: Application

31) The first step in the selling process is ________.

A) production B) researching C) prospecting D) developing Answer: C Explanation: C) The product must be created before the selling process can begin, but it is not the first step. Prospecting for potential customers is the first step in the selling process because salespeople must have qualified potential customers to whom they will pitch products.

Approaching qualified potential customers is the next step. Research and development is not part of the personal selling process.

Diff: 2 Page Ref: 442 Objective: 14-4 What are the six steps in the personal selling process?

Skill: Conceptual 32) What is the BEST source of new leads for good salespeople?

A) trade shows B) current customers C) responses from target mailings D) Web site visitors Answer: B Explanation: B) Current customers have already shown an interest in the products offered and therefore there is a good chance they will become repeat customers. Current customers are also more likely than anyone else to act as salespeople themselves by recommending the products they are using or by referring potential customers to salespeople. People who come to trade shows, those who respond to target mailing, and people who have visited the company's Web site are all potential customers. None of these is as likely to purchase the products, though, as the current customer who purchases more products or the person that customer has spoken to on a one-on-one basis.

Diff: 3 Page Ref: 441 AACSB: Reflective Thinking Objective: 14-4 What are the six steps in the personal selling process?

Skill: Application

33) Which of the following actions is the LEAST likely way to make a good first impression with a potential customer?

A) meeting the prospect in a location convenient for the prospect B) greeting the potential customer in a friendly way C) asking the prospect a series of questions to learn about the potential customer's needs D) putting the potential customer at ease using any means that works Answer: C Explanation: C) Making a good first impression is essential to the process of building a longlasting relationship. Salespeople want to build these positive customer relationships and putting the potential customer at ease is of prime importance. Giving the prospect the opportunity to meet in a location that is convenient for the prospect and greeting the potential customer in a friendly way are two sure ways to make the potential customer feel at ease. As much as a salesperson would like to learn about the potential customer's needs, it is not advisable to ask the prospect a series of questions when first approaching the prospect because it will likely feel confrontational to the prospect and make that potential customer feel uncomfortable and ill at ease. It is advisable, however, to ask some questions rather than a series.

Diff: 3 Page Ref: 443 AACSB: Reflective Thinking Objective: 14-4 What are the six steps in the personal selling process?

Skill: Conceptual 34) What is the last step in the personal selling process?

A) closing the sale B) following up C) meeting customer's needs D) asking for referrals Answer: B Explanation: B) Building and nurturing customer relationships is key to the selling process and after the sale has been closed it is important to follow up in order to encourage the potential for repeat business, referrals, and/or testimonials. A salesperson will want to know whether the customer is satisfied with the product or service and will want to develop further rapport with the customer. Following up takes place after the sale is closed and after as many of the needs of the customer have been met as could be accomplished with that sale. It is sometimes acceptable to ask for referrals as part of the follow up. Asking for referrals is not always advisable, though, and is therefore not a step in the personal selling process.

Diff: 3 Page Ref: 444 AACSB: Reflective Thinking Objective: 14-4 What are the six steps in the personal selling process?

Skill: Conceptual

35) Which of the following is an example of a sales promotion?

A) a perfume sample inserted in the pages of a magazine B) a rebate offer on an ink-jet printer C) a television spot claiming the health benefits of a new energy drink D) a press release emphasizing the quality of workmanship of Adirondack chairs Answer: B Explanation: B) A rebate offer on an ink-jet printer is typically a short-term offer that targets consumers who already have an interest in the product. Such a rebate offer will generally remind targeted customers about the product. A perfume sample inserted in the pages of a magazine is using the product itself as a promotional tool. The rebate offer is using the sales promotion as a promotional tool. A television spot is a form of advertising, which is a different promotional tool.

And a press release is a form of public relations, yet another promotional tool. Among these choices the rebate offer is the only example of a sales promotion.

Diff: 3 Page Ref: 444 AACSB: Reflective Thinking Objective: 14-5 What are the two main types of sales promotions, and what types of tools are commonly used as incentives?

Skill: Application 36) When credit card companies offer programs where customers can redeem points accumulated from purchases made using the credit card, this is an example of which type of sales promotion?

A) contests and sweepstakes B) frequent-user incentives C) rebates D) premiums Answer: B Explanation: B) Credit card companies attempt to encourage customer loyalty and repeat business by using frequent-user incentives. When customers can redeem points accumulated from purchases made this encourages customers to use the card more frequently. When the customer uses those earned points to receive other products, the customer has the impression that these products are free. Contests and sweepstakes, rebates, and premiums are all very different ways that companies promote sales.

Diff: 2 Page Ref: 445 AACSB: Reflective Thinking Objective: 14-5 What are the two main types of sales promotions, and what types of tools are commonly used as incentives?

Skill: Application

37) The MOST popular consumer promotional tool is ________.

A) coupons B) free samples C) rebates D) premiums Answer: A Explanation: A) Coupons are found in print ads, on packages, in direct mail, at checkout counters, and on the Internet. They are used to encourage the purchase of a new product or generate repeat sales. Coupons are the most common and popular consumer promotional tools because consumers like the sense of getting a bargain.

Diff: 2 Page Ref: 445 Objective: 14-5 What are the two main types of sales promotions, and what types of tools are commonly used as incentives?

Skill: Conceptual 38) What is the BEST way to get current users of a product to use it in a new way?

A) premiums B) advertising specialties C) free samples D) bonuses Answer: C Explanation: C) When a free sample is available where the product is sold, customers can be introduced to new ways to use the product. The customer is in the place where the product is normally purchased and may be considering purchasing the product on that occasion, and when a free sample is offered, particularly if it is presented in a different manner from the way it is commonly used, the customer will have more incentive to purchase the product. Premiums, advertising specialties, and bonuses are sales promotion tools that do not present new ways to use products.

Diff: 2 Page Ref: 445 AACSB: Reflective Thinking Objective: 14-5 What are the two main types of sales promotions, and what types of tools are commonly used as incentives?

Skill: Application

39) Key rings, t shirts, coffee mugs, and bottle openers with the Pepsi logo printed on them that are given away free at high school sports events where Pepsi is sold are examples of ________.

A) advertising specialties B) bonuses C) special events D) free samples Answer: A Explanation: A) When Pepsi creates inexpensive items like key rings and coffee mugs with the Pepsi logo on them and gives them away free at high school sports events, the items will, in most cases, be taken home, used again and again, and will serve as advertising for Pepsi products for a long time. They encourage brand recognition and identification. These items are called advertising specialties and provide the company with free advertising when used by the recipient.

When they are made available at high school events, the young people in the audience may be influenced to become Pepsi customers for many future years of their lives.

Diff: 3 Page Ref: 446 AACSB: Analytic Skills Objective: 14-5 What are the two main types of sales promotions, and what types of tools are commonly used as incentives?

Skill: Application 40) A free trip to Hawaii for salespeople who sell the greatest quantity of a product is an example of a ________.

A) premium B) free sample C) sales contest D) trade allowance Answer: C Explanation: C) A sales contest is a trade sales promotional tool because it is offered to people in the trade. It is a business-to-business promotional offering. Free samples can be offered to consumers or to business colleagues; however, this free trip to Hawaii is not a free sample of the product, it is an incentive. This free trip is not a premium, which is a consumer sales promotion tool. And it is not a trade allowance, which would be a deal or price reduction on a product.

Diff: 2 Page Ref: 446 AACSB: Reflective Thinking Objective: 14-5 What are the two main types of sales promotions, and what types of tools are commonly used as incentives?

Skill: Application

41) Trade shows and conventions, cooperative advertising, sales contests, quantity discounts, and free merchandise are ________ tools.

A) trade sales promotional B) marketing C) consumer sales promotion D) public relations Answer: A Explanation: A) These are all tools that are used to generate enthusiasm about a company's products among the other businesses that may become interested in carrying and promoting its products. These are sales promotional tools and they will promote a product to other businesses.

Marketing tools, consumer sales promotion tools, and public relations tools are all used to promote a product to consumers.

Diff: 2 Page Ref: 446 AACSB: Analytic Skills Objective: 14-5 What are the two main types of sales promotions, and what types of tools are commonly used as incentives?

Skill: Conceptual 42) Which of the following is NOT one of the four main options in the promotional mix?

A) personal selling B) branding C) advertising D) public relations Answer: B Explanation: B) The four main options in the promotional mix are advertising, public relations, personal selling, and sales promotions. All of these options, particularly advertising, take advantage of brand recognition to encourage brand loyalty, association, and awareness. Branding is an aspect of marketing that creates an identity for a company that distinguishes it from other businesses, particularly competitors. Branding is a process that takes place before sales promotions take place.

Diff: 1 Page Ref: 447 AACSB: Reflective Thinking Objective: 14-5 What are the two main types of sales promotions, and what types of tools are commonly used as incentives?

Skill: Conceptual

43) Which of the following statements about advertising in glossy magazines is TRUE? A) Advertising in glossy magazines is a good short-term tactical tool.

B) Advertising in glossy magazines communicates complex products easily and efficiently.

C) Advertising in glossy magazines reaches a higher market segmentation.

D) Advertising in glossy magazines has little competition for attention.

Answer: C Explanation: C) Advertising in glossy magazines has other advantages such as high-quality color, long life, longer attention span, and high credibility. The disadvantages include declining readership, lots of competition for attention, high cost, and long ad-purchase lead time.

Diff: 3 Page Ref: 435 AACSB: Reflective Thinking Objective: 14-5 What are the two main types of sales promotions, and what types of tools are commonly used as incentives?

Skill: Application 44) Which promotional tool BEST provides an inexpensive way to reach many customers?

A) advertising B) public relations C) personal selling D) sales promotions Answer: B Explanation: B) Press releases and various forms of publicity are free. Producing brochures and annual reports have costs attached to them, however, those costs are minimal compared to print advertising, especially in glossy magazines, and television spots. Press releases, brochures, annual reports, various forms of publicity, and other public relations tools reach the media and members of the public at the least cost compared to advertising, personal selling, and sales promotions.

Diff: 2 Page Ref: 439 AACSB: Reflective Thinking Objective: 14-5 What are the two main types of sales promotions, and what types of tools are commonly used as incentives?

Skill: Conceptual

45) Wholesalers are intermediaries that do NOT resell products to ________.

A) industrial users B) final consumers C) retailers D) wholesalers Answer: B Explanation: B) Wholesalers are intermediaries that buy and resell products to other wholesalers, retailers, and industrial users. They are different from retailers, such as Target, because retailers sell products only to final consumers.

Diff: 2 Page Ref: 452 AACSB: Analytic Skills Objective: 14-6 Why are marketing intermediaries and distribution channels important elements in marketing?

Skill: Conceptual 46) eBay, which never owns the various items it sells, can be considered ________.

A) a retailer B) an agent/broker C) a distribution channel D) an outlet Answer: B Explanation: B) An agent/broker facilitates the transfer of ownership from sellers to buyers and this is what eBay does. However, agent/brokers do not take title or ownership of the products that are being traded. A retailer buys products for resale, which eBay does not do. A distribution channel is the entire set of marketing intermediaries who are buying, selling, and transferring ownership of goods. An outlet is a location where goods are sold.

Diff: 2 Page Ref: 449 AACSB: Reflective Thinking Objective: 14-6 Why are marketing intermediaries and distribution channels important elements in marketing?

Skill: Application

47) ________ determine what number of intermediaries will be required to achieve the greatest level of efficiency.

A) Marketing demands B) Competitive markets C) Manufacturers D) Retail salespeople Answer: B Explanation: B) The number of intermediaries depends on whether adding a link to the chain in the distribution system will increase efficiency or add value in bringing the product to the customer. It is competitive markets that will determine what that number of intermediaries will be. Marketing demands have to do with informing and persuading potential customers about the products and have little to do with the distribution channels. Manufacturers and retail salespeople are part of the process of bringing the product from the company where it is created to the consumers, and they do not determine the number of intermediaries that will be most efficient.

Diff: 3 Page Ref: 451 AACSB: Reflective Thinking Objective: 14-6 Why are marketing intermediaries and distribution channels important elements in marketing?

Skill: Conceptual 48) Wholesalers buy and resell products to all of the following EXCEPT ________.

A) wholesalers B) individual consumers C) retailers D) industrial users Answer: B Explanation: B) Industrial users, retailers, and other wholesalers receive goods and other products; therefore, wholesalers buy and resell products to all of them. Wholesales do not resell products directly to individual consumers, nor do they buy products from individual consumers.

Diff: 2 Page Ref: 449, 451, 452 AACSB: Reflective Thinking Objective: 14-7 What types of services do agent/brokers and wholesalers provide?

Skill: Conceptual

49) When wholesalers take title to merchandise and bear the costs of theft, damage, spoilage, and obsolescence, they are providing ________ to retailers.

A) management service B) risk bearing service C) warehousing D) financing Answer: B Explanation: B) Wholesalers absorb risk by taking title to merchandise. The financing service wholesalers provide to retailers is by giving credit, financing manufacturing by ordering early, and by paying bills on time. The warehousing wholesalers offer benefits retailers by reducing inventory costs and risks of suppliers and retailers when they hold inventories. Wholesalers help retailers train salespeople, improve store layouts and displays, and they often help set up accounting and inventory control systems as part of the management service and advice they provide.

Diff: 1 Page Ref: 452 AACSB: Reflective Thinking Objective: 14-7 What types of services do agent/brokers and wholesalers provide?

Skill: Application 50) What type of wholesaler operates mainly in bulk industries like lumber, coal, and heavy equipment?

A) rack jobbers B) truck wholesalers C) drop shippers D) cash-and-carry wholesalers Answer: C Explanation: C) Drop shippers operate in these bulk industries because they don't handle the product. They are middlemen who receive orders, select the manufacturer, and the manufacturer ships the merchandise directly to the customer. Rack jobbers serve supermarkets and drugstores mostly in nonfood items by sending delivery trucks to stores and providing delivery people who set up the displays in the stores. Truck wholesalers sell and deliver products, for example, softdrink trucks that deliver bottled and canned beverages to supermarkets and restaurants. Cashand-carry wholesalers have the inventory available at a fixed location and retailers pick up the products they need, usually fast-moving goods, purchasing them on the spot for cash.

Diff: 2 Page Ref: 453 Objective: 14-7 What types of services do agent/brokers and wholesalers provide?

Skill: Application

51) Soft-drink trucks that deliver to supermarkets and restaurants are truck wholesalers that perform primarily a(n) ________ function.

A) warehouse-and-deliver B) sell-and-deliver C) risk-bearing-and-warehouse D) order-and-deliver Answer: B Explanation: B) Truck wholesalers or truck jobbers deliver products by truck. Warehousing is not one of their primary functions. Purchasing the inventory in advance and absorbing the risk for it is not one of their primary functions. And ordering products is not one of their tasks. They sell beverages to supermarkets and restaurants and deliver them.

Diff: 1 Page Ref: 453 AACSB: Analytic Skills Objective: 14-7 What types of services do agent/brokers and wholesalers provide?

Skill: Conceptual 52) Which of the following is NOT a common type of agent?

A) manufacturers' agent B) distributors' agent C) selling agent D) purchasing agent Answer: B Explanation: B) Manufacturers' agents represent two or more manufacturers and are usually small businesses with only a few skilled salespeople. Selling agents serve as the sales department for a manufacturer and have contractual authority to sell the manufacturer's entire product line.

Purchasing agents help buyers make purchases and provide market information so they are able to obtain the best quality goods at the best possible prices. An agent for distributors is not a common type of agent.

Diff: 1 Page Ref: 453 AACSB: Reflective Thinking Objective: 14-7 What types of services do agent/brokers and wholesalers provide?

Skill: Conceptual

53) Terry North represents a Dutch manufacturer of equipment for the production of chocolate candy bars. He is a(n) ________ agent.

A) selling B) purchasing C) manufacturing D) industrial Answer: A Explanation: A) Terry North is serving as the sales department for the Dutch equipment manufacturer; therefore, he is the selling agent for that company. He is not making purchases for buyers; therefore, he is not a purchasing agent. He is not representing two or more manufacturers and is not in one of the typical lines of business that manufacturers' agents work in: apparel, furniture, and electrical goods. And he is not an industrial agent, a type of agent that is not common.

Diff: 1 Page Ref: 453 AACSB: Reflective Thinking Objective: 14-7 What types of services do agent/brokers and wholesalers provide?

Skill: Application 54) Manufacturers' agents are MOST LIKELY used in such lines as ________.

A) apparel, furniture, and electrical goods B) printing equipment, appliances, and heavy machinery C) coal, chemicals, and metals D) grocery items, drug store items, and salon supplies Answer: A Explanation: A) The typical lines of business that manufacturers' agents work in are apparel, furniture, and electrical goods. Selling agents are common in the industrial machinery and equipment businesses. Selling agents also serve as the sales department for coal, chemicals, and metals businesses. Manufacturers' agents are not often used in such lines as grocery items, drug store items, and salon supplies.

Diff: 2 Page Ref: 453 AACSB: Analytic Skills Objective: 14-7 What types of services do agent/brokers and wholesalers provide?

Skill: Application

55) When there is only one outlet for a line of products in a given geographic area, this is called ________.

A) exclusive distribution B) selective distribution C) intensive distribution D) limited distribution Answer: A Explanation: A) When only one outlet for a line of products is used this is called exclusive distribution. Sellers typically undertake this type of distribution for products that carry a certain degree of prestige. Selective distribution is used when buyers must be provided with information on features of the products in order to make the sale. And selective distribution is appropriate when customers need other services, such as installation. Intensive distribution is used when products should be sold with the widest possible exposure in the market. Both exclusive distribution and selective distribution are examples of limited distribution, however, exclusive distribution is the type of distribution that applies to the use of only one outlet in a given geographic area.

Diff: 2 Page Ref: 456 AACSB: Reflective Thinking Objective: 14-7 What types of services do agent/brokers and wholesalers provide?

Skill: Conceptual 56) When selling convenience goods such as tobacco, newspapers, chewing gum, and potato chips to convenience stores, companies often decide to sell through all available outlets. This is ________.

A) selective distribution B) intensive distribution C) broad-based distribution D) exclusive distribution Answer: B Explanation: B) Intensive distribution is used when companies want products to be sold through all available retail outlets. These products should be convenient for purchase and therefore available at as many outlets as possible. Selective distribution and exclusive distribution are more limited. Broad-based distribution is not a term that applies to the distribution of convenience goods.

Diff: 1 Page Ref: 456 AACSB: Reflective Thinking Objective: 14-7 What types of services do agent/brokers and wholesalers provide?

Skill: Application

57) Zenith has introduced a flat-screen television and is training salespeople in a limited number of stores where this new model will be sold. This is called ________.

A) limited distribution B) exclusive distribution C) selective distribution D) intensive distribution Answer: C Explanation: C) Selective distribution is used for products like televisions because buyers spend more time comparing competitors' prices and features; therefore, they need more information in order to differentiate between one brand and another. Producers selectively determine which outlets are best for their products and then often train salespeople in order to ensure the best service. No other distribution method is appropriate for this type of product and approach to sales.

Diff: 2 Page Ref: 456 AACSB: Reflective Thinking Objective: 14-7 What types of services do agent/brokers and wholesalers provide?

Skill: Application 58) Target is an example of a ________.

A) factory outlet B) category killer C) discount store D) department store Answer: C Explanation: C) Target offers low prices because it operates with lower profit margins and sells higher volume of goods than department stores. Target is not owned and operated by a manufacturer so it is not a factory outlet. Target does not sell a particular product line, it sells a broad range of products, so it is not a category killer. And Target sells greater volume than a department store so it is not that type of store.

Diff: 1 Page Ref: 454 AACSB: Reflective Thinking Objective: 14-7 What types of services do agent/brokers and wholesalers provide?

Skill: Application

59) L.L. Bean and Lands' End are examples of businesses that sell products through catalogs and bypass intermediaries. This method of selling is called ________.

A) direct selling B) direct marketing C) convenient shopping D) retailing Answer: B Explanation: B) Direct selling refers to the sale of goods and services door-to-door at people's homes and office. L.L. Bean and Lands' End do not sell products that way. Direct marketing is the type of retailing they use, selling directly to customers through catalogues and using the Internet. The terms convenient shopping and retailing are not appropriate as answers to this question.

Diff: 2 Page Ref: 455 AACSB: Analytic Skills Objective: 14-7 What types of services do agent/brokers and wholesalers provide?

Skill: Application 60) In supply-chain management, the logistics of obtaining all the necessary inputs, such as raw materials and supplies, that go into a production process is called ________.

A) inbound logistics B) materials handling C) outbound logistics D) reverse logistics Answer: A Explanation: A) Managing physical distribution, getting products to their destinations, is called outbound logistics. The other end of the process, inbound logistics, is the process of obtaining all the necessary inputs that go into a production process. Material handling is part of the process of managing the actual production process. And reverse logistics is the process of bringing products back to the producer when they are defective, overstocked, outdated, or being returned for recycling.

Diff: 2 Page Ref: 456 AACSB: Reflective Thinking Objective: 14-8 Why are retailing and physical distribution key aspects of distribution?

Skill: Conceptual

61) Warehousing is critical for ________.

A) intensive distribution B) materials handling C) direct selling D) customer service Answer: D Explanation: D) Warehousing is the storing of products at convenient locations ready for customers when they are needed. In order to maximize customer service, it is essential to have products ready for customers.

Diff: 3 Page Ref: 457 AACSB: Reflective Thinking Objective: 14-8 Why are retailing and physical distribution key aspects of distribution?

Skill: Conceptual 62) ________ is the MOST expensive distribution cost.

A) Packing B) Warehousing C) Transportation D) Accounting Answer: C Explanation: C) There are many factors a company must take into consideration when choosing a transportation method for its products, like speed, dependability, flexibility in handling products, frequency of shipments, and accessibility to markets. Overall, though, the transportation of products is the most expensive distribution cost, more expensive than packing, warehousing, or accounting services.

Diff: 2 Page Ref: 457 AACSB: Reflective Thinking Objective: 14-8 Why are retailing and physical distribution key aspects of distribution?

Skill: Conceptual 63) What is MOST often the lowest cost transportation mode?

A) railroads B) waterways C) trucks D) airways Answer: B Explanation: B) Shipping by waterway, rivers, lakes, and other bodies of water is the least expensive transportation mode. Airways are the most expensive, trucks are somewhat less expensive than airways, though both use fossil fuels, and railroads are less expensive than either of those methods, yet still more expensive than waterways.

Diff: 2 Page Ref: 457 AACSB: Reflective Thinking Objective: 14-8 Why are retailing and physical distribution key aspects of distribution?

Skill: Application

64) Which transportation mode MOST often has the highest accessibility to markets?

A) railroads B) waterways C) trucks D) airways Answer: C Explanation: C) Trucks typically have the highest accessibility to markets because trucks travel roadways and customers are traveling the same roadways, therefore, markets are located where they are convenient to roadways. Few markets are located where they are more convenient to railroads than to automobile roadways, to boat traffic, or to airports.

Diff: 1 Page Ref: 457 AACSB: Reflective Thinking Objective: 14-8 Why are retailing and physical distribution key aspects of distribution?

Skill: Application 65) The marketing objective or goal of all businesses is to increase profits; therefore, the goal of all promotional campaigns is the same.

Answer: FALSE Explanation: Promotional campaigns have many different marketing objectives. Increasing profits is only one of them. Other marketing objectives include maximizing sales or market share, building traffic or brand awareness, introducing a new product or responding to an attack by a competitor.

Diff: 1 Page Ref: 430 AACSB: Reflective Thinking Objective: 14-1 What is a promotional mix, and what is its function in a promotional campaign?

Skill: Conceptual 66) Advertising is paid, impersonal mass communication from an identified sponsor to persuade or influence a targeted audience.

Answer: TRUE Explanation: Advertising is one of the promotional tools designed to communicate with potential customers. It is a mass communication technique where brand awareness is critical in identifying the company that has produced the product as well as associating the product with that brand. The purpose of advertising is to persuade or influence the potential customers who have been identified as the target audience.

Diff: 1 Page Ref: 432 Objective: 14-2 What are the different categories of advertising, and what role do these categories play in business and society?

Skill: Conceptual

67) Advertising is important in the maturity stage of a business because it helps build mass brand awareness and brand association.

Answer: FALSE Explanation: Advertising is especially important in the introduction and growth stages of a product's life cycle when it helps build mass brand awareness and brand association. In the maturity stage of a business it is more successful at stressing product differentiation.

Diff: 2 Page Ref: 432 Objective: 14-2 What are the different categories of advertising, and what role do these categories play in business and society?

Skill: Conceptual 68) Companies that sell products such as laundry detergents and dishwashing liquids do not spend a lot on advertising because there are such strong brand loyalties that it would be a waste of their corporate dollars.

Answer: FALSE Explanation: Companies that sell products such as laundry detergents and dishwashing liquids spend enormous sums of money on advertising. For example, Procter & Gamble Co., which manufactures many of these products, was the leading national advertiser in 2007. These companies are constantly vying with each other in this intensely competitive market.

Diff: 2 Page Ref: 432 AACSB: Reflective Thinking Objective: 14-2 What are the different categories of advertising, and what role do these categories play in business and society?

Skill: Application 69) Grocery store advertising is one of the largest marketing segments in the economy.

Answer: FALSE Explanation: Retail or local advertising that focuses on attracting customers to a particular grocery store, for example, is not one of the largest marketing segments in the economy.

However, direct mail advertising is the advertising media that is one of the largest forms of advertising.

Diff: 2 Page Ref: 434 AACSB: Reflective Thinking Objective: 14-2 What are the different categories of advertising, and what role do these categories play in business and society?

Skill: Conceptual 70) One of the disadvantages of Internet advertising is that it is difficult to measure how many people see the advertisement.

Answer: FALSE Explanation: Thanks to Web technology, it is easy to measure the responses to Internet advertising.

Diff: 2 Page Ref: 436 Objective: 14-2 What are the different categories of advertising, and what role do these categories play in business and society?

Skill: Application

71) Since fewer and fewer people read magazines, advertising in magazines is considered more of a risk because of the high cost and the fact that advertisements will appear with those of competitors.

Answer: TRUE Explanation: Magazines are among the modern forms of traditional media. It is a very expensive way to advertise because the glossy paper and the full-color printing are costly. Readership is declining so advertising in magazines is considered more of a risk.

Diff: 2 Page Ref: 435 Objective: 14-2 What are the different categories of advertising, and what role do these categories play in business and society?

Skill: Application 72) Most products have to be customized to satisfy foreign customers.

Answer: TRUE Explanation: The globalization of advertising is an important trend. Most products have to be customized to satisfy foreign customers. This means that products are tailored to meet the unique local tastes, preferences, and cultural sensitivities of foreign customers or satisfy the regulatory standards of different governments around the globe.

Diff: 3 Page Ref: 437 AACSB: Dynamics of the Global Economy Objective: 14-2 What are the different categories of advertising, and what role do these categories play in business and society?

Skill: Conceptual 73) Although domestic market segmentation is effective, customized advertising campaigns to global markets are not segmented because marketers realize they do not work better.

Answer: FALSE Explanation: On the contrary, marketers are increasingly realizing that customized advertising campaigns to globally segmented markets are much more successful, just as domestic market segmentation is more effective.

Diff: 2 Page Ref: 437 AACSB: Dynamics of the Global Economy Objective: 14-2 What are the different categories of advertising, and what role do these categories play in business and society?

Skill: Conceptual 74) One of the goals of public relations campaigns is to correct misperceptions the public may have about the organization.

Answer: TRUE Explanation: Using controlled, semicontrolled, and uncontrolled messages, it is the goal of public relations programs to build a positive business image. This includes the effort to correct misperceptions the public may have about the organization through informational tools and publicity.

Diff: 2 Page Ref: 438 Objective: 14-3 What are the various public relations tools essential to the marketing mix?

Skill: Conceptual

75) Publicity is information about an individual, organization, or product transmitted through mass media at minimal charge.

Answer: FALSE Explanation: Publicity is information that is transmitted at no charge. The fact that it is free is one of its advantages. Another advantage of publicity is that it is presented as a news story, which makes it more believable.

Diff: 2 Page Ref: 439 AACSB: Reflective Thinking Objective: 14-3 What are the various public relations tools essential to the marketing mix?

Skill: Application 76) Public relations is not in charge of damage control.

Answer: FALSE Explanation: Damage control is a company's effort to minimize the harmful effects of a negative event. It is the responsibility of public relations personnel to manage issues such as these because negative publicity caused by a negative event, for example, can tear down a firm's image in a matter of days.

Diff: 2 Page Ref: 439 AACSB: Reflective Thinking Objective: 14-3 What are the various public relations tools essential to the marketing mix?

Skill: Application 77) When companies give back to the community through donations or scholarship programs, it not only cost them money, but if often brings money into the company as well.

Answer: TRUE Explanation: When people believe that some of the money being used for the purchase of products is being used to give back to the community, they are more likely to want to purchase products from that company, bringing more money to the company.

Diff: 1 Page Ref: 439-440 AACSB: Reflective Thinking Objective: 14-3 What are the various public relations tools essential to the marketing mix?

Skill: Conceptual 78) The marketing staff is MOST often the first contact point for many customers.

Answer: FALSE Explanation: It is most often the sales staff who is the first point of contact for most customers.

Diff: 2 Page Ref: 441 AACSB: Reflective Thinking Objective: 14-4 What are the six steps in the personal selling process?

Skill: Conceptual

79) Some salespeople are the top earners of their companies.

Answer: TRUE Explanation: Personal selling requires highly skilled professionals to be successful. Therefore, the truly professional salespeople who can deliver carefully prepared presentations, establish rapport with customers, and negotiate details with skill are paid very well. Some salespeople even earn more than the CEOs of their companies.

Diff: 3 Page Ref: 441 Objective: 14-4 What are the six steps in the personal selling process?

Skill: Conceptual 80) Personal selling is preferred over advertising when selling a technically complex product.

Answer: TRUE Explanation: Generally, personal selling is preferred over advertising when a high-value, custom-made, or technically complex product is being offered for sale.

Diff: 3 Page Ref: 441 AACSB: Reflective Thinking Objective: 14-4 What are the six steps in the personal selling process?

Skill: Application 81) When making a multimedia presentation about a product, talking and spelling out the facts is much more important than listening in order to be sure the potential customer understands what you are offering.

Answer: FALSE Explanation: Listening is more important than talking. In order to serve customers better and build good customer relationships, listening to customers is one of the most important skills.

Learning as much as possible about potential customers and determining how to satisfy their actual or likely needs requires good listening skills. Listening is more important than talking. It is not possible to serve a customer until that customer's needs or problems are fully understood.

Diff: 2 Page Ref: 443 AACSB: Reflective Thinking Objective: 14-4 What are the six steps in the personal selling process?

Skill: Conceptual 82) After making a successful presentation, a salesperson should have no need to overcome objections.

Answer: FALSE Explanation: Objections to buying are common. Good salespeople anticipate objections and are prepared to discuss them and come up with alternative ways of looking at the issues.

Overcoming objections provides an opportunity to develop a good relationship between the salesperson and the prospect.

Diff: 2 Page Ref: 443 AACSB: Reflective Thinking Objective: 14-4 What are the six steps in the personal selling process?

Skill: Conceptual

83) Sales promotions are long-term activities that target consumers and other businesses for the purpose of generating interest in a product.

Answer: FALSE Explanation: Sales promotions are actually short-term activities designed to inform, persuade, and remind targeted customers about a product.

Diff: 2 Page Ref: 444 Objective: 14-5 What are the two main types of sales promotions, and what types of tools are commonly used as incentives?

Skill: Conceptual 84) Rebates are an inexpensive way for businesses to promote sales because most people do not redeem the rebates.

Answer: TRUE Explanation: Rebates allow a customer to get a reduced price for a product if the rebate form is mailed in with a proof of purchase. They are inexpensive because people usually do not redeem the rebates.

Diff: 1 Page Ref: 445 AACSB: Reflective Thinking Objective: 14-5 What are the two main types of sales promotions, and what types of tools are commonly used as incentives?

Skill: Application 85) Consumer sales promotions are becoming more common because they help segment markets and they are cost-effective.

Answer: TRUE Explanation: Consumer sales promotion tools such as coupons, rebates, frequent-user incentives, point-of-purchase displays, free samples, contests and sweepstakes, advertising specialties, bonuses, catalogues, and lotteries are becoming more common and more diverse. They do help segment the market and they are cost effective; some are even quite inexpensive.

Diff: 2 Page Ref: 446 Objective: 14-5 What are the two main types of sales promotions, and what types of tools are commonly used as incentives?

Skill: Conceptual 86) Marketing intermediaries are also referred to as middlemen or resellers.

Answer: TRUE Explanation: A marketing intermediary, formerly known as a middleman, is a business or person who moves goods and services between producers and consumers (in a B2C environment) or between business users (in a B2B environment).

Diff: 1 Page Ref: 449 Objective: 14-6 Why are marketing intermediaries and distribution channels important elements in marketing?

Skill: Conceptual

87) Intermediaries that facilitate negotiations between buyers and sellers of goods and services but never take ownership of products traded are called retailers.

Answer: FALSE Explanation: Agents/brokers are the intermediaries who facilitate negotiations between buyers and sellers of goods and services but never take title, or ownership, of the products traded.

Diff: 2 Page Ref: 449 AACSB: Reflective Thinking Objective: 14-6 Why are marketing intermediaries and distribution channels important elements in marketing?

Skill: Application 88) Intermediaries must cover the costs incurred at each link in the distribution channel and earn a profit to remain in business. This causes the consumer to pay higher prices for products.

Answer: TRUE Explanation: Each link in the distribution channel incurs costs and intermediaries must cover these costs. These costs and the higher prices consumers must pay are usually less than the time and money consumers would have to spend to obtain the products directly from the manufacturer. Therefore, although the consumer must pay higher prices for products, those costs are offset by the value added.

Diff: 2 Page Ref: 449 AACSB: Reflective Thinking Objective: 14-6 Why are marketing intermediaries and distribution channels important elements in marketing?

Skill: Conceptual 89) Wholesalers sell only business-to-business products, while retailers sell primarily consumer products.

Answer: FALSE Explanation: Wholesalers sell primarily business-to-business products. Wholesalers are intermediaries who buy and resell products to other wholesalers, to retailers, and to industrial users. Retailers only sell consumer products to final consumers.

Diff: 2 Page Ref: 452 AACSB: Analytic Skills Objective: 14-7 What types of services do agent/brokers and wholesalers provide?

Skill: Conceptual 90) Wholesalers are independently owned businesses that do not take ownership (title) of the products they handle.

Answer: FALSE Explanation: Wholesalers, also known as merchant wholesalers, are independently owned businesses who do take ownership or title of the products they handle.

Diff: 1 Page Ref: 452 AACSB: Reflective Thinking Objective: 14-7 What types of services do agent/brokers and wholesalers provide?

Skill: Conceptual

91) Wholesalers often help retailers train their sales clerks, improve store layouts and displays, and set up accounting and inventory control systems.

Answer: TRUE Explanation: One of the services wholesalers provide to retailers is management and advice. In this capacity they often help retailers train sales clerks, improve store layouts and displays, and set up accounting and inventory control systems.

Diff: 2 Page Ref: 452 AACSB: Reflective Thinking Objective: 14-7 What types of services do agent/brokers and wholesalers provide?

Skill: Application 92) Wholesalers often withhold information about competitors, new products, and price developments in order to protect their relationships with other accounts they are distributing.

Answer: FALSE Explanation: Wholesalers often deal with many different manufacturers and retail outlets, therefore, they are in a unique position to provide market information to retailers and manufacturers they deal with. They can provide information about competitors, new products and price developments, for example.

Diff: 3 Page Ref: 452 AACSB: Analytic Skills Objective: 14-7 What types of services do agent/brokers and wholesalers provide?

Skill: Conceptual 93) Limited-service wholesalers usually operate at a higher cost than industrial distributors because they deal directly with retailers.

Answer: FALSE Explanation: There are four major types of limited-service wholesalers. Limited-service wholesalers offer fewer services than full-service wholesalers. Because of their limited functions, limited-service wholesalers usually operate at a lower cost than wholesale merchants and industrial distributors.

Diff: 2 Page Ref: 452 AACSB: Reflective Thinking Objective: 14-7 What types of services do agent/brokers and wholesalers provide?

Skill: Conceptual 94) Sellers of expensive jewelry often require distributors to carry a full line of inventory.

Answer: TRUE Explanation: Sellers of expensive high-quality jewelry generally undertake exclusive distribution, the use of only one outlet in a geographic area. This is because these products carry a certain degree of prestige. Sellers often require distributors to carry a full line of inventory, offer distinguished high-quality service, and meet other exclusive requirements.

Diff: 3 Page Ref: 456 AACSB: Reflective Thinking Objective: 14-7 What types of services do agent/brokers and wholesalers provide?

Skill: Application

95) What is a target market?

Answer: A specific group of potential customers on which to focus marketing efforts.

Identifying these customers is the first step in any promotional campaign.

Diff: 3 Page Ref: 430 AACSB: Reflective Thinking Objective: 14-1 What is a promotional mix, and what is its function in a promotional campaign?

Skill: Conceptual 96) When creating a promotional campaign, what should a business keep in mind when designing the message?

Answer: The message should inform customers of the benefits of the business's product and be echoed by all elements of the promotional mix to give a unified message.

Diff: 2 Page Ref: 430 Objective: 14-1 What is a promotional mix, and what is its function in a promotional campaign?

Skill: Conceptual 97) What does the expression "the biggest bang for the buck" refer to when discussing an effective promotional campaign?

Answer: The best combination of promotional activities can be determined when a budget is created and the message has the greatest possible impact on the target market.

Diff: 2 Page Ref: 430 Objective: 14-1 What is a promotional mix, and what is its function in a promotional campaign?

Skill: Conceptual 98) What is an integrated marketing communication (IMC) and why is it important to an organization?

Answer: An IMC is a strategy to deliver a clear, consistent, and unified message about the company and its products to customers at all contact points. It is essential that all members of the marketing team work together to foster and sustain a consistent and compelling message to create a positive brand image. Consistency nurtures good customer relations and repeat business.

In short, everyone in the organization needs to be on the same page and communicate with one voice.

Diff: 3 Page Ref: 431 AACSB: Reflective Thinking Objective: 14-1 What is a promotional mix, and what is its function in a promotional campaign?

Skill: Conceptual 99) What is the purpose of promoting a product?

Answer: to persuade customers to purchase the good, service, or idea Diff: 2 Page Ref: 429 AACSB: Reflective Thinking Objective: 14-1 What is a promotional mix, and what is its function in a promotional campaign?

Skill: Conceptual

100) Although it is costly, advertising often leads to lower prices for consumers. Explain why.

Answer: Advertising is a mass-marketing tool. The more people know about a product and like it, the higher its sales and the greater its production level. The greater the production level, the lower the price per item.

Diff: 3 Page Ref: 432 AACSB: Analytic Skills Objective: 14-2 What are the different categories of advertising, and what role do these categories play in business and society?

Skill: Conceptual 101) The Dove Campaign for Real Beauty caused quite a stir because it went against the grain in 2005. Explain how this happened and what the impact has been.

Answer: Instead of using traditional models, Dove recruited women of all different ages, shapes, and sizes to appear in advertisements for its products. The goal of the campaign was to broaden people's perception of beauty. It has been a success overall, generating a great deal of publicity and sales for Dove and its products.

Diff: 3 Page Ref: 404 AACSB: Ethical Understanding and Reasoning Abilities Objective: 14-2 What are the different categories of advertising, and what role do these categories play in business and society?

Skill: Application 102) What is another term for junk mail?

Answer: direct mail advertising Diff: 2 Page Ref: 434 Objective: 14-2 What are the different categories of advertising, and what role do these categories play in business and society?

Skill: Application 103) Mary Murray visited the Fairmont Hotel chain Web site. She clicked several times on the site, searching for hotels and their amenities in several cities in California. She did not book a room at any of those hotels. How is this Internet activity of use to the Fairmont Hotel marketing department?

Answer: Once Mary visited the Fairmont Hotel Web site, its marketing people have the ability to interact with her through the Internet. They can pay Google or Yahoo! to have a banner ad appear on her searches. They have learned that she has an interest in traveling to California and can focus their advertising efforts on their California locations when informing her in the future.

They can attempt to interact with her through videos or even through starting a chat based on the locations and the amenities she visited during her search.

Diff: 3 Page Ref: 436 AACSB: Reflective Thinking Objective: 14-2 What are the different categories of advertising, and what role do these categories play in business and society?

Skill: Application

104) Since the advent of digital video recorders (DVRs), viewers are able to record television shows without the advertisements; therefore, advertisers have had to find alternative ways to advertise products on television. What have advertisers been able to do?

Answer: Product placement is used increasingly to introduce products and associate those products with television stars and television shows. When a product such as a car or a food product appears on a television show or in a movie shown on television it will be seen by potential customers.

Diff: 2 Page Ref: 437 AACSB: Reflective Thinking Objective: 14-2 What are the different categories of advertising, and what role do these categories play in business and society?

Skill: Conceptual 105) What types of organizations are interested in public relations?

Answer: All organizations for-profits, not-for-profits, and even governments are interested in public relations.

Diff: 1 Page Ref: 438 Objective: 14-3 What are the various public relations tools essential to the marketing mix?

Skill: Conceptual 106) What is necessary before specific public relations programs can be implemented to shape the image and reputation of an organization?

Answer: An honest audit of public opinion that assesses public attitudes and perceptions of the organization is the first necessary step.

Diff: 3 Page Ref: 438 Objective: 14-3 What are the various public relations tools essential to the marketing mix?

Skill: Conceptual 107) Name at least three forums in which semicontrolled messages can be placed.

Answer: messages placed on Web sites, in chat rooms, on blogs, sponsorships of sporting events, and sponsorship of other special events Diff: 2 Page Ref: 438 AACSB: Reflective Thinking Objective: 14-3 What are the various public relations tools essential to the marketing mix?

Skill: Application 108) What is the chief disadvantage of publicity?

Answer: Publicity is not controlled by the seller it is controlled by the media.

Diff: 2 Page Ref: 439 AACSB: Reflective Thinking Objective: 14-3 What are the various public relations tools essential to the marketing mix?

Skill: Conceptual

109) The Weekly Gazette ran a photograph of the newly appointed president of Acme Printing, Sally Gaines, and the caption underneath the photograph referred to the fact that her previous company went bankrupt. Since this is controlled by the media, of what is it an example?

Answer: publicity Diff: 3 Page Ref: 439 AACSB: Reflective Thinking Objective: 14-3 What are the various public relations tools essential to the marketing mix?

Skill: Application 110) Despite the fact that GE was ordered to clean up PCBs it had dumped in the Hudson River, the company has been portrayed as an environmental leader. How did GE manage to change public opinion?

Answer: GE launched its "ecomagination" campaign in May 2005. This public relations maneuver was so effective the company won the prestigious 2006 Silver Effie Award in the category of Corporate Reputation, Image & Identity. GE's publicity releases were timely, interesting, accurate, and in the public interest and this swayed public opinion.

Diff: 3 Page Ref: 438-439 AACSB: Ethical Understanding and Reasoning Abilities Objective: 14-3 What are the various public relations tools essential to the marketing mix?

Skill: Application 111) What term is used to refer to a company's effort to minimize the harmful effects of a negative event?

Answer: damage control Diff: 2 Page Ref: 440 AACSB: Ethical Understanding and Reasoning Abilities Objective: 14-3 What are the various public relations tools essential to the marketing mix?

Skill: Conceptual 112) The Forest Stewardship Council (FSC) determines whether lumber is grown and harvested responsibly to preserve environmental integrity. How have Home Depot and IKEA benefited from offering FSC-certified wood?

Answer: The public views these companies as being responsible and ethical because they have endorsed this environmental initiative: the FSC. Home Depot gives preference to vendors that offer FSC-certified wood and IKEA produces as much furniture as possible from FSC-certified wood. These companies received a lot of publicity when the documentary Buyer Be Fair first aired on Public Television in March 2006.

Diff: 3 Page Ref: 439 AACSB: Communication Abilities Objective: 14-3 What are the various public relations tools essential to the marketing mix?

Skill: Application

113) Why do salespeople stay in touch with current customers?

Answer: To enhance repeat sales, salespeople stay in touch with current customers to ensure satisfaction. Salespeople also use current customers as sources for leads on new prospects.

Diff: 2 Page Ref: 441 AACSB: Reflective Thinking Objective: 14-4 What are the six steps in the personal selling process?

Skill: Conceptual 114) Discuss how salespeople help build good customer relationships.

Answer: By serving customers better, listening carefully, acting as sounding boards, and relaying customer feedback to the organization, salespeople help build good customer relationships. All salespeople are ambassadors for the business and their actions allow firms to improve existing products and create new products to better meet customer needs and preferences.

Diff: 3 Page Ref: 442 AACSB: Communication Abilities Objective: 14-4 What are the six steps in the personal selling process?

Skill: Application 115) Briefly describe the preapproach part of prospecting and explain why it occurs before the actual approach.

Answer: Salespeople must do their homework in order to learn as much as possible about their potential customers. If the salespeople can determine the customer's likely needs and come up with a way that they might be able to satisfy those needs, their approach has a better chance of realizing a successful sale. The salespeople can also learn how to schedule their approach so that they will not likely catch the prospect at a busy time.

Diff: 2 Page Ref: 442 AACSB: Reflective Thinking Objective: 14-4 What are the six steps in the personal selling process?

Skill: Conceptual 116) What is the term for responding to customers' reasons for not buying a product by offering reasons to buy?

Answer: overcoming objections Diff: 1 Page Ref: 443-444 AACSB: Reflective Thinking Objective: 14-4 What are the six steps in the personal selling process?

Skill: Conceptual

117) How does the sending of birthday cards fit in with the selling process?

Answer: When a salesperson sends birthday cards, he or she is providing good follow-up and building rapport that can give rise to referrals or testimonials that can be used to enhance future sales. Following up is all about building and nurturing relationships, and sending birthday cards is a way of building and nurturing relationships.

Diff: 2 Page Ref: 444 AACSB: Analytic Skills Objective: 14-4 What are the six steps in the personal selling process?

Skill: Application 118) What is the difference between trade sales promotions and consumer sales promotions?

Answer: The whole idea behind all sales promotions is to generate interest and excitement around a product. Any incentives to push a product through the distribution system to final consumers are called trade (or business-to-business) sales promotions. Consumer sales promotions are aimed at the end users, or final consumers. Consumer sales promotions are intended to increase demand for a good or a service by providing that extra incentive to tip consumers in favor of a specific brand.

Diff: 3 Page Ref: 444-445 AACSB: Communication Abilities Objective: 14-5 What are the two main types of sales promotions, and what types of tools are commonly used as incentives?

Skill: Conceptual 119) Briefly describe point-of-purchase (POP) displays and give an example.

Answer: These are displays strategically located to draw attention and encourage impulse purchases. Examples are items placed in racks close to checkout counters at grocery stores and end-of-aisle stacks of soft drink bottles.

Diff: 2 Page Ref: 445 AACSB: Communication Abilities Objective: 14-5 What are the two main types of sales promotions, and what types of tools are commonly used as incentives?

Skill: Conceptual 120) Why do many businesses post positive comments about their products and their companies on Internet blogs?

Answer: to generate positive publicity for their products, create a positive image for the business, generate enthusiasm for new products, and stimulate sales Diff: 2 Page Ref: 447 AACSB: Reflective Thinking Objective: 14-5 What are the two main types of sales promotions, and what types of tools are commonly used as incentives?

Skill: Application

121) How is podcasting used to assist in promoting sales?

Answer: Podcasting, commonly sent via the Internet, allows companies to promote their products directly to targeted customers by providing audio and video feeds for download.

Diff: 2 Page Ref: 447 Objective: 14-5 What are the two main types of sales promotions, and what types of tools are commonly used as incentives?

Skill: Conceptual 122) What is managing the entire process of getting products out the door and eventually into the hands of final consumers known as?

Answer: supply chain management Diff: 2 Page Ref: 448 Objective: 14-6 Why are marketing intermediaries and distribution channels important elements in marketing?

Skill: Conceptual 123) What are some of the services that full-service wholesalers provide?

Answer: Full-service wholesalers provide a full line of services, including carrying stock, maintaining a sales force, offering credit, making deliveries, providing management assistance.

Diff: 2 Page Ref: 452 AACSB: Reflective Thinking Objective: 14-7 What types of services do agent/brokers and wholesalers provide?

Skill: Conceptual 124) Who makes purchases, receives, inspects, warehouses, and ships merchandise for buyers?

Answer: purchasing agents Diff: 1 Page Ref: 453 AACSB: Reflective Thinking Objective: 14-7 What types of services do agent/brokers and wholesalers provide?

Skill: Conceptual 125) What distinguishes agents from brokers?

Answer: Agents represent the buyers or the sellers who hired them on a more permanent basis, while brokers are hired on a temporary basis.

Diff: 2 Page Ref: 453 Objective: 14-7 What types of services do agent/brokers and wholesalers provide?

Skill: Conceptual 126) What are some of the alternatives to the traditional brick-and-mortar retail store?

Answer: electronic retailing, vending machines, at-home personal selling, kiosks, carts, telemarketing, direct selling, direct marketing, and catalog buying are alternatives to the traditional brick-and-mortar retail stores Diff: 1 Page Ref: 455 AACSB: Reflective Thinking Objective: 14-7 What types of services do agent/brokers and wholesalers provide?

Skill: Conceptual

127) True Value hardware stores and Ace hardware stores are independent companies that have voluntarily banded together to buy in bulk and to experience other economies of scale that reduce costs. What is the difference in how each has accomplished this?

Answer: True Value is an example of a wholesaler that has banded together with other wholesalers to buy in bulk and has agreed to common merchandising. Ace is an example of an independent retailer that has banded together with other retailers and has created jointly owned, central wholesale operations.

Diff: 3 Page Ref: 454 AACSB: Reflective Thinking Objective: 14-7 What types of services do agent/brokers and wholesalers provide?

Skill: Application Better Business, 7e (Solomon) Chapter 15 Financing and Accounting for Business Operations 1) In MOST companies, accounting is the only responsibility of the finance department.

Answer: FALSE Explanation: In most companies, the finance department is comprised of two divisions: accounting and financial management. The financial manager assumes the accounting responsibility for a company.

Diff: 1 Page Ref: 481 AACSB: Analytic Skills Objective: 15-1 What are the implications of financial management, and how do financial managers fulfill their responsibilities?

Skill: Conceptual 2) Financial management involves setting up and monitoring controls to make certain the plans and budgets are monitored sufficiently so that the business can reach its financial goals.

Answer: TRUE Explanation: To remain competitive, businesses must make large strategic investments such as buying or building a new factory or investing in more advanced machinery or technology. At the same time, they also must ensure that they can pay their monthly bills. Financial management involves setting up and monitoring controls to make certain the plans and budgets are monitored sufficiently so that the business can reach its financial goals.

Diff: 1 Page Ref: 481 AACSB: Analytic Skills Objective: 15-1 What are the implications of financial management, and how do financial managers fulfill their responsibilities?

Skill: Conceptual 3) Financial statements serve as a basis for management to develop expectations of where the company will be in future periods.

Answer: TRUE Explanation: The accounting area of the finance department generates financial statements.

These statements include the income statement, balance sheet, and statement of cash flows.

Together they create a financial landscape that explains where the company has been over the current and past years. Moreover, they serve as a basis for management to develop expectations

of where the company will be in future periods.

Diff: 1 Page Ref: 483 AACSB: Analytic Skills Objective: 15-1 What are the implications of financial management, and how do financial managers fulfill their responsibilities?

Skill: Conceptual

4) Assets are the amounts that a companies owes to its creditors.

Answer: FALSE Explanation: Assets are the things a company owns, which include cash, investments, buildings, furniture, and equipment. Liabilities are the amounts that a company owes to creditors.

Diff: 1 Page Ref: 483 AACSB: Analytic Skills Objective: 15-1 What are the implications of financial management, and how do financial managers fulfill their responsibilities?

Skill: Conceptual 5) To evaluate the best financing option, a financial manager must first match the length of the financing to the length of the need.

Answer: TRUE Explanation: A company may have several different types of borrowing needs to finance small operating costs as well as large projects. There are many sources of outside funds available to a company. How does a financial manager evaluate the best financing option? The financial manager must first match the length of the financing to the length of the need. Then, the financial manager must evaluate the cost of obtaining the funds and determine whether it is best to finance by raising equity ownership interest in the form of stocks or issuing debt.

Diff: 2 Page Ref: 485 AACSB: Analytic Skills Objective: 15-1 What are the implications of financial management, and how do financial managers fulfill their responsibilities?

Skill: Conceptual 6) Commercial banks are financial institutions that raise funds from businesses and individuals in the form of checking and savings accounts and use those funds to make loans to businesses and individuals.

Answer: TRUE Explanation: Commercial banks are financial institutions that raise funds from businesses and individuals in the form of checking and savings accounts and use those funds to make loans to businesses and individuals. Small startup businesses rely on commercial banks for savings and checking services to pay bills and to store excess funds.

Diff: 1 Page Ref: 486 AACSB: Analytic Skills Objective: 15-2 How do companies finance their short-term business needs through trade credit, commercial banks, commercial finance companies, and commercial paper?

Skill: Conceptual

7) A commercial finance company is an alternative to a bank as a source of short-term financing.

Answer: TRUE Explanation: Sometimes, a company is unable to secure a short-term loan from a commercial bank. In these cases, an alternative source of financing is a commercial finance company, a financial institution that makes short-term loans to borrowers who offer tangible assets as collateral. Commercial finance companies provide businesses with loans but are not considered banks.

Diff: 1 Page Ref: 487 AACSB: Analytic Skills Objective: 15-2 How do companies finance their short-term business needs through trade credit, commercial banks, commercial finance companies, and commercial paper?

Skill: Conceptual 8) Secured bonds are issued with no collateral.

Answer: FALSE Explanation: Secured bonds require some form of collateral pledged as security. Unsecured bonds, also called debenture bonds, are issued with no collateral.

Diff: 1 Page Ref: 488 AACSB: Analytic Skills Objective: 15-3 What is the purpose of each type of long-term financing for companies?

Skill: Conceptual 9) Leverage is the amount of debt used to finance a firm's assets.

Answer: TRUE Explanation: Most companies use debt to finance operations, which increases the company's leverage. Leverage is the amount of debt used to finance a firm's assets with the intent that the rate of return on the assets is greater than the cost of the debt.

Diff: 1 Page Ref: 489 AACSB: Analytic Skills Objective: 15-3 What is the purpose of each type of long-term financing for companies?

Skill: Conceptual 10) Because accounting requires a great deal of precision and accuracy, there is no room for interpretation in accounting.

Answer: FALSE Explanation: While accounting involves a great deal of precision, there are also some degrees of interpretation in the process of accounting. This makes accounting both an art and a science.

Diff: 2 Page Ref: 491 AACSB: Analytic Skills Objective: 15-4 What are the functions of corporate accounting, tax accounting, auditing, financial accounting, managerial accounting, and government and not-for-profit accounting?

Skill: Conceptual

11) The longest period covered in financial accounting reports is three months.

Answer: FALSE Explanation: Investors and shareholders rely on financial accounting to help them evaluate a company's performance and profitability. Such information is generally found in key documents like quarterly statements or annual reports documents produced once a year that present the current financial state of a company and future expectations.

Diff: 2 Page Ref: 492 AACSB: Analytic Skills Objective: 15-4 What are the functions of corporate accounting, tax accounting, auditing, financial accounting, managerial accounting, and government and not-for-profit accounting?

Skill: Conceptual 12) Government and not-for-profit accounting refers to the accounting required for organizations that are not focused on generating a profit, such as legislative bodies and charities.

Answer: TRUE Explanation: Accounting is not only for organizations that strive to make money; government institutions and not-for-profit companies use accounting as well. Government and not-for-profit accounting refers to the accounting required for organizations that are not focused on generating a profit, such as legislative bodies and charities. Governmental and not-for-profit organizations need financial management expertise.

Diff: 1 Page Ref: 492 AACSB: Analytic Skills Objective: 15-4 What are the functions of corporate accounting, tax accounting, auditing, financial accounting, managerial accounting, and government and not-for-profit accounting?

Skill: Conceptual 13) The Sarbanes-Oxley Act established the Public Company Accounting Oversight Board, which is responsible for overseeing financial audits of public companies.

Answer: TRUE Explanation: In 2002, Congress passed the Sarbanes-Oxley Act. It was created to protect investors from corporate accounting fraud. The act established the Public Company Accounting Oversight Board, which is responsible for overseeing financial audits of public companies.

Diff: 2 Page Ref: 493 AACSB: Analytic Skills Objective: 15-5 How is double entry bookkeeping used to maintain the balance of the fundamental accounting equation?

Skill: Conceptual

14) A common set of country-neutral accounting standards is known as International Financial Reporting Standards (IFRSs).

Answer: TRUE Explanation: Outside the United States, other countries have their own accounting standards, which may differ from GAAP. Recently, there has been a movement toward international convergence of accounting standards. Most other countries are beginning to accept a common set of country-neutral accounting standards known as International Financial Reporting Standards (IFRSs).

Diff: 1 Page Ref: 494 AACSB: Analytic Skills Objective: 15-5 How is double entry bookkeeping used to maintain the balance of the fundamental accounting equation?

Skill: Conceptual 15) Financial statements represent what has happened in the past.

Answer: TRUE Explanation: Financial statements are the formal reports of a business's financial transactions that accountants prepare periodically. They represent what has happened in the past and provide management, as well as various outsiders such as creditors and investors, with a perspective of what is going to happen in the future.

Diff: 1 Page Ref: 496 AACSB: Analytic Skills Objective: 15-6 What is the function of balance sheets, income statements, and statements of cash flow?

Skill: Conceptual 16) Accounts receivable is an example of a fixed asset.

Answer: FALSE Explanation: Current assets are those assets that can be turned into cash within a year. An example is accounts receivable. Fixed assets are assets that have more long-term use, such as real estate, buildings, machinery, and equipment.

Diff: 1 Page Ref: 497, 497 AACSB: Analytic Skills Objective: 15-6 What is the function of balance sheets, income statements, and statements of cash flow?

Skill: Conceptual

17) Robin Airline's long-term leases of its jets are examples of current liabilities.

Answer: FALSE Explanation: Current liabilities are obligations to be paid within one year or less. Long-term liabilities include debts and obligations that are owed by the company that are due more than one year from the current date such as mortgage loans for the purchase of land or buildings, longterm leases on equipment or buildings, and bonds issued for large projects.

Diff: 2 Page Ref: 498 AACSB: Reflective Thinking Objective: 15-6 What is the function of balance sheets, income statements, and statements of cash flow?

Skill: Application 18) Depreciation helps keep the accounting equation in balance by matching the expense of a liability with the revenue that liability is expected to generate.

Answer: FALSE Explanation: Accountants use depreciation to spread out the cost of the equipment over its useful life. Depreciation helps keep the accounting equation in balance by matching the expense of the asset with the revenue that asset is expected to generate.

Diff: 1 Page Ref: 497 AACSB: Analytic Skills Objective: 15-6 What is the function of balance sheets, income statements, and statements of cash flow?

Skill: Conceptual 19) Assets at New Fashion Stores, Inc. equal $10 million. Liabilities equal $8 million. Therefore, owners' equity equals $2 million.

Answer: TRUE Explanation: The easiest way to think of owners' equity is what is left over after a business has accounted for all its assets and taken away all that it owes.

Diff: 1 Page Ref: 498 AACSB: Reflective Thinking Objective: 15-6 What is the function of balance sheets, income statements, and statements of cash flow?

Skill: Application 20) Because BackBeatMusic.com's current assets are less than its current liabilities, the company has positive working capital.

Answer: FALSE Explanation: If a company has positive working capital (its current assets are greater than its current liabilities), that means it is able to pay off its short-term liabilities. If a company has negative working capital (its current assets are less than its current liabilities), that means it is currently unable to offset its short-term liabilities with its current assets.

Diff: 1 Page Ref: 499 AACSB: Reflective Thinking Objective: 15-6 What is the function of balance sheets, income statements, and statements of cash flow?

Skill: Application

21) Your school considers your tuition payments to be revenue.

Answer: TRUE Explanation: Revenue is the amount of money generated by a business by either selling goods or performing services.

Diff: 1 Page Ref: 501 AACSB: Reflective Thinking Objective: 15-6 What is the function of balance sheets, income statements, and statements of cash flow?

Skill: Application 22) You work at a fast food restaurant. Your wages are an example of operating expenses.

Answer: TRUE Explanation: Operating expenses are overhead costs incurred with running the business.

Operating expenses include sales, general, and administrative expenses. These costs may consist of items such as rent, salaries, wages, utilities, depreciation, and insurance. Expenses associated with research and development of new products also are included in operating expenses.

Diff: 2 Page Ref: 502 AACSB: Reflective Thinking Objective: 15-6 What is the function of balance sheets, income statements, and statements of cash flow?

Skill: Application 23) A highly efficient company and potential good investment must have a high earnings per share ratio.

Answer: FALSE Explanation: Looking at the earnings per share number in isolation is not completely meaningful. For example, it might seem reasonable to assume that a company with higher earnings per share will be the better company to invest in than one with lower earnings per share.

However, a highly efficient company and potential good investment can have a low earnings per share ratio simply because it has a large number of outstanding shares.

Diff: 3 Page Ref: 503 AACSB: Analytic Skills Objective: 15-6 What is the function of balance sheets, income statements, and statements of cash flow?

Skill: Conceptual

24) The financing activities section of a statement of cash flows includes cash used or provided by the core business of the company.

Answer: FALSE Explanation: Financing activities shows the cash exchanged between the firm and its owners (or shareholders) and creditors, including dividend payments and debt service. It is the operating activities section that shows cash used or provided by the core business of the company.

Diff: 2 Page Ref: 504 AACSB: Analytic Skills Objective: 15-6 What is the function of balance sheets, income statements, and statements of cash flow?

Skill: Conceptual 25) The statement of cash flows tells how efficiently management generates and uses cash.

Answer: TRUE Explanation: The income statement does not tell how efficiently management generates and uses cash. The statement of cash flows, because it focuses specifically on cash, provides this important information.

Diff: 1 Page Ref: 504, 505 AACSB: Analytic Skills Objective: 15-6 What is the function of balance sheets, income statements, and statements of cash flow?

Skill: Conceptual 26) The strategic planning and budgeting of short- and long-term funds for current and future needs is called ________ management.

A) product B) strategic C) needs D) financial Answer: D Explanation: D) Without good financial controls and planning, a company will not be able to respond to unexpected challenges or planned expansion. Financial management involves the strategic planning and budgeting of short- and long-term funds for current and future needs.

Tracking past financial transactions, controlling current revenues and expenses, and planning for future financial needs of the company are the foundation of financial management.

Diff: 1 Page Ref: 481 AACSB: Analytic Skills Objective: 15-1 What are the implications of financial management, and how do financial managers fulfill their responsibilities?

Skill: Conceptual

27) All of the following are parts of the foundation of financial management EXCEPT ________.

A) describing the history of double entry bookkeeping B) tracking past financial transactions C) controlling current revenues and expenses D) planning for future financial needs of the company Answer: A Explanation: A) Financial management involves the strategic planning and budgeting of shortand long-term funds for current and future needs. Tracking past financial transactions, controlling current revenues and expenses, and planning for future financial needs of the company are the foundation of financial management. Double entry bookkeeping recognizes that for every transaction that affects an asset, an equal transaction must also affect either a liability or owners’ equity.

Diff: 1 Page Ref: 481 AACSB: Analytic Skills Objective: 15-1 What are the implications of financial management, and how do financial managers fulfill their responsibilities?

Skill: Conceptual 28) The two divisions that make up MOST finance departments are ________.

A) accounting and product management B) sales and financial management C) accounting and financial management D) sales and product management Answer: C Explanation: C) In most companies, the finance department is comprised of two divisions: accounting and financial management.

Diff: 1 Page Ref: 481 AACSB: Analytic Skills Objective: 15-1 What are the implications of financial management, and how do financial managers fulfill their responsibilities?

Skill: Conceptual

29) A financial manager is sometimes referred to as a ________.

A) CFO B) CFM C) COO D) CEO Answer: A Explanation: A) A financial manager is sometimes referred to as a chief financial officer (CFO).

A financial manager oversees the financial operations of a company. Generally, a financial manager assumes accounting responsibilities for the company. A financial manager is responsible for planning and managing the company's financial resources.

Diff: 2 Page Ref: 481 AACSB: Analytic Skills Objective: 15-1 What are the implications of financial management, and how do financial managers fulfill their responsibilities?

Skill: Conceptual 30) A financial manager is responsible for ________.

A) raising capital for future growth and expansion B) setting prices for products C) billing customers and paying staff D) rating the financial strength of competitors Answer: A Explanation: A) A financial manager is responsible for planning and managing the company's financial resources, including the following: (1) developing plans that outline the company's financial short-term and long-term needs; (2) defining the sources and uses of funds that are needed to reach goals; (3) monitoring the cash flow of a company to ensure that obligations are paid in a timely and efficient manner and that funds owed to the company are collected efficiently; (4) investing any excess funds so that those funds can grow and be used for future developments; and, (5) raising capital for future growth and expansion.

Diff: 2 Page Ref: 481, 482 AACSB: Analytic Skills Objective: 15-1 What are the implications of financial management, and how do financial managers fulfill their responsibilities?

Skill: Conceptual

31) Gordon Jimenez' boss tells him to develop a forecast of financial needs. Of the following factors, Gordon will MOST LIKELY consider ________.

A) past company plans that were never implemented B) actions of companies in other industries C) the current and future state of the economy D) the level of production costs from 10 years prior Answer: C Explanation: C) In developing forecasts, the financial manager takes many factors into consideration, including the company's current and future plans, the economy's current and future state of affairs, and the competition's current and anticipated actions. In addition, the financial manager must anticipate the impact such factors will have on the company's financial situation.

Diff: 2 Page Ref: 482 AACSB: Reflective Thinking Objective: 15-1 What are the implications of financial management, and how do financial managers fulfill their responsibilities?

Skill: Application 32) A company's budget outlines all of the following EXCEPT ________.

A) staffing recommendations B) planned cash flows C) expected operating expenses D) anticipated revenues Answer: A Explanation: A) Financial statements serve as a basis for management to develop expectations of where the company will be in future periods. Using these expectations, a financial manager puts together a budget, a financial plan that outlines the company's planned cash flows, expected operating expenses, and anticipated revenues.

Diff: 1 Page Ref: 483 AACSB: Analytic Skills Objective: 15-1 What are the implications of financial management, and how do financial managers fulfill their responsibilities?

Skill: Conceptual

33) Laureen Cooley is preparing a spreadsheet that shows inventory, sales, purchases, manufacturing, and marketing costs for her organization. This document is called a(n) ________ budget.

A) capital B) strategic C) operating D) tactical Answer: C Explanation: C) An operating (master) budget includes all the operating costs for an entire organization, including inventory, sales, purchases, manufacturing, marketing, and operating expenses. The operating budget maps out the projected number of units to be sold and estimated income for the coming year, in addition to all anticipated costs of operating the business to manufacture and sell the estimated level of business.

Diff: 2 Page Ref: 483 AACSB: Reflective Thinking Objective: 15-1 What are the implications of financial management, and how do financial managers fulfill their responsibilities?

Skill: Application 34) Jason Prows' job this week is to prepare a spreadsheet that shows his company's long-range plans and outlines the expected financial needs for significant purchases such as real estate, manufacturing equipment, plant expansions, and technology. Jason is preparing a(n) ________ budget.

A) operating B) master C) capital D) tactical Answer: C Explanation: C) The capital budget considers the company's long-range plans and outlines the expected financial needs for significant capital purchases such as real estate, manufacturing equipment, plant expansions, or technology.

Diff: 2 Page Ref: 483 AACSB: Reflective Thinking Objective: 15-1 What are the implications of financial management, and how do financial managers fulfill their responsibilities?

Skill: Application

35) You are a financial manager. Your assistant tells you that there will be a cash flow gap next month, meaning that cash outflows are expected to be ________ cash inflows.

A) less than B) equal to C) greater than D) too low compared to Answer: C Explanation: C) Cash flow gaps occur when cash outflows are greater than cash inflows. Cash flow budgets help financial managers determine whether the business needs to seek outside sources of funds beyond sales to manage anticipated cash shortages.

Diff: 1 Page Ref: 484 AACSB: Reflective Thinking Objective: 15-1 What are the implications of financial management, and how do financial managers fulfill their responsibilities?

Skill: Application 36) Monitoring cash flow is important because it measures a company's ________.

A) short-term financial health and financial efficiency B) future needs for equipment C) long-term financial health and financial efficiency D) total assets Answer: A Explanation: A) Cash flow specifically measures whether there are sufficient funds to pay outstanding bills. Monitoring cash flow is important because it measures a company's short-term financial health and financial efficiency.

Diff: 2 Page Ref: 484 AACSB: Analytic Skills Objective: 15-1 What are the implications of financial management, and how do financial managers fulfill their responsibilities?

Skill: Conceptual

37) CFO Danny al Baydah believes that the best indicator of his company's financial strength is how quickly its assets can be turned into cash, or the company's ________.

A) profitability B) fluidity C) liquidity D) liability Answer: C Explanation: C) Although many investors focus on a company's profitability as an indicator of strength, a company's liquidity how quickly an asset can be turned into cash is often a better indicator. After all, companies go bankrupt when they cannot pay their bills, not because they are unprofitable.

Diff: 2 Page Ref: 484 AACSB: Reflective Thinking Objective: 15-1 What are the implications of financial management, and how do financial managers fulfill their responsibilities?

Skill: Application 38) Management should compare its budget to ________ performance every month in order to determine if the company is performing as expected.

A) expected B) planned C) actual D) ideal Answer: C Explanation: C) After the budget is developed, it must be compared periodically to the actual performance of the company. It is very important that management compare actual performance regularly to the budget. This generally occurs every month. Without such a comparison, it is hard to determine whether the company is actually performing as expected.

Diff: 1 Page Ref: 484 AACSB: Analytic Skills Objective: 15-1 What are the implications of financial management, and how do financial managers fulfill their responsibilities?

Skill: Conceptual

39) Your financial manager reports to you, the CEO, that your company's actual monthly financial results closely match, but not exactly match, the monthly budget. This indicates that ________.

A) the company is fulfilling its plans B) extreme corrective action is needed C) the company needs to borrow money quickly D) a planned sale of stock is needed Answer: A Explanation: A) If the actual numbers generated by the company closely match the budget, this shows the company is fulfilling its plans. On the other hand, if the actual numbers differ greatly from those projected by the budget, this indicates that corrective actions must be taken.

Diff: 2 Page Ref: 484 AACSB: Reflective Thinking Objective: 15-1 What are the implications of financial management, and how do financial managers fulfill their responsibilities?

Skill: Application 40) As a financial manager, you decide to borrow funds in order to meet payroll. Your company will pay back the funds within nine months. You are seeking ________ financing.

A) long-term B) short-term C) retained earnings D) equity Answer: B Explanation: B) Short-term financing is any type of financing that is repaid within a year or less.

It is used to finance day-to-day operations such as payroll, inventory purchases, and overhead (utilities, rent, leases).

Diff: 2 Page Ref: 486 AACSB: Reflective Thinking Objective: 15-2 How do companies finance their short-term business needs through trade credit, commercial banks, commercial finance companies, and commercial paper?

Skill: Application 41) Demand deposits include ________ accounts.

A) only checking B) only savings C) both checking and savings D) commercial paper Answer: C Explanation: C) Checking and savings accounts are a form of demand deposit, funds that can be withdrawn (or demanded) at any time without prior notice.

Diff: 1 Page Ref: 486 AACSB: Analytic Skills Objective: 15-2 How do companies finance their short-term business needs through trade credit, commercial banks, commercial finance companies, and commercial paper?

Skill: Conceptual

42) Funds that a manager can access at any time up to an amount agreed upon between the bank and the company are called a line of ________.

A) debit B) credit C) asset D) liability Answer: B Explanation: B) As a business develops and establishes a good relationship with a bank, the business owners may seek to open a line of credit. You can think of a business line of credit like credit on hand, which a manager can access at any time up to an amount agreed upon between the bank and the company. The funds can be withdrawn all at once or in multiple withdrawals during the stated period.

Diff: 1 Page Ref: 487 AACSB: Analytic Skills Objective: 15-2 How do companies finance their short-term business needs through trade credit, commercial banks, commercial finance companies, and commercial paper?

Skill: Conceptual 43) Chief financial officer Ellen Soroti asks her company's bank for a loan. The bank agrees and says that no collateral is required. Ellen's company is being granted a(n) ________ loan.

A) unwritten B) secured C) equity D) unsecured Answer: D Explanation: D) If the firm has an excellent credit history and solid relationship with the lending institution, it may get an unsecured loan, which doesn't require collateral.

Diff: 2 Page Ref: 487 AACSB: Reflective Thinking Objective: 15-2 How do companies finance their short-term business needs through trade credit, commercial banks, commercial finance companies, and commercial paper?

Skill: Application

44) Factoring is the process of selling accounts ________ for cash.

A) general B) loanable C) payable D) receivable Answer: D Explanation: D) Factoring is the process of selling accounts receivable for cash. A finance company pays a business money in exchange for a business's accounts receivable, and the finance company will keep the money that is owed on those accounts as it is received. The finance company pays the value of the accounts receivable to the company selling them, less a fee.

Diff: 1 Page Ref: 487 AACSB: Analytic Skills Objective: 15-2 How do companies finance their short-term business needs through trade credit, commercial banks, commercial finance companies, and commercial paper?

Skill: Conceptual 45) CFO Jorge Sierra needs short-term financing for a large corporation. He decides to issue an unsecured debt instrument of $200,000 to be paid back in 150 days. Jorge is using ________.

A) a mortgage B) factoring C) commercial paper D) retained earnings Answer: C Explanation: C) Those companies who have a high-quality debt rating can issue commercial paper. When a company has a high-quality debt rating, it means it is looked upon favorably by lenders as being a company that has a good or excellent likelihood of paying off its debt.

Commercial paper is an unsecured short-term debt instrument of $100,000 or more, typically issued by a corporation to bridge a cash flow gap created by large accounts receivable, inventory, or payroll. Commercial paper comes due in 270 days or less and is not required to go through the same registration process as other longer-term debt and equity instruments.

Diff: 2 Page Ref: 487 AACSB: Reflective Thinking Objective: 15-2 How do companies finance their short-term business needs through trade credit, commercial banks, commercial finance companies, and commercial paper?

Skill: Application

46) Long-term financing generated by the owners of a company is called ________ financing.

A) secured B) debenture C) equity D) debt Answer: C Explanation: C) Funds for equity financing are generated by the owners of the company rather than an outside lender. These funds might come from the company's own savings or partial sale of ownership in the company in the form of stock.

Diff: 1 Page Ref: 488 AACSB: Analytic Skills Objective: 15-3 What is the purpose of each type of long-term financing for companies?

Skill: Conceptual 47) Because she believes her company has an excellent reputation for creditworthiness, corporate treasurer Lucia Diaz decides to issue ________ bonds that are not backed by any collateral.

A) secured B) equity C) commercial paper D) unsecured Answer: D Explanation: D) Unsecured bonds are issued with no collateral. They are only backed by the general creditworthiness and reputation of the issuer.

Diff: 2 Page Ref: 488 AACSB: Reflective Thinking Objective: 15-3 What is the purpose of each type of long-term financing for companies?

Skill: Application 48) Unsecured bonds are also called ________ bonds.

A) debenture B) debit C) divested D) dividend Answer: A Explanation: A) Unsecured bonds, also called debenture bonds, are issued with no collateral.

They are only backed by the general creditworthiness and reputation of the issuer.

Diff: 1 Page Ref: 488 AACSB: Analytic Skills Objective: 15-3 What is the purpose of each type of long-term financing for companies?

Skill: Conceptual

49) Joseph Coulter needs long-term financing for his company. He contacts Funders Group, which is willing to provide funding in exchange for an ownership stake, an active role in management of Joseph's company, and an opportunity for a large return on its investment.

Funders Group is offering ________ capital.

A) debenture B) venture C) leverage D) retained Answer: B Explanation: B) Venture capital is an investment in the form of money that includes a substantial amount of risk for investors. Because of the high level of risk, the group of outside investors, called venture capitalists, command an active role in a company's management decisions. Venture capitalists seek their return in the form of equity, or ownership, in a company.

They anticipate a large return on their investment when the company is sold or goes public.

Venture capitalists are willing to wait longer than other investors, lenders, or shareholders for returns on their investments, but they expect higher than normal results.

Diff: 2 Page Ref: 489 AACSB: Reflective Thinking Objective: 15-3 What is the purpose of each type of long-term financing for companies?

Skill: Application 50) A common leverage ratio is for a company to have at least ________ times the amount of equity as it has debt.

A) two B) three C) four D) five Answer: A Explanation: A) It can be risky to take on too much debt, so lenders consider how much debt a company has relative to the amount of equity (or assets) a company owns before they issue a loan. A common leverage ratio is for a company to have at least twice the amount of equity as it has debt.

Diff: 2 Page Ref: 490 AACSB: Analytic Skills Objective: 15-3 What is the purpose of each type of long-term financing for companies?

Skill: Conceptual

51) ________ is often called the language of business.

A) English B) Accounting C) Marketing D) Spanish Answer: B Explanation: B) Accounting is often called the language of business because it provides financial information used for decision making, planning, and reporting.

Diff: 1 Page Ref: 490 AACSB: Analytic Skills Objective: 15-4 What are the functions of corporate accounting, tax accounting, auditing, financial accounting, managerial accounting, and government and not-for-profit accounting?

Skill: Conceptual 52) Tracking a business's income and expenses through a process of recording financial transactions is called ________.

A) sales B) production C) strategy D) accounting Answer: D Explanation: D) Accounting involves tracking a business's income and expenses through a process of recording financial transactions. The transactions are then summarized into key financial reports that are further used to evaluate the business's current and expected financial status.

Diff: 1 Page Ref: 491 AACSB: Analytic Skills Objective: 15-4 What are the functions of corporate accounting, tax accounting, auditing, financial accounting, managerial accounting, and government and not-for-profit accounting?

Skill: Conceptual 53) Accounting is important for ________.

A) large organizations only B) for-profit companies only C) small businesses only D) organizations of all sizes and types Answer: D Explanation: D) Accounting is not just for large organizations. In fact, it is quite important for businesses of all sizes. Accounting defines the heart and soul of even the smallest business as it helps to ―account for‖ what the business has done, what it is currently doing, and what it has the potential to do.

Diff: 1 Page Ref: 491 AACSB: Analytic Skills Objective: 15-4 What are the functions of corporate accounting, tax accounting, auditing, financial accounting, managerial accounting, and government and not-for-profit accounting?

Skill: Conceptual

54) Accounting involves a great deal of precision and some degrees of interpretation; therefore, accounting is ________.

A) only an art B) neither an art nor a science C) only a science D) both an art and a science Answer: D Explanation: D) While accounting involves a great deal of precision, there are also some degrees of interpretation in the process of accounting. This makes accounting both an art and a science.

Diff: 1 Page Ref: 491 AACSB: Analytic Skills Objective: 15-4 What are the functions of corporate accounting, tax accounting, auditing, financial accounting, managerial accounting, and government and not-for-profit accounting?

Skill: Conceptual 55) Susan Capelongo manages a department that prepares financial statements to be sent to current and potential stockholders. Susan works in ________.

A) auditing B) corporate accounting C) not-for-profit accounting D) tax accounting Answer: B Explanation: B) Corporate accounting is the part of an organization's finance department that is responsible for gathering and assembling data required for key financial statements. Corporate accounting has two separate functions: managerial accounting and financial accounting.

Diff: 2 Page Ref: 491 AACSB: Reflective Thinking Objective: 15-4 What are the functions of corporate accounting, tax accounting, auditing, financial accounting, managerial accounting, and government and not-for-profit accounting?

Skill: Application

56) Adam Zarand wants to help his company decide whether or not to shut down an unproductive plant. Which type of accounting will he MOST LIKELY use?

A) managerial B) tax C) government D) financial Answer: A Explanation: A) Managerial accounting is responsible for tracking sales and the costs of producing the sales (production, marketing, and distribution). By doing so, it helps determine how efficiently a company is run. Moreover, managerial accountants help determine which business activities are most and least profitable. Based on their analysis, management is better equipped to make decisions about whether to continue with, expand, or eliminate certain business activities.

Diff: 2 Page Ref: 491 AACSB: Reflective Thinking Objective: 15-4 What are the functions of corporate accounting, tax accounting, auditing, financial accounting, managerial accounting, and government and not-for-profit accounting?

Skill: Application 57) Kay Alden manages a department that prepares annual reports. Kay works in ________.

A) tax accounting B) auditing C) financial accounting D) managerial accounting Answer: C Explanation: C) Financial accounting is an area of accounting that produces financial documents to aid decision makers outside an organization in making decisions regarding investments and credibility. Such information is generally found in key documents like quarterly statements or annual reports documents produced once a year that present the current financial state of a company and future expectations.

Diff: 2 Page Ref: 492 AACSB: Reflective Thinking Objective: 15-4 What are the functions of corporate accounting, tax accounting, auditing, financial accounting, managerial accounting, and government and not-for-profit accounting?

Skill: Application

58) Mark Lewis manages a corporate department that reviews and evaluates the accuracy of financial reports. Mark works in ________.

A) auditing B) tax accounting C) not-for-profit accounting D) government accounting Answer: A Explanation: A) Auditing is another area of accounting that is responsible for reviewing and evaluating the accuracy of financial reports. Auditors ensure financial reports have been prepared accurately and are not biased or manipulated in any way. Companies can avoid devastating budget problems by performing audits.

Diff: 2 Page Ref: 492 AACSB: Reflective Thinking Objective: 15-4 What are the functions of corporate accounting, tax accounting, auditing, financial accounting, managerial accounting, and government and not-for-profit accounting?

Skill: Application 59) Iris Velez manages a department that calculates payments to be made to federal, state, and local governments. Iris works in ________.

A) managerial accounting B) auditing C) tax accounting D) sales accounting Answer: C Explanation: C) Paying taxes is an important part of running a business. Federal, state, and local governments require individuals and organizations to file tax returns annually. Tax accounting involves preparing taxes and giving advice on tax strategies.

Diff: 2 Page Ref: 492 AACSB: Reflective Thinking Objective: 15-4 What are the functions of corporate accounting, tax accounting, auditing, financial accounting, managerial accounting, and government and not-for-profit accounting?

Skill: Application

60) FASB stands for ________.

A) Financial Accounting Standard Budget B) Financial Accounting Short-Term Budget C) Financial Architects Standards Board D) Financial Accounting Standard Board Answer: D Explanation: D) Accountants in the United States follow a set of generally acceptable accounting principles (GAAP) that are standard accounting rules defined by the Financial Accounting Standard Board (FASB), an independent organization.

Diff: 1 Page Ref: 493 AACSB: Analytic Skills Objective: 15-5 How is double entry bookkeeping used to maintain the balance of the fundamental accounting equation?

Skill: Conceptual 61) Assets = Liabilities + Owners' Equity is the fundamental ________ equation.

A) asset B) accounting C) mathematical D) corporate Answer: B Explanation: B) The process of bookkeeping centers on the fundamental concept that what a company owns (assets) must equal what it owes to its creditors (liabilities) plus what it owes to its owners (owners' equity). This balance is the fundamental accounting equation: assets = liabilities + owners' equity.

Diff: 1 Page Ref: 494 AACSB: Analytic Skills Objective: 15-5 How is double entry bookkeeping used to maintain the balance of the fundamental accounting equation?

Skill: Conceptual

62) In her work as an accountant, Sandra Garcia recognizes that for every transaction that affects an asset, an equal transaction must also affect either a liability or owners' equity. Sandra is using ________ bookkeeping.

A) double profit B) double entry C) bottom line D) triple entry Answer: B Explanation: B) To maintain the balance of assets and liabilities plus owner's equity, accountants use a recording system called double entry bookkeeping. Double entry bookkeeping recognizes that for every transaction that affects an asset, an equal transaction must also affect either a liability or owners' equity.

Diff: 1 Page Ref: 494 AACSB: Reflective Thinking Objective: 15-5 How is double entry bookkeeping used to maintain the balance of the fundamental accounting equation?

Skill: Application 63) Your boss asks you to email a spreadsheet that shows what the company owns and what it has borrowed (owes) at a fixed point in time and shows the net worth of the business. When sending the email, you MOST LIKELY will attach the file named ________.

A) Income_Statement B) Statement_of_Cash_Flows C) Balance_Sheet D) Capital_Budget Answer: C Explanation: C) A balance sheet shows what the company owns and what it has borrowed (owes) at a fixed point in time and shows the net worth of the business.

Diff: 1 Page Ref: 496 AACSB: Reflective Thinking Objective: 15-6 What is the function of balance sheets, income statements, and statements of cash flow?

Skill: Application

64) Your boss asks you to email a spreadsheet that shows how much money came into the company and how much money the company spent last month. When sending the email, you MOST LIKELY will attach the file named ________.

A) Operating_Budget B) Income_Statement C) Balance_Sheet D) Statement_of_Cash_Flows Answer: B Explanation: B) An income statement shows how much money is coming into a company and how much money a company is spending over a period. It shows how well a company has done in terms of profit and loss.

Diff: 1 Page Ref: 496 AACSB: Reflective Thinking Objective: 15-6 What is the function of balance sheets, income statements, and statements of cash flow?

Skill: Application 65) Your boss asks you to email a spreadsheet that shows the exchange of money between the company and everyone else it deals with over a period of time. When sending the email, you MOST LIKELY will attach the file named ________.

A) Statement_of_Asset_Flows B) Statement_of_Liability_Flows C) Statement_of_Cash_Flows D) Statement_of_Equity_Flows Answer: C Explanation: C) A statement of cash flows shows the exchange of money between a company and everyone else it deals with over a period of time. It shows where cash was used.

Diff: 1 Page Ref: 496 AACSB: Reflective Thinking Objective: 15-6 What is the function of balance sheets, income statements, and statements of cash flow?

Skill: Application 66) Liquidity is the speed at which assets can be turned into ________.

A) liabilities B) cash C) owners' equity D) inventory Answer: B Explanation: B) Liquidity is the speed at which assets can be turned into cash.

Diff: 1 Page Ref: 497 AACSB: Analytic Skills Objective: 15-6 What is the function of balance sheets, income statements, and statements of cash flow?

Skill: Conceptual

67) The clothing and accessories at New Fashion Stores, Inc. are an example of ________ assets.

A) long-term B) fixed C) equipment D) current Answer: D Explanation: D) Current assets are those assets that can be turned into cash within a year.

Examples of current assets include cash, accounts receivable, inventory, and short-term investments such as money market accounts.

Diff: 2 Page Ref: 497 AACSB: Reflective Thinking Objective: 15-6 What is the function of balance sheets, income statements, and statements of cash flow?

Skill: Application 68) The amounts that New Fashion Stores, Inc. owes to clothing manufacturers are an example of ________.

A) assets B) owners' equity C) liabilities D) trademarks Answer: C Explanation: C) Liabilities are all debts and obligations owed by the business to outside creditors, suppliers, or other vendors.

Diff: 2 Page Ref: 498 AACSB: Reflective Thinking Objective: 15-6 What is the function of balance sheets, income statements, and statements of cash flow?

Skill: Application 69) Short-term liabilities are obligations a company is responsible for paying ________.

A) between one year and two years B) after three years C) within a year or less D) never Answer: C Explanation: C) Short-term liabilities, also known as current liabilities, are obligations a company is responsible for paying within a year or less and are listed first on the balance sheet.

They consist of accounts payable, accrued expenses, and short-term financing.

Diff: 1 Page Ref: 498 AACSB: Analytic Skills Objective: 15-6 What is the function of balance sheets, income statements, and statements of cash flow?

Skill: Conceptual

70) Short-term liabilities are also known as ________ liabilities.

A) fixed B) instant C) debenture D) current Answer: D Explanation: D) Short-term liabilities, also known as current liabilities, are obligations a company is responsible for paying within a year or less and are listed first on the balance sheet.

They consist of accounts payable, accrued expenses, and short-term financing.

Diff: 1 Page Ref: 498 AACSB: Analytic Skills Objective: 15-6 What is the function of balance sheets, income statements, and statements of cash flow?

Skill: Conceptual 71) New Fashion Stores, Inc. received 1,000 t-shirts on the first of the month. By the end of the month, the company had sold 743 shirts. The difference is ________.

A) inventory B) retained earnings C) working capital D) equity Answer: A Explanation: A) Inventory is the merchandise a business owns but has not sold. Inventory on hand is necessary to satisfy customers' needs quickly.

Diff: 2 Page Ref: 498 AACSB: Reflective Thinking Objective: 15-6 What is the function of balance sheets, income statements, and statements of cash flow?

Skill: Application 72) Numbers used to compare current data to data from previous years, competitors' data, or industry averages is called ________ analysis.

A) ratio B) current C) debt D) inventory Answer: A Explanation: A) Ratio analysis is a comparison of numbers and therefore is used to compare current data to data from previous years, competitors' data, or industry averages. Ratios eliminate the effect of size, so you can reasonably compare a large company's performance to a smaller company's performance.

Diff: 1 Page Ref: 499 AACSB: Analytic Skills Objective: 15-6 What is the function of balance sheets, income statements, and statements of cash flow?

Skill: Conceptual

73) Current Assets - Current Liabilities = ________ Capital.

A) Working B) Current C) Equity D) Ratio Answer: A Explanation: A) Working capital tells you what is left over if the company pays off its shortterm liabilities with its short-term assets. Working capital is a measure of a company's short-term financial fitness, as well as its efficiency. Working capital ratio is calculated as Current Assets Current Liabilities = Working Capital.

Diff: 1 Page Ref: 499 AACSB: Analytic Skills Objective: 15-6 What is the function of balance sheets, income statements, and statements of cash flow?

Skill: Conceptual 74) If a company has negative working capital, its current assets ________ its current liabilities.

A) equal B) are divided by C) are less than D) are greater than Answer: C Explanation: C) If a company has negative working capital (its current assets are less than its current liabilities), that means it is currently unable to offset its short-term liabilities with its current assets. When a company's current liabilities surpass its current assets, many financial difficulties incur, bankruptcy being the most severe.

Diff: 1 Page Ref: 499 AACSB: Analytic Skills Objective: 15-6 What is the function of balance sheets, income statements, and statements of cash flow?

Skill: Conceptual

75) Current assets at New Fashion Stores, Inc. are $20 million, and current liabilities are $10 million. The company's current ratio is ________.

A) 0.50 B) 10.00 C) 2.00 D) 20.00 Answer: C Explanation: C) The current ratio is a measurement used to determine the extent to which a company can meet its current financial obligations. Current ratio is calculated as Current Assets / Current Liabilities.

Diff: 2 Page Ref: 499, 500 AACSB: Reflective Thinking Objective: 15-6 What is the function of balance sheets, income statements, and statements of cash flow?

Skill: Application 76) Total liabilities at New Fashion Stores, Inc. are $5 million, and total owners' equity is $4 million. The company's debt to equity ratio is ________.

A) 4.00 B) 5.00 C) 1.25 D) 0.80 Answer: C Explanation: C) The debt to equity ratio measures how much debt a company has relative to its assets by comparing a company's total liabilities to its total owners' (or shareholders') equity.

Debt to equity ratio is calculated as Total Liabilities / Total Owners' Equity.

Diff: 2 Page Ref: 499, 500 AACSB: Reflective Thinking Objective: 15-6 What is the function of balance sheets, income statements, and statements of cash flow?

Skill: Application

77) A ________ debt to equity ratio number means that a company is using ________ leverage and has ________ equity.

A) lower; more; more B) higher; more; more C) higher; less; more D) lower; less; more Answer: D Explanation: D) Leverage is the amount of debt used to finance a firm's assets. The debt to equity ratio will tell potential investors how much a company is willing to go into debt with creditors, lenders, and suppliers over equity owed to shareholders. A lower debt to equity ratio number means that a company is using less leverage and has more equity.

Diff: 3 Page Ref: 500 AACSB: Analytic Skills Objective: 15-6 What is the function of balance sheets, income statements, and statements of cash flow?

Skill: Conceptual 78) On an income statement, ________ - ________ = ________.

A) assets; expenses; loss B) revenue; liabilities; profit C) revenue; expenses; profit (or loss) D) revenue; expenses; owners' equity Answer: C Explanation: C) Income statements work around an equation: revenue - expenses = profit (or loss).

Diff: 2 Page Ref: 501 AACSB: Analytic Skills Objective: 15-6 What is the function of balance sheets, income statements, and statements of cash flow?

Skill: Conceptual 79) The amounts spent by a publishing company to pay for manufacturing its books is called ________.

A) cost of goods sold B) operating expenses C) cost of goods purchased D) net loss Answer: A Explanation: A) Cost of goods sold (COGS) is a separate item on an income statement. COGS are the variable expenses a company incurs to manufacture and sell a product, including the price of raw materials used in creating the good along with the labor costs used to produce and sell the items.

Diff: 1 Page Ref: 501 AACSB: Reflective Thinking Objective: 15-6 What is the function of balance sheets, income statements, and statements of cash flow?

Skill: Application

80) The money a company makes just from its products is called ________.

A) gross capital B) net equity C) gross profit D) net profit Answer: C Explanation: C) Gross profit tells a company how much money the company makes just from its products and how efficiently management controls costs in the production process.

Diff: 1 Page Ref: 501 AACSB: Analytic Skills Objective: 15-6 What is the function of balance sheets, income statements, and statements of cash flow?

Skill: Conceptual 81) Your boss asks you what was the bottom line on last year's results. You refer your boss to the ________ line on the income statement.

A) revenue B) gross profit C) operating expenses D) net income Answer: D Explanation: D) Net income is the "bottom line" and is usually stated on the very last line of an income statement.

Diff: 2 Page Ref: 502 AACSB: Reflective Thinking Objective: 15-6 What is the function of balance sheets, income statements, and statements of cash flow?

Skill: Application 82) Housing Repair Co. has total revenue of $100,000. COGS is $40,000. The company's gross profit margin is ________.

A) 0.40 B) 1.40 C) 0.67 D) 0.60 Answer: D Explanation: D) The gross profit margin determines a company's profitability of production. It indicates how efficient management is in using its labor and raw materials to produce goods. A gross profit margin is calculated as (total revenue - COGS) / total revenue.

Diff: 2 Page Ref: 502 AACSB: Reflective Thinking Objective: 15-6 What is the function of balance sheets, income statements, and statements of cash flow?

Skill: Application

83) Housing Repair Co. has total revenue of $100,000. COGS is $40,000. Operating expenses are $10,000. The company's operating profit margin is ________.

A) 0.40 B) 0.50 C) 0.60 D) 1.00 Answer: B Explanation: B) The operating profit margin determines a company's profitability of operations.

It indicates how efficiently management is in using business operations to generate a profit. An operating profit margin is calculated as [(total revenue - COGS) - operating expenses] / total revenue.

Diff: 2 Page Ref: 502 AACSB: Reflective Thinking Objective: 15-6 What is the function of balance sheets, income statements, and statements of cash flow?

Skill: Application 84) Last year Huge TV Corp. had net income equaling $5 million. At the end of the year, the corporation had 4 million shares of stock outstanding. The company's earnings per share were ________.

A) $1.25 B) $0.80 C) $1 million D) $5 million Answer: A Explanation: A) The portion of a company's profit allocated to the stockholders on a per-share basis is determined by calculating earnings per share. The general formula for earnings per share is calculated as net income / outstanding shares.

Diff: 2 Page Ref: 502 AACSB: Reflective Thinking Objective: 15-6 What is the function of balance sheets, income statements, and statements of cash flow?

Skill: Application

85) A statement of cash flows is different than a balance sheet or an income statement because it does not reflect the amount of incoming and outgoing transactions that have been recorded ________.

A) on credit B) by computer C) on loan D) below $100 Answer: A Explanation: A) The cash flow statement (or statement of cash flows) gives some information that other financial statements do not show. A statement of cash flows is different than a balance sheet or an income statement because it does not reflect the amount of incoming and outgoing transactions that have been recorded on credit. Instead, it only displays cash transactions, similar to a checkbook register.

Diff: 1 Page Ref: 504 AACSB: Analytic Skills Objective: 15-6 What is the function of balance sheets, income statements, and statements of cash flow?

Skill: Conceptual 86) A statement of cash flows reports all of the following EXCEPT ________ activities.

A) depreciating B) operating C) investing D) financing Answer: A Explanation: A) The cash flow statement organizes and reports cash generated in three business components: operating, investing, and financing activities.

Diff: 1 Page Ref: 504 AACSB: Analytic Skills Objective: 15-6 What is the function of balance sheets, income statements, and statements of cash flow?

Skill: Conceptual

87) When New Fashion Stores, Inc. built 100 new stores, it recorded to outflowing cash in the ________ activities section of its statement of cash flows.

A) financing B) investing C) operating D) maintaining Answer: B Explanation: B) Investing activities represents the cash involved in the purchase or sale of investments or income-producing assets, such as buildings and equipment.

Diff: 2 Page Ref: 504 AACSB: Reflective Thinking Objective: 15-6 What is the function of balance sheets, income statements, and statements of cash flow?

Skill: Application 88) When New Fashion Stores, Inc. paid a dividend to its shareholders, it recorded to outflowing cash in the ________ activities section of its statement of cash flows.

A) investing B) financing C) operating D) maintaining Answer: B Explanation: B) Financing activities shows the cash exchanged between the firm and its owners (or shareholders) and creditors, including dividend payments and debt service.

Diff: 2 Page Ref: 504 AACSB: Reflective Thinking Objective: 15-6 What is the function of balance sheets, income statements, and statements of cash flow?

Skill: Application

89) All of the following can be determined from a statement of cash flows EXCEPT the company's ability to ________.

A) pay its bills B) manage production C) buy new inventory D) afford salary obligations Answer: B Explanation: B) Information on a statement of cash flows is useful to creditors who are interested in determining a company's short-term health, particularly in its ability to pay its bills.

In addition, it signals to investors that the business is generating enough money to buy new inventory and to make investments in the business. Accounting personnel, potential employees, or contractors may be interested in cash flow information to determine whether a company will be able to afford salary and other labor obligations.

Diff: 1 Page Ref: 504 AACSB: Analytic Skills Objective: 15-6 What is the function of balance sheets, income statements, and statements of cash flow?

Skill: Conceptual 90) On a balance sheet, the difference between cash and cash equivalent figures between periods is the same value that appears at the bottom of the ________ for the same period.

A) income statement B) operating budget C) statement of cash flows D) equity statement Answer: C Explanation: C) On a statement of cash flows, the bottom number, or change in cash and cash equivalents, reflects the overall change in the company's cash position. If it is positive, it means that the company had an overall positive cash flow. If it is negative, the company paid out more cash than it took in. On a balance sheet, the first line item under current assets is cash and cash equivalents. The difference between cash and cash equivalent figures between periods is the same value that appears at the bottom of the cash flow statement for the same period.

Diff: 3 Page Ref: 505 AACSB: Analytic Skills Objective: 15-6 What is the function of balance sheets, income statements, and statements of cash flow?

Skill: Conceptual

91) How does financial management compare to other business activities?

Answer: Financial management involves the strategic planning and budgeting of short- and long-term funds for current and future needs. A business is created to sell a good or service, and, of course, to make a profit. Producing, marketing, and distributing a product are important aspects of generating a profit. Even more important, however, is the company's ability to pay for the resources required to accomplish these tasks. Without management of finances, there is no business!

Diff: 2 Page Ref: 481 AACSB: Analytic Skills Objective: 15-1 What are the implications of financial management, and how do financial managers fulfill their responsibilities?

Skill: Conceptual 92) List three processes that a financial manager oversees.

Answer: A financial manager oversees three important processes: forecasting financial needs, developing budgets and plans to meet financial needs, and establishing controls to ensure that the budgets and plans are being followed.

Diff: 1 Page Ref: 482 AACSB: Analytic Skills Objective: 15-1 What are the implications of financial management, and how do financial managers fulfill their responsibilities?

Skill: Conceptual 93) How are capital projects financed?

Answer: Capital projects are often financed with borrowed money or money raised through the sale of stocks or bonds.

Diff: 1 Page Ref: 483 AACSB: Analytic Skills Objective: 15-1 What are the implications of financial management, and how do financial managers fulfill their responsibilities?

Skill: Conceptual 94) What is a cash flow budget?

Answer: The cash flow budget is a short-term budget that estimates cash inflows and outflows and can predict a business's cash flow gaps for the business. Cash flow gaps occur when cash outflows are greater than cash inflows. Cash flow budgets help financial managers determine whether the business needs to seek outside sources of funds beyond sales to manage anticipated cash shortages. Cash flow budgets also indicate future investment opportunities due to surges in cash inflow, as well as show whether a business will have enough cash to grow. Moreover, the financial manager uses the cash flow budget to help plan for debt repayment or to cover unusual operating expenses.

Diff: 2 Page Ref: 484 AACSB: Reflective Thinking Objective: 15-1 What are the implications of financial management, and how do financial managers fulfill their responsibilities?

Skill: Application

95) Imagine that you have just completed your first budget as a new financial manager. How will you make sure that your company follows the budget?

Answer: After the budget is developed, it must be compared periodically to the actual performance of the company. It is very important that management compare actual performance regularly to the budget. This generally occurs every month. Without such a comparison, it is hard to determine whether the company is actually performing as expected. If the actual numbers generated by the company closely match the budget, this shows the company is fulfilling its plans. On the other hand, if the actual numbers differ greatly from those projected by the budget, this indicates that corrective actions must be taken.

Diff: 2 Page Ref: 482 AACSB: Reflective Thinking Objective: 15-1 What are the implications of financial management, and how do financial managers fulfill their responsibilities?

Skill: Application 96) A large printing plant buys millions of dollars of paper every year from suppliers. How can those suppliers help the printer with short-term financing needs?

Answer: Larger businesses with good credit and an established relationship with their suppliers take advantage of another credit relationship to help bridge the temporary gap. Companies will often purchase inventory and supplies on trade credit. Trade credit is the ability to purchase inventory and supplies on credit without interest. Suppliers will typically request payment within 30, 60, or 90 days. Deferring payment with trade credit is a good strategy to bridge a temporary cash flow gap because it does not tie up cash unnecessarily.

Diff: 3 Page Ref: 486 AACSB: Reflective Thinking Objective: 15-2 How do companies finance their short-term business needs through trade credit, commercial banks, commercial finance companies, and commercial paper?

Skill: Application 97) Why do companies need long-term financing?

Answer: In order to grow, new or small companies need expansion projects such as establishing new offices or manufacturing facilities, developing a new product or service, or buying another company. These projects generally cost millions of dollars and may take years to complete.

Long-term financing is needed because it provides funds for a period longer than one year.

Diff: 2 Page Ref: 488 AACSB: Analytic Skills Objective: 15-3 What is the purpose of each type of long-term financing for companies?

Skill: Conceptual 98) What is debt financing?

Answer: Debt financing occurs when a company borrows money that it is legally obligated to repay, with interest, by a specified time.

Diff: 1 Page Ref: 488 AACSB: Analytic Skills Objective: 15-3 What is the purpose of each type of long-term financing for companies?

Skill: Conceptual

99) Chief financial officer Randy Fujiwara decides not to use debt financing nor to issue new stock. What option is left for obtaining long-term financing to build a new factory?

Answer: If a company is successful, finding long-term funding can be as simple as looking at its balance sheet for retained earnings or accumulated profits. Using retained earnings is an ideal way to fund long-term projects because it saves companies from paying interest on loans or underwriting fees on bonds.

Diff: 3 Page Ref: 488 AACSB: Reflective Thinking Objective: 15-3 What is the purpose of each type of long-term financing for companies?

Skill: Application 100) If a startup company cannot get a loan and does not want to use venture capital, what is another method it could try for raising equity?

Answer: Raising capital through owner's equity is one of the few options available to a startup operation. Offering shares of ownership in the company to the general public in other words, "going public" can be a great option. A company can choose to go public when it feels it has enough public support to attract new shareholders.

Diff: 2 Page Ref: 489 AACSB: Analytic Skills Objective: 15-3 What is the purpose of each type of long-term financing for companies?

Skill: Conceptual 101) Because of growing customer demand, Dave and Michelle want to double the size of their store. How can accounting help?

Answer: Dave and Michelle will need to review the company's financial information and possibly enlist outside consultants before moving ahead. Accounting helps business managers make well-informed decisions about the financial needs of a company. Accounting involves tracking a business's income and expenses through a process of recording financial transactions.

The transactions are then summarized into key financial reports that are further used to evaluate the business's current and expected financial status. Accounting defines the heart and soul of a business as it helps to "account for" what the business has done, what it is currently doing, and what it has the potential to do.

Diff: 3 Page Ref: 490-491 AACSB: Reflective Thinking Objective: 15-4 What are the functions of corporate accounting, tax accounting, auditing, financial accounting, managerial accounting, and government and not-for-profit accounting?

Skill: Application

102) What would be a project to be worked on in a managerial accounting department?

Answer: Student answers will vary. Managerial accounting is responsible for tracking sales and the costs of producing the sales (production, marketing, and distribution). Managerial accountants help determine which business activities are most and least profitable. Based on their analysis, management is better equipped to make decisions about whether to continue with, expand, or eliminate certain business activities. A managerial accounting budget can help management decide whether it should increase staff or institute layoffs. In addition, by monitoring the activities involved in planned budgets, managerial accountants help determine and anticipate in what areas the company strays from its budgeted expectations.

Diff: 3 Page Ref: 491-492 AACSB: Reflective Thinking Objective: 15-4 What are the functions of corporate accounting, tax accounting, auditing, financial accounting, managerial accounting, and government and not-for-profit accounting?

Skill: Application 103) Distinguish between managerial accounting and financial accounting.

Answer: Managerial accounting is responsible for tracking sales and the costs of producing the sales (production, marketing, and distribution). Managerial accountants help determine which business activities are most and least profitable. In addition, by monitoring the activities involved in planned budgets, managerial accountants help determine and anticipate in what areas the company strays from its budgeted expectations. Financial accounting is an area of accounting that produces financial documents to aid decision makers outside an organization in making decisions regarding investments and credibility. Investors and shareholders rely on financial accounting to help them evaluate a company's performance and profitability.

Diff: 2 Page Ref: 491-492 AACSB: Analytic Skills Objective: 15-4 What are the functions of corporate accounting, tax accounting, auditing, financial accounting, managerial accounting, and government and not-for-profit accounting?

Skill: Conceptual 104) What does GAAP stand for? Briefly describe its purpose.

Answer: For any financial information to be useful, it is critical that the information is accurate, fair and objective, and consistent over time. Therefore, accountants in the United States follow a set of generally acceptable accounting principles (GAAP) that are standard accounting rules defined by the Financial Accounting Standard Board (FASB), an independent organization.

Diff: 2 Page Ref: 493 AACSB: Analytic Skills Objective: 15-5 How is double entry bookkeeping used to maintain the balance of the fundamental accounting equation?

Skill: Conceptual

105) What is a balance sheet used for?

Answer: A balance sheet is a snapshot of a business's financial condition at a specific moment in time. It reflects what a company owns (assets), what it owes to outside parties (liabilities), and what it owes to the owners (owners’ equity). The information in the balance sheet is used to answer questions such as, "Is the business in a good position to expand?" and "Does the business have enough cash to ride out an anticipated lull in sales?" In addition, by analyzing how a balance sheet changes over time, financial managers can identify trends and then suggest strategies to manage accounts receivable and payable in a way that is most beneficial to the company's bottom line.

Diff: 2 Page Ref: 496 AACSB: Analytic Skills Objective: 15-6 What is the function of balance sheets, income statements, and statements of cash flow?

Skill: Conceptual 106) Give an example of an intangible asset.

Answer: Student answers will vary. Intangible assets do not have physical characteristics, but they have value nonetheless. Trademarks, patents, and copyrights are examples of intangible assets, in addition to strong brand recognition and excellent customer or employee relations.

Diff: 2 Page Ref: 498 AACSB: Reflective Thinking Objective: 15-6 What is the function of balance sheets, income statements, and statements of cash flow?

Skill: Application 107) What does an income statement show?

Answer: An income statement reflects the profitability of a company by showing how much money the company takes in and how much money it spends. The difference of money in and money out is the profit or loss, sometimes referred to as the bottom line. Besides showing overall profitability, income statements also indicate how effectively management is controlling expenses by pinpointing abnormal or excessive expenditures, highlighting unexpected increases in costs of goods sold, or showing a change in returns.

Diff: 2 Page Ref: 501 AACSB: Analytic Skills Objective: 15-6 What is the function of balance sheets, income statements, and statements of cash flow?

Skill: Conceptual 108) What are three measurements used to analyze an income statement?

Answer: Measurements that reveal how effectively management controls expenses or how the company's profits compare to others in its industry are (1) gross profit margin, (2) operating profit margin, and (3) earnings per share (EPS).

Diff: 2 Page Ref: 502 AACSB: Analytic Skills Objective: 15-6 What is the function of balance sheets, income statements, and statements of cash flow?

Skill: Conceptual

109) Why should shareholders and prospective investors monitor earnings per share closely?

Answer: Shareholders and prospective investors should monitor earnings per share closely. In some instances, the pressure of maintaining a continued growth record in net income or earnings per share has led management to "cook the books" or misrepresent financial information so that the business's bottom line appears better than it actually is. Such fraudulent behavior was the notable downfall of companies such as Enron, WorldCom, and Tyco, and is the reason why the Sarbanes-Oxley Act of 2002 was passed into law. Therefore, it is best not to rely on any one financial measure and to look at the financial statements and other information as a whole.

Diff: 2 Page Ref: 503 AACSB: Analytic Skills Objective: 15-6 What is the function of balance sheets, income statements, and statements of cash flow?

Skill: Conceptual 110) Why is the statement of cash flows important?

Answer: The statement of cash flows shows how efficiently management generates and uses cash. It shows whether all the revenues booked on the income statement have actually been collected. This information is useful to creditors who are interested in determining a company's short-term health, particularly in its ability to pay its bills. In addition, it signals to investors whether the business is generating enough money to buy new inventory and to make investments in the business. Accounting personnel, potential employees, or contractors may be interested in cash flow information to determine whether a company will be able to afford salary and other labor obligations.

Diff: 2 Page Ref: 504-505 AACSB: Analytic Skills Objective: 15-6 What is the function of balance sheets, income statements, and statements of cash flow?

Skill: Conceptual Better Business, 7e (Solomon) Chapter 16 Investment Opportunities in the Securities Market 1) Stocks and bonds are collectively known as ________.

A) fund generators B) securities C) the money market D) corporate obligations Answer: B Explanation: B) Securities includes company issuance of stocks and bonds. Both are ways for a company to raise needed money, and each has its strengths and weaknesses.

Diff: 1 Page Ref: 513 Objective: 16-1 What are the pros and cons of debt and equity financing?

Skill: Conceptual 2) What reward do bond holders get for the risk they take?

A) honor of supporting a struggling company B) security of government guarantee for their money

C) option to buy more bonds in the company D) ability to receive interest payments on money lent Answer: D Explanation: D) The main reason a person or institution buys bonds is to make money, primarily through the interest payments, although it's also possible that the value of the bond itself will increase and can be sold for a profit. The government typically does not guarantee bonds.

Diff: 2 Page Ref: 514 Objective: 16-1 What are the pros and cons of debt and equity financing?

Skill: Conceptual 3) Which of the following is NOT an advantage of issuing bonds to raise funds for a company?

A) Issuing bonds means other company money is available for other uses.

B) Investors typically see bonds as less risky than stocks when investing.

C) Adverse business conditions may make it difficult to pay the interest on the bonds.

D) Issuing bonds allows a company to expand and potentially achieve greater profits.

Answer: C Explanation: C) Companies issue bonds so they can raise money for important business purposes. However, if the fortunes of the company decline precipitously, the company may have great difficulty meeting its bond obligations, or may not be able to pay on them at all.

Diff: 2 Page Ref: 514 Objective: 16-1 What are the pros and cons of debt and equity financing?

Skill: Conceptual

4) Compared to a company issuing stock, a company issuing bonds ________.

A) has a more concentrated ownership B) doesn't need to deal with financial institutions C) doesn't need to deal with the Securities and Exchange Commission D) need not publish information about its finances Answer: A Explanation: A) With the issuance of stock, a company dilutes ownership of the company. This can eventually have adverse consequences if a majority of stock owners decide they want major changes in the company, or want to sell it to another company. Issuing bonds is typically the safer method of raising funds. Issuing either stocks or bonds requires dealing with the SEC and financial institutions.

Diff: 1 Page Ref: 514 Objective: 16-1 What are the pros and cons of debt and equity financing?

Skill: Conceptual 5) The STRONGEST factor affecting a company’s decision of whether or not to finance with bonds is ________.

A) the interest rate B) the length of the bond term C) the general state of the economy D) the success of other companies in raising money Answer: A Explanation: A) The most significant factor affecting the decision to finance with bonds is the interest rate. The higher the interest rate, the more costly the financing will be.

Diff: 2 Page Ref: 514 Objective: 16-1 What are the pros and cons of debt and equity financing?

Skill: Conceptual 6) If you buy a $10,000, five-year corporate bond, what amount will the company pay you in a lump sum at the end of five years?

A) $10,000 B) $10,000 plus the principle amount invested C) It's impossible to know before the investment is made.

D) the interest earned by the $10,000 only Answer: A Explanation: A) Assuming the company is still in business and good financial standing, you'll receive your $10,000 back. Over the course of the five years you'll also be paid interest.

Diff: 1 Page Ref: 514 Objective: 16-1 What are the pros and cons of debt and equity financing?

Skill: Conceptual

7) To ensure they'll have the funds to pay back bond holders, companies MOST often put their money into a ________ annually.

A) savings account B) money market account C) managed fund D) sinking fund Answer: D Explanation: D) The sinking fund keeps the company on track with saving the money it needs to pay its bond obligations.

Diff: 1 Page Ref: 514 Objective: 16-1 What are the pros and cons of debt and equity financing?

Skill: Conceptual 8) Of the following forms of funding for small business, which is MOST often used in the early stages?

A) angel investors B) personal savings C) issuing stock D) government grants Answer: B Explanation: B) Most small business owners initially fund their new venture with personal savings or contributions from family, friends, or business associates. Eventually the business may seek venture capital or angel investors. For long-term expansion, a successful company may decide to issue stock. The government rarely gives outright grants of any substantial size to small businesses, although there are government loan programs available from the Small Business Administration.

Diff: 2 Page Ref: 515 Objective: 16-1 What are the pros and cons of debt and equity financing?

Skill: Conceptual 9) Which of the following sources of funds is MOST likely to be obtained just before a company raises money through a stock offering?

A) contributions from family members B) personal sources of cash and credit C) capital from business associates D) money from angel investors Answer: D Explanation: D) Angel investors and venture capitalists supply funding when a company shows strong potential for growth and future profitability. The next step in expanding the business and raising even more money is financing with stock.

Diff: 2 Page Ref: 515 Objective: 16-1 What are the pros and cons of debt and equity financing?

Skill: Conceptual

10) Why do companies issue stock?

A) to raise capital from average investors B) to raise capital from venture capitalists C) to attract capital from angel investors D) to comply with SEC requirements Answer: A Explanation: A) Companies issue stock as a way to raise capital to finance current and future needs of the business. Funding from venture capitalists and angel investors typically happens before a stock offering. The SEC does not require companies to issue stocks.

Diff: 1 Page Ref: 515 Objective: 16-1 What are the pros and cons of debt and equity financing?

Skill: Conceptual 11) What is the biggest disadvantage of issuing stock, from the company's perspective?

A) being required to pay dividends to stockholders B) dealing with financial advisors during the initial public offering C) diluting ownership in the company D) keeping track of individual stock holders Answer: C Explanation: C) Stockholders elect the board of directors of the company, which in turn makes decisions about company management, which affects how the company is run and what it does, thus taking power away from the founders of the company.

Diff: 2 Page Ref: 515 AACSB: Analytic Skills Objective: 16-1 What are the pros and cons of debt and equity financing?

Skill: Application 12) Stock dividends ________.

A) are typically paid from company profits B) are most likely to be paid by small startup companies C) are usually paid with more shares of stock, not cash D) must be paid by all companies that issue stock Answer: A Explanation: A) Stock dividends are cash payments paid by companies to stockholders from company profits. Although a stockholder can decide to get more shares of stock with her cash dividend, she usually has the option to take cash. Small startups usually do not have the profits necessary to start paying dividends. Large, long-established companies are far more likely to pay a dividend.

Diff: 2 Page Ref: 515 Objective: 16-1 What are the pros and cons of debt and equity financing?

Skill: Conceptual

13) Which of the following statements about financing with stocks is NOT true?

A) Equity financing does not need to be repaid.

B) Equity financing increases owner control of the company.

C) Equity financing allows the company to retain cash and profits.

D) Equity financing means less debt, which means the balance sheet looks stronger.

Answer: B Explanation: B) The main disadvantage of equity financing is that it results in owners having to share power with stockholders. The advantages of equity financing are the greater freedom allowed the company by not having to repay debt (as with bonds), having more cash on hand, and having a balance sheet with less debt.

Diff: 2 Page Ref: 516 AACSB: Analytic Skills Objective: 16-1 What are the pros and cons of debt and equity financing?

Skill: Application 14) Regarding use of debt and equity financing, it's true that most large companies ________.

A) rely primarily on bond financing B) rely primarily on equity financing C) use a mix of both bond and equity financing D) use neither bond nor equity financing Answer: C Explanation: C) Most large companies use a mix of bond and equity financing depending on the particular needs of the company and the nature of their businesses.

Diff: 1 Page Ref: 516 Objective: 16-1 What are the pros and cons of debt and equity financing?

Skill: Conceptual 15) What is the first thing a company's financial manager does once her company has decided to finance with bonds?

A) contact a financial advisory firm B) contact the Securities and Exchange Commission C) place the bond offering in primary market D) issue a call for individual investors to buy the bonds Answer: A Explanation: A) The first step is finding a financial advisory firm. Later, in conjunction with the advisory firm and other participating firms, and following the regulations of the SEC, the bonds will be sold in the capital market. The initial bond offering does not typically involve individual investors.

Diff: 2 Page Ref: 516 Objective: 16-2 How do companies issue bonds and stocks?

Skill: Conceptual

16) Which federal agency oversees and regulates the buying and selling of stocks and bonds?

A) Federal Trade Commission B) Commerce Department C) Federal Reserve Board D) Securities and Exchange Commission Answer: D Explanation: D) The Security and Exchange Commission (SEC) is the key agency in charge of enforcing rules regarding the buying and selling of stocks and bonds. The other three federal government entities all make decisions and enforce rules that affect the economy and individual businesses.

Diff: 1 Page Ref: 517 Objective: 16-2 How do companies issue bonds and stocks?

Skill: Conceptual 17) In a bond offering, financial advisors MOST often buy bonds of the company ________.

A) at higher than face value B) at face value C) at lower than face value D) at a price of their own choosing Answer: C Explanation: C) The financial advisors buy the bonds at below face value and then quickly sell them to large investors at a higher price. This money, along with the managing fee, is how the financial advisors profit from the issuance and sale of bonds.

Diff: 2 Page Ref: 517 Objective: 16-2 How do companies issue bonds and stocks?

Skill: Conceptual 18) The first time a company issues stock, it does so through a(n) ________.

A) primary market issuance B) initial public offering C) tertiary market sale D) auction house Answer: B Explanation: B) The first sale of stock to the public by a company is called an initial public offering (IPO). Similar to the financing of a bond, a financial advisor coordinates the documentation preparation and filing with the SEC. Diff: 1 Page Ref: 517 Objective: 16-2 How do companies issue bonds and stocks?

Skill: Conceptual

19) Of the following, which is LEAST likely to buy stock in an IPO? A) a mutual fund B) a corporate pension plan C) an insurance company D) an individual investor Answer: D Explanation: D) Individual investors usually avoid the risk of the IPO. If they like the stock, they will buy it later, on the secondary market.

Diff: 2 Page Ref: 517 Objective: 16-2 How do companies issue bonds and stocks?

Skill: Conceptual 20) Most individual stock investors buy stock ________.

A) directly from companies B) in the primary market C) in the secondary market D) through their local banks Answer: C Explanation: C) The secondary market is where individual investors can easily buy stock from other investors. The primary market deals with initial offerings of bonds and stocks. Very few individual investors purchase stock directly from companies or use their local banks as intermediaries.

Diff: 2 Page Ref: 517 Objective: 16-2 How do companies issue bonds and stocks?

Skill: Conceptual 21) The ________ details the company’s history.

A) prospectus B) marketing plan C) business section D) dissertation Answer: A Explanation: A) The prospectus, prepared by the company in conjunction with a financial advisory firm, details the company's history, business model, financials, and plans for the future.

If you are considering purchasing stock through an initial purchase offering, the most important thing for you to read is the prospectus.

Diff: 2 Page Ref: 517 Objective: 16-2 How do companies issue bonds and stocks?

Skill: Conceptual

22) Which of the following is NOT a reason why savings accounts give low returns?

A) the low interest rates on most savings accounts B) the cost of FDIC insurance C) taxes on interest earned D) the effect of inflation Answer: B Explanation: B) FDIC insurance is one of the perks of savings accounts: it protects you from losses. The downside of savings accounts are the low interest rates, the taxes you pay on the interest, and that inflation will eat away some, or even all, of your gains.

Diff: 2 Page Ref: 518 Objective: 16-3 How do risk return relationships, risk tolerance, and asset allocations relate to the fundamentals of investment?

Skill: Conceptual 23) Which of the following types of investments is best for money you may need in an emergency?

A) individual stocks B) corporate bonds C) money markets D) real estate Answer: C Explanation: C) Money markets are the ideal place for money you could need for an unexpected expense or for losing your job. The money is safe from significant loss and you can get it quickly and easily.

Diff: 2 Page Ref: 532-533 AACSB: Analytic Skills Objective: 16-3 How do risk return relationships, risk tolerance, and asset allocations relate to the fundamentals of investment?

Skill: Application 24) Of the following investments, which has the greatest risk?

A) real estate B) mutual funds C) options D) common stock Answer: C Explanation: C) Options are riskier than the other choices because there is a greater chance of losing money, potentially all of it.

Diff: 2 Page Ref: 520 Objective: 16-3 How do risk return relationships, risk tolerance, and asset allocations relate to the fundamentals of investment?

Skill: Conceptual

25) Of the following investments, which has the greatest risk?

A) real estate B) mutual funds C) corporate bonds D) treasury bills Answer: A Explanation: A) Real estate is riskier than the other choices because there is a greater chance of losing money; however, there is also a greater chance of making money.

Diff: 2 Page Ref: 520 Objective: 16-3 How do risk return relationships, risk tolerance, and asset allocations relate to the fundamentals of investment?

Skill: Conceptual 26) Of the following investments, which has the lowest risk?

A) government bonds B) mutual funds C) futures D) common stock Answer: A Explanation: A) Government bonds are a very safe investment they are backed by either the federal government or a state or local government. While there can be problems, especially with local government bonds, government bonds typically provide their low yields with relatively little risk of loss.

Diff: 2 Page Ref: 520 Objective: 16-3 How do risk return relationships, risk tolerance, and asset allocations relate to the fundamentals of investment?

Skill: Conceptual 27) Of the following investments, which has the lowest risk?

A) government bonds B) mutual funds C) corporate bonds D) Treasury bills Answer: D Explanation: D) Treasury bills are the safest of all investments, and in turn, they have the average lowest yields.

Diff: 2 Page Ref: 520 Objective: 16-3 How do risk return relationships, risk tolerance, and asset allocations relate to the fundamentals of investment?

Skill: Conceptual

28) If you wanted a moderate risk and moderate return for your investment, you would be wisest to choose ________.

A) Treasury bills B) options C) real estate D) asset allocation Answer: D Explanation: D) The concept of asset allocation suggests you structure your portfolio with different types of assets (stocks, bonds, mutual funds, real estate, etc.) to reduce the risks associated with these broad types of investments—mostly from inflation and changes in interest rates.

Diff: 2 Page Ref: 521 Objective: 16-3 How do risk return relationships, risk tolerance, and asset allocations relate to the fundamentals of investment?

Skill: Conceptual 29) Owning ten stocks rather than two illustrates the concept of ________.

A) asset allocation B) the risk return relationship C) diversification D) money market funds Answer: C Explanation: C) Diversification is having a variety of investments in your portfolio, such as different types of companies in different industries.

Diff: 1 Page Ref: 520 Objective: 16-3 How do risk return relationships, risk tolerance, and asset allocations relate to the fundamentals of investment?

Skill: Conceptual 30) An asset allocation of 50% stocks, 45% bonds, and 5% cash is considered ________ risk.

A) conservative B) moderate C) no D) aggressive Answer: B Explanation: B) An allocation approximately evenly divided between stocks and bonds, with a bit of cash as a rainy day fund, is considered moderate.

Diff: 2 Page Ref: 521 Objective: 16-3 How do risk return relationships, risk tolerance, and asset allocations relate to the fundamentals of investment?

Skill: Conceptual

31) An asset allocation of 95% stocks and 5% bonds is considered ________ risk.

A) conservative B) moderate C) no D) aggressive Answer: D Explanation: D) The stock market can be highly volatile, with major bull markets when it rises dramatically and major bear markets when it declines precipitously. An asset allocation almost entirely in stocks thus can potentially make a lot of money or lose a lot of money.

Diff: 2 Page Ref: 521 Objective: 16-3 How do risk return relationships, risk tolerance, and asset allocations relate to the fundamentals of investment?

Skill: Conceptual 32) Which of the following is NOT an advantage preferred stockholders have compared to common stockholders?

A) no chance of receiving voting privileges B) greater likelihood of being paid dividends C) greater chance of getting money back if the company fails D) preferred position in getting company assets if the company fails Answer: A Explanation: A) Preferred stockholders don't get to vote on company policy; however, they do have a better financial position compared to common stockholders in that they receive any dividends first, and they are ahead of common stockholders when a bankrupt company's assets are distributed.

Diff: 2 Page Ref: 523 Objective: 16-4 What are the different investment categories of stocks, and how does the stock trade process work?

Skill: Conceptual 33) A(n) ________ stock pays a large dividend and is unlikely to experience major appreciation.

A) blue chip B) income C) defensive D) cyclical Answer: B Explanation: B) Income stocks pay a good and usually steady dividend, but don't have much appreciation. A blue chip stock is from a stable, older company with a good track record that pays dividends. A defensive stock is from a company that makes staples such as food and drugs that are not much affected by downturns or upturns in the economy. A cyclical stock is issued by a company that makes a product like cars or buildings that are strongly affected by upturns and downturns in the economy.

Diff: 1 Page Ref: 523 Objective: 16-4 What are the different investment categories of stocks, and how does the stock trade process work?

Skill: Conceptual

34) A(n) ________ stock is issued by a company that has a long history of consistent growth and stability and often pays regular dividends.

A) blue chip B) income C) defensive D) cyclical Answer: A Explanation: A) A blue chip stock is from a stable, older company with a good track record that pays dividends. Income stocks pay a good and usually steady dividend, but don't have much appreciation. A defensive stock is from a company that makes staples such as food and drugs that are not much affected by downturns or upturns in the economy. A cyclical stock is issued by a company that makes a product like cars or buildings that are strongly affected by upturns and downturns in the economy.

Diff: 1 Page Ref: 523 Objective: 16-4 What are the different investment categories of stocks, and how does the stock trade process work?

Skill: Conceptual 35) A(n) ________ stock is issued by a young and expanding company and usually doesn't pay a dividend.

A) blue chip B) income C) defensive D) growth Answer: D Explanation: D) A growth stock is from a younger company that is growing rapidly but is relatively unproven; its stock can increase rapidly, but it's also a risky investment. A blue chip stock is from a stable, older company with a good track record that pays dividends. A defensive stock is from a company that makes staples such as food and drugs that are not much affected by downturns or upturns in the economy.

Diff: 1 Page Ref: 523 Objective: 16-4 What are the different investment categories of stocks, and how does the stock trade process work?

Skill: Conceptual

36) A ________ stock comes from a company that makes consumer goods such as food and drugs that have fairly constant demand regardless of the state of the economy.

A) blue chip B) growth C) defensive D) cyclical Answer: C Explanation: C) A defensive stock is from a company that makes staples such as food and drugs that are not much affected by downturns or upturns in the economy. A blue chip stock is from a stable, older company with a good track record that pays dividends. A growth stock is from a younger company that is growing rapidly but is relatively unproven; its stock can increase rapidly, but it's also a risky investment. A cyclical stock is issued by a company that makes a product like cars or buildings that are strongly affected by upturns and downturns in the economy.

Diff: 1 Page Ref: 524 Objective: 16-4 What are the different investment categories of stocks, and how does the stock trade process work?

Skill: Conceptual 37) An investor with a strong appetite for risk should purchase a(n) ________.

A) cyclical stock B) blue chip stock C) growth stock D) income stock Answer: C Explanation: C) Growth stocks hold the highest appeal for an investor with a high risk tolerance.

Their prices can fluctuate dramatically, but they have the best potential for rapid appreciation.

Diff: 2 Page Ref: 523 AACSB: Analytic Skills Objective: 16-4 What are the different investment categories of stocks, and how does the stock trade process work?

Skill: Application 38) An investor who wants a fairly reliable and large dividend would be best served by purchasing a(n) ________.

A) defensive stock B) growth stock C) blue chip stock D) income stock Answer: D Explanation: D) An income stock is the best choice for a large and stable dividend. A blue chip stock would be a good second choice.

Diff: 2 Page Ref: 523 Objective: 16-4 What are the different investment categories of stocks, and how does the stock trade process work?

Skill: Conceptual

39) A ________ stock will likely suffer the least amount of depreciation in a major recession.

A) cyclical B) blue chip C) growth D) defensive Answer: D Explanation: D) Defensive stocks are issued by companies that provide products and services that people require regardless of the state of the economy. Examples include food, drugs, and insurance.

Diff: 2 Page Ref: 524 AACSB: Analytic Skills Objective: 16-4 What are the different investment categories of stocks, and how does the stock trade process work?

Skill: Application 40) A(n) ________ stock's price is greatly affected by the state of the economy because the company makes a product that can have highly variable demand.

A) growth B) income C) defensive D) cyclical Answer: D Explanation: D) A cyclical stock is issued by a company that makes a product like cars or buildings that are strongly affected by upturns and downturns in the economy. A growth stock is from a younger company that is growing rapidly but is relatively unproven; its stock can increase rapidly, but it's also a risky investment. Income stocks pay a good and usually steady dividend, but don't have much appreciation. A blue chip stock is from a stable, older company with a good track record that pays dividends. A defensive stock is from a company that makes staples such as food and drugs that are not much affected by downturns or upturns in the economy.

Diff: 1 Page Ref: 524 Objective: 16-4 What are the different investment categories of stocks, and how does the stock trade process work?

Skill: Conceptual

41) An automobile company stock can best be characterized as being a ________ stock.

A) growth B) cyclical C) defensive D) blue chip Answer: B Explanation: B) Demand for autos is closely tied to the state of the economy. When the economy does well, people buy more cars; when the economy does poorly, people buy fewer cars.

Diff: 2 Page Ref: 524 AACSB: Analytic Skills Objective: 16-4 What are the different investment categories of stocks, and how does the stock trade process work?

Skill: Application 42) If your retired grandmother had modest means, yet wanted to invest in stock, which type of stock would you advise her to buy?

A) blue chip stock B) defensive stock C) growth stock D) income stock Answer: D Explanation: D) An income stock is the best choice. It provides a substantial and fairly safe dividend, and the share price should be fairly stable.

Diff: 2 Page Ref: 523 AACSB: Analytic Skills Objective: 16-4 What are the different investment categories of stocks, and how does the stock trade process work?

Skill: Application 43) A 25-year-old with a good job and a high appetite for risk should put a significant portion of her portfolio into ________.

A) growth stocks B) corporate bonds C) the money market D) a savings account Answer: A Explanation: A) Growth stocks have the potential for strong growth, but also potential failure.

Someone who hopes for high appreciation of her portfolio should own some growth stocks.

Diff: 2 Page Ref: 523 AACSB: Analytic Skills Objective: 16-4 What are the different investment categories of stocks, and how does the stock trade process work?

Skill: Application

44) What is the cheapest way for you to buy a stock?

A) through a full-service stockbroker B) through a discount broker C) through your bank D) through a New York Stock Exchange broker Answer: B Explanation: B) Using an online discount broker is the least expensive way to purchase stock.

Diff: 1 Page Ref: 525 Objective: 16-4 What are the different investment categories of stocks, and how does the stock trade process work?

Skill: Conceptual 45) If the demand for a stock is high and the supply of the stock is low, the price of the stock will ________.

A) rise B) decline C) stay about the same D) fluctuate randomly Answer: A Explanation: A) According to the concept of supply and demand, an increase in demand or a decrease in supply will lead to an increase in price.

Diff: 2 Page Ref: 527 AACSB: Analytic Skills Objective: 16-5 What is stock performance, and what are the factors that lead to changes in stock price?

Skill: Application 46) A bear market is distinguished by ________.

A) a declining stock market and increasing investor confidence B) a declining stock market and decreasing investor confidence C) an increasing stock market and increasing investor confidence D) an increasing stock market and decreasing investor confidence Answer: B Explanation: B) A bear market includes both a declining stock market and decreasing investor confidence. A bull market includes both an increasing stock market and increasing investor confidence.

Diff: 1 Page Ref: 528 Objective: 16-5 What is stock performance, and what are the factors that lead to changes in stock price?

Skill: Conceptual

47) A bull market is distinguished by ________.

A) a declining stock market and increasing investor confidence B) a declining stock market and decreasing investor confidence C) an increasing stock market and increasing investor confidence D) an increasing stock market and decreasing investor confidence Answer: C Explanation: C) A bull market includes both an increasing stock market and increasing investor confidence. A bear market includes both a declining stock market and decreasing investor confidence.

Diff: 1 Page Ref: 527 Objective: 16-5 What is stock performance, and what are the factors that lead to changes in stock price?

Skill: Conceptual 48) Of the following stock indexes, which one tracks the largest number of stocks?

A) DJIA B) NASDAQ 100 C) S&P 500 D) All three indices track the same number of stocks.

Answer: C Explanation: C) The S&P 500 tracks the 500 largest companies; the DJIA tracks the 30 largest companies; the NASDAQ 100 includes 100 large nonfinancial companies.

Diff: 2 Page Ref: 528 Objective: 16-5 What is stock performance, and what are the factors that lead to changes in stock price?

Skill: Conceptual 49) With stock investing, a capital gain occurs when ________.

A) the stock owner is paid dividends without having to sell shares B) the stock owner sells the stock for a higher price than he paid for it C) the stock owner sells the stock for a lower price than he paid for it D) the stock owner receives legal entitlement to physical property of the company Answer: B Explanation: B) A capital gain occurs when someone buys a stock for a given price and then sells it for a higher price. The gain is the difference between what he paid for the stock and what he received when he sold the stock.

Diff: 1 Page Ref: 528 Objective: 16-5 What is stock performance, and what are the factors that lead to changes in stock price?

Skill: Conceptual

50) A corporate bond backed only by a company's promise to pay is called a ________.

A) debenture bond B) secured bond C) convertible bond D) promissory bond Answer: A Explanation: A) A debenture bond is an unsecured bond with only the company's promise to pay behind it. A secured bond is a bond that is backed by collateral that can be sold to reimburse bondholders. A convertible bond is one that can be exchanged for a given number of shares of stock in the company.

Diff: 1 Page Ref: 529 Objective: 16-6 What are the different types and characteristics of bonds, and how is the safety of bonds evaluated?

Skill: Conceptual 51) A corporate bond backed by collateral is called a ________.

A) debenture bond B) secured bond C) convertible bond D) treasury bond Answer: B Explanation: B) A secured bond is a bond that is backed by collateral that can be sold to reimburse bondholders. A debenture bond is an unsecured bond with only the company's promise to pay behind it. A convertible bond is one that can be exchanged for a given number of shares of stock in the company. Treasury bonds are issued by the United States government and are thus not corporate bonds.

Diff: 1 Page Ref: 529 Objective: 16-6 What are the different types and characteristics of bonds, and how is the safety of bonds evaluated?

Skill: Conceptual 52) A corporate bond that can be exchanged for stock is called a(n) ________.

A) debenture bond B) secured bond C) convertible bond D) equity bond Answer: C Explanation: C) A convertible bond is one that can be exchanged for a given number of shares of stock in the company. A debenture bond is an unsecured bond with only the company's promise to pay behind it. A secured bond is a bond that is backed by collateral that can be sold to reimburse bondholders.

Diff: 1 Page Ref: 529 Objective: 16-6 What are the different types and characteristics of bonds, and how is the safety of bonds evaluated?

Skill: Conceptual

53) If you want a bond that you can exchange into stock of a given company, you should buy a ________.

A) revenue bond B) serial bond C) convertible bond D) secured bond Answer: C Explanation: C) A convertible bond is one that can be exchanged for a given number of shares of stock in the company. A secured bond is a bond that is backed by collateral that can be sold to reimburse bondholders. Revenue bonds and serial bonds are municipal bonds and are not related to private companies.

Diff: 1 Page Ref: 529 Objective: 16-6 What are the different types and characteristics of bonds, and how is the safety of bonds evaluated?

Skill: Conceptual 54) Which of the following bonds has the longest maturity date?

A) Treasury bills B) Treasury bonds C) Treasury notes D) All three types of bonds have the same maturity date.

Answer: B Explanation: B) Treasury bonds mature in 30 years. Treasury notes have maturity dates of two, five, or ten years. Treasury bills mature in 2 to 26 weeks.

Diff: 1 Page Ref: 530 Objective: 16-6 What are the different types and characteristics of bonds, and how is the safety of bonds evaluated?

Skill: Conceptual 55) Which of the following bonds has the shortest maturity date?

A) Treasury bills B) Treasury bonds C) Treasury notes D) All three types of bonds have the same maturity date.

Answer: A Explanation: A) Treasury bonds mature in 30 years. Treasury notes have maturity dates of two, five, or ten years. Treasury bills mature in 2 to 26 weeks.

Diff: 1 Page Ref: 530 Objective: 16-6 What are the different types and characteristics of bonds, and how is the safety of bonds evaluated?

Skill: Conceptual

56) Which of the following bond types is safest?

A) convertible bonds B) debenture bonds C) secured bonds D) Treasury bonds Answer: D Explanation: D) Treasury bonds are safest because they are backed by the United States government.

Diff: 2 Page Ref: 529-530 AACSB: Analytic Skills Objective: 16-6 What are the different types and characteristics of bonds, and how is the safety of bonds evaluated?

Skill: Application 57) Bonds issued by state and local governments are called ________.

A) municipal bonds B) debenture bonds C) treasury bonds D) convertible bonds Answer: A Explanation: A) Municipal bonds (state and local government bonds) include both general obligation bonds and revenue bonds.

Diff: 1 Page Ref: 530 Objective: 16-6 What are the different types and characteristics of bonds, and how is the safety of bonds evaluated?

Skill: Conceptual 58) A state government would issue a ________ bond to finance the construction of a toll bridge and then use the tolls to pay for the bond.

A) general obligation B) revenue C) convertible D) secure Answer: B Explanation: B) A revenue bond funds a project and then uses money raised by the project to make bond payments. A general obligation bond is supported by the taxing power of a government. Convertible bonds and secure bonds are issued by corporations.

Diff: 2 Page Ref: 530 Objective: 16-6 What are the different types and characteristics of bonds, and how is the safety of bonds evaluated?

Skill: Conceptual

59) Callable bonds ________.

A) have no benefits from a corporation or the government's perspective B) have a lower degree of uncertainty than similar non-callable bonds C) have a higher interest rate than similar non-callable bonds D) have a definite maturity date on which they are paid off Answer: C Explanation: C) Callable bonds have a higher interest rate than similar non-callable bonds. The higher interest rate reflects the uncertainty the investor faces regarding when the bonds may be paid back.

Diff: 2 Page Ref: 530 Objective: 16-6 What are the different types and characteristics of bonds, and how is the safety of bonds evaluated?

Skill: Conceptual 60) Which of the following Standard & Poor's bond rating categories is most likely to pay the highest interest rate?

A) AAA B) A C) BBB D) CCC Answer: D Explanation: D) The further the letter associated with a bond is from the letter A, the greater the risk, and the greater the risk, the higher the interest rate. The lowest-risk bonds are rated AAA. Since they are low risk, they pay lower interest rates.

Diff: 2 Page Ref: 531 Objective: 16-6 What are the different types and characteristics of bonds, and how is the safety of bonds evaluated?

Skill: Conceptual 61) Which of the following Standard & Poor's bond rating categories is most likely to pay the lowest interest rate?

A) AAA B) A C) BBB D) CCC Answer: A Explanation: A) The further the letter associated with a bond is from the letter A, the greater the risk, and the greater the risk, the higher the interest rate. The lowest-risk bonds are rated AAA. Since they are low risk, they pay lower interest rates.

Diff: 2 Page Ref: 531 Objective: 16-6 What are the different types and characteristics of bonds, and how is the safety of bonds evaluated?

Skill: Conceptual

62) Junk bonds ________.

A) are paid with the highest interest rates B) are typically rated in the A or B category C) are relatively safe investments D) are backed by insurance policies Answer: A Explanation: A) Junk bonds pay high interest rates because they are very risky. There is a significant probability the bond holder will not be paid back.

Diff: 2 Page Ref: 530-531 Objective: 16-6 What are the different types and characteristics of bonds, and how is the safety of bonds evaluated?

Skill: Conceptual 63) A bond's interest rate is termed its ________.

A) rating B) face value C) par value D) coupon Answer: D Explanation: D) The term coupon, for bond interest rates, stems from earlier times when bonds had coupons that investors would remove and then turn in to receive their interest payments.

Both face value and par value refer to the amount of money the investor will receive when the bond matures.

Diff: 2 Page Ref: 531 Objective: 16-6 What are the different types and characteristics of bonds, and how is the safety of bonds evaluated?

Skill: Conceptual 64) A mutual fund is BEST characterized by ________.

A) multiple investors in a single bond or stock B) multiple investors in a diversified set of bonds or stocks C) multiple investors making collective decisions D) multiple investors with limited knowledge of the market Answer: B Explanation: B) Mutual funds allow investors to mitigate the risks of owning just one or a few stocks or bonds. They also save the investor a lot of time by removing the need to evaluate each potential individual investment.

Diff: 1 Page Ref: 531 Objective: 16-7 What is the difference among bond mutual funds, money market funds, and equity funds?

Skill: Conceptual

65) Money market funds ________.

A) are backed by the FDIC B) are similar to corporate bonds C) are very liquid D) are risky investments Answer: C Explanation: C) It is quite easy to withdraw money from a money market; it can often be done by check. Consequently, it is very liquid.

Diff: 2 Page Ref: 532 Objective: 16-7 What is the difference among bond mutual funds, money market funds, and equity funds?

Skill: Conceptual 66) Which of the following is NOT one of four main reasons why mutual funds are popular with investors?

A) government guarantees that minimize risk B) professional management by experienced people C) professional assurance of diversification D) ease of buying into it with little money Answer: A Explanation: A) The government does not insure or otherwise directly provide a guarantee about mutual fund results.

Diff: 2 Page Ref: 532-533 Objective: 16-8 What are the advantages and disadvantages of mutual fund investments?

Skill: Conceptual 67) The net asset value of a mutual fund ________.

A) stays fixed and consistent at all times B) reflects the value of the holdings of the mutual fund C) determines whether or not it is a load fund or a no-load fund D) remains unrelated to potential capital gains or losses Answer: B Explanation: B) The net asset value (NAV) fluctuates as the value of the holdings fluctuate. You buy into a mutual fund at a certain NAV. When you sell the fund, the difference in the NAV price can result in either a capital loss or capital gain.

Diff: 2 Page Ref: 534 AACSB: Analytic Skills Objective: 16-8 What are the advantages and disadvantages of mutual fund investments?

Skill: Application

68) A futures contract ________.

A) typically involves individual stocks B) is usually held until it expires C) is an obligation to purchase the underlying asset D) is the same as an options contract Answer: C Explanation: C) When you purchase a futures contract, you incur the obligation to purchase and take delivery of the underlying asset. In nearly all instances you will sell the contract before then, hopefully at a profit.

Diff: 2 Page Ref: 535 Objective: 16-9 What is an option or futures contract?

Skill: Conceptual 69) A company issuing bonds is the same as a company getting a loan from an individual bank.

Answer: FALSE Explanation: A loan from an individual bank is usually for a smaller financial requirement and the loan is made by, and repaid to, a single bank. When a company sells bonds, many institutions and individual investors can buy and sell them.

Diff: 2 Page Ref: 513 Objective: 16-1 What are the pros and cons of debt and equity financing?

Skill: Conceptual 70) The lower the interest rate on the bonds it issues, the better the situation for the company.

Answer: TRUE Explanation: The most significant factor affecting the decision to finance with bonds is the interest rate. The lower the interest rate, the less costly the financing will be.

Diff: 2 Page Ref: 514 Objective: 16-1 What are the pros and cons of debt and equity financing?

Skill: Conceptual 71) A "sinking fund" is a corporate bond that is declining rapidly in value.

Answer: FALSE Explanation: A sinking fund is money set aside by a company to pay off bond holders at the end of the bond term.

Diff: 1 Page Ref: 514-515 Objective: 16-1 What are the pros and cons of debt and equity financing?

Skill: Conceptual

72) Issuing stock gives the founders of the company more control over company direction and management.

Answer: FALSE Explanation: Stockholders elect the board of directors of the company, who in turn makes decisions about company management, which affects how the company is run and what it does, thus taking power away from the founders of the company.

Diff: 1 Page Ref: 515 AACSB: Analytic Skills Objective: 16-1 What are the pros and cons of debt and equity financing?

Skill: Application 73) Most companies that issue stock are legally required by the Securities and Exchange Commission to pay dividends to shareholders.

Answer: FALSE Explanation: Companies are not required to pay dividends to shareholders. A company is likely to issue dividends to shareholders when the company is making good profits and there is extra money left from the profits after all taxes, expenses, and money required for business expansion are deducted.

Diff: 1 Page Ref: 515 Objective: 16-1 What are the pros and cons of debt and equity financing?

Skill: Conceptual 74) When a company issues bonds, financial advisors buy the bonds at face value.

Answer: FALSE Explanation: The financial advisors buy the bonds at below face value and then quickly sell them to large investors at a higher price. This money, along with the managing fee, is how the financial advisors profit from issuance and sale of bonds.

Diff: 2 Page Ref: 517 Objective: 16-2 How do companies issue bonds and stocks?

Skill: Conceptual 75) The first time a company sells stock, it does so through an initial public offering.

Answer: TRUE Explanation: The initial public offering, or IPO, is primarily to pension plans, large corporations, or other institutional buyers.

Diff: 1 Page Ref: 517 Objective: 16-2 How do companies issue bonds and stocks?

Skill: Conceptual

76) In general, the riskier an investment, the greater the opportunity for a large return.

Answer: TRUE Explanation: This is the basic premise of the risk return relationship. Intelligent people should choose investments that match their economic circumstances, knowledge level, and willingness to tolerate risk.

Diff: 1 Page Ref: 520 Objective: 16-3 How do risk return relationships, risk tolerance, and asset allocations relate to the fundamentals of investment?

Skill: Conceptual 77) A wise investor will practice either diversification or asset allocation, but not both.

Answer: FALSE Explanation: Both diversification and asset allocation are important to minimize risk and maximize return. They can be, and should be, practiced simultaneously.

Diff: 2 Page Ref: 520 AACSB: Analytic Skills Objective: 16-3 How do risk return relationships, risk tolerance, and asset allocations relate to the fundamentals of investment?

Skill: Application 78) Preferred stockholders are more likely to be paid a dividend than are common stockholders.

Answer: TRUE Explanation: If a company doesn't have enough profits to pay dividends to all stockholders, it must pay dividends to preferred stockholders first.

Diff: 2 Page Ref: 523 Objective: 16-4 What are the different investment categories of stocks, and how does the stock trade process work?

Skill: Conceptual 79) A utility company that pays a good dividend can best be characterized as a growth stock.

Answer: FALSE Explanation: Companies that pay large and consistent dividends are called income stocks.

Growth stocks are issued by young entrepreneurial companies that often don't pay any dividend, or only pay a small dividend.

Diff: 1 Page Ref: 523 Objective: 16-4 What are the different investment categories of stocks, and how does the stock trade process work?

Skill: Conceptual

80) Defensive stocks usually have a stock price that is greatly affected by the state of the economy.

Answer: FALSE Explanation: Defensive stocks are issued by companies that make goods such as food and drugs that have fairly constant demand regardless of the state of the economy, so they continue to have good sales during recessions and their stock prices are less affected than most other stocks.

Diff: 1 Page Ref: 524 Objective: 16-4 What are the different investment categories of stocks, and how does the stock trade process work?

Skill: Conceptual 81) A retired person of modest means is best served by purchasing growth stocks.

Answer: FALSE Explanation: Older people typically need fairly reliable sources of income and more stable stock prices; they get this with income stocks. Growth stocks have the potential for high appreciation, but they can also plummet in price, and they rarely pay significant dividends.

Diff: 2 Page Ref: 523 AACSB: Analytic Skills Objective: 16-4 What are the different investment categories of stocks, and how does the stock trade process work?

Skill: Application 82) Both the New York Stock Exchange and the NASDAQ use only electronic methods for stock trading.

Answer: FALSE Explanation: The NASDAQ is all electronic; however, the NYSE uses a mix of electronic trading and trading involving negotiations among people.

Diff: 1 Page Ref: 525 Objective: 16-4 What are the different investment categories of stocks, and how does the stock trade process work?

Skill: Conceptual 83) Trading stocks online yourself is less expensive than using a stockbroker.

Answer: TRUE Explanation: Fees are much lower for handling the entire transaction yourself over the Internet.

Diff: 1 Page Ref: 525 Objective: 16-4 What are the different investment categories of stocks, and how does the stock trade process work?

Skill: Conceptual

84) A company's capitalization or value is equal to the number of outstanding shares of stock times the price of one share of stock.

Answer: TRUE Explanation: This is the basic formula for determining the value of a company. It's often used by people trying to determine if the price of a stock is low enough to warrant purchasing the stock.

Diff: 2 Page Ref: 527 Objective: 16-5 What is stock performance, and what are the factors that lead to changes in stock price?

Skill: Conceptual 85) A bear market occurs when stocks have bottomed out and investor confidence is shifting from negative to positive.

Answer: FALSE Explanation: A bear market includes both a declining stock market and decreasing investor confidence.

Diff: 1 Page Ref: 528 Objective: 16-5 What is stock performance, and what are the factors that lead to changes in stock price?

Skill: Conceptual 86) The S&P 500 tracks more companies than does the DJIA. Answer: TRUE Explanation: The S&P 500 tracks the 500 largest companies, whereas the DJIA only includes 30 of the largest companies.

Diff: 1 Page Ref: 528 Objective: 16-5 What is stock performance, and what are the factors that lead to changes in stock price?

Skill: Conceptual 87) A stockholder can receive a substantial amount of money in dividends, yet still wind up with a capital loss on a stock.

Answer: TRUE Explanation: Capital gains and losses refer only to the difference between the amount of money paid for a stock and the amount of money received upon the sale of the stock. In this case, the stockholder could pay $50 per share, hold the stock for 5 years and make good money in dividends, and then sell the stock for $40 per share and take a capital loss.

Diff: 2 Page Ref: 528 AACSB: Analytic Skills Objective: 16-5 What is stock performance, and what are the factors that lead to changes in stock price?

Skill: Application

88) Debenture bonds are safer than secured bonds.

Answer: FALSE Explanation: Secured bonds are backed with collateral, whereas debenture bonds are backed only by a promise to pay.

Diff: 2 Page Ref: 529 AACSB: Analytic Skills Objective: 16-6 What are the different types and characteristics of bonds, and how is the safety of bonds evaluated?

Skill: Application 89) An option requires that you purchase the asset in question unless you sell the option first.

Answer: FALSE Explanation: This is correct for a futures contract, but not an option. An option gives you the right to buy (or sell) a security at a specific price on or before a certain date, but there is no actual obligation to do so.

Diff: 2 Page Ref: 535 Objective: 16-9 What is an option or futures contract?

Skill: Conceptual 90) What are the major factors that influence whether a company should raise money through either bonds or stocks?

Answer: Several important factors influence the decision. They include the impact the decision will have on cash flow, taxes, and earnings, and also the state of the stock or bond market and the anticipated interest of investors.

Diff: 2 Page Ref: 513 Objective: 16-1 What are the pros and cons of debt and equity financing?

Skill: Conceptual 91) What are the main factors that must be considered before a company decides to raise money through issuing bonds? Why are they important?

Answer: The interest rate is of prime importance. Low rates on the bonds help the company save money, whereas higher rates make the financing more expensive. Also significant is the length of the bond term, which itself affects interest rates. Bonds with a longer term are considered more risky and usually must pay a higher interest rate. Finally, a company must examine the general state of the economy and how it will likely affect the fortunes of the company.

Diff: 2 Page Ref: 514 Objective: 16-1 What are the pros and cons of debt and equity financing?

Skill: Conceptual 92) In what circumstances do companies typically decide to pay dividends to stockholders?

Answer: When profits are no longer required to fund corporate growth, the board of directors or management may choose to pay dividends in an effort to increase the shareholders’ rates of return.

Diff: 2 Page Ref: 515-516 AACSB: Analytic Skills Objective: 16-1 What are the pros and cons of debt and equity financing?

Skill: Application

93) What are the main advantages to financing with equity as opposed to bonds? How does a company choose which of the two types of financing to use, or whether or not it should use both?

Answer: The advantages of equity financing are the greater freedom allowed the company by not having to repay debt (as with bonds), having more cash on hand, and having a balance sheet with less debt. Bond financing, however, lets the company retain total control over the business since it doesn't have to share power with stockholders. In reality, many businesses use a mix of both debt and equity to fund operations and expansion, with the exact mix depending on the nature of the industry and the size of the business. See Table 16.1 on page 516.

Diff: 3 Page Ref: 516 AACSB: Analytic Skills Objective: 16-1 What are the pros and cons of debt and equity financing?

Skill: Application 94) Describe the role that a financial advisory firm fills when a company decides to issue bonds.

Answer: A financial advisory firm serves as an intermediary between a company issuing the bonds and the investors who purchase the bonds. Before the sale of the bonds, financial advisors prepare required documents for filing with the Securities and Exchange Commission (SEC).

They also consult with rating agencies that assess an issuer's creditworthiness. They help set the price for the bond issue and take the lead in forming and managing a group of financial advisory firms to underwrite, or purchase, the newly issued bonds. In addition to a managing fee, financial advisors make their money by initially purchasing all the bonds at a discounted price and then quickly selling them to investors at a higher price.

Diff: 2 Page Ref: 517 Objective: 16-2 How do companies issue bonds and stocks?

Skill: Conceptual 95) What is the prospectus that a company issues prior to an initial public offering? Why is it important?

Answer: The prospectus is a formal legal document that presents all the important details a potential investor needs to know about an investment. Its purpose is to allow the potential investor to make an informed decision about the potential risks and rewards of purchasing a stock in an initial public offering.

Diff: 2 Page Ref: 517 AACSB: Analytic Skills Objective: 16-2 How do companies issue bonds and stocks?

Skill: Application 96) Is it possible to have money in a savings account and actually lose purchasing power in the long run?

Answer: Yes. It all depends on the interest rate you earn and the amount you pay in taxes, plus the effect of inflation. Let's say the interest rate is 3% and the inflation rate is 4%. You're losing 1% per year right there, plus whatever you have to pay in taxes on the interest.

Diff: 2 Page Ref: 519 Objective: 16-3 How do risk return relationships, risk tolerance, and asset allocations relate to the fundamentals of investment?

Skill: Conceptual

97) What is the basic premise of the risk return relationship?

Answer: The risk return relationship holds that the safer an investment is (lower risk) the less money you make with it (lower return). Conversely, risky investments can lead to much greater returns; however, they can also lead to substantial losses, especially with futures, options, and real estate.

Diff: 2 Page Ref: 520 Objective: 16-3 How do risk return relationships, risk tolerance, and asset allocations relate to the fundamentals of investment?

Skill: Conceptual 98) What factors can affect a person's risk tolerance, and how can risk tolerance change over time?

Answer: Personal psychological characteristics of an individual help shape risk tolerance.

However, risk tolerance can change over time, depending on several factors: increased knowledge of finance and the economy, increased or decreased income and net worth, and changing financial objectives.

Diff: 3 Page Ref: 520 AACSB: Analytic Skills Objective: 16-3 How do risk return relationships, risk tolerance, and asset allocations relate to the fundamentals of investment?

Skill: Application 99) Why is asset allocation important for an investor?

Answer: Asset allocation involves structuring a portfolio so that an investor has substantial holdings in many asset classes such as stocks, bonds, mutual funds, real estate, and savings accounts, among others. A major decline in one asset class may be offset by a rise in another asset class. Asset allocation reduces overall risk.

Diff: 2 Page Ref: 521 AACSB: Analytic Skills Objective: 16-3 How do risk return relationships, risk tolerance, and asset allocations relate to the fundamentals of investment?

Skill: Application 100) What are the advantages and disadvantages to being a preferred stockholder as opposed to being a common stockholder?

Answer: Preferred stockholders don't get to vote on company policy; however, they do have a better financial position compared to common stockholders in that they receive any dividends first, and they are ahead of common stockholders when a bankrupt company's assets are distributed.

Diff: 2 Page Ref: 523 Objective: 16-4 What are the different investment categories of stocks, and how does the stock trade process work?

Skill: Conceptual

101) List the five main types of stocks and discuss the important characteristics of each.

Answer: Income stocks pay a good and usually steady dividend, but don't have much appreciation. A defensive stock is from a company that makes staples such as food and drugs that are not much affected by downturns or upturns in the economy. A blue chip stock is from a stable, older company with a good track record that pays dividends. A growth stock is from a younger company that is growing rapidly but is relatively unproven; its stock can increase rapidly, but it's also a risky investment. A cyclical stock is issued by a company that makes a product like cars or buildings that are strongly affected by upturns and downturns in the economy.

Diff: 2 Page Ref: 523-524 Objective: 16-4 What are the different investment categories of stocks, and how does the stock trade process work?

Skill: Conceptual 102) Discuss the important characteristics of each of the five main types of stocks. Then identify which type of stock would most appeal to someone with a very high risk tolerance. Finally, identify the type of stock most likely to pay the highest dividend on a steady basis.

Answer: Income stocks pay a good and usually steady dividend, but don't have much appreciation. A defensive stock is from a company that makes staples such as food and drugs that are not much affected by downturns or upturns in the economy. A blue chip stock is from a stable, older company with a good track record that pays dividends. A growth stock is from a younger company that is growing rapidly but is relatively unproven; its stock can increase rapidly, but it's also a risky investment. A cyclical stock is issued by a company that makes a product like cars or buildings that are strongly affected by upturns and downturns in the economy. Growth stocks hold the highest appeal for an investor with a high risk tolerance.

Someone looking for high and stable dividends would choose an income stock.

Diff: 3 Page Ref: 523-524 AACSB: Analytic Skills Objective: 16-4 What are the different investment categories of stocks, and how does the stock trade process work?

Skill: Application 103) What are the most important factors to consider when deciding which particular stock to purchase?

Answer: Begin by looking at long-term investment goals and your tolerance for risk. When considering an individual company, look at important financial data that indicate how well the company is doing, including earnings and other financial data. Also look at past performance of the stock price, including how it did relative to other companies in its sector. Also look at what analysts say about both the sector and the individual company. In addition, think about what current and future trends in the economy could do to this particular company.

Diff: 3 Page Ref: 524 AACSB: Analytic Skills Objective: 16-4 What are the different investment categories of stocks, and how does the stock trade process work?

Skill: Application

104) Why would a 65-year-old likely be best served by owning an income stock rather than a growth stock?

Answer: Older people typically need fairly reliable sources of income and more stable stock prices; they get this with income stocks. Growth stocks have the potential for high appreciation, but they can also plummet in price, and they rarely pay significant dividends.

Diff: 2 Page Ref: 524-525 AACSB: Analytic Skills Objective: 16-4 What are the different investment categories of stocks, and how does the stock trade process work?

Skill: Application 105) What are the basic characteristics of a bull market and a bear market in terms of stock market performance and investor confidence?

Answer: A bear market includes both a declining stock market and decreasing investor confidence. A bull market includes both an increasing stock market and increasing investor confidence.

Diff: 1 Page Ref: 527-528 Objective: 16-5 What is stock performance, and what are the factors that lead to changes in stock price?

Skill: Conceptual 106) What are the names and characteristics of the three major stock indices in the United States?

Answer: The S&P 500 includes 500 of the largest companies, mostly American. The DJIA includes 30 of the largest American companies. The NASDAQ 100 includes 100 of the largest nonfinancial companies listed on the NASDAQ exchange.

Diff: 2 Page Ref: 528 Objective: 16-5 What is stock performance, and what are the factors that lead to changes in stock price?

Skill: Conceptual 107) Describe two ways to make money by investing in stocks.

Answer: The two ways described in the textbook include making money from stock dividends and making a capital gain by selling a stock for more than you paid for it.

Diff: 2 Page Ref: 528 Objective: 16-5 What is stock performance, and what are the factors that lead to changes in stock price?

Skill: Conceptual 108) What is a capital gain in stock investing?

Answer: A capital gain occurs when someone buys a stock for a given price and then sells it for a higher price. The gain is the difference between what is paid for the stock and what is received when the stock is sold.

Diff: 1 Page Ref: 528 Objective: 16-5 What is stock performance, and what are the factors that lead to changes in stock price?

Skill: Conceptual

109) What are the three main types of corporate bonds and what are their important characteristics?

Answer: A convertible bond is one that can be exchanged for a given number of shares of stock in the company. A debenture bond is an unsecured bond with only the company's promise to pay behind it. A secured bond is a bond that is backed by collateral that can be sold to reimburse bondholders.

Diff: 2 Page Ref: 529 Objective: 16-6 What are the different types and characteristics of bonds, and how is the safety of bonds evaluated?

Skill: Conceptual 110) What do the terms par (face) value, coupon, and maturity date mean for bonds?

Answer: Both face value and par value refer to the amount of money the investor will receive when the bond matures. The coupon is the bond's interest rate. It stems from earlier times when bonds had coupons that investors would remove and then turn in to receive their interest payments. The maturity date is the date on which the principal of the bond is repaid to the investor.

Diff: 2 Page Ref: 531 Objective: 16-6 What are the different types and characteristics of bonds, and how is the safety of bonds evaluated?

Skill: Conceptual 111) Discuss how a mutual fund mitigates risks for an investor and also saves him time.

Answer: Mutual funds allow investors to mitigate the risks of owning just one or a few stocks or bonds. They also save the investor a lot of time by removing the need to evaluate each potential individual investment. The investor only needs to evaluate specific mutual funds to determine which one suits his needs.

Diff: 2 Page Ref: 533 AACSB: Analytic Skills Objective: 16-7 What is the difference among bond mutual funds, money market funds, and equity funds?

Skill: Application 112) What are the four main advantages of mutual funds?

Answer: First, mutual funds allow an investor to easily diversify. Second, mutual funds have professional management. Third, mutual funds are fairly liquid. Fourth, it's easy to buy into a mutual fund with a small amount of money, as little as $1000 in some cases.

Diff: 2 Page Ref: 533 AACSB: Analytic Skills Objective: 16-8 What are the advantages and disadvantages of mutual fund investments?

Skill: Application

113) Describe four different types of mutual funds and give a brief description of each one's investment strategy.

Answer: The information is summarized in Table 16.4 on page 534. There are growth funds, value funds, blend funds, large-cap funds, medium-cap funds, small-cap funds, global funds, foreign funds, country- or region-specific funds, emerging market funds, sector funds, and index funds.

Diff: 2 Page Ref: 534 Objective: 16-8 What are the advantages and disadvantages of mutual fund investments?

Skill: Conceptual

16) The economy of the United States is ________.

A) market-based B) government-owned C) socialistic D) nonprofit Answer: A Explanation: A) The United States' economy is market-based, that is, there is an emphasis on economic freedom and a limit on government intervention. Therefore, the U.S. economy would not be considered either government-owned or socialistic. The U.S. economy is intended to support profitable business, and a country's economy, unlike an individual organization, would not be labeled "nonprofit."

Diff: 1 Page Ref: 6 AACSB: Reflective Thinking Objective: 1-3 How do competition, the social environment, globalization, and technological growth challenge and provide opportunities to business owners?

Skill: Conceptual 17) Which of the following is NOT a benefit of business competition?

A) It may lead to a wider variety of goods and services.

B) It may lead to higher quality goods and services.

C) It may lead to a limited variety of goods and services.

D) It may lead to cheaper goods and services.

Answer: C Explanation: C) The United States' private enterprise system is based on the belief that competition benefits consumers because it motivates businesses to produce a wider variety of better and cheaper goods and services. Therefore, competition would not benefit consumers if it resulted in a limited variety of goods and services.

Diff: 1 Page Ref: 6 AACSB: Reflective Thinking Objective: 1-3 How do competition, the social environment, globalization, and technological growth challenge and provide opportunities to business owners?

Skill: Conceptual

18) Which of the following BEST describes competition?

A) Two or more companies compete with one another for greater federal, state, and local subsidies.

B) Two or more companies compete with one another to attract customers and gain an advantage.

C) Two or more companies compete with one another to maintain a monopoly.

D) Two or more companies complete with one another to influence trade policy.

Answer: B Explanation: B) Competition arises when two or more businesses contend with one another to attract customers and gain an advantage. Even in a free-market economy, it is possible that two or more business might be competing for preferential government treatment such as tax breaks, though that is not a defining characteristic of competition, which is primarily focused on attracting customers. Two or more businesses might cooperate with one another, rather than compete, to maintain a shared monopoly position or attempt to influence trade policies.

Diff: 1 Page Ref: 6 AACSB: Reflective Thinking Objective: 1-3 How do competition, the social environment, globalization, and technological growth challenge and provide opportunities to business owners?

Skill: Conceptual 19) Leroy owns a small hardware store that is known for its high level of customer service. A large chain home improvement store has just opened up in his community. Which of the following would BEST help Leroy deal with his new competitor?

A) Pay his employees "under the table" to avoid costly payroll taxes and keep prices lower.

B) Close the business, since small stores cannot compete effectively with chain stores.

C) Advertise aggressively to increase consumer awareness of his reputation for service.

D) Move his store in order to be farther away from the large store.

Answer: C Explanation: C) Leroy's first step should be to advertise aggressively to remind customers of the benefits of patronizing his store. Violating tax laws can have severe consequences, including losing the business. Moving his store would be costly and might not improve Leroy's competitive position. Closing the business should be undertaken only if Leroy is unable to convince customers that the high quality and convenience his store offers is more valuable than the lower prices offered by the larger store.

Diff: 2 Page Ref: 6 AACSB: Analytic Skills Objective: 1-3 How do competition, the social environment, globalization, and technological growth challenge and provide opportunities to business owners?

Skill: Application

20) Competition affects companies in all of the following ways EXCEPT ________.

A) forcing them to increase their production levels B) forcing them to improve their products C) forcing them to aggressively promote their brands D) forcing them to lower their prices Answer: A Explanation: A) Competition does not force companies to increase their output. Producing more products would be of no competitive advantage unless the products were of high quality and there was sufficient demand to justify increase production levels. In order to compete more effectively, companies must either improve their products or lower their prices, or both, relative to their competition. They must also promote their products aggressively to convince consumers that their product is better or cheaper than that of their competitors.

Diff: 2 Page Ref: 6 AACSB: Reflective Thinking Objective: 1-3 How do competition, the social environment, globalization, and technological growth challenge and provide opportunities to business owners?

Skill: Conceptual 21) Which of the following would MOST likely happen to companies that are less efficient than their competitors?

A) They would continue to do business as usual.

B) They would close down.

C) They would be taken over by the government.

D) They would receive additional money from investors.

Answer: B Explanation: B) Companies that are not very profitable are considered inefficient and cannot survive if they continue to operate as usual. They must find ways to increase revenue and/or reduce expenses. Otherwise, investors will not be willing to provide funding, and if a company remains unprofitable, it will be forced eventually to shut down. In a competitive environment, government usually plays a limited role, so it is unlikely that an unsuccessful business would be taken over by the government.

Diff: 2 Page Ref: 6 AACSB: Analytic Skills Objective: 1-3 How do competition, the social environment, globalization, and technological growth challenge and provide opportunities to business owners?

Skill: Application

22) Patricia owns a small electronics store in a rural area. She carries two different brands of weather radios that are equally priced. One model is selling well, but the other does not seem to be attracting customers. What should Patricia do?

A) Stop advertising the radio that is not selling well.

B) Donate the poorly selling radios to local schools.

C) Reduce the price of the model that is not selling well.

D) Try to discourage customers from buying the model that is selling well.

Answer: C Explanation: C) In a competitive environment, the most useful sales strategy for a less desirable product would be to reduce the price in order to improve its desirability. Advertising should not be less aggressive, because it would be important to make sure that consumers are aware of the product, especially if the price is being reduced. Reducing the price of the less desirable model would offer Patricia's customer's a lower-priced radio that could encourage more overall radio purchases. Since Patricia is in business to make a profit, it would not be advisable for her to take a total loss by donating the poorly selling radios.

Diff: 2 Page Ref: 6 AACSB: Analytic Skills Objective: 1-3 How do competition, the social environment, globalization, and technological growth challenge and provide opportunities to business owners?

Skill: Application 23) Jarvis runs a restaurant that has had a lot of complaints from customers lately. Jarvis is a strict manager and prefers to make all the decisions himself. A concerned friend recommends that Jarvis delegate more decision-making responsibility to his employees. Which of the following would be the MOST likely result of Jarvis' delegating responsibility?

A) Customers will be upset because the restaurant is being run differently.

B) Customer satisfaction will improve because employees can be more responsive to customer needs.

C) Customer satisfaction will decrease because employees will make the wrong decisions.

D) Employees will quit because of the change in Jarvis' management style.

Answer: B Explanation: B) In a competitive environment such as the restaurant industry, delegating responsibility to employees is a competitive advantage since it allows customer concerns to be addressed when they come up rather than making customers wait until Jarvis can attend to them.

Customers are unlikely to be upset by an improvement in service, and employees are less likely to leave a job in which they feel empowered to make decisions. Employees may not always make the same decisions that Jarvis would, but overall, customers will be happier, employees will have higher morale, and Jarvis will have time to deal with more strategic aspects of managing his business.

Diff: 2 Page Ref: 7 AACSB: Analytic Skills Objective: 1-3 How do competition, the social environment, globalization, and technological growth challenge and provide opportunities to business owners?

Skill: Application

24) Which of the following refers to an interconnected system of different demographic factors?

A) cultural environment B) economic environment C) political environment D) social environment Answer: D Explanation: D) By definition, a social environment is an interconnected system of different demographic factors such as race, ethnicity, gender, age, income distribution, sexual orientation, and other characteristics. Cultural, economic and political environments have an impact on businesses, but they are not environments that are primarily defined in terms of demographics.

Diff: 1 Page Ref: 7 AACSB: Analytic Skills Objective: 1-3 How do competition, the social environment, globalization, and technological growth challenge and provide opportunities to business owners?

Skill: Application 25) Which of the following social issues would LEAST affect the environment in which U.S. businesses operate?

A) aging population B) reality television C) increasing diversity D) the green movement Answer: B Explanation: B) A social environment is an interconnected system of different demographic factors such as race, ethnicity, gender, age, income distribution, sexual orientation, and other characteristics. Such characteristics are always in flux, affecting businesses because shifting demographics change the nature of consumers that businesses must attract. Three significant issues surrounding the social environment are the aging population, with people between the ages of 44 and 62 making up the largest population segment in the United States; increasing diversity, with one in three residents of the United States a minority; and an increasing focus on environmental issues, creating a demand for more green products and a reduction in use of fossil fuels by businesses. Reality television is definitely a social phenomenon but has a limited impact on the social environment in which businesses operate.

Diff: 1 Page Ref: 7-9 AACSB: Reflective Thinking Objective: 1-3 How do competition, the social environment, globalization, and technological growth challenge and provide opportunities to business owners?

Skill: Conceptual

26) Which of the following problems is potentially posed by an aging population?

A) higher taxes B) lower deficit C) labor surpluses D) fewer business opportunities Answer: A Explanation: A) Since retirees typically do not have as much income as younger individuals, they pay lower taxes and spend less. At the same time, they rely on government programs like Medicare that are supported by tax dollars. Therefore, the government may need to raise taxes overall. It may also need to maintain or and increase deficit spending to make up shortfalls caused by lower tax revenues from retirees and greater demands on government benefit programs such as Medicare and Social Security. As the large group of baby boomers retires, there is also likely to be shortage of qualified workers rather than a labor surplus. However, on the positive side, the increasing size of the aging population will create more business opportunities to cater to the specific needs of senior citizens.

Diff: 2 Page Ref: 8 AACSB: Reflective Thinking Objective: 1-3 How do competition, the social environment, globalization, and technological growth challenge and provide opportunities to business owners?

Skill: Conceptual 27) Which of the following events would MOST likely change the racial demographic of a population?

A) a political scandal B) an aging population C) an economic slump D) an influx of immigrants Answer: D Explanation: D) Immigrants to a country tend to be of a different racial or ethnic background than that of a country's majority population. Therefore, an influx of immigrants would be most likely to affect the racial composition of a country's population. Neither a political scandal, an aging population, nor an economic slump would cause a significant change in a country's racial demographics.

Diff: 1 Page Ref: 8-9 AACSB: Multicultural and Diversity Understanding Objective: 1-3 How do competition, the social environment, globalization, and technological growth challenge and provide opportunities to business owners?

Skill: Application

28) Which of the following would MOST likely be part of a company's diversity initiative?

A) ethics training B) minority network C) 360-degree feedback D) corporate history Answer: B Explanation: B) To be competitive in an increasingly diverse world, companies must develop a diversity initiative that helps the company manage, retain, and promote a diverse workforce. A diversity initiative might include a nondiscrimination policy, minority network, or diversity education. Ethics training, 360-degree feedback and corporate history may be valuable to all employees, including minorities and women, but would not be part of a formal diversity initiative.

Diff: 1 Page Ref: 8-9 AACSB: Multicultural and Diversity Understanding Objective: 1-3 How do competition, the social environment, globalization, and technological growth challenge and provide opportunities to business owners?

Skill: Conceptual 29) In a business environment, the term "minority" applies to more than just people of different ethnicities. Minority groups represent all of the following EXCEPT ________.

A) a person's political party B) a person's gender C) a person's culture D) a person's sexual orientation Answer: A Explanation: A) Today, the term "minority" applies to more than just people of different ethnicities. Some minority groups represent a person's gender, culture, religion, sexual orientation, or disability, all of which should be considered in a company's diversity initiative.

However, a person's political party is not considered a minority group.

Diff: 1 Page Ref: 9 AACSB: Multicultural and Diversity Understanding Objective: 1-3 How do competition, the social environment, globalization, and technological growth challenge and provide opportunities to business owners?

Skill: Conceptual

30) Tom is a college senior who would like to get a green collar job when he graduates. Which of the following positions is he LEAST likely to apply for?

A) a job as a wind turbine engineer B) a job selling solar panels C) a job as manager at an oil refinery D) a job weatherproofing houses Answer: C Explanation: C) A "green collar" job is one that contributes to improving the environment. New industries and technologies such as wind turbines and solar panels are examples of business opportunities that can revitalize the U.S. economy while improving the environment; therefore, jobs in those areas would be considered green collar jobs. Weatherproofing houses conserves energy and reduces toxic greenhouse emissions into the atmosphere, so that would also be an example of a green collar job. Despite efforts by the oil industry to be more environmentally responsible, oil refinery emissions remain a source of pollution; therefore, a job at an oil refinery would be least desirable to someone looking for green collar employment.

Diff: 2 Page Ref: 9 AACSB: Reflective Thinking, Analytic Skills Objective: 1-3 How do competition, the social environment, globalization, and technological growth challenge and provide opportunities to business owners?

Skill: Application 31) Addison wants her new t-shirt store to be environmentally friendly. With the concept of the green economy in mind, which of the following business initiatives would BEST make her business greener?

A) mail out paper fliers advertising her business B) raise prices to include the cost of a donation to a green nonprofit organization C) sell t-shirts with environmental slogans D) install solar panels on her store's roof to provide electricity Answer: D Explanation: D) Powering her store with solar energy would cut down on Madison's contribution to carbon emissions. She should avoid sending out paper flyers since the paper uses up trees and can contribute to litter or landfill waste if not recycled properly. Donating to an environmental organization or making environmentally themed t-shirts may be worthwhile projects but would not directly improve the environment.

Diff: 2 Page Ref: 9 AACSB: Reflective Thinking Objective: 1-3 How do competition, the social environment, globalization, and technological growth challenge and provide opportunities to business owners?

Skill: Conceptual

32) ________ is the movement toward a more interconnected and interdependent world economy.

A) Globalization B) G-20 C) NAFTA D) Multiculturalism Answer: A Explanation: A) By definition, globalization is the movement toward a more interconnected and interdependent world economy. G-20 refers to a number of nations including the United States that meet periodically to address global economic issues but is not considered a movement.

NAFTA is the acronym for the North American Free Trade Agreement, which affects trade among North American countries but not directly that of all nations. Multiculturalism reflects an appreciation of cultural differences both within the United States and internationally but does not focus on economic concerns.

Diff: 1 Page Ref: 10 AACSB: Dynamics of the Global Economy Objective: 1-3 How do competition, the social environment, globalization, and technological growth challenge and provide opportunities to business owners?

Skill: Conceptual 33) Which of the following factors do multinational companies MOST often look for in a country when they are considering a location for offshore manufacturing?

A) a diverse culture B) strict government regulations C) low production costs D) low cost of living Answer: C Explanation: C) Developing countries tend to have less expensive labor than a country like the United States, allowing goods to be produced more cheaply. Companies interested in operating overseas would not favor counties with strict government regulations that might make doing business more difficult. Other factors, such as a diverse culture and low cost of living, may be true of developing countries, but lower production costs are the ultimate reason why many multinational companies send work overseas.

Diff: 2 Page Ref: 10 AACSB: Dynamics of the Global Economy Objective: 1-3 How do competition, the social environment, globalization, and technological growth challenge and provide opportunities to business owners?

Skill: Conceptual

34) Globalization is a controversial subject for many people because ________.

A) it allows U.S. companies to import and export goods from anywhere in the world B) it increases the cost of goods and services in the United States C) it results in the closing of some U.S. manufacturing facilities D) it allows companies of any size to compete globally Answer: C Explanation: C) Globalization has brought many perceived benefits to the United States economy, along with some perceived drawbacks. A globalized world economy has made it possible for U.S. companies large and small to do business in other countries and to export or import goods to and from other countries. Low labor costs in countries such as China allow the U.S. consumer to purchase imported goods at low cost. However, lower labor costs offshore has caused many U.S. companies to relocate their manufacturing plants to overseas facilities, resulting in significant job losses in the United States.

Diff: 1 Page Ref: 10 AACSB: Dynamics of the Global Economy Objective: 1-3 How do competition, the social environment, globalization, and technological growth challenge and provide opportunities to business owners?

Skill: Conceptual 35) ________ refers to a company's choice to relocate its production facilities overseas or subcontract at least some of the components to foreign companies at low costs.

A) Globalization B) Offshoring C) Downsizing D) Contracting Answer: B Explanation: B) Offshoring refers to a company's choice to relocate its production facilities overseas or subcontract at least some of the components to foreign companies at low costs. The resulting lowered production costs allow prices of consumer goods to go down; however, plant relocations away from the U.S. cause some American workers to lose their jobs. Thus, downsizing U.S. employees is often a result of a company's decision to offshore its manufacturing facilities, though it is not the correct term for a company's relocation of facilities overseas.

Diff: 1 Page Ref: 10 AACSB: Dynamics of the Global Economy Objective: 1-3 How do competition, the social environment, globalization, and technological growth challenge and provide opportunities to business owners?

Skill: Conceptual

36) Which of the following is NOT a danger to U.S. companies posed by globalization?

A) increased competition from international companies B) security and patent protection concerns C) stabilization in the value of the U.S. dollar D) unstable political climates in foreign countries Answer: C Explanation: C) Increased competition, security and patent protection concerns, and unstable political climates in countries where U.S. companies do business are all dangers posed by globalization. However, a stabilized U.S. dollar would not pose a threat and instead might be advantageous for a U.S. company operating globally.

Diff: 2 Page Ref: 10 AACSB: Dynamics of the Global Economy, Reflective Thinking Objective: 1-3 How do competition, the social environment, globalization, and technological growth challenge and provide opportunities to business owners?

Skill: Application 37) Which of the following BEST enables all companies, regardless of size, to compete in the global market?

A) effective marketing B) a talented workforce C) government subsidies D) technological advances Answer: D Explanation: D) Technologies like the Internet make it possible for even the smallest company to do business almost anywhere in the world. While effective marketing, a talented workforce, and government subsidies can help a company to compete globally, none of these factors can match the ability of technology to facilitate global commerce.

Diff: 2 Page Ref: 11-12 AACSB: Dynamics of the Global Economy, Use of Information Technology Objective: 1-3 How do competition, the social environment, globalization, and technological growth challenge and provide opportunities to business owners?

Skill: Application

38) "Computers are outdated after three years and obsolete after five." What aspect of technology does that statement BEST represent?

A) Technological innovations can be used to keep a company well-organized.

B) Technological innovation is changing the focus of how many businesses are run.

C) Technological innovation is necessary in order to remain competitive.

D) Technological innovation is expensive and time-consuming.

Answer: D Explanation: D) Technological advances can be used to keep a company flexible, organized, and well connected either with customers or employees. Technology is fundamentally changing the way businesses are run, and, therefore, technology is necessary in order for businesses to remain competitive. But technology's advantages come with a hefty price tag: Keeping up with the pace of technology is an expensive and time-consuming operation as anyone who owns an aging personal computer will agree.

Diff: 1 Page Ref: 11 AACSB: Use of Information Technology, Reflective Thinking Objective: 1-3 How do competition, the social environment, globalization, and technological growth challenge and provide opportunities to business owners?

Skill: Conceptual 39) Which of the following is NOT an advantage of technology?

A) streamline businesses B) cut costs C) foster a more personal work environment D) help employees work more efficiently Answer: C Explanation: C) Although technology can help streamline businesses, cut costs, and increase employee productivity, technology does not contribute to a more personal work environment.

Diff: 1 Page Ref: 11-12 AACSB: Use of Information Technology Objective: 1-3 How do competition, the social environment, globalization, and technological growth challenge and provide opportunities to business owners?

Skill: Conceptual

40) Carla wants to start a new software company, but she lives in a remote community where few skilled software programmers live. Which of the following is the BEST cost-effective strategy for building her workforce?

A) Produce only software she can create herself.

B) Use the Internet and other technologies to hire remote employees who want to telecommute.

C) Offer free computer programming training programs to the local populace.

D) Relocate to an urban area where there are many software programmers.

Answer: B Explanation: B) The most cost-effective option is for Carla to use the Internet and other technologies to hire programmers who will then telecommute. This approach will save Carla the expense of maintaining an office for programmers, and she will have access to a worldwide pool of employees. Thus Carla will not be limited by her location or her personal capacity to produce software.

Diff: 2 Page Ref: 11-12 AACSB: Dynamics of the Global Economy, Use of Information Technology Objective: 1-3 How do competition, the social environment, globalization, and technological growth challenge and provide opportunities to business owners?

Skill: Application 41) Bill is an information technology manager for a large firm. His company needs to install a new software program, which he orders from his company's online supplier. This is an example of ________ e-commerce.

A) business-to-business B) business-to-customer C) business-to-consumer D) business-to-supplier Answer: A Explanation: A) Since Bill is ordering the software from a business on behalf of his company, the transaction is considered business-to-business. Had he ordered software for his personal use, it would have been considered a business-to-consumer transaction.

Diff: 1 Page Ref: 12 AACSB: Use of Information Technology, Reflective Thinking Objective: 1-3 How do competition, the social environment, globalization, and technological growth challenge and provide opportunities to business owners?

Skill: Application

42) Who is legally responsible for protecting the privacy of consumer information that businesses store online?

A) Social Security Administration B) Internal Revenue Service C) Internet service providers D) business owners Answer: D Explanation: D) It is the responsibility of businesses who store personal information of consumers to take measures to protect consumers' online privacy. Neither government agencies nor Internet service providers are responsible for data that businesses store; they are, however, responsible for the security of information about individuals that they themselves store.

Diff: 2 Page Ref: 13 AACSB: Use of Information Technology, Reflective Thinking Objective: 1-3 How do competition, the social environment, globalization, and technological growth challenge and provide opportunities to business owners?

Skill: Conceptual 43) Which of these qualities BEST explains why a specialty shop is classified as a local business?

A) It is not able to borrow funds for expansion.

B) It accepts cash, checks, and credit cards as forms of payment.

C) It is a one-of-a-kind operation and relies on local consumers to generate business.

D) It sells only products that are made locally.

Answer: C Explanation: C) Local businesses are concentrated in one specific area and are usually a one-ofa-kind business. A local business is not defined by its ability to borrow funds or by the methods of payment it accepts. A specialty store may specialize in local products, but most local businesses offer goods or services that can be purchased elsewhere.

Diff: 1 Page Ref: 14 AACSB: Reflective Thinking Objective: 1-4 What are four types of businesses?

Skill: Conceptual

44) The WAWA chain of convenience stores has 500 locations in five states in the Mid-Atlantic region of the United States. WAWA is an example of ________.

A) a local business B) a regional business C) a national business D) a state business Answer: B Explanation: B) Regional businesses serve a wider area than local businesses do, although they do not serve a national or international market. Businesses that operate multiple locations in a single state are still referred to as regional businesses.

Diff: 1 Page Ref: 14 AACSB: Reflective Thinking Objective: 1-4 What are four types of businesses?

Skill: Conceptual 45) Which of the following poses the MOST COMMON financial threat to local and regional businesses?

A) employee retention B) undercapitalization C) low productivity D) limited customer base Answer: B Explanation: B) The most common challenge for local and regional businesses is managing money. A particular threat is undercapitalization, which occurs when a business owner cannot gain access to adequate funding. If the business cannot afford to produce goods or buy services, it will go bankrupt. Employee retention, low productivity and access to customers also pose challenges for local and regional businesses, although not as severe as undercapitalization.

Diff: 1 Page Ref: 14 AACSB: Reflective Thinking Objective: 1-4 What are four types of businesses?

Skill: Conceptual 46) An Old Navy store is an example of a ________ business.

A) national B) multinational C) local D) regional Answer: A Explanation: A) Stores like Old Navy are considered national businesses in that they have many locations throughout the United States but do not serve an international market.

Diff: 1 Page Ref: 15 AACSB: Reflective Thinking Objective: 1-4 What are four types of businesses?

Skill: Conceptual

47) A(n) ________ is the process by which products, information, and money move between supplier and consumer.

A) operational flow B) delivery system C) funneling mechanism D) supply chain Answer: D Explanation: D) By definition, a supply chain is the process by which products, information, and money move between supplier and consumer. The product flows from supplier to manufacturer to wholesaler to retailer to consumer. The larger the business, the more complicated the supply chain becomes.

Diff: 1 Page Ref: 15 AACSB: Reflective Thinking Objective: 1-4 What are four types of businesses?

Skill: Conceptual 48) Which of these characteristics is NOT applicable to a multinational company?

A) It provides goods or services to international consumers.

B) It may serve only one country but have suppliers or facilities in other countries.

C) Its employees must speak multiple languages.

D) It may adapt its operations to fit the cultures of the countries in which it operates.

Answer: C Explanation: C) A multinational company provides goods and services to international consumers. It may serve only one country but have suppliers or facilities in other countries.

Multinationals typically modify their operations in certain ways to fit the culture of the countries in which they do business, but their employees do not necessarily speak multiple languages.

Diff: 1 Page Ref: 16-17 AACSB: Reflective Thinking, Dynamics of the Global Economy Objective: 1-4 What are four types of businesses?

Skill: Conceptual

49) Humberto is a supply chain manager for a multinational company. Which of the following challenges should he be LEAST concerned about?

A) His office is missing certain business supplies.

B) Products may get backed up in a long supply chain.

C) a lack of communication among companies in the chain D) a large number of customer returns Answer: A Explanation: A) As supply chain manager, Humberto should be least concerned about how well stocked his office is with business supplies. Instead, he should be concerned about keeping products flowing smoothly from one part of the supply chain to another. Keeping the supply chain flowing requires good communication among all the parties involved in the supply chain, including manufacturing facilities and warehouses. Humberto should also be concerned if there are a large number of customer returns, because he would need to arrange for that merchandise to be returned to the retailer.

Diff: 1 Page Ref: 16 AACSB: Reflective Thinking Objective: 1-4 What are four types of businesses?

Skill: Application 50) Which of the following is often imposed by governments on multinational companies operating in their countries?

A) laws regarding product diversity B) laws regarding tax exemptions C) laws regarding minimal profits D) laws regarding quality control Answer: D Explanation: D) Multinational businesses must adhere to all the laws and regulations of each country where they conduct business. Some foreign countries have strict laws regarding quality control and safety. Countries may often impose taxes, not tax exemptions, on foreign businesses.

However, foreign governments do not have jurisdiction over product mix, retail pricing or profits of multinationals operating in their countries.

Diff: 2 Page Ref: 16 AACSB: Reflective Thinking, Dynamics of the Global Economy Objective: 1-4 What are four types of businesses?

Skill: Conceptual

51) A ________ is owned by one person and does not need to register with the state.

A) sole proprietorship B) a corporation C) a limited liability company D) a partnership Answer: A Explanation: A) A sole proprietorship is owned by one person and there are no formal documents required to establish the business. A partnership involves more than one person, but also is relatively easy to establish because there are no legal requirements for establishing the partnership. A corporation or a limited liability company must be registered with the state in which it operates.

Diff: 1 Page Ref: 17 AACSB: Reflective Thinking Objective: 1-5 How do sole proprietorships, partnerships, corporations, and limited liability companies (LLCs) differ from one another as forms of business?

Skill: Conceptual 52) In a general partnership, the company's debts are the responsibility of the ________.

A) members B) president C) partners D) LLC Answer: C Explanation: C) In a general partnership, all partners are financially liable for the partnership's debt and are not protected as they would be if they were members of a limited liability company.

Partnerships do not have "members" or "presidents." A partnership's debt would not be the responsibility of an LLC, which is a different type of business structure than a partnership.

Diff: 1 Page Ref: 18 AACSB: Reflective Thinking Objective: 1-5 How do sole proprietorships, partnerships, corporations, and limited liability companies (LLCs) differ from one another as forms of business?

Skill: Conceptual

53) Marc wants to help his friend Alexei start a business, but he doesn't want to leave his current job and devote all his time to the new business. Marc is willing to contribute money and give advice in return for a share of the profits. Which type of business ownership would be best for Marc?

A) general partnership B) limited partnership C) corporate partnership D) silent partnership Answer: B Explanation: B) A limited partnership would be Marc's best choice for a business relationship with Alexei. In a limited partnership, one partner, Alexei, would control business operations and be personally liable. As a limited partner, Marc would contribute to the business and would be protected by limited liability. In a general partnership, Marc would be expected to participate in the daily management of the business, which Marc does not want to do. A corporate partnership would apply to the business relationship between two corporations, not two individuals such as Marc and Alexei. And since Marc would like to offer advice to Alexei, he would not be a silent partner, which in any case is not an official form of partnership Diff: 2 Page Ref: 18 AACSB: Reflective Thinking Objective: 1-5 How do sole proprietorships, partnerships, corporations, and limited liability companies (LLCs) differ from one another as forms of business?

Skill: Conceptual 54) Which of the following types of business ownership could be formed based only on an oral agreement?

A) partnership B) limited liability company C) nonprofit organization D) corporation Answer: A Explanation: A) A business partnership does not need to be registered with the state as does a limited liability company or a corporation. A partnership does require at least an oral agreement among the partners. A nonprofit organization is not a business, although it would require legal documentation in order to operate.

Diff: 2 Page Ref: 18 AACSB: Reflective Thinking Objective: 1-5 How do sole proprietorships, partnerships, corporations, and limited liability companies (LLCs) differ from one another as forms of business?

Skill: Conceptual

55) Sandy is a nurse who wants to start a home health care business. She is concerned about the possibility that she could be sued by one of her patients. Which type of business ownership should she avoid?

A) a limited liability company B) a sole proprietorship C) a corporation D) an S corporation Answer: B Explanation: B) If Sandy established her business as a sole proprietorship, she would be at risk of liability in the event that a patient sued her. To protect herself from any claims against her personal assets, Sandy should consider forming a limited liability company or a corporation. An S corporation is a type of corporation that some small business owners choose because of certain tax considerations.

Diff: 1 Page Ref: 17-18 AACSB: Reflective Thinking Objective: 1-5 How do sole proprietorships, partnerships, corporations, and limited liability companies (LLCs) differ from one another as forms of business?

Skill: Application 56) Which of the following would ensure that business owners would be responsible for losses only up to the amount they invested in the business?

A) unlimited liability B) limited liability C) liability insurance D) liability protection Answer: B Explanation: B) Limited liability means that business owners in certain types of businesses, such as limited liability companies and corporations, are responsible for losses only up to the amount they invested. Limited liability also safeguards owners' personal assets from being seized as payment for debts or claims. Unlimited liability is in effect the situation a business owner risks as a sole proprietor or general partner. In either of those business structures, owners' personal assets can be seized as payment for debts and claims. Every business carries some risks, so it might be wise for a business owner to consider liability insurance to help manage the risk of claims against the owner or the business.

Diff: 1 Page Ref: 19 AACSB: Reflective Thinking Objective: 1-5 How do sole proprietorships, partnerships, corporations, and limited liability companies (LLCs) differ from one another as forms of business?

Skill: Conceptual

57) Articles of organization are required only for ________.

A) sole proprietorships B) corporations C) partnerships D) limited liability companies Answer: D Explanation: D) Limited liability companies are required to establish articles of organization, which are then submitted to the state in which the business operates. Corporations are required to produce articles of incorporation, which are submitted to the state. Sole proprietorships require no business documentation, while partnerships must have either an oral or written partnership agreement.

Diff: 1 Page Ref: 18 AACSB: Reflective Thinking Objective: 1-5 How do sole proprietorships, partnerships, corporations, and limited liability companies (LLCs) differ from one another as forms of business?

Skill: Conceptual 58) Warren is about to file taxes for a company he owns. If Warren needs to file his company's taxes separately from his personal taxes, what kind of company does he own?

A) limited liability company B) sole proprietorship C) corporation D) partnership Answer: C Explanation: C) A corporation is the only form of business in which the owner must pay and file corporate income taxes separately from personal income taxes. Income from other types of businesses, including sole proprietorships, partnerships and limited liability companies, is taxed as part of owners' personal income.

Diff: 1 Page Ref: 19 AACSB: Reflective Thinking Objective: 1-5 How do sole proprietorships, partnerships, corporations, and limited liability companies (LLCs) differ from one another as forms of business?

Skill: Conceptual

59) Mr. Hansen sued the Reilly Corporation in a dispute over a failed million-dollar deal. If he wins, he can ________.

A) collect money from the president B) collect money from shareholders C) collect money from the corporation D) collect money from stakeholders Answer: C Explanation: C) Corporations have limited liability; therefore, the personal assets of the president, shareholders, and stakeholders are protected. If Mr. Hansen wins his case, he could collect money only from the corporation's assets.

Diff: 1 Page Ref: 18 AACSB: Reflective Thinking Objective: 1-5 How do sole proprietorships, partnerships, corporations, and limited liability companies (LLCs) differ from one another as forms of business?

Skill: Conceptual 60) Which of the following can be a disadvantage of establishing a corporation?

A) A corporate owner's personal assets are not protected.

B) A corporation can be sued.

C) A corporation must report business income in a separate tax return.

D) A corporation can limit profits for tax purposes.

Answer: C Explanation: C) A potential disadvantage of establishing a corporation is that the corporation's income is taxed separately from the owner's income. That may cause certain business income to be taxed twice, once as part of the corporate tax return and once as part of the owner's tax return.

Diff: 1 Page Ref: 19 AACSB: Reflective Thinking Objective: 1-5 How do sole proprietorships, partnerships, corporations, and limited liability companies (LLCs) differ from one another as forms of business?

Skill: Conceptual 61) Which of the following is NOT a stakeholder of a large athletic equipment manufacturer?

A) an employee B) a customer C) a supplier D) a competitor Answer: D Explanation: D) A stakeholder is someone who is affected by a company's actions or who is involved in what the company does. Corporate stakeholders include employees, shareholders, investors, and suppliers. Although competitors are affected by other company's actions, they are not connected with the company and its activities.

Diff: 2 Page Ref: 19 AACSB: Reflective Thinking Objective: 1-5 How do sole proprietorships, partnerships, corporations, and limited liability companies (LLCs) differ from one another as forms of business?

Skill: Conceptual

62) Your life is similar to a small company in that it requires careful planning, precise record keeping, and ________.

A) a good memory B) openness to change C) an outgoing personality D) physical fitness Answer: B Explanation: B) Everyone runs at least one business the business of life. Each person's life is complicated and complex. Similar to a small business, your life requires careful planning, precise record keeping, and openness to change. Openness to change is important in business and in life because both contain unpredictable events. Other factors such as a good memory, outgoing personality, and physical fitness can be useful both in business and in life, but they are not essential requirements for success in business.

Diff: 1 Page Ref: 20 AACSB: Reflective Thinking Objective: 1-6 How do life skills translate to the business environment?

Skill: Conceptual 63) In what way does marriage work like a general business partnership?

A) Each spouse is responsible only for his or her debts and actions.

B) Both spouses are responsible for their children and assets.

C) Each spouse is responsible for the debts and actions of the other spouse.

D) One spouse controls the marriage and makes all decisions.

Answer: C Explanation: C) In marriage and in a general business partnership, all parties are responsible for their debts or actions as well as those of their spouses or partners. Business partnerships do not have children, but both general business partners and marriage partners share in the responsibilities and advantages of possessing assets. It may be that in some marriages, one partner controls most decisions. That is not true of a general business partnership, in which all partners share decision-making responsibility.

Diff: 1 Page Ref: 20 AACSB: Reflective Thinking Objective: 1-6 How do life skills translate to the business environment?

Skill: Conceptual

64) Which of the following is an example of how today's social environment may affect individuals' lives?

A) It may help them learn from people who are different from them.

B) It may help them afford less energy-efficient cars.

C) It may reduce their taxes as demand for government services declines.

D) It may limit the number of entrepreneurial opportunities.

Answer: A Explanation: A) The social environment in the United States is always changing. Three major trends are an aging population, increasing population diversity, and the green movement. As the United States becomes more ethnically and racially diverse, individuals have increasing opportunities to interact with, and learn from, people who are not like them. Because of the green movement, products increasingly will be made in a way that reduces harm to the environment; therefore, the social environment would be more likely to promote the manufacture of affordable cars that are more energy efficient, not less. Because of the aging population, a growing number of retirees on reduced incomes will be paying lower taxes while placing increasing demand on government programs such as Medicare. To continue to fund such programs, it is likely that at some point the government will need to raise taxes, not reduce them.

Diff: 2 Page Ref: 20 AACSB: Reflective Thinking Objective: 1-6 How do life skills translate to the business environment?

Skill: Conceptual 65) As more profit is generated, a company is able to increase its productivity.

Answer: TRUE Explanation: As a company's profits increase, profits can be invested in actions that are likely to increase productivity, such as rewarding employees and upgrading facilities and equipment.

Diff: 1 Page Ref: 3 AACSB: Reflective Thinking Objective: 1-1 What are profits, and how do businesses and nonprofit organizations compare?

Skill: Conceptual 66) A university, an inner city health clinic, and a church are all run specifically to generate profits.

Answer: FALSE Explanation: These institutions are all nonprofit organizations that are run to further a cause such as health care or education. Revenues that they may receive in excess of their expenses are used to further their respective missions.

Diff: 1 Page Ref: 4 AACSB: Reflective Thinking Objective: 1-1 What are profits, and how do businesses and nonprofit organizations compare?

Skill: Conceptual

67) When a business is profitable, the whole society benefits.

Answer: TRUE Explanation: When a business earns profits, many people benefit. Owners benefit, as do employees who may benefit from bonuses or pay increases. Society as a whole benefits from the employment opportunities the business provides, as well as the spending and income it generates in the economy.

Diff: 1 Page Ref: 4 AACSB: Reflective Thinking Objective: 1-1 What are profits, and how do businesses and nonprofit organizations compare?

Skill: Conceptual 68) Barbara owns a bakery in Boston. When her business reached a certain level of profit, she decided to open three more bakeries in the area. Many businesses, like Barbara's, are able to expand as they earn more profits.

Answer: TRUE Explanation: Profit is the money left over after expenses are paid out of revenues. This money can be reinvested in the business in a variety of ways, including opening new retail locations, upgrading equipment, and hiring additional employees.

Diff: 1 Page Ref: 3 AACSB: Reflective Thinking Objective: 1-1 What are profits, and how do businesses and nonprofit organizations compare?

Skill: Application 69) Not all businesses provide a product.

Answer: FALSE Explanation: All businesses provide a product. Some businesses offer physical products, which are referred to as goods. Other businesses offer nontangible products, called services.

Diff: 2 Page Ref: 3 AACSB: Reflective Thinking Objective: 1-2 What is the difference between a good and a service, and what are the factors of production?

Skill: Conceptual 70) Car insurance is an example of a good.

Answer: FALSE Explanation: Car insurance is a nontangible product; therefore, it is a service, not a good, which would be a physical product.

Diff: 1 Page Ref: 3 AACSB: Reflective Thinking Objective: 1-2 What is the difference between a good and a service, and what are the factors of production?

Skill: Application

71) To become successful, a company should keep pace with the latest technology.

Answer: TRUE Explanation: Successful companies keep pace with technological processes, thereby harnessing new knowledge, information, and business strategies. Unsuccessful companies typically fail because they have not kept pace with the latest technology and techniques.

Diff: 1 Page Ref: 4 AACSB: Use of Information Technology, Reflective Thinking Objective: 1-2 What is the difference between a good and a service, and what are the factors of production?

Skill: Conceptual 72) Real capital refers to the money used to facilitate a business enterprise.

Answer: FALSE Explanation: Real capital refers to the physical facilities, such as a manufacturing plant, used to produce goods and services. The money used to facilitate a business' operations is referred to as financial capital.

Diff: 2 Page Ref: 4 AACSB: Reflective Thinking Objective: 1-2 What is the difference between a good and a service, and what are the factors of production?

Skill: Conceptual 73) The U.S. economy favors greater government intervention in the market than socialist economies would favor.

Answer: FALSE Explanation: The United States has a market-based economy in which there is an emphasis on individual economic freedom and a limit on government intervention. Socialist economies tend to place more restrictions on how businesses operate; for example, they may regulate the prices a business can receive for products.

Diff: 1 Page Ref: 6 AACSB: Reflective Thinking Objective: 1-3 How do competition, the social environment, globalization, and technological growth challenge and provide opportunities to business owners?

Skill: Conceptual 74) The private enterprise system assumes that competition benefits consumers.

Answer: TRUE Explanation: The private enterprise system is based on the assumption that when businesses are free to compete with one another, consumers will benefit. Competition among businesses tends to benefit the consumer since businesses try to increase revenues by offering products that are better and cheaper than those of their competitors.

Diff: 1 Page Ref: 6 AACSB: Reflective Thinking Objective: 1-3 How do competition, the social environment, globalization, and technological growth challenge and provide opportunities to business owners?

Skill: Conceptual

75) Competition arises when two or more businesses contend with one another to attract customers and gain an advantage.

Answer: TRUE Explanation: In a market-based economy, businesses are encouraged to compete with other businesses for customers and sales. Competition among businesses tends to benefit the consumer since businesses try to offer products that are better and cheaper than those of their competitors.

Diff: 1 Page Ref: 5 AACSB: Reflective Thinking Objective: 1-3 How do competition, the social environment, globalization, and technological growth challenge and provide opportunities to business owners?

Skill: Conceptual 76) When businesses compete, products usually become more expensive.

Answer: FALSE Explanation: Companies often try to beat their competition by offering products at lower prices than their competitors. When companies are the first to offer a certain product, say a high definition television, they can charge premium prices because no other company is selling the new type of product. As competitors enter the market, prices go down because competitors find ways to reduce their expenses, thus allowing them to offer lower prices to consumers.

Diff: 2 Page Ref: 6 AACSB: Reflective Thinking Objective: 1-3 How do competition, the social environment, globalization, and technological growth challenge and provide opportunities to business owners?

Skill: Application 77) Baby boomers are an unprofitable demographic target for businesses.

Answer: FALSE Explanation: The 78 million baby boomers, born between 1946 and 1964, make up the largest and wealthiest population group in the United States, with an estimated spending power of over $2 trillion a year. This makes baby boomers a large and lucrative target for businesses.

Diff: 1 Page Ref: 7-8 AACSB: Reflective Thinking Objective: 1-3 How do competition, the social environment, globalization, and technological growth challenge and provide opportunities to business owners?

Skill: Conceptual

78) Diversity initiatives in businesses are essential to a company's ability to be competitive.

Answer: TRUE Explanation: Diversity initiatives in businesses are formal programs intended to promote the inclusion and advancement of minorities in the workplace. As of the 2007 census, one-third of all U.S. residents were minorities; therefore, minorities make up a substantial portion of available workers. Businesses that want to remain competitive must attract and retain the best employees, so they can't afford to alienate talented minority workers. Instead, businesses should create workplace environments where all employees are treated fairly and are able to perform at their best.

Diff: 2 Page Ref: 8 AACSB: Reflective Thinking Objective: 1-3 How do competition, the social environment, globalization, and technological growth challenge and provide opportunities to business owners?

Skill: Conceptual 79) Globalization is recognized by all as a force for good in the U.S. economy.

Answer: FALSE Explanation: Although globalization the interconnected and interdependent world economy is a fact of 21st century business, there is much controversy about its benefits. For example, low labor rates in foreign countries have encouraged many U.S. companies to move some of their operations overseas, causing substantial job losses for American workers.

Diff: 1 Page Ref: 10 AACSB: Reflective Thinking, Dynamics of the Global Economy Objective: 1-3 How do competition, the social environment, globalization, and technological growth challenge and provide opportunities to business owners?

Skill: Conceptual 80) Keeping up with technological advances is an inexpensive way for companies to remain competitive.

Answer: FALSE Explanation: Technology is an essential factor in a company's ability to stay competitive because it helps the company be flexible, organized, and well-connected with customers and employees. But those advantages come with a high price tag. Keeping up with technology is expensive and time-consuming.

Diff: 1 Page Ref: 11 AACSB: Reflective Thinking, Use of Information Technology Objective: 1-3 How do competition, the social environment, globalization, and technological growth challenge and provide opportunities to business owners?

Skill: Conceptual

81) Local businesses are more prone to bankruptcy than large businesses because they are more likely to be undercapitalized.

Answer: TRUE Explanation: The most common challenge for a small business is managing money.

Undercapitalization, which occurs when a small business owner cannot gain access to adequate funding, can lead to bankruptcy, especially when economic conditions limit sales.

Diff: 1 Page Ref: 14 AACSB: Reflective Thinking Objective: 1-4 What are four types of businesses?

Skill: Conceptual 82) National businesses often serve international markets.

Answer: FALSE Explanation: National businesses serve customers in various locations across the country where they do business, but do not offer products to international customers.

Diff: 1 Page Ref: 15 AACSB: Reflective Thinking Objective: 1-4 What are four types of businesses?

Skill: Conceptual 83) Providing temporary disability insurance for employees is a federal requirement imposed on companies that operate in the United States.

Answer: FALSE Explanation: Provision of temporary disability insurance for employees is not a federal requirement. It is a requirement imposed by certain states, such as New Jersey and Rhode Island.

Only local and regional companies that conduct business in certain states are required to offer temporary disability insurance to their employees.

Diff: 2 Page Ref: 15 AACSB: Reflective Thinking Objective: 1-4 What are four types of businesses?

Skill: Conceptual 84) Corporations blend characteristics of both sole proprietorships and partnerships.

Answer: FALSE Explanation: Corporations are distinct from sole proprietorships and partnerships. For example, unlike sole proprietorships and partnerships, corporations are required to file legal documents to establish the business ("Articles of Incorporation"). Also, corporations are taxed separately from their owners, while owners of sole proprietorships and partnerships pay only personal taxes on income derived from their businesses. Finally, sole proprietorships and partnerships do not offer their owners liability protection in the event of a debt or a claim filed against the business, while a corporate structure safeguards owners' personal assets from claims against the business.

Diff: 2 Page Ref: 18-19 AACSB: Reflective Thinking Objective: 1-5 How do sole proprietorships, partnerships, corporations, and limited liability companies (LLCs) differ from one another as forms of business?

Skill: Conceptual

85) A limited partnership protects nonmanaging partners from claims against personal assets.

Answer: TRUE Explanation: In a limited partnership, only partners who control business decision are personally liable for claims against the business. The other partners are limited partners who have little if any control over management decisions and are protected by limited liability.

Diff: 1 Page Ref: 18 AACSB: Reflective Thinking Objective: 1-5 How do sole proprietorships, partnerships, corporations, and limited liability companies (LLCs) differ from one another as forms of business?

Skill: Conceptual 86) A limited liability company blends characteristics of both sole proprietorships and corporations.

Answer: TRUE Explanation: Like sole proprietorships, limited liability companies can be owned by one person.

Like corporations, however, the owners have limited personal liability for the debts and actions of the company. Like corporations and unlike sole proprietorships, legal documents must be filed with the state, but state reporting requirements and tax forms are simpler for limited liability companies than those for corporations.

Diff: 1 Page Ref: 19 AACSB: Reflective Thinking Objective: 1-5 How do sole proprietorships, partnerships, corporations, and limited liability companies (LLCs) differ from one another as forms of business?

Skill: Conceptual 87) Stakeholders are rarely affected by the actions of a company's owner.

Answer: FALSE Explanation: By definition, a stakeholder is someone who is affected by a company's actions or who has an interest in what the company does. Stakeholders include employees, shareholders, investors, suppliers, and society at large. Since stakeholders are affected by company decisions, it is desirable to solicit their views periodically about the company's goals, actions and future plans.

Diff: 1 Page Ref: 19 AACSB: Reflective Thinking Objective: 1-5 How do sole proprietorships, partnerships, corporations, and limited liability companies (LLCs) differ from one another as forms of business?

Skill: Conceptual

88) In what ways is a multinational corporation, like Google, similar to a local business, such as a Chinese restaurant? In what ways are these two businesses different?

Answer: Both Google and a local Chinese restaurant are businesses–entities that offer goods and services to their customers in order to earn a profit. Google and the Chinese restaurant are different in that one is an innovative online business that attracts millions of visitors, while the other is a small town establishment with a smaller local customer base. It is likely that the two businesses have different structures. Google is probably a corporation, while the Chinese restaurant is probably a sole proprietorship, partnership, or limited liability company.

Diff: 2 Page Ref: 3, 17-19 AACSB: Reflective Thinking Objective: 1-1 What are profits, and how do businesses and nonprofit organizations compare?

Skill: Application 89) What do businesses generally do with profits?

Answer: As more profit is generated, a company generally opts to use some portion of its profits to reward its employees, increase its productivity, or expand its business into new areas.

Diff: 2 Page Ref: 3 AACSB: Reflective Thinking Objective: 1-1 What are profits, and how do businesses and nonprofit organizations compare?

Skill: Conceptual 90) Grace loves working with children and plans to start a school for children with disabilities.

She would like to invest at least some of the money she makes after expenses back into the school. What kinds of organization structures should she consider? How would you recommend that Grace structure her school for legal purposes?

Answer: A nonprofit organization would be the most common structure for an enterprise whose primary mission is to provide educational services to the community. If Grace plans to use all excess revenues from the school on activities that support the school's mission, her best option is to form a nonprofit organization. However, there are some schools that seek to provide highquality educational services while still making a profit for their ownership. Grace might consider whether she can accomplish her mission of serving children with disabilities within a for-profit business. A business structure would allow Grace's school to earn a profit that Grace could use for any purpose she chose. However, given Grace's emphasis on serving children with disabilities, it is likely that the best choice for her would be to form a nonprofit organization.

Diff: 3 Page Ref: 3-4 AACSB: Reflective Thinking Objective: 1-1 What are profits, and how do businesses and nonprofit organizations compare?

Skill: Conceptual

91) How do the profits of a single business benefit society in general?

Answer: A successful business benefits society by providing the goods and services we need and want. Businesses also provide employment opportunities for members of the community.

Because they offer desired goods and services, provide employment, and generate income and spending in the economy, successful businesses contribute to the quality of life by creating higher standards of living for the entire society.

Diff: 2 Page Ref: 4 AACSB: Reflective Thinking Objective: 1-1 What are profits, and how do businesses and nonprofit organizations compare?

Skill: Conceptual 92) Ron plans to open his own café. He wants to offer a variety of coffees, sandwiches, and salads. He also plans to hire employees who will prepare food and serve customers. What type of product would Ron's customers be offered?

Answer: Ron's customers would be paying for both physical goods, that is, the food items Ron would offer, and nonphysical services, that is, the preparation and serving of the food items.

Diff: 2 Page Ref: 3 AACSB: Reflective Thinking Objective: 1-2 What is the difference between a good and a service, and what are the factors of production?

Skill: Application

93) Identify and describe the five factors of production.

Answer: The text identifies and describes five factors of production that every business must manage, including: 1) Labor. Obviously businesses need people to gets things produced. Labor is the human resource that refers to any physical or intellectual work people contribute to a business's production.

2) Natural resources. Most workers who provide the labor to produce a good need something tangible to work with. Natural resources are the raw materials provided by nature that are used to produce goods and services. Soil used in agricultural production, trees used for lumber to build houses, and coal, oil, and natural gas used to create energy are all examples of natural resources.

3) Capital. There are two types of capital: real capital and financial capital. Real capital essentially refers to the physical facilities used to produce goods and services. Financial capital, on the other hand, is money used to facilitate a business enterprise. Financial capital can be acquired via business loans, from investors, or through other forms of fundraising, or even by tapping into personal savings.

4) Entrepreneurial talent. An entrepreneur is someone who assumes the risk of creating, organizing, and operating a business and directs all the business resources. Entrepreneurs are a human resource, just like labor, but what sets entrepreneurs apart from labor is not only their willingness to bear risks but also their ability to manage an enterprise effectively. Successful entrepreneurs are rewarded with profits for bearing risks and for their managerial expertise.

5) Technology. Technology refers to items and services such as smartphones, computer software, and digital broadcasting that make businesses more efficient and productive.

Diff: 2 Page Ref: 4 AACSB: Reflective Thinking Objective: 1-2 What is the difference between a good and a service, and what are the factors of production?

Skill: Conceptual 94) Why is technology such an important factor of production?

Answer: Effective use of technology can make the difference between a successful and an unsuccessful business. Successful companies are able to keep pace with technological progresses and harness new knowledge, information, and strategies. Unsuccessful organizations often fail because they have not kept pace with the latest technology and techniques.

Diff: 2 Page Ref: 4 AACSB: Reflective Thinking, Use of Information Technology Objective: 1-2 What is the difference between a good and a service, and what are the factors of production?

Skill: Conceptual

95) Explain the similarities and differences between the different types of capital.

Answer: There are two types of capital: real capital and financial capital. Real capital refers to the physical facilities used to produce goods and services. Financial capital, on the other hand, is money used to facilitate a business enterprise. Financial capital can be acquired via business loans, from investors, or through other forms of fundraising, or even by tapping into personal savings. Though real capital and financial capital are different types of resources, the two types of capital are similar in that they both support a company's ability to conduct it business operations.

Diff: 2 Page Ref: 4 AACSB: Reflective Thinking Objective: 1-2 What is the difference between a good and a service, and what are the factors of production?

Skill: Application 96) How does competition benefit consumers? Provide a business example of competition's ability to provide value to consumers.

Answer: Having to compete for a finite number of consumers usually weeds out less-efficient companies and less desirable products from the marketplace. Because profit is the ultimate goal, it is the job of a successful business to convince customers that its product is either better or less expensive than that of its competitors. An example is the explosion in high-definition television sales over the last few years. When more manufacturers and retailers jumped into the HDTV market, prices for sets fell drastically. When so many retailers, such as Amazon.com, Costco, and Best Buy, offer HDTVs, prices come down because these stores are able to turn over merchandise quickly and in high volume, which allows them to narrow the margin between the price they pay and the price the customer pays.

Diff: 2 Page Ref: 5-7 AACSB: Reflective Thinking Objective: 1-3 How do competition, the social environment, globalization, and technological growth challenge and provide opportunities to business owners?

Skill: Application 97) How does social networking affect the competitiveness of a business?

Answer: Companies are increasingly using social networking sites such as Facebook and Twitter to connect to their customers. Through these sites, they can promote their products, offer discounts, and build relationships with people interested in their company. Individual consumers can use social-networking sites to quickly spread the word about very good (or very bad) services or products. If a customer is dissatisfied, word can spread like the speed of light very fast. Thus social networking can affect a business’s competitiveness either positively or negatively.

Diff: 2 Page Ref: 6 AACSB: Use of Information Technology, Reflective Thinking Objective: 1-3 How do competition, the social environment, globalization, and technological growth challenge and provide opportunities to business owners?

Skill: Conceptual

98) Explain how the social environment can affect business.

Answer: A social environment is an interconnected system of different demographic factors such as race, ethnicity, gender, age, income distribution, sexual orientation, and other characteristics. Social, economic, and political movements and trends cause the social environment in the United States to constantly change. For instance, an influx of immigrants can change the racial demographic, or an economic slump can change the income distribution demographic. These changes affect where we live, what we buy, and how we choose to spend our money. Businesses must consider the shifts and changes in the social environment when making decisions in order to best serve their employees, customers, and community.

Diff: 2 Page Ref: 7-9 AACSB: Reflective Thinking Objective: 1-3 How do competition, the social environment, globalization, and technological growth challenge and provide opportunities to business owners?

Skill: Conceptual 99) What are some of the advantages and disadvantages of globalization for the U.S. economy?

Answer: Globalization presents both benefits and risks to the U.S. economy. An advantage is that lowered production costs allow prices on consumer products to go down, meaning that consumers benefit by purchasing goods at lower prices. A disadvantage is that when a U.S. business decides to relocate any of its operations overseas, workers in the United States lose their jobs to workers overseas. Other disadvantages include increased competition from international companies, fluctuations in the value of the dollar overseas, security and patent protection concerns, and unstable political climates that may make it difficult to conduct business in a foreign county.

Diff: 2 Page Ref: 10 AACSB: Reflective Thinking, Dynamics of the Global Economy Objective: 1-3 How do competition, the social environment, globalization, and technological growth challenge and provide opportunities to business owners?

Skill: Conceptual 100) Assume that you are a business owner who has concerns about the impact of globalization.

What is the most practical attitude for you to adopt regarding the trend toward increasing globalization?

Answer: A business owner needs to accept that globalization is here to stay. In order to stay competitive in the global market, companies must work to enhance quality and develop and implement innovative strategies for the long term. The increasingly global nature of business means that a business owner may need to find workers who can communicate with international business partners, have up-to-date technological talents, can demonstrate excellent communication and creative problem-solving skills, and possess leadership skills. A business owner should also look for ways to take advantage of globalization, such as marketing products to international customers.

Diff: 3 Page Ref: 10 AACSB: Reflective Thinking, Dynamics of the Global Economy Objective: 1-3 How do competition, the social environment, globalization, and technological growth challenge and provide opportunities to business owners?

Skill: Application

101) How does the pace of technological change affect businesses, both positively and negatively?

Answer: It's a necessity to stay on the cutting edge of technology in order to remain competitive.

The advantages of staying abreast of technology include its ability keep a company flexible, organized, and well connected either with customers or employees. A disadvantage is that keeping up with the pace of technology is an expensive and time-consuming operation. For instance, the rapid pace of technological innovation means that computers are outdated after three years and obsolete after five. In addition, the cost of applicable software, training, and infrastructure is extremely high and often represents the single largest expense in many companies.

Diff: 2 Page Ref: 11 AACSB: Reflective Thinking Objective: 1-3 How do competition, the social environment, globalization, and technological growth challenge and provide opportunities to business owners?

Skill: Application 102) Identify and discuss challenges faced by local, regional, and national businesses.

Answer: The most common challenge for both local and regional businesses is managing money. Poor financial planning, as well as unfavorable economic conditions, can lead to bankruptcy. Undercapitalization occurs when a business owner cannot gain access to adequate funding. The business can then no longer afford to produce goods or provide services, and it goes bankrupt. Even with adequate funding, there is always a chance that the current economy will not support the business. Unlike local businesses, regional businesses that operate in more than one state need to become familiar with the business requirements of each state in which they operate. The need to deal with varying state regulations is something that all regional businesses have in common. However, regional businesses do not have to adapt to as many different states' requirements as national companies do. Also national companies by virtue of their size are likely to have more complex supply chains than those of regional businesses.

Diff: 3 Page Ref: 14-16 AACSB: Reflective Thinking, Analytic Skills Objective: 1-4 What are four types of businesses?

Skill: Application

103) John runs a chain of grocery stores in Colorado. He has just heard a weather report that a storm is headed for his area a few days from now. What should John do to ensure that the goods he needs for his stores are delivered despite the bad weather?

Answer: John's business depends on a supply chain, that is, the products he needs move through a chain of suppliers, manufacturers, and wholesalers before they arrive at his stores. Since John has advance warning of the storm, he could contact his wholesalers to request delivery of needed products at an earlier time or increase his usual order to compensate for the days when the wholesalers may be unable to deliver because of bad weather. In either case, John's requests of his wholesalers may have an impact on other parts of his supply chain, for example, perhaps requiring that his wholesalers communicate with product manufacturers about increasing their delivery of goods to the wholesalers.

Diff: 3 Page Ref: 15-16 AACSB: Reflective Thinking, Analytic Skills Objective: 1-4 What are four types of businesses?

Skill: Application 104) Jocelyn and Jacob are considering opening several branches of their fashion design business in Italy, Germany, and Spain. What cultural issues should they consider before making a final decision?

Answer: The text describes a number of cultural issues, including: 1) Countries may have different business hours or workweek schedules. For example, in Spain, workers tend to take lunch from 1:30 to 3:30 PM. 2) Values and customs relating to business etiquette may vary. For example, timeliness is valued in Germany but is less important in Italy.

3) Violating local taboos can be a concern.

4) Multinational companies may have difficulty determining wages for foreign workers and pricing for international markets because the standard of living varies in different countries.

5) The language barrier presents a challenge to businesses that are trying to establish themselves in foreign countries. This is especially a problem for U.S. businesses, as only nine percent of U.S. citizens are fluent in a foreign language.

Diff: 3 Page Ref: 16-17 AACSB: Reflective Thinking, Dynamics of the Global Economy Objective: 1-4 What are four types of businesses?

Skill: Conceptual

105) Describe some of the most important economic factors a U.S. business should consider before setting up operations overseas.

Answer: A company considering doing business overseas must be familiar with the laws of the countries in which they plan to operate. Laws concerning the import and export of goods vary greatly from one country to another. Things can get particularly complicated if a product needs to be shipped to one country for assembly, then shipped to another for packaging, and then shipped to yet another country for distribution. Often, several countries are involved in the manufacture of one product, in which case the laws and regulations of all of those countries must be adhered to. It might be necessary for a U.S. company to work with the governments of foreign countries if there are strict importing restrictions or a multitude of taxes. Safety regulations, quality control, copyrights, and patent rights are some of the laws that multinational corporations must adhere to.

Diff: 3 Page Ref: 10 AACSB: Reflective Thinking, Dynamics of the Global Economy Objective: 1-4 What are four types of businesses?

Skill: Conceptual 106) Juan was just laid off from his job as a maintenance supervisor at a manufacturing plant.

His severance package was not very generous, and he realizes that his large family cannot live on his unemployment compensation. Juan needs to make more money right away, so he is planning to start his own commercial cleaning service while he searches for a corporate job. What business structure would you recommend to Juan?

Answer: Since Juan plans to return to a corporate job, he can go into business quickly and easily by forming a sole proprietorship, which does not require any special startup documentation or reporting. If he plans to be self-employed for only a short time, the costs and complications of forming either a limited liability company or corporation may not be worth the effort. Although a sole proprietorship could be a good temporary measure, Juan does assume some risks in operating as a sole proprietor. For instance, if a customer filed a claim for damages, Juan would be personally liable. If Juan does not find satisfactory employment soon, he should consider structuring his own business as a limited liability company or corporation, either of which would protect his personal assets from claims against his business.

Diff: 3 Page Ref: 17-19 AACSB: Reflective Thinking Objective: 1-5 How do sole proprietorships, partnerships, corporations, and limited liability companies (LLCs) differ from one another as forms of business?

Skill: Application

107) What is the difference between a general and a limited partnership?

Answer: In a general partnership, all partners are financially liable and participate in all aspects of the business, including day to day operations and decision-making. In a limited partnership, at least one partner assumes liability and active management of the business, while the limited partners do not participate in the day-to-day operations of the business, nor are they liable for claims against the partnership.

Diff: 2 Page Ref: 18 AACSB: Reflective Thinking Objective: 1-5 How do sole proprietorships, partnerships, corporations, and limited liability companies (LLCs) differ from one another as forms of business?

Skill: Conceptual 108) John just quit his job and plans to open a carpet sales and installation business that will probably involve hiring workers to help him. What are the options John should consider in structuring his business? What business structure would you recommend to John?

Answer: A sole proprietorship would allow John to get his business up and running quickly, but there would be risks. For instance, in a sole proprietorship, John would be held liable for any claims made against him or his employees. John could also form a partnership with another person, but that would not protect him from liability. A corporation would be complicated to set up, and the annual reporting requirements would also be time-consuming and complicated. In addition, a corporation might require that John pay additional taxes, since the corporation must pay separate taxes from the owner. A limited liability company might be John's best choice, since it would protect his personal assets from claims against the company, but the documentation and reporting requirements would be less complicated than those of a corporation.

Diff: 3 Page Ref: 17-19 AACSB: Reflective Thinking Objective: 1-5 How do sole proprietorships, partnerships, corporations, and limited liability companies (LLCs) differ from one another as forms of business?

Skill: Application

109) Many of the concepts and strategies used to run a business can also be used to manage your day-to-day activities. Identify and discuss the major similarities between managing a business and managing your life.

Answer: The text identifies a number of similarities between business and life, including: 1) Structure. Are you a sole proprietorship or a partnership? If you're a single individual, not married, then you work as a sole proprietorship. You're responsible and liable for all of your debts and actions. If you're married, then you work as a partnership. Both you and your partner are responsible for each other's debts and actions.

2) Funding. Regardless of whether you have a job, you're receiving money from somewhere. It could be from work, a family member, a student loan, or your own savings. Although these funds are not essential to your existence, they are needed to secure the necessities of life. Similarly, all businesses need funds to operate. Ideally, a business would produce revenue right away; however, some businesses may operate on funds received from a bank loan, investors, or their own capital.

3) Expenses. Rent, clothing, food, tuition these are expenses whether they are paid for with cash, credit, or a loan. Ultimately, you will want to generate enough revenue, or income, to cover your expenses and have some left over. However, the lives of some students operate a bit like a startup business; you may have to pay for expenses with loans until you have enough experience to generate a profit.

4) Social environment. The social environment probably presents similar opportunities and challenges to you as it does to businesses. How do you deal with these opportunities and challenges? Are you open to learn from people who are different from you? Do you embrace diversity? How do you relate to people from an older generation? What about the green movement? Are you finding ways to make your lifestyle more eco-friendly? It is important to address these issues in order to live a more harmonious life and prepare yourself for the modern work environment.

5) Globalization. Not only is the world getting smaller for businesses, the world is getting smaller for you. Your favorite music group may be a band from Germany. You might like to chat online about movies with a friend from Japan. Just as businesses now have the opportunity to work with other firms from all over the world, you have the ability to make friends or connections on any continent.

6) Technology. Whether or not you consider yourself to be tech-savvy, chances are you still use some sort of technology to run your life. Perhaps you use online banking, or buy things over the Internet. Similar to a business, if you don't keep up with new technology, you may find yourself in trouble.

7) Goals. The goals of a business typically revolve around reaching financial success. You too might have certain financial goals you would like to achieve in your life. To reach these goals, you'll need to make informed decisions about how you spend and save your money.

Diff: 3 Page Ref: 20-21 AACSB: Reflective Thinking Objective: 1-6 How do life skills translate to the business environment?

Skill: Conceptual