Business in Action, 6E Courtland L Bovee Test Bank

Business in Action, 6E

By Courtland L. Bovee

Email: richard@qwconsultancy.com

Business in Action, 6e (Bovee/Thill) Chapter 1 Developing a Business Mindset 1) Business is any profit-seeking organization that provides goods and services designed to satisfy customers' needs.

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

Page Ref: 3 Difficulty: Easy Chapter LO: 1 Classification: Concept 2) Profit refers to the money the company brings in through the sale of goods and services.

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

Page Ref: 4 Difficulty: Easy Chapter LO: 1 Classification: Concept 3) Businesses add value by transforming lower-value inputs (like paper and ink) into highervalue outputs (like textbooks).

Answer: TRUE Explanation: Businesses add value by transforming lower-value inputs to higher-value outputs.

In other words, they make goods and services more attractive from the buyer's perspective.

Page Ref: 4 Difficulty: Easy Chapter LO: 1 Classification: Concept 4) In a free-market economy, companies generally have limited autonomy in deciding which customers they want to focus on and how they want to compete.

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

Page Ref: 4 Difficulty: Easy Chapter LO: 1 Classification: Concept

1 .

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

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

Page Ref: 4 Difficulty: Easy Chapter LO: 1 Classification: Concept 6) Assets refer to the tangible economic resources owned by a firm.

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

Page Ref: 4 Difficulty: Moderate Chapter LO: 1 Classification: Concept 7) A firm uses strategic sourcing techniques to reduce its costs. This is an example of barrier to entry.

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

Page Ref: 6 Difficulty: Moderate AACSB: Analytic Skills Chapter LO: 1 Classification: Application 8) Difficulty in obtaining business permits or licenses to do a particular business would be an example of a barrier to entry for a firm.

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

Page Ref: 6 Difficulty: Easy Chapter LO: 1 Classification: Concept

2 .

9) Intangible products have a physical presence.

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

Page Ref: 4 Difficulty: Easy Chapter LO: 1 Classification: Concept 10) The service sector now dominates the U.S. economy.

Answer: TRUE Explanation: Over the past few decades, the U.S. economy has undergone a profound transformation from being dominated by manufacturing to being dominated by services.

Page Ref: 5 Difficulty: Easy Chapter LO: 1 Classification: Concept 11) A business mindset is a view of business that considers the various decisions a business has to make as well as the challenges that it must overcome in order to be successful.

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

Page Ref: 6 Difficulty: Easy Chapter LO: 2 Classification: Concept 12) Businesses can have both positive and negative effects on society.

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

Businesses can have both positive and negative effects on society.

Page Ref: 8 Difficulty: Easy Chapter LO: 2 Classification: Concept 13) Forces resulting from the practical application of science to a company's products and processes would best describe its social environment.

Answer: FALSE Explanation: Every business operates within the broad social environment. Social environment refers to the trends and forces in society at large.

Page Ref: 10 Difficulty: Easy AACSB: Dynamics of the Global Economy Chapter LO: 3 Classification: Concept 3 .

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

Answer: FALSE Explanation: Every business operates within the broad social environment. Social environment refers to the trends and forces in society at large.

Page Ref: 10 Difficulty: Moderate AACSB: Analytic Skills Chapter LO: 3 Classification: Application 15) The term stakeholders refers only to those people who have invested money in the company's stock.

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

Page Ref: 10 Difficulty: Easy Chapter LO: 3 Classification: Concept 16) R&D fuels new ideas and designs for the company's products and services that allow it to meet customer needs in competitive markets.

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

Page Ref: 12 Difficulty: Easy Chapter LO: 4 Classification: Concept 17) Mark, who works for a toy manufacturing firm, is responsible for creating a branding and marketing strategy. He is most likely to be a part of the firm's operations management team.

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

Page Ref: 12 Difficulty: Moderate AACSB: Analytic Skills Chapter LO: 4 Classification: Application

4 .

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

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

Page Ref: 14 Difficulty: Easy Chapter LO: 4 Classification: Concept 19) Companies that sell shares of stock to the public are required to have their financial records audited by an outside accounting firm.

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

Page Ref: 14 Difficulty: Easy Chapter LO: 4 Classification: Concept 20) Claire holds the position of chief information officer (CIO) position at Celera Inc., a real estate company. Her position indicates that she is responsible for the preparation of income statements and balance sheets.

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

Page Ref: 16 Difficulty: Moderate AACSB: Analytic Skills Chapter LO: 5 Classification: Application 21) Internal auditors verify the work of the company's accounting effort and look for opportunities to improve efficiency and cost effectiveness.

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

Page Ref: 17 Difficulty: Easy Chapter LO: 5 Classification: Concept

5 .

22) Unlike accounting tasks, for which there is a long tradition of outsourcing, the work of financial managers is generally kept "in house," particularly in midsize and large companies.

Answer: TRUE Explanation: Unlike accounting tasks, for which there is a long tradition of outsourcing, the work of financial managers is generally kept "in house," particularly in midsize and large companies.

Page Ref: 17 Difficulty: Easy Chapter LO: 5 Classification: Concept 23) Dependability includes meeting your commitments, such as staying on schedule and within budgets.

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

Page Ref: 18 Difficulty: Easy Chapter LO: 6 Classification: Concept 24) Etiquette is the quality of performing your job to the best of your ability and conducting yourself with purpose and pride.

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

Page Ref: 20 Difficulty: Easy Chapter LO: 6 Classification: Concept 25) True professionals avoid committing ethical lapses.

Answer: TRUE Explanation: True professionals conduct themselves with a clear sense of right and wrong. They avoid committing ethical lapses, and they carefully weigh all the options when confronted with ethical dilemmas.

Page Ref: 20 Difficulty: Easy Chapter LO: 6 Classification: Concept

6 .

26) ________ is money that an organization brings in through the sale of its goods and services.

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

Page Ref: 4 Difficulty: Easy Chapter LO: 1 Classification: Concept 27) A/an ________ is a framework of how a business intends to generate revenue.

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

Page Ref: 4 Difficulty: Easy Chapter LO: 1 Classification: Concept 28) ________ is the term used to describe the difference between revenue and expenses.

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

Page Ref: 4 Difficulty: Easy Chapter LO: 1 Classification: Concept

7 .

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

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

Page Ref: 4 Difficulty: Easy Chapter LO: 1 Classification: Concept 30) Just Bakes, a bakery outlet in Cincinnati, is famous for the uniqueness of its bakery items, such as the baguette supreme, made from mixed-flour dough. The outlet also has an online ordering system that offers original gift baskets. Most of its target customers find it to be more appealing. In this example, Just Bakes has a(n) ________.

A) economies of scale benefit B) barrier to entry advantage C) horizontal integration D) competitive advantage E) vertical integration Answer: D Explanation: D) A competitive advantage makes a company's products or the company as a whole more appealing to its chosen customers.

Page Ref: 4 Difficulty: Moderate AACSB: Analytic Skills Chapter LO: 1 Classification: Application 31) An organization that seeks to operate efficiently and effectively to achieve its goals without focusing on financial gains is a ________.

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

Page Ref: 4 Difficulty: Easy Chapter LO: 1 Classification: Concept 8 .

32) Chicago Cinema Museum houses a unique collection of artifacts, memorabilia, and equipment that preserves the history and grandeur of cinema. It is funded by the government of the United States. The museum administrators apply many of the business-management principles to operate efficiently and effectively. The museum is most likely to be a ________.

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

Page Ref: 4 Difficulty: Moderate AACSB: Analytic Skills Chapter LO: 1 Classification: Application 33) If individuals and companies believe they can pursue rewards without facing the risks that should be attached to those pursuits, they are more likely to engage in irresponsible and even unethical behavior. This situation is known as a(n) ________.

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

Page Ref: 4 Difficulty: Easy Chapter LO: 1 Course LO: Discuss the roles of ethics and corporate responsibility in business Classification: Concept

9 .

34) Lisa has a small language training business. She provides French and Spanish lessons to several customers in the neighborhood. What type of business does Lisa have?

A) goods-producing business B) manufacturing business C) service business D) merchandising business E) not-for-profit organization Answer: C Explanation: C) Service businesses create value by performing activities that deliver some benefit to the customer.

Page Ref: 4 Difficulty: Moderate AACSB: Analytic Skills Chapter LO: 1 Classification: Application 35) Island Woodworking is a small business owned by Robert M. Carrasco, who makes handcrafted tables and rocking chairs from exotic woods. Robert employs three other woodworkers to help him in creating custom-crafted furniture. Island Woodworking would be described as what type of business?

A) goods-producing business B) labor-intensive business C) service business D) merchandising business E) not-for-profit organization Answer: A Explanation: A) Goods-producing businesses refer to companies that create value by making "things," most of which are tangible (digital products such as software are a notable exception).

Page Ref: 4 Difficulty: Moderate AACSB: Analytic Skills Chapter LO: 1 Classification: Application

10 .

36) ________ value by performing activities that deliver some benefit to the customer, such as automotive repair, banking, health care and massage therapy.

A) Goods-producing businesses B) Manufacturing businesses C) Service businesses D) Merchandising businesses E) Not-for-profit organizations Answer: C Explanation: C) Service businesses create value by performing activities that deliver some benefit to the customer, such as finance, insurance, transportation, construction, utilities, wholesale and retail trade, banking, entertainment, health care, maintenance and repair, and information.

Page Ref: 4 Difficulty: Easy Chapter LO: 1 Classification: Concept 37) Businesses that need very large amounts of money, equipment, land and other material resources in order to get started and continue to operate are ________ businesses.

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

Page Ref: 6 Difficulty: Easy Chapter LO: 1 Course LO: Compare and contrast different economic systems Classification: Concept

11 .

38) A business that relies on human resources more than on buildings, machinery, material resources, and land would be a ________ business.

A) capital-intensive B) labor-intensive C) not-for-profit D) competitively disadvantaged E) manufacturing Answer: B Explanation: B) Service businesses tend to be labor-intensive businesses, in that they rely more on human resources than buildings, machinery, and equipment to prosper.

Page Ref: 6 Difficulty: Easy Chapter LO: 1 Classification: Concept 39) ________ refer to a resource or capability a company must have before it can start competing in a given market.

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

Page Ref: 6 Difficulty: Easy Chapter LO: 1 Classification: Concept 40) A firm finds it difficult to get started and establish itself in the car manufacturing industry because of high capital requirements, such as large amounts of money, manufacturing equipment, land, and a major marketing campaign. This exemplifies ________.

A) competitive advantage B) barriers to entry C) market power D) business mindset E) vertical integration Answer: B Explanation: B) Barrier to entry is a resource or capability a company must have before it can start competing in a given market.

Page Ref: 6 Difficulty: Moderate AACSB: Analytic Skills Chapter LO: 1 Classification: Application 12 .

41) A U.S. multinational retailer corporation wants to set up a chain of large discount department stores in a developing nation. However, it is hindered by strict licensing procedures and bureaucratic delays in obtaining government approvals. In this example, the multinational corporation faces ________.

A) incumbent inertia B) economies of scale C) first-mover disadvantage D) free-rider effects E) barriers to entry Answer: E Explanation: E) Barrier to entry is a resource or capability a company must have before it can start competing in a given market.

Page Ref: 6 Difficulty: Moderate AACSB: Analytic Skills Chapter LO: 1 Classification: Application 42) ________ refers to a view of business that considers the many decisions that must be made and the potential problems that must be overcome before the organization can deliver its products or services.

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

Page Ref: 6 Difficulty: Easy Chapter LO: 2 Classification: Concept

13 .

43) Which of the following statements is true regarding business mindset?

A) It involves seeing the business from outside in.

B) It is incompatible with corporate responsibility.

C) It involves appreciating the challenges a company faces in satisfying customer needs.

D) It involves acknowledging that businesses always benefit society.

E) It involves ignoring one's customer experiences.

Answer: C Explanation: C) Business mindset refers to a view of business that considers the myriad decisions that must be made and the many problems that must be overcome before companies can deliver the products that satisfy customer needs.

Page Ref: 6 Difficulty: Moderate Chapter LO: 2 Classification: Concept 44) Population trends that change the composition of consumer markets and the workforce are a part of a company's ________ environment.

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

Page Ref: 10 Difficulty: Easy Chapter LO: 3 Classification: Concept 45) All internal and external groups affected by a company's activities are referred to as its ________.

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

Page Ref: 10 Difficulty: Easy Chapter LO: 3 Classification: Concept

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

A) Social trends B) Research and development C) Barriers to entry D) Technological environment E) Business mindset Answer: D Explanation: D) Technological environment refers to forces resulting from the practical application of science to innovations, products, and processes.

Page Ref: 10 Difficulty: Easy Chapter LO: 3 Classification: Concept 47) A generational "bulge" in the population made up of people born between 1946 and 1964, called the Baby Boom generation, has occupied a large number of middle and upper management positions, frustrating younger professionals who would like to climb the company ladder. This is an example of the effect of ________ environment on businesses.

A) economic B) social C) political D) legal E) regulatory Answer: B Explanation: B) Every business operates within the broad social environment, the trends and forces in society at large. One example of this is the so-called Baby Boom generation, a generational "bulge" in the population made up of people born between 1946 and 1964. This large group of people has affected business in numerous ways.

Page Ref: 10 Difficulty: Moderate Chapter LO: 3 Classification: Concept

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

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

Page Ref: 11 Difficulty: Easy Chapter LO: 3 Classification: Concept 49) The legal and regulatory environment would include ________.

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

Page Ref: 11 Difficulty: Moderate Chapter LO: 3 Classification: Concept 50) The policies and practices of government bodies would shape the ________ environment for a business.

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

Page Ref: 11 Difficulty: Easy Chapter LO: 3 Classification: Concept 16 .

51) Taxation, fees, efforts to coordinate multiple regulatory agencies, labor rules, environmental restrictions, protection for assets such as patents and brand names, roads and other infrastructure, and the transparency and consistency of decision making are a part of the ________ environment.

A) economic B) market C) legal and regulatory D) political E) social Answer: C Explanation: C) Legal and regulatory environment refers to the laws and regulations at the local, state, national, and even international level.

Page Ref: 11 Difficulty: Easy Chapter LO: 3 Classification: Concept 52) Which of the following is a component of the specific market environment within which each business operates?

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

Page Ref: 11 Difficulty: Easy Chapter LO: 3 Classification: Concept

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

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

Page Ref: 11 Difficulty: Easy Chapter LO: 3 Classification: Concept 54) ________ activities are intended to identify new ideas that have the potential to result in new goods and services.

A) Capital-intensive B) Regulatory C) Research and development D) Demographic E) Economic Answer: C Explanation: C) Research and development (R&D) refers to the functional area responsible for conceiving and designing new products.

Page Ref: 12 Difficulty: Easy Chapter LO: 4 Classification: Concept 55) Which of the following enables companies to design new and better ways to run their operations?

A) process R&D B) legal and regulatory environment C) barriers to entry D) economies of scale E) market environment Answer: A Explanation: A) Companies can engage in process R&D to design new and better ways to run their operations.

Page Ref: 12 Difficulty: Easy Chapter LO: 4 Classification: Concept

18 .

56) Systems that promote communication and data usage through the company or allow it to offer new services to their customers are called ________.

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

Page Ref: 12 Difficulty: Easy Chapter LO: 4 Classification: Concept 57) ________ refers to the area where the company makes whatever it makes (for goodsproducing businesses) or does whatever it does (for service businesses).

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

Page Ref: 12 Difficulty: Easy Chapter LO: 4 Classification: Concept 58) The ________ function of an organization coordinates the incoming flow of materials and the outgoing flow of finished products.

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

Page Ref: 12 Difficulty: Easy Chapter LO: 4 Classification: Concept

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

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

Page Ref: 12 Difficulty: Moderate AACSB: Analytic Skills Chapter LO: 4 Classification: Application 60) An operations manager is most likely to be responsible for ________.

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

Page Ref: 12 Difficulty: Moderate Chapter LO: 4 Classification: Concept 61) Creating branding and advertising strategies to communicate with potential customers, and setting prices would fall under the ________ function of a business.

A) human resource B) accounting C) logistics D) marketing E) research and development Answer: D Explanation: D) Marketing is charged with identifying opportunities in the marketplace, working with R&D to develop the products to address those opportunities, creating branding and advertising strategies to communicate with potential customers, and setting prices.

Page Ref: 13 Difficulty: Easy Chapter LO: 4 Classification: Concept

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62) FinSmart, a finance company, plans to construct a new office building which would be disabled-friendly. The company also plans to make renovations to the existing office buildings to incorporate changes that would make them safer and disabled-friendly. Which of the following persons is most likely to be in charge of planning the new buildings and maintaining them?

A) sales manager B) facilities manager C) human resource manager D) logistics manager E) distribution manager Answer: B Explanation: B) Facilities management is responsible for everything from planning new buildings to maintaining them.

Page Ref: 12 Difficulty: Moderate AACSB: Analytic Skills Chapter LO: 4 Classification: Application 63) The ________ function of a business involves the recruiting, hiring and support of its personnel.

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

Page Ref: 14 Difficulty: Easy Chapter LO: 4 Classification: Concept

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64) Which of the following statements is true regarding business services?

A) Business services refer to those functions of business that are performed by external firms.

B) Business services refers to the in-house department of a company that is responsible for providing customer support.

C) Business services creates the goods and services that a company can manufacture or perform for its customers.

D) Business services is found more in labor-intensive firms, as compared to capital-intensive firms.

E) Business services exist to help companies with specific needs in law, banking, real estate, and other areas.

Answer: E Explanation: E) A wide variety of business services exist to help companies with specific needs in law, banking, real estate, and other areas. These services can be performed by in-house staff, external firms, or a combination of the two.

Page Ref: 14 Difficulty: Moderate Chapter LO: 4 Classification: Concept 65) Which of the following statements is true about the major functional areas in a business enterprise?

A) An R&D function is an integral part of all businesses.

B) Operations managers create branding and advertising strategies to communicate with potential customers.

C) Accounting specialists work closely with other functional areas to ensure profitable decision making.

D) Managers in finance and accounting functions remain uninvolved in the hiring and training process.

E) Social media has resulted in customers being passive recipients of broadcast advertising messages rather than being participants in a multidirectional conversation with companies.

Answer: C Explanation: C) Accounting specialists work closely with other functional areas to ensure profitable decision making. For instance, accountants will coordinate with the R&D and production departments to estimate the manufacturing costs of a new product.

Page Ref: 14 Difficulty: Moderate Chapter LO: 4 Classification: Concept

22 .

66) ________ audit the financial reports of public companies as required by law.

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

Page Ref: 14 Difficulty: Easy Chapter LO: 4 Classification: Concept 67) ________ encompasses all the people and processes used to create the goods and perform the services that a company sells.

A) Sales and marketing B) Information technology management C) Human resources management D) Operations management E) Financial management Answer: D Explanation: D) Operations management encompasses all the people and processes used to create the goods and perform the services that a company sells.

Page Ref: 16 Difficulty: Easy Chapter LO: 5 Classification: Concept 68) An HR specialist is most likely to be responsible for which of the following activities?

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

Page Ref: 16 Difficulty: Easy Chapter LO: 5 Classification: Concept

23 .

69) Which of the following statements is true regarding a sales professional?

A) A career in sales is limited to the retail sector of professional selling.

B) Personal characteristics are of little importance in the sales professional.

C) A sales professional is responsible for determining long-term financial goals and budgets.

D) A sales professional is responsible for building relationships with customers and helping them make purchase decisions.

E) A sales professional does not receive any immediate indicators of success or failure.

Answer: D Explanation: D) A sales professional is responsible for building relationships with customers and helping them make purchase decisions. Salespeople sell everything from design services to pharmaceuticals to airliners.

Page Ref: 16 Difficulty: Easy Chapter LO: 5 Classification: Concept 70) Management accountant is likely to be responsible for which of the following activities?

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

Page Ref: 17 Difficulty: Moderate Chapter LO: 5 Classification: Concept 71) The manager of a firm was accused of diverting company funds for personal use. Andrew was the person responsible for reviewing his financial activities to see if any of the finances were diverted for personal use, and to determine if he had performed any financial crime. Andrew is most likely to be a(n) ________.

A) forensic accountant B) chief information officer C) external auditor D) operations manager E) treasurer Answer: A Explanation: A) Forensic accountants investigate financial crimes.

Page Ref: 17 Difficulty: Easy Chapter LO: 5 Classification: Application 24 .

72) Alvy Smith is the forensic accountant at KPM Financial Group, a company that provides investment services. He is most likely to do which of the following activities?

A) establish the long-term financial goals and budgets of the firm B) purchase supplies required for the upkeep of the office premises C) determine the pricing of the services provided by the firm D) investigate charges of falsification of financial statements against an employee of the firm E) build relationships with customers and help them make purchase decisions Answer: D Explanation: D) Forensic accountants investigate financial crimes.

Page Ref: 17 Difficulty: Moderate AACSB: Analytic Skills Chapter LO: 5 Classification: Application 73) Which of the following positions would be responsible for establishing the long-term financial goals of the company, investing its funds and raising capital for the business?

A) cash manager B) internal auditor C) chief information officer D) forensic accountant E) treasurer Answer: E Explanation: E) Treasurers and finance officers have a more strategic role, establishing longterm financial goals and budgets, investing the firm's funds, and raising capital as needed.

Page Ref: 17 Difficulty: Easy Chapter LO: 5 Classification: Concept 74) ________ is the quality of performing at a high level and conducting oneself with purpose and pride.

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

Page Ref: 18 Difficulty: Easy Chapter LO: 6 Classification: Concept

25 .

75) Which of the following statements is true about professionalism?

A) Professionalism involves striving to excel in a single area, instead of attempting to excel at every level.

B) Professionalism consists of working individually, rather than in a team.

C) Professionalism involves prioritizing business goals over ethical considerations.

D) Professionalism involves being accountable.

E) Professionalism involves having the confidence to present opinions as facts.

Answer: D Explanation: D) True professionals exhibit seven distinct traits: striving to excel, being dependable and accountable, being a team player, communicating effectively, demonstrating a sense of etiquette, making ethical decisions, and maintaining a positive outlook.

Page Ref: 18 Difficulty: Easy Chapter LO: 6 Course LO: Compare and contrast different economic systems Classification: Concept 76) Which of the following activities is most likely to be considered unprofessional?

A) Viewing constant change as a positive thing, as a way to avoid stagnation and boredom.

B) Being conservative with commitments.

C) Helping others in the team to improve their performance.

D) Posting critical comments regarding the employer in a personal blog.

E) Providing practical information, when required.

Answer: D Explanation: D) Professionals don't trash their employers in front of customers or in their personal blogs. When they have a problem, they solve it; they don't share it.

Page Ref: 19 Difficulty: Easy Chapter LO: 6 Classification: Concept

26 .

77) Jason, a financial analyst in a computer manufacturing firm, is considered to be unprofessional by several of his co-workers and superiors. His manager feels that Jason is well meaning, however he is unable to communicate effectively. Which of the following tips is the manager most likely to give, to help Jason communicate more professionally?

A) Give people general information, instead of providing only specific data.

B) Clarify how people will benefit from responding to your messages the way you want them to.

C) Present personal opinions as facts so that you appear professional.

D) Avoid clarifying expectations and responsibilities to create a positive impression.

E) Use passive listening so that you can save time and easily use your filters to process information.

Answer: B Explanation: B) The guidelines to improve your effectiveness as a communicator includes making it clear to people how they will benefit from responding to your messages the way you want them to.

Page Ref: 19 Difficulty: Moderate Chapter LO: 6 Classification: Application 78) The expected norms of behavior in a particular situation are referred to as ________.

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

Page Ref: 20 Difficulty: Easy Chapter LO: 6 Classification: Concept

27 .

79) Which of the following statements is true about etiquette?

A) The rules of etiquette are easily understood and memorized.

B) Etiquette means meeting your commitments, such as staying on schedule and within budgets.

C) Etiquette blunders can have serious financial costs through lower productivity and lost business opportunities.

D) It is preferable not to ask questions regarding the etiquette of a culture, as people will tend to become offended by your curiosity.

E) Travel guidebooks are a poor source of information about etiquette in other countries.

Answer: C Explanation: C) As you prepare to encounter new situations, take some time to learn the expectations of the other people involved. Travel guidebooks are a great source of information about norms and customs in other countries.

Page Ref: 20 Difficulty: Moderate Chapter LO: 6 Classification: Concept 80) Which of the following is an example of bad etiquette?

A) Daniel indulged in excessive drinking during a company dinner.

B) Alice was forced to take leave without prior notice due to a family emergency.

C) Seth does not hesitate to express clearly what he expects from the interns working under him.

D) Lisa, being a vegan, avoided having meat and milk-based dishes during a meeting with a client.

E) Jason, an American who is about to go to a client's office in Japan, refers to a travel guidebook to gather knowledge about the norms and customs prevalent in Japan.

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

Page Ref: 20 Difficulty: Moderate AACSB: Analytic Skills Chapter LO: 6 Classification: Application 81) Explain the concept of adding value to satisfy customers and provide an example.

Answer: Each company in the chain of producing a product enhances its value in some way before it is offered to the final customer. For example, a wheat farm converts soil, seed and time to wheat. The flour mill then converts that wheat to flour. The bakery converts that flour to bread. The grocery store makes the bread easier for the consumer to purchase. The consumer benefits from the value added at every stage.

Page Ref: 3 Difficulty: Moderate Chapter LO: 1 Classification: Concept

28 .

82) Why are not-for-profit organizations different from most businesses? Are there any similarities between a goods-producing business and a not-for-profit organization?

Answer: The driving forces behind most businesses are the prospects of earning profits and building assets, which are anything of meaningful value, from patents and brand names to real estate and company stock. In contrast, not-for-profit organizations (also known as nonprofit organizations) such as museums, most universities, and charities do not have a profit motive.

However, similar to goods-producing businesses, they must operate efficiently and effectively to achieve their goals. A nonprofit organization might use many of the business-management principles used by other businesses such as a goods-producing business.

Page Ref: 4 Difficulty: Difficult AACSB: Reflective Thinking Skills Chapter LO: 1 Classification: Synthesis 83) Compare and contrast between goods-producing businesses and service businesses.

Answer: Goods-producing businesses create value by making "things," from Pop-Tarts to school furniture to spacecraft. Most goods are tangible, meaning they have a physical presence, although software, music downloads, and other digital products are intangible. On the other hand, service businesses create value by performing activities that deliver some benefit to the customer, such as finance, insurance, transportation, construction, utilities, wholesale and retail trade, banking, entertainment, health care, maintenance and repair, and information. Twitter, Jiffy Lube, HBO, and Verizon Wireless are examples of service businesses.

Page Ref: 4 Difficulty: Difficult AACSB: Reflective Thinking Skills Chapter LO: 1 Classification: Synthesis 84) What is a barrier to entry? Explain with an example.

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

Page Ref: 6 Difficulty: Easy Chapter LO: 1 Classification: Concept

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85) Compare and contrast between capital-intensive businesses and labor-intensive businesses.

Answer: Capital-intensive businesses require large amounts of money, equipment, land, and other resources to get started and to operate. Goods-producing businesses are often capitalintensive businesses. Service businesses tend to be labor-intensive businesses in that they rely more on human resources than buildings, machinery, and equipment to prosper. However, the Internet and other technologies have reduced the labor required to operate many types of service businesses.

Page Ref: 6 Difficulty: Difficult AACSB: Reflective Thinking Skills Chapter LO: 1 Classification: Synthesis 86) Compare and contrast the perspective of a business professional with that of a consumer.

Answer: Consumer experiences include the impact of poor customer service, a sense for product value, and the entire experience of searching for, purchasing, and owning products. While a customer thinks about the cost of buying a particular product, a business professional thinks about the cost of making it, promoting it, and distributing it. A business professional focuses on what it takes to make a product stand out from the crowd and recognize the importance of finding opportunities in the marketplace. He/she starts to develop a business mindset which involves an appreciation for the many decisions that must be made and the many challenges that must be overcome before companies can deliver the products that satisfy customer needs.

Page Ref: 7 Difficulty: Difficult AACSB: Reflective Thinking Skills Chapter LO: 2 Classification: Synthesis

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

Answer: A business professional needs to recognize the positive and negative effects that business can have on society. Business has the potential to contribute to society in many useful ways, such as: ∙ Offering valuable goods and services. ∙ Providing employment, which enables employees to provide for themselves and their families.

In addition, many companies help their employees meet the costs of health care, child care, insurance, retirement, and other living expenses. ∙ Paying taxes. Money collected from taxes that helps build highways, fund education, further scientific research, enhance public safety and national defense, and support other vital functions of government. ∙ Contributing to national growth, stability, and security. Beyond the mere dollars of taxes paid, a strong economy helps ensure a strong country.

Unfortunately, businesses don't always operate in ways that benefit society. The potentially negative effects that business can have on society include generating pollution and creating waste, creating health and safety risks, disrupting communities, and causing financial instability.

The potential negative effects of business are serious matters, but employees can conduct themselves in ways that balance the profit motive with society's shared interests.

Page Ref: 7; 8 Difficulty: Difficult AACSB: Reflective Thinking Skills Chapter LO: 2 Course LO: Discuss the roles of ethics and corporate responsibility in business Classification: Synthesis 88) Compare and contrast the social environment and the economic environment of a business.

Answer: Social environment refers to the trends and forces in society at large. For instance, all companies are affected by population trends that change the composition of consumer markets and the workforce.

The economic environment of a business consists of the conditions and forces that (a) affect the cost and availability of goods, services, and labor and (b) thereby shape the behavior of buyers and sellers. For example, a growing economy can help companies by increasing demand and supporting higher prices for their products, but it can also raise the costs of labor and the materials the companies need to do business.

Page Ref: 10; 11 Difficulty: Difficult AACSB: Reflective Thinking Skills Chapter LO: 3 Classification: Synthesis

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89) Discuss the legal and regulatory environment of a business. How is it related to barriers to entry? What kind of legal and regulatory environment do most businesses prefer?

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

Government testing and approval, tightly controlled markets, strict licensing procedures can act as barriers to entry.

Businesses prefer to locate and do business in jurisdictions that offer lower costs, lower complexity, and greater stability and predictability. The policies and practices of government bodies establish an overall level of support for businesses operating within their jurisdictions.

Taxation, fees, efforts to coordinate multiple regulatory agencies, the speed of granting permits and licenses, labor rules, environmental restrictions, protection for assets such as patents and brand names, roads and other infrastructure, and the transparency and consistency of decision making all affect this level of support.

Page Ref: 11 Difficulty: Difficult AACSB: Reflective Thinking Skills Chapter LO: 1, 3 Classification: Synthesis 90) Compare and contrast the technological environment and the market environment within which a business operates?

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

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

Page Ref: 10; 11 Difficulty: Difficult AACSB: Reflective Thinking Skills Chapter LO: 3 Classification: Synthesis

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

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

Page Ref: 12 Difficulty: Easy Chapter LO: 4 Classification: Concept 92) Compare and contrast the research and development and the operations functions of a business.

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

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

Page Ref: 12 Difficulty: Difficult AACSB: Reflective Thinking Skills Chapter LO: 4 Classification: Synthesis

33 .

93) What are the functions of HR specialists and managers? How has the role of the HR function changed over time. Compare it with the functions of a chief information officer.

Answer: HR specialists and managers plan and direct human resource activities that include recruiting, training and development, compensation and benefits, employee and labor relations, and health and safety. Additionally, HR managers develop and implement human resources systems and practices to accommodate a firm's strategy and to motivate and manage diverse workforces. In the past, HR was seen by many as a lower-level function concerned mostly with processing employee records and other tactical duties. However, in many companies, the HR function is becoming more strategic and focused on the global competition to find, attract, and keep the best talent on the market.

Like HR, information technology (IT) is evolving from a tactical support function to a critical strategic component. Reflecting IT's strategic importance, many midsize and large companies now have a chief information officer (CIO) position at the executive level to plot IT strategy.

Page Ref: 16 Difficulty: Difficult AACSB: Reflective Thinking Skills Chapter LO: 5 Classification: Synthesis 94) What is professionalism. List the key traits of professionalism.

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

Page Ref: 18; 19 Difficulty: Easy Chapter LO: 6 Classification: Concept 95) Why is being a team player an important aspect of professionalism?

Answer: Professionals know that they are contributors to a larger cause, that it's not all about them. Great team players know how to make those around them more effective, whether it's lending a hand during crunch time, sharing resources, removing obstacles, making introductions, or offering expertise. Being a team player also means showing loyalty to your organization and protecting your employer's reputation - one of the most important assets any company has.

Professionals don't trash their employers in front of customers or in their personal blogs. When they have a problem, they solve it; they don't share it.

Page Ref: 19 Difficulty: Difficult AACSB: Reflective Thinking Skills Chapter LO: 6 Classification: Concept

34 .

Business in Action, 6e (Bovee/Thill) Chapter 2 Understanding Basic Economics 1) Economics is the study of how a society uses its scarce resources to produce and distribute goods and services to its citizens.

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

Page Ref: 26 Difficulty: Easy AACSB: Dynamics of the Global Economy Chapter LO: 1 Course LO: Compare and contrast different economic systems Classification: Concept 2) Macroeconomics studies economic behavior among consumers, businesses, and industries that collectively determine the quantity of goods and services demanded and supplied at different prices.

Answer: FALSE Explanation: The study of a country's larger economic issues, such as how firms compete, the effect of government policies, and how an economy maintains and allocates its scarce resources, is termed macroeconomics.

Page Ref: 26 Difficulty: Easy AACSB: Dynamics of the Global Economy Chapter LO: 1 Course LO: Compare and contrast different economic systems Classification: Concept 3) Capital includes land and minerals that a business needs in order to produce goods and services.

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

Page Ref: 26 Difficulty: Easy AACSB: Dynamics of the Global Economy Chapter LO: 1 Course LO: Compare and contrast different economic systems Classification: Concept

1 .

4) Capital is the collective intelligence of an organization.

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

Page Ref: 26 Difficulty: Easy AACSB: Dynamics of the Global Economy Chapter LO: 1 Course LO: Compare and contrast different economic systems Classification: Concept 5) Scarcity creates competition for resources, and forces trade-offs on the part of every participant in the economy.

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

Page Ref: 27 Difficulty: Moderate AACSB: Dynamics of the Global Economy Chapter LO: 1 Course LO: Compare and contrast different economic systems Classification: Concept 6) Deciding how much money to spend on new manufacturing equipment versus launching a new advertising campaign is described as opportunity cost.

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

Page Ref: 28 Difficulty: Moderate AACSB: Analytic Skills Chapter LO: 1 Course LO: Compare and contrast different economic systems Classification: Application

2 .

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

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

Page Ref: 28 Difficulty: Easy AACSB: Dynamics of the Global Economy Chapter LO: 2 Course LO: Compare and contrast different economic systems Classification: Concept 8) In practice, no economy is truly a free-market economy.

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

Page Ref: 29 Difficulty: Easy AACSB: Dynamics of the Global Economy Chapter LO: 2 Course LO: Compare and contrast different economic systems Classification: Concept 9) As social equality is a major goal of planned systems, private enterprise and the pursuit of private gain are encouraged.

Answer: FALSE Explanation: In a planned system, governments largely control the allocation of resources and limit freedom of choice in order to accomplish government goals. Private enterprise and the pursuit of private gain are not encouraged in such a system.

Page Ref: 29 Difficulty: Moderate AACSB: Dynamics of the Global Economy Chapter LO: 2 Course LO: Compare and contrast different economic systems Classification: Concept

3 .

10) By taking an ownership of 60% in General Motors in 2009, the U.S. nationalized the automaker.

Answer: TRUE Explanation: Nationalizing refers to a government's takeover of selected companies or industries. In the given situation, the government has attained a majority stake and the situation is an example of nationalization.

Page Ref: 30 Difficulty: Moderate AACSB: Analytic Skills Chapter LO: 2 Course LO: Compare and contrast different economic systems Classification: Application 11) Demand refers to the quantities of a good or service that producers will provide on a particular date at various prices.

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

Page Ref: 31 Difficulty: Easy AACSB: Dynamics of the Global Economy Chapter LO: 3 Classification: Concept 12) The demand curve will shift to the left if the price of substitute products increases.

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

Page Ref: 31 Difficulty: Moderate AACSB: Analytic Skills Chapter LO: 3 Classification: Application 13) Movement along the supply curve typically slopes upward.

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

Page Ref: 32 Difficulty: Moderate AACSB: Analytic Skills Chapter LO: 3 Classification: Concept

4 .

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

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

Page Ref: 32 Difficulty: Moderate AACSB: Analytic Skills Chapter LO: 3 Classification: Application 15) The point at which quantity of a good or service equals the quantity demanded is known as the equilibrium point.

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

Page Ref: 32 Difficulty: Easy AACSB: Dynamics of the Global Economy Chapter LO: 3 Classification: Concept 16) The situation in which one supplier thoroughly dominates a market and essentially shuts out other competitors is called monopoly.

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

Page Ref: 35 Difficulty: Easy AACSB: Dynamics of the Global Economy Chapter LO: 4 Course LO: Compare and contrast different economic systems Classification: Concept 17) A deep and prolonged recession can be considered as a depression.

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

Page Ref: 36 Difficulty: Easy AACSB: Dynamics of the Global Economy Chapter LO: 4 Course LO: Compare and contrast different economic systems Classification: Concept

5 .

18) Frictional unemployment is caused by economic fluctuations.

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

Page Ref: 36 Difficulty: Easy AACSB: Dynamics of the Global Economy Chapter LO: 4 Course LO: Compare and contrast different economic systems Classification: Concept 19) Deflation is an economic condition in which prices fall steadily throughout the economy.

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

Page Ref: 36 Difficulty: Easy AACSB: Dynamics of the Global Economy Chapter LO: 4 Course LO: Compare and contrast different economic systems Classification: Concept 20) Cyclical unemployment is caused by a mismatch between workers' skills and current employer needs.

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

Page Ref: 36 Difficulty: Easy AACSB: Dynamics of the Global Economy Chapter LO: 4 Course LO: Compare and contrast different economic systems Classification: Concept 21) Economic development zones, established by governments, offer a variety of financial incentives to businesses that meet specific job creation and local investment criteria.

Answer: TRUE Explanation: Economic development zones, established by governments, offer a variety of financial incentives to businesses that meet specific job creation and local investment criteria.

Page Ref: 38 Difficulty: Easy AACSB: Dynamics of the Global Economy Chapter LO: 5 Course LO: Explain how economic performance is monitored Classification: Concept 6 .

22) Monetary policy involves changes in the government's revenues and expenditures to stimulate a slow economy or dampen a growing economy that is in danger of overheating and causing inflation.

Answer: FALSE Explanation: Monetary policy involves adjusting the nation's money supply, the amount of "spendable" money in the economy at any given time, by increasing or decreasing interest rates.

Page Ref: 40 Difficulty: Easy AACSB: Dynamics of the Global Economy Chapter LO: 5 Course LO: Explain how economic performance is monitored Classification: Concept 23) Sales taxes are the government's largest single source of revenue.

Answer: FALSE Explanation: Income taxes are the government's largest single source of revenue.

Page Ref: 40 Difficulty: Easy AACSB: Dynamics of the Global Economy Chapter LO: 5 Course LO: Explain how economic performance is monitored Classification: Concept 24) Leading economic indicators suggest changes that may happen in the economy in the future.

Answer: TRUE Explanation: Leading economic indicators suggest changes that may happen in the economy in the future.

Page Ref: 41 Difficulty: Easy AACSB: Dynamics of the Global Economy Chapter LO: 6 Course LO: Explain how economic performance is monitored Classification: Concept 25) GDP considers who is responsible for the production; GNP considers where the production occurs.

Answer: FALSE Explanation: GNP considers who is responsible for the production; GDP considers where the production occurs.

Page Ref: 43 Difficulty: Easy AACSB: Dynamics of the Global Economy Chapter LO: 6 Course LO: Explain how economic performance is monitored Classification: Concept

7 .

26) ________ is the study of how a society uses its scarce resources to produce and distribute goods and services.

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

Page Ref: 26 Difficulty: Easy Chapter LO: 1 Course LO: Compare and contrast different economic systems Classification: Concept 27) Microeconomics is the study of ________.

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

Page Ref: 26 Difficulty: Easy Chapter LO: 1 Course LO: Compare and contrast different economic systems Classification: Concept

8 .

28) The study of a country's larger economic issues, such as how firms compete, the effect of government policies, and how an economy maintains and allocates its scarce resources, is known as ________.

A) capitalism B) entrepreneurship C) microeconomics D) socialism E) macroeconomics Answer: E Explanation: E) The study of a country's larger economic issues, such as how firms compete, the effect of government policies, and how an economy maintains and allocates its scarce resources, is termed macroeconomics.

Page Ref: 26 Difficulty: Easy Chapter LO: 1 Course LO: Compare and contrast different economic systems Classification: Concept 29) Which of the following refers to people and their individual talents and capacities?

A) natural resources B) knowledge C) capital investments D) human resources E) entrepreneurship Answer: D Explanation: D) Human resources are people and their individual talents and capacities.

Page Ref: 26 Difficulty: Easy Chapter LO: 1 Course LO: Compare and contrast different economic systems Classification: Concept 30) The money, computers, machines, tools, and buildings that a business needs in order to produce its good and services are called ________.

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

Page Ref: 26 Difficulty: Easy Chapter LO: 1 Course LO: Compare and contrast different economic systems Classification: Concept 9 .

31) ________ is the spirit of innovation, the initiative, and the willingness to take the risks involved in creating and operating businesses.

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

Page Ref: 27 Difficulty: Easy Chapter LO: 1 Course LO: Compare and contrast different economic systems Classification: Concept 32) ________ is a concept that refers to the finite supply of resources.

A) Redundancy B) Scarcity C) Deficit D) Stringency E) Shortage Answer: B Explanation: B) Scarcity doesn't mean a shortage of a particular resource; rather, it means that the resource has a finite supply.

Page Ref: 27 Difficulty: Easy AACSB: Dynamics of the Global Economy Chapter LO: 1 Course LO: Compare and contrast different economic systems Classification: Concept

10 .

33) A business owner has to decide whether the company should purchase new manufacturing equipment, open a new retail store in another city, or invest in a major advertising campaign.

This decision to give up something to get something else is referred to as ________.

A) resource development analysis B) an arbitrage C) demand/supply determination D) a trade-off E) factor analysis Answer: D Explanation: D) Given the universal scarcity of resources, consumers, companies, and governments are constantly forced to make trade-offs, meaning they have to give up something to get something else.

Page Ref: 28 Difficulty: Moderate AACSB: Analytic Skills Chapter LO: 1 Course LO: Compare and contrast different economic systems Classification: Application 34) A business owner has to decide whether the company should purchase new manufacturing equipment, open a new retail store in another city, or invest in a major advertising campaign. The value of the most appealing alternative that the business owner did not choose is its ________.

A) break-even value B) decisional value C) opportunity cost D) factor analysis determination E) resource value Answer: C Explanation: C) Opportunity cost refers to the value of the most appealing alternative from all those you didn't choose. In other words, opportunity cost is a way to measure the value of what you gave up when you pursued a different opportunity.

Page Ref: 28 Difficulty: Moderate AACSB: Analytic Skills Chapter LO: 1 Course LO: Compare and contrast different economic systems Classification: Application

11 .

35) A ________ is an economic system in which individuals and companies are largely free to decide what products to produce, how to produce them, whom to sell them to, and at what price to sell them.

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

Page Ref: 28 Difficulty: Easy AACSB: Dynamics of the Global Economy Chapter LO: 2 Course LO: Compare and contrast different economic systems Classification: Concept 36) The economic system of the U.S. is such that individuals own and operate the majority of businesses with limited economic intervention by the government. This is characteristic of a ________ economy.

A) mixed B) planned C) capitalist D) free-market E) communist Answer: A Explanation: A) The practice of limited intervention is characteristic of a mixed economy or mixed capitalism, which is the economic system of the United States and most other countries.

For example, government bodies intervene in the U.S. economy in a variety of ways, such as influencing particular allocations of resources through tax incentives, prohibiting or restricting the sale of certain goods and services, or setting price controls.

Page Ref: 29 Difficulty: Moderate AACSB: Dynamics of the Global Economy Chapter LO: 2 Course LO: Compare and contrast different economic systems Classification: Application

12 .

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

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

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

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

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

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

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

Page Ref: 29 Difficulty: Moderate AACSB: Dynamics of the Global Economy Chapter LO: 2 Course LO: Compare and contrast different economic systems Classification: Concept 38) The economic system that allows individuals the least degree of economic freedom is ________.

A) socialism B) communism C) capitalism D) authoritarianism E) mixed capitalism Answer: B Explanation: B) The planned economic system that allows individuals the least degree of economic freedom is communism, which still exists in a few countries, most notably North Korea and China.

Page Ref: 29 Difficulty: Easy AACSB: Dynamics of the Global Economy Chapter LO: 2 Course LO: Compare and contrast different economic systems Classification: Concept

13 .

39) In a country, the state owns all major productive resources from electricity to transportation.

The country has very few opportunities for entrepreneurship and the economic classes are absent.

The economy of this country is characterized by which of the following economic systems?

A) anarchism B) communism C) capitalism D) socialism E) mixed Answer: B Explanation: B) In communism, the state owns of all the major productive resources. Economic classes are absent and there are few opportunities for entrepreneurship.

Page Ref: 29 Difficulty: Moderate AACSB: Dynamics of the Global Economy Chapter LO: 2 Course LO: Compare and contrast different economic systems Classification: Application 40) ________ lies somewhere between capitalism and communism, with a fairly high degree of government planning and some government ownership of capital resources.

A) Totalitarianism B) Liberalism C) Authoritarianism D) Socialism E) Anarchism Answer: D Explanation: D) Socialism lies somewhere between capitalism and communism, with a fairly high degree of government planning and some government ownership of capital resources.

Page Ref: 29 Difficulty: Easy AACSB: Analytic Skills Chapter LO: 2 Course LO: Compare and contrast different economic systems Classification: Concept

14 .

41) In a country, the government owns many of the key industrial sectors, such as transportation, health care, and communications. Private ownership, however, is allowed in other industries.

What type of economic system does this country have?

A) communism B) capitalism C) free-market economy D) socialism E) totalitarianism Answer: D Explanation: D) Socialism lies somewhere between capitalism and communism, with a fairly high degree of government planning and some government ownership of capital resources.

However, government ownership tends to be focused in industries considered vital to the common welfare, such as transportation, health care, and communications. Private ownership is permitted in other industries.

Page Ref: 29 Difficulty: Moderate AACSB: Analytic Skills Chapter LO: 2 Course LO: Compare and contrast different economic systems Classification: Application 42) In 2008, the British government became the majority owner of the Royal Bank of Scotland, the second-largest bank in Britain, in an attempt to prevent the bank from collapsing. This is an example of ________.

A) privatization B) anarchism C) capitalism D) nationalization E) socialization Answer: D Explanation: D) Governments can change the structure of the economy by nationalizing assuming ownership of - selected companies or, in extreme cases, even entire industries.

Nationalization is less common and more drastic, but it has happened in recent years, most notably during the recent global banking crisis.

Page Ref: 30 Difficulty: Moderate AACSB: Analytic Skills Chapter LO: 2 Course LO: Compare and contrast different economic systems Classification: Application

15 .

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

A) allowing private businesses to operate in an industry that was previously operated by the government B) discouraging private business to operate in an industry that is critical for the growth of the economy C) acquiring the market leader to gain control of the industry and its resources D) imposing taxes on scarce raw materials to discourage unfair pricing by its suppliers E) imposing regulations on multinational businesses to protect local businesses Answer: A Explanation: A) Governments can change the structure of the economy by nationalizing assuming ownership of - selected companies or, in extreme cases, even entire industries. They can also move in the opposite direction, privatizing services once performed by the government by allowing private businesses to perform them instead.

Page Ref: 30 Difficulty: Easy AACSB: Dynamics of the Global Economy Chapter LO: 2 Course LO: Compare and contrast different economic systems Classification: Concept 44) The U.S. government's use of Blackwater Security Consulting, a military security company, to guard officials and military installations in Iraq is an example of ________.

A) privatization B) nationalization C) capitalization D) socialization E) communism Answer: A Explanation: A) The process of turning over services once performed by the government by allowing private businesses to perform them instead, is known as privatization.

Page Ref: 30 Difficulty: Moderate AACSB: Analytic Skills Chapter LO: 2 Course LO: Compare and contrast different economic systems Classification: Application

16 .

45) ________ refers to the amount of a good or service that customers will buy at a given time.

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

Page Ref: 31 Difficulty: Easy AACSB: Dynamics of the Global Economy Chapter LO: 3 Course LO: Explain how economic performance is monitored Classification: Concept 46) ________ refers to the quantities of a good or service that producers will provide on a particular date at various prices.

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

Page Ref: 31 Difficulty: Easy AACSB: Dynamics of the Global Economy Chapter LO: 3 Course LO: Explain how economic performance is monitored Classification: Concept

17 .

47) A(n) ________ is a graph showing the relationship between the amount of product that buyers will purchase at various prices, all other factors being equal.

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

Page Ref: 31 Difficulty: Easy AACSB: Dynamics of the Global Economy Chapter LO: 3 Course LO: Explain how economic performance is monitored Classification: Concept 48) Demand curves typically slope downward. This implies that a(n) ________.

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

Page Ref: 31 Difficulty: Moderate AACSB: Analytic Skills Chapter LO: 3 Course LO: Explain how economic performance is monitored Classification: Application

18 .

49) If consumer demand for a product decreases, the demand curve ________.

A) moves downward B) moves upward C) moves to the right D) moves to the left E) remains stationary Answer: D Explanation: D) If overall demand for a product decreases, the entire demand curve moves to the left.

Page Ref: 32 Difficulty: Moderate AACSB: Analytic Skills Chapter LO: 3 Course LO: Explain how economic performance is monitored Classification: Concept 50) The ________ depicts the relationship between prices and quantities that sellers will offer for sale, regardless of demand.

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

Page Ref: 32 Difficulty: Easy AACSB: Dynamics of the Global Economy Chapter LO: 3 Course LO: Explain how economic performance is monitored Classification: Concept

19 .

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

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

Page Ref: 32 Difficulty: Moderate AACSB: Dynamics of the Global Economy Chapter LO: 3 Course LO: Explain how economic performance is monitored Classification: Concept 52) The point at which the demand and supply curves intersect - the point at which the quantity demanded and supplied are equal - is called the ________.

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

Page Ref: 32 Difficulty: Easy AACSB: Dynamics of the Global Economy Chapter LO: 3 Course LO: Explain how economic performance is monitored Classification: Concept

20 .

53) Colonel's Burgers sells 2500 of its flagship burger, Colonel's Treat, each month at a price of $10 each. The customers are willing to buy 2500 Colonel's Treat burgers each month at the same price. Hence, the price of $10 per burger is the ________.

A) sunk cost B) break-even price C) equilibrium price D) opportunity cost E) incremental cost Answer: C Explanation: C) The point at which demand and supply are equal is known as the equilibrium point. At the equilibrium price point, customers are willing to buy as many burgers as Colonel's Burgers is willing to sell.

Page Ref: 32 Difficulty: Moderate AACSB: Analytic Skills Chapter LO: 3 Course LO: Explain how economic performance is monitored Classification: Application 54) ________ is a situation in which no single firm is large enough to influence prices and distort the workings of the free-market system.

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

Page Ref: 34 Difficulty: Easy AACSB: Dynamics of the Global Economy Chapter LO: 4 Course LO: Compare and contrast different economic systems Classification: Concept

21 .

55) Which of the following is a distinct characteristic of a pure monopolistic economy?

A) many small suppliers, with virtually identical products.

B) small number of suppliers with products, which can be distinguished in important ways C) only one supplier, with monopoly granted by government mandate D) only one supplier, with monopoly achieved by innovation and specialization E) few suppliers, with products that can be distinguished but are similar enough to be replacements Answer: D Explanation: D) In a pure monopoly, only one supplier is in a given market. Monopoly is achieved without government intervention by innovation, specialization, exclusive contracts, or by a simple lack of competitors. Products are unique, with no direct replacements available.

Barriers to entry are extremely high, making the market difficult or impossible to enter.

Page Ref: 35 Difficulty: Difficult AACSB: Dynamics of the Global Economy Chapter LO: 4 Course LO: Compare and contrast different economic systems Classification: Concept 56) Due to government mandate, only one company has the exclusive right to provide electricity in all the cities of Borgia. This is an example of a ________.

A) pure competition B) pure monopoly C) regulated monopoly D) monopolistic competition E) regulated monopsony Answer: C Explanation: C) Monopolies can happen "naturally," as companies innovate or markets evolve (a pure monopoly) or by government mandate (a regulated monopoly).

Page Ref: 35 Difficulty: Moderate AACSB: Analytic Skills Chapter LO: 4 Course LO: Compare and contrast different economic systems Classification: Application

22 .

57) There are 10 pizza restaurants in a city. Each restaurant claims to have the "best pizza in town" and advertises the ways in which its pizza is different and better than its competitors' pizzas. This is an example of a(n) ________.

A) regulated monopoly B) monopsony C) regulated monopsonic competition D) monopolistic competition E) monopoly Answer: D Explanation: D) Most of the competition in advanced free-market economies is monopolistic competition, in which a number of sellers offer products that can be distinguished from competing products in at least some small way.

Page Ref: 35 Difficulty: Moderate AACSB: Analytic Skills Chapter LO: 4 Course LO: Compare and contrast different economic systems Classification: Application 58) Which of the following is true of the pricing in a market of monopolistic competition?

A) No single firm can grow large enough to influence prices across the market.

B) Firms that excel in one or more aspects can gain some control over pricing.

C) All firms have considerable control over pricing.

D) Suppliers have total control over the pricing of products.

E) Prices are set by government mandate.

Answer: B Explanation: B) In a market characterized by monopolistic competition, firms that excel in one or more aspects can gain some control over pricing.

Page Ref: 35 Difficulty: Moderate Chapter LO: 4 Course LO: Compare and contrast different economic systems Classification: Concept

23 .

59) When the number of competitors in a market is quite small, a situation known as ________ is created.

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

Page Ref: 35 Difficulty: Easy AACSB: Dynamics of the Global Economy Chapter LO: 4 Course LO: Compare and contrast different economic systems Classification: Concept 60) Which of the following is a characteristic feature of economic contraction?

A) decreased unemployment rates B) decreased consumer spending C) increased income D) increased employment E) increased demand Answer: B Explanation: B) Economic contraction occurs when such spending declines, employment drops, and the economy as a whole slows down.

Page Ref: 36 Difficulty: Easy AACSB: Dynamics of the Global Economy Chapter LO: 4 Course LO: Compare and contrast different economic systems Classification: Concept

24 .

61) ________ is defined as having two consecutive quarters of decline in the country's gross domestic product.

A) Deflation B) Stagnation C) Immobilism D) Stagflation E) Recession Answer: E Explanation: E) If the period of downward swing is severe, the nation may enter into a recession, traditionally defined as two consecutive quarters of decline in the gross domestic product.

Page Ref: 36 Difficulty: Easy AACSB: Dynamics of the Global Economy Chapter LO: 4 Course LO: Compare and contrast different economic systems Classification: Concept 62) A deep and prolonged recession is known as a(n) ________.

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

Page Ref: 36 Difficulty: Easy AACSB: Dynamics of the Global Economy Chapter LO: 4 Course LO: Compare and contrast different economic systems Classification: Concept

25 .

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

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

Page Ref: 36 Difficulty: Easy AACSB: Dynamics of the Global Economy Chapter LO: 4 Course LO: Compare and contrast different economic systems Classification: Concept 64) ________ unemployment is the natural movement of workers into and out of jobs, such as when a person quits one job without first lining up a new job.

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

Page Ref: 37 Difficulty: Easy Chapter LO: 4 Course LO: Compare and contrast different economic systems Classification: Concept

26 .

65) When demand for goods and services drops, businesses reduce production, thereby requiring fewer workers. The unemployment resulting because of this phenomenon is known as ________ unemployment.

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

Page Ref: 37 Difficulty: Easy AACSB: Dynamics of the Global Economy Chapter LO: 4 Course LO: Compare and contrast different economic systems Classification: Concept 66) Workers in a country are unable to find jobs that match their qualifications and the employers are unable to find employees with the skills required to perform the job. This has led to ________ unemployment in this country.

A) frictional B) seasonal C) structural D) cyclical E) intrinsic Answer: C Explanation: C) When workers can't find jobs that match their qualifications, and employers can't find employees with the skills their job openings require, it leads to structural unemployment.

Page Ref: 37 Difficulty: Moderate AACSB: Analytic Skills Chapter LO: 4 Course LO: Compare and contrast different economic systems Classification: Application

27 .

67) Which of the following types of unemployment is common in industries with predictable increases and decreases in customer demand?

A) structural B) frictional C) intrinsic D) seasonal E) cyclical Answer: D Explanation: D) Predictable increases and decreases in the need for workers in industries with seasonal fluctuations in customer demand, lead to seasonal unemployment. It is most common in agriculture, leisure and entertainment, retailing, and accounting services.

Page Ref: 37 Difficulty: Moderate AACSB: Dynamics of the Global Economy Chapter LO: 4 Course LO: Compare and contrast different economic systems Classification: Concept 68) ________ is a steady rise in the average prices of goods and services throughout the economy.

A) Recession B) Depression C) Deflation D) Inflation E) Arbitration Answer: D Explanation: D) Inflation is a steady rise in the average prices of goods and services throughout the economy.

Page Ref: 36 Difficulty: Easy AACSB: Dynamics of the Global Economy Chapter LO: 4 Course LO: Compare and contrast different economic systems Classification: Concept

28 .

69) Inflation is a major concern for consumers, businesses, and government leaders because it ________.

A) is a precursor to recession B) decreases the purchasing power of consumers C) decreases the production costs D) increases the demand for commodities E) decreases the opportunity cost of holding cash balances Answer: B Explanation: B) Inflation is a major concern for consumers, businesses, and government leaders because of its effect on purchasing power, or the amount of a good or service you can buy for a given amount of money. When prices go up, purchasing power goes down. If wages keep pace with prices, inflation is less worrisome, but if prices rise faster than wages, consumers definitely feel the pinch.

Page Ref: 37 Difficulty: Moderate AACSB: Dynamics of the Global Economy Chapter LO: 4 Course LO: Compare and contrast different economic systems Classification: Concept 70) Which of the following is an example of deregulation?

A) lifting redundant restrictions on airline competition B) banning the sale of tobacco to minors under the age of 18 C) lowering the speed limit on an interstate highway D) approving a proposed merger between Google and Microsoft E) establishing economic development zones to attract new businesses Answer: A Explanation: A) Deregulation is the process of removing regulations to allow the market to prevent excesses and correct itself over time.

Page Ref: 38 Difficulty: Easy AACSB: Analytic Skills Chapter LO: 5 Course LO: Explain how economic performance is monitored Classification: Application

29 .

71) The Federal Trade Commission (FTC) is charged with which of the following duties?

A) overseeing communication by telephone, telegraph, radio, and television B) regulating and overseeing carriers engaged in interstate transportation C) enforcing laws and regulations to prevent distribution of harmful foods and drugs D) protecting the national transportation infrastructure E) enforcing laws regarding unfair business practices and deceptive advertising Answer: E Explanation: E) The Federal Trade Commission (FTC) enforces laws and guidelines regarding unfair business practices and acts to stop false and deceptive advertising and labeling.

Page Ref: 39 Difficulty: Easy AACSB: Dynamics of the Global Economy Chapter LO: 5 Course LO: Explain how economic performance is monitored Classification: Concept 72) ________ laws limit what businesses can and cannot do to ensure that all competitors have an equal chance of succeeding.

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

Page Ref: 39 Difficulty: Easy AACSB: Dynamics of the Global Economy Chapter LO: 5 Course LO: Explain how economic performance is monitored Classification: Concept

30 .

73) ________ policy involves adjusting the nation's money supply by increasing or decreasing interest rates.

A) Fiscal B) Taxation C) Cyclical D) Antitrust E) Monetary Answer: E Explanation: E) Monetary policy involves adjusting the nation's money supply, the amount of "spendable" money in the economy at any given time, by increasing or decreasing interest rates.

Page Ref: 40 Difficulty: Easy AACSB: Dynamics of the Global Economy Chapter LO: 5 Course LO: Explain how economic performance is monitored Classification: Concept 74) ________ policy involves changes in the government's revenues and expenditures to stimulate a slow economy or dampen a growing economy that is in danger of overheating and causing inflation.

A) Fiscal B) Taxation C) Cyclical D) Antitrust E) Monetary Answer: A Explanation: A) Fiscal policy involves changes in the government's revenues and expenditures to stimulate a slow economy or dampen a growing economy that is in danger of overheating and causing inflation.

Page Ref: 40 Difficulty: Easy AACSB: Dynamics of the Global Economy Chapter LO: 5 Course LO: Explain how economic performance is monitored Classification: Concept

31 .

75) ________ taxes, levied on the earnings of individuals and businesses, are the government's largest single source of revenue.

A) Income B) Property C) Sales D) Excise E) Payroll Answer: A Explanation: A) Income taxes are levied on the income earned by individuals and businesses.

They are the government's largest single source of revenue.

Page Ref: 40 Difficulty: Easy AACSB: Dynamics of the Global Economy Chapter LO: 5 Course LO: Explain how economic performance is monitored Classification: Concept 76) ________ taxes, levied on retail purchases made by customers, are collected by retail businesses at the time of the sale and then forwarded to state governments.

A) Income B) Property C) Sales D) Excise E) Payroll Answer: C Explanation: C) Sales taxes are levied on retail purchases made by customers. Sales taxes are collected by retail businesses at the time of the sale and then forwarded to state governments.

Page Ref: 40 Difficulty: Easy AACSB: Dynamics of the Global Economy Chapter LO: 5 Course LO: Explain how economic performance is monitored Classification: Concept

32 .

77) ________ taxes are implemented, in part, to help control potentially harmful practices, on selected items such as gasoline, tobacco, and liquor.

A) Income B) Property C) Sales D) Excise E) Payroll Answer: D Explanation: D) Often referred to as "sin" taxes, excise taxes are implemented, in part, to help control potentially harmful practices, on selected items such as gasoline, tobacco, and liquor.

Page Ref: 40 Difficulty: Moderate AACSB: Dynamics of the Global Economy Chapter LO: 5 Course LO: Explain how economic performance is monitored Classification: Concept 78) ________ taxes are levied on earnings of individuals to help fund Social Security, Medicare, and unemployment compensation.

A) Excise B) Payroll C) Sales D) Income E) Property Answer: B Explanation: B) Payroll taxes are levied on earnings of individuals to help fund Social Security, Medicare, and unemployment compensation. Also, corporations must match employee contributions.

Page Ref: 40 Difficulty: Moderate AACSB: Dynamics of the Global Economy Chapter LO: 5 Course LO: Explain how economic performance is monitored Classification: Concept

33 .

79) Retail sales, on the day after Thanksgiving, are usually a good indicator of overall retail sales for the Christmas season. This is an example of a ________ indicator.

A) leading B) conversionary C) lagging D) current E) latent Answer: A Explanation: A) Leading indicators suggest changes that may happen to the economy in the future and are, therefore, valuable for planning.

Page Ref: 41 Difficulty: Moderate AACSB: Analytic Skills Chapter LO: 6 Course LO: Explain how economic performance is monitored Classification: Application 80) In early December, it was reported that housing rates in October 2010 were at its 6-month low, which resulted in increased home purchases. This is an example of a ________.

A) leading indicator B) conversionary indicator C) lagging indicator D) current indicator E) latent indicator Answer: C Explanation: C) Lagging indicators provide confirmation that something has occurred in the past.

Page Ref: 41 Difficulty: Moderate AACSB: Analytic Skills Chapter LO: 6 Course LO: Explain how economic performance is monitored Classification: Application

34 .

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

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

Page Ref: 42 Difficulty: Easy AACSB: Dynamics of the Global Economy Chapter LO: 6 Course LO: Explain how economic performance is monitored Classification: Concept 82) The ________ measures price at the producer or wholesaler level, reflecting what businesses are paying for the products they need.

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

Page Ref: 42 Difficulty: Easy AACSB: Dynamics of the Global Economy Chapter LO: 6 Course LO: Explain how economic performance is monitored Classification: Concept

35 .

83) The ________ measures a country's output - its production, distribution, and use of goods and services - by computing the sum of all goods and services produced for final use in a country during a specified period.

A) gross domestic product (GDP) B) producer price index (PPI) C) gross national product (GNP) D) consumer price index (CPI) E) economic stability index (ESI) Answer: A Explanation: A) The broadest measure of an economy's health is the gross domestic product (GDP). The GDP measures a country's output - its production, distribution, and use of goods and services - by computing the sum of all goods and services produced for final use in a country during a specified period (usually a year).

Page Ref: 43 Difficulty: Easy AACSB: Dynamics of the Global Economy Chapter LO: 6 Course LO: Explain how economic performance is monitored Classification: Concept 84) While gross domestic product (GDP) considers where the production occurs, ________ considers who is responsible for the production.

A) human development index (HDI) B) producer price index (PPI) C) gross national product (GNP) D) consumer price index (CPI) E) economic stability index (ESI) Answer: C Explanation: C) GDP has largely replaced an earlier measure called the gross national product (GNP), which excludes the value of production from foreign-owned businesses within a nation's boundaries and includes receipts from the overseas operations of domestic companies. GNP considers who is responsible for the production; GDP considers where the production occurs.

Page Ref: 43 Difficulty: Easy AACSB: Dynamics of the Global Economy Chapter LO: 6 Course LO: Explain how economic performance is monitored Classification: Concept

36 .

85) What is economics? Compare and contrast between microeconomics and macroeconomics.

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

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

Page Ref: 26 Difficulty: Moderate AACSB: Reflective Thinking Skills Chapter LO: 1 Classification: Synthesis 86) Explain the different factors of production.

Answer: Natural resources are things that are useful in their natural state, such as land, forests, minerals, and water.

Human resources are people and their individual talents and capacities.

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

Entrepreneurship is the spirit of innovation, the initiative, and the willingness to take the risks involved in creating and operating businesses. Knowledge is the collective intelligence of an organization.

Page Ref: 26; 27 Difficulty: Moderate AACSB: Analytic Skills Chapter LO: 1 Course LO: Compare and contrast different economic systems Classification: Concept

37 .

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

Answer: Due to universal scarcity of resources, consumers, companies, and governments are constantly forced to make trade-offs, meaning they have to give up something to get something else. You have to decide how to spend the 24 hours you have every day, and every choice involves a trade-off - the more time you spend on one activity means less time for every other activity you could possibly pursue. Businesses must make similar trade-offs, such as deciding how much money to spend on advertising a new product versus how much to spend on the materials used to make it, or deciding how many employees to have in sales versus customer support.

Opportunity cost refers to the value of the most appealing alternative from all those you didn't choose. In other words, opportunity cost is a way to measure the value of what you gave up when you pursued a different opportunity.

Page Ref: 27; 28 Difficulty: Difficult AACSB: Reflective Thinking Skills Chapter LO: 1 Course LO: Compare and contrast different economic systems Classification: Synthesis 88) Compare and contrast between free-market systems and planned systems.

Answer: In a free-market system, individuals and companies are largely free to decide what products to produce, how to produce them, whom to sell them to, and at what price to sell them.

In other words, they have the chance to succeed - or to fail - by their own efforts. Capitalism and private enterprise are the terms most often used to describe the free-market system, one in which private parties (individuals, partnerships, or corporations) own and operate the majority of businesses and where competition, supply, and demand determine which goods and services are produced.

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

Page Ref: 28; 29 Difficulty: Moderate AACSB: Reflective Thinking Skills Chapter LO: 2 Course LO: Compare and contrast different economic systems Classification: Synthesis

38 .

89) Is there such a thing as a "free" economy? Elucidate your views.

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

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

Page Ref: 29 Difficulty: Difficult AACSB: Reflective Thinking Skills Chapter LO: 2 Course LO: Compare and contrast different economic systems Classification: Synthesis 90) What type of economic system lies between capitalism and communism? Explain why it is more effective than other economic systems.

Answer: Socialism is an economic system with a fairly high degree of government planning and some government ownership of capital resources. In a socialist economy, government ownership tends to be focused in industries considered vital to the common welfare, such as transportation, health care, and communications. Private ownership is permitted in other industries. Many European countries, including France and Germany, incorporate varying degrees of socialism.

Norway is strongly socialist; while most of the world's economies sank into a deep recession after the collapse of the U.S. housing and credit markets in 2008, Norway's economy remained stable.

Page Ref: 29; 30 Difficulty: Difficult AACSB: Reflective Thinking Skills Chapter LO: 2 Course LO: Compare and contrast different economic systems Classification: Synthesis

39 .

91) Explain, with the help of an example, why socialism and capitalism are not mutually exclusive.

Answer: While free-market capitalism remains the foundation of the U.S. economy, some important elements of the U.S. economy are socialized and have been for many years. Public schools, the postal service, much of the transportation infrastructure, various local and regional utilities, and several major health care programs all fit the economic definition of socialism.

Socialism and capitalism are competing philosophies, but they are not mutually exclusive, and each approach has strengths and weaknesses, which is why most modern economies combine aspects of both.

Page Ref: 30 Difficulty: Difficult AACSB: Reflective Thinking Skills Chapter LO: 2 Course LO: Compare and contrast different economic systems Classification: Synthesis 92) In recent years, why have the governments of various countries both nationalized and privatized some of their services?

Answer: In recent years, governments of various countries have done both, for different reasons and in different industries. In the United States, private companies now own or operate a number of highways, bridges, ports, prisons, and other infrastructure elements, providing services once provided by the government. The primary reason for this trend is the belief that private firms motivated by the profit incentive can do a more efficient job of running these facilities.

Nationalization is less common and more drastic, but it has happened in recent years, most notably during the recent global banking crisis. For example, the second-largest bank in Britain, the Royal Bank of Scotland, was effectively nationalized after the British government became the majority owner in an attempt to prevent the bank from collapsing.

Page Ref: 30 Difficulty: Difficult AACSB: Dynamics of the Global Economy Chapter LO: 2 Course LO: Compare and contrast different economic systems Classification: Synthesis

40 .

93) List the major factors that affect the overall demand of a product.

Answer: The effects of some of the major factors that can cause overall demand to increase or decrease: ∙ customer income ∙ customer preferences toward the product (fears regarding airline safety, for example) ∙ the price of substitute products (products that can be purchased instead of air travel, including rail tickets, automobile travel, or web conferencing) ∙ the price of complementary products (such as hotel accommodations or restaurant dining for the airline industry) ∙ marketing expenditures (for advertising and other promotional efforts) ∙ customer expectations about future prices and their own financial well-being Page Ref: 32 Difficulty: Moderate AACSB: Dynamics of the Global Economy Chapter LO: 3 Classification: Concept 94) "As the supply and demand curves are dynamic, so is the equilibrium point." Explain this statement with an example.

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

Page Ref: 32; 33 Difficulty: Difficult AACSB: Reflective Thinking Skills Chapter LO: 3 Classification: Synthesis 95) How does capitalism promote monopolistic competition in the market?

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

Page Ref: 35 Difficulty: Difficult AACSB: Reflective Thinking Skills Chapter LO: 4 Course LO: Compare and contrast different economic systems Classification: Synthesis

41 .

96) Differentiate between structural and cyclical unemployment.

Answer: Structural Unemployment ∙ It occurs due to a mismatch between workers' skills and current employer needs. ∙ Workers can't find jobs that match their qualifications, and employers can't find employees with the skills their job openings require. ∙ A never-ending concern as changes in the external environments of business make some skills obsolete and create demand for new skills.

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

Page Ref: 37 Difficulty: Moderate AACSB: Dynamics of the Global Economy Chapter LO: 4 Course LO: Compare and contrast different economic systems Classification: Concept 97) Compare and contrast between monetary and fiscal policies.

Answer: Monetary policy involves adjusting the nation's money supply, the amount of "spendable" money in the economy at any given time, by increasing or decreasing interest rates.

In the United States, monetary policy is controlled primarily by the Federal Reserve Board (often called "the Fed"), a group of government officials who oversee the country's central banking system.

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

On the revenue side, governments can adjust the revenue they bring in by changing tax rates and various fees collected from individuals and businesses. When the federal government lowers the income tax rate, for instance, it does so with the hope that consumers and businesses will spend and invest the money they save by paying lower taxes.

Page Ref: 40 Difficulty: Moderate AACSB: Dynamics of the Global Economy Chapter LO: 5 Course LO: Explain how economic performance is monitored Classification: Synthesis

42 .

98) Explain the meaning of a leading indicator with the help of an example.

Answer: Leading indicators suggest changes that may happen to the economy in the future and are therefore valuable for planning. Housing starts, for example, are a leading indicator that shows where several industries are headed. When housing starts drop, the construction industry contracts, and the effect soon ripples through other sectors of the economy, from the manufacture of plumbing fixtures, carpet, and appliances to a variety of services, including furniture retailing, real estate sales, and other areas dependent on housing-related transactions. Another key leading indicator is durable-goods orders, or orders for goods that typically last more than three years (which can mean everything from desk chairs to airplanes). A rise in durable-goods orders is a positive indicator that business spending is turning around. In addition to all these indicators, economists closely monitor several price indexes and the nation's economic output to get a sense of how well the economy is working.

Page Ref: 41; 42 Difficulty: Moderate AACSB: Reflective Thinking Skills Chapter LO: 6 Course LO: Explain how economic performance is monitored Classification: Concept 99) Explain three commonly known price indexes.

Answer: Government statisticians compute a huge variety of price indexes, each designed to monitor a particular aspect of economic activity. The best known of these, the consumer price index (CPI), measures the rate of inflation by comparing the change in prices of a representative "basket" of consumer goods and services, such as clothing, food, housing, and transportation. In contrast to the CPI, the producer price index (PPI) measures price at the producer or wholesaler level, reflecting what businesses are paying for the products they need. In addition to monitoring economic activity, PPIs have a number of managerial uses, from helping companies place an accurate value on inventories to protecting buyers and sellers with price-escalation clauses in long-term purchasing contracts. The broadest measure of an economy's health is the gross domestic product (GDP). The GDP measures a country's output - its production, distribution, and use of goods and services - by computing the sum of all goods and services produced for final use in a country during a specified period (usually a year). The products may be produced by either domestic or foreign companies as long as the production takes place within a nation's boundaries.

Page Ref: 42; 43 Difficulty: Moderate AACSB: Dynamics of the Global Economy Chapter LO: 6 Course LO: Explain how economic performance is monitored Classification: Concept

43 .

Business in Action, 6e (Bovee/Thill) Chapter 3 The Global Marketplace 1) Economies of scale are savings from not buying too much of any one thing.

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

Page Ref: 49 Difficulty: Moderate AACSB: Dynamics of the Global Economy Chapter LO: 1 Course LO: Explain the benefits and challenges of engaging in international business Classification: Concept 2) Comparative advantage theory states that countries should produce and sell to other countries those things it can produce most efficiently.

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

Page Ref: 49 Difficulty: Easy AACSB: Dynamics of the Global Economy Chapter LO: 1 Course LO: Explain the benefits and challenges of engaging in international business Classification: Concept 3) A country's balance of trade is the total value of its imports less the total value of its exports.

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

Page Ref: 50 Difficulty: Easy AACSB: Dynamics of the Global Economy Chapter LO: 1 Course LO: Explain the benefits and challenges of engaging in international business Classification: Concept

1 .

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

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

Page Ref: 50 Difficulty: Easy AACSB: Dynamics of the Global Economy Chapter LO: 1 Course LO: Explain the benefits and challenges of engaging in international business Classification: Concept 5) The number of units of one currency that must be exchanged for a unit of the second currency is known as the exchange rate between the currencies.

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

Page Ref: 51 Difficulty: Easy AACSB: Dynamics of the Global Economy Chapter LO: 1 Course LO: Explain the benefits and challenges of engaging in international business Classification: Concept 6) Strong dollar will lower the cost of goods that the U.S. exports.

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

Page Ref: 51 Difficulty: Moderate AACSB: Dynamics of the Global Economy Chapter LO: 1 Course LO: Explain the benefits and challenges of engaging in international business Classification: Concept 7) International travel would be more expensive for U.S. residents if the dollar is strong.

Answer: FALSE Explanation: A currency is called strong relative to another when its exchange rate is higher than what is considered normal. Strong dollar will make international travel cheaper for U.S. residents.

Page Ref: 51 Difficulty: Moderate AACSB: Dynamics of the Global Economy Chapter LO: 1 Course LO: Explain the benefits and challenges of engaging in international business Classification: Application

2 .

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

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

Page Ref: 52 Difficulty: Easy AACSB: Dynamics of the Global Economy Chapter LO: 2 Course LO: Explain the benefits and challenges of engaging in international business Classification: Concept 9) Tariffs are politically motivated restrictions that revoke a company's normal trade relations status.

Answer: FALSE Explanation: Taxes, surcharges, or duties levied against imported goods are known as tariffs.

Tariffs can be levied to generate revenue, to restrict trade, or to punish other countries for disobeying international trade laws.

Page Ref: 53 Difficulty: Easy AACSB: Dynamics of the Global Economy Chapter LO: 2 Course LO: Explain the benefits and challenges of engaging in international business Classification: Concept 10) An embargo is a complete ban on the import or export of certain products or even all trade between certain countries.

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

Page Ref: 53 Difficulty: Easy AACSB: Dynamics of the Global Economy Chapter LO: 2 Course LO: Explain the benefits and challenges of engaging in international business Classification: Concept 11) Export subsidies are a form of financial assistance given to exporters.

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

Page Ref: 53 Difficulty: Easy AACSB: Dynamics of the Global Economy Chapter LO: 2 Course LO: Explain the benefits and challenges of engaging in international business Classification: Concept 3 .

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

Answer: TRUE Explanation: The World Trade Organization (WTO) is a permanent forum for negotiating, implementing, and monitoring international trade procedures and for mediating trade disputes among its more than 150 member countries.

Page Ref: 54 Difficulty: Easy AACSB: Dynamics of the Global Economy Chapter LO: 3 Course LO: Explain the benefits and challenges of engaging in international business Classification: Concept 13) Providing short-term loans to countries that are unable to meet their financial obligations is a primary function of the International Monetary Fund.

Answer: TRUE Explanation: The International Monetary Fund's primary functions are monitoring global financial developments, providing technical advice and training, providing short-term loans to countries that are unable to meet their financial obligations, and working to alleviate poverty in developing economies.

Page Ref: 54; 55 Difficulty: Easy AACSB: Dynamics of the Global Economy Chapter LO: 3 Course LO: Explain the benefits and challenges of engaging in international business Classification: Concept 14) The World Bank is an agency of the U.S. federal government.

Answer: FALSE Explanation: The World Bank is a United Nations agency owned by its 187 member nations.

Page Ref: 55 Difficulty: Easy AACSB: Dynamics of the Global Economy Chapter LO: 3 Course LO: Explain the benefits and challenges of engaging in international business Classification: Concept

4 .

15) The North American Free Trade Agreement was formed by twelve North American countries.

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

Page Ref: 55 Difficulty: Easy AACSB: Dynamics of the Global Economy Chapter LO: 3 Course LO: Explain the benefits and challenges of engaging in international business Classification: Concept 16) The European Union has created a currency of its own.

Answer: TRUE Explanation: The EU has taken a significant step beyond all other trading blocs in the area of money by creating its own currency, the euro, which has been adopted by roughly half the member states of the EU. Page Ref: 57 Difficulty: Easy AACSB: Dynamics of the Global Economy Chapter LO: 3 Course LO: Explain the benefits and challenges of engaging in international business Classification: Concept 17) Culture is a shared system of symbols, beliefs, attitudes, values, expectations, and norms for behavior.

Answer: TRUE Explanation: Culture is a shared system of symbols, beliefs, attitudes, values, expectations, and norms for behavior.

Page Ref: 57 Difficulty: Easy AACSB: Multicultural and Diversity Understanding Chapter LO: 4 Course LO: Explain the benefits and challenges of engaging in international business Classification: Concept 18) Ethnocentrism is the tendency to assign a wide range of generalized attributes to an individual.

Answer: FALSE Explanation: Ethnocentrism is the tendency to judge all other groups according to one's own group's standards, behaviors, and customs.

Page Ref: 58 Difficulty: Easy AACSB: Multicultural and Diversity Understanding Chapter LO: 4 Course LO: Explain the benefits and challenges of engaging in international business Classification: Concept 5 .

19) The legal systems in the United States and the United Kingdom are based on civil law.

Answer: FALSE Explanation: The legal systems in the United States and the United Kingdom are based on common law whereas legal systems in countries such as France and Germany are based on civil law.

Page Ref: 58 Difficulty: Easy AACSB: Dynamics of the Global Economy Chapter LO: 4 Course LO: Explain the benefits and challenges of engaging in international business Classification: Concept 20) Theocratic law is law based on religious principles.

Answer: TRUE Explanation: Theocratic law is law based on religious principles. It predominates in such countries as Iran and Pakistan.

Page Ref: 58 Difficulty: Easy AACSB: Dynamics of the Global Economy Chapter LO: 4 Course LO: Explain the benefits and challenges of engaging in international business Classification: Concept 21) All U.S. companies are bound by the Foreign Corrupt Practices Act. Answer: TRUE Explanation: All U.S. companies are bound by the Foreign Corrupt Practices Act (FCPA), which outlaws payments with the intent of getting government officials to break the laws of their own countries.

Page Ref: 59 Difficulty: Easy AACSB: Dynamics of the Global Economy Chapter LO: 4 Course LO: Explain the benefits and challenges of engaging in international business Classification: Concept 22) Exporting is the least risky form of international business activity.

Answer: TRUE Explanation: Exporting is one of the least risky forms of international business activity. It allows a firm to enter a foreign market gradually, assess local conditions, and then fine-tune its product offerings to meet the needs of local markets.

Page Ref: 60 Difficulty: Easy AACSB: Dynamics of the Global Economy Chapter LO: 5 Course LO: Explain the benefits and challenges of engaging in international business Classification: Concept 6 .

23) Joint ventures are short-term partnerships between two or more companies to jointly develop, produce, or sell products.

Answer: FALSE Explanation: A joint venture is an arrangement in which two or more firms join together to create a new business entity that is legally separate and distinct from its parents. It is an alternative to a strategic alliance.

Page Ref: 62 Difficulty: Easy AACSB: Dynamics of the Global Economy Chapter LO: 5 Course LO: Explain the benefits and challenges of engaging in international business Classification: Concept 24) A company creates highly independent operating units in each new country when using the multidomestic strategy.

Answer: TRUE Explanation: A company creates highly independent operating units in each new country when using the multidomestic strategy.

Page Ref: 63 Difficulty: Easy AACSB: Dynamics of the Global Economy Chapter LO: 6 Course LO: Explain the benefits and challenges of engaging in international business Classification: Concept 25) Managerial control with the global strategy is highly decentralized.

Answer: FALSE Explanation: In the global strategy, a company embraces the notion of economic globalization by viewing the world as a single integrated market. Managerial control with the global strategy is highly centralized, with headquarters in the home country making all major decisions.

Page Ref: 63 Difficulty: Easy AACSB: Dynamics of the Global Economy Chapter LO: 6 Course LO: Explain the benefits and challenges of engaging in international business Classification: Concept

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26) The classic theory of comparative advantage suggests that each country should ________.

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

Page Ref: 49 Difficulty: Moderate AACSB: Dynamics of the Global Economy Chapter LO: 1 Course LO: Explain the benefits and challenges of engaging in international business Classification: Concept 27) Brazil is said to have a(n) ________ in coffee beans because it can produce coffee beans more efficiently than other countries.

A) credit advantage B) balance of trade C) trade surplus D) trade deficit E) comparative advantage Answer: E Explanation: E) A nation is said to have comparative advantage in those areas that it can produce more efficiently than other countries.

Page Ref: 49 Difficulty: Moderate AACSB: Analytic Skills Chapter LO: 1 Course LO: Explain the benefits and challenges of engaging in international business Classification: Application

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28) A company benefits from economies of scale when it ________.

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

Page Ref: 49 Difficulty: Moderate AACSB: Dynamics of the Global Economy Chapter LO: 1 Course LO: Explain the benefits and challenges of engaging in international business Classification: Concept 29) A country has a trade surplus when the ________.

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

Page Ref: 50 Difficulty: Easy AACSB: Dynamics of the Global Economy Chapter LO: 1 Course LO: Explain the benefits and challenges of engaging in international business Classification: Concept

9 .

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

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

Page Ref: 50 Difficulty: Easy AACSB: Dynamics of the Global Economy Chapter LO: 1 Course LO: Explain the benefits and challenges of engaging in international business Classification: Concept 31) A country's balance of payment equals the ________.

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

Page Ref: 51 Difficulty: Easy AACSB: Dynamics of the Global Economy Chapter LO: 1 Course LO: Explain the benefits and challenges of engaging in international business Classification: Concept

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

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

Page Ref: 51 Difficulty: Easy AACSB: Dynamics of the Global Economy Chapter LO: 1 Course LO: Explain the benefits and challenges of engaging in international business Classification: Concept 33) On a vacation to Italy, you exchange $100 to get 70 Euros in return. This amount is significantly lower than what you received last year. This indicates that the ________.

A) U.S has a trade surplus against Italy B) Euro has depreciated in value recently C) U.S. dollar has weakened in the past year D) U.S has a trade deficit against Italy E) balance of payment between U.S. and Europe is unfavorable Answer: C Explanation: C) The value of the dollar depreciated in this case. A currency is called weak when its rate is lower than normal. Hence, the U.S. dollar has weakened in the past year.

Page Ref: 51 Difficulty: Difficult AACSB: Analytic Skills Chapter LO: 1 Course LO: Explain the benefits and challenges of engaging in international business Classification: Application

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34) The exchange rate of Euro and Yen, in two consecutive years, against U.S. dollars is given below: 1 dollar 1 dollar Year equaled: equaled: 2010 0.68 Euro 81 Yen 2011 0.77 Euro 75 Yen Which of the following is a valid conclusion that you can derive from this information?

A) The U.S. dollar weakened against the Euro in 2011.

B) The U. S. dollar was stronger against the Euro in 2010.

C) The Euro has strengthened against the Yen in 2011.

D) The U.S. dollar weakened in 2011 against the Yen. E) The U. S. dollar was weaker against the Yen in 2010.

Answer: D Explanation: D) A currency is called weak when its rate is lower than normal. In the given case, the U.S. dollar became stronger against the Euro in 2011, whereas it became weaker against the Yen in 2011.

Page Ref: 51 Difficulty: Difficult AACSB: Reflective Thinking Skills Chapter LO: 1 Course LO: Explain the benefits and challenges of engaging in international business Classification: Application 35) When the U.S. dollar is strong, U.S. exports will likely ________.

A) become more competitive in foreign markets B) cost more in other countries C) be limited by the U.S. government D) face embargoes in developing nations E) be restricted by governments across the world Answer: B Explanation: B) A currency is called strong relative to another when its exchange rate is higher than what is considered normal. A strong dollar will raise the cost of the U.S. exports.

Page Ref: 51 Difficulty: Moderate AACSB: Dynamics of the Global Economy Chapter LO: 1 Course LO: Explain the benefits and challenges of engaging in international business Classification: Concept Charles Associates is a U.S. company and has a central production plant in the U.S. (Currency: U.S. dollar). It imports capital equipments and raw materials from Italy and Germany (Currency: Euro). The company exports its products to China (Currency: Renminbi), Japan (Currency: Yen), and India (Currency: Rupee).

12 .

36) Which of the following changes in the exchange market is beneficial to Charles Associates?

A) The U.S. dollar has strengthened against the Rupee.

B) The U.S. dollar has strengthened against the Renminbi.

C) The U.S. dollar has strengthened against the Euro.

D) The Yen has become weak against U.S. dollars.

E) The Euro has become strong against U.S. dollars Answer: C Explanation: C) If the U.S. dollar strengthens against the Euro, the company can obtain supplies at lower cost. This is beneficial to the company.

Page Ref: 51 Difficulty: Difficult AACSB: Reflective Thinking Skills Chapter LO: 1 Course LO: Explain the benefits and challenges of engaging in international business Classification: Application 37) Which of the following changes in the exchange market is disadvantageous to Charles Associates?

A) The U.S. dollar has weakened against the Renminbi.

B) The U.S. dollar has strengthened against the Rupee.

C) The U.S. dollar has strengthened against the Euro.

D) The Yen has become strong against U.S. dollars.

E) The Euro became weaker against most major currencies.

Answer: B Explanation: B) If the U.S. dollar becomes strong against the Rupee, the company's exports will cost more in India. This is disadvantageous to the firm.

Page Ref: 51 Difficulty: Difficult AACSB: Reflective Thinking Skills Chapter LO: 1 Course LO: Explain the benefits and challenges of engaging in international business Classification: Application

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

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

B) International trade must take place without any interference.

C) Organizations should prefer local workers to foreign workers.

D) Local businesses should obtain help from governments.

E) Governments should subsidize exporters to promote global trade.

Answer: B Explanation: B) Trade that takes place without governmental interferences, such as subsidies and tariffs, is known as free trade.

Page Ref: 52 Difficulty: Moderate AACSB: Dynamics of the Global Economy Chapter LO: 2 Course LO: Explain the benefits and challenges of engaging in international business Classification: Concept 39) Trade that takes place without governmental interferences is known as ________.

A) subsidized trade B) protected trade C) illegal trade D) free trade E) moderated trade Answer: D Explanation: D) Trade that takes place without governmental interferences, such as subsidies and tariffs, is known as free trade.

Page Ref: 52 Difficulty: Easy AACSB: Dynamics of the Global Economy Chapter LO: 2 Course LO: Explain the benefits and challenges of engaging in international business Classification: Concept

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

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

Page Ref: 53 Difficulty: Moderate AACSB: Dynamics of the Global Economy Chapter LO: 2 Course LO: Explain the benefits and challenges of engaging in international business Classification: Concept 41) Which of the following is a main feature of protectionism?

A) high levels of risks for domestic industries B) increased risk for local workers C) compromise on national security D) governmental intervention in trade E) formation of trade blocs between nations Answer: D Explanation: D) When a government believes that free trade is not in the best interests of its national security, domestic industries, workforce, or consumers, it can intervene in a number of ways. Some of these methods are collectively known as protectionism because they seek to protect a specific industry or groups of workers.

Page Ref: 53 Difficulty: Moderate AACSB: Dynamics of the Global Economy Chapter LO: 2 Course LO: Explain the benefits and challenges of engaging in international business Classification: Concept

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

A) import sanctions B) embargoes C) tariffs D) import quotas E) restrictive import standards Answer: C Explanation: C) Taxes, surcharges, or duties levied against imported goods are known as tariffs.

Tariffs can be levied to generate revenue, to restrict trade, or to punish other countries for disobeying international trade laws.

Page Ref: 53 Difficulty: Easy AACSB: Dynamics of the Global Economy Chapter LO: 2 Course LO: Explain the benefits and challenges of engaging in international business Classification: Concept 43) China imposes duties on automobiles imported to China. This is an example of a(n) ________.

A) import sanction B) tariff C) import quota D) embargo E) restrictive import standard Answer: B Explanation: B) Taxes, surcharges, or duties levied against imported goods are known as tariffs.

The given situation exemplifies tariffs.

Page Ref: 53 Difficulty: Moderate AACSB: Analytic Skills Chapter LO: 2 Course LO: Explain the benefits and challenges of engaging in international business Classification: Application

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

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

Page Ref: 53 Difficulty: Easy AACSB: Dynamics of the Global Economy Chapter LO: 2 Course LO: Explain the benefits and challenges of engaging in international business Classification: Concept 45) The U.S. restricts the import of peanuts to a maximum of 1.7 million pounds per year to protect the price that domestic producers can charge. This is an example of a(n) ________.

A) import subsidy B) embargo C) import quota D) import tariff E) restrictive import standard Answer: C Explanation: C) Import quotas limit the amount of particular goods that countries allow to be imported during a given year. In the given case, an import quota is used.

Page Ref: 53 Difficulty: Moderate AACSB: Analytic Skills Chapter LO: 2 Course LO: Explain the benefits and challenges of engaging in international business Classification: Application

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46) An embargo is a ________.

A) quantity restriction on the import of particular goods or services B) surcharge imposed on import of certain products C) subsidy offered to products exported from a country D) complete ban on the import or export of certain products E) form of financial assistance extended to domestic producers Answer: D Explanation: D) An embargo is a complete ban on the import or export of certain products or even all trade between certain countries.

Page Ref: 53 Difficulty: Easy AACSB: Dynamics of the Global Economy Chapter LO: 2 Course LO: Explain the benefits and challenges of engaging in international business Classification: Concept 47) The United States has banned the export of super-computers and lasers to non-allies. This is an example of a(n) ________.

A) export subsidy B) export quota C) tariff D) embargo E) restrictive import standard Answer: D Explanation: D) An embargo is a complete ban on the import or export of certain products or even all trade between certain countries. The given situation refers to an embargo.

Page Ref: 53 Difficulty: Moderate AACSB: Analytic Skills Chapter LO: 2 Course LO: Explain the benefits and challenges of engaging in international business Classification: Application

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48) When France wanted to reduce video cassette recorder (VCR) imports, it established elaborate procedures for importers to obtain customs clearances on shipments of VCRs and required importers to obtain special licenses to import these products. This is an example of a(n) ________.

A) export subsidy B) embargo C) import quota D) tariff E) restrictive import standard Answer: E Explanation: E) Actions such as requiring special licenses for doing certain kinds of business and then making it difficult or expensive for foreign companies to obtain such licenses refer to imposing restrictive import standards.

Page Ref: 53 Difficulty: Difficult AACSB: Analytic Skills Chapter LO: 2 Course LO: Explain the benefits and challenges of engaging in international business Classification: Application 49) ________ are a form of financial assistance in which producers receive enough money from the government to allow them to lower their prices.

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

Page Ref: 53 Difficulty: Easy AACSB: Dynamics of the Global Economy Chapter LO: 2 Course LO: Explain the benefits and challenges of engaging in international business Classification: Concept

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50) Dumping ________.

A) involves selling a product at a price lower than the cost of production B) is a strategy used by firms to enter an industrialized nation C) refers to the practice of selling products in small quantities D) is a strategy used by organizations to enter a developed market E) is typically prevented by providing export subsidies to local producers Answer: A Explanation: A) The practice of selling large quantities of a product at a price lower than the cost of production or below what the company would charge in its home market is called dumping.

Page Ref: 53 Difficulty: Easy AACSB: Dynamics of the Global Economy Chapter LO: 2 Course LO: Explain the benefits and challenges of engaging in international business Classification: Concept 51) ________ are politically motivated embargoes that revoke a country's normal trade relations status.

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

Page Ref: 53 Difficulty: Easy AACSB: Dynamics of the Global Economy Chapter LO: 2 Course LO: Explain the benefits and challenges of engaging in international business Classification: Concept

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52) ________ is a permanent forum for negotiating, implementing, and monitoring international trade procedures and for mediating trade disputes among its more than 150 member countries.

A) International Monetary Fund B) World Trade Organization C) World Bank D) European Union E) International Labor Organization Answer: B Explanation: B) The World Trade Organization (WTO) is a permanent forum for negotiating, implementing, and monitoring international trade procedures and for mediating trade disputes among its more than 150 member countries.

Page Ref: 54 Difficulty: Easy AACSB: Dynamics of the Global Economy Chapter LO: 3 Course LO: Explain the benefits and challenges of engaging in international business Classification: Concept 53) Which of the following is a principle that governs the world trade organization's work?

A) giving preference to trading partners who provide maximum business B) protecting domestic industries by offering financial assistance C) making trade policies more predictable and less arbitrary D) establishing dumping procedures to prevent pollution in developed countries E) implementing protectionist ideologies to establish fair trade between nations Answer: C Explanation: C) WTO's work is guided by five principles. One of them is making trade policies more predictable and less arbitrary.

Page Ref: 54 Difficulty: Easy AACSB: Dynamics of the Global Economy Chapter LO: 3 Course LO: Explain the benefits and challenges of engaging in international business Classification: Concept

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54) The ________ was established to foster international financial cooperation and its primary functions include providing short-term loans to countries that are unable to meet their financial obligations and working to alleviate poverty in developing economies.

A) World Trade Organization B) World Commerce Center C) European Union D) North American Free Treaty E) International Monetary Fund Answer: E Explanation: E) The International Monetary Fund (IMF) was established in 1945 to foster international financial cooperation. Its primary functions are monitoring global financial developments, providing technical advice and training, providing short-term loans to countries that are unable to meet their financial obligations, and working to alleviate poverty in developing economies.

Page Ref: 54; 55 Difficulty: Easy AACSB: Dynamics of the Global Economy Chapter LO: 3 Course LO: Explain the benefits and challenges of engaging in international business Classification: Concept 55) The World Bank was founded to ________.

A) help countries form their economic policies B) investigate financial allegations C) regulate exchange rates D) provide short-term loans to firms E) finance reconstruction after World War II Answer: E Explanation: E) The World Bank is a United Nations agency owned by its 187 member nations.

It was founded to finance reconstruction after World War II. Page Ref: 55 Difficulty: Easy AACSB: Dynamics of the Global Economy Chapter LO: 3 Course LO: Explain the benefits and challenges of engaging in international business Classification: Concept

22 .

56) Trading blocs are ________.

A) international organizations that provide funds to advanced countries B) regional organizations that promote protectionist principles C) financial intermediaries that facilitate international transactions D) regional organizations that promote trade among member nations E) international organizations that provide funds to developing nations Answer: D Explanation: D) Trading blocs, or common markets, are regional organizations that promote trade among member nations.

Page Ref: 55 Difficulty: Easy AACSB: Dynamics of the Global Economy Chapter LO: 3 Course LO: Explain the benefits and challenges of engaging in international business Classification: Concept 57) The North American Free Trade Agreement (NAFTA) was formed by the United States, Canada, and ________.

A) Costa Rica B) Jamaica C) Cuba D) Mexico E) Honduras Answer: D Explanation: D) In 1994, the United States, Canada, and Mexico formed the North American Free Trade Agreement (NAFTA), paving the way for the free flow of goods, services, and capital within the bloc through the phased elimination of tariffs and quotas.

Page Ref: 55 Difficulty: Easy AACSB: Dynamics of the Global Economy Chapter LO: 3 Course LO: Explain the benefits and challenges of engaging in international business Classification: Concept

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58) Which of the following is an example of a trading bloc?

A) International Monetary Fund B) United Nations C) European Union D) World Bank E) World Trade Organization Answer: C Explanation: C) Trading blocs, or common markets, are regional organizations that promote trade among member nations. European Union is one such trading bloc.

Page Ref: 55 Difficulty: Easy AACSB: Dynamics of the Global Economy Chapter LO: 3 Course LO: Explain the benefits and challenges of engaging in international business Classification: Concept 59) Which of the following statements is true of the European Union (EU)?

A) The EU has imposed hundreds of local regulations and variations in product standards for its member nations.

B) The European Union's membership now encompasses more than 150 countries.

C) Viewed as a whole, the EU now constitutes the world's largest economy.

D) The EU adopts protectionist measures to regulate trade among member countries.

E) The EU was formed primarily to monitor global financial developments and to alleviate poverty in developing economies.

Answer: C Explanation: C) One of the largest trading blocs is the European Union (EU), whose membership now encompasses more than two dozen countries and a half billion people. Viewed as a whole, the EU now constitutes the world's largest economy.

Page Ref: 55 Difficulty: Easy AACSB: Dynamics of the Global Economy Chapter LO: 3 Course LO: Explain the benefits and challenges of engaging in international business Classification: Concept

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60) The Asia Pacific Economic Cooperation Council's long term goal is ________.

A) imposing tariffs and quotas on imports to the land areas that surround the Pacific Ocean B) protecting the pacific rim from the perils of international trade C) liberalizing and simplifying trade and investment among member countries D) preventing the trade of destructive goods such as arms and ammunition E) preventing terror attacks and other organized crime in the land areas that surround the Pacific Ocean Answer: C Explanation: C) The Asia Pacific Economic Cooperation Council (APEC) is an organization of 21 countries working to liberalize trade in the Pacific Rim (the land areas that surround the Pacific Ocean). Like other trade bloc's, APEC's long-term goal is liberalizing and simplifying trade and investment among member countries and helping the region as a whole achieve sustainable economic growth.

Page Ref: 57 Difficulty: Easy AACSB: Dynamics of the Global Economy Chapter LO: 3 Course LO: Explain the benefits and challenges of engaging in international business Classification: Concept 61) ________ refers to assigning a wide range of generalized (and often superficial or even false) attributes to an individual on the basis of membership in a particular culture or social group.

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

Page Ref: 58 Difficulty: Easy AACSB: Multicultural and Diversity Understanding Chapter LO: 4 Classification: Concept

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62) ________ is the tendency to judge all other groups according to one's own group's standards, behaviors, and customs.

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

Page Ref: 58 Difficulty: Easy AACSB: Multicultural and Diversity Understanding Chapter LO: 4 Course LO: Explain the benefits and challenges of engaging in international business Classification: Concept 63) Legal systems in Great Britain and the U.S. are based on ________ law.

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

Page Ref: 58 Difficulty: Easy AACSB: Dynamics of the Global Economy Chapter LO: 4 Course LO: Explain the benefits and challenges of engaging in international business Classification: Concept

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64) France and Germany rely on a legal system known as ________, in which legal parameters are specified in detailed legal codes.

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

Page Ref: 58 Difficulty: Easy AACSB: Dynamics of the Global Economy Chapter LO: 4 Course LO: Explain the benefits and challenges of engaging in international business Classification: Concept 65) Theocratic law is found in Iran and Pakistan and is based on ________.

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

Page Ref: 58 Difficulty: Easy AACSB: Dynamics of the Global Economy Chapter LO: 4 Course LO: Explain the benefits and challenges of engaging in international business Classification: Concept

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66) Transparency International is a(n) ________.

A) accounting agency that promotes the use of unified accounting systems across the world B) watchdog group that works to reduce business-government corruption around the world C) agency that works toward implementing protectionist regimes across the globe D) agency of the United Nations that is formed to mediate international negotiations E) agency of the United Nations that is formed to investigate transparency issues in international trade Answer: B Explanation: B) Transparency International is a watchdog group that works to reduce businessgovernment corruption around the world.

Page Ref: 59 Difficulty: Easy AACSB: Dynamics of the Global Economy Chapter LO: 4 Course LO: Explain the benefits and challenges of engaging in international business Classification: Concept 67) Which of the following acts outlaws payments with the intent of getting government officials to break the laws of their own countries?

A) Mustering-out Payment Act B) Export-Import Bank Act C) Foreign Corrupt Practices Act D) Special Payment Act E) Federal Corrupt Practices Act Answer: C Explanation: C) All U.S. companies are bound by the Foreign Corrupt Practices Act (FCPA), which outlaws payments with the intent of getting government officials to break the laws of their own countries.

Page Ref: 59 Difficulty: Easy AACSB: Dynamics of the Global Economy Chapter LO: 4 Course LO: Explain the benefits and challenges of engaging in international business Classification: Concept

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68) John, a jewelry maker in Montana, receives international orders through his website. He ships the products from the production plant at Montana after receiving confirmed orders. This scenario is an example of ________.

A) importing B) exporting C) licensing D) FDI E) franchising Answer: B Explanation: B) Exporting is the selling of products outside the country in which they are produced. The given scenario is an example of this.

Page Ref: 60 Difficulty: Difficult AACSB: Analytic Skills Chapter LO: 5 Course LO: Explain the benefits and challenges of engaging in international business Classification: Application 69) A firm wants to enter foreign markets to expand its business. However, it does not want to make significant investments before assessing foreign conditions. Which of the following strategies is best suited to enter a foreign market slowly and then design the firm's product offerings?

A) foreign direct investment B) exporting C) business merger D) joint venture E) franchising Answer: B Explanation: B) Exporting allows a firm to enter a foreign market gradually, assess local conditions, and then fine-tune its product offerings to meet the needs of local markets. In most cases, the firm's financial exposure is limited to the costs of researching the market, advertising, and either establishing a direct sales and distribution system or hiring intermediaries.

Page Ref: 60 Difficulty: Difficult AACSB: Analytic Skills Chapter LO: 5 Course LO: Explain the benefits and challenges of engaging in international business Classification: Application

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70) ________ refers to buying goods or services from a supplier in another country.

A) Franchising B) Importing C) Licensing D) Partnering E) Intermediating Answer: B Explanation: B) Importing refers to the buying of goods or services from a supplier in another country and is a practice that has existed for centuries.

Page Ref: 60 Difficulty: Easy AACSB: Dynamics of the Global Economy Chapter LO: 5 Course LO: Explain the benefits and challenges of engaging in international business Classification: Concept 71) ________ agreements entitle one company to use some or all of another firm's intellectual property in exchange for a royalty payment.

A) Joint venture B) Exporting C) Franchising D) Licensing E) Strategic alliance Answer: D Explanation: D) Licensing is a popular approach to international business. License agreements entitle one company to use some or all of another firm's intellectual property (patents, trademarks, brand names, copyrights, or trade secrets) in return for a royalty payment.

Page Ref: 61 Difficulty: Easy AACSB: Dynamics of the Global Economy Chapter LO: 5 Course LO: Explain the benefits and challenges of engaging in international business Classification: Concept

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72) Quiznos has sold individual owners the rights to use its trademark and business system.

Quiznos has opened restaurants in 21 foreign countries in this fashion. This is an example of ________.

A) a strategic alliance B) export licensing C) franchising D) joint venturing E) a foreign direct investment Answer: C Explanation: C) Franchising involves selling the right to use a business system, including brand names, business processes, trade secrets, and other assets. The given scenario is an example of franchising.

Page Ref: 61 Difficulty: Difficult AACSB: Analytic Skills Chapter LO: 5 Course LO: Explain the benefits and challenges of engaging in international business Classification: Application 73) ________ are long-term partnerships between two or more companies to jointly develop, produce, or sell products.

A) Strategic alliances B) Global franchises C) Joint ventures D) Strategic mergers E) Incorporated partnerships Answer: A Explanation: A) Strategic alliances are long-term partnerships between two or more companies to jointly develop, produce, or sell products. They can be used to reach the global marketplace.

Page Ref: 62 Difficulty: Easy AACSB: Dynamics of the Global Economy Chapter LO: 5 Course LO: Explain the benefits and challenges of engaging in international business Classification: Concept

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74) In a(n)________, two or more firms bond together to create a new business entity that is legally separate and distinct from its parents.

A) operational partnership B) strategic alliance C) joint venture D) operational alliance E) international franchise Answer: C Explanation: C) A joint venture is an arrangement in which two or more firms join together to create a new business entity that is legally separate and distinct from its parents. It is an alternative to a strategic alliance.

Page Ref: 62 Difficulty: Easy AACSB: Dynamics of the Global Economy Chapter LO: 5 Course LO: Explain the benefits and challenges of engaging in international business Classification: Concept 75) Electrobox is a firm that manufactures commercial kitchen equipment. The firm decides to enter China and bonds with a Chinese firm to form a new company named Electrokitchen. This is an example of a(n) ________.

A) transactional alliance B) operational partnership C) strategic alliance D) joint venture E) international franchise Answer: D Explanation: D) A joint venture is an arrangement in which two or more firms join together to create a new business entity that is legally separate and distinct from its parents. It is an alternative to a strategic alliance.

Page Ref: 62 Difficulty: Difficult AACSB: Analytic Skills Chapter LO: 5 Course LO: Explain the benefits and challenges of engaging in international business Classification: Application

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76) Almex is a U.S. based transportation company. In order to enter the Brazilian transportation market, the company purchases one of the leading transporters in Brazil. This strategy is known as ________.

A) operational licensing B) service exporting C) foreign direct investing D) brand licensing E) outstation franchising Answer: C Explanation: C) Many firms prefer to enter international markets through partial or whole ownership and control of assets in foreign countries like Almex is doing in this case. This approach is known as foreign direct investment (FDI).

Page Ref: 62 Difficulty: Difficult AACSB: Analytic Skills Chapter LO: 5 Course LO: Explain the benefits and challenges of engaging in international business Classification: Application 77) Multinational corporations are companies that ________.

A) export to multiple countries from a central location B) have formed strategic alliances with companies across the world C) have formed operational alliances with companies across the world D) procure supplies from multiple countries to improve their production E) establish a physical presence in multiple countries through FDI Answer: E Explanation: E) Companies that establish a physical presence in multiple countries through FDI are called multinational corporations (MNCs).

Page Ref: 62 Difficulty: Easy AACSB: Dynamics of the Global Economy Chapter LO: 5 Course LO: Explain the benefits and challenges of engaging in international business Classification: Concept

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78) Foreign direct investment (FDI) ________.

A) usually does not receive support from domestic governments B) carries much lesser political risk C) typically gives companies greater control D) carries much lesser economic risk E) is less complex than any other form of global entry Answer: C Explanation: C) FDI typically gives companies greater control, but it carries much greater economic and political risk and is more complex than any other form of entry in the global marketplace.

Page Ref: 62 Difficulty: Moderate AACSB: Dynamics of the Global Economy Chapter LO: 5 Course LO: Explain the benefits and challenges of engaging in international business Classification: Concept 79) In the ________ strategy, a company creates highly independent operating units in each new country and gives local managers a great deal of freedom to run their operations almost as though they are independent companies.

A) integrated marketing B) transnational C) global D) franchising E) multidomestic Answer: E Explanation: E) In the multidomestic strategy, a company creates highly independent operating units in each new country, giving local managers a great deal of freedom to run their operations almost as though they are independent companies.

Page Ref: 63 Difficulty: Easy AACSB: Dynamics of the Global Economy Chapter LO: 6 Course LO: Explain the benefits and challenges of engaging in international business Classification: Concept

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80) Drobex Technologies is a manufacturer of electronic home appliances. The company has operations in 17 countries. The company operates as an independent unit in each of these countries and the head of operations in each unit makes decisions themselves. Drobex is following a(n) ________ strategy.

A) transnational B) global C) multidomestic D) franchising E) integrated marketing Answer: C Explanation: C) In the multidomestic strategy, a company creates highly independent operating units in each new country, giving local managers a great deal of freedom to run their operations almost as though they are independent companies.

Page Ref: 63 Difficulty: Difficult AACSB: Dynamics of the Global Economy Chapter LO: 6 Course LO: Explain the benefits and challenges of engaging in international business Classification: Application 81) In a(n)________ strategy, managerial control is highly centralized and major decisions for the company's international operations are made at the company's headquarters in the home country.

A) multidomestic B) franchising C) global D) distributed E) transnational Answer: C Explanation: C) In the global strategy, a company embraces the notion of economic globalization by viewing the world as a single integrated market. Managerial control with the global strategy is highly centralized, with headquarters in the home country making all major decisions.

Page Ref: 63 Difficulty: Easy AACSB: Dynamics of the Global Economy Chapter LO: 6 Course LO: Explain the benefits and challenges of engaging in international business Classification: Concept

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82) Abarma Chemicals produces various types of drugs. The company has a centralized production facility in China. It manufactures standardized products and ships them to various countries from China. The company's procurement, operations, and customer service are controlled centrally from China. Abarma Chemicals is using a ________ strategy.

A) franchising B) global C) distributed D) transnational E) multidomestic Answer: B Explanation: B) In the global strategy, a company embraces the notion of economic globalization by viewing the world as a single integrated market. Managerial control with the global strategy is highly centralized, with headquarters in the home country making all major decisions.

Page Ref: 63 Difficulty: Difficult AACSB: Dynamics of the Global Economy Chapter LO: 6 Course LO: Explain the benefits and challenges of engaging in international business Classification: Application 83) In the ________ strategy, a company uses a hybrid approach as it attempts to reap the benefits of international scale while being responsive to local market dynamics.

A) integrated marketing B) transnational C) global D) franchising E) multidomestic Answer: B Explanation: B) In the transnational strategy, a company uses a hybrid approach as it attempts to reap the benefits of international scale while being responsive to local market dynamics.

Page Ref: 63 Difficulty: Easy AACSB: Dynamics of the Global Economy Chapter LO: 6 Course LO: Explain the benefits and challenges of engaging in international business Classification: Concept

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84) DB Computers manufactures and markets personal computers. The company sells its products in more than thirty countries. The company has centralized the production of its CPUs. The CPUs are shipped from the central location to assembly units in various countries and personalized products are made at these units by procuring materials locally. With this strategy the company produces customized products for local markets at a low cost. This is an example of a(n) ________ strategy.

A) integrated marketing B) transnational C) global D) franchising E) multidomestic Answer: B Explanation: B) Transnational strategy is a hybrid approach that attempts to reap the benefits of international scale while being responsive to local market dynamics. In this case, the company is using the transnational approach.

Page Ref: 63 Difficulty: Difficult AACSB: Analytic Skills Chapter LO: 6 Course LO: Explain the benefits and challenges of engaging in international business Classification: Application 85) Which of the following is a major disadvantage of customizing products to suit local markets?

A) Customization is likely to increase the costs and operational complexity.

B) Customized products attract more taxes and duties.

C) It reduces the diversity of a company's offerings.

D) Customization prevents companies from obtaining subsidies.

E) Customers' preferences will likely be ignored when using customization.

Answer: A Explanation: A) Customization can help companies accommodate the lifestyles and habits of local target markets. However, it can increase costs and operational complexity.

Page Ref: 63 Difficulty: Moderate AACSB: Dynamics of the Global Economy Chapter LO: 6 Course LO: Explain the benefits and challenges of engaging in international business Classification: Concept

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86) Construct a trade plan that identifies the goods that the United States should produce and import based on the classic theory of comparative advantage.

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

The U.S. has a competitive advantage in capital, whereas countries such as China have cost advantage on labor. The U.S. can benefit from producing capital intensive and technology driven products in-house. However, the U.S. should trade these products with China to buy labor intensive products and services. Student answers will vary due to the nature of this question.

Page Ref: 49 Difficulty: Difficult AACSB: Reflective Thinking Skills Chapter LO: 1 Course LO: Explain the benefits and challenges of engaging in international business Classification: Synthesis 87) Coca Foods markets packaged foods in the United States. The company recently decided to expand globally and produce in large quantities from a central location. How will this decision impact the company's unit cost of production?

Answer: International expansion involves more than just sales growth. By expanding its markets, the company can benefit from economies of scale. Economies of scale enable the company to produce goods at lower costs by purchasing, manufacturing, and distributing higher quantities. The company can reduce unit costs when they expand internationally.

Page Ref: 49 Difficulty: Moderate AACSB: Analytic Skills Chapter LO: 1 Course LO: Explain the benefits and challenges of engaging in international business Classification: Application 88) Conduct a secondary research and estimate the balance of trade and balance of payment for the United States.

Answer: The students are expected to identify the overall trade information and payment details from secondary sources. Students can obtain such information from the website of the U.S. Bureau of Economic Analysis. Student answers will vary due to the nature of this question.

Page Ref: 50; 51 Difficulty: Difficult AACSB: Reflective Thinking Skills Chapter LO: 1 Course LO: Explain the benefits and challenges of engaging in international business Classification: Synthesis

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89) Explain how a floating exchange rate system operates.

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

Page Ref: 51 Difficulty: Moderate AACSB: Dynamics of the Global Economy Chapter LO: 1 Course LO: Explain the benefits and challenges of engaging in international business Classification: Concept 90) Choose a country that follows strong protectionist policies. Construct a document, to be presented in an international conference, that supports the country's stand in foreign trade.

Answer: The students should construct a document that supports the principles of protectionism and governmental intervention. Students may site such reasons as the need to protect domestic industries, national security, worker protection, and consumer protection. Student answers will vary due to the nature of this question.

Page Ref: 53 Difficulty: Difficult AACSB: Reflective Thinking Skills Chapter LO: 2 Course LO: Explain the benefits and challenges of engaging in international business Classification: Synthesis 91) Do you think protectionism is totally unwarranted? Explain your answer.

Answer: There are benefits also in protecting certain industries. Countries often try to protect industries that are strategically important to them. Protection is helpful so long as they are for a limited term. However, an industry should not be isolated from real-life competition for too long.

Student answers will vary for this question.

Page Ref: 53 Difficulty: Difficult AACSB: Dynamics of the Global Economy Chapter LO: 2 Course LO: Explain the benefits and challenges of engaging in international business Classification: Synthesis

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92) What type of governmental intervention, according to you, is the most severe? Categorize different types of governmental inventions based on their rigorousness.

Answer: Embargoes and sanctions appear to be the most severe as they impose an outright ban on trade. Restrictive import standards are less severe, but they make it difficult or expensive for foreign companies to import to a country. Tariffs and quotas come next as they penalize the importers. Export subsidies appear to be the least severe practice as they promote export instead of penalizing imports.

Page Ref: 53 Difficulty: Difficult AACSB: Dynamics of the Global Economy Chapter LO: 2 Course LO: Explain the benefits and challenges of engaging in international business Classification: Synthesis 93) You are the strategist of a firm that manufactures premium cars. The company is planning to enter China as part of its expansion strategy. Conduct a secondary study to identify the various trade barriers that the company will face in China.

Answer: The students should conduct a study to identify the various trade barriers facing foreign companies that sell premium automobiles in China. Students should conduct a secondary research to identify the barriers. Student answers will vary due to the nature of this question.

Page Ref: 53 Difficulty: Difficult AACSB: Reflective Thinking Skills Chapter LO: 2 Course LO: Explain the benefits and challenges of engaging in international business Classification: Synthesis 94) Describe the importance of the World Trade Organization.

Answer: The World Trade Organization (WTO) is a permanent forum for negotiating, implementing, and monitoring international trade procedures and for mediating trade disputes among its more than 150 member countries. The organization's work is guided by five principles: preventing discriminatory policies that favor some trading partners over others or a country's own products over others', reducing trade barriers between countries, making trade policies more predictable and less arbitrary, discouraging unfair practices, and helping less developed countries benefit from international trade.

Page Ref: 54 Difficulty: Moderate AACSB: Dynamics of the Global Economy Chapter LO: 3 Course LO: Explain the benefits and challenges of engaging in international business Classification: Concept

40 .

95) What is a trading bloc? Explain the working of any one trading bloc.

Answer: Trading blocs, or common markets, are regional organizations that promote trade among member nations. NAFTA is an example of a trading bloc.

In 1994, the United States, Canada, and Mexico formed the North American Free Trade Agreement (NAFTA), paving the way for the free flow of goods, services, and capital within the bloc through the phased elimination of tariffs and quotas. NAFTA primarily affects trade between the United States and Mexico and between the United States and Canada; trade between Mexico and Canada is small in comparison.

Page Ref: 55 Difficulty: Moderate AACSB: Dynamics of the Global Economy Chapter LO: 3 Course LO: Explain the benefits and challenges of engaging in international business Classification: Concept 96) Compare and contrast the legal systems that exist in different parts of the world.

Answer: Differences in national legal systems may not be as immediately obvious as cultural differences, but they can have a profound effect on international business efforts. For instance, the legal systems in the United States and the United Kingdom are based on common law, in which tradition, custom, and judicial interpretation play important roles.

In contrast, the system in countries such as France and Germany is based on civil law, in which legal parameters are specified in detailed legal codes. One everyday consequence of this difference is that business contracts tend to be shorter and simpler in civil law systems, since the existing legal code outlines more aspects of the transaction or relationship.

A third type of legal system, theocratic law, or law based on religious principles, predominates in such countries as Iran and Pakistan. Beyond the differences in legal philosophies, the business of contracts, copyrights, and other legal matters can vary considerably from one country to another.

Page Ref: 58 Difficulty: Moderate AACSB: Dynamics of the Global Economy Chapter LO: 4 Course LO: Explain the benefits and challenges of engaging in international business Classification: Synthesis

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97) In some countries, payoffs to government officials are so common that they are considered by business people as a standard operating practice. However, this practice is illegal in the U.S. under the Federal Corrupt Practices Act (FCPA). Do you feel that the FCPA tries to impose U.S. values on other cultures? Why or why not?

Answer: Some students may argue that the FCPA is imposing U.S. values on other cultures and is not appropriate. Others may argue that corruption is wrong and is not a cultural issue. Student answers will vary for this question.

Page Ref: 59; 60 Difficulty: Difficult AACSB: Ethical Understanding and Reasoning Abilities Chapter LO: 4 Course LO: Explain the benefits and challenges of engaging in international business Classification: Synthesis 98) Compare and contrast strategic alliances with joint ventures.

Answer: Strategic alliances are long-term partnerships between two or more companies to jointly develop, produce, or sell products, and are another way to reach the global marketplace.

Alliance partners typically share ideas, expertise, resources, technologies, investment costs, risks, management, and profits. In some cases, a strategic alliance might be the only way to gain access to a market.

A joint venture is an arrangement in which two or more firms join together to create a new business entity that is legally separate and distinct from its parents, and is an alternative to a strategic alliance. In some countries, foreign companies are prohibited from owning facilities outright or from investing in local business, so establishing a joint venture with a local partner may be the only way to do business in that country.

Page Ref: 62 Difficulty: Moderate AACSB: Dynamics of the Global Economy Chapter LO: 5 Course LO: Explain the benefits and challenges of engaging in international business Classification: Synthesis

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99) Compare and contrast a multidomestic strategy with a global strategy.

Answer: In the multidomestic strategy, a company creates highly independent operating units in each new country, giving local managers a great deal of freedom to run their operations almost as though they are independent companies. While this strategy can help a company respond more quickly and effectively to local market needs, it doesn't deliver the economy of scale advantages that other strategies can bring. In addition, the lack of centralized control can lead to situations in which local managers act in ways contrary to corporate strategy or guidelines.

In the global strategy, a company embraces the notion of economic globalization by viewing the world as a single integrated market. This is essentially the opposite of the multidomestic strategy.

Managerial control with the global strategy is highly centralized, with headquarters in the home country making all major decisions.

Page Ref: 63 Difficulty: Moderate AACSB: Dynamics of the Global Economy Chapter LO: 6 Course LO: Explain the benefits and challenges of engaging in international business Classification: Synthesis 100) Explain how companies using a transnational strategy manage their business.

Answer: In the transnational strategy, a company uses a hybrid approach as it attempts to reap the benefits of international scale while being responsive to local market dynamics. This is the essence of the often-heard advice to "think globally, act locally." With this approach, major strategic decisions and business systems such as accounting and purchasing are often centralized, but then local business units are given the freedom to make "on the ground" decisions that are most appropriate for local markets.

Page Ref: 63 Difficulty: Moderate AACSB: Dynamics of the Global Economy Chapter LO: 6 Course LO: Explain the benefits and challenges of engaging in international business Classification: Concept

43 .

Business in Action, 6e (Bovee/Thill) Chapter 4 Business Ethics and Corporate Social Responsibility 1) Ethics are principles and standards of moral behavior that are accepted by society as "right" or "wrong."

Answer: TRUE Explanation: Ethics are principles and standards of moral behavior that are accepted by society as "right" or "wrong."

Page Ref: 71 Difficulty: Easy AACSB: Ethical Understanding and Reasoning Abilities Chapter LO: 1 Course LO: Discuss the roles of ethics and corporate responsibility in business Classification: Concept 2) All businesses have the capacity to cause harm to employees, customers, other companies, their communities, and investors.

Answer: TRUE Explanation: All businesses have the capacity to cause harm to employees, customers, other companies, their communities, and investors.

Page Ref: 71 Difficulty: Easy AACSB: Ethical Understanding and Reasoning Abilities Chapter LO: 1 Course LO: Discuss the roles of ethics and corporate responsibility in business Classification: Concept 3) The degree to which information flows freely within an organization is termed as insider trading.

Answer: FALSE Explanation: Insider trading refers to the use of unpublicized information that an individual gains from the course of his or her job to benefit from fluctuations in the stock market.

Page Ref: 72 Difficulty: Easy AACSB: Ethical Understanding and Reasoning Abilities Chapter LO: 1 Course LO: Discuss the roles of ethics and corporate responsibility in business Classification: Concept

1 .

4) Culture is not a determinant of ethical behavior.

Answer: FALSE Explanation: Culture is a major determinant of ethical behavior of individuals.

Page Ref: 72 Difficulty: Easy AACSB: Ethical Understanding and Reasoning Abilities Chapter LO: 1 Course LO: Discuss the roles of ethics and corporate responsibility in business Classification: Concept 5) Whistle-blowing is illegal.

Answer: FALSE Explanation: Whistle-blowing refers to the disclosure of information by a company insider that exposes illegal or unethical behavior by others within the organization.

Page Ref: 72 Difficulty: Easy AACSB: Ethical Understanding and Reasoning Abilities Chapter LO: 1 Course LO: Discuss the functions of different types of financial institutions in the monetary system Classification: Concept 6) Making a morally wrong decision is not the same thing as an ethical lapse.

Answer: FALSE Explanation: Ethical lapse refers to a situation in which an individual or a group makes a decision that is morally wrong, illegal, or unethical.

Page Ref: 72 Difficulty: Easy AACSB: Ethical Understanding and Reasoning Abilities Chapter LO: 1 Course LO: Discuss the roles of ethics and corporate responsibility in business Classification: Concept 7) A situation in which an individual makes a decision that is morally wrong or illegal is an ethical dilemma.

Answer: FALSE Explanation: Ethical lapse refers to a situation in which an individual or a group makes a decision that is morally wrong, illegal, or unethical.

Page Ref: 73 Difficulty: Easy AACSB: Ethical Understanding and Reasoning Abilities Chapter LO: 1 Course LO: Discuss the roles of ethics and corporate responsibility in business Classification: Concept

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8) Conflicts of interest involve business decisions that might be influenced by the potential for personal gain.

Answer: TRUE Explanation: Conflicts of interest involve business decisions that might be influenced by the potential for personal gain.

Page Ref: 73 Difficulty: Easy AACSB: Ethical Understanding and Reasoning Abilities Chapter LO: 1 Course LO: Discuss the roles of ethics and corporate responsibility in business Classification: Concept 9) Seeking the greatest good for the most people is utilitarianism.

Answer: TRUE Explanation: Utilitarianism refers to choosing the option that delivers the most good for the most people.

Page Ref: 75 Difficulty: Easy AACSB: Ethical Understanding and Reasoning Abilities Chapter LO: 1 Course LO: Discuss the roles of ethics and corporate responsibility in business Classification: Concept 10) The concept that a business has obligations to society beyond the pursuit of profit is called corporate social responsibility (CSR).

Answer: TRUE Explanation: The concept that a business has obligations to society beyond the pursuit of profit is called corporate social responsibility (CSR).

Page Ref: 75 Difficulty: Easy AACSB: Ethical Understanding and Reasoning Abilities Chapter LO: 2 Course LO: Discuss the roles of ethics and corporate responsibility in business Classification: Concept 11) Philanthropy involves social contributions that are directly aligned with a company's business strategy.

Answer: FALSE Explanation: Philanthropy refers to the donation of money, time, goods, or services to charitable, humanitarian, or educational institutions.

Page Ref: 76 Difficulty: Easy AACSB: Ethical Understanding and Reasoning Abilities Chapter LO: 2 Course LO: Discuss the roles of ethics and corporate responsibility in business Classification: Concept 3 .

12) Business and society are mutually dependent, therefore choices that weaken one or the other will ultimately weaken both.

Answer: TRUE Explanation: Business and society are mutually dependent, therefore choices that weaken one or the other will ultimately weaken both.

Page Ref: 77 Difficulty: Moderate AACSB: Ethical Understanding and Reasoning Abilities Chapter LO: 2 Course LO: Discuss the roles of ethics and corporate responsibility in business Classification: Concept 13) According to what might be termed the minimalist view, businesses should be involved in making social policy and spending the public's money.

Answer: FALSE Explanation: According to what might be termed the minimalist view, the only social responsibility of business is to pay taxes and obey the law.

Page Ref: 78 Difficulty: Easy AACSB: Ethical Understanding and Reasoning Abilities Chapter LO: 3 Course LO: Discuss the roles of ethics and corporate responsibility in business Classification: Concept 14) NGOs are nonprofit groups that provide charitable services or promote causes such as workers' rights and environmental protection.

Answer: TRUE Explanation: NGOs are nonprofit groups that provide charitable services or promote causes such as workers' rights and environmental protection.

Page Ref: 78 Difficulty: Easy AACSB: Ethical Understanding and Reasoning Abilities Chapter LO: 3 Course LO: Discuss the roles of ethics and corporate responsibility in business Classification: Concept

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15) Companies that engage in cynical CSR believe that the only social responsibility of business is to pay taxes and obey the law.

Answer: FALSE Explanation: In the cynical approach to CSR, a company accused of irresponsible behavior promotes itself as being socially responsible without making substantial improvements in its business practices.

Page Ref: 78 Difficulty: Easy AACSB: Ethical Understanding and Reasoning Abilities Chapter LO: 3 Course LO: Discuss the roles of ethics and corporate responsibility in business Classification: Concept 16) A company accused of irresponsible behavior that promotes itself as being socially responsible without improving its business practices is said to have a cynical CSR. Answer: TRUE Explanation: A company accused of irresponsible behavior that promotes itself as being socially responsible without improving its business practices is said to have a cynical CSR. Page Ref: 78 Difficulty: Easy AACSB: Ethical Understanding and Reasoning Abilities Chapter LO: 3 Course LO: Discuss the roles of ethics and corporate responsibility in business Classification: Concept 17) In proactive CSR, company leaders believe they have responsibilities beyond making a profit, and they back up their beliefs and proclamations with actions taken on their own initiative.

Answer: TRUE Explanation: In proactive CSR, company leaders believe they have responsibilities beyond making a profit, and they back up their beliefs and proclamations with actions taken on their own initiative.

Page Ref: 79 Difficulty: Easy AACSB: Ethical Understanding and Reasoning Abilities Chapter LO: 3 Course LO: Discuss the roles of ethics and corporate responsibility in business Classification: Concept

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18) "Environmental" causes are often as much about human health and safety as they are about forests, rivers, and wildlife.

Answer: TRUE Explanation: "Environmental" causes are often as much about human health and safety as they are about forests, rivers, and wildlife.

Page Ref: 80 Difficulty: Easy AACSB: Ethical Understanding and Reasoning Abilities Chapter LO: 4 Course LO: Discuss the roles of ethics and corporate responsibility in business Classification: Concept 19) Widespread concern for the environment dates to the 1960s when ecology entered mainstream discussion.

Answer: TRUE Explanation: Widespread concern for the environment dates to the 1960s when ecology entered mainstream discussion.

Page Ref: 80 Difficulty: Easy AACSB: Ethical Understanding and Reasoning Abilities Chapter LO: 4 Course LO: Discuss the roles of ethics and corporate responsibility in business Classification: Concept 20) Cap and trade programs try to balance free-market economics with government intervention.

Answer: TRUE Explanation: Cap and trade programs try to balance free-market economics with government intervention.

Page Ref: 81 Difficulty: Easy AACSB: Ethical Understanding and Reasoning Abilities Chapter LO: 4 Course LO: Discuss the roles of ethics and corporate responsibility in business Classification: Concept 21) President John F. Kennedy announced a "bill of rights" for consumers, laying the foundation for a wave of consumer-oriented legislation.

Answer: TRUE Explanation: President John F. Kennedy announced a "bill of rights" for consumers, laying the foundation for a wave of consumer-oriented legislation.

Page Ref: 83 Difficulty: Easy AACSB: Ethical Understanding and Reasoning Abilities Chapter LO: 5 Course LO: Discuss the roles of ethics and corporate responsibility in business Classification: Concept 6 .

22) One of the fundamental consumer rights that form the basis of much of the consumer-related legislation in the United States is the right to know the lowest available price of a good in the local market.

Answer: FALSE Explanation: Four fundamental consumer rights that form the basis of much of the consumerrelated legislation in the United States are the right to safe products, the right to be informed, the right to choose, and the right to be heard.

Page Ref: 85 Difficulty: Easy AACSB: Ethical Understanding and Reasoning Abilities Chapter LO: 5 Course LO: Discuss the roles of ethics and corporate responsibility in business Classification: Concept 23) In 1965, the Federal Cigarette Labeling and Advertising Act was passed, requiring all cigarette packs to carry the Surgeon General's warnings.

Answer: TRUE Explanation: In 1965, the Federal Cigarette Labeling and Advertising Act was passed, requiring all cigarette packs to carry the Surgeon General's warnings.

Page Ref: 85 Difficulty: Easy AACSB: Ethical Understanding and Reasoning Abilities Chapter LO: 5 Course LO: Discuss the roles of ethics and corporate responsibility in business Classification: Concept 24) The term "disability," as used in the federal Americans with Disabilities Act, means only those people with physical handicaps, such as hearing or vision loss or loss of mobility.

Answer: FALSE Explanation: As defined by the 1990 law, disability is a broad term that protects not only those with physical handicaps but also those with cancer, heart disease, diabetes, epilepsy, HIV/AIDS, drug addiction, alcoholism, emotional illness, and other conditions.

Page Ref: 87 Difficulty: Easy AACSB: Ethical Understanding and Reasoning Abilities Chapter LO: 6 Course LO: Discuss the roles of ethics and corporate responsibility in business Classification: Concept

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25) The Occupational Safety and Health Act of 1970 set mandatory standards for safety and health and established the Occupational Safety and Health Administration (OSHA) to enforce them.

Answer: TRUE Explanation: The Occupational Safety and Health Act of 1970 set mandatory standards for safety and health and established the Occupational Safety and Health Administration (OSHA) to enforce them.

Page Ref: 87 Difficulty: Easy AACSB: Ethical Understanding and Reasoning Abilities Chapter LO: 6 Course LO: Discuss the roles of ethics and corporate responsibility in business Classification: Concept 26) ________ are the principles and standards of moral behavior that are accepted by society as right versus wrong.

A) Mandates B) Ethics C) Business mindset D) Etiquette E) Philanthropy Answer: B Explanation: B) Ethics are the principles and standards of moral behavior that are accepted by society as right versus wrong.

Page Ref: 71 Difficulty: Easy AACSB: Ethical Understanding and Reasoning Abilities Chapter LO: 1 Course LO: Discuss the roles of ethics and corporate responsibility in business Classification: Concept 27) ________ refers to the degree to which information flows freely within an organization, among managers and employees, and outward to stakeholders.

A) Philanthropy B) Materialism C) Whistle-blowing D) Transparency E) Utilitarianism Answer: D Explanation: D) Transparency can be defined as the degree to which information flows freely within an organization, among managers and employees, and outward to stakeholders.

Page Ref: 71 Difficulty: Easy AACSB: Ethical Understanding and Reasoning Abilities Chapter LO: 1 Course LO: Discuss the roles of ethics and corporate responsibility in business Classification: Concept 8 .

28) A leading pharmaceutical company found that a newly launched, over-the-counter drug might have certain negative side effects such as mood changes, that were not identified during the clinical trials. To avoid unnecessary losses, the company does not inform public about the probable side effects. In this example, the company ________.

A) was involved in insider trading B) lacked transparency C) had a consumerist approach D) had a utilitarian approach E) failed to take affirmative action Answer: B Explanation: B) Business communication ethics often involve the question of transparency, which can be defined as the degree to which information flows freely within an organization, among managers and employees, and outward to stakeholders.

Page Ref: 71 Difficulty: Moderate AACSB: Analytic Skills; Ethical Understanding and Reasoning Abilities Chapter LO: 1 Course LO: Discuss the roles of ethics and corporate responsibility in business Classification: Application 29) Facebook was criticized for a behind-the-scenes attempt to generate public outrage regarding alleged privacy violations by Google. The company used a public relations agency to encourage bloggers and the news media to write critical stories about Google. In this example, Facebook was criticized because ________.

A) it was involved in insider trading B) it lacked transparency C) of its consumerist approach D) of its utilitarian approach E) it failed to take affirmative action Answer: B Explanation: B) Business communication ethics often involve the question of transparency, which can be defined as the degree to which information flows freely within an organization, among managers and employees, and outward to stakeholders.

Page Ref: 71 Difficulty: Moderate AACSB: Ethical Understanding and Reasoning Abilities Chapter LO: 1 Course LO: Discuss the roles of ethics and corporate responsibility in business Classification: Concept

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30) The use of unpublicized information that an individual gains from the course of his or her job to benefit from fluctuations in the stock market is called ________.

A) a code of ethics B) whistle-blowing C) insider trading D) utilitarianism E) strategic CSR Answer: C Explanation: C) The use of unpublicized information that an individual gains from the course of his or her job to benefit from fluctuations in the stock market is called insider trading.

Page Ref: 72 Difficulty: Easy AACSB: Ethical Understanding and Reasoning Abilities Chapter LO: 1 Course LO: Discuss the roles of ethics and corporate responsibility in business Classification: Concept 31) The CEO of a pharmaceutical firm learns that the FDA is going to deny approval for one of the company's drugs. He knows this will have a negative effect on the company's stock, so he quickly tells his broker to sell all of his shares of stock in the company before the news is announced. This is an example of ________.

A) strategic CSR B) whistle-blowing C) utilitarianism D) a code of ethics E) insider trading Answer: E Explanation: E) The use of unpublicized information that an individual gains from the course of his or her job to benefit from fluctuations in the stock market is called insider trading.

Page Ref: 72 Difficulty: Moderate AACSB: Analytic Skills; Ethical Understanding and Reasoning Abilities Chapter LO: 1 Course LO: Discuss the roles of ethics and corporate responsibility in business Classification: Application

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32) Which of the following is an example of insider trading?

A) The marketing manager of a company is accused of using company resources for personal use.

B) An executive receives a compensation comprising of cash, paid expenses, and shares of the company.

C) An employee hacks the firm's computer networks, systems, and databases to obtain customer records so that he can sell the information to rival firms.

D) The chief executive officer of an IT company purchases shares in the company as he learns that the company is being taken over by a leading, global IT firm.

E) A firm disseminates fraudulent information in chat rooms, forums, Internet boards, and via email, with the purpose of causing a dramatic price increase in thinly traded stocks of the company.

Answer: D Explanation: D) The use of unpublicized information that an individual gains from the course of his or her job to benefit from fluctuations in the stock market is called insider trading.

Page Ref: 72 Difficulty: Difficult AACSB: Analytic Skills; Ethical Understanding and Reasoning Abilities Chapter LO: 1 Course LO: Discuss the roles of ethics and corporate responsibility in business Classification: Application 33) ________ refers to a written statement setting forth the principles that guide an organization's decisions.

A) Code of ethics B) Limited liability agreement C) Employee procedure policy D) Statement of sustainable development E) Statement of corporate opportunity Answer: A Explanation: A) Code of ethics refers to a written statement setting forth the principles that guide an organization's decisions. It defines the values and principles that should be used to guide decisions.

Page Ref: 72 Difficulty: Easy AACSB: Ethical Understanding and Reasoning Abilities Chapter LO: 1 Course LO: Discuss the roles of ethics and corporate responsibility in business Classification: Concept

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34) A company insider's disclosure that exposes illegal or unethical behavior by others within the organization is ________.

A) illegal B) insider trading C) unethical D) philanthropic E) whistle-blowing Answer: E Explanation: E) Whistle-blowing refers to the disclosure of information by a company insider that exposes illegal or unethical behavior by others within the organization.

Page Ref: 72 Difficulty: Easy AACSB: Ethical Understanding and Reasoning Abilities Chapter LO: 1 Course LO: Discuss the roles of ethics and corporate responsibility in business Classification: Concept 35) Which of the following statements is true regarding whistle-blowing?

A) Whistle-blowing is the normal channel through which employees can address issues involving unethical or illegal behavior within their companies.

B) Whistle-blowing refers to the use of unpublicized information that an individual gains from the course of his or her job to benefit from fluctuations in the stock market.

C) Whistle-blowing occurs when employees share confidential company information with external agents for personal gain.

D) The federal and state laws governing whistle-blowing are simple and clear, so that they can be easily used by employees and employers to navigate through.

E) Although whistle-blowing is sometimes characterized as "ratting on" colleagues or managers, it has an essential function.

Answer: E Explanation: E) Although whistle-blowing is sometimes characterized as "ratting on" colleagues or managers, it has an essential function.

Page Ref: 72 Difficulty: Easy AACSB: Ethical Understanding and Reasoning Abilities Chapter LO: 1 Course LO: Discuss the roles of ethics and corporate responsibility in business Classification: Concept

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36) An employee at Cleveland Medical Center informs the media of certain health law violations and negligence that lead to documented illness and even death in certain cases. This is an example of ________.

A) insider trading B) whistle-blowing C) affirmative action D) consumerism E) strategic CSR Answer: B Explanation: B) Whistle-blowing refers to the disclosure of information by a company insider that exposes illegal or unethical behavior by others within the organization.

Page Ref: 72 Difficulty: Moderate AACSB: Analytic Skills; Ethical Understanding and Reasoning Abilities Chapter LO: 1 Course LO: Discuss the roles of ethics and corporate responsibility in business Classification: Application 37) Which of the following is an example of whistle-blowing?

A) An employee discloses confidential information about the company to a rival firm for personal gain.

B) An employee suggests some process changes to his manager, that he claims will increase the productivity of the team.

C) An employee avoids taking ownership of his mistakes by blaming it on his co-workers.

D) An employee informs the manager that some of his team members are misusing confidential customer details from the company database.

E) An employee who is unsatisfied with his performance appraisal requests his manager for a reevaluation of his performance.

Answer: D Explanation: D) Whistle-blowing refers to the disclosure of information by a company insider that exposes illegal or unethical behavior by others within the organization.

Page Ref: 72 Difficulty: Moderate AACSB: Analytic Skills; Ethical Understanding and Reasoning Abilities Chapter LO: 1 Course LO: Discuss the roles of ethics and corporate responsibility in business Classification: Application

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38) Which of the following statements is true regarding ethical decision making?

A) When an employee is unable to make a decision because more than one side of an issue can be supported with valid arguments, it is called an ethical lapse.

B) The disclosure of information by a company insider that exposes unethical behavior by others within the organization is called an ethical lapse.

C) Stakeholders' needs often conflict, requiring managers to make tough decisions about resource allocation.

D) Making objective decisions will lead to ethical lapses.

E) When the question of what is right and what is wrong is clear, ethical decisions are easy to implement.

Answer: C Explanation: C) An ethical dilemma is a situation in which you must choose between conflicting but arguably valid options, or even situations in which all your options are unpleasant.

Stakeholders' needs often conflict, requiring managers to make tough decisions about resource allocation.

Page Ref: 73 Difficulty: Easy AACSB: Ethical Understanding and Reasoning Abilities Chapter LO: 1 Course LO: Discuss the roles of ethics and corporate responsibility in business Classification: Concept 39) A situation in which you must choose between two conflicting but arguably valid alternatives would be known as a(n) ________.

A) insider trading B) ethical lapse C) corporate opportunity D) ethical dilemma E) conflict of interest Answer: D Explanation: D) An ethical dilemma is a situation in which you must choose between conflicting but arguably valid options, or even situations in which all your options are unpleasant.

Page Ref: 73 Difficulty: Easy AACSB: Ethical Understanding and Reasoning Abilities Chapter LO: 1 Course LO: Discuss the roles of ethics and corporate responsibility in business Classification: Concept

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40) The CEO of a company considers offshoring some of its production to another country with lower labor costs. This decision would favor the company's customers who will benefit from lower prices. The shareholders also stand to benefit from lower production costs, which could increase sales, profits, or both, probably leading to increases in share prices. However, some employees will lose their jobs, and morale is likely to suffer among those employees who keep theirs. In this situation, the CEO faces a(n) ________.

A) ethical dilemma B) ethical lapse C) strategic CSR D) defensive CSR E) cognitive dissonance Answer: A Explanation: A) An ethical dilemma is a situation in which you must choose between conflicting but arguably valid options, or even situations in which all your options are unpleasant.

Page Ref: 73 Difficulty: Moderate AACSB: Analytic Skills; Ethical Understanding and Reasoning Abilities Chapter LO: 1 Course LO: Discuss the roles of ethics and corporate responsibility in business Classification: Application 41) The manager of a golf course awards a landscaping contract to his brother-in-law's company, even though another company was willing to do the same work for less money. This is an example of ________.

A) defensive CSR B) code of ethics C) conflict of interest D) strategic CSR E) ethical dilemma Answer: C Explanation: C) Conflicts of interest refers to situations in which competing loyalties can lead to ethical lapses.

Page Ref: 73 Difficulty: Moderate AACSB: Ethical Understanding and Reasoning Abilities Chapter LO: 1 Course LO: Discuss the roles of ethics and corporate responsibility in business Classification: Application

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42) Which of the following approaches to resolving ethical dilemmas advocates choosing the option that delivers the most good for the most people?

A) individual rights B) utilitarianism C) strategic CSR D) sustainable development E) Kantian ethics Answer: B Explanation: B) Utilitarianism involves choosing the option that delivers the most good for the most people (or protects the most people from a negative outcome).

Page Ref: 75 Difficulty: Easy AACSB: Ethical Understanding and Reasoning Abilities Chapter LO: 1 Course LO: Discuss the roles of ethics and corporate responsibility in business Classification: Concept 43) The products of Sports Center, an international sports footwear and apparel chain, are manufactured in sweat factories in China. According to the company president, using sweatshop labor is justified because it delivers the most good for the most people. He mentions that it offers a means of livelihood to children and young adults, as well as supplies good quality apparel to customers at a lower cost. In this example, the president of Sports Center uses which of the following ethical approaches to decision making?

A) affirmative action B) Kantian ethics C) individual rights D) utilitarianism E) deontological ethics Answer: D Explanation: D) Utilitarianism involves choosing the option that delivers the most good for the most people (or protects the most people from a negative outcome).

Page Ref: 75 Difficulty: Difficult AACSB: Ethical Understanding and Reasoning Abilities Chapter LO: 1 Course LO: Discuss the roles of ethics and corporate responsibility in business Classification: Application

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44) Which of the following ethical approaches emphasizes desirable character traits such as integrity and compassion?

A) utilitarianism B) Kantian ethics C) deontological ethics D) affirmative action E) virtue Answer: E Explanation: E) Virtue emphasizes desirable character traits such as integrity and compassion.

Page Ref: 75 Difficulty: Easy AACSB: Ethical Understanding and Reasoning Abilities Chapter LO: 1 Course LO: Discuss the roles of ethics and corporate responsibility in business Classification: Concept 45) Which of the following is true regarding the justice approach to ethics?

A) It refers to treating people equally, or at least fairly, in a way that makes rational and moral sense.

B) It refers to choosing the option that delivers the most good for the most people.

C) It involves making social contributions that are directly aligned with a company's overall business strategy.

D) It emphasizes qualities and conditions that benefit the community as a whole, such as peace and public safety.

E) It refers to the movement that pressures businesses to consider consumer needs and interests.

Answer: A Explanation: A) Justice refers to treating people equally, or at least fairly, in a way that makes rational and moral sense.

Page Ref: 75 Difficulty: Easy AACSB: Ethical Understanding and Reasoning Abilities Chapter LO: 1 Course LO: Discuss the roles of ethics and corporate responsibility in business Classification: Concept

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46) Corporate social responsibility refers to ________.

A) the rules or standards governing the conduct of a person or group B) a written statement setting forth the principles that guide an organization's decisions C) the notion that business has obligations to society beyond the pursuit of profits D) business that operates in a manner that minimizes pollution and resource depletion, ensuring that future generations will have vital resources E) the movement that pressures businesses to consider consumer needs and interests Answer: C Explanation: C) Corporate social responsibility (CSR) is the notion that business has obligations to society beyond the pursuit of profits.

Page Ref: 75 Difficulty: Easy AACSB: Ethical Understanding and Reasoning Abilities Chapter LO: 2 Course LO: Discuss the roles of ethics and corporate responsibility in business Classification: Concept 47) The idea that a business has obligations to society beyond the pursuit of profits is ________.

A) corporate social responsibility B) utilitarianism C) philanthropic sustainability D) ethical minimization E) opportunistic responsibility Answer: A Explanation: A) Corporate social responsibility (CSR) is the notion that business has obligations to society beyond the pursuit of profits.

Page Ref: 75 Difficulty: Easy AACSB: Ethical Understanding and Reasoning Abilities Chapter LO: 2 Course LO: Discuss the roles of ethics and corporate responsibility in business Classification: Concept

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48) ________ involves donating money, employee time, or other resources to various causes without regard for any direct business benefits for the company.

A) Philanthropy B) Strategic CSR C) Cap and trade D) Sustainable development E) Affirmative action Answer: A Explanation: A) Philanthropy involves donating money, employee time, or other resources to various causes without regard for any direct business benefits for the company.

Page Ref: 76 Difficulty: Easy AACSB: Ethical Understanding and Reasoning Abilities Chapter LO: 2 Course LO: Discuss the roles of ethics and corporate responsibility in business Classification: Concept 49) LK Manufacturing Group, a company that manufactures home appliances, supports a community sports center to nurture the city's athletic talent as well as promote fitness activities, without regard for any direct business benefits. This exemplifies ________.

A) strategic CSR B) cap and trade C) sustainable development D) philanthropy E) affirmative action Answer: D Explanation: D) Philanthropy involves donating money, employee time, or other resources to various causes without regard for any direct business benefits for the company.

Page Ref: 76 Difficulty: Moderate AACSB: Analytic Skills; Ethical Understanding and Reasoning Abilities Chapter LO: 1 Course LO: Discuss the roles of ethics and corporate responsibility in business Classification: Application

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50) Which of the following is an example of philanthropy?

A) An IT company donates money to an orphanage without expecting any business benefits.

B) A niche gourmet retail store holds free-for-all bakery classes by celebrity chefs in its store.

C) A bookstore arranges free-for-all book reading and autograph session with authors of newly published books in stores.

D) A sporting goods retail store holds a sports competition in the neighborhood community center to generate interest in athletics.

E) A pharmaceutical company sponsors a blood donation camp, where it also advertises some of its products.

Answer: A Explanation: A) Philanthropy involves donating money, employee time, or other resources to various causes without regard for any direct business benefits for the company.

Page Ref: 76 Difficulty: Moderate AACSB: Analytic Skills; Ethical Understanding and Reasoning Abilities Chapter LO: 2 Course LO: Discuss the roles of ethics and corporate responsibility in business Classification: Application 51) A company helps develop the workforce by supporting job training efforts. This is an example of ________.

A) strategic CSR B) cap and trade C) sustainable development D) philanthropy E) affirmative action Answer: A Explanation: A) Strategic CSR involves social contributions that are directly aligned with a company's overall business strategy.

Page Ref: 76 Difficulty: Easy AACSB: Ethical Understanding and Reasoning Abilities Chapter LO: 2 Course LO: Discuss the roles of ethics and corporate responsibility in business Classification: Concept

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52) Which of the following is true about strategic CSR? A) It involves donating money, employee time, or other resources to various causes without regard for any direct business benefits for the company.

B) It is an attempt to balance free-market economics with government intervention.

C) It refers to organizational growth that meets the needs of the present without compromising the ability of future generations to meet their own needs.

D) It involves social contributions that are directly aligned with a company's overall business plans.

E) It refers to the argument that firms should indulge in philanthropy only when there is no conflicts of interest with the profitability of the firm.

Answer: D Explanation: D) Strategic CSR involves social contributions that are directly aligned with a company's overall business strategy.

Page Ref: 76 Difficulty: Easy AACSB: Ethical Understanding and Reasoning Abilities Chapter LO: 2 Course LO: Discuss the roles of ethics and corporate responsibility in business Classification: Concept 53) Unlike general philanthropy, strategic CSR ________.

A) promotes an antagonistic business-versus-society mindset B) leads to weakening of both the business and the society C) refers to CSR activities that are mandatory according to law D) is aimed at specific sections of the society that have been historically discriminated against E) is more likely to be sustained over time Answer: E Explanation: E) Strategic CSR involves social contributions that are directly aligned with a company's overall business strategy. It makes more sense than general philanthropy. Investments that benefit the company are more likely to be sustained over time.

Page Ref: 76 Difficulty: Moderate AACSB: Ethical Understanding and Reasoning Abilities Chapter LO: 2 Course LO: Discuss the roles of ethics and corporate responsibility in business Classification: Concept

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54) The British firm Thames Water helped develop markets for its goods and services by assisting groups trying to improve water supplies in Africa. This is an example of ________.

A) cap and trade B) the minimalistic view C) strategic CSR D) philanthropy E) affirmative action Answer: C Explanation: C) Strategic CSR involves social contributions that are directly aligned with a company's overall business strategy.

Page Ref: 76 Difficulty: Easy AACSB: Ethical Understanding and Reasoning Abilities Chapter LO: 2 Course LO: Discuss the roles of ethics and corporate responsibility in business Classification: Concept 55) Aston Products Inc., a cosmetic research, development, and manufacturing firm, conducts a cost-benefit analysis that identifies an underdeveloped area which has cheap labor and low land costs. The firm decides to set up a factory in that area to take advantage of the lower land and labor costs. While setting up the factory, the company also develops infrastructure such as building roads, hospitals, and primary schools. This is an example of ________.

A) philanthropy B) the minimalistic view C) affirmative action D) strategic CSR E) cap and trade Answer: D Explanation: D) Strategic CSR involves social contributions that are directly aligned with a company's overall business strategy.

Page Ref: 76 Difficulty: Difficult AACSB: Analytic Skills; Ethical Understanding and Reasoning Abilities Chapter LO: 2 Course LO: Discuss the roles of ethics and corporate responsibility in business Classification: Application

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56) According to the ________ view, the only social responsibility of business is to pay taxes and obey the law.

A) defensive B) minimalist C) cynical D) proactive E) strategic Answer: B Explanation: B) According to the minimalist view, the only social responsibility of business is to pay taxes and obey the law.

Page Ref: 78 Difficulty: Easy AACSB: Ethical Understanding and Reasoning Abilities Chapter LO: 3 Course LO: Discuss the roles of ethics and corporate responsibility in business Classification: Concept 57) John, a business owner, refuses to contribute to social causes. He argues that he is an honest, law abiding businessman who never evades his taxes. He states that by providing good quality products at a fair price, he has fulfilled his company's obligation to society. John would be said to have a ________ approach to CSR. A) defensive B) minimalist C) cynical D) proactive E) strategic Answer: B Explanation: B) According to the minimalist view, the only social responsibility of business is to pay taxes and obey the law.

Page Ref: 78 Difficulty: Moderate AACSB: Analytic Skills; Ethical Understanding and Reasoning Abilities Chapter LO: 3 Course LO: Discuss the roles of ethics and corporate responsibility in business Classification: Application

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58) Nongovernmental organizations are ________.

A) publicly traded and owned entities B) firms that apply sustainable business strategies to achieve their business goals C) nonprofit groups that provide charitable services or promote causes D) firms that derive a substantial portion of their income from trade E) composed primarily of sovereign states (referred to as member states), or of other intergovernmental organizations Answer: C Explanation: C) Nongovernmental organizations (NGOs) are nonprofit groups that provide charitable services or promote social and environmental causes.

Page Ref: 78 Difficulty: Easy AACSB: Ethical Understanding and Reasoning Abilities Chapter LO: 3 Course LO: Discuss the roles of ethics and corporate responsibility in business Classification: Concept 59) A ________ CSR is one in which a company accused of irresponsible behavior promotes itself as being socially responsible without making significant improvements in its business practices.

A) minimalist B) philanthropic C) strategic D) proactive E) cynical Answer: E Explanation: E) A purely cynical response to CSR is one in which a company accused of irresponsible behavior promotes itself as being socially responsible without making substantial improvements in its business practices.

Page Ref: 78 Difficulty: Easy AACSB: Ethical Understanding and Reasoning Abilities Chapter LO: 3 Course LO: Discuss the roles of ethics and corporate responsibility in business Classification: Concept

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60) A company that takes positive steps to address a particular issue, but only because it has been embarrassed into action by negative publicity, has a ________ CSR. A) minimalist B) defensive C) strategic D) proactive E) cynical Answer: B Explanation: B) Many companies find themselves facing pressure from a variety of activists and nongovernmental organizations (NGOs). One possible response to this pressure is to engage in CSR activities as a way to avoid further criticism, which is termed as defensive CSR. Page Ref: 78 Difficulty: Easy AACSB: Ethical Understanding and Reasoning Abilities Chapter LO: 3 Course LO: Discuss the roles of ethics and corporate responsibility in business Classification: Concept 61) Shopper's Paradise, a department store chain, was accused of working with contractors who use sweatshop labor in their manufacturing units. The company was labeled as promoting unethical business policies. To deal with these criticisms, the company decides to make a large donation to a cancer research foundation, as well as sponsor a health awareness program in the community. Shopper's Paradise would be said to have a ________ approach to CSR. A) minimalist B) strategic C) proactive D) defensive E) philanthropic Answer: D Explanation: D) Many companies find themselves facing pressure from a variety of activists and nongovernmental organizations (NGOs). One possible response to this pressure is to engage in CSR activities as a way to avoid further criticism, which is termed as defensive CSR. Page Ref: 78 Difficulty: Easy AACSB: Analytic Skills; Ethical Understanding and Reasoning Abilities Chapter LO: 3 Course LO: Discuss the roles of ethics and corporate responsibility in business Classification: Application

25 .

62) Publicity efforts that portray a company as being environmentally friendly when its actions speak otherwise are called ________.

A) environmental minimalism B) quasi-environmentalism C) greenwashing D) collectivism E) proactivism Answer: C Explanation: C) Environmental activists use the term greenwash as a label for publicity efforts that present companies as being environmentally friendly when their actions speak otherwise.

Page Ref: 78 Difficulty: Easy AACSB: Ethical Understanding and Reasoning Abilities Chapter LO: 3 Course LO: Discuss the roles of ethics and corporate responsibility in business Classification: Concept 63) Toy Land Inc. was criticized for selling toys that had lead paint and were proven to be harmful for children. The company recalled several batches of toys. It responded to these accusations by changing its logo to include a recycle theme, using advertisements that promoted waste management and recycling, and providing Toy Land Inc. branded reusable shopping bags at their store. However, the firm did not undertake any specific measures to avoid using toxic materials in its products. This is an example of ________.

A) proactive CSR B) cynical CSR C) minimalistic CSR D) primary CSR E) philanthropic CSR Answer: B Explanation: B) A purely cynical response to CSR is one in which a company accused of irresponsible behavior promotes itself as being socially responsible without making substantial improvements in its business practices.

Page Ref: 78 Difficulty: Difficult AACSB: Analytic Skills; Ethical Understanding and Reasoning Abilities Chapter LO: 3 Course LO: Discuss the roles of ethics and corporate responsibility in business Classification: Application

26 .

64) An eco-friendly health resort claims to be environment friendly, and markets itself as an ecoresort. However, it engages in irresponsible activities such as wastage of water, disposal of plastic and other untreated wastes into the water bodies, and cutting trees in protected areas to expand its facilities. This is an example of ________.

A) environmental minimalism B) quasi-environmentalism C) greenwashing D) collectivism E) proactivism Answer: C Explanation: C) Environmental activists use the term greenwash as a label for publicity efforts that present companies as being environmentally friendly when their actions speak otherwise.

Page Ref: 78 Difficulty: Difficult AACSB: Analytic Skills; Ethical Understanding and Reasoning Abilities Chapter LO: 3 Course LO: Discuss the roles of ethics and corporate responsibility in business Classification: Application 65) In ________ CSR, company leaders believe they have responsibilities beyond making a profit, and they back up their beliefs and proclamations with actions taken on their own initiative.

A) proactive B) cynical C) minimalistic D) primary E) philanthropic Answer: A Explanation: A) In proactive CSR, company leaders believe they have responsibilities beyond making a profit, and they back up their beliefs and proclamations with actions taken on their own initiative..

Page Ref: 79 Difficulty: Easy AACSB: Ethical Understanding and Reasoning Abilities Chapter LO: 3 Course LO: Discuss the roles of ethics and corporate responsibility in business Classification: Concept

27 .

66) Since its inception, Whole Foods Market has contributed 5% of its profits to charitable endeavors. At Whole Foods Market, company leaders believe they have responsibilities beyond making a profit. The firm has a ________ approach to CSR. A) cynical B) minimalistic C) primary D) philanthropic E) proactive Answer: E Explanation: E) In proactive CSR, company leaders believe they have responsibilities beyond making a profit, and they back up their beliefs and proclamations with actions taken on their own initiative.

Page Ref: 79 Difficulty: Difficult AACSB: Analytic Skills; Ethical Understanding and Reasoning Abilities Chapter LO: 3 Course LO: Discuss the roles of ethics and corporate responsibility in business Classification: Application 67) Most of the electricity generated in the United States is produced by ________.

A) burning fossil fuels B) from nuclear power C) from hydroelectric power D) from solar power E) harnessing wind power Answer: A Explanation: A) Most of the electricity generated in the United States is produced by burning fossil fuels. Nuclear and hydroelectric power provide most of rest.

Page Ref: 80 Difficulty: Easy Chapter LO: 4 Classification: Concept

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68) Which of the following statements is true?

A) The creation, delivery, use, and disposal of products that society values can be carried out without generating any pollution and consuming any natural resources.

B) Web-based businesses are "clean" because there is no pollution associated with them.

C) Environmental issues are easy and simple, and companies can easily make decisions when faced with such issues.

D) Environmental issues faced by businesses are about forests, rivers, and wildlife; and not about human health and safety.

E) Dealing with environmental issues often requires tough trade-offs, occasional sacrifice, and disruptive change.

Answer: E Explanation: E) Many of the "environmental" issues are neither easy nor simple. They often require tough trade-offs, occasional sacrifice, disruptive change, and decision making in the face of uncertainty.

Page Ref: 80 Difficulty: Moderate AACSB: Ethical Understanding and Reasoning Abilities Chapter LO: 4 Course LO: Discuss the roles of ethics and corporate responsibility in business Classification: Concept 69) ________ is the study of the relationship between organisms and the natural environment.

A) Environmentalism B) Ecology C) Energy conservation D) Ergonomics E) Sustainability Answer: B Explanation: B) Ecology is the study of the relationship between organisms and the natural environment.

Page Ref: 80 Difficulty: Easy Chapter LO: 4 Course LO: Discuss the roles of ethics and corporate responsibility in business Classification: Concept

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70) The ________ establishes procedures for creating geologic repositories of radioactive waste.

A) Clean Air Act B) Solid Waste Disposal Act C) Toxic Substances Control Act D) Nuclear Waste Policy Act E) Resource Recovery Act Answer: D Explanation: D) The Nuclear Waste Policy Act establishes procedures for creating geologic repositories of radioactive waste.

Page Ref: 82 Difficulty: Easy Chapter LO: 4 Classification: Concept 71) The Resource Recovery Act (1970) ________.

A) subsidizes pilot recycling plants B) regulates treatment, storage, transportation, and disposal of hazardous waste C) establishes a structure for coordinating all federal environmental programs D) authorizes grants to states for water-pollution control E) prohibits ocean dumping that could threaten human health or the marine environment Answer: A Explanation: A) The Resource Recovery Act (1970) subsidizes pilot recycling plants and authorizes nationwide control programs.

Page Ref: 82 Difficulty: Easy Chapter LO: 4 Classification: Concept 72) Under ________, lawmakers establish maximum allowable amounts of a pollutant that an industry is allowed to emit and distribute individual allowances to all companies in that industry.

A) sustainable development B) cap and trade C) ecological barter D) environmental control E) carbon offset projects Answer: B Explanation: B) Cap and trade programs try to balance free-market economics with government intervention. Lawmakers first establish a maximum allowable amount of a particular pollutant that a designated group of companies or industries is allowed to emit and then distribute individual emission allowances to all the companies in that group.

Page Ref: 81 Difficulty: Easy AACSB: Ethical Understanding and Reasoning Abilities Chapter LO: 4 Course LO: Discuss the roles of ethics and corporate responsibility in business Classification: Concept 30 .

73) Which of the following statements is true about cap and trade programs?

A) They promote an anti-business perspective.

B) They provide technological solutions to reduce pollution and resource consumption.

C) They force companies to choose the highest-cost means of taking responsibility for their emissions.

D) They try to balance free-market economics with government intervention.

E) They put pressure on businesses to consider consumer needs and interests.

Answer: D Explanation: D) Cap and trade programs try to balance free-market economics with government intervention. Lawmakers first establish a maximum allowable amount of a particular pollutant that a designated group of companies or industries is allowed to emit and then distributes individual emission allowances to all the companies in that group.

Page Ref: 81 Difficulty: Easy AACSB: Ethical Understanding and Reasoning Abilities Chapter LO: 4 Course LO: Discuss the roles of ethics and corporate responsibility in business Classification: Concept 74) ________ is defined as meeting the needs of the present without compromising the ability of future generations to meet their own needs.

A) Greenwashing B) Consumerism C) Materialism D) Sustainable development E) Cap and trade Answer: D Explanation: D) Efforts to minimize resource depletion and pollution are part of a broader effort known as sustainability or sustainable development, which the United Nations has defined as development that "meets the needs of the present without compromising the ability of future generations to meet their own needs."

Page Ref: 82 Difficulty: Easy AACSB: Ethical Understanding and Reasoning Abilities Chapter LO: 4 Course LO: Discuss the roles of ethics and corporate responsibility in business Classification: Concept

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75) American Housing Inc., a construction firm, uses innovative home designs that use insulating building materials aimed at reducing the energy consumption of the apartments and homes it builds. This gives it an edge over other businesses, and is environment friendly as well. This is an example of ________.

A) cap and trade B) greenwashing C) consumerism D) affirmative action E) sustainable development Answer: E Explanation: E) Efforts to minimize resource depletion and pollution are part of a broader effort known as sustainability or sustainable development, which the United Nations has defined as development that "meets the needs of the present without compromising the ability of future generations to meet their own needs."

Page Ref: 82 Difficulty: Difficult AACSB: Analytic Skills; Ethical Understanding and Reasoning Abilities Chapter LO: 4 Course LO: Discuss the roles of ethics and corporate responsibility in business Classification: Application 76) What is the meaning of the term "consumerism"?

A) overspending by customers B) overspending by corporations C) pressuring businesses to consider consumer needs D) pressuring consumers to consider business needs E) unexpected demand by buyers Answer: C Explanation: C) Consumerism is a movement that puts pressure on businesses to consider consumer needs and interests.

Page Ref: 83 Difficulty: Easy AACSB: Ethical Understanding and Reasoning Abilities Chapter LO: 5 Course LO: Discuss the roles of ethics and corporate responsibility in business Classification: Concept

32 .

77) Which of the following federal legislations limits cardholder liability for unauthorized use?

A) Magnuson-Moss Warranty Act (1975) B) Fair Credit Reporting Act (1970) C) Truth in Lending Act (Consumer Protection Credit Act) (1968) D) Deceptive Mail Prevention and Enforcement Act (1999) E) Fair Packaging and Labeling Act (1966, 1972) Answer: C Explanation: C) Truth in Lending Act (Consumer Protection Credit Act) (1968) requires creditors to disclose finance charge and annual percentage rate, and limits cardholder liability for unauthorized use.

Page Ref: 84 Difficulty: Easy AACSB: Ethical Understanding and Reasoning Abilities Chapter LO: 5 Course LO: Discuss the roles of ethics and corporate responsibility in business Classification: Concept 78) The Magnuson-Moss Warranty Act (1975) requires complete written warranties in ordinary language and requires warranties to be ________.

A) applicable for minimum one year B) supported by the manufacturer C) supported by the retailer D) available before purchase E) contained on package labeling Answer: D Explanation: D) The Magnuson-Moss Warranty Act (1975) requires complete written warranties in ordinary language; and requires warranties to be available before purchase.

Page Ref: 84 Difficulty: Easy Chapter LO: 5 Classification: Concept

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79) Mark hacks into the database of an e-commerce firm and steals the social security numbers of many of its customers. He then uses these numbers to take loans. This is an example of ________.

A) phishing B) identity theft C) spamming D) brandjacking E) cybersquatting Answer: B Explanation: B) Identity theft refers to crimes in which thieves steal personal information and use it to take out loans and commit other types of fraud.

Page Ref: 85 Difficulty: Moderate AACSB: Analytic Skills; Ethical Understanding and Reasoning Abilities Chapter LO: 5 Course LO: Discuss the roles of ethics and corporate responsibility in business Classification: Application 80) Which of the following regulatory agencies is responsible for monitoring the hiring practices of companies and can require them to compensate individuals who have been victimized by unfair hiring practices.

A) Federal Employment Commission (FEC) B) Civil Rights Commission (CRC) C) Employee Protection Commission (EPC) D) Employment Regulatory Commission (ERC) E) Equal Employment Opportunity Commission (EEOC) Answer: E Explanation: E) The Equal Employment Opportunity Commission (EEOC) is responsible for monitoring the hiring practices of companies and for investigating complaints of job-related discrimination. It has the power to file legal charges against companies that discriminate and to force them to compensate individuals or groups who have been victimized by unfair practices.

Page Ref: 86 Difficulty: Easy Chapter LO: 6 Classification: Concept

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81) Activities undertaken by businesses to recruit and promote members of groups whose economic progress had been hindered through either legal barriers or established practices are known as ________.

A) greenwashing B) sustainable development C) multiculturism D) affirmative action E) selective recruiting Answer: D Explanation: D) Affirmative action programs were developed to encourage organizations to recruit and promote members of groups whose past economic progress has been hindered through legal barriers or established practices.

Page Ref: 86 Difficulty: Easy AACSB: Ethical Understanding and Reasoning Abilities Chapter LO: 6 Course LO: Discuss the roles of ethics and corporate responsibility in business Classification: Concept 82) The Civil Rights Act of 1991 amended the original act, and ________.

A) provided for unlimited amount of damage awards B) made it mandatory for private firms to employ persons from minority groups C) made it tougher to sue for discrimination D) gave employees the right to have a trial by jury in discrimination cases E) made it mandatory for the government to subsidize programs based on race Answer: D Explanation: D) The Civil Rights Act of 1991 amended the original act in response to a number of Supreme Court decisions that had taken place in the intervening quarter century. Among its key provisions are limiting the amount of damage awards, making it easier to sue for discrimination, giving employees the right to have a trial by jury in discrimination cases, and extending protections to overseas employees of U.S. companies.

Page Ref: 86 Difficulty: Easy Chapter LO: 6 Classification: Concept

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83) Which of the following is true about the Americans with Disabilities Act (ADA)?

A) It allows employers to ask job applicants to pass a physical examination as a condition of employment.

B) It protects only those individuals who have physical handicaps.

C) It guarantees equal opportunities in housing, transportation, education, employment, and other areas for people with disabilities.

D) It excludes people with drug addiction, alcoholism, emotional illness, and other conditions.

E) It subsidizes modifications to work stations or schedules undertaken by firms to make the workplace more accessible to people with disabilities.

Answer: C Explanation: C) The federal Americans with Disabilities Act (ADA) guarantees equal opportunities in housing, transportation, education, employment, and other areas for people in the United States with disabilities.

Page Ref: 87 Difficulty: Easy AACSB: Ethical Understanding and Reasoning Abilities Chapter LO: 6 Course LO: Discuss the roles of ethics and corporate responsibility in business Classification: Concept 84) ________ is the study of how people interact with computers and other machines.

A) Consumerism B) Ergonomics C) Systems psychology D) Environmental design E) Anthropometry Answer: B Explanation: B) Ergonomics refers to the study of how people interact with computers and other machines.

Page Ref: 88 Difficulty: Easy Chapter LO: 6 Classification: Concept

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85) Production facilities that treat workers poorly are referred to as ________.

A) ergonomic units B) maquiladora C) contingent work D) warehouses E) sweatshops Answer: E Explanation: E) Sweatshops is a disparaging term applied to production facilities that treat workers poorly.

Page Ref: 88 Difficulty: Easy AACSB: Ethical Understanding and Reasoning Abilities Chapter LO: 6 Course LO: Discuss the roles of ethics and corporate responsibility in business Classification: Concept 86) What is ethics? List the components of good business ethics?

Answer: Ethics are the principles and standards of moral behavior that are accepted by society as right versus wrong. Practicing good business ethics involves, at a minimum, competing fairly and honestly, communicating truthfully, being transparent, and not causing harm to others.

Page Ref: 71 Difficulty: Easy AACSB: Ethical Understanding and Reasoning Abilities Chapter LO: 1 Course LO: Discuss the roles of ethics and corporate responsibility in business Classification: Concept 87) Compare and contrast insider trading and whistle-blowing.

Answer: Insider trading refers to the use of unpublicized information that an individual gains from the course of his or her job to benefit from fluctuations in the stock market. Insider trading is illegal, in addition to being unethical.

Whistle-blowing refers to the disclosure of information by a company insider that exposes illegal or unethical behavior by others within the organization. Employees who observe unethical or illegal behavior within their companies and are unable to resolve the problems through normal channels may have no choice but to resort to whistle-blowing.

Page Ref: 72 Difficulty: Difficult AACSB: Ethical Understanding and Reasoning Abilities Chapter LO: 1 Classification: Synthesis

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88) Compare and contrast ethical lapse and ethical dilemma?

Answer: Ethical lapse refers to the situation in which an individual or group makes a decision that is morally wrong, illegal, or unethical. If you choose the wrong course, such as cheating on your taxes or stealing from your employer, you commit an ethical lapse. The choices were clear, and you made the wrong one.

Ethical dilemma refers to the situation in which more than one side of an issue can be supported with valid arguments. It is a situation in which you must choose between conflicting but arguably valid options, or even situations in which all your options are unpleasant.

Page Ref: 72;73 Difficulty: Difficult AACSB: Ethical Understanding and Reasoning Abilities Chapter LO: 1 Course LO: Discuss the roles of ethics and corporate responsibility in business Classification: Synthesis 89) What is a conflict of interest? How is it related to ethical decision making?

Answer: Conflicts of interest refer to situations in which competing loyalties can lead to ethical lapses. For instance, if you are in charge of selecting an advertising agency to do your company's next campaign, you would have an obvious conflict of interest if your husband or wife worked for one of the agencies under consideration. It is difficult to make decisions when the question of what is right and what is wrong is unclear such as during ethical dilemmas. Watching out for conflicts of interest can help you to make the right decision when faced with an ethical dilemma.

Page Ref: 73 Difficulty: Difficult AACSB: Ethical Understanding and Reasoning Abilities Chapter LO: 1 Course LO: Discuss the roles of ethics and corporate responsibility in business Classification: Synthesis

38 .

90) Compare and contrast the various approaches used to resolve ethical dilemmas.

Answer: The different approaches to resolve ethical dilemmas are: Justice, which refers to treating people equally or at least fairly in a way that makes rational and moral sense.

Utilitarianism, which involves choosing the option that delivers the most good for the most people (or protects the most people from a negative outcome).

Individual rights, which supports respecting the rights of all individuals, particularly their right to control their own destinies.

Individual responsibilities, which focuses on the ethical duties of the individuals involved in the situation.

The common good, which emphasizes qualities and conditions that benefit the community as a whole, such as peace and public safety.

Virtue, which emphasizes desirable character traits such as integrity and compassion.

Page Ref: 75 Difficulty: Difficult AACSB: Ethical Understanding and Reasoning Abilities Chapter LO: 1 Course LO: Discuss the roles of ethics and corporate responsibility in business Classification: Synthesis 91) Compare and contrast philanthropy and strategic CSR. Answer: Philanthropy involves donating money, employee time, or other resources to various causes without regard for any direct business benefits for the company. For instance, a company might support the arts in its hometown in the interest of enhancing the city's cultural richness. In addition to free products, employee time, use of company facilities, and other noncash contributions, U.S. companies donate billions of dollars to charity every year.

In contrast to generic philanthropy, strategic CSR involves social contributions that are directly aligned with a company's overall business strategy. In other words, the company helps itself and society at the same time.

Page Ref: 76 Difficulty: Difficult AACSB: Ethical Understanding and Reasoning Abilities Chapter LO: 2 Course LO: Discuss the roles of ethics and corporate responsibility in business Classification: Synthesis

39 .

92) Compare and contrast the minimalist and the purely cynical perspective on corporate social responsibility.

Answer: According to what might be termed the minimalist view, the only social responsibility of business is to pay taxes and obey the law. According to this view, any business that operates ethically and legally provides society with beneficial goods and services at fair prices.

Another perspective is a purely cynical one, in which a company accused of irresponsible behavior promotes itself as being socially responsible without making substantial improvements in its business practices. For example, environmental activists use the term greenwash (a combination of green and whitewash, a term that suggests covering something up) as a label for publicity efforts that present companies as being environmentally friendly when their actions speak otherwise. Ironically, some of the most ardent antibusiness activists and the staunchly probusiness advocates of the minimalist view tend to agree on one point: that many CSR efforts are disingenuous.

Page Ref: 78 Difficulty: Difficult AACSB: Ethical Understanding and Reasoning Abilities Chapter LO: 3 Course LO: Discuss the roles of ethics and corporate responsibility in business Classification: Synthesis 93) What is defensive CSR? How is it different from proactive CSR? Answer: Defensive CSR refers to a situation when a company takes positive steps to address a particular issue, but only because it has been embarrassed into action by negative publicity.

Many companies today find themselves facing pressure from a variety of activists and nongovernmental organizations (NGOs). Some companies respond to this pressure by engaging in CSR activities as a way to avoid further criticism.

In the proactive CSR approach, company leaders believe they have responsibilities beyond making a profit, and they back up their beliefs and proclamations with actions taken on their own initiative.

Page Ref: 78; 79 Difficulty: Difficult AACSB: Ethical Understanding and Reasoning Abilities Chapter LO: 3 Course LO: Discuss the roles of ethics and corporate responsibility in business Classification: Synthesis

40 .

94) Discuss the two-tiered approach to CSR. Answer: A two-tiered approach to CSR can yield a practical, ethical answer to the debate surrounding the different perspectives to CSR. At the first tier, companies must take responsibility for the consequences of their actions and limit the negative impact of their operations. This can be summarized as "do no harm" and it is not a matter of choice.

At the second tier, moving beyond "do no harm" does become a matter of choice. Companies can choose to help in whatever way that investors, managers, and employees see fit, but the choices are up to the company and should not be the result of pressure from outside forces.

Page Ref: 79 Difficulty: Moderate AACSB: Ethical Understanding and Reasoning Abilities Chapter LO: 3 Course LO: Discuss the roles of ethics and corporate responsibility in business Classification: Concept 95) What are cap and trade programs?

Answer: Cap and trade programs try to balance free-market economics with government intervention. Lawmakers first establish a maximum allowable amount of a particular pollutant that a designated group of companies or industries is allowed to emit (the "cap") and then distributes individual emission allowances to all the companies in that group. If a company lowers its emissions enough to stay under its prescribed limit, it can sell, trade, or save leftover allowances (the "trade"). If a company exceeds its emission allowances, it must buy or trade for enough allowances to cover the excess emissions. In this way, companies can choose the lowestcost means of taking responsibility for their emissions.

Page Ref: 81;82 Difficulty: Moderate AACSB: Ethical Understanding and Reasoning Abilities Chapter LO: 4 Course LO: Discuss the roles of ethics and corporate responsibility in business Classification: Concept 96) Compare and contrast cap and trade programs and sustainable development.

Answer: Cap and trade programs is a type of environmental policy that gives companies some freedom in addressing the environmental impact of specified pollutants, by either reducing emissions to meet a designated cap or buying allowances to offset excess emissions.

Efforts to minimize resource depletion and pollution are part of a broader effort known as sustainability or sustainable development, which the United Nations has defined as development that "meets the needs of the present without compromising the ability of future generations to meet their own needs."

Page Ref: 81; 82; 83 Difficulty: Difficult AACSB: Ethical Understanding and Reasoning Abilities Chapter LO: 4 Course LO: Discuss the roles of ethics and corporate responsibility in business Classification: Synthesis

41 .

97) What is consumerism? List the fundamental consumer rights.

Answer: Consumerism is a movement that puts pressure on businesses to consider consumer needs and interests. Consumerism prompted many businesses to create consumer affairs departments to handle customer complaints. It also prompted state and local agencies to set up bureaus to offer consumer information and assistance. Four fundamental consumer rights that form the basis of much of the consumer-related legislation in the United States are the right to safe products, the right to be informed, the right to choose, and the right to be heard.

Page Ref: 83; 84; 85 Difficulty: Easy AACSB: Ethical Understanding and Reasoning Abilities Chapter LO: 5 Course LO: Discuss the roles of ethics and corporate responsibility in business Classification: Concept 98) Compare and contrast discrimination and affirmative action.

Answer: In a social and economic sense, discrimination refers to the denial of opportunities to individuals on the basis of some characteristic that has no bearing on their ability to perform in a job. Affirmative action refers to activities undertaken by businesses to recruit and promote members of groups whose economic progress had been hindered through either legal barriers or established practices.

Page Ref: 86 Difficulty: Difficult AACSB: Ethical Understanding and Reasoning Abilities Chapter LO: 6 Course LO: Discuss the roles of ethics and corporate responsibility in business Classification: Synthesis 99) Discuss some of the key responsibilities that employers have regarding employees. Compare them with the responsibility they have toward consumers.

Answer: Corporate social responsibility applies internally to the way employees are treated.

Major issues include the push for equal opportunity, which includes affirmative action programs, regulations to protect the rights of people with disabilities, and occupational safety and health.

The 1960s activism that awakened business to its environmental responsibilities also gave rise to consumerism, a movement that put pressure on businesses to consider consumer needs and interests.Four fundamental consumer rights that form the basis of much of the consumer-related legislation in the United States are the right to safe products, the right to be informed, the right to choose, and the right to be heard. Many specific aspects of these rights are now embodied in government regulations, but others rely on business professionals to practice ethical and responsive decision making.

Page Ref: 83; 84; 85; 86 Difficulty: Difficult AACSB: Ethical Understanding and Reasoning Abilities Chapter LO: 5, 6 Course LO: Discuss the roles of ethics and corporate responsibility in business Classification: Synthesis

42 .

100) Discuss the functions of the Equal Employment Opportunity Commission (EEOC).

Answer: The Civil Rights Act of 1964 established the Equal Employment Opportunity Commission (EEOC), the regulatory agency that addresses job discrimination. The EEOC is responsible for monitoring the hiring practices of companies and for investigating complaints of job-related discrimination. It has the power to file legal charges against companies that discriminate and to force them to compensate individuals or groups who have been victimized by unfair practices.

Page Ref: 86 Difficulty: Difficult AACSB: Ethical Understanding and Reasoning Abilities Chapter LO: 6 Course LO: Discuss the roles of ethics and corporate responsibility in business Classification: Concept

43 .

Business in Action, 6e (Bovee/Thill) Chapter 5 Forms of Ownership 1) Owner has limited personal liability for the business's financial obligations in sole proprietorships.

Answer: FALSE Explanation: Owner has unlimited personal liability for the business's financial obligations in sole proprietorships. In corporations investors have limited liability.

Page Ref: 95 Difficulty: Easy Chapter LO: 1 Course LO: Discuss the factors that influence decisions about organizational structure Classification: Concept 2) Establishing a corporation is more complicated and expensive compared to establishing a sole proprietorship.

Answer: TRUE Explanation: Establishing a corporation is more complicated and expensive compared to establishing a sole proprietorship. Requirements for establishing a corporation vary from state to state.

Page Ref: 95 Difficulty: Easy Chapter LO: 1 Course LO: Discuss the factors that influence decisions about organizational structure Classification: Concept 3) The federal government recognizes a sole proprietorship as an independent taxable entity.

Answer: FALSE Explanation: Income tax is a straightforward matter for sole proprietorships. The federal government doesn't recognize the company as a taxable entity.

Page Ref: 96 Difficulty: Moderate Chapter LO: 1 Course LO: Discuss the factors that influence decisions about organizational structure Classification: Concept 4) Unlimited liability is a legal condition under which any damages or debts incurred by a business are the owner's personal responsibility.

Answer: TRUE Explanation: Unlimited liability is a legal condition under which any damages or debts incurred by a business are the owner's personal responsibility.

Page Ref: 96 Difficulty: Easy Chapter LO: 1 Course LO: Discuss the factors that influence decisions about organizational structure Classification: Concept 1 .

5) A partnership is a company that is owned by two or more people but is not a corporation.

Answer: TRUE Explanation: A partnership is a company that is owned by two or more people but is not a corporation.

Page Ref: 97 Difficulty: Easy Chapter LO: 2 Course LO: Discuss the factors that influence decisions about organizational structure Classification: Concept 6) All partners have joint authority to make decisions for the firm in a general partnership.

Answer: TRUE Explanation: In a general partnership, all partners have joint authority to make decisions for the firm and joint liability for the firm's financial obligations.

Page Ref: 98 Difficulty: Easy Chapter LO: 2 Course LO: Discuss the factors that influence decisions about organizational structure Classification: Concept 7) A master limited partnership is not allowed to raise money by selling units of ownership to the general public.

Answer: FALSE Explanation: A master limited partnership (MLP) is allowed to raise money by selling units of ownership to the general public, in the same way corporations sell shares of stock to the public.

Page Ref: 98 Difficulty: Easy Chapter LO: 2 Course LO: Discuss the factors that influence decisions about organizational structure Classification: Concept 8) Partners are responsible for each other's action in a limited liability partnership.

Answer: FALSE Explanation: The limited liability partnership (LLP) form of business was created to help protect individual partners in certain professions from major mistakes (such as errors that trigger malpractice lawsuits) by other partners in the firm.

Page Ref: 98 Difficulty: Easy Chapter LO: 2 Course LO: Discuss the factors that influence decisions about organizational structure Classification: Concept

2 .

9) Partnerships are subject to double taxation of income.

Answer: FALSE Explanation: Income tax is straightforward for partnerships. Each owner's income is treated as his or her share as personal income. This helps investors avoid double taxation.

Page Ref: 98 Difficulty: Easy Chapter LO: 2 Course LO: Discuss the factors that influence decisions about organizational structure Classification: Concept 10) All owners in a general partnership and the general partners in a limited partnership face the same unlimited liability as sole proprietors.

Answer: TRUE Explanation: All owners in a general partnership and the general partners in a limited partnership face the same unlimited liability as sole proprietors.

Page Ref: 99 Difficulty: Moderate Chapter LO: 2 Course LO: Discuss the factors that influence decisions about organizational structure Classification: Concept 11) A corporation is a legal entity distinct from the persons running the corporation.

Answer: TRUE Explanation: A corporation is a legal entity, distinct from any individual persons, that has the power to own property and conduct business.

Page Ref: 100 Difficulty: Easy Chapter LO: 3 Course LO: Discuss the factors that influence decisions about organizational structure Classification: Concept 12) The stock of a private corporation is made available for purchase by the public.

Answer: FALSE Explanation: The stock of a private corporation is owned by only a few individuals or companies and is not made available for purchase by the public.

Page Ref: 100 Difficulty: Moderate Chapter LO: 3 Course LO: Discuss the factors that influence decisions about organizational structure Classification: Concept

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13) Liquidity is a measure of how easily and quickly an asset can be converted into cash.

Answer: TRUE Explanation: Liquidity is a measure of how easily and quickly an asset such as corporate stock can be converted into cash by selling it.

Page Ref: 100 Difficulty: Easy Chapter LO: 3 Course LO: Discuss the factors that influence decisions about organizational structure Classification: Concept 14) A corporation itself has limited liability on its transactions.

Answer: FALSE Explanation: A corporation itself has unlimited liability, but the various shareholders who own the corporation face only limited liability.

Page Ref: 101 Difficulty: Moderate Chapter LO: 2 Course LO: Discuss the factors that influence decisions about organizational structure Classification: Concept 15) Government agencies require publicly traded companies to publish extensive and detailed financial reports.

Answer: TRUE Explanation: To help investors make informed decisions about stocks, government agencies require publicly traded companies to publish extensive and detailed financial reports.

Page Ref: 101 Difficulty: Moderate Chapter LO: 3 Course LO: Discuss the factors that influence decisions about organizational structure Classification: Concept 16) An S corporation has the federal taxation advantages of a partnership.

Answer: TRUE Explanation: S corporation is a type of corporation that combines the capital-raising options and limited liability of a corporation with the federal taxation advantages of a partnership.

Page Ref: 101 Difficulty: Easy Chapter LO: 3 Course LO: Discuss the factors that influence decisions about organizational structure Classification: Concept

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17) The number of shareholders is limited to fifty in a limited liability company.

Answer: FALSE Explanation: A limited liability company (LLC) is a structure that combines limited liability with the pass-through taxation benefits of a partnership. The number of shareholders is not restricted, nor is members' participation in management.

Page Ref: 102 Difficulty: Moderate Chapter LO: 3 Course LO: Discuss the factors that influence decisions about organizational structure Classification: Concept 18) A benefit corporation must pursue a stated non-financial goal.

Answer: TRUE Explanation: A benefit corporation has most of the attributes of a regular corporation but adds the legal requirement that the company must also pursue a stated non-financial goal, such as hiring workers whose life histories make employment difficult to attain or reducing the environmental impact of particular products.

Page Ref: 102 Difficulty: Easy Chapter LO: 3 Course LO: Discuss the factors that influence decisions about organizational structure Classification: Concept 19) Board of directors has the responsibility for the overall direction of the company and the selection of top executives.

Answer: TRUE Explanation: Board of directors is a group of professionals elected by shareholders as their representatives, with responsibility for the overall direction of the company and the selection of top executives.

Page Ref: 103 Difficulty: Easy Chapter LO: 4 Course LO: Discuss the factors that influence decisions about organizational structure Classification: Concept 20) Corporate officers of an organization are elected directly by the shareholders of a corporation.

Answer: FALSE Explanation: Corporate officers of an organization are hired by the board of directors.

Page Ref: 103 Difficulty: Easy Chapter LO: 4 Course LO: Discuss the factors that influence decisions about organizational structure Classification: Concept

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21) Proxy is a document that authorizes another person to vote on behalf of a shareholder in a corporation.

Answer: TRUE Explanation: Proxy is a document that authorizes another person to vote on behalf of a shareholder in a corporation.

Page Ref: 104 Difficulty: Easy Chapter LO: 4 Course LO: Discuss the factors that influence decisions about organizational structure Classification: Concept 22) The chief operating officer is the highest-ranking officer of a corporation.

Answer: FALSE Explanation: Corporate officers are the top executives who run a corporation. Of them, the highest-ranking officer is the chief executive officer (CEO).

Page Ref: 105 Difficulty: Easy Chapter LO: 4 Course LO: Discuss the factors that influence decisions about organizational structure Classification: Concept 23) One company buys a controlling interest in the voting stock of another company in a merger.

Answer: FALSE Explanation: In a merger, two companies join to form a single entity. In an acquisition, one company buys a controlling interest in the voting stock of another company.

Page Ref: 106 Difficulty: Moderate Chapter LO: 5 Course LO: Discuss the factors that influence decisions about organizational structure Classification: Concept 24) A horizontal merger occurs when different companies at the same stage or level merge.

Answer: TRUE Explanation: A horizontal merger occurs when different companies at the same stage or level merge. Example: Merger between a lumber supplier and a leather supplier.

Page Ref: 107 Difficulty: Easy Chapter LO: 5 Course LO: Discuss the factors that influence decisions about organizational structure Classification: Concept

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25) A joint venture does not result in a separate legal entity.

Answer: FALSE Explanation: A joint venture is a separate legal entity established by two or more companies to pursue shared business objectives.

Page Ref: 109 Difficulty: Moderate Chapter LO: 6 Course LO: Discuss the factors that influence decisions about organizational structure Classification: Concept 26) A sole proprietorship ________.

A) is taxed as a separate corporation B) requires immense paperwork C) does not have a legal status D) is owned by only one person E) gives reduced control to the owner Answer: D Explanation: D) A sole proprietorship is a business owned by one person. However, it may have many employees.

Page Ref: 95 Difficulty: Easy Chapter LO: 1 Course LO: Discuss the factors that influence decisions about organizational structure Classification: Concept 27) Robert owns three restaurants in Atlanta. He pays taxes for the income from the restaurants as his personal income. Robert's business is an example of a ________.

A) personal partnership B) sole proprietorship C) joint venture D) small corporation E) limited liability firm Answer: B Explanation: B) A sole proprietorship is a business owned by one person.The restaurant is owned by Robert alone although its has three branches.

Page Ref: 95 Difficulty: Difficult AACSB: Analytic Skills Chapter LO: 1 Course LO: Discuss the factors that influence decisions about organizational structure Classification: Application

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28) Profits of sole proprietorships ________.

A) reach shareholders through intermediaries B) flow directly to the owners C) are considered fixed assets D) are taxed at corporate rates E) are subject to double taxation Answer: B Explanation: B) Profits and losses of sole proprietorships flow directly to the owners and are taxed at individual rates.

Page Ref: 95 Difficulty: Easy Chapter LO: 1 Course LO: Discuss the factors that influence decisions about organizational structure Classification: Concept 29) Which of the following statements is true of the liability of investors in a corporation?

A) Majority investors are personally liable, whereas minority investors are not personally liable.

B) Investors have personal liability for the business transactions in corporations.

C) Investor's liability is limited to the amount invested in the corporation.

D) Investors are personally liable for transactions, whereas their property is not liable.

E) Investors' property is liable for the business transactions but investors are not personally liable.

Answer: C Explanation: C) Investor's liability is limited to the amount of his or her investment in a corporation.

Page Ref: 95 Difficulty: Moderate Chapter LO: 1 Course LO: Discuss the factors that influence decisions about organizational structure Classification: Concept 30) Which of the following business structures is the most complicated and expensive?

A) unlimited partnership B) corporation C) general partnership D) sole proprietorship E) limited partnership Answer: B Explanation: B) Corporations are more complicated and expensive to establish than other structures. It involves more documentation and other requirements.

Page Ref: 95 Difficulty: Easy Chapter LO: 1 Course LO: Discuss the factors that influence decisions about organizational structure Classification: Concept

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31) Edwin runs an antique retail shop that is registered as a sole proprietorship. The liability exposure of Edwin's business ________.

A) is limited to the amount he has invested on fixed assets B) refers to the amount invested on variable assets C) is more if the size of transactions is limited D) refers to the total fixed investments made by him E) is unlimited for the business's personal obligations Answer: E Explanation: E) The owner has unlimited personal liability for the business's financial obligations in a sole proprietorship. Edwin's business is a sole proprietorship in this case.

Page Ref: 95 Difficulty: Difficult AACSB: Analytic Skills Chapter LO: 1 Course LO: Discuss the factors that influence decisions about organizational structure Classification: Application 32) Which of the following is a key difference between a corporation and a sole proprietorship?

A) Establishing a corporation is easier compared to establishing a proprietorship.

B) Unlike a corporation, a proprietorship is subject to double taxation.

C) Regulatory requirements are less severe for corporations than sole proprietorships.

D) Unlike a sole proprietorship, a corporation is subject to limited liability.

E) Establishing a sole proprietorship has complex legal requirements unlike a corporation.

Answer: D Explanation: D) In a sole proprietorship, the owner has unlimited personal liability for the business's financial obligations. In a corporation, the investors' liability is limited to the amount of their investment.

Page Ref: 95 Difficulty: Moderate Chapter LO: 1 Course LO: Discuss the factors that influence decisions about organizational structure Classification: Concept

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33) Which of the following is a key advantage of incorporating a business as a sole proprietorship?

A) Owners receive tax exemptions when a business is a sole proprietorship.

B) It helps proprietors file taxes separately from their personal income.

C) It is easy to establish and requires less paperwork than other structures.

D) Owner's risk is limited to the extent he/she has invested in the business.

E) Risk associated with sole proprietorship is less compared to other structures.

Answer: C Explanation: C) A sole proprietorship is easy to establish and requires far less paperwork than other structures. The only legal requirement for establishing a sole proprietorship is obtaining the necessary business licenses and permits required by the city, county, and state.

Page Ref: 96 Difficulty: Moderate Chapter LO: 1 Course LO: Discuss the factors that influence decisions about organizational structure Classification: Concept 34) In a sole proprietorship, the owner ________.

A) obtains limited liability protection on the business's actions B) is taxed more than once for the income generated C) and the business are legally inseparable D) has lesser responsibility compared to other forms E) does not have personal liability for the transactions of the business Answer: C Explanation: C) In a sole proprietorship, the owner and the business are legally inseparable, which gives the proprietor unlimited liability. Any legal damages or debts incurred by the business are the owner's personal responsibility.

Page Ref: 96 Difficulty: Moderate Chapter LO: 1 Course LO: Discuss the factors that influence decisions about organizational structure Classification: Concept

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35) A ________ is an unincorporated company owned by two or more people.

A) limited company B) partnership C) corporation D) S corporation E) proprietorship Answer: B Explanation: B) Partnership is an unincorporated company owned by two or more people. The partnership structure is appropriate for firms that need more resources and leadership talent than a sole proprietorship but don't need the fundraising capabilities or other advantages of a corporation.

Page Ref: 97 Difficulty: Easy Chapter LO: 2 Course LO: Discuss the factors that influence decisions about organizational structure Classification: Concept 36) In a general partnership, ________.

A) all partners have joint authority to make decisions B) all partners have limited liability C) the number of partners is limited to five D) units of ownership are sold to the general public E) risk is limited to the amount invested in a partnership Answer: A Explanation: A) In a general partnership, all partners have joint authority to make decisions for the firm and joint liability for the firm's financial obligations.

Page Ref: 98 Difficulty: Moderate Chapter LO: 2 Course LO: Discuss the factors that influence decisions about organizational structure Classification: Concept

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37) A ________ is allowed to raise money by selling units of ownership to the general public in the same way corporations sell shares of stock to the public.

A) master limited partnership B) general partnership C) sole proprietorship D) unlimited proprietorship E) limited liability partnership Answer: A Explanation: A) A master limited partnership (MLP) is allowed to raise money by selling units of ownership to the general public in the same way corporations sell shares of stock to the public.

This gives MLPs the fundraising capabilities of corporations without the double-taxation disadvantage.

Page Ref: 98 Difficulty: Easy Chapter LO: 2 Course LO: Discuss the factors that influence decisions about organizational structure Classification: Concept 38) A ________ is a partnership in which each partner has unrestricted accountability only for his or her own actions and at least some degree of responsibility for the partnership as a whole.

A) master limited partnership B) general partnership C) sole proprietorship D) combined proprietorship E) limited liability partnership Answer: E Explanation: E) A limited liability partnership is a partnership in which each partner has unlimited liability only for his or her own actions and at least some degree of limited liability for the partnership as a whole.

Page Ref: 98 Difficulty: Easy Chapter LO: 2 Course LO: Discuss the factors that influence decisions about organizational structure Classification: Concept

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39) Which of the following is a key difference between a master limited partnership (MLP) and other forms of partnerships?

A) A MLP allows partnerships to sell units of ownership to the general public.

B) Other partnerships should have more members than an MLP. C) Other partnerships have double-taxation disadvantage unlike an MLP. D) A MLP allows the partners to have limited liability on their investments.

E) A MLP is characterized by double taxation unlike the other forms of partnerships.

Answer: A Explanation: A) A master limited partnership (MLP) is allowed to raise money by selling units of ownership to the general public in the same way corporations sell shares of stock to the public.

This gives MLPs the fundraising capabilities of corporations without the double-taxation disadvantage.

Page Ref: 98 Difficulty: Moderate Chapter LO: 2 Course LO: Discuss the factors that influence decisions about organizational structure Classification: Concept 40) A major advantage of partnerships is that they ________.

A) do not require owners to take personal responsibility for their actions B) provide limited liability protection to partners C) have a straightforward income tax structure D) are less vulnerable to conflicts between investors E) allow investors to handle issues such as succession and termination better Answer: C Explanation: C) Income tax is straightforward for partnerships. Profit is split between or among the owners based on whatever percentages they have agreed to.

Page Ref: 98 Difficulty: Moderate Chapter LO: 2 Course LO: Discuss the factors that influence decisions about organizational structure Classification: Concept

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41) A potentially significant disadvantage of a partnership is that ________.

A) it involves double taxation of the income generated B) income tax is not straightforward and is complex C) it has more chances for disagreement and conflict D) it does not present opportunities to share costs E) the amount of money generated in a partnership is low Answer: C Explanation: C) Partners can disagree over business strategy, the division of profits (or the liability for losses), hiring and firing of employees, and other significant matters. This attracts more conflicts in the business.

Page Ref: 99 Difficulty: Moderate Chapter LO: 2 Course LO: Discuss the factors that influence decisions about organizational structure Classification: Concept 42) Which of the following is a valid observation of corporations?

A) A corporation cannot own property of its own.

B) All corporations should sell its stock to the public.

C) The owners of a corporation are called directors.

D) A corporation is distinct from the people running it.

E) A corporation must be owned by less than fifty people.

Answer: D Explanation: D) A corporation is a legal entity, distinct from any individual persons, that has the power to own property and conduct business.

Page Ref: 100 Difficulty: Moderate Chapter LO: 3 Course LO: Discuss the factors that influence decisions about organizational structure Classification: Concept

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43) Which of the following is a key difference between private corporations and public corporations?

A) Private corporations are legally a group of people, whereas public corporations are distinct from any individual persons.

B) Private corporations cannot own property, whereas public corporations can own property.

C) Public corporations cannot own property, whereas private corporations can own property.

D) Private corporations do not have the power to run business of its own, whereas public corporations can run a business of its own.

E) Private corporations are owned by a few people, whereas public corporations can be owned by anyone who has the means to buy stake.

Answer: E Explanation: E) The stock of a private corporation is owned by only a few individuals or companies, whereas the stock of a public corporation is sold to anyone who has the means to buy it.

Page Ref: 100 Difficulty: Moderate Chapter LO: 3 Course LO: Discuss the factors that influence decisions about organizational structure Classification: Concept 44) Which of the following is a key advantage that corporations have over sole proprietorships and partnerships?

A) Management is less likely to lose control of operations in corporations than proprietorships and partnerships.

B) Reporting requirements of corporations are simpler than sole proprietorships and partnerships.

C) Forming corporations involves less cost over sole proprietorships and partnerships.

D) Investments in corporations have more liquidity than partnerships and sole proprietorships.

E) Corporations have a less complex structure compared to sole proprietorships and partnerships.

Answer: D Explanation: D) The stock of publicly-traded companies has a high degree of liquidity, which means that investors can easily and quickly convert their stock into cash by selling it on the open market. In contrast, liquidating (selling) the assets of a sole proprietorship or a partnership can be slow and difficult.

Page Ref: 100 Difficulty: Moderate Chapter LO: 3 Course LO: Discuss the factors that influence decisions about organizational structure Classification: Concept

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45) A disadvantage of the corporate structure is that it ________.

A) limits the business's ability to raise capital B) limits the liquidity that businesses have C) increases the risk of conducting business D) involves strict reporting requirements E) imposes unlimited liability on the owners Answer: D Explanation: D) To help investors make informed decisions about stocks, government agencies require publicly-traded companies to publish extensive and detailed financial reports. These reports can eat up a lot of staff and management time, and they can expose strategic information that might benefit competitors or discourage investors unwilling to wait for long-term results.

Page Ref: 101 Difficulty: Moderate Chapter LO: 3 Course LO: Discuss the factors that influence decisions about organizational structure Classification: Concept 46) S corporation is a type of corporation that ________.

A) combines limited liability of a corporation with the federal taxation advantages of a partnership B) does not have such advantages as limited liability of investments C) does not split the ownership into smaller units D) files income tax returns in a country other than the country of operation E) combines limited ownership of a proprietorship with the capital-raising options of a corporation Answer: A Explanation: A) S corporation is a type of corporation that combines the capital-raising options and limited liability of a corporation with the federal taxation advantages of a partnership.

Page Ref: 101; 102 Difficulty: Moderate Chapter LO: 3 Course LO: Discuss the factors that influence decisions about organizational structure Classification: Concept

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47) A group of college graduates starts a business. They want to give their business a structure such that their risk is limited to the amount they have invested in the business. They also want to avoid double taxation of the income that they generate from the business. Which of the following structures is most suitable to satisfy these wants?

A) sole proprietorship B) corporation C) direct partnership D) S corporation E) general partnership Answer: D Explanation: D) S corporation is a type of corporation that combines the capital-raising options and limited liability of a corporation with the federal taxation advantages of a partnership. The owners can incorporate their business as an S corporation in order to satisfy their requirements.

Page Ref: 101; 102 Difficulty: Difficult AACSB: Analytic Skills Chapter LO: 3 Course LO: Discuss the factors that influence decisions about organizational structure Classification: Application 48) A(n) ________ has most of the attributes of a regular corporation but adds the legal requirement that the company must also pursue a stated non-financial goal.

A) limited liability corporation B) general partnership C) S corporation D) sole proprietorship E) benefit corporation Answer: E Explanation: E) A benefit corporation has most of the attributes of a regular corporation but adds the legal requirement that the company must also pursue a stated non-financial goal, such as hiring workers whose life histories make employment difficult to attain, or reducing the environmental impact of particular products.

Page Ref: 102 Difficulty: Easy Chapter LO: 3 Course LO: Discuss the factors that influence decisions about organizational structure Classification: Concept

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49) RSS Bank is registered as a corporation in Maryland. Apart from its financial objectives, the company has also formed a legal requirement to work for the welfare of the elderly citizens in the state. The bank is obligated to work for the cause even if there is a change in ownership.

Based on this information, it can be concluded that RSS bank is a(n) ________.

A) public corporation B) benefit corporation C) unlimited company D) S corporation E) not-for-profit company Answer: B Explanation: B) A benefit corporation has most of the attributes of a regular corporation but adds the legal requirement that the company must also pursue a stated non-financial goal, such as hiring workers whose life histories make employment difficult to attain, or reducing the environmental impact of particular products. Using the given information, we can conclude that RSS bank is such a corporation.

Page Ref: 102 Difficulty: Difficult AACSB: Analytic Skills Chapter LO: 3 Course LO: Discuss the factors that influence decisions about organizational structure Classification: Application 50) A public corporation refers to a corporation ________.

A) that is allowed to sell stock only to a limited number of investors B) whose stock is sold to general people C) that is owned solely by the federal government D) that is owned solely by state/federal government E) whose stock is not traded in stock exchanges or other markets Answer: B Explanation: B) A public corporation refers to a corporation whose stock is sold to the general public. It is also known as publicly held or publicly traded corporation.

Page Ref: 102 Difficulty: Easy Chapter LO: 3 Course LO: Discuss the factors that influence decisions about organizational structure Classification: Concept

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51) A corporation primarily or wholly owned by another company is known as a(n) ________.

A) domestic company B) alien company C) subsidiary D) parent company E) holding company Answer: C Explanation: C) A corporation primarily or wholly owned by another company is known as a subsidiary.

Page Ref: 102 Difficulty: Easy Chapter LO: 3 Course LO: Discuss the factors that influence decisions about organizational structure Classification: Concept 52) Pacific Electronics is a Swiss corporation doing business in the U.S. It was incorporated in Switzerland, in the year 1997. The company sells products such as electronic measuring devices, microprocessors, and microcontrollers. Pacific Electronics is called a(n) ________.

A) alien corporation B) foreign corporation C) domestic corporation D) external company E) unlimited company Answer: A Explanation: A) A corporation that operates in the United States but is incorporated in another country is called an alien corporation. Pacific Electronics is such a corporation.

Page Ref: 102 Difficulty: Difficult AACSB: Analytic Skills Chapter LO: 3 Course LO: Discuss the factors that influence decisions about organizational structure Classification: Application

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53) A company that is incorporated in one state (frequently the state of Delaware, where incorporation laws are more lenient) but that does business in several other states where it is registered is called a(n) ________.

A) foreign corporation B) domestic corporation C) global corporation D) alien corporation E) international corporation Answer: A Explanation: A) A company that is incorporated in one state (frequently the state of Delaware, where incorporation laws are more lenient) but that does business in several other states where it is registered is called a foreign corporation.

Page Ref: 102 Difficulty: Easy Chapter LO: 3 Course LO: Discuss the factors that influence decisions about organizational structure Classification: Concept 54) RK Associates is a firm incorporated in the state of Delaware. The company has operations in thirteen states. However, the company does not have any facilities in countries other than the United States. RK Associates is a(n) ________.

A) international company B) local corporation C) domestic company D) alien corporation E) foreign corporation Answer: E Explanation: E) A company that is incorporated in one state but that does business in several other states where it is registered is called a foreign corporation. RK Associates is such a firm.

Page Ref: 102 Difficulty: Difficult AACSB: Analytic Skills Chapter LO: 3 Course LO: Discuss the factors that influence decisions about organizational structure Classification: Application

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55) In the United States, a corporation is called a domestic corporation if it ________.

A) does business only in the state where it is chartered B) files income taxes with the U.S. government C) does business only within the United States D) has more than 5 subsidiaries in the United States E) has incorporated its business in any of the U.S. states Answer: A Explanation: A) A domestic corporation is a corporation that does business only in the state where it is chartered or incorporated.

Page Ref: 102 Difficulty: Easy Chapter LO: 3 Course LO: Discuss the factors that influence decisions about organizational structure Classification: Concept 56) The board of directors are ________.

A) the highest-ranked managers of a corporation B) elected by corporate officers C) representatives of the shareholders D) the top executives running a corporation E) elected by the employees of an organization Answer: C Explanation: C) The board of directors are a group of professionals elected by shareholders as their representatives, with responsibility for the overall direction of the company and the selection of top executives.

Page Ref: 103 Difficulty: Easy Chapter LO: 4 Course LO: Discuss the factors that influence decisions about organizational structure Classification: Concept 57) Which of the following is a document that authorizes another person to vote on behalf of a shareholder in a corporation?

A) agency agreement B) proxy C) draft D) affidavit E) share certificate Answer: B Explanation: B) A proxy is a document that authorizes another person to vote on behalf of a shareholder in a corporation.

Page Ref: 104 Difficulty: Easy Chapter LO: 4 Course LO: Discuss the factors that influence decisions about organizational structure Classification: Concept 21 .

58) Robex Retail is a retail chain that has more than 390 stores in the United States. The directors of the company decide to launch operations in Italy to increase the company's market reach. Many of the shareholders think that this decision is not appropriate in light of the economic slowdown in Europe. A group of shareholders unite to pressurize the board of directors to change their decision. This is an example of ________.

A) shareholder protection B) shareholder activism C) hostile takeover D) corporate governance E) shareholder resolution Answer: B Explanation: B) Shareholder activism refers to activities taken by shareholders (individually or in groups) to influence executive decision making in areas ranging from strategic planning to social responsibility.

Page Ref: 104 Difficulty: Difficult AACSB: Analytic Skills Chapter LO: 4 Course LO: Discuss the factors that influence decisions about organizational structure Classification: Application 59) Corporate officers are the ________.

A) people who elect directors of a company B) official representatives of shareholders C) top executives who run a corporation D) middle level managers of a corporation E) lower level employees of an organization Answer: C Explanation: C) Corporate officers are the top executives who run the company. Executives such as CEO and CFO are corporate officers.

Page Ref: 105 Difficulty: Easy Chapter LO: 4 Course LO: Discuss the factors that influence decisions about organizational structure Classification: Concept

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60) Who is the highest-ranked officer of a corporation?

A) chief information officer B) chief financial officer C) chief operating officer D) chief executive officer E) chief technology officer Answer: D Explanation: D) The highest-ranking officer is the chief executive officer (CEO), and that person is aided by a team of other "C-level" executives, such as the chief financial officer (CFO), chief information officer (CIO), chief technology officer (CTO), and chief operating officer (COO).

Page Ref: 105 Difficulty: Easy Chapter LO: 4 Course LO: Discuss the factors that influence decisions about organizational structure Classification: Concept 61) Corporate officers of a company ________.

A) are hired by the board of directors of a company B) have voting rights in directorial meetings C) are hired by the chief executives of a firm D) have voting rights on shareholding issues E) are elected by the shareholders of the company Answer: A Explanation: A) Corporate officers are hired by the board and generally have legal authority to conduct the company's business, in everything from hiring the rest of the employees to launching new products.

Page Ref: 105 Difficulty: Easy Chapter LO: 4 Course LO: Discuss the factors that influence decisions about organizational structure Classification: Concept

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62) In a(n) ________, two companies join to form a single entity either by pooling their resources or by one company purchasing the assets of the other.

A) limited partnership B) acquisition C) merger D) joint venture E) strategic alliance Answer: C Explanation: C) In a merger, two companies join to form a single entity. Companies can merge either by pooling their resources or by one company purchasing the assets of the other.

Page Ref: 106 Difficulty: Easy Chapter LO: 5 Course LO: Discuss the factors that influence decisions about organizational structure Classification: Concept 63) In a(n) ________, two companies create a new, third entity that then purchases the two original companies.

A) limited partnership B) consolidation C) acquisition D) joint venture E) strategic alliance Answer: B Explanation: B) Consolidation is an arrangement in which two companies create a new, third entity that then purchases the two original companies. It is often lumped together with the other merger approaches.

Page Ref: 106 Difficulty: Easy Chapter LO: 5 Course LO: Discuss the factors that influence decisions about organizational structure Classification: Concept

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64) In a(n) ________, one company simply buys a controlling interest in the voting stock of another company.

A) limited partnership B) consolidation C) acquisition D) joint venture E) strategic alliance Answer: C Explanation: C) In an acquisition, one company simply buys a controlling interest in the voting stock of another company. In most acquisitions, the selling parties agree to be purchased.

Page Ref: 106 Difficulty: Easy Chapter LO: 5 Course LO: Discuss the factors that influence decisions about organizational structure Classification: Concept 65) RDS Bank has been making losses for many years now. The company's management wants to continue with the same style of operations, whereas many shareholders demand a change in management. A majority of shareholders unite and vote against the management's wish to sell the company to a larger counterpart subject to pressures from an external buyer. This is an example of a(n) ________.

A) forced joint venture B) hostile takeover C) strategic alliance D) majority merger E) operational alliance Answer: B Explanation: B) In some situations, a buyer attempts to acquire a company against the wishes of management. In such a situation, the buyer tries to convince enough shareholders to go against management and vote to sell. This situation is known as a hostile takeover.

Page Ref: 106 Difficulty: Difficult AACSB: Analytic Skills Chapter LO: 5 Course LO: Discuss the factors that influence decisions about organizational structure Classification: Application

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66) A ________ occurs when someone purchases a company's publicly-traded stock primarily by using borrowed funds, sometimes using the target company's assets as collateral for these loans.

A) leveraged buyout B) hostile takeover C) forced joint venture D) consolidation E) strategic alliance Answer: A Explanation: A) A leveraged buyout (LBO) occurs when someone purchases a company's publicly-traded stock primarily by using borrowed funds, sometimes using the target company's assets as collateral for these loans.

Page Ref: 106 Difficulty: Easy Chapter LO: 5 Course LO: Discuss the factors that influence decisions about organizational structure Classification: Concept 67) A vertical merger occurs when ________.

A) a merger expands the geographic range of markets that it can serve B) different stages or levels of the same industry unite C) different companies at the same stage or level unite D) a merger expands the mix of goods and services available for sale E) two companies from unrelated industries unite to become a single company Answer: B Explanation: B) Vertical Merger occurs when different stages or levels of the same industry merge.

Page Ref: 107 Difficulty: Easy Chapter LO: 5 Course LO: Discuss the factors that influence decisions about organizational structure Classification: Concept

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68) An electronic appliance marketing company merges with one of its suppliers to form a larger company. This is an example of a ________ merger.

A) market-extension B) product differentiation C) conglomerate D) vertical E) product-extension Answer: D Explanation: D) Vertical Merger occurs when different stages or levels of the same industry merge. Here the vertical merger has occurred because both companies are in the same market.

Page Ref: 107 Difficulty: Difficult AACSB: Analytic Skills Chapter LO: 5 Course LO: Discuss the factors that influence decisions about organizational structure Classification: Application 69) A product-extension merger occurs when ________.

A) two companies from unrelated industries unite to become a single company B) different stages or levels of the same industry unite C) different companies merge to increase global reach D) a merger expands the mix of goods and services available for sale E) a merger expands the geographic range of markets that it can serve Answer: D Explanation: D) A product-extension merger occurs when a merger expands the mix of goods and services that a company has available for sale.

Page Ref: 107 Difficulty: Easy Chapter LO: 5 Course LO: Discuss the factors that influence decisions about organizational structure Classification: Concept 70) A ________ merger occurs when different companies at the same stage or level merge.

A) standardized B) horizontal C) conglomerate D) vertical E) operational Answer: B Explanation: B) A horizontal merger occurs when different companies at the same stage or level merge.

Page Ref: 107 Difficulty: Easy Chapter LO: 5 Course LO: Discuss the factors that influence decisions about organizational structure Classification: Concept 27 .

71) Eurotec, a manufacturer of security systems in Italy, merges with a company in China to expand its reach. This is an example of a ________ merger.

A) product-extension B) vertical C) conglomerate D) retail E) market-extension Answer: E Explanation: E) Market-extension merger occurs when a merger expands the geographic range of markets that a company can serve. In this case two companies are merging to extend the geographic range.

Page Ref: 107 Difficulty: Difficult AACSB: Analytic Skills Chapter LO: 5 Course LO: Discuss the factors that influence decisions about organizational structure Classification: Application 72) A ________ merger occurs when companies in unrelated industries join to form a single entity.

A) product-extension B) vertical C) conglomerate D) retail E) market-extension Answer: C Explanation: C) A conglomerate merger occurs when companies in unrelated industries join to form a single entity.

Page Ref: 107 Difficulty: Easy Chapter LO: 5 Course LO: Discuss the factors that influence decisions about organizational structure Classification: Concept

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73) Froxer Electronics is an electronic appliance manufacturer. The company merges with a food manufacturer to form a larger company. This is an example of a ________ merger.

A) product-extension B) vertical C) retail D) market-extension E) conglomerate Answer: E Explanation: E) A conglomerate merger occurs when companies in unrelated industries join to form a single entity. Two unrelated companies are merging in this case.

Page Ref: 107 Difficulty: Difficult AACSB: Analytic Skills Chapter LO: 5 Course LO: Discuss the factors that influence decisions about organizational structure Classification: Application 74) Which of the following is a key disadvantage of mergers and acquisitions?

A) They limit the market reach of the companies involved.

B) They reduce the chances of cross-selling products.

C) They reduce the bargaining power of the companies.

D) They might present issues related to cultural harmony.

E) They limit the geographic range of the companies involved.

Answer: D Explanation: D) The organizational cultures of the two firms engaging in a merger must be harmonized somehow after a merger. It can result in clashes between different values, management styles, communication practices, workplace atmosphere, and approaches to managing the changes required to implement the merger.

Page Ref: 108 Difficulty: Moderate Chapter LO: 5 Course LO: Discuss the factors that influence decisions about organizational structure Classification: Concept

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75) In a ________, the raider launches a public relations battle for shareholder votes, hoping to enlist enough votes to oust the board and management.

A) poison pill tactic B) proxy fight C) tender offer D) direct offer E) white knight tactic Answer: B Explanation: B) In a proxy fight, the raider launches a public relations battle for shareholder votes, hoping to enlist enough votes to oust the board and management.

Page Ref: 108 Difficulty: Easy Chapter LO: 5 Course LO: Discuss the factors that influence decisions about organizational structure Classification: Concept 76) With a ________, a targeted company invokes some move that makes it less valuable to the potential raider, with the hope of discouraging the takeover.

A) white knight tactic B) tender offer C) proxy fight D) direct offer E) poison pill defense Answer: E Explanation: E) With a poison pill defense, a targeted company invokes some move that makes it less valuable to the potential raider, with the hope of discouraging the takeover.

Page Ref: 108 Difficulty: Easy Chapter LO: 5 Course LO: Discuss the factors that influence decisions about organizational structure Classification: Concept

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77) Integral Solutions is a firm that offers open source enterprise software services to small and medium companies. The company had a public issue two years ago and the company has shown significant growth in the current financial year. A major rival is silently amassing the company's shares to acquire majority stake in the company. In order to prevent this, the company issues shares to current shareholders at prices below the market value. This tactic used by Integral Solutions to prevent a takeover is an example of a ________.

A) poison pill defense B) proxy fight C) direct offer D) tender offer E) white knight tactic Answer: A Explanation: A) With a poison pill defense, a targeted company invokes some move that makes it less valuable to the potential raider, with the hope of discouraging the takeover. Integral Solutions is using a poison pill defense in the given case.

Page Ref: 108 Difficulty: Difficult AACSB: Analytic Skills Chapter LO: 5 Course LO: Discuss the factors that influence decisions about organizational structure Classification: Application 78) With the ________, a third company is invited to acquire a company that is in danger of being swallowed up in a hostile takeover.

A) poison pill defense B) proxy fight C) direct offer D) tender offer E) white knight tactic Answer: E Explanation: E) With the white knight tactic, a third company is invited to acquire a company that is in danger of being swallowed up in a hostile takeover.

Page Ref: 108 Difficulty: Easy Chapter LO: 5 Course LO: Discuss the factors that influence decisions about organizational structure Classification: Concept

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79) Albama Associates is a consulting firm owned by a few entrepreneurs. Rogo Consulting, a large consulting firm, tries to buy shares from some of the shareholders of Albama to obtain control of the company without making a formal acquisition proposal with the management.

Albama's management invites a third party to acquire the company to prevent a hostile takeover

by Rogo Consulting. This approach used by Albama to prevent hostile takeover is an example of a ________.

A) white knight tactic B) counteroffer C) proxy fight D) direct offer E) poison pill defense Answer: A Explanation: A) With the white knight tactic, a third company is invited to acquire a company that is in danger of being swallowed up in a hostile takeover. The given situation exemplifies a white knight tactic.

Page Ref: 108 Difficulty: Difficult AACSB: Analytic Skills Chapter LO: 5 Course LO: Discuss the factors that influence decisions about organizational structure Classification: Application 80) Which of the following is an action that allows the companies to collaborate without formally combining?

A) strategic alliance B) joint venture C) merger D) acquisition E) amalgamation Answer: A Explanation: A) Strategic alliances can accomplish many of the same goals as a merger or acquisition with less risk and work than permanently integrating two companies. Strategic partnership allows the companies to collaborate without formally combining.

Page Ref: 109 Difficulty: Easy Chapter LO: 6 Course LO: Discuss the factors that influence decisions about organizational structure Classification: Concept

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81) Strategic alliances are ________.

A) internal agreements formed between the subsidiaries of a company B) not helpful when a company has to gain credibility in a new field C) a means of permanently integrating two companies in a business D) an alternative to mergers and acquisitions with less risk and work E) not helpful when a company's aim is expanding its market presence Answer: D Explanation: D) Strategic alliances can accomplish many of the same goals as a merger or acquisition with less risk and work than permanently integrating two companies. Strategic partnership allows the companies to collaborate without formally combining.

Page Ref: 109 Difficulty: Easy Chapter LO: 6 Course LO: Discuss the factors that influence decisions about organizational structure Classification: Concept 82) Carton Life is an insurance firm. The firm wants to enter an Asian country that recently removed protectionist barriers in the insurance industry. The company wants to enter the country with the help of a local firm. However, the company does not want to permanently integrate with another firm. Which of the following arrangements is most suited for this company?

A) amalgamation B) acquisition C) merger D) joint venture E) strategic alliance Answer: E Explanation: E) Strategic alliances can accomplish many of the same goals as a merger or acquisition with less risk and work than permanently integrating two companies. Strategic partnership allows the companies to collaborate without formally combining.

Page Ref: 109 Difficulty: Difficult AACSB: Analytic Skills Chapter LO: 6 Course LO: Discuss the factors that influence decisions about organizational structure Classification: Application

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83) Which of the following statements is true of strategic alliances?

A) Establishing strategic alliances have more legal requirements than mergers and acquisitions.

B) Strategic alliances attract more work than other forms of business.

C) Strategic alliances are not an effective way to collaborate.

D) Establishing strategic alliances involves more risks than other forms.

E) Strategic alliances don't create a unified entity with a single management structure.

Answer: E Explanation: E) While strategic alliances avoid much of the work and risk of formal mergers, they don't create a unified entity that functions with a single management structure, information system, and other organizational elements.

Page Ref: 109 Difficulty: Moderate Chapter LO: 6 Course LO: Discuss the factors that influence decisions about organizational structure Classification: Concept 84) Joint ventures ________.

A) let companies create tightly integrated operations B) are less risky compared to strategic alliances C) are riskier to a firm than formal mergers D) disrupt the original companies and their business E) would not help companies gain credibility in new fields Answer: A Explanation: A) A joint venture lets companies create an operation that is more tightly integrated than a strategic alliance but without disrupting the original companies to the extent that a merger or acquisition does.

Page Ref: 110 Difficulty: Easy Chapter LO: 6 Course LO: Discuss the factors that influence decisions about organizational structure Classification: Concept

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85) A company decides to establish a relationship with a local company in order to better its business in a foreign country. The company must choose joint ventures ahead of mergers and acquisitions if it wants to ________.

A) establish a company that is totally different B) create a single management structure C) create a unified business structure D) establish a well-structured arrangement E) avoid disrupting the original companies too much Answer: E Explanation: E) A joint venture lets companies create an operation that is more tightly integrated than a strategic alliance but without disrupting the original companies to the extent that a merger or acquisition does. In fact, after the spotty record of mergers and acquisitions in recent years, more companies are now considering joint ventures as a more attractive way to collaborate.

Page Ref: 110 Difficulty: Difficult AACSB: Analytic Skills Chapter LO: 6 Course LO: Discuss the factors that influence decisions about organizational structure Classification: Application 86) Compare and contrast sole proprietorships and general partnerships.

Answer: A sole proprietorship has only one owner and the owner has complete control over the business. A general partnership must have at least two owners. Each partner is entitled to equal control unless agreement specifies otherwise. Profits are taxed at individual levels in both structures. The owner is responsible for only his mistakes and he has unlimited liability in a sole proprietorship. In a partnership, all partners have unlimited liability. This means that their personal assets are at risk to mistakes made by other partners.

Page Ref: 95 Difficulty: Difficult AACSB: Reflective Thinking Skills Chapter LO: 1 Course LO: Discuss the factors that influence decisions about organizational structure Classification: Synthesis

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87) Explain the advantages of operating as a sole proprietorship.

Answer: Operating as a sole proprietorship offers six key advantages: (1) Simplicity: A sole proprietorship is easy to establish and requires far less paperwork than other structures. About the only legal requirement for establishing a sole proprietorship is obtaining the necessary business licenses and permits required by the city, county, and state.

(2) Single layer of taxation: Income tax is a straightforward matter for sole proprietorships. The federal government doesn't recognize the company as a taxable entity; all profit "flows through" to the owner, where it is treated as personal income and taxed accordingly.

(3)Privacy: Beyond filing tax returns and certain other government reports that may apply to specific businesses, sole proprietors generally aren't required to report anything to anyone. Your business is your business. Of course, if you apply for a loan or solicit investors, you will need to provide detailed financial information to these parties.

(4) Flexibility and control: As a sole proprietor, you aren't required to get approval from a business partner, your boss, or a board of directors to change any aspect of your business strategy or tactics. You can make your own decisions, from setting your own hours to deciding how much of the work you'll do yourself and how much you'll assign to employees.

(5) Fewer limitations on personal income: As a partner in a partnership or an employee in a corporation, your income is established by various agreements and compensation policies. As a sole proprietor, you keep all the after-tax profits the business generates.

(6) Personal satisfaction: For many sole proprietors, the main advantage is the satisfaction of working for themselves - of taking the risks and enjoying the rewards. If you work hard, make smart decisions, and have a little bit of luck, you get to see and enjoy the fruits of your labor.

Page Ref: 96 Difficulty: Moderate Chapter LO: 1 Course LO: Discuss the factors that influence decisions about organizational structure Classification: Concept 88) Compare and contrast a general partnership and a limited partnership.

Answer: In a general partnership, all partners have joint authority to make decisions for the firm and joint liability for the firm's financial obligations. If the partnership gets sued or goes bankrupt, all the partners have to dig into their own pockets to pay the bills, just as sole proprietors must.

To minimize personal liability exposure, some organizations opt instead for a limited partnership. Under this type of partnership, one or more persons act as general partners who run the business and have the same unlimited liability as sole proprietors. The remaining owners are limited partners who do not participate in running the business and who have limited liability the maximum amount they are liable for is whatever amount each invested in the business.

Page Ref: 98 Difficulty: Difficult AACSB: Reflective Thinking Skills Chapter LO: 2 Course LO: Discuss the factors that influence decisions about organizational structure Classification: Synthesis

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89) Compare and contrast a master limited partnership and a limited liability partnership.

Answer: A master limited partnership (MLP) is allowed to raise money by selling units of ownership to the general public, in the same way corporations sell shares of stock to the public.

This gives MLPs the fundraising capabilities of corporations without the double-taxation disadvantage. Strict rules limit the types of companies that qualify for MLP status in the U.S. The limited liability partnership (LLP) form of business was created to help protect individual partners in certain professions from major mistakes (such as errors that trigger malpractice lawsuits) by other partners in the firm. In an LLP, each partner has unlimited liability only for his or her own actions and at least some degree of limited liability for the partnership as a whole.

Restrictions on who can form an LLP - and how much liability protection is offered under this structure - vary from state to state.

Page Ref: 98 Difficulty: Difficult AACSB: Reflective Thinking Skills Chapter LO: 2 Course LO: Discuss the factors that influence decisions about organizational structure Classification: Synthesis 90) A group of friends is planning to start a business. Should they form a formal contract to establish themselves as a partnership? Elucidate the legal and practical aspects of this issue.

Answer: A carefully written partnership agreement can maximize the advantages of the partnership structure and minimize the potential disadvantages. Although state laws (everywhere except Louisiana) specify some basic agreements about business partnerships, these laws are generic and therefore not ideal for many partnerships. At a minimum, a partnership agreement should address investment percentages, profit-sharing percentages, management responsibilities and other expectations of each owner, decision-making strategies, and succession and exit strategies. So it is necessary to have all these aspects in the agreement from a legal standpoint.

A clear and complete agreement is important for every partnership, but it can be particularly important when you are going into business with a friend, a spouse, or anyone else with whom you have a personal relationship. While you might have a great personal partnership, the dynamics of that relationship could get in the way of a successful business partnership. In order to keep their personal relationship and business separate, the partners must form a clear agreement.

Page Ref: 99 Difficulty: Difficult AACSB: Reflective Thinking Skills Chapter LO: 2 Course LO: Discuss the factors that influence decisions about organizational structure Classification: Synthesis

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91) Compare and contrast private corporations and public corporations.

Answer: The stock of a private corporation, also known as a closely held corporation, is owned by only a few individuals or companies and is not made available for purchase by the public. In contrast, the stock of a public corporation is sold to anyone who has the means to buy it individuals, investment companies such as mutual funds, not-for-profit organizations, and other companies. These companies are said to be publicly held or publicly traded.

Page Ref: 100 Difficulty: Difficult AACSB: Reflective Thinking Skills Chapter LO: 3 Course LO: Discuss the factors that influence decisions about organizational structure Classification: Synthesis 92) You work for a European company that is planning to launch business in the United States.

The firm is planning to incorporate the new business as a partnership with a domestic firm in the U.S. Present the arguments for changing the company's decision and incorporating the business as a corporation.

Answer: The students should present arguments for registering a business as a corporation. It has such advantages as increased ability to raise capital, increased liquidity, longevity, and limited liability. The arguments should be presented consistent with the context described here.

Student answers will vary due to the nature of this question.

Page Ref: 100-101 Difficulty: Difficult AACSB: Reflective Thinking Skills Chapter LO: 3 Course LO: Discuss the factors that influence decisions about organizational structure Classification: Synthesis

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93) Explain the major disadvantages of incorporating a business as a corporation.

Answer: The major disadvantages of incorporating a business as a corporation are the following: (1) Cost and complexity: Starting a corporation is more expensive and more complicated than starting a sole proprietorship or a partnership, and "taking a company public" (selling shares to the public) can be extremely expensive for a firm and time consuming for upper managers.

(2) Reporting requirements: To help investors make informed decisions about stocks, government agencies require publicly-traded companies to publish extensive and detailed financial reports. These reports can eat up a lot of staff and management time, and they can expose strategic information that might benefit competitors or discourage investors unwilling to wait for long-term results.

(3) Managerial demands: Top executives must devote considerable time and energy to meeting with shareholders, financial analysts, and the news media.

(4) Possible loss of control: Outside investors who acquire enough of a company's stock can gain seats on the board of directors and therefore begin exerting their influence on company management. In extreme cases, outsiders can take complete control and even replace the company founders if they believe a change in leadership is needed.

(5) Double taxation. A corporation must pay federal and state corporate income tax on its profits, and individual shareholders must pay income taxes on their share of the company's profits received as dividends (periodic payments that some corporations opt to make to shareholders).

(6) Short-term orientation of the stock market. Publicly held corporations release their financial results once every quarter, and this seemingly simple requirement can have a damaging impact on the way companies are managed. The problem is that executives feel the pressure to constantly show earnings growth from quarter to quarter so that the stock price keeps increasing.

Page Ref: 101 Difficulty: Moderate Chapter LO: 3 Course LO: Discuss the factors that influence decisions about organizational structure Classification: Concept

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94) Compare and contrast a limited liability company and a benefit corporation.

Answer: The limited liability company (LLC) structure offers the advantages of limited liability, along with the pass-through taxation benefits of a partnership. Furthermore, LLCs are not restricted in the number of shareholders they can have, and members' participation in management is not restricted as it is in limited partnerships. Given these advantages, the LLC structure is recommended for most small companies that aren't sole proprietorships.

A benefit corporation has most of the attributes of a regular corporation but adds the legal requirement that the company must also pursue a stated non-financial goal, such as hiring workers whose life histories make employment difficult to attain or reducing the environmental impact of particular products. The corporation's performance toward meeting that goal must be independently verified as well. These requirements offer key advantages to founders and other stakeholders.

Page Ref: 102 Difficulty: Difficult AACSB: Reflective Thinking Skills Chapter LO: 3 Course LO: Discuss the factors that influence decisions about organizational structure Classification: Synthesis 95) Select an organization of your choice. Construct a model that shows the corporate governance structure of the organization.

Answer: The students should identify a company and draw the corporate governance structure.

The students should include such details as the number of members in the board and the corporate officers working under the board. Student answers will vary due to the nature of this question.

Page Ref: 103 Difficulty: Difficult AACSB: Reflective Thinking Skills Chapter LO: 4 Course LO: Discuss the factors that influence decisions about organizational structure Classification: Synthesis 96) What is shareholder activism?

Answer: Shareholder activism refers to activities taken by shareholders (individually or in groups) to influence executive decision making in areas ranging from strategic planning to social responsibility. Activist shareholders are becoming better organized and more sophisticated in proposals they present, forcing boards to pay more attention to the concerns they raise. At the same time, more boards seem to recognize the benefits to be gained by engaging activists and listening to their concerns.

Page Ref: 104 Difficulty: Moderate Chapter LO: 4 Course LO: Discuss the factors that influence decisions about organizational structure Classification: Concept

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97) Explain the role of corporate officers in corporate governance.

Answer: Corporate officers play a key role in corporate governance. They are the top executives who run the company. Because they implement major board decisions, make numerous other business decisions, ensure compliance with a dizzying range of government regulations, and perform other essential tasks, the executive team is the major influence on a company's performance and financial health. The highest-ranking officer is the chief executive officer (CEO), and that person is aided by a team of other "C-level" executives, such as the chief financial officer (CFO), chief information officer (CIO), chief technology officer (CTO), and chief operating officer (COO) - titles vary from one corporation to the next.

Page Ref: 105 Difficulty: Moderate Chapter LO: 4 Course LO: Discuss the factors that influence decisions about organizational structure Classification: Concept 98) Compare and contrast mergers and acquisitions.

Answer: In a merger, two companies join to form a single entity. Companies can merge either by pooling their resources or by one company purchasing the assets of the other. Although not strictly a merger, a consolidation, in which two companies create a new, third entity that then purchases the two original companies, is often lumped together with the other two merger approaches.

In an acquisition, one company buys a controlling interest in the voting stock of another company. In most acquisitions, the selling parties agree to be purchased; management is in favor of the deal and encourages shareholders to vote in favor of it as well. Because buyers frequently offer shareholders more than their shares are currently worth, sellers are oft en motivated to sell.

Page Ref: 106 Difficulty: Difficult AACSB: Reflective Thinking Skills Chapter LO: 5 Course LO: Discuss the factors that influence decisions about organizational structure Classification: Synthesis 99) Compare the three common types of mergers.

Answer: Vertical Merger occurs between different stages or levels of the same industry. A merger between lumber supplier and furniture maker is an example of a vertical merger.

Horizontal Merger occurs between different companies at the same stage or level. A merger between a lumber supplier and a leather supplier is an example of a horizontal merger.

Conglomerate Merger occurs between companies in unrelated industries.

Page Ref: 107 Difficulty: Difficult AACSB: Reflective Thinking Skills Chapter LO: 5 Course LO: Discuss the factors that influence decisions about organizational structure Classification: Synthesis

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100) Distinguish between strategic alliances and joint ventures.

Answer: While strategic alliances avoid much of the work and risk of formal mergers, they don't create a unified entity that functions with a single management structure, information system, and other organizational elements. In contrast, a joint venture lets companies create an operation that is more tightly integrated than a strategic alliance but without disrupting the original companies to the extent that a merger or acquisition does.

Page Ref: 109;110 Difficulty: Moderate Chapter LO: 6 Course LO: Discuss the factors that influence decisions about organizational structure Classification: Concept

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Business in Action, 6e (Bovee/Thill) Chapter 6 Entrepreneurship and Small Business Ownership 1) Among all firms that apply for U.S. patents on new inventions, small businesses receive 13 times more patents per employee than larger firms.

Answer: TRUE Explanation: Among all firms that apply for U.S. patents on new inventions, small businesses receive 13 times more patents per employee than larger firms.

Page Ref: 117 Difficulty: Easy Chapter LO: 1 Course LO: Describe the role of small businesses in the economy Classification: Concept 2) A 12-empoyee executive recruiting firm making $750,000 per year would be a small business.

Answer: TRUE Explanation: Small business refers to a company that is independently owned and operated, is not dominant in its field, and employs fewer than 500 people (although this number varies by industry).

Page Ref: 117 Difficulty: Moderate Chapter LO: 1 Course LO: Describe the role of small businesses in the economy Classification: Concept 3) Lifestyle businesses are small only because they are new and have ambitious plans to grow.

Answer: FALSE Explanation: Small businesses such as a self-employed consultant, a corner florist, or a small ecommerce venture are sometimes called lifestyle businesses because they are built around the personal and financial needs of an individual or a family. In contrast, other firms are small simply because they are young, but they have ambitious plans to grow.

Page Ref: 118 Difficulty: Easy Chapter LO: 1 Course LO: Describe the role of small businesses in the economy Classification: Concept 4) Business start-ups decline when the economy sours.

Answer: FALSE Explanation: Business start-ups often soar when the economy sours. During hard times, many companies downsize or lay off talented employees, who then have little to lose by pursuing selfemployment.

Page Ref: 120 Difficulty: Easy Chapter LO: 1 Course LO: Describe the role of small businesses in the economy Classification: Concept 1 .

5) Outsourcing reduces opportunities for small businesses and entrepreneurs.

Answer: FALSE Explanation: Outsourcing, the practice of engaging outside firms to handle either individual projects or entire business functions, creates numerous opportunities for small businesses and entrepreneurs.

Page Ref: 120 Difficulty: Moderate Chapter LO: 1 Course LO: Describe the role of small businesses in the economy Classification: Concept 6) The practice of engaging outside firms to handle either individual projects or entire business functions is called downsizing.

Answer: FALSE Explanation: Outsourcing is the practice of engaging outside firms to handle either individual projects or entire business functions.

Page Ref: 120 Difficulty: Easy Chapter LO: 1 Course LO: Describe the role of small businesses in the economy Classification: Concept 7) Intrapreneurship is a term coined by business consultant Gifford Pinchot to designate entrepreneurial efforts within a larger organization.

Answer: TRUE Explanation: Intrapreneurship is a term coined by business consultant Gifford Pinchot to designate entrepreneurial efforts within a larger organization.

Page Ref: 121 Difficulty: Easy Chapter LO: 2 Course LO: Explain the entrepreneurship process Classification: Concept 8) In large organizations, mechanisms put in place to prevent mistakes can also hamper innovative thinking by restricting people to tried-and-true methods.

Answer: TRUE Explanation: In large organizations, mechanisms put in place to prevent mistakes can also hamper innovative thinking by restricting people to tried-and-true methods.

Page Ref: 122 Difficulty: Easy Chapter LO: 2 Course LO: Explain the entrepreneurship process Classification: Concept

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9) Compared to starting a new business, buying an existing business can involve more work and more risk.

Answer: FALSE Explanation: Compared to starting a new business, buying an existing business can involve less work and less risk–provided, of course, that you check out the company carefully.

Page Ref: 123 Difficulty: Moderate Chapter LO: 3 Course LO: Explain the entrepreneurship process Classification: Concept 10) Financing a business you are starting from scratch is often easier than financing an existing business Answer: FALSE Explanation: Financing an existing business is often much easier because lenders are reassured by the company's history and existing assets and customer base.

Page Ref: 123 Difficulty: Easy Chapter LO: 3 Course LO: Explain the entrepreneurship process Classification: Concept 11) A business plan summarizes the proposed business venture, goals, and plans for achieving those goals.

Answer: TRUE Explanation: A business plan summarizes the proposed business venture, goals, and plans for achieving those goals.

Page Ref: 124 Difficulty: Easy Chapter LO: 3 Course LO: Explain the entrepreneurship process Classification: Concept 12) The start-up schedule section in a business plan would forecast its income, expenses, and cash flow for the first 3 years of business.

Answer: FALSE Explanation: The start-up schedule forecast development of the company in terms of completion dates for major aspects of the business plan.

Page Ref: 124 Difficulty: Easy Chapter LO: 3 Course LO: Explain the entrepreneurship process Classification: Concept

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13) In the business plan, the exit strategy explains how and when the owner will close her business.

Answer: FALSE Explanation: An exit strategy explains how investors will be able to cash out or sell their investment, such as through a public stock offering, sale of the company, or a buyback of the investors' interest.

Page Ref: 125 Difficulty: Easy Chapter LO: 3 Course LO: Explain the entrepreneurship process Classification: Concept 14) Motivational collapse occurs when the would-be entrepreneur encounters one too many setbacks and simply doesn't have the drive to keep going.

Answer: TRUE Explanation: Motivational collapse occurs when the would-be entrepreneur encounters one too many setbacks and simply doesn't have the drive to keep going.

Page Ref: 126 Difficulty: Easy Chapter LO: 4 Course LO: Explain the entrepreneurship process Classification: Concept 15) SCORE is an acronym for the Service Corps of Retired Entrepreneurs.

Answer: FALSE Explanation: Service Corps of Retired Executives (SCORE) is a resource partner of the Small Business Administration.

Page Ref: 127 Difficulty: Easy Chapter LO: 4 Course LO: Explain the entrepreneurship process Classification: Concept 16) An advisory board is a form of "group mentoring" in which you assemble a team of people with subject-area expertise or vital contacts to help review plans and decisions.

Answer: TRUE Explanation: An advisory board is a form of "group mentoring" in which you assemble a team of people with subject-area expertise or vital contacts to help review plans and decisions.

Page Ref: 128 Difficulty: Easy Chapter LO: 4 Course LO: Explain the entrepreneurship process Classification: Concept

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17) Unlike a corporate board of directors, an advisory board has legal responsibilities.

Answer: FALSE Explanation: Unlike a corporate board of directors, an advisory board does not have legal responsibilities, and you don't have to incorporate to establish an advisory board.

Page Ref: 128 Difficulty: Easy Chapter LO: 4 Course LO: Explain the entrepreneurship process Classification: Concept 18) Facilities that house small businesses and provide support services during the company's early growth phases are called angel investors.

Answer: FALSE Explanation: Facilities that house small businesses and provide support services during the company's early growth phases are known as business incubators.

Page Ref: 129 Difficulty: Easy Chapter LO: 4 Course LO: Explain the entrepreneurship process Classification: Concept 19) The first infusion of capital that a business receives is called seed money.

Answer: TRUE Explanation: Seed money refers to the first infusion of capital used to get a business started.

Page Ref: 130 Difficulty: Easy Chapter LO: 5 Course LO: Explain the entrepreneurship process Classification: Concept 20) Angel investors provide money to finance new businesses in exchange for a large rate of interest.

Answer: FALSE Explanation: Angel investors are private individuals who invest money in start-ups, usually earlier in a business's life and in smaller amounts than VCs are willing to invest or banks are willing to lend.

Page Ref: 131 Difficulty: Easy Chapter LO: 5 Course LO: Explain the entrepreneurship process Classification: Concept

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21) Funding a business with credit cards or a personal line of credit is extremely risky.

Answer: TRUE Explanation: Funding a business with credit cards or a personal line of credit might be the only option many people have, but it is extremely risky.

Page Ref: 131 Difficulty: Easy Chapter LO: 5 Course LO: Explain the entrepreneurship process Classification: Concept 22) When companies go public, they put out an IPO, or independent public offering.

Answer: TRUE Explanation: The shares offered for sale at this point are the company's initial public offering (IPO). Going public is an effective method of raising needed capital.

Page Ref: 132 Difficulty: Easy Chapter LO: 5 Course LO: Explain the entrepreneurship process Classification: Concept 23) Baskin-Robbins gives its franchisees the right to resell its trademarked goods that must be purchased from Baskin-Robbins. This is an example of a product franchise.

Answer: TRUE Explanation: Franchise is a business arrangement in which one company (the franchisee) obtains the rights to sell the products and use various elements of a business system of another company (the franchisor).

Page Ref: 133 Difficulty: Moderate AACSB: Analytic Skills Chapter LO: 6 Course LO: Explain the benefits and challenges of engaging in international business Classification: Application 24) If you invest in a successful franchise, you know you are getting a viable business model, one that has worked many times before.

Answer: TRUE Explanation: If you invest in a successful franchise, you know you are getting a viable business model, one that has worked many times before.

Page Ref: 133 Difficulty: Easy Chapter LO: 6 Course LO: Explain the entrepreneurship process Classification: Concept

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25) If customer demand for the goods or services sold by your franchise changes, you have the ability to quickly adapt your business in response.

Answer: FALSE Explanation: If the customer-demand for the goods and services you sell declines, a franchisor doesn't have the option of independently changing your business in response.

Page Ref: 133 Difficulty: Moderate Chapter LO: 6 Course LO: Explain the entrepreneurship process Classification: Concept 26) A small business is defined as a company that ________.

A) is newly launched and has fewer than 100 shareholders B) is dominant in its field and employs fewer than 1,500 employees C) has revenue of less than $750,000 D) is independently owned and operated and not dominant in its field E) is funded through personal lines of credit and has fewer than 1,000 employees Answer: D Explanation: D) A small business is an independently owned and operated company that employees fewer than 500 people and is not dominant in its field of operation.

Page Ref: 117 Difficulty: Easy Chapter LO: 1 Course LO: Describe the role of small businesses in the economy Classification: Concept 27) Which of the following is true about a small business?

A) A small business is one which employs between 500 to 1000 employees.

B) A small business is usually funded by personal lines of credit, and not through bank loans and microlenders.

C) A small business is one that is not dominant in its field.

D) A small firm usually curtails the freedom to innovate.

E) A small firm avoids risks that larger firms are willing to take.

Answer: C Explanation: C) A small business is an independently owned and operated company that employees fewer than 500 people and is not dominant in its field of operation.

Page Ref: 117 Difficulty: Moderate Chapter LO: 1 Course LO: Describe the role of small businesses in the economy Classification: Concept

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28) Which of the following is an example of a lifestyle business?

A) A paper recycling unit that employs about 800 employees.

B) A self-employed landscape designer.

C) Nature's Delights, an international gourmet food chain that is considered to be the world's leading retailer of natural and organic foods.

D) Museum of Fine Arts, a government-funded museum that houses a collection of 19th and 20th century American, German, and French paintings.

E) Freedom Books, a firm that is the leader in the English-language book publishing sector.

Answer: B Explanation: B) Lifestyle businesses are built around the personal and financial needs of an individual or a family.

Page Ref: 118 Difficulty: Difficult AACSB: Analytic Skills Chapter LO: 1 Course LO: Describe the role of small businesses in the economy Classification: Application 29) Barbara owns a small florist shop that employs a couple of part-time floral designers. She doesn't expect her business to grow much, but it provides her with a comfortable income and she enjoys what she does. Barbara's business would be described as a ________.

A) mid-size enterprise B) retail business C) lifestyle business D) high-growth venture E) service business Answer: C Explanation: C) Lifestyle businesses are built around the personal and financial needs of an individual or a family.

Page Ref: 118 Difficulty: Difficult AACSB: Analytic Skills Chapter LO: 1 Course LO: Describe the role of small businesses in the economy Classification: Application

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30) One of the general characteristics of a small business is that it typically sells fewer products ________.

A) to a larger customer base B) to fewer market segments C) to foreign companies D) at lower costs to government agencies E) at higher costs Answer: B Explanation: B) Most small firms have a narrow focus, offering fewer goods and services to fewer market segments.

Page Ref: 119 Difficulty: Easy Chapter LO: 1 Course LO: Describe the role of small businesses in the economy Classification: Concept 31) Which of the following is true regarding high-growth ventures?

A) They are usually run by one individual rather than a team.

B) They refer to businesses such as a self-employed consultant, a corner florist, or a small ecommerce venture.

C) They are mostly family businesses.

D) They are are built around the personal and financial needs of an individual.

E) They expand rapidly by obtaining a sizable supply of investment capital.

Answer: E Explanation: E) High-growth ventures are usually run by a team rather than by one individual, and they expand rapidly by obtaining a sizable supply of investment capital and by introducing new products or services to a large market.

Page Ref: 118 Difficulty: Easy Chapter LO: 1 Course LO: Describe the role of small businesses in the economy Classification: Concept 32) Small companies tend to differ from large ones because ________.

A) they have a wider focus compared to larger companies B) they are mostly launched with more financial backing than larger companies C) they have less freedom to innovate and move quickly compared to larger companies D) they can react to market changes and make decisions more quickly than larger companies E) they are more bureaucratic compared to larger companies Answer: D Explanation: D) Small, entrepreneurial firms usually find it easier to operate "on the fly," making decisions quickly and reacting to changes in the marketplace.

Page Ref: 119 Difficulty: Easy Chapter LO: 1 Course LO: Describe the role of small businesses in the economy Classification: Concept 9 .

33) Three factors contributing to the increased number of small businesses are technologies such as e-commerce, growing diversity in entrepreneurship, and ________.

A) downsizing and outsourcing B) increased ease in going public C) nationalization D) market regulation E) monopolistic business practices Answer: A Explanation: A) Three factors are contributing to the increase in the number of small businesses today: e-commerce, social media, and other technological advances; the growing diversity in entrepreneurship; and corporate downsizing and outsourcing.

Page Ref: 119; 120 Difficulty: Easy Chapter LO: 1 Course LO: Describe the role of small businesses in the economy Classification: Concept 34) TechPoint, a technical writing and business documentation firm, finds it difficult to handle its training requirements. The company forms a one-year contract with Impact Inc., a language training firm, to conduct training and refresher courses for their employees. This is an example of ________.

A) downsizing B) outsourcing C) vertical integration D) market penetration E) diversification Answer: B Explanation: B) Outsourcing refers to the practice of engaging outside firms to handle either individual projects or entire business functions.

Page Ref: 120 Difficulty: Moderate AACSB: Analytic Skills Chapter LO: 1 Course LO: Describe the role of small businesses in the economy Classification: Application

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35) Technical Solutions Inc., a leading software solutions firm in Dallas with 1000 employees, is facing a financial crunch because of the economic downfall. Several of its key investors have backed out, and it has lost some projects to its competitors. The SEO of the company considers cost-cutting measures to turn around the organization. An analysis of the situation reveals that many of its employees have become redundant as their work roles have reduced considerably.

The firm also employs a large number of people who are almost at the retirement age. Which of the following measures will be most appropriate for the company, from a business perspective?

A) downsizing B) vertical integration C) outsourcing D) diversification E) market penetration Answer: A Explanation: A) During hard times, many companies downsize or lay off talented employees.

Page Ref: 120 Difficulty: Difficult AACSB: Analytic Skills Chapter LO: 1 Classification: Application 36) The positive, forward-thinking desire to create a profitable, sustainable business is called ________.

A) optimism B) entrepreneurial spirit C) fiscal discipline D) marketing strategy E) business implementation Answer: B Explanation: B) Entrepreneurial spirit refers to the positive, forward-thinking desire to create profitable, sustainable business enterprises.

Page Ref: 120 Difficulty: Easy Chapter LO: 2 Course LO: Explain the entrepreneurship process Classification: Concept

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37) Which of the following is a quality that a successful entrepreneur is most likely to have?

A) unwillingness to take risks B) unwilling to make any sacrifices in other areas of life C) high need to be motivated by an external agent D) always measures success in strictly financial terms E) views failure as a chance to grow Answer: E Explanation: E) While there is no single personality profile that fits all successful entrepreneurs, most entrepreneurs tend to learn from mistakes and view failure as a chance to grow.

Page Ref: 121 Difficulty: Easy Chapter LO: 2 Course LO: Explain the entrepreneurship process Classification: Concept 38) Todd D. Morrison is the manager of an advanced research team at LCM Inc., a pharmaceutical company. Todd is keen to introduce process improvements aimed at making the business unit more profitable. He also uses innovative leadership methods, such as giving team members greater flexibility and freedom. Todd takes direct responsibility for turning an idea into a profitable finished product through assertive risk-taking and innovation. Todd Morrison's efforts are an example of ________.

A) intrapreneurship B) outsourcing C) downsizing D) vertical integration E) horizontal integration Answer: A Explanation: A) Intrapreneurship is a term coined by business consultant Gifford Pinchot to designate entrepreneurial efforts within a larger organization.

Page Ref: 121 Difficulty: Moderate AACSB: Analytic Skills Chapter LO: 1 Course LO: Compare and contrast different economic systems Classification: Application

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39) Intrapreneurship refers to ________.

A) entrepreneurial efforts within a larger organization B) starting a business by buying into a franchise system C) starting a business by buying an existing independent business D) individuals who are responsible for strategic corporate social responsibility activities within an organization E) the processes, customs, policies, laws, and institutions which have impact on the way a company is controlled Answer: A Explanation: A) Intrapreneurship is a term coined by business consultant Gifford Pinchot to designate entrepreneurial efforts within a larger organization.

Page Ref: 121 Difficulty: Easy Chapter LO: 2 Course LO: Explain the entrepreneurship process Classification: Concept 40) Which of the following is most likely to encourage entrepreneurship?

A) inability to find attractive employment anywhere else B) increased market regulations C) inadequate protection of property rights D) excessive market regulation E) monopolistic business practices Answer: A Explanation: A) A reason why people start a business, one that becomes more common during tough job markets, is the inability to find attractive employment anywhere else.

Page Ref: 121 Difficulty: Easy Chapter LO: 2 Course LO: Explain the entrepreneurship process Classification: Concept 41) Which of the following statements is true about intrapreneurship?

A) It increases bureaucracy and hinders innovation.

B) It refers to individuals who start new, independent businesses.

C) It refers to individuals who start a business by buying into a franchise system.

D) It involves working with tried-and-true methods.

E) It can be risky behavior that may or may not be rewarded.

Answer: E Explanation: E) Innovating within a larger organization is often much easier said than done.

Intrapreneurship can be risky behavior that may or may not be rewarded.

Page Ref: 122 Difficulty: Moderate Chapter LO: 2 Course LO: Explain the entrepreneurship process Classification: Concept 13 .

42) Barbara decided to open an independent bookstore. However, after careful consideration, she decided to purchase an existing book shop called BookStop from an owner who was retiring.

Which of the following statements, if true, is most likely to make Barbara's business successful.

A) Barbara decides to change the layout of the bookstore and repaint the walls.

B) The government increases the taxes on small businesses.

C) Barabara decides to reduce the freedom given to the existing employees by the previous owner of BookStop.

D) Barabara does not like the existing business processes and systems, so she decides to build them from scratch.

E) BookStop was a profitable business with many loyal customers.

Answer: E Explanation: E) When you buy a healthy business, you generally purchase an established customer base, functioning business systems, proven products or services, and a known location.

Page Ref: 123 Difficulty: Difficult AACSB: Analytic Skills Chapter LO: 3 Course LO: Explain the entrepreneurship process Classification: Application 43) Which of the following is true about creating a new, independent business?

A) The possibility for borrowing start-up capital or getting investors is more, compared to buying an existing business.

B) The owner's freedom is less, compared to buying an existing business.

C) The business processes and systems are usually already in place.

D) The workforce is usually already in place.

E) The customer base must be built from the ground up.

Answer: E Explanation: E) Starting a new business involves building the customer base, brand recognition, and sales from the ground up, which can put serious strain on company finances until sales volume builds.

Page Ref: 123 Difficulty: Moderate Chapter LO: 3 Course LO: Compare and contrast different economic systems Classification: Concept

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44) Matthew decides to open a cafe in his neighborhood, called Coffee Beans. While analyzing the start-up options, he decides against buying an existing independent business, or even buying into a franchise system. Because of a recent reduction in the availability of loans to entrepreneurs, he is unable to get a bank loan. He is likely to have which of the following benefits?

A) He will have an established brand recognition.

B) Since business processes and systems are usually in place, he need not create them.

C) Support networks are already in place, so he need not update them.

D) He need not hire and train the workforce at his own expense.

E) He will experience very high freedom and flexibility.

Answer: E Explanation: E) Starting a new business provides very high freedom and flexibility to the owner, particularly during early phases, although low capital can severely restrict the owner's ability to maneuver.

Page Ref: 123 Difficulty: Moderate AACSB: Analytic Skills Chapter LO: 3 Course LO: Explain the entrepreneurship process Classification: Application 45) Which of the following is an advantage of buying into a franchise system?

A) It comes with an established business system.

B) It comes with a workforce.

C) It already has a customer base with ongoing sales.

D) It allows the owner to have a very high level of freedom.

E) It requires the owner to establish brand recognition from scratch.

Answer: A Explanation: A) Buying a franchise combines many of the benefits of independent business ownership with the support that comes with being part of a larger organization. One of the key advantages of buying a franchise is that it comes with an established business system.

Page Ref: 123 Difficulty: Moderate Chapter LO: 3 Course LO: Explain the entrepreneurship process Classification: Concept

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46) A business plan is a written document that summarizes the ________.

A) business' cost benefit analysis B) business' sources of finances for the business C) proposed business venture, goals, and plans for achieving those goals D) personal financial statements of the business owners E) organization's exposure to internal and external threats Answer: C Explanation: C) A business plan summarizes a proposed business venture, communicates the company's goals, highlights how management intends to achieve those goals, and shows how customers will benefit from the company's goods or services.

Page Ref: 124 Difficulty: Easy Chapter LO: 3 Course LO: Explain the entrepreneurship process Classification: Concept 47) Preparing a business plan serves which of the following functions?

A) It assists the owners in preparing publicity releases for the business.

B) It helps persuade lenders and investors to finance the business.

C) It identifies sources of potential employees for the business.

D) It fulfills the requirements set forth by the Small Business Administration.

E) It meets licensing regulations established by the local government.

Answer: B Explanation: B) Preparing a business plan serves important functions. It helps persuade lenders and investors to finance your business if outside money is required.

Page Ref: 124 Difficulty: Easy Chapter LO: 3 Course LO: Explain the entrepreneurship process Classification: Concept

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48) A business plan outlines that investors will be able to sell their investment through a public stock offering, or a buyback of the investors' interest. This is an example of which of the following elements of a business plan?

A) start-up schedule B) operations plan C) exit strategy D) marketing strategy E) target market Answer: C Explanation: C) An exit strategy explains how investors will be able to cash out or sell their investment, such as through a public stock offering, sale of the company, or a buyback of the investors' interest.

Page Ref: 125 Difficulty: Easy Chapter LO: 3 Course LO: Explain the entrepreneurship process Classification: Concept 49) Which of the following statements is true regarding the failure rates of new businesses?

A) It is possible to calculate a precise figure that represents all types of businesses across all industries.

B) The definition of "failure" remains the same across businesses and business owners.

C) Establishing a time frame is not essential for a failure rate to have any meaning.

D) Structural changes in the economy are unrelated to the failure rates of new businesses.

E) The failure rate of new businesses is usually high during the first year.

Answer: E Explanation: E) Establishing a time frame is essential for a failure rate to have any meaning. For example, ill-conceived or undercapitalized businesses often don't survive the first year, so the early failure rate is quite high.

Page Ref: 126 Difficulty: Easy Chapter LO: 4 Course LO: Explain the entrepreneurship process Classification: Concept

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50) At the federal level, small businesses can apply for loans backed by the ________.

A) Center for Emerging Technologies B) U.S. Chamber of Commerce C) Service Corps of Retired Executives D) Venture Capitalists Association (VCA) E) Small Business Administration Answer: E Explanation: E) At the federal level, small businesses can apply for SBA-backed loans.

Page Ref: 126 Difficulty: Easy Chapter LO: 4 Course LO: Explain the entrepreneurship process Classification: Concept 51) Which of the following statements is true about the Service Corps of Retired Executives (SCORE)?

A) It is a resource partner of the SBA. B) It works on a contractual basis with large businesses.

C) It offers advice and one-to-one counseling to entrepreneurs, in return for company shares.

D) It offers resources and programs to minority-owned businesses.

E) It hires retired executives to work as consultants for a nominal fee.

Answer: A Explanation: A) The Service Corps of Retired Executives (SCORE) is a resource partner of the SBA. These experienced business professionals offer free advice and one-to-one counseling to entrepreneurs.

Page Ref: 127 Difficulty: Moderate Chapter LO: 4 Course LO: Explain the entrepreneurship process Classification: Concept 52) SCORE is a resource partner of the ________.

A) Small Business Online Community B) Minority Business Development Agency C) Small Business Administration D) United States Chamber of Commerce E) Center for Emerging Technologies Answer: C Explanation: C) Some of the best advice available to small businesses is delivered by thousands of volunteers from the Service Corps of Retired Executives (SCORE), a resource partner of the SBA. Page Ref: 127 Difficulty: Easy Chapter LO: 4 Course LO: Compare and contrast different economic systems Classification: Concept 18 .

53) A(n) ________ is a form of "group mentoring" in which you assemble a team of people with subject-area expertise or vital contacts to help review plans and decisions.

A) advisory board B) business incubator C) venture capitalist D) angel investor E) micro lender Answer: A Explanation: A) An advisory board is a form of "group mentoring" in which you assemble a team of people with subject-area expertise or vital contacts to help review plans and decisions.

Page Ref: 128 Difficulty: Easy Chapter LO: 4 Course LO: Explain the entrepreneurship process Classification: Concept 54) An advisory board differs from a corporate board of directors, because ________.

A) an advisory board has legal responsibilities B) you don't have to incorporate to establish an advisory board C) you usually require high amounts of financial compensation to consult an advisory board D) members of an advisory board lack subject-area expertise E) advisors are required to obtain certification from SBA Answer: B Explanation: B) Unlike a corporate board of directors, an advisory board does not have legal responsibilities, and you don't have to incorporate to establish an advisory board.

Page Ref: 128 Difficulty: Easy Chapter LO: 4 Course LO: Explain the entrepreneurship process Classification: Concept 55) ________ are centers that provide a small business with a wide array of support resources and services during its early growth phase.

A) Seed centers B) Business incubators C) Microlenders D) Angel investors E) Intrapreneurs Answer: B Explanation: B) Business incubators are centers that provide "newborn" businesses with various combinations of advice, financial support, access to industry insiders and connections, facilities, and other services a company needs to get started.

Page Ref: 129 Difficulty: Easy Chapter LO: 4 Course LO: Explain the entrepreneurship process Classification: Concept 19 .

56) In exchange for a small share of ownership, KMC Group makes a small investment in TechPro, a new, independent software firm. KMC Group provides support to TechPro during its early stages by helping the founders refine their ideas, hire suitable employees and train them, establish connections with industry insiders, and deal with legal issues. KMC Group is most likely to be a(n) ________.

A) advisory board B) mentor C) business incubator D) seed center E) microlender Answer: C Explanation: C) Business incubators are centers that provide "newborn" businesses with various combinations of advice, financial support, access to industry insiders and connections, facilities, and other services a company needs to get started.

Page Ref: 129 Difficulty: Moderate AACSB: Analytic Skills Chapter LO: 4 Course LO: Explain the entrepreneurship process Classification: Application 57) Money used or needed to set up a new business is ________.

A) an incubator fund B) seed money C) an initial public offering D) public financing E) an advisory board loan Answer: B Explanation: B) The first infusion of capital used to get a business started is called seed money.

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58) ________ is a combination of private and public financing, in which an entrepreneur invites people to fund a share of a new business venture or a new product.

A) Crowdfunding B) Microlending C) Angel investment D) Business incubator E) Threshold pledge system Answer: A Explanation: A) A combination of private and public financing is crowdfunding, in which an entrepreneur invites people to fund a share of a new business venture or a new product.

Page Ref: 130 Difficulty: Easy Chapter LO: 5 Course LO: Explain the entrepreneurship process Classification: Concept 59) Keri Sears uses the funding platform Kickstarter to solicit money to start a not-for-profit organization that promotes folk musicians and revives interest in the folk and traditional forms of music in America. She invites people to fund the business project and she states that donors will be honored on the organization's website. She sets a six month goal to raise the money. Keri is using which of the following forms of financing?

A) angel investors B) business incubator C) threshold pledge system D) fund and release system E) crowdfunding Answer: E Explanation: E) A combination of private and public financing is crowdfunding, in which an entrepreneur invites people to fund a share of a new business venture or a new product.

Page Ref: 130 Difficulty: Difficult AACSB: Analytic Skills Chapter LO: 5 Course LO: Explain the entrepreneurship process Classification: Application

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60) ________ are organizations, often not-for-profit, that lend smaller amounts of money to business owners who might not qualify for conventional bank loans.

A) Angel groups B) Venture capitalists C) Angel investors D) Microlenders E) Franchises Answer: D Explanation: D) Microlenders are organizations, often not-for-profit, that lend smaller amounts of money to business owners who might not qualify for conventional bank loans.

Page Ref: 131 Difficulty: Easy Chapter LO: 5 Course LO: Explain the entrepreneurship process Classification: Concept 61) Investors who provide money to finance new businesses or turnarounds in exchange for a portion of ownership, with the objective of reselling the business at a profit are called ________.

A) angel investors B) microlenders C) venture capitalists D) advisory boards E) business incubators Answer: C Explanation: C) Investors who provide money to finance new businesses or turnarounds in exchange for a portion of ownership, with the objective of reselling the business at a profit are called venture capitalists.

Page Ref: 131 Difficulty: Easy Chapter LO: 5 Course LO: Explain the entrepreneurship process Classification: Concept

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62) Private individuals who put their own money into start-ups, with the goal of eventually selling their interest for a profit, are called ________.

A) angel investors B) microlenders C) venture capitalists D) advisory boards E) business incubators Answer: A Explanation: A) Angel investors are private individuals who invest money in start-ups, usually earlier in a business's life and in smaller amounts than VCs are willing to invest.

Page Ref: 131 Difficulty: Easy Chapter LO: 5 Course LO: Explain the entrepreneurship process Classification: Concept 63) Funding a new business with credit cards or a personal line of credit ________.

A) is the least expensive form of financing B) is subject to a lot of bureaucratic procedures C) involves minimum amount of risk D) is used by very few entrepreneurs E) is a widely available form of financing Answer: E Explanation: E) Although they tend to be one of the most expensive forms of financing, credit cards are also widely available and sometimes the only source of funding an entrepreneur has.

Page Ref: 131 Difficulty: Moderate Chapter LO: 5 Course LO: Explain the entrepreneurship process Classification: Concept 64) Which of the following statements is true about venture capitalists?

A) They are private individuals without specialized investment skills.

B) They make investments in large, established businesses.

C) They usually make investments in low-risk, low-potential areas.

D) They simply provide money to new ventures, and do not provide managerial advice.

E) They are extremely focused and selective while investing in companies.

Answer: E Explanation: E) Because one-third of venture capitalist-funded start-ups don't succeed, those that do succeed need to really pay off to compensate. VCs are therefore extremely focused and selective.

Page Ref: 131 Difficulty: Easy Chapter LO: 5 Course LO: Explain the entrepreneurship process Classification: Concept 23 .

65) Which of the following is a major difference between banks and venture capitalists as categories of private financing?

A) Unlike banks, which recruit investment specialists, venture capitalists are private investors without any specialized investment skills.

B) Unlike banks, which provide investment for high-risk businesses, venture capitalists won't lend money to a start-up that hasn't established a successful track record.

C) Unlike banks, which dont require collateral, venture capitalists provide investments only when an entrepreneur puts up marketable collateral.

D) Unlike banks, which only provide money, venture capitalists also provide management expertise.

E) Unlike banks, which are extremely focused and selective in giving loans, venture capitalists are less focused and provide loans to a large number of start-ups.

Answer: D Explanation: D) Unlike banks or most other financing sources, venture capitalists do more than simply provide money. They also provide management expertise in return for a sizable ownership interest in the business.

Page Ref: 131 Difficulty: Easy Chapter LO: 5 Course LO: Explain the entrepreneurship process Classification: Application 66) Unlike venture capitalists, angel investors tend to ________.

A) invest larger amounts of money in start-ups B) remain involved with the company for a very short time C) have a more local focus D) be investment specialists with an extremely focused and selective approach E) invest mostly in high-potential areas Answer: C Explanation: C) Angel investing tends to have a more local focus than venture capitalism, so you can search for angels through local business contacts and organizations.

Page Ref: 131 Difficulty: Easy Chapter LO: 5 Course LO: Explain the benefits and challenges of engaging in international business Classification: Concept

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67) The institution that actually provides the money for an SBA-backed loan is the ________.

A) venture capitalist B) bank C) SBIC D) business incubator E) IPO Answer: B Explanation: B) To get an SBA-backed loan, you apply to a regular bank or credit union, which actually provides the money.

Page Ref: 132 Difficulty: Easy Chapter LO: 5 Course LO: Explain the entrepreneurship process Classification: Concept 68) A corporation's first offering of shares to the public is called ________.

A) private placement B) secondary market offering C) secondary equity offering D) IPO E) crowdfunding Answer: D Explanation: D) A corporation's first offering of shares to the public is called initial public offering (IPO).

Page Ref: 132 Difficulty: Easy Chapter LO: 5 Course LO: Explain the entrepreneurship process Classification: Concept 69) Celera Inc., a soap manufacturing firm based in Colorado, needs to raise capital to fund its product development plans. The firm decides to offer its shares of ownership to the public for the first time, and lists its securities on a public exchange. This is termed as ________.

A) private placement B) secondary market offering C) secondary equity offering D) IPO E) crowdfunding Answer: D Explanation: D) A corporation's first offering of shares to the public is called initial public offering (IPO).

Page Ref: 132 Difficulty: Moderate AACSB: Analytic Skills Chapter LO: 5 Course LO: Explain the entrepreneurship process Classification: Application 25 .

70) A company that licenses elements of its business system to other companies is called a ________.

A) franchisor B) venture capitalist C) angel investor D) intrapreneur E) business mentor Answer: A Explanation: A) A company that licenses elements of its business system to other companies is called a franchisor.

Page Ref: 132 Difficulty: Easy Chapter LO: 6 Course LO: Compare and contrast different economic systems Classification: Concept 71) A(n) ________ enables the buyer to use a larger company's trade name and sell its goods or services in a specific territory.

A) trademark B) franchise C) initial public offering D) open source contract E) network effect Answer: B Explanation: B) An alternative to creating or buying an independent company is to buy a franchise, which enables the buyer to use a larger company's trade name and sell its goods or services in a specific territory.

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72) You have decided to open a pet store and signed an agreement with Dogz-N-Catz Centers Inc. You and the company have drawn up an agreement that allows you to use the Dogz-N-Catz name and its business format, to receive training, and to use its advertising materials. Under this agreement, Dogz-N-Catz Inc. is the ________.

A) franchisor B) microinvestor C) angel investor D) venture capitalist E) business mentor Answer: A Explanation: A) A company that licenses elements of its business system to other companies is called a franchisor.

Page Ref: 132 Difficulty: Moderate AACSB: Analytic Skills Chapter LO: 6 Course LO: Compare and contrast different economic systems Classification: Application 73) A car dealer in Ohio has the rights to sell trademarked automobiles manufactured by Armadillo Motors Inc., which does not have a distribution network in Ohio. The car dealer purchases the automobiles from Armadillo Motors Inc. and then resells them in Ohio. Which of the following models does the dealer use?

A) product franchise B) joint venture C) shakeout D) vertical integration E) intrapreneurship Answer: A Explanation: A) A product franchise gives you the right to sell trademarked goods, which are purchased from the franchisor and resold.

Page Ref: 133 Difficulty: Easy AACSB: Analytic Skills Chapter LO: 6 Course LO: Explain the entrepreneurship process Classification: Application

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74) R&M Group, a consumer products company based in Libya, conducted a market research.

The research indicated that there was a lack of branded soft drinks in the market, even though there were several local soft-drink manufacturers. The company purchased the right to produce and distribute soft drinks of Fizzpop Inc.(a leading U.S. based soft-drinks firm) R&M Group also sources the supplies from Fizzpop Inc. to ensure that the taste of the product remains the same.

In this scenario, which of the following business methods does R&M Group use?

A) joint venture B) shakeout C) vertical integration D) manufacturing franchise E) delayering Answer: D Explanation: D) A manufacturing franchise, such as a soft -drink bottling plant, gives you the right to produce and distribute the manufacturer's products, using supplies purchased from the franchisor.

Page Ref: 133 Difficulty: Difficult AACSB: Analytic Skills Chapter LO: 6 Course LO: Compare and contrast different economic systems Classification: Application 75) Andy, an entrepreneur, plans to open a bakery in his neighborhood. He realizes that there are no branded bakeries in the locality, even though there are a number of independent bakeries. He approaches Soft Bakes, an international bakery chain, and signs an agreement with them that gives him the right to open a bakery shop that uses Soft Bakes' name and management methods.

In this scenario, which of the following business methods does Andy use?

A) business-format franchise B) joint venture C) shakeout D) vertical integration E) delayering Answer: A Explanation: A) A business-format franchise gives you the right to open a business using a franchisor's name and format for doing business.

Page Ref: 133 Difficulty: Difficult AACSB: Analytic Skills Chapter LO: 6 Course LO: Compare and contrast different economic systems Classification: Application

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76) Define a small business? What is the economic role of small businesses?

Answer: A small business is a company that is independently owned and operated, is not dominant in its field, and employs fewer than 500 people (although this number varies by industry).

Some of the major contributions small firms make are: ∙ They provide jobs. ∙ They introduce new products. ∙ They supply the needs of larger organizations. Many small businesses act as distributors, servicing agents, and suppliers to larger corporations and to numerous government agencies. ∙ They inject a considerable amount of money into the economy. Small businesses pay nearly half the private-sector payroll in the United States and produce half the country's gross domestic product. ∙ They take risks that larger companies sometimes avoid. Entrepreneurs play a significant role in the economy as risk takers - people willing to try new and unproven ideas. ∙ They provide specialized goods and services.

Page Ref: 117; 118 Difficulty: Moderate Chapter LO: 1 Course LO: Describe the role of small businesses in the economy Classification: Concept 77) Compare and contrast lifestyle businesses with high-growth ventures.

Answer: The majority of small businesses are modest operations with little growth potential, although some have attractive income potential for the solo business person. Small businesses such as a self-employed consultant, a corner florist, or a small e-commerce venture are sometimes called lifestyle businesses because they are built around the personal and financial needs of an individual or a family. In contrast, other firms are small simply because they are young, but they have ambitious plans to grow. These high-growth ventures are usually run by a team rather than by one individual, and they expand rapidly by obtaining a sizable supply of investment capital and by introducing new products or services to a large market.

Page Ref: 118 Difficulty: Difficult AACSB: Reflective Thinking Skills Chapter LO: 1 Course LO: Explain the entrepreneurship process Classification: Synthesis

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78) Compare and contrast small companies with large ones?

Answer: Small companies tend to differ from large ones in a variety of important ways. First, most small firms have a narrow focus, offering fewer goods and services to fewer market segments. Second, unless they are launched with generous financial backing, which is rare, small businesses have to get by with limited resources. Third, smaller businesses often have more freedom to innovate and move quickly. As they grow larger, companies tend to get slower and more bureaucratic. In contrast, entrepreneurial firms usually find it easier to operate "on the fly," making decisions quickly and reacting to changes in the marketplace.

Page Ref: 119 Difficulty: Difficult AACSB: Reflective Thinking Skills Chapter LO: 1 Course LO: Describe the role of small businesses in the economy Classification: Synthesis 79) How do downsizing and outsourcing influence the number of small businesses?

Answer: Business start-ups often soar when the economy sours. During hard times, many companies downsize or lay off talented employees, who then have little to lose by pursuing selfemployment. Outsourcing, the practice of engaging outside firms to handle either individual projects or entire business functions, also creates numerous opportunities for small businesses and entrepreneurs. Some companies subcontract special projects and secondary business functions to experts outside the organization, while others turn to outsourcing as a way to permanently eliminate entire departments, and some laid-off employees even become entrepreneurs and sell services to their former employers.

Page Ref: 120 Difficulty: Moderate Chapter LO: 1 Course LO: Describe the role of small businesses in the economy Classification: Concept

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80) Describe the qualities of a successful entrepreneur. How is an intrapreneur different from an entrepreneur? What are the unique challenges faced by an intrapreneur?

Answer: Successful entrepreneurs tend to love what they do and are driven by a passion to succeed at it, they are disciplined and willing to work hard, they are confident and optimistic, and they like to control their own destiny. Moreover, they relate well to others and have the ability to inspire others, they are curious, they learn from their mistakes without letting failure drag them down, they are adaptable and tuned into their environments, and they are moderate but careful risk takers.

The entrepreneur's innovative spirit is so compelling that many large companies and individuals within companies now try to express it through intrapreneurship, a term coined by business consultant Gifford Pinchot to designate entrepreneurial efforts within a larger organization.

Page Ref: 121 Difficulty: Difficult AACSB: Reflective Thinking Skills Chapter LO: 2 Course LO: Explain the entrepreneurship process Classification: Synthesis 81) Compare and contrast creating a new, independent business with buying an existing independent business.

Answer: Creating a new, independent business usually has very limited possibilities for borrowing start-up capital or getting investors. It gives a lot of freedom and flexibility to the owner and must be designed and created from scratch, which can be time consuming and expensive. Support networks, workforce, customer base, brand recognition, and sales must be built from scratch.

Compared to starting a new business, buying an existing business can involve less work and less risk - provided, of course, that you check out the company carefully. When you buy a healthy business, you generally purchase an established customer base, functioning business systems, proven products or services, and a known location. In addition, financing an existing business is often much easier because lenders are reassured by the company's history and existing assets and customer base.

Buying an existing business is not without disadvantages and risks. You may need a considerable amount of financing to buy a fully-functioning company, and you will inherit any problems the company has, from unhappy employees to obsolete equipment to customers with overdue accounts.

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82) Compare and contrast creating a new, independent business with buying into a franchise system.

Answer: Creating a new, independent business usually has very limited possibilities for borrowing start-up capital or getting investors. It gives a lot of freedom and flexibility to the owner; and must be designed and created from scratch, which can be time consuming and expensive. Support networks, workforce, customer base, brand recognition, and sales must be built from scratch.

Buying a franchise, combines many of the benefits of independent business ownership with the support that comes with being part of a larger organization. Many franchisors do not allow franchisees to buy a franchise with borrowed funds, so they must have their own capital. Most franchisors require rigid adherence to company policies and processes, and the franchisee's freedom and independence is low. A franchise comes with an established business system; workforce must be hired and trained, but a franchisor usually provides training or training support; and customer base and repeat sales must be built up, but one of the major advantages of a franchise is established brand recognition.

Page Ref: 123 Difficulty: Difficult AACSB: Reflective Thinking Skills Chapter LO: 3 Course LO: Explain the entrepreneurship process Classification: Synthesis 83) What is a business plan? How is it different from an executive summary?

Answer: A business plan summarizes a proposed business venture, communicates the company's goals, highlights how management intends to achieve those goals, and shows how customers will benefit from the company's goods or services. An effective business plan should include your mission and objectives, company overview, management, target market, marketing strategy, design and development plans, operations plan, start-up schedule, major risk factors, and financial projections and requirements.

An executive summary is a concise version of the business plan. Investor Guy Kawasaki advises entrepreneurs to create an executive summary of their business plan to use when presenting their ideas to investors for the first time. Entrepreneurs often have as little as 20 minutes to make these pitches, so a compelling presentation backed up by an executive summary, no longer than 20 pages, is ideal. The most important part of the entire package is "the grab," a compelling one-or two-sentence statement that gets an investor's attention. If an investor is intrigued, he or she can then read the executive summary to get a better sense of the opportunity and then review the full business plan before making a decision to provide funds.

Page Ref: 124; 125 Difficulty: Difficult AACSB: Reflective Thinking Skills Chapter LO: 3 Course LO: Explain the entrepreneurship process Classification: Synthesis

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84) Briefly describe what a business plan is and discuss its importance in starting a business.

Answer: A business plan summarizes the proposed business venture, its goals, and its plans for achieving those goals. It serves three important functions: 1) it guides company operations and outlines the business' strategy; 2) it helps persuade lenders and investors to finance the business; 3) it provides a "reality check" in the event that the business idea is not feasible.

Page Ref: 124 Difficulty: Easy Chapter LO: 3 Course LO: Explain the entrepreneurship process Classification: Concept 85) Compare and contrast business partners with mentors and advisory boards as sources of advice and support for entrepreneurs?

Answer: Banks, credit card companies, software companies, and other firms you do business with can also be a source of advice and support. For example, the Open Forum ( www.openforum.com ), hosted by American Express, offers a variety of videos, articles, and online network tools to help small business owners, as well as online tutorials and forums where business owners can post questions. The free resources from these companies are part of their marketing strategies and so include a certain amount of self promotion.

Many entrepreneurs and business owners take advantage of individual mentors and advisory boards. Mentoring can happen through both formal programs such as SCORE and informal relationships developed in person or online. In either case, the advice of a mentor who has been down the road before can be priceless. An advisory board is a form of "group mentoring" in which you assemble a team of people with subject-area expertise or vital contacts to help review plans and decisions.

Page Ref: 127; 128 Difficulty: Difficult AACSB: Reflective Thinking Skills Chapter LO: 4 Course LO: Explain the entrepreneurship process Classification: Synthesis

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86) Compare and contrast business incubators with networks and support groups as sources of advice and support for entrepreneurs?

Answer: Many cities across the country have local networks of entrepreneurs. Some entrepreneurs meet regularly in small groups to analyze each other's progress month by month.

Being forced to articulate your plans and decisions to peers - and to be held accountable for results - can be an invaluable reality check. Some groups focus on helping entrepreneurs hone their presentations to potential investors. In addition to local in-person groups, social networking technology gives entrepreneurs an endless array of opportunities to connect online.

Business incubators are centers that provide "newborn" businesses with various combinations of advice, financial support, access to industry insiders and connections, facilities, and other services a company needs to get started. Some incubators are not-for-profit organizations affiliated with the economic development agencies of local or state governments or universities, some are for-profit enterprises, some companies have internal incubators to encourage new ventures, and some are run by venture capitalists.

Page Ref: 129 Difficulty: Difficult AACSB: Reflective Thinking Skills Chapter LO: 4 Course LO: Explain the entrepreneurship process Classification: Synthesis 87) Identify and briefly describe at least 3 sources of financial aid that are available to small businesses.

Answer: 1) Private financing - family loans or private savings; 2) banks and microlenders ; 3) venture capitalists - investment specialists who provide money in exchange for an ownership share of the company; 4) angel investors - private individuals who invest their own money into start-ups; 5) credit cards and personal lines of credit; 6) going public - selling shares of stock to the public for the first time; 7) loan programs from the small business administration (SBA).

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88) Discuss banks and microlenders as sources of private financing. How does it differ from seeking funds by going public?

Answer: Bank loans are one of the most important sources of financing for small business - but there's an important catch: In most cases, banks won't lend money to a start-up that has not established a successful track record. In response to the needs of entrepreneurs who don't qualify for standard bank loans or who don't need the amount of a regular loan, hundreds of organizations now serve as microlenders, offering loans up to $35,000 or so.

Companies with solid growth potential may also seek funding from the public at large.

Whenever a corporation offers its shares of ownership to the public for the first time, the company is said to be going public. Going public is an effective method of raising needed capital, but it can be an expensive and time-consuming process with no guarantee of raising the amount of money needed.

Page Ref: 131; 132 Difficulty: Difficult AACSB: Reflective Thinking Skills Chapter LO: 5 Course LO: Explain the entrepreneurship process Classification: Synthesis 89) Compare and contrast venture capitalists with angel investors.

Answer: Venture capitalists (VCs) are investors who provide money to finance new businesses or turnarounds in exchange for a portion of ownership, with the objective of reselling the business at a profit. VC funding provides a crucial stimulus to the economy by making risky, early-stage investments in firms that are likely to become major employers if their products succeed in the marketplace. Given the amounts of money involved and the expectations of sizable returns, VCs usually invest in high-potential areas such as information technology, energy, biotechnology, and digital media.

Start-up companies that can't attract VC investment (perhaps because they are too early in their product development) often look for angel investors, private individuals who put their own money into start-ups, with the goal of eventually selling their interest for a profit. These individuals are willing to invest smaller amounts than VCs and often stay involved with the company for a longer period of time. Many of these investors join angel networks or angel groups that invest together in chosen companies. Angel investing tends to have a more local focus than venture capitalism.

Page Ref: 131 Difficulty: Difficult AACSB: Reflective Thinking Skills Chapter LO: 5 Course LO: Explain the entrepreneurship process Classification: Synthesis

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90) From the perspective of the franchisee, list 3 advantages and 3 disadvantages of buying a franchise.

Answer: From the perspective of the franchisee, advantages of buying a franchise are: 1) freedom of being a business owner while having the support of a larger, established organization; 2) a viable business model that has worked many times before; 3) instant name recognition; 4) standardized quality of goods and services; 5) national advertising; 6) services such as site-location studies, market research, training and technical assistance; 7) assistance in financing the initial investment.

From the perspective of the franchisee, disadvantages of buying a franchise are: Disadvantages: 1) you must follow a prescribed business format that covers every aspect of doing business; 2) little ability to change business models if the demand for goods or services declines; 3) potentially high initial costs and royalties; 4) little control over decisions the franchisor makes that affect the entire system Page Ref: 133 Difficulty: Difficult Chapter LO: 6 Course LO: Explain the entrepreneurship process Classification: Concept

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Business in Action, 6e (Bovee/Thill) Chapter 7 Management Roles, Functions, and Skills 1) Management is the process of planning, organizing, leading, and controlling to meet organizational goals.

Answer: TRUE Explanation: Management is the process of planning, organizing, leading, and controlling to meet organizational goals. These tasks are interrelated.

Page Ref: 141 Difficulty: Easy Chapter LO: 1 Course LO: Describe the skills and functions of management Classification: Concept 2) High-level managers rely heavily on subordinates to collect, analyze, and summarize information.

Answer: TRUE Explanation: High-level managers rely heavily on subordinates to collect, analyze, and summarize information.

Page Ref: 142 Difficulty: Easy Chapter LO: 1 Course LO: Describe the skills and functions of management Classification: Concept 3) The executive dashboard is a tool that provides quick-read summaries of vital performance variables.

Answer: TRUE Explanation: The executive dashboard, just like the dashboard in a car, provides quick-read summaries of vital performance variables.

Page Ref: 142 Difficulty: Easy Chapter LO: 1 Course LO: Describe the skills and functions of management Classification: Concept 4) Setting the prices of new products is a fairly routine decision that managers make.

Answer: TRUE Explanation: Setting the prices of new products is a fairly routine decision that managers make.

Page Ref: 143 Difficulty: Moderate Chapter LO: 1 Course LO: Describe the skills and functions of management Classification: Concept 1 .

5) Selecting an individual for employment from a pool of job applicants is an example of an interpersonal role of management.

Answer: FALSE Explanation: Managers make many decisions as part of their work. Choosing which of several job candidates to hire is an example of a decisional role of managers.

Page Ref: 143 Difficulty: Moderate Chapter LO: 1 Course LO: Describe the skills and functions of management Classification: Concept 6) A mission statement is a statement of the operational goals of the organization.

Answer: FALSE Explanation: A mission statement is a brief statement of why an organization exists. It describes what the organization aims to accomplish for customers, investors, and other stakeholders.

Page Ref: 144 Difficulty: Easy Chapter LO: 2 Course LO: Describe the skills and functions of management Classification: Concept 7) A vision statement is a brief description of a company's present status in the market.

Answer: FALSE Explanation: A vision statement is a brief and inspirational expression of what a company aspires to be.

Page Ref: 145 Difficulty: Easy Chapter LO: 2 Course LO: Describe the skills and functions of management Classification: Concept 8) A value statement does not establish expectations for an organization's employees.

Answer: FALSE Explanation: A value statement establishes the expectations for an organization's employees.

Page Ref: 145 Difficulty: Easy Chapter LO: 2 Course LO: Describe the skills and functions of management Classification: Concept

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9) Strengths and weaknesses are internal factors that contribute to a company's success or failure.

Answer: TRUE Explanation: Strengths are positive internal factors that contribute to a company's success.

Weaknesses are negative internal factors that inhibit the company's success.

Page Ref: 146 Difficulty: Moderate Chapter LO: 2 Course LO: Describe the skills and functions of management Classification: Concept 10) An economic slowdown is viewed as a weakness in the SWOT analysis of a firm.

Answer: FALSE Explanation: Weaknesses are negative internal factors that inhibit the company's success, such as obsolete facilities, inadequate financial resources to fund growth, or lack of managerial depth and talent. Economic slowdown is an external factor.

Page Ref: 146 Difficulty: Difficult AACSB: Analytic Skills Chapter LO: 2 Course LO: Describe the skills and functions of management Classification: Application 11) Qualitative managerial forecasts are based on historical data and involve complex statistical computations.

Answer: FALSE Explanation: Managerial forecasts fall under two broad categories: quantitative forecasts, which are typically based on historical data or tests and often involve complex statistical computations, and qualitative forecasts, which are based more on intuitive judgments.

Page Ref: 146 Difficulty: Moderate Chapter LO: 2 Course LO: Describe the skills and functions of management Classification: Concept 12) A goal is a broad, long-term accomplishment that an organization wants to achieve.

Answer: TRUE Explanation: A goal is a broad, long-range accomplishment that organizations want to attain and an objective is a specific, short-range target designed to help them reach that goal.

Page Ref: 147 Difficulty: Easy Chapter LO: 2 Course LO: Describe the skills and functions of management Classification: Concept

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13) Organizing is the process of arranging resources to carry out an organization's plans.

Answer: TRUE Explanation: Organizing is the process of arranging resources to carry out an organization's plans. It is a major function of managers.

Page Ref: 148 Difficulty: Easy Chapter LO: 3 Course LO: Describe the skills and functions of management Classification: Concept 14) A management pyramid is used to exhibit managerial roles without defining a corporate hierarchy.

Answer: FALSE Explanation: A management pyramid is used to defines a corporate hierarchy.

Page Ref: 148 Difficulty: Moderate Chapter LO: 3 Course LO: Describe the skills and functions of management Classification: Concept 15) Middle managers establish the structure for an organization as a whole.

Answer: FALSE Explanation: Top managers establish the structure for the organization as a whole, and they select the people who fill the upper-level positions.

Page Ref: 149 Difficulty: Moderate Chapter LO: 3 Course LO: Describe the skills and functions of management Classification: Concept 16) First-line managers are those at the lowest level of the management hierarchy.

Answer: TRUE Explanation: First-line managers are those at the lowest level of the management hierarchy.

They supervise the operating employees and implement the plans set at the higher management levels.

Page Ref: 149 Difficulty: Easy Chapter LO: 3 Course LO: Describe the skills and functions of management Classification: Concept

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17) Leading is the process of influencing and motivating people to work willingly and effectively toward common goals.

Answer: TRUE Explanation: Leading is the process of influencing and motivating people to work willingly and effectively toward common goals.

Page Ref: 150 Difficulty: Easy Chapter LO: 4 Course LO: Describe the skills and functions of management Classification: Concept 18) Cognitive intelligence is a measure of a person's awareness of and ability to manage his or her own emotions.

Answer: FALSE Explanation: Emotional intelligence is a measure of a person's awareness of and ability to manage his or her own emotions. People with high emotional intelligence recognize their own emotional states and the effect those emotions have on others.

Page Ref: 150 Difficulty: Easy Chapter LO: 4 Course LO: Describe the skills and functions of management Classification: Concept 19) Socially adept managers have a knack for finding and building common ground with people of all kinds.

Answer: TRUE Explanation: Social intelligence involves looking outward to understand the dynamics of social situations and the emotions of other people, in addition to your own. Socially adept managers have a knack for finding and building common ground with people of all kinds.

Page Ref: 151 Difficulty: Moderate Chapter LO: 4 Course LO: Describe the skills and functions of management Classification: Concept 20) Autocratic leaders allow subordinates to make all the decisions concerning their performance.

Answer: FALSE Explanation: Autocratic leaders control the decision-making process in their organizations, often restricting the decision-making freedom of subordinates.

Page Ref: 151 Difficulty: Easy Chapter LO: 4 Course LO: Describe the skills and functions of management Classification: Concept 5 .

21) A manager completely hands over operational decision making to her subordinates. This manager is a democratic leader.

Answer: FALSE Explanation: This leader is a laissez-faire leader. Leaders who leave most decisions up to employees are called laissez-faire leaders. Democratic leaders involve employees in decision making, but do not hand over decision making to them.

Page Ref: 152 Difficulty: Moderate Chapter LO: 4 Course LO: Describe the skills and functions of management Classification: Concept 22) Mentoring is the process of establishing a short-term relationship between a senior member and a junior member.

Answer: FALSE Explanation: Mentoring is similar to coaching but is based on long-term relationships between senior and junior members of an organization.

Page Ref: 152 Difficulty: Easy Chapter LO: 4 Course LO: Describe the skills and functions of management Classification: Concept 23) A mentor is usually an experienced manager or employee who can help guide other managers and employees.

Answer: TRUE Explanation: Mentoring is based on long-term relationships between senior and junior members of an organization. The mentor is usually an experienced manager or employee who can help guide other managers and employees through the corporate maze.

Page Ref: 152 Difficulty: Easy Chapter LO: 4 Course LO: Describe the skills and functions of management Classification: Concept 24) Organizational culture refers to a set of shared values and norms that support the management system and that guide management and employee behavior.

Answer: TRUE Explanation: Organizational culture refers to a set of shared values and norms that support the management system and that guide management and employee behavior.

Page Ref: 153 Difficulty: Easy Chapter LO: 4 Course LO: Describe the skills and functions of management Classification: Concept 6 .

25) Controlling is the process of motivating employees to be committed toward the organization's values.

Answer: FALSE Explanation: Controlling is the management function of keeping a company's activities on track toward previously established goals.

Page Ref: 154 Difficulty: Easy Chapter LO: 4 Course LO: Describe the skills and functions of management Classification: Concept 26) Standards refer to the criteria against which performance is measured.

Answer: TRUE Explanation: Standards refer to the criteria against which performance is measured. Setting standards is the first step of the control cycle.

Page Ref: 155 Difficulty: Easy Chapter LO: 5 Course LO: Describe the skills and functions of management Classification: Concept 27) Quality is a measure of how productive an organization's employees are.

Answer: FALSE Explanation: Quality is a measure of how closely a product conforms to predetermined standards and customer expectations.

Page Ref: 155 Difficulty: Easy Chapter LO: 5 Course LO: Describe the skills and functions of management Classification: Concept 28) Conceptual skills refer to the ability and knowledge to perform the mechanics of a particular job.

Answer: FALSE Explanation: Technical skills refer to the ability and knowledge to perform the mechanics of a particular job. In contrast, conceptual skills refer to the ability to understand the relationship of parts to the whole.

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29) Managerial roles are grouped into three main categories: interpersonal, decisional, and ________.

A) directive B) instructional C) operational D) informational E) differential Answer: D Explanation: D) All the managerial roles that leaders must play can be grouped into three main categories: interpersonal, informational, and decisional.

Page Ref: 141 Difficulty: Easy Chapter LO: 1 Course LO: Describe the skills and functions of management Classification: Concept 30) Providing leadership to employees is an example of a(n) ________ role of management.

A) interpersonal B) communicative C) instructional D) decisional E) informational Answer: A Explanation: A) The interpersonal roles that a manager must play include the following: Providing leadership to employees, building relationships, and acting as a liaison between groups and individuals both inside and outside the company.

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31) A top executive reads summaries of vital performance variables in the organization using the executive dashboard. The executive is performing the ________ role in this case.

A) interpersonal B) instructional C) directional D) decisional E) informational Answer: E Explanation: E) An executive dashboard is a tool used to summarize information. The executive is performing an informational role in this case.

Page Ref: 142 Difficulty: Moderate Chapter LO: 1 Course LO: Describe the skills and functions of management Classification: Concept 32) A(n) ________ is a tool that provides quick-read summaries of vital performance variables.

A) executive dashboard B) business plan C) benchmark D) budget plan E) managerial pyramid Answer: A Explanation: A) An executive dashboard is a tool that provides quick-read summaries of vital performance variables.

Page Ref: 142 Difficulty: Easy Chapter LO: 1 Course LO: Describe the skills and functions of management Classification: Concept

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33) Choosing a candidate from several job applicants is an example of the ________ role of managers.

A) interpersonal B) instructional C) collaborative D) decisional E) informational Answer: D Explanation: D) Managers have many decisional roles. Such roles include choosing which of several job candidates to hire or setting the prices of new products.

Page Ref: 143 Difficulty: Easy Chapter LO: 1 Course LO: Describe the skills and functions of management Classification: Concept 34) Robert is the manager of a departmental store. Which of the following is an example of a decisional role that he has to undertake?

A) communicating with the top management B) training the new employees in the store C) performing operational tasks in the store D) motivating employees to serve customers better E) setting the prices of the products in the store Answer: E Explanation: E) Managers have many decisional roles. Such roles include choosing which of several job candidates to hire or setting the prices of new products.

Page Ref: 143 Difficulty: Difficult AACSB: Analytic Skills Chapter LO: 1 Course LO: Describe the skills and functions of management Classification: Application

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35) Charles is the CFO of a manufacturing organization. When determining how much money should be allocated to each departmental budget, he is performing the ________ role of management.

A) informational B) decisional C) instructional D) communicative E) interpersonal Answer: B Explanation: B) Charles is making a decision when allocating departmental budget. Hence he is performing the decisional role.

Page Ref: 143 Difficulty: Difficult AACSB: Analytic Skills Chapter LO: 1 Course LO: Describe the skills and functions of management Classification: Application 36) Developing strategies, establishing goals and objectives for the organization, and translating those strategies and goals into action plans is part of the ________ function of management.

A) leading B) organizing C) intermediating D) motivating E) planning Answer: E Explanation: E) Managers engage in planning when they develop strategies, establish goals and objectives for the organization, and translate those strategies and goals into action plans.

Page Ref: 143 Difficulty: Easy Chapter LO: 2 Course LO: Describe the skills and functions of management Classification: Concept

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37) ________ plans outline the firm's long-range (often two to five years) organizational goals and set a course of action the firm will pursue to reach its goals.

A) Tactical B) Operational C) Strategic D) Short-term E) Contingency Answer: C Explanation: C) Strategic plans outline the firm's long-range (often two to five years) organizational goals and set a course of action the firm will pursue to reach its goals. The strategic planning process consists of six interrelated steps.

Page Ref: 143 Difficulty: Easy Chapter LO: 2 Course LO: Describe the skills and functions of management Classification: Concept 38) A ________ is a brief declaration of what the organization aims to accomplish for customers, investors, and other stakeholders.

A) operational plan B) mission statement C) SWOT statement D) tactical plan E) values statement Answer: B Explanation: B) A mission statement is a brief statement of why an organization exists. In other words, it describes what the organization aims to accomplish for customers, investors, and other stakeholders.

Page Ref: 144 Difficulty: Easy Chapter LO: 2 Course LO: Describe the skills and functions of management Classification: Concept

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39) A(n) ________ is a brief and inspirational expression of what a company aspires to be.

A) tactical plan B) values statement C) operational plan D) vision statement E) summary of objectives Answer: D Explanation: D) A vision statement is a brief and inspirational expression of what a company aspires to be.

Page Ref: 145 Difficulty: Easy Chapter LO: 2 Course LO: Describe the skills and functions of management Classification: Concept 40) "Do what's right, respect others, care for customers, and perform with excellence." This is likely to be an organization's ________ statement.

A) vision B) operational C) tactical D) values E) mission Answer: D Explanation: D) A values statement identifies the principles that guide the company's decisions and behaviors and establish expectations for everyone in the organization. The given statement describes a company's principles.

Page Ref: 145 Difficulty: Difficult AACSB: Analytic Skills Chapter LO: 2 Course LO: Describe the skills and functions of management Classification: Application

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41) Which of the following is an example of a strength that companies possess?

A) prospective merger candidates B) lack of regulations C) respected brand D) narrow customer base E) increasing demand for products Answer: C Explanation: C) Strengths are positive internal factors that contribute to a company's success.

Having a respected brand is such a strength.

Page Ref: 145; 146 Difficulty: Moderate Chapter LO: 2 Course LO: Describe the skills and functions of management Classification: Concept Alfa Knowledge is a knowledge management firm. The company helps organizations document and manage internal knowledge. The company has operations in seventeen countries.

42) Which of the following refers to a strength that Alfa Knowledge possesses?

A) The company has an early mover advantage in the market that it is operating.

B) The company is functioning in a low-growth industry.

C) The company has a patented technology for knowledge management.

D) The company is functioning in a high-growth industry.

E) The countries in which the company is operating were not affected by the economic slowdown of 2009.

Answer: C Explanation: C) Strengths are positive internal factors that contribute to a company's success.

Having a patent is an internal factor and will contribute to the company's success.

Page Ref: 146 Difficulty: Difficult AACSB: Analytic Skills Chapter LO: 2 Course LO: Describe the skills and functions of management Classification: Application

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43) Which of the following describes a weakness that Alfa Knowledge has?

A) The company's sales were affected by the nuclear disaster that took place in Japan.

B) The company functions in countries that lack skilled labor.

C) The company spends huge money to pay for tariffs and duties.

D) The company often incurs loses due to fluctuating exchange rates.

E) The company's employees are not committed to be with the company for long.

Answer: E Explanation: E) Weaknesses are negative internal factors that inhibit the company's success. The only negative internal factor described here is the lack of commitment from the employees.

Page Ref: 146 Difficulty: Difficult AACSB: Analytic Skills Chapter LO: 2 Course LO: Describe the skills and functions of management Classification: Application 44) Which of the following is an opportunity available to Alfa Knowledge?

A) having strong financial resources B) having a respected brand C) having committed employees D) presence of potential partners E) presence of strong management professionals in the company Answer: D Explanation: D) Opportunities are positive situations that represent the possibility of generating new revenue. Presence of potential partners is one such opportunity.

Page Ref: 146 Difficulty: Difficult AACSB: Analytic Skills Chapter LO: 2 Course LO: Describe the skills and functions of management Classification: Application

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45) The demand for Alfa's products has been shrinking in recent times. This is considered a(n) ________ for the company.

A) weakness B) limitation C) internal flaw D) opportunity E) threat Answer: E Explanation: E) Threats are negative forces that could inhibit a firm's ability to achieve its objectives. Shrinking demand is one such threat.

Page Ref: 146 Difficulty: Difficult AACSB: Analytic Skills Chapter LO: 2 Course LO: Describe the skills and functions of management Classification: Application 46) RSX Plastic is an Asian company that manufactures commercial plastic products. The company plans to open a production facility in the United States. In order to enter the U.S. market, the company is required to set up a plastic recycling plant that attracts huge fixed costs.

This requirement is an example of a(n) ________ for the company.

A) opportunity B) weakness C) strength D) threat E) internal limitation Answer: D Explanation: D) Threats are negative forces that could inhibit a firm's ability to achieve its objectives, including such external factors as new competitors, new government regulations, economic contraction, and changes in interest rates. The given requirement is an example of a threat.

Page Ref: 146 Difficulty: Difficult AACSB: Analytic Skills Chapter LO: 2 Course LO: Describe the skills and functions of management Classification: Application

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47) A(n) ________ is a specific, short-range target or aim.

A) mission B) tactic C) strategy D) objective E) vision Answer: D Explanation: D) An objective is a specific, short-range target designed to help organizations reach their goals.

Page Ref: 147 Difficulty: Easy Chapter LO: 2 Course LO: Describe the skills and functions of management Classification: Concept 48) In order to be effective, a business goal should be ________.

A) broadly defined B) measurable C) time unlimited D) remotely defined E) substantially high Answer: B Explanation: B) Business people should make their goals and objectives "SMART," as in specific, measurable, attainable, relevant, and time limited.

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49) The overall plan might be supported at the next level down by such plans as research and development plan, manufacturing plan, and marketing plan. Such functional plans are called ________ plans.

A) appraisal B) strategic C) contingency D) tactical E) corporate Answer: D Explanation: D) The overall strategic plan of an organization might be supported at the next level down by a research and development plan, a manufacturing plan, and a marketing plan, describing how each functional area will help the company reach its strategic goals and objectives. Such plans are called tactical plans.

Page Ref: 147 Difficulty: Easy Chapter LO: 2 Course LO: Describe the skills and functions of management Classification: Concept 50) Which of the following statements is true of tactical plans?

A) Tactical plans vary by company and business function.

B) These plans refer to the strategic plans of organizations.

C) Tactical plans are prepared for long-term purposes.

D) Tactical plans cover all functions in an organization.

E) Operational issues are not covered under tactical plans.

Answer: A Explanation: A) The names and contents of tactical plans vary widely by industry, company, and business function.

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51) ________ is the process of arranging resources to carry out an organization's plans. It is one of the major functions of managers.

A) Planning B) Directing C) Organizing D) Analyzing E) Controlling Answer: C Explanation: C) Organizing is the process of arranging resources to carry out an organization's plans. It is one of the major functions of managers.

Page Ref: 148 Difficulty: Moderate Chapter LO: 3 Course LO: Describe the skills and functions of management Classification: Concept 52) Which of the following functions is typically performed by top managers?

A) establishing the structure for the organization B) supervising lower-level managers C) translating strategic goals into actions D) putting the systems and resources in place E) translating strategic objectives into the actions Answer: A Explanation: A) Top managers in an organization establish the structure for the organization as a whole, and they select the people who fill the upper-level positions.

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53) Which of the following is a typical role of middle managers in an organization?

A) defining the strategic orientation of the organization B) supervising workers on an assembly line C) supervising knowledge workers D) making long-range plans for the organization E) translating strategic goals and objective into actions Answer: E Explanation: E) Middle managers play the essential role of translating strategic goals and objective into the actions that allow the company to meet those targets. While they may not do the actual day-to-day work, middle managers are the ones who put the systems and resources in place so that front-line teams can work efficiently and with coordinated purpose.

Page Ref: 149 Difficulty: Moderate Chapter LO: 3 Course LO: Describe the skills and functions of management Classification: Concept 54) Josephine is an employee supervisor in a manufacturing firm. She supervises a small group of assembly workers on one of her company's assembly lines. Josephine is a(n) ________ manager.

A) upper-level B) top C) first-line D) middle E) executive level Answer: C Explanation: C) First-line managers are those at the lowest level of the management hierarchy.

They supervise the operating employees and implement the plans set at the higher management levels. Josephine is a first-line manager.

Page Ref: 149 Difficulty: Difficult AACSB: Analytic Skills Chapter LO: 3 Course LO: Describe the skills and functions of management Classification: Application

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55) ________ is the process of influencing and motivating people to work willingly and effectively toward common goals.

A) Organizing B) Leading C) Planning D) Directing E) Controlling Answer: B Explanation: B) Leading is the process of influencing and motivating people to work willingly and effectively toward common goals. Managers with good leadership skills have greater success in influencing the attitudes and actions of others and motivating employees to put forth their best performance.

Page Ref: 150 Difficulty: Easy Chapter LO: 4 Course LO: Describe the skills and functions of management Classification: Concept 56) ________ intelligence involves reasoning, problem solving, memorization, and other rational skills.

A) Cognitive B) Emotional C) Social D) Collaborative E) Networking Answer: A Explanation: A) Cognitive intelligence involves reasoning, problem solving, memorization, and other rational skills. Obviously, leaders need a sufficient degree of cognitive intelligence to understand and process the information required for planning and decision making in the jobs.

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57) A manager has the capability of reducing his disruptive impulses and moods. He also has the ability to understand others' feelings. These capabilities are indicative of ________.

A) low cognitive intelligence B) high degree of autocracy C) low social intelligence D) high emotional intelligence E) high cognitive intelligence Answer: D Explanation: D) People with high emotional intelligence recognize their own emotional states and the effect those emotions have on others. They are able to regulate their emotional responses in order to control or reduce disruptive impulses and moods, and they have a high degree of empathy (the ability to understand others' feelings).

Page Ref: 150; 151 Difficulty: Moderate Chapter LO: 4 Course LO: Describe the skills and functions of management Classification: Concept 58) Socially adept managers will have a knack for ________.

A) solving problems quickly using their reasoning abilities B) exhibiting rational skills to make high-quality decisions C) controlling their own emotions and impulses D) judging others based on a variety of objective parameters E) finding and building common ground with people of all kinds Answer: E Explanation: E) Socially adept managers have a knack for finding and building common ground with people of all kinds. Moreover, leaders, in a sense, infect their organizations with their own emotions, positive or negative.

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59) Danielle has an innate ability to solve interpersonal issues that the employees face and she is always considerate toward her subordinates. She is capable of coordinating with different types of employees in the organization. Danielle has high ________ intelligence.

A) informational B) cognitive C) critical D) social E) emotional Answer: D Explanation: D) Social intelligence involves looking outward to understand the dynamics of social situations and the emotions of other people, in addition to your own. Socially adept managers have a knack for finding and building common ground with people of all kinds.

Page Ref: 151 Difficulty: Difficult AACSB: Analytic Skills Chapter LO: 4 Course LO: Describe the skills and functions of management Classification: Application 60) Under ________ leadership, subordinates have little or no freedom to make decisions, deviate from plans, or provide contrary input.

A) democratic B) autocratic C) laissez-faire D) transformational E) participative Answer: B Explanation: B) Under autocratic leadership, a manager makes the decisions and issues directives down the chain of command. Subordinates have little or no freedom to make decisions, deviate from plans, or provide contrary input.

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61) Arthur is a plant supervisor at Skyline Constructions. Twenty construction workers report to Arthur. Arthur provides them the work designs and schedules every week and does not allow them to make any changes to the schedule. Workers often complain that he is not receptive to suggestions from them. Arthur is following ________ leadership in this case.

A) transformational B) autocratic C) democratic D) laissez-faire E) participative Answer: B Explanation: B) Under autocratic leadership, manager makes the decisions and issues directives down the chain of command. Subordinates have little or no freedom to make decisions, deviate from plans, or provide contrary input.

Page Ref: 151 Difficulty: Difficult AACSB: Analytic Skills Chapter LO: 4 Course LO: Describe the skills and functions of management Classification: Application 62) ________ leaders act as advisors and supporters and generally let subordinates chart and adjust their own course toward meeting agreed-upon goals and objectives.

A) Participative B) Consultative C) Autocratic D) Transactional E) Laissez-faire Answer: E Explanation: E) Laissez-faire leaders act as advisor and supporter, offering input when asked but generally letting subordinates chart and adjust their own course toward meeting agreed-upon goals and objectives.

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63) You have been working under the same manager for nearly a year and have been allowed to do your job with almost no interference from your manager. The manager's only concern seems to be that you are efficient and productive and meet your goals. Since this manager surrenders most of her responsibility to her subordinates, she would be referred to as a(n) ________ leader.

A) democratic B) transactional C) autocratic D) laissez-faire E) authoritarian Answer: D Explanation: D) This manager is following a laissez-faire leadership. Laissez-faire leaders act as advisor and supporter, offering input when asked but generally letting subordinates chart and adjust their own course toward meeting agreed-upon goals and objectives.

Page Ref: 151 Difficulty: Difficult AACSB: Analytic Skills Chapter LO: 4 Course LO: Describe the skills and functions of management Classification: Application 64) Julia is the product manager of an automobile manufacturer. She allots part of her duties to her subordinates and involves them when making key decisions. She is receptive to new ideas and accepts valuable ideas from others. Julia is a ________ leader.

A) autocratic B) democratic C) laissez-faire D) directive E) transactional Answer: B Explanation: B) Democratic leaders delegate authority and involve employees in decision making. Also known as collaborative leaders, these managers invite and seek out input from anyone in the organization who can add insight to the decision-making process. From the scenario, we can determine that Julia is a democratic leader.

Page Ref: 152 Difficulty: Difficult AACSB: Analytic Skills Chapter LO: 4 Course LO: Describe the skills and functions of management Classification: Application

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65) Danny leads a team of fifteen programmers. Danny divides the project into independent modules and assigns each programmer a module. Danny tells the employees that they are responsible for the completion of the modules and he would assist them only if they need help.

Identify the leadership style that Danny is following.

A) democratic leadership B) directive leadership C) transactional leadership D) autocratic leadership E) laissez-faire leadership Answer: E Explanation: E) Danny is following a laissez-faire leadership. In such leadership, a manager acts as advisor and supporter, offering input when asked but generally letting subordinates chart and adjust their own course toward meeting agreed-upon goals and objectives.

Page Ref: 152 Difficulty: Difficult AACSB: Analytic Skills Chapter LO: 4 Course LO: Describe the skills and functions of management Classification: Application 66) The first step in managing organizational change is ________.

A) monitoring continued progress of the change effort B) identifying the need for change C) reinforcing the changed behavior D) analyzing the forces acting against the change E) choosing the technique to be used in instituting the change Answer: B Explanation: B) The first step in managing change is identifying everything that needs to be changed.

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67) ________ is the management function of keeping a company's activities on track toward previously established goals.

A) Organizing B) Leading C) Planning D) Motivating E) Controlling Answer: E Explanation: E) Controlling is the management function of keeping a company's activities on track toward previously established goals. The nature of control varies widely, from directly intervening in a process to modifying policies or systems in a way that enables employees to reach their objectives.

Page Ref: 154 Difficulty: Easy Chapter LO: 5 Course LO: Describe the skills and functions of management Classification: Concept 68) Directly intervening in organizational processes to improve performance is an example of the ________ function of management.

A) communicating B) controlling C) planning D) organizing E) decision making Answer: B Explanation: B) Controlling is the management function of keeping a company's activities on track toward previously established goals. The nature of control varies from directly intervening in a process to modifying policies or systems in a way that enables employees to reach their objectives.

Page Ref: 154 Difficulty: Easy Chapter LO: 5 Course LO: Describe the skills and functions of management Classification: Concept

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69) The criteria against which performance is measured are referred to as ________.

A) standards B) tools C) controls D) measures E) frameworks Answer: A Explanation: A) Standards refer to the criteria against which performance is measured.

Managers set standards in the first step of the control cycle.

Page Ref: 155 Difficulty: Easy Chapter LO: 5 Course LO: Describe the skills and functions of management Classification: Concept 70) Benchmarking refers to ________.

A) comparing performance results between work groups in the organization B) determining departmental standards of performance C) establishing a timeline to determine efficiency D) balancing process and performance data within the company E) comparing process and performance data from other companies Answer: E Explanation: E) A common approach to setting standards is benchmarking. It involves collecting and comparing process and performance data from other companies.

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71) ________ is a measure of how closely a product conforms to predetermined standards and customer expectations.

A) Productivity B) Yield C) Quality D) Efficiency E) Structure Answer: C Explanation: C) Quality is a measure of how closely a product conforms to predetermined standards and customer expectations. It is one of the most important performance variables that fall under managerial control.

Page Ref: 155 Difficulty: Easy Chapter LO: 5 Course LO: Describe the skills and functions of management Classification: Concept 72) Balanced scorecard is a method of ________.

A) creating schedules for non-routine organizational tasks B) monitoring the performance from multiple perspectives C) evaluating the external threats of an organization D) documenting the strategic goals of an organization E) monitoring the external opportunities of an organization Answer: B Explanation: B) Balanced scorecard is a method of monitoring the performance from four perspectives: finances, operations, customer relationships, and the growth and development of employees and intellectual property.

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73) ________ skills are required to understand others and to interact effectively with them.

A) Technical B) Decisional C) Conceptual D) Administrative E) Interpersonal Answer: E Explanation: E) Interpersonal skills are required to understand other people and to interact effectively with them.

Page Ref: 157 Difficulty: Easy Chapter LO: 6 Course LO: Describe the skills and functions of management Classification: Concept 74) ________ is the most important and pervasive interpersonal skill that managers use.

A) Communication B) Evaluation C) Analytic ability D) Negotiation skill E) Technical skill Answer: A Explanation: A) Communication is the most important and pervasive interpersonal skill that managers use. Effective communication not only increases a manager's and an organization's productivity but also shapes the impression made on colleagues.

Page Ref: 157 Difficulty: Easy AACSB: Communication Abilities Chapter LO: 6 Course LO: Describe the skills and functions of management Classification: Concept

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75) Which of the following skills refer to the ability and knowledge to perform the mechanics of a particular job?

A) cognitive skills B) technical skills C) conceptual skills D) decisional skills E) organizational skills Answer: B Explanation: B) Technical skills refer to the ability and knowledge to perform the mechanics of a particular job.

Page Ref: 158 Difficulty: Easy Chapter LO: 6 Course LO: Describe the skills and functions of management Classification: Concept 76) Which of the following is the best example of a technical skill that managers must possess?

A) capability of making accurate decisions on issues B) ability to get along well with the subordinates C) ability to prepare a formal profit and loss statement D) ability to collaborate well with workers E) capability to understand the relationship between parts and whole Answer: C Explanation: C) A person who knows how to operate a machine, prepare a financial statement, or use a web content management system has technical skills. Technical skills refer to the ability and knowledge to perform the mechanics of a particular job.

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77) ________ skills refer to technical skills in information gathering, data analysis, planning, organizing, and other aspects of managerial work.

A) Collaborative B) Decisional C) Conceptual D) Administrative E) Interpersonal Answer: D Explanation: D) Administrative skills are technical skills in information gathering, data analysis, planning, organizing, and other aspects of managerial work.

Page Ref: 158 Difficulty: Easy Chapter LO: 6 Course LO: Describe the skills and functions of management Classification: Concept 78) Which of the following is an example of an administrative skill that managers possess?

A) ability to make correct hiring decisions B) being skillful in information gathering C) being skillful in operating machines D) ability to understand others' feeling E) having a sense of empathy with subordinates Answer: B Explanation: B) Administrative skills refer to the technical skills in information gathering, data analysis, planning, organizing, and other aspects of managerial work.

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79) ________ skills refer to the ability to understand the relationship of parts to the whole.

A) Interpersonal B) Conceptual C) Technical D) Administrative E) Decision-making Answer: B Explanation: B) Conceptual skills refer to the ability to understand the relationship of parts to the whole. Managers need conceptual skills to visualize organizations, systems, markets, and solutions, both as complete entities on their own and as interrelated pieces of a whole.

Page Ref: 158 Difficulty: Easy Chapter LO: 6 Course LO: Describe the skills and functions of management Classification: Concept 80) Systems thinking ability refers to the ability to understand the relationship between components and the larger out put. Systems thinking ability is an example of a(n) ________ skill.

A) interpersonal B) conceptual C) technical D) administrative E) decision-making Answer: B Explanation: B) Conceptual skills refer to the ability to understand the relationship of parts to the whole. Systems thinking ability, as described in the question, is a conceptual skill.

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81) Managers need conceptual skills to ________.

A) perform such tasks as operating a machine and preparing a financial statement B) gather information relating various managerial and non-managerial issues C) accurately perform the mechanics of a particular job D) understand other people and to interact effectively with them E) visualize elements both as complete entities on their own and as interrelated pieces of a whole Answer: E Explanation: E) Managers need conceptual skills to visualize organizations, systems, markets, and solutions—both as complete entities on their own and as interrelated pieces of a whole.

Page Ref: 158 Difficulty: Moderate Chapter LO: 6 Classification: Concept 82) ________ skills refer to the ability to identify a decision situation, analyze the problem, weigh the alternatives, choose an alternative, implement it, and evaluate the results.

A) Interpersonal B) Technical C) Administrative D) Decision-making E) Interpersonal Answer: D Explanation: D) Decision-making skills refer to the ability to identify a decision situation, analyze the problem, weigh the alternatives, choose an alternative, implement it, and evaluate the results.

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83) The first step in a decision-making process is to ________.

A) generate options or alternatives B) select the best or optimum option C) recognize and define the problem D) implement the decision E) monitor the results Answer: C Explanation: C) The first step in a decision-making process is to recognize and define the problem or opportunity. Most companies look for problems or opportunities by gathering customer feedback, conducting studies, or monitoring such warning signals as declining sales or profits, excess inventory buildup, or high customer turnover.

Page Ref: 158 Difficulty: Easy Chapter LO: 4 Course LO: Describe the skills and functions of management Classification: Concept 84) Cite an example of a person who holds a managerial position and categorize the various activities that he or she performs into informational roles, decisional roles, and interpersonal roles.

Answer: Students may consider a manager who is familiar to them, such as the dean of their shool. Students may list the various tasks that he or she performs and categorize them into different types of roles. Student answers will vary due to the nature of this question.

Page Ref: 141; 142 Difficulty: Difficult AACSB: Reflective Thinking Skills Chapter LO: 1 Course LO: Describe the skills and functions of management Classification: Synthesis 85) Explain the decisional roles of managers.

Answer: Managers up and down the organizational ladder face an endless stream of decisions.

Many of these decisions are fairly routine, such as choosing which of several job candidates to hire or setting the prices of new products. Other decisions, however, might occur only once or twice in a manager's career, such as responding to a product-tampering crisis or the threat of a hostile takeover. Some decisions are made after extensive information gathering and analysis; others have to be made on the spot, with little but judgment and intuition to guide the manager's choice.

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86) Compare and contrast mission statements, vision statements, and values statements.

Answer: A mission statement is a brief statement of why an organization exists. In other words, what the organization aims to accomplish for customers, investors, and other stakeholders. A vision statement is a brief and inspirational expression of what a company aspires to be. Values statement is a brief articulation of the principles that guide a company's decisions and behaviors.

Page Ref: 144; 145 Difficulty: Difficult AACSB: Reflective Thinking Skills Chapter LO: 2 Course LO: Describe the skills and functions of management Classification: Synthesis 87) Compare and contrast an organization's strengths with opportunities.

Answer: Strengths are positive internal factors that contribute to a company's success, which can be anything from a team of expert employees to financial resources to unique technologies.

Opportunities are positive situations that represent the possibility of generating new revenue.

Opportunities are not under an organization's control, whereas strengths can be controlled by the organization. A respected brand name is a strength, whereas a booming economy is an opportunity.

Page Ref: 146 Difficulty: Difficult AACSB: Reflective Thinking Skills Chapter LO: 2 Course LO: Describe the skills and functions of management Classification: Synthesis 88) Compare and contrast quantitative forecasts with qualitative forecasts.

Answer: Managerial forecasts fall under two broad categories: quantitative forecasts, which are typically based on historical data or tests and often involve complex statistical computations, and qualitative forecasts, which are based more on intuitive judgments. Neither method is foolproof, but both are valuable tools and are often used together to help managers fill in the unknown variables that inevitably crop up in the planning process.

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89) Describe 'SMART' goals with an example.

Answer: Business people are often advised to make their goals and objectives "SMART," as in specific, measurable, attainable, relevant, and time limited. For example, "substantially increase our sales" is a poorly worded statement because it doesn't define what substantial means or when it should be measured.

Page Ref: 147 Difficulty: Easy Chapter LO: 2 Course LO: Describe the skills and functions of management Classification: Concept 90) Briefly describe the organizing function of management.

Answer: Organizing is the process of arranging resources to carry out an organization's plans. It is the second major function of managers. To organize effectively, managers must think through all the activities that employees perform, as well as all the facilities and equipment employees need in order to complete those activities.

Page Ref: 148 Difficulty: Easy Chapter LO: 3 Course LO: Describe the skills and functions of management Classification: Concept 91) Compare and contrast the roles of top managers and middle managers.

Answer: Top managers establish the structure for the organization as a whole, and they select the people who fill the upper-level positions. Top managers also make long-range plans, establish major policies, and often represent the company to the media, the community, and other stakeholders.

Middle managers have similar responsibilities but on a smaller scale, such as for an individual division or facility. Managers at this level report upward to top executives, while first-line managers report to them. Middle managers play the essential role of translating strategic goals and objectives into the actions that allow the company to meet those targets.

Page Ref: 149 Difficulty: Difficult AACSB: Reflective Thinking Skills Chapter LO: 3 Course LO: Describe the skills and functions of management Classification: Synthesis

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92) Do you think middle managers are essential to organizations? Explain your answer.

Answer: The term middle management is sometimes used disparagingly, giving the impression that middle managers are people who clog up the works without adding much value. Some highly regarded opinion leaders have gone so far as to blame such managers for much that ails the modern corporation. Many companies have also flattened their organizational structures by removing one or more layers of middle management. However, middle managers play the essential role of translating strategic goals and objective into the actions that allow the company to meet those targets. Students may agree or disagree with the idea of having middle managers.

Student answers will vary due to the nature of this question.

Page Ref: 149 Difficulty: Difficult AACSB: Reflective Thinking Skills Chapter LO: 3 Course LO: Describe the skills and functions of management Classification: Synthesis 93) Compare and contrast cognitive intelligence and social intelligence.

Answer: Cognitive intelligence involves reasoning, problem solving, memorization, and other rational skills. Obviously, leaders need a sufficient degree of cognitive intelligence to understand and process the information required for planning and decision making in the jobs. Social intelligence involves looking outward to understand the dynamics of social situations and the emotions of other people, in addition to your own. Socially adept managers have a knack for finding and building common ground with people of all kinds.

Page Ref: 150; 151 Difficulty: Difficult AACSB: Reflective Thinking Skills Chapter LO: 4 Course LO: Describe the skills and functions of management Classification: Synthesis 94) Explain how democratic leaders function.

Answer: Democratic leaders delegate authority and involve employees in decision making. Also known as collaborative leaders, these managers invite and seek out input from anyone in the organization who can add insight to the decision-making process. This style is often called participative management.

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95) Do you think having a positive culture is important to an organization? Explain your answer.

Answer: Organizational culture refers to a set of shared values and norms that support the management system and that guide management and employee behavior. Culture can be a negative or a positive force in an organization, and managers set the tone by establishing expectations, defining rules and policies that shape behavior, and acting as role models. Positive cultures create an environment that encourages employees to make smart decisions for the good of the company and its customers. So it is important for organizations to make a positive culture.

Page Ref: 153; 154 Difficulty: Moderate Chapter LO: 4 Course LO: Describe the skills and functions of management Classification: Concept 96) Consider an automobile manufacturing company that manufactures low cost cars. Construct a model of control cycle for this organization.

Answer: The students should design a model based on the framework given in the text. The cycle is described in exhibit 7.7. Student answers will vary due to the nature of this question.

Page Ref: 154; 155 Difficulty: Difficult AACSB: Reflective Thinking Skills Chapter LO: 5 Course LO: Describe the skills and functions of management Classification: Synthesis 97) Explain a balanced scorecard.

Answer: Balanced scorecard is a method of monitoring the performance from four perspectives: finances, operations, customer relationships, and the growth and development of employees and intellectual property. It is used by managers in the second step of the control cycle.

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98) Briefly explain the four basic categories of management skills.

Answer: The four types of skills are explained below.

(1) Interpersonal skills: These are skills required to understand other people and to interact effectively with them.

(2) Technical skills: They refer to the ability and knowledge to perform the mechanics of a particular job.

(3) Conceptual skills: They refer to the ability to understand the relationship of parts to the whole.

(4) Decision-making skills: They refer to the ability to identify a decision situation, analyze the problem, weigh the alternatives, choose an alternative, implement it, and evaluate the results.

Page Ref: 157; 158 Difficulty: Moderate Chapter LO: 6 Course LO: Describe the skills and functions of management Classification: Concept 99) Compare and contrast technical skills and conceptual skills.

Answer: Technical skills refer to the ability and knowledge to perform the mechanics of a particular job. A person who knows how to operate a machine, prepare a financial statement, or use a web content management system has technical skills. Conceptual skills refer to the ability to understand the relationship of parts to the whole. Managers need conceptual skills to visualize organizations, systems, markets, and solutions - both as complete entities on their own and as interrelated pieces of a whole.

Page Ref: 158 Difficulty: Difficult AACSB: Reflective Thinking Skills Chapter LO: 6 Course LO: Describe the skills and functions of management Classification: Synthesis

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100) Think of a situation where you have used decision-making skills to solve a problem.

Analyze the situation based on the decision-making steps discussed in the text.

Answer: The steps described in the text are the following: (1) Recognize and define the situation (2) Identify options (3) Analyze options (4) Select the best option (5) Implement the decision (6) Monitor and evaluate the results Students should relate the decision that they have made to these steps.

Page Ref: 158; 159 Difficulty: Difficult AACSB: Reflective Thinking Skills Chapter LO: 6 Course LO: Describe the skills and functions of management Classification: Synthesis

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Business in Action, 6e (Bovee/Thill) Chapter 8 Organization and Teamwork 1) Organization structure is a framework that enables managers to divide responsibilities, ensure employee accountability, and distribute decision-making authority.

Answer: TRUE Explanation: Organization structure is a framework that enables managers to divide responsibilities, ensure employee accountability, and distribute decision-making authority.

Page Ref: 166 Difficulty: Easy Chapter LO: 1 Course LO: Discuss the factors that influence decisions about organizational structure Classification: Concept 2) The diagram that shows how employees and tasks are grouped is called organizational structure.

Answer: FALSE Explanation: A chart that provides a visual representation of how employees and tasks are grouped and how the lines of communication and authority flow is known as an organization chart.

Page Ref: 166 Difficulty: Easy Chapter LO: 1 Course LO: Discuss the factors that influence decisions about organizational structure Classification: Concept 3) The degree to which organizational tasks are broken down into separate jobs is referred to as work specialization.

Answer: TRUE Explanation: The degree to which organizational tasks are broken down into separate jobs is referred to as work specialization.

Page Ref: 166 Difficulty: Easy Chapter LO: 1 Course LO: Discuss the factors that influence decisions about organizational structure Classification: Concept 4) Core competencies are those activities in which a company excels and has the potential to create competitive advantages.

Answer: TRUE Explanation: Core competencies are those activities in which a company excels and has the potential to create competitive advantages.

Page Ref: 166 Difficulty: Easy Chapter LO: 1 Course LO: Discuss the factors that influence decisions about organizational structure Classification: Concept 1 .

5) The number of people under one manager's control is that manager's chain of command.

Answer: FALSE Explanation: Chain of command is a pathway for the flow of authority from one management level to the next.

Page Ref: 167 Difficulty: Easy Chapter LO: 1 Course LO: Discuss the factors that influence decisions about organizational structure Classification: Concept 6) When a manager has many employees reporting directly to her, she has a narrow span of control.

Answer: FALSE Explanation: The number of people under one manager's control is known as span of control.

When a manager has many employees reporting directly to her, she has a wide span of control.

Page Ref: 169 Difficulty: Moderate Chapter LO: 1 Course LO: Discuss the factors that influence decisions about organizational structure Classification: Concept 7) A centralized organization concentrates decision-making authority at the upper levels of the organization.

Answer: TRUE Explanation: A centralized organization concentrates decision-making authority at the upper levels of the organization.

Page Ref: 169 Difficulty: Easy Chapter LO: 1 Course LO: Discuss the factors that influence decisions about organizational structure Classification: Concept 8) Texas Motors, a car manufacturing company, groups its departments around the three lines of cars it manufactures. Each product division encompasses all the major functional resources required to achieve its goals. This indicates that Texas Motors has a functional structure.

Answer: FALSE Explanation: A functional structure groups workers according to their similar skills, resource use, and expertise.

Page Ref: 171 Difficulty: Difficult AACSB: Analytic Skills Chapter LO: 2 Course LO: Discuss the factors that influence decisions about organizational structure Classification: Application

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9) A matrix organization uses functional and divisional patterns simultaneously.

Answer: TRUE Explanation: A matrix structure is an organizational design in which employees from functional departments form teams to combine their specialized skills.

Page Ref: 172 Difficulty: Easy Chapter LO: 2 Course LO: Discuss the factors that influence decisions about organizational structure Classification: Concept 10) Employees working in a firm with divisional structure have to get used to reporting to two bosses at the same time.

Answer: FALSE Explanation: Divisional structure refers to grouping departments according to similarities in product, process, customer, or geography. Employees working in a firm with divisional structure will report to only one boss.

Page Ref: 172 Difficulty: Moderate Chapter LO: 2 Course LO: Discuss the factors that influence decisions about organizational structure Classification: Concept 11) A network structure stretches beyond the boundaries of a company to connect a variety of partners and suppliers that perform selected tasks for a headquarters organization.

Answer: TRUE Explanation: A network structure stretches beyond the boundaries of a company to connect a variety of partners and suppliers that perform selected tasks for a headquarters organization.

Page Ref: 172 Difficulty: Easy Chapter LO: 2 Course LO: Discuss the factors that influence decisions about organizational structure Classification: Concept 12) While a network structure can lower costs and increase a company's flexibility, it can also leave the company vulnerable to risks such as outside contractors going out of business or offering the same goods and services to a competitor.

Answer: TRUE Explanation: While a network structure can lower costs and increase a company's flexibility, it can also leave the company vulnerable to risks such as outside contractors going out of business or offering the same goods and services to a competitor.

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13) A team is a unit of two or more people who work together to achieve a shared goal.

Answer: TRUE Explanation: A team is a unit of two or more people who work together to achieve a shared goal.

Most organizations use teams.

Page Ref: 173 Difficulty: Easy Chapter LO: 3 Course LO: Discuss the factors that influence decisions about organizational structure Classification: Concept 14) A self-managed team requires little supervision, controls the pace of its work and determines work assignments.

Answer: TRUE Explanation: A self-managed team requires little supervision, controls the pace of its work and determines work assignments.

Page Ref: 174 Difficulty: Moderate Chapter LO: 3 Course LO: Discuss the factors that influence decisions about organizational structure Classification: Concept 15) A functional team is also known as a horizontal team.

Answer: FALSE Explanation: A functional team is a team whose members come from a single functional department and that is based on the organization's vertical structure. A horizontal team is a team that draws together employees from different functional areas.

Page Ref: 174 Difficulty: Easy Chapter LO: 3 Course LO: Discuss the factors that influence decisions about organizational structure Classification: Concept 16) A functional team is organized along the lines of the organization's vertical structure.

Answer: TRUE Explanation: A functional team, or command team, is organized along the lines of the organization's vertical structure and thus may be referred to as a vertical team.

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17) A team that may become permanent in order to deal with regularly recurring tasks is called a task force.

Answer: FALSE Explanation: A task force is formed to work on a specific activity with a completion point.

Page Ref: 175 Difficulty: Easy Chapter LO: 3 Course LO: Discuss the factors that influence decisions about organizational structure Classification: Concept 18) Social networking can also help a company maintain a sense of community even as it grows beyond the size that normally permits a lot of daily interaction.

Answer: TRUE Explanation: Social networking can also help a company maintain a sense of community even as it grows beyond the size that normally permits a lot of daily interaction.

Page Ref: 176 Difficulty: Moderate Chapter LO: 3 Course LO: Discuss the factors that influence decisions about organizational structure Classification: Concept 19) When people work together toward a common goal rather than competing for individual recognition, their efforts and energies tend to focus on the common good.

Answer: TRUE Explanation: When people work together toward a common goal rather than competing for individual recognition, their efforts and energies tend to focus on the common good.

Page Ref: 177 Difficulty: Moderate Chapter LO: 4 Course LO: Discuss the factors that influence decisions about organizational structure Classification: Concept 20) People who assume the task-specialist role focus on supporting the team's emotional needs and strengthening the team's social unity.

Answer: FALSE Explanation: People who assume the task-specialist role focus on helping the team reach its goals.

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21) The stage of team development in which the team stabilizes and team members recognize and accept their roles and duties is called performing.

Answer: TRUE Explanation: The stage of team development in which the team stabilizes and team members recognize and accept their roles and duties is called performing.

Page Ref: 181 Difficulty: Easy Chapter LO: 5 Course LO: Discuss the factors that influence decisions about organizational structure Classification: Concept 22) Informal standards of conduct that guide team behavior are called groupthink.

Answer: FALSE Explanation: Groupthink refers to uniformity of thought that occurs when peer pressures cause individual team members to withhold contrary or unpopular opinions.

Page Ref: 178 Difficulty: Easy Chapter LO: 5 Course LO: Discuss the factors that influence decisions about organizational structure Classification: Concept 23) Conflict is a destructive force in an organization and should be avoided at all costs.

Answer: FALSE Explanation: Although the term conflict sounds negative, conflict isn't necessarily bad. It can be constructive if it brings important issues into the open.

Page Ref: 181 Difficulty: Moderate Chapter LO: 5 Course LO: Discuss the factors that influence decisions about organizational structure Classification: Concept 24) Destructive conflict can lead to win-lose or lose-lose outcomes, in which one or both sides lose, to the detriment of the entire team.

Answer: TRUE Explanation: Destructive conflict can lead to win-lose or lose-lose outcomes, in which one or both sides lose, to the detriment of the entire team.

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25) Unstructured organizations can be even more complex than matrix organizations because workers not only have multiple bosses but report to multiple bosses in multiple companies.

Answer: TRUE Explanation: Unstructured organizations can be even more complex than matrix organizations because workers not only have multiple bosses but report to multiple bosses in multiple companies.

Page Ref: 185 Difficulty: Moderate Chapter LO: 6 Course LO: Discuss the factors that influence decisions about organizational structure Classification: Concept 26) A diagram that shows how employees and tasks are grouped and where the lines of communication and authority flow is called a(n)________.

A) positional depiction B) matrix structure C) network structure D) organization chart E) functional chart Answer: D Explanation: D) An organization chart is a diagram that shows how employees and tasks are grouped and where the lines of communication and authority flow.

Page Ref: 166 Difficulty: Easy Chapter LO: 1 Course LO: Discuss the factors that influence decisions about organizational structure Classification: Concept 27) A group of employees in American Game Technology Inc., a manufacturer of gaming machines, got together to arrange a paper recycling drive in the office. Though they came from different departments, they shared a common belief in environmentalism, and often discussed issues related to environmental conservation. This is an example of ________.

A) scapegoating B) informal organization C) groupthink D) work specialization E) emotional contagion Answer: B Explanation: B) Informal organization refers to the network of interactions that develop on a personal level among workers.

Page Ref: 166 Difficulty: Moderate AACSB: Analytic Skills Chapter LO: 1 Course LO: Discuss the factors that influence decisions about organizational structure Classification: Application 7 .

28) A company whose structure, policies, and capabilities allow employees to respond quickly to customer needs and changes in the business environment is termed as a(n) ________.

A) agile organization B) hyperspecialized organization C) formal organization D) umbrella organization E) mechanistic organization Answer: A Explanation: A) An agile organization is a company whose structure, policies, and capabilities allow employees to respond quickly to customer needs and changes in the business environment.

Page Ref: 166 Difficulty: Easy Chapter LO: 1 Course LO: Discuss the factors that influence decisions about organizational structure Classification: Concept 29) Which of the following does an organization chart do?

A) depicts the attrition rate in the organization B) depicts the costs incurred by the organization C) shows lines of authority in the organization D) shows the performance of the organization E) shows the growth curve of employees Answer: C Explanation: C) An organization chart is a diagram that shows how employees and tasks are grouped and where the lines of communication and authority flow.

Page Ref: 166 Difficulty: Moderate Chapter LO: 1 Course LO: Discuss the factors that influence decisions about organizational structure Classification: Concept 30) ________ are those activities in which a company excels and has the potential to create competitive advantages.

A) Core competencies B) Span of management C) Cost leadership D) Economies of scale E) Value chain Answer: A Explanation: A) Core competencies are those activities in which a company excels and has the potential to create competitive advantages.

Page Ref: 166 Difficulty: Easy Chapter LO: 1 Course LO: Discuss the factors that influence decisions about organizational structure Classification: Concept 8 .

31) Another term for work specialization is ________.

A) virtual organization B) chain of command C) span of management D) division of labor E) organizational structure Answer: D Explanation: D) Work specialization refers to specialization in or responsibility for some portion of an organization's overall work tasks; also called division of labor.

Page Ref: 166 Difficulty: Easy Chapter LO: 1 Course LO: Discuss the factors that influence decisions about organizational structure Classification: Concept 32) In a furniture factory, one worker cuts the wood according to the design, another worker glues and screws the pieces together, and another worker stains and polishes the wood. This is an example of ________.

A) core competencies B) decentralization C) work specialization D) chain of command E) centralization Answer: C Explanation: C) Work specialization refers to specialization in or responsibility for some portion of an organization's overall work tasks; also called division of labor.

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33) ________ is defined as a pathway for the flow of authority from one management level to the next.

A) Span of management B) Span of control C) Departmentalization D) Network structure E) Chain of command Answer: E Explanation: E) Chain of command refers to a pathway for the flow of authority from one management level to the next.

Page Ref: 167 Difficulty: Easy Chapter LO: 1 Course LO: Discuss the factors that influence decisions about organizational structure Classification: Concept 34) Which of the following chain-of-command systems was developed to address the need to combine specialization with management control?

A) line organization B) line-and-staff organization C) agile organization D) formal organization E) informal organization Answer: B Explanation: B) Line-and-staff organization was developed to address the need to combine specialization with management control. It refers to an organization system that has a clear chain of command but that also includes functional groups of people who provide advice and specialized services.

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35) The number of workers who report directly to a manager is called the manager's ________.

A) chain of command B) functional structure C) divisional structure D) span of management E) task force Answer: D Explanation: D) Span of management refers to the number of people under one manager's control; also known as span of control.

Page Ref: 169 Difficulty: Easy Chapter LO: 1 Course LO: Discuss the factors that influence decisions about organizational structure Classification: Concept 36) Ace Inc., an American multinational computer software company, has a large number of hierarchical levels. Each manager is responsible for a few employees and maintains a tight control on them. At Ace Inc., the time taken to make decisions is very high, as each decision needs to go through numerous management layers. Which of the following statements is true about the organizational structure of Ace Inc.?

A) Ace Inc. has a narrow span of management.

B) Ace Inc. is a flat organization.

C) Ace Inc. lacks work specialization.

D) Ace Inc. is a decentralized organization.

E) Ace Inc. encourages employees to form self-managed teams.

Answer: A Explanation: A) Tall organizations have many hierarchical levels, typically with fewer people reporting to each manager than is the case in a flat organization. In these organizations, the span of management is narrow.

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37) In a ________ organization, a manager usually has a wide span of control.

A) tall B) line C) flat D) line-and-staff E) formal Answer: C Explanation: C) When a large number of people report directly to one person, that person has a wide span of management. This situation is common in flat organizations with relatively few levels in the management hierarchy.

Page Ref: 169 Difficulty: Easy Chapter LO: 1 Course LO: Discuss the factors that influence decisions about organizational structure Classification: Concept 38) Organizations that focus decision-making authority near the top of the chain of command are said to be ________.

A) departmentalized organizations B) centralized organizations C) unstructured organizations D) informal organizations E) flat organizations Answer: B Explanation: B) Centralization refers to the concentration of decision-making authority at the top of an organization.

Page Ref: 169 Difficulty: Easy Chapter LO: 1 Course LO: Discuss the factors that influence decisions about organizational structure Classification: Concept 39) Which of the following is true about decentralization?

A) It shifts decision-making authority to top management.

B) It reduces the number of overlapping capabilities.

C) It inhibits responsiveness.

D) It results in the creation of tall organizations.

E) It pushes decision-making authority down to lower organizational levels.

Answer: E Explanation: E) Decentralization pushes decision-making authority down to lower organizational levels - such as department heads - while control over essential company-wide matters remains with top management.

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40) At Meyer Department Store, employees are encouraged to make certain decisions without consulting their managers. For example, cashiers are allowed to make price adjustments for customers without consulting the store manager as long as the amount of the adjustment is less than $10. Meyer Department Store is most likely to have which of the following organizational structures?

A) departmentalized decision making B) structured decision making C) decentralized decision making D) informal organization E) tall organization Answer: C Explanation: C) Delegation of decision-making authority to employees in lower-level positions is called decentralization.

Page Ref: 170 Difficulty: Difficult AACSB: Analytic Skills Chapter LO: 1 Course LO: Discuss the factors that influence decisions about organizational structure Classification: Application 41) Grouping people within an organization according to function, division, matrix, or network is called ________.

A) departmentalization B) decentralization C) centralization D) span of control E) line-and-staff organization Answer: A Explanation: A) Grouping people within an organization according to function, division, matrix, or network is called departmentalization.

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42) ________ refers to the number of layers the chain of command is divided into from the top of the company to the bottom.

A) Vertical structure B) Horizontal structure C) Hybrid structure D) Line structure E) Line-and-staff structure Answer: A Explanation: A) Vertical structure refers to how many layers the chain of command is divided into from the top of the company to the bottom.

Page Ref: 170 Difficulty: Easy Chapter LO: 2 Course LO: Discuss the factors that influence decisions about organizational structure Classification: Concept 43) ________ refers to how the various business functions and work specialties are divided across the company.

A) Hybrid structure B) Line structure C) Line-and-staff structure D) Vertical structure E) Horizontal structure Answer: E Explanation: E) Horizontal structure refers to how the various business functions and work specialties are divided across the company.

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44) Alpha Laboratories, a global pharmaceuticals company, groups its employees into several departments such as research and development, regulatory affairs, production, quality control, quality assurance, and sales & marketing. Employees are grouped by specialization to allow for the efficient use of resources and encourage the development of in-depth skills. Alpha Laboratories is most likely to have a(n) ________.

A) divisional structure B) matrix structure C) functional structure D) virtual structure E) network structure Answer: C Explanation: C) The functional structure groups employees according to their skills, resource use, and job requirements.

Page Ref: 171 Difficulty: Difficult AACSB: Analytic Skills Chapter LO: 2 Course LO: Discuss the factors that influence decisions about organizational structure Classification: Application 45) Grouping workers according to their similar skills, resource use, and expertise is called a(n) ________ structure.

A) divisional B) functional C) matrix D) virtual E) network Answer: B Explanation: B) The functional structure groups employees according to their skills, resource use, and job requirements.

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46) Blackstone Stove Company has three self-contained business units that specialize in the design, manufacture and sale of cooking appliances: one business unit for microwave ovens, another for gas and electric ranges, and a third for gas grills. The business units are selfcontained and enjoy great autonomy. Blackstone Stove has a ________ structure.

A) matrix B) divisional C) functional D) line E) network Answer: B Explanation: B) The divisional structure establishes self-contained suborganizations that encompass all the major functional resources required to achieve their goals - such as research and design, manufacturing, finance, and marketing.

Page Ref: 171 Difficulty: Difficult AACSB: Analytic Skills Chapter LO: 2 Course LO: Discuss the factors that influence decisions about organizational structure Classification: Application 47) Which of the following statements is true regarding divisional departmentalization?

A) It refers to grouping employees according to their skills.

B) It makes the organization more rigid, and incapable of reacting quickly to change.

C) It reduces the autonomy of business units.

D) It results in the creation of a virtual organization.

E) It can increase costs through duplication.

Answer: E Explanation: E) Divisional departmentalization can increase costs through duplication (if every product division has its own human resources department, for example).

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48) Grouping departments according to similarities in product, process, customer, or geography is called ________.

A) network structure B) virtual structure C) matrix structure D) functional structure E) divisional structure Answer: E Explanation: E) Grouping departments according to similarities in product, process, customer, or geography is called divisional structure.

Page Ref: 171 Difficulty: Moderate Chapter LO: 2 Course LO: Discuss the factors that influence decisions about organizational structure Classification: Concept 49) Linda, a marketing analyst at Chase Manufacturing, has been assigned to work on a new project team that includes employees from engineering, accounting, and manufacturing teams.

Linda will continue to report to the marketing manager, and she will also report to the team leader for the new project team. Thus, she would be a part of a functional group as well as a project team. It would appear that Chase Manufacturing has a(n) ________ organizational structure.

A) matrix B) flat C) informal D) line E) network Answer: A Explanation: A) Matrix structure refers to a structure in which employees are assigned to both a functional group and a project team (thus using functional and divisional patterns simultaneously).

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50) A structure in which employees are assigned to both a functional group and a project team simultaneously is called a(n) ________.

A) network structure B) virtual structure C) matrix structure D) line structure E) informal structure Answer: C Explanation: C) Matrix structure refers to a structure in which employees are assigned to both a functional group and a project team (thus using functional and divisional patterns simultaneously).

Page Ref: 172 Difficulty: Easy Chapter LO: 2 Course LO: Discuss the factors that influence decisions about organizational structure Classification: Concept 51) A ________ structure is also called a virtual organization.

A) functional B) matrix C) divisional D) line E) network Answer: E Explanation: E) Also called a virtual organization, a network organization can outsource engineering, marketing, research, accounting, production, distribution, or other functions.

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52) Astral Inc., an office stationery manufacturing firm, has outsourced its engineering and manufacturing functions to K&M Manufacturers, a company in Singapore. It has also signed a two-year contract with Acme Solutions to handle its payroll and employee benefits functions.

Astral Inc. has a small headquarters in Ohio that is electronically connected to the various firms to which it has outsourced functions. Astral Inc. is most likely to have a(n) ________.

A) network structure B) divisional structure C) matrix structure D) functional structure E) informal structure Answer: A Explanation: A) A structure in which individual companies are connected electronically to perform selected tasks for a small headquarters organization is called a network structure.

Page Ref: 172 Difficulty: Difficult AACSB: Analytic Skills Chapter LO: 2 Course LO: Discuss the factors that influence decisions about organizational structure Classification: Application 53) Which of the following is a characteristic of a matrix structure?

A) assigning employees to functional and project teams simultaneously B) establishing a virtual structure C) relying on multiple external partners D) creating fully self-managed teams E) using shared online workspaces to provide access to information and documents Answer: A Explanation: A) Matrix structure refers to a structure in which employees are assigned to both a functional group and a project team (thus using functional and divisional patterns simultaneously).

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54) Which of the following is a defining characteristic of a problem-solving team?

A) It manages its own activities and requires minimal supervision.

B) It is composed of managers and employees within a single functional department.

C) It is assembled to find ways of improving quality, efficiency, or other performance measures.

D) It is a team that uses communication technology to bring together geographically distant employees to achieve goals.

E) It typically deals with regularly recurring tasks, such as addressing employee grievances.

Answer: C Explanation: C) A problem-solving team is assembled to find ways of improving quality, efficiency, or other performance measures.

Page Ref: 174 Difficulty: Moderate Chapter LO: 3 Course LO: Discuss the factors that influence decisions about organizational structure Classification: Concept 55) Creative Solutions, a Chicago based advertising agency, allows its team of copywriters to control the pace of work and determination of work assignments. The team is comprised only of copywriters, and team members have the freedom to make their own decisions. The firm has a strong policy against work-from-home. This is an example of which of the following forms of teams?

A) cross-functional team B) virtual team C) command team D) horizontal team E) self-managed team Answer: E Explanation: E) A self-managed team manages its own activities and requires minimal supervision. Typically, these teams control the pace of work and determination of work assignments.

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56) Which of the following is a defining characteristic of a cross-functional team?

A) It manages its own activities and requires minimal supervision.

B) It is is organized along the lines of the organization's vertical structure.

C) It is composed of members at two or more geographic locations.

D) It is typically composed of managers and employees within a single functional department.

E) It often involves some form of matrix structure.

Answer: E Explanation: E) Cross-functional teams often involve some form of matrix structure, even if temporarily. A cross-functional team draws together employees from various functional areas and expertise.

Page Ref: 174 Difficulty: Moderate Chapter LO: 3 Course LO: Discuss the factors that influence decisions about organizational structure Classification: Concept 57) Which of the following is a defining characteristic of a command team?

A) It is organized along the lines of the organization's vertical structure.

B) It manages its own activities and requires minimal supervision.

C) It uses communication technology to bring together geographically distant employees to achieve goals.

D) It is comprised of people from several departments who are temporarily brought together to address a specific issue.

E) It draws together employees from various functional areas and expertise.

Answer: A Explanation: A) A functional team, or command team, is organized along the lines of the organization's vertical structure and thus may be referred to as a vertical team.

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58) Functional teams are also known as ________ teams.

A) control B) cluster C) command D) community E) committee Answer: C Explanation: C) A functional team, or command team, is organized along the lines of the organization's vertical structure and thus may be referred to as a vertical team.

Page Ref: 174 Difficulty: Easy Chapter LO: 3 Course LO: Discuss the factors that influence decisions about organizational structure Classification: Concept 59) MNB Manufacturers, a home appliances manufacturing firm, creates a team comprised of employees from research and development, finance, marketing and sales, and product assurance departments. The face-to-face team is closely scrutinized. This specialized, permanent team is responsible for generating innovative business expansion plans. It is most likely to be which of the following forms of teams?

A) self-managed team B) task force C) virtual team D) cross-functional team E) command team Answer: D Explanation: D) A cross-functional team, or horizontal team, draws together employees from various functional areas and expertise.

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60) Which of the following is a defining characteristic of a task force?

A) It is formed to work on a specific activity with a completion point.

B) It is a permanent part of the organization and is designed to deal with regularly recurring tasks.

C) It uses communication technology to bring together geographically distant employees to achieve goals.

D) It is composed of managers and employees within a single functional department.

E) It manages its own activities and requires minimal supervision.

Answer: A Explanation: A) A task force is formed to work on a specific activity with a completion point.

Several departments are usually involved so that all parties who have a stake in the outcome of the task are able to provide input.

Page Ref: 175 Difficulty: Moderate Chapter LO: 3 Course LO: Discuss the factors that influence decisions about organizational structure Classification: Concept 61) Which of the following is a defining characteristic of a committee?

A) It refers to a team of people from several departments who are temporarily brought together to address a specific issue.

B) It is composed of members at two or more geographic locations.

C) It typically deals with regularly recurring tasks, such as addressing employee grievances.

D) It is usually composed of managers and employees within a single functional department.

E) It manages its own activities and requires minimal supervision.

Answer: C Explanation: C) A committee usually has a long life span and may become a permanent part of the organization structure. Committees typically deal with regularly recurring tasks, such as addressing employee grievances.

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62) Which of the following is an advantage of working in a team?

A) Business teams encourage groupthink.

B) Teams improve flexibility and responsiveness.

C) Business teams can lead to more time being spent on decisions than necessary.

D) Influential teams can compete with the formal chain of command.

E) Teams lower the diversity of views.

Answer: B Explanation: B) Teams are easier to reformulate to respond to changing business needs because they don't have the same degree of permanence as formal departments and other structural elements.

Page Ref: 177 Difficulty: Easy Chapter LO: 4 Course LO: Discuss the factors that influence decisions about organizational structure Classification: Concept 63) Uniformity of thought that occurs when peer pressures cause individual team members to withhold contrary or unpopular opinions is called ________.

A) groupthink B) scapegoating C) whistle blowing D) centralization E) decentralization Answer: A Explanation: A) Uniformity of thought that occurs when peer pressures cause individual team members to withhold contrary or unpopular opinions is called groupthink.

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64) Mark works in a small advertising firm as a graphic designer. He is part of a team consisting of five graphic designers who have been working together for several years and have high group cohesiveness. The firm hires a new graphic designer who is a fresher. Mark's team members often bully the new hire, and burden him with excessive work. Mark supports his team members due to peer pressure, even though he feels their behavior is unethical. This is an example of ________.

A) whistle-blowing B) centralization C) decentralization D) groupthink E) social comparison bias Answer: D Explanation: D) Uniformity of thought that occurs when peer pressures cause individual team members to withhold contrary or unpopular opinions is called groupthink.

Page Ref: 178 Difficulty: Difficult AACSB: Analytic Skills Chapter LO: 4 Course LO: Discuss the factors that influence decisions about organizational structure Classification: Application 65) Groupthink occurs when ________.

A) managers favour employees who don't compete with their own particular strengths.

B) employees judge a decision by its eventual outcome instead of based on the quality of the decision at the time it was made.

C) peer pressures cause individual team members to withhold contrary or unpopular opinions.

D) a team places too much importance on one aspect of an event, which causes errors in accurately predicting the utility of a future outcome.

E) employees rely too heavily, or "anchor," on one trait or piece of information when making decisions about team members.

Answer: C Explanation: C) Groupthink occurs when peer pressures causes individual team members to withhold contrary or unpopular opinions.

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66) In a team, people who focus on work-related accomplishments over human needs, and help the team reach its goals are said to assume the ________.

A) task-specialist role B) nonparticpator role C) dual role D) socioemotional role E) people-oriented role Answer: A Explanation: A) People who assume the task-specialist role focus on helping the team reach its goals.

Page Ref: 178 Difficulty: Easy Chapter LO: 4 Course LO: Discuss the factors that influence decisions about organizational structure Classification: Concept 67) Nick is the team lead of an 8 member team of loan originators at Cooper and Co., a commercial real estate brokerage firm. He tends to focus on supporting the emotional needs of his team members. He often organizes events such as baseball games and movie nights to strengthen the social unity of his team. However, he often neglects to complete specific tasks. He is most likely to be categorized under which of the following team member roles?

A) authoritarian role B) task-specialist role C) nonparticpator role D) dual role E) socioemotional role Answer: E Explanation: E) Team members who take on the socioemotional role focus on supporting the team's emotional needs and strengthening the team's social unity.

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68) Enid works as a customer service agent at Clarence Fashion Apparel, a New York based women's fashion apparel and accessories store. She is often late to work, is reluctant to offer assistance to customers, and has had low performance levels for the past six months. Enid is hostile toward the other customer service agents at the shop, and does not attend any of the team activities. She is most likely to be a ________.

A) nonparticpator B) task-specialist C) socioemotional contributor D) groupthink employee E) dual-role contributor Answer: A Explanation: A) Nonparticipators are team members who contribute little to reaching the team's goals or to meeting members' socioemotional needs.

Page Ref: 178 Difficulty: Difficult AACSB: Analytic Skills Chapter LO: 4 Course LO: Discuss the factors that influence decisions about organizational structure Classification: Application 69) An employee who focuses on the needs of the team members over the task needs assumes the ________ role.

A) nonparticipator B) socioemotional C) dual D) task-specialist E) informal Answer: B Explanation: B) Team members who take on the socioemotional role focus on supporting the team's emotional needs and strengthening the team's social unity.

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70) Which of the following is a characteristic of effective teams?

A) groupthink is encouraged among team members B) decision making is done through quick votes C) decision making is done by the team leader D) conflict is managed by focusing on the people, not the issues E) disagreements are discussed openly and calmly Answer: E Explanation: E) Effective teams manage conflict constructively by sharing leadership, encouraging equal participation, discussing disagreements openly and calmly, and focusing on the issues, not the people.

Page Ref: 180 Difficulty: Moderate Chapter LO: 4 Course LO: Discuss the factors that influence decisions about organizational structure Classification: Concept 71) According to Bruce Tuckman's model, in the ________ stage, conflicts are resolved, and team harmony develops.

A) forming B) storming C) norming D) performing E) adjourning Answer: C Explanation: C) During the norming stage, conflicts are resolved, and team harmony develops.

Members come to understand and accept one another, reach consensus on who the leader is, and reach agreement on member roles.

Page Ref: 181 Difficulty: Easy Chapter LO: 5 Classification: Concept 72) According to Bruce Tuckman's model, in the ________ stage of team development, members of the team are fully committed to the team's objectives and the team achieves its full potential in terms of task accomplishment.

A) forming B) storming C) norming D) performing E) adjourning Answer: D Explanation: D) In the performing stage, members are really committed to the team's goals.

Problems are solved, and disagreements are handled in the interest of task accomplishment.

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73) According to Bruce Tuckman's model, the ________ stage is a period of orientation and icebreaking, when members get to know each other.

A) storming B) forming C) norming D) performing E) adjourning Answer: B Explanation: B) The forming stage is a period of orientation and ice-breaking. Members get to know each other, determine what types of behaviors are appropriate within the group, identify what is expected of them, and become acquainted with each other's task orientation.

Page Ref: 181 Difficulty: Easy Chapter LO: 5 Classification: Concept 74) Which of the following is a defining characteristic of the storming stage of Bruce Tuckman's model of team development?

A) It is a period of orientation and ice-breaking.

B) It is the stage in which issues are wrapped up, and the team is dissolved.

C) It is the stage in which conflicts arise as members jockey for position or form coalitions to promote their own perceptions of the team's mission.

D) It is the stage in which members come to understand and accept one another, reach consensus on who the leader is, and reach agreement on member roles.

E) It is the stage when team members become acquainted with each other's task orientation.

Answer: C Explanation: C) In the storming stage, members show more of their personalities and become more assertive in establishing their roles. Conflict and disagreement often arise during the storming stage, as members jockey for position or form coalitions to promote their own perceptions of the team's mission.

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75) ________ refers to informal standards of conduct that guide team behavior.

A) Norms B) Groupthink C) Etiquette D) Schemas E) Ethics Answer: A Explanation: A) Norms refer to informal standards of conduct that guide team behavior.

Page Ref: 181 Difficulty: Easy Chapter LO: 5 Classification: Concept 76) At DBT Enterprises, when an employee is late for a meeting, it is an informal rule that he or she must pay $2 to the "party fund." When there is enough money in the "party fund," the company has a pizza party. This is an example of ________.

A) groupthink B) heuristics C) norms D) schemas E) ethics Answer: C Explanation: C) Norms refer to informal standards of conduct that guide team behavior.

Page Ref: 181 Difficulty: Moderate AACSB: Analytic Skills Chapter LO: 5 Classification: Application 77) Which of the following is a measure of how committed team members are to their team's goals?

A) groupthink B) vertical integration C) horizontal integration D) decentralization E) cohesiveness Answer: E Explanation: E) Cohesiveness is a measure of how committed team members are to their team's goals.

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78) An organization that doesn't have a conventional structure, but instead assembles talent as needed from the open market, is called a(n) ________ organization.

A) unstructured B) functional C) informal D) line-and-staff E) line Answer: A Explanation: A) An organization that doesn't have a conventional structure, but instead assembles talent as needed from the open market, is called an unstructured organization.

Page Ref: 183 Difficulty: Easy Chapter LO: 5 Classification: Concept 79) Casey is an entrepreneur who owns AZS Solutions, a software development business.

Instead of using a conventional organizational structure, he signs a contract with freelance software developers for a specific project. This structure provides him the flexibility to hire freelance developers that match the requirements of specific skills required for each project.

Casey's business has which of the following organizational structures?

A) functional B) informal C) unstructured D) line-and-staff E) line Answer: C Explanation: C) An organization that doesn't have a conventional structure, but instead assembles talent as needed from the open market, is called an unstructured organization.

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80) Which of the following is a defining characteristic of unstructured organizations?

A) It takes the virtual and networked organizational concepts to an extreme.

B) It decreases division of labor and work specialization.

C) It has a chain-of-command system that establishes a clear line of authority flowing from the top down.

D) It involves grouping employees according to their skills.

E) It involves using product divisions, grouping departments around each of the company's products.

Answer: A Explanation: A) Unstructured organization refers to an organization that doesn't have a conventional structure, but instead assembles talent as needed from the open market; the virtual and networked organizational concepts taken to the extreme.

Page Ref: 183 Difficulty: Moderate Chapter LO: 6 Course LO: Discuss the factors that influence decisions about organizational structure Classification: Concept 81) From the perspective of companies, which of the following is a potential benefit of an unstructured firm?

A) Companies are more certain that they will be able to get the talent they need.

B) Companies have a workforce with increased sense of loyalty.

C) Companies find it easier to groom replacement managers and executives.

D) Companies have clear built-in lines of accountability up and down the chain of command.

E) Companies can ramp capacity up and down more quickly and with less trauma.

Answer: E Explanation: E) Unstructured organization promises a number of benefits for firms of all sizes, including lower fixed costs and more flexible capacity management. With the unstructured approach, companies have much more flexibility in adjusting their expense levels to match revenue levels.

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82) From the perspective of workers, which of the following is a potential benefit of working for an unstructured organization?

A) increased job security B) increased loyalty toward employers C) increased freedom and flexibility D) increased sense of working together for a larger, shared purpose E) availability of full-time trainers to guide, support, and teach new skills Answer: C Explanation: C) Unstructured organization provides extreme flexibility for workers, particularly after they establish themselves in a field. Within the limits of financial need and project availability, independent contractors can often choose the clients and projects that interest them most and decide how much they want to work.

Page Ref: 185 Difficulty: Moderate Chapter LO: 6 Course LO: Discuss the factors that influence decisions about organizational structure Classification: Concept 83) From the perspective of the company, which of the following is potential drawback of using an unstructured organization?

A) less flexible capacity management B) higher fixed costs C) reduced agility D) lack of built-in accountability E) increased loyalty in employees Answer: D Explanation: D) In an unstructured organization that relies on a temporary assemblage of independent companies and contractors, lines of accountability might not be quite so clear.

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84) Unlike conventional organizations, unstructured organizations tend to ________.

A) provide employees opportunity to form close bonds with co-workers B) lack clear assignments of legal or financial liability in the event of major foul-ups C) have lower flexibility in adjusting their expense levels to match revenue levels D) have clear lines of accountability up and down the chain of command E) invest in employees over months or years, giving them time and opportunities to develop deep knowledge and skills Answer: B Explanation: B) Without full-time staff at the ready, unstructured companies won't always know if they can get the talent they need for upcoming projects.

Page Ref: 186 Difficulty: Easy Chapter LO: 6 Course LO: Discuss the factors that influence decisions about organizational structure Classification: Concept 85) From the perspective of workers, which of the following is a potential drawback of working for an unstructured organization?

A) Worker's evaluations are subjective and based almost entirely on the manager's impressions.

B) Workers have reduced flexibility and freedom.

C) Workers lack access to more interesting and more fulfilling work.

D) Workers have a sense of working with a team for a larger, shared purpose.

E) Workers are left to fend for themselves and to keep their skills current at their own expense.

Answer: E Explanation: E) Independent contractors are responsible for developing themselves while they're busy making a living, so keeping up with developments in their professions presents a greater burden than it does for typical employees.

Page Ref: 186 Difficulty: Moderate Chapter LO: 6 Course LO: Discuss the factors that influence decisions about organizational structure Classification: Concept 86) Discuss the advantages and disadvantages of work specialization.

Answer: Work specialization can improve organizational efficiency by enabling each worker to perform tasks that are well defined and that require specific skills. When employees concentrate on the same specialized tasks, they can perfect their skills and perform their tasks more quickly.

In addition to aligning skills with job tasks, specialization prevents overlapping responsibilities and communication breakdowns. However, organizations can overdo specialization. If a task is defined too narrowly, employees may become bored with performing the same limited, repetitious job over and over. They may also feel unchallenged and alienated.

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87) Compare and contrast line organization and line-and-staff organization.

Answer: The simplest and most common chain-of-command system is known as line organization because it establishes a clear line of authority flowing from the top down. Everyone knows who is accountable to whom, as well as for which tasks and decisions each is responsible.

However, line organization sometimes falls short because the technical complexity of a firm's activities may require specialized knowledge that individual managers don't have and can't easily acquire. A more elaborate system, called line-and-staff organization, was developed to address the need to combine specialization with management control. In such an organization, managers in the chain of command are supplemented by functional groupings of people known as staff, who provide advice and specialized services but who are not in the line organization's overall chain of command.

Page Ref: 168 Difficulty: Difficult AACSB: Reflective Thinking Skills Chapter LO: 1 Course LO: Discuss the factors that influence decisions about organizational structure Classification: Synthesis 88) Define span of management. How does the span of management in flat organizations differ from that in tall organizations.

Answer: The number of people a manager directly supervises is called the span of management.

When a large number of people report directly to one person, that person has a wide span of management. This situation is common in flat organizations with relatively few levels in the management hierarchy. In contrast, tall organizations have many hierarchical levels, typically with fewer people reporting to each manager than is the case in a flat organization. In these organizations, the span of management is narrow.

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89) Compare and contrast centralization with decentralization.

Answer: Organizations that focus decision-making authority near the top of the chain of command are said to be centralized. Centralization can benefit a company by utilizing top management's experience and broad view of organizational goals. In addition, it can help companies coordinate large undertakings more efficiently, accelerate decisions that might otherwise get bogged down in discussions and disagreements, and reduce the number of overlapping capabilities.

In contrast, decentralization pushes decision-making authority down to lower organizational levels - such as department heads - while control over essential company-wide matters remains with top management. Implemented properly, decentralization can stimulate responsiveness because decisions don't have to be referred up the hierarchy. However, decentralization does not work in every situation or in every company.

Page Ref: 169; 170 Difficulty: Difficult AACSB: Reflective Thinking Skills Chapter LO: 1 Course LO: Discuss the factors that influence decisions about organizational structure Classification: Synthesis 90) Define the five major types of organization structure.

Answer: Companies can organize in four primary ways: by function, which groups employees according to their skills, resource use, and expertise; by division, which establishes selfcontained departments formed according to similarities in product, process, customer, or geography; by matrix, which assigns employees from functional departments to interdisciplinary project teams and requires them to report to both a department head and a team leader; and by network, which connects separate companies that perform selected tasks for a headquarters organization. Companies can also combine two or more of these types in hybrid structures.

Page Ref: 171; 172; 173 Difficulty: Moderate Chapter LO: 2 Course LO: Discuss the factors that influence decisions about organizational structure Classification: Concept 91) Compare and contrast functional structure with divisional structure.

Answer: The functional structure groups employees according to their skills, resource use, and job requirements. Common functional subgroups include research and development (R&D), production or manufacturing, marketing and sales, and human resources.

The divisional structure establishes self-contained suborganizations that encompass all the major functional resources required to achieve their goals - such as research and design, manufacturing, finance, and marketing. In some companies, these divisions operate with great autonomy; such divisions are often called business units.

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92) Compare and contrast matrix structure with network structure.

Answer: A matrix structure is an organizational design in which employees from functional departments form teams to combine their specialized skills. This structure allows the company to pool and share resources across divisions and functional groups. The matrix may be a permanent feature of the organization's design, or it may be established to complete a specific project.

A network structure stretches beyond the boundaries of a company to connect a variety of partners and suppliers that perform selected tasks for a headquarters organization. Also called a virtual organization, a network organization can outsource engineering, marketing, research, accounting, production, distribution, or other functions. The design of a network structure stems from decisions about core competencies, with executives deciding which functions to focus on internally and which to outsource.

Page Ref: 172; 173 Difficulty: Difficult AACSB: Reflective Thinking Skills Chapter LO: 2 Course LO: Discuss the factors that influence decisions about organizational structure Classification: Synthesis 93) How do teams differ from work groups?

Answer: A team is a unit of two or more people who work together to achieve a shared goal.

Teams differ from work groups in that work groups interact primarily to share information and to make decisions to help one another perform within each member's area of responsibility. In other words, the performance of a work group is merely the summation of all group members' individual contributions. In contrast, the members of a team have a shared mission and are collectively responsible for their work. By coordinating their individual efforts, the members of a successful team accomplish more together than they could individually, a result known as synergy.

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94) What is a team? How does a functional team differ from a cross-functional team?

Answer: A unit of two or more people who share a mission and collective responsibility as they work together to achieve a goal is called a team. A functional team is organized along the lines of the organization's vertical structure and thus may be referred to as a vertical team. Such teams are composed of managers and employees within a single functional department, and the structure of a vertical team typically follows the formal chain of command.

In contrast to functional teams, a cross-functional team draws together employees from various functional areas and expertise. Cross-functional teams can facilitate information exchange, help coordinate multiple organizational units, encourage new solutions for organizational problems, and aid the development of new organizational policies and procedures.

Page Ref: 173; 174; 175 Difficulty: Difficult AACSB: Reflective Thinking Skills Chapter LO: 3 Course LO: Discuss the factors that influence decisions about organizational structure Classification: Synthesis 95) What is a virtual team?

Answer: A virtual team is composed of members at two or more geographic locations. Research indicates that virtual teams can be as effective as face-to-face teams, as long as they take steps to overcome the disadvantages of not being able to communicate face to face. For instance, some virtual teams meet in person at least once to allow the members to get to know one another before diving into their work.

Page Ref: 175 Difficulty: Difficult AACSB: Reflective Thinking Skills Chapter LO: 3 Course LO: Discuss the factors that influence decisions about organizational structure Classification: Concept 96) Compare and contrast a task force with a committee.

Answer: A cross-functional team can take on a number of formats. A task force is formed to work on a specific activity with a completion point. Several departments are usually involved so that all parties who have a stake in the outcome of the task are able to provide input. In contrast, a committee usually has a long life span and may become a permanent part of the organization structure. Committees typically deal with regularly recurring tasks, such as addressing employee grievances.

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97) What is the optimal size for teams? How does an employee who assumes a task-specialist role differ from an employee who assumes a socioemotional role?

Answer: To be successful, teams need to be designed as carefully as any other part of an organization structure. Establishing the size of the team is one of the most important decisions; the optimal size for teams is generally thought to be between 5 and 12 members. The types of individuals on a team is also vital. People who assume the task-specialist role focus on helping the team reach its goals. In contrast, members who take on the socioemotional role focus on supporting the team's emotional needs and strengthening the team's social unity. Some team members are able to assume dual roles, contributing to the task and still meeting members' emotional needs. These members often make effective team leaders.

Page Ref: 178 Difficulty: Difficult AACSB: Reflective Thinking Skills Chapter LO: 4 Classification: Synthesis 98) Identify and define the stages of team development according to Bruce Tuckman.

Answer: Several models have been proposed to describe the stages of team development; the well-known model defined by researcher Bruce Tuckman identifies the stages as forming, storming, norming, performing, and adjourning.

Forming - The members are new, getting to know each other. They are still unsure about how to relate to one another and what is expected of them.

Storming - The team begins to experience some conflict due to differing priorities and personalities, hidden agenda, disagreement about team goals.

Norming - Conflicts are resolved and team harmony begins to develop. The team members' roles and duties are accepted and recognized.

Performing - Members are truly committed to the goals of the team and they are performing at optimal levels. The team is focusing on its assigned tasks rather than team development issues.

Differences among team members are seen as positives, not negatives.

Adjourning - Issues are wrapped up and the team is disbanded.

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99) Discuss the steps team members and team leaders can take to prevent conflicts.

Answer: Team members and team leaders can take several steps to prevent conflicts. First, by establishing clear goals that require the efforts of every member, the team reduces the chance that members will battle over their objectives or roles. Second, by developing well-defined tasks for each member, the team leader ensures that all parties are aware of their responsibilities and the limits of their authority. Finally, by facilitating open communication, the team leader can ensure that all members understand their own tasks and objectives as well as those of their teammates. Communication builds respect and tolerance, and it provides a forum for bringing misunderstandings into the open before they turn into full-blown conflicts.

Page Ref: 182 Difficulty: Moderate AACSB: Reflective Thinking Skills Chapter LO: 5 Course LO: Discuss the factors that influence decisions about organizational structure Classification: Concept 100) Compare and contrast an unstructured organization with a conventional organization.

Answer: An unstructured organization is an organization that doesn't have a conventional structure,, but instead assembles talent as needed from the open market; the virtual and networked organizational concepts taken to the extreme. Virtual organizations can be assembled, reconfigured as needed, and disassembled much faster than a conventional employee-based organization can be created, changed, or dismantled. Hiring employees to build organizational capacity increases a company's fixed costs, those costs that are incurred regardless of production or sales volumes. With the unstructured approach, companies have much more flexibility in adjusting their expense levels to match revenue levels. The bond that develops between employers and employees over time creates a sense of loyalty that can carry both parties through hard times. However, this sense of "all for one and one for all" is not likely to factor heavily in most unstructured scenarios, where workers are more like competing vendors than members of a family.

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Business in Action, 6e (Bovee/Thill) Chapter 9 Production Systems 1) System is an interconnected and coordinated set of elements and processes that converts inputs to desired outputs.

Answer: TRUE Explanation: System is an interconnected and coordinated set of elements and processes that converts inputs to desired outputs.

Page Ref: 193 Difficulty: Easy Chapter LO: 1 Course LO: Describe the major components of effective distribution Classification: Concept 2) Feedback is the information from the output applied back to the input.

Answer: TRUE Explanation: Feedback is the information from the output applied back to the input.

Page Ref: 196 Difficulty: Easy Chapter LO: 1 Course LO: Describe the major components of effective distribution Classification: Concept 3) Corrections will not lead to performance improvements at the leverage point.

Answer: FALSE Explanation: At the leverage point, where a relatively small correction could make the entire company perform better.

Page Ref: 196 Difficulty: Moderate Chapter LO: 1 Course LO: Describe the major components of effective distribution Classification: Concept 4) A company that hires an outside firm to do its accounting and payroll function is outsourcing that function.

Answer: TRUE Explanation: A company that hires an outside firm to do its accounting and payroll function is outsourcing that function.

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5) A firm's suppliers are not part of its value chain.

Answer: FALSE Explanation: Value chain includes all the elements and processes that add value as raw materials are transformed into the final products made available to the ultimate customer.

Page Ref: 197 Difficulty: Moderate Chapter LO: 2 Course LO: Describe the major components of effective distribution Classification: Concept 6) Value webs are multidimensional networks of suppliers and outsourcing partners.

Answer: TRUE Explanation: Value webs are multidimensional networks of suppliers and outsourcing partners.

Page Ref: 198 Difficulty: Easy Chapter LO: 2 Course LO: Describe the major components of effective distribution Classification: Concept 7) Outsourcing and offshoring are synonymous terms.

Answer: FALSE Explanation: Outsourcing refers to contracting out certain business functions or operations to other companies. It is different from offshoring.

Page Ref: 198 Difficulty: Moderate Chapter LO: 2 Course LO: Describe the major components of effective distribution Classification: Concept 8) Offshoring is moving processes to markets that are closer to home in order to minimize transportation and management costs.

Answer: FALSE Explanation: Offshoring refers to transferring a part or all of a business function to a facility (a different part of the company or another company entirely) in another country.

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9) Inventory control refers to determining how much of what to have on hand at any given time.

Answer: TRUE Explanation: Inventory control refers to determining how much of what to have on hand at any given time.

Page Ref: 201 Difficulty: Easy Chapter LO: 3 Course LO: Describe the major components of effective distribution Classification: Concept 10) The period of time that elapses between placing an order and actual receipt is the product's lag time.

Answer: FALSE Explanation: The period that elapses between placing the supply order and receiving materials is referred to as lead time.

Page Ref: 201 Difficulty: Easy Chapter LO: 3 Course LO: Describe the major components of effective distribution Classification: Concept 11) Estimates of future demand for a company's products or services are referred to as production forecasts.

Answer: TRUE Explanation: Estimates of future demand for a company's products or services are referred to as production forecasts.

Page Ref: 203 Difficulty: Easy Chapter LO: 4 Course LO: Describe the major components of effective distribution Classification: Concept 12) Capacity planning is not directly linked to estimation of future demand.

Answer: FALSE Explanation: Capacity planning is directly linked to estimation of future demand.

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13) Capacity planning refers to making decisions about the arrangement of production work centers and other elements.

Answer: FALSE Explanation: Capacity planning refers to establishing the overall level of resources needed to meet customer demand.

Page Ref: 203 Difficulty: Easy Chapter LO: 4 Course LO: Describe the major components of effective distribution Classification: Concept 14) Scheduling determines how long each operation takes and deciding which tasks are done in which order.

Answer: TRUE Explanation: Scheduling determines how long each operation takes and deciding which tasks are done in which order.

Page Ref: 203 Difficulty: Easy Chapter LO: 4 Course LO: Describe the major components of effective distribution Classification: Concept 15) PERT diagrams are bar charts that show production managers what projects are being worked on and what stage they are in.

Answer: FALSE Explanation: PERT helps managers identify the optimal sequencing of activities, the expected time for project completion, and the best use of resources. PERT is not a bar chart.

Page Ref: 203 Difficulty: Moderate Chapter LO: 4 Course LO: Describe the major components of effective distribution Classification: Concept 16) In a PERT diagram, the critical path is the shortest sequence of operations.

Answer: FALSE Explanation: Critical path in a PERT network diagram is the sequence of operations that requires the longest time to complete.

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17) Productivity is the measure of the efficiency at which an organization can convert inputs into outputs.

Answer: TRUE Explanation: Productivity is the measure of the efficiency at which an organization can convert inputs into outputs.

Page Ref: 203 Difficulty: Easy Chapter LO: 4 Course LO: Describe the major components of effective distribution Classification: Concept 18) Lean systems are systems whose productivity is relatively low.

Answer: FALSE Explanation: Lean systems are systems that maximize productivity by reducing waste and delays, are at the heart of many productivity improvement efforts.

Page Ref: 204 Difficulty: Easy Chapter LO: 4 Course LO: Describe the major components of effective distribution Classification: Concept 19) Making sure you have what you need no earlier than when you need it is known as just-intime inventory management.

Answer: TRUE Explanation: Making sure you have what you need no earlier than when you need it is known as just-in-time inventory management.

Page Ref: 204 Difficulty: Easy Chapter LO: 4 Course LO: Describe the major components of effective distribution Classification: Concept 20) Mass production involves the creation of identical goods or services.

Answer: TRUE Explanation: Mass production involves the creation of identical goods or services.

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21) Identical goods or services are created in large quantities in mass customization.

Answer: FALSE Explanation: Mass customization is a manufacturing approach in which part of the product is mass produced and the remaining features are customized for each buyer.

Page Ref: 206 Difficulty: Easy Chapter LO: 4 Course LO: Describe the major components of effective distribution Classification: Concept 22) In batch-of-one production, the producer creates a unique good or service for each customer.

Answer: TRUE Explanation: In batch-of-one production, the producer creates a unique good or service for each customer.

Page Ref: 206 Difficulty: Easy Chapter LO: 4 Course LO: Describe the major components of effective distribution Classification: Concept 23) Services that must be consumed at the same time they are produced are known as perishable services.

Answer: TRUE Explanation: Services that must be consumed at the same time they are produced are known as perishable services.

Page Ref: 207 Difficulty: Easy Chapter LO: 5 Course LO: Describe the major components of effective distribution Classification: Concept 24) Scalability is the potential to increase production by expanding or replicating its initial production capacity.

Answer: TRUE Explanation: Scalability is the potential to increase production by expanding or replicating its initial production capacity.

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25) Customer involvement tends to be more for goods than services.

Answer: FALSE Explanation: Customer involvement tends to be more for services than goods.

Page Ref: 208 Difficulty: Moderate Chapter LO: 5 Course LO: Describe the major components of effective distribution Classification: Concept 26) Measuring quality against established standards after production is known as quality assurance.

Answer: FALSE Explanation: Quality assurance is a comprehensive approach of companywide policies, practices, and procedures to ensure that every product meets quality standards.

Page Ref: 210 Difficulty: Easy Chapter LO: 6 Course LO: Describe the major components of effective distribution Classification: Concept 27) Doing the job right the first time is the basic principle of quality control.

Answer: FALSE Explanation: Quality assurance includes quality control as well as doing the job right the first time by designing tools and machinery properly, demanding quality parts from suppliers, encouraging customer feedback, training and empowering employees, and encouraging employees to take pride in their work.

Page Ref: 210 Difficulty: Moderate Chapter LO: 6 Course LO: Describe the major components of effective distribution Classification: Concept 28) Kaizen calls for continuous quality improvements.

Answer: TRUE Explanation: Kaizen is a Japanese word that refers to the strategy of empowering employees to continuously improve the quality of goods production or service delivery.

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29) Statistical process control refers to the use of random sampling and tools, such as control charts, to monitor the production process.

Answer: TRUE Explanation: Statistical process control refers to the use of random sampling and tools, such as control charts, to monitor the production process.

Page Ref: 210 Difficulty: Easy Chapter LO: 6 Course LO: Describe the major components of effective distribution Classification: Concept 30) ISO 9000 is a methodology used for customized production and avoids the use of standards.

Answer: FALSE Explanation: ISO 9000 is a globally recognized family of standards for quality management systems.

Page Ref: 211 Difficulty: Moderate Chapter LO: 6 Course LO: Describe the major components of effective distribution Classification: Concept 31) In systems view, an organizational department is viewed as a(n) ________.

A) serial milestone of a process B) system without outputs C) independent entity D) interconnected element E) system without inputs Answer: D Explanation: D) In systems view, an organization is viewed as a system and each department is viewed as an interconnected element.

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32) Which of the following is a major difference between a line view and a circular view?

A) Multiple activities are considered in a series view, unlike a circular view.

B) A line view has multiple activities, unlike a circular view.

C) A circular view includes feedback, unlike a line view.

D) A circular view shows multiple activities, unlike a line view.

E) Multiple activities are considered in a circular view, unlike a serial view.

Answer: C Explanation: C) In a circular view, one cycle provides feedback to the next cycle. Such a feedback is absent in the serial view.

Page Ref: 194 Difficulty: Moderate Chapter LO: 1 Course LO: Describe the major components of effective distribution Classification: Concept 33) Organizations can promote systems thinking by ________.

A) showing people how they contribute to the overall goal B) implementing output-based individual incentives C) restricting interactions at the subsystem level D) giving them direct solutions from the top E) implementing output-based incentives for small teams Answer: A Explanation: A) Organizations can benefit from systems thinking by helping everyone see the big picture. They should show people how they contribute to the overall goal and reward them for doing so.

Page Ref: 194 Difficulty: Moderate Chapter LO: 1 Course LO: Describe the major components of effective distribution Classification: Concept 34) The point in a system where a small correction could improve performance is called the ________.

A) break even point B) breaking point C) leverage point D) equilibrium point E) point of no return Answer: C Explanation: C) Leverage point is the point where a relatively small correction could make the entire company perform better.

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35) ________ include all the elements and processes from transforming raw materials to making the final products available to the ultimate customer.

A) Customer chains B) Supply webs C) Value chains D) Supply chains E) Product cycles Answer: C Explanation: C) Value chains refer to all the elements and processes that add value as raw materials are transformed into the final products made available to the ultimate customer.

Page Ref: 197 Difficulty: Easy Chapter LO: 2 Course LO: Describe the major components of effective distribution Classification: Concept 36) ________ refers to contracting out certain business functions or operations to other companies.

A) Outsourcing B) Scaling C) Rescaling D) Customization E) External valuation Answer: A Explanation: A) Outsourcing refers to contracting out certain business functions or operations to other companies. Companies focus on their core competencies and outsource the remaining tasks.

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37) LaSalle Plating is a U.S. company that offers metal finishing services. The company used to handle employee benefit administration and payroll management in-house, but recently decided to have these functions handled by an outside firm in Chicago. Which of the following terms best refers to this new strategy adopted by the company?

A) outsourcing B) leveraging C) dislocating D) offshoring E) internalization Answer: A Explanation: A) Outsourcing refers to contracting out certain business functions or operations to other companies. The given situation is an example of adopting outsourcing.

Page Ref: 197 Difficulty: Difficult AACSB: Analytic Skills Chapter LO: 2 Course LO: Describe the major components of effective distribution Classification: Application 38) ________ refers to transferring a part or all of a business function to a facility in another country.

A) Offshoring B) Scaling C) Leveraging D) Customization E) External valuation Answer: A Explanation: A) Offshoring refers to transferring a part or all of a business function to a facility (a different part of the company or another company entirely) in another country.

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39) Gobex financial services is a multinational firm that has many branches across the globe. The U.S subsidiary of the firm assigns its accounting tasks to the Chinese subsidiary. Lower labor costs enable the Chinese firm to perform the tasks more efficiently. This is an example of ________.

A) offshoring B) outsourcing C) leveraging D) customization E) external valuation Answer: A Explanation: A) Offshoring refers to transferring a part or all of a business function to a facility (a different part of the company or another company entirely) in another country.

Page Ref: 198 Difficulty: Difficult AACSB: Analytic Skills Chapter LO: 2 Course LO: Describe the major components of effective distribution Classification: Application 40) Buxus Auto is a U.S manufacturer of automobiles. The company used to procure car accessories from a firm based in China. The quality of the parts the firm was receiving from China was below par and the firm decides to stop the purchase from China and procure the accessories from a U.S. based firm. This is an example of ________.

A) offshoring B) outsourcing C) leveraging D) reshoring E) external valuation Answer: D Explanation: D) Many U.S. companies move their production back to U.S. soil. This phenomenon is known as reshoring. The given situation is an example of reshoring.

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41) The phenomenon where U.S. companies move their production back to U.S. soil is known as ________.

A) offshoring B) outsourcing C) leveraging D) reshoring E) external valuation Answer: D Explanation: D) Many U.S. companies move their production back to U.S. soil. This phenomenon is known as reshoring. The given situation is an example of reshoring.

Page Ref: 198 Difficulty: Easy Chapter LO: 2 Course LO: Describe the major components of effective distribution Classification: Concept 42) Which of the following is an advantage of offshoring?

A) Hidden costs and risks are rarely involved in offshoring.

B) U.S. firms can charge lower prices through offshoring.

C) Offshoring is the best way to improve business agility.

D) Information risks are low when offshoring services.

E) Offshoring is the best way to increase customer responsiveness.

Answer: B Explanation: B) For goods in which labor represents a significant portion of production costs, dramatically lowering labor costs through offshoring lets a company lower its prices to consumers.

Page Ref: 199 Difficulty: Moderate Chapter LO: 2 Course LO: Describe the major components of effective distribution Classification: Concept 43) Which of the following is a legitimate disadvantage of offshoring?

A) U.S. Consumers will be charged higher prices due to offshoring.

B) Global trade will decline if businesses offshore processes.

C) Customer responsiveness may suffer due to offshoring.

D) Customers will lack choice in many industries due to offshoring.

E) U.S. competitiveness will decrease if businesses offshore processes.

Answer: C Explanation: C) Business agility and responsiveness will suffer when companies rely on operations halfway around the world.

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44) A supply chain ________.

A) cannot be distinct for different departments B) is applicable for services rather than goods C) has only two components D) does not include end customers E) coordinates the flow of goods and materials Answer: E Explanation: E) Supply chain is a set of connected systems that coordinates the flow of goods and materials from suppliers all the way through to final customers.

Page Ref: 200 Difficulty: Easy Chapter LO: 3 Course LO: Describe the major components of effective distribution Classification: Concept 45) Supply chain management refers to the business procedures, policies, and computer systems that ________.

A) separate supply chain from the value chain of an organization B) convert supply chain into a cohesive system C) separate supply chain from other business functions D) help an organization communicate with competing firms E) create a procurement process independent of the supply chain Answer: B Explanation: B) Supply chain management refers to the business procedures, policies, and computer systems that integrate the various elements of the supply chain into a cohesive system.

Page Ref: 200 Difficulty: Moderate Chapter LO: 3 Course LO: Describe the major components of effective distribution Classification: Concept 46) Goods and materials kept in stock for production or sale are called ________.

A) supplies B) inventory C) layouts D) system tools E) production intermediaries Answer: B Explanation: B) Goods and materials kept in stock for production or sale are called inventory.

Piling up inventory is a cost for organizations.

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47) Rolber Cycles is a manufacturer of racing bicycles. The company gives extreme importance to customer responsiveness and keeps products ready in the warehouse to deliver to customers immediately after they receive an order. These products are best referred to as ________.

A) supplies B) inventory C) layouts D) system tools E) production intermediaries Answer: B Explanation: B) Goods and materials kept in stock for production or sale are called inventory.

Piling up inventory is a cost for organizations.

Page Ref: 201 Difficulty: Difficult AACSB: Analytic Skills Chapter LO: 3 Course LO: Describe the major components of effective distribution Classification: Application 48) ________ refers to determining the right quantities of supplies and products to have on hand and tracking where those items are.

A) Customer relationship management B) Summative evaluation C) Quality control D) Inventory control E) Statistical process control Answer: D Explanation: D) Inventory control refers to determining the right quantities of supplies and products to have on hand and tracking where those items are. Inventory control is essential to minimize organizational costs.

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49) Which of the following is the main objective of engaging in inventory control?

A) providing a channel for customer communication B) obtaining feedback from the customers C) providing a channel for brand communication D) balancing supply and storage costs E) storing less finished products and more raw materials Answer: D Explanation: D) Inventory control is the act of balancing costs associated with storing raw materials and finished products and maintaining an adequate supply of them.

Page Ref: 201 Difficulty: Moderate Chapter LO: 3 Course LO: Describe the major components of effective distribution Classification: Concept 50) ________ refers to the acquisition of the raw materials, parts, components, supplies, and finished products required to produce goods and services.

A) Procurement B) Logistics C) Operation D) Finishing E) Inventorying Answer: A Explanation: A) Procurement refers to the acquisition of the raw materials, parts, components, supplies, and finished products required to produce goods and services. Procurement's goal is to make sure that the company has all the materials it needs, when it needs them, at the lowest possible cost.

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51) Hudson Foods markets processed foods in the United States. The company obtains raw materials from small scale producers in the U.S. and Canada. This act of getting the necessary raw materials for production is called ________.

A) inventorying B) operation C) finishing D) logistics E) procurement Answer: E Explanation: E) Procurement refers to the acquisition of the raw materials, parts, components, supplies, and finished products required to produce goods and services.

Page Ref: 201 Difficulty: Difficult AACSB: Analytic Skills Chapter LO: 3 Course LO: Describe the major components of effective distribution Classification: Application 52) The period of time between placing an order for supplies and receiving the material is called ________.

A) process forecast B) run time C) lead time D) lag time E) procurement delay Answer: C Explanation: C) The period that elapses between placing the supply order and receiving materials is referred to as a product's lead time. A company must always have enough supplies on hand to cover a product's lead time.

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53) Ronda Scooters is a leading Asian manufacturer of electric scooters. The company procures raw materials from a firm based in China. The Chinese supplier delivers materials in about three weeks after receiving a confirmed order. This period is referred to as the materials' ________.

A) procurement delay B) lead time C) lag time D) run time E) process forecast Answer: B Explanation: B) The period that elapses between placing the supply order and receiving materials is referred to as a product's lead time. The lead time is three weeks in this case.

Page Ref: 201 Difficulty: Difficult AACSB: Analytic Skills Chapter LO: 3 Course LO: Describe the major components of effective distribution Classification: Application 54) The technology known as ________ attaches small antenna tags to products or shipping containers to help the company track where needed materials are in its supply chain.

A) resource identification tags B) U-key C) ISO 9000 D) just-in-time E) radio frequency identification Answer: E Explanation: E) Radio Frequency Identification uses small antenna tags attached to products or shipping containers; special sensors detect the presence of the tags and can track the flow of goods through the supply chain.

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55) ________ refers to overseeing all the activities involved in producing goods and services.

A) Facilities management B) Capacity planning C) Procurement D) Logistics E) Operations management Answer: E Explanation: E) Operations management refers to overseeing all the activities involved in producing goods and services. Operations managers are responsible for a wide range of strategies and decisions, from locating production facilities to managing the supply chain.

Page Ref: 202 Difficulty: Easy Chapter LO: 4 Course LO: Describe the major components of effective distribution Classification: Concept 56) ________ refers to the arrangement of production work centers and other elements needed to process goods and services.

A) Supply chain B) Facility layout C) Capacity plan D) Critical path E) Production forecast Answer: B Explanation: B) Facility layout refers to the arrangement of production work centers and other elements (such as materials, equipment, and support departments) needed to process goods and services.

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57) ________ refers to establishing the overall level of resources needed to meet customer demand.

A) Production planning B) Facility analysis C) Capacity planning D) Process control E) Critical path analysis Answer: C Explanation: C) Capacity planning is the collection of long-term strategic decisions that establish the overall level of resources needed to meet customer demand.

Page Ref: 203 Difficulty: Easy Chapter LO: 4 Course LO: Describe the major components of effective distribution Classification: Concept 58) A rural hospital is trying to determine how many beds it should have in its emergency room.

This is an example of ________.

A) production scheduling B) site selection C) critical path analysis D) capacity planning E) systemic risk reduction Answer: D Explanation: D) Capacity planning is the collection of long-term strategic decisions that establish the overall level of resources needed to meet customer demand. The hospital is engaged in capacity planning here.

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59) A bank is building a new branch in a small suburb, and one of the decisions it must make is how many teller windows it needs to serve its customers effectively and cost efficiently on an average day. This is an example of ________.

A) production scheduling B) capacity planning C) site selection D) critical path analysis E) systemic risk reduction Answer: B Explanation: B) Capacity planning is the collection of long-term strategic decisions that establish the overall level of resources needed to meet customer demand. The bank is engaged in capacity planning here.

Page Ref: 203 Difficulty: Difficult AACSB: Analytic Skills Chapter LO: 4 Course LO: Describe the major components of effective distribution Classification: Application 60) John's Apparel is a tailoring shop that manufactures custom-made dresses for special occasions and festivals. While ordering raw materials, John estimates that he would sell 500 Santa Claus lawn decorations in November. In this case john is performing a(n) ________.

A) production forecast B) capacity planning C) PERT analysis D) resource planning E) critical path analysis Answer: A Explanation: A) Production forecasts are estimates of future demand for a company's products.

In the given scenario, John is estimating future demand for his product.

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61) ________ are estimates of future demand for a company's products.

A) Operation plans B) PERT reports C) Resource plans D) Critical paths E) Production forecasts Answer: E Explanation: E) Production forecasts are estimates of future demand for a company's products.

Management should balance capacity and demand after forecast.

Page Ref: 203 Difficulty: Easy Chapter LO: 4 Course LO: Describe the major components of effective distribution Classification: Concept 62) Grinder is a manufacturer of aluminum and steel balls used in large machineries. The company periodically estimates the future demand of its products and bases manufacturing on this data. Such estimates of the company are called ________.

A) operation plans B) PERT reports C) resource plans D) critical paths E) production forecasts Answer: E Explanation: E) Production forecasts are estimates of future demand for a company's products.

Here the company is performing a production forecast.

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63) ________ is a tool used by manufacturing facilities to coordinate production of all the goods the company makes.

A) JIT system B) Value web C) Six Sigma D) Inventory list E) Master production schedule Answer: E Explanation: E) Manufacturing facilities often use a master production schedule (MPS) to coordinate production of all the goods the company makes.

Page Ref: 203 Difficulty: Easy Chapter LO: 4 Course LO: Describe the major components of effective distribution Classification: Concept 64) ________ is a special type of bar chart that shows the progress of all the tasks needed to complete a project.

A) Forecast schedule B) Gantt chart C) Value chart D) PERT diagram E) Supply chain diagram Answer: B Explanation: B) A Gantt chart is a special type of bar chart that shows the progress of all the tasks needed to complete a project.

Page Ref: 203 Difficulty: Easy Chapter LO: 4 Course LO: Describe the major components of effective distribution Classification: Concept 65) The sequence of activities that take the longest time from start to finish in a PERT diagram is called the ________ path.

A) external B) lagging C) minor D) critical E) buffered Answer: D Explanation: D) In a PERT network diagram, the sequence of operations that requires the longest time to complete is referred to as the critical path.

Page Ref: 203 Difficulty: Easy Chapter LO: 4 Course LO: Describe the major components of effective distribution Classification: Concept 23 .

66) ________ refers to the efficiency with which an organization can convert inputs to outputs.

A) Productivity B) Sustainability C) Security D) Capacity E) System value Answer: A Explanation: A) Productivity refers to the efficiency with which an organization can convert inputs to outputs.

Page Ref: 203 Difficulty: Easy Chapter LO: 4 Course LO: Describe the major components of effective distribution Classification: Concept 67) Polar Refrigerator Company reduces its inventory carrying costs by having their vendors deliver materials right before they are needed in the production process. This is an example of ________ inventory management.

A) discounted B) PERT C) JIT D) buffered E) economic order based Answer: C Explanation: C) Just-in-time (JIT) is a type of inventory management in which goods and materials are delivered throughout the production process right before they are needed.

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68) Which of the following is the main purpose of just-in-time systems?

A) disintermediation of distribution B) bettering work scheduling C) strategic analysis D) capacity improvement E) better inventory management Answer: E Explanation: E) Just-in-time (JIT) is a type of inventory management in which goods and materials are delivered throughout the production process right before they are needed. Its main objective is better inventory management.

Page Ref: 204; 205 Difficulty: Moderate Chapter LO: 4 Course LO: Describe the major components of effective distribution Classification: Concept 69) ________ refers to the creation of a unique good or service for each customer.

A) Mass production B) Batch production C) Customized production D) Mass customization E) Standard production Answer: C Explanation: C) Customized production is the creation of a unique good or service for each customer. The firm is producing a unique product for the customer in this case.

Page Ref: 206 Difficulty: Easy Chapter LO: 4 Course LO: Describe the major components of effective distribution Classification: Concept 70) Jass Glass Studio has been hired to make a church window. A church hires the company to make ten windows based on a design provided by the Church. This is an example of ________.

A) mass production B) batch production C) customized production D) mass customization E) standard production Answer: C Explanation: C) Customized production is the creation of a unique good or service for each customer. The firm is producing a unique product for the customer in this case.

Page Ref: 206 Difficulty: Difficult AACSB: Analytic Skills Chapter LO: 4 Course LO: Describe the major components of effective distribution Classification: Application 25 .

71) ________ refers to the creation of identical goods or services in large quantities.

A) Mass customization B) Batch-of-one production C) Mass production D) Customized production E) Mass personalization Answer: C Explanation: C) Mass production refers to the creation of identical goods or services, usually in large quantities.

Page Ref: 206 Difficulty: Easy Chapter LO: 4 Course LO: Describe the major components of effective distribution Classification: Concept 72) Morkel Toys is a manufacturer of toys. The company produces tens of thousands of Barbie Dolls in its factories everyday. It uses large machinery to automate the production and the output is standardized. This is an example of ________.

A) mass customization B) batch-of-one production C) mass production D) customized production E) mass personalization Answer: C Explanation: C) Mass production refers to the creation of identical goods or services, usually in large quantities. The given case is an example of mass production.

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73) The manufacturing approach in which part of the product is mass produced and the remaining features are customized is known as ________.

A) batch-of-one production B) mass production C) customized production D) mass manufacturing E) mass customization Answer: E Explanation: E) Mass customization is a manufacturing approach in which part of the product is mass produced and the remaining features are customized for each buyer. It is a compromise between mass production and custom production.

Page Ref: 206 Difficulty: Easy Chapter LO: 4 Course LO: Describe the major components of effective distribution Classification: Concept 74) Dell Computers allows customers to place orders online. The company produces major parts using bulk production and allows customers to personalize such features as software, color, memory size, and screen size. This type of manufacturing is an example of ________.

A) mass customization B) mass production C) customized production D) mass manufacturing E) batch-of-one production Answer: A Explanation: A) Mass customization is a manufacturing approach in which part of the product is mass produced and the remaining features are customized for each buyer. Dell is using mass customization in this case.

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75) Most services are consumed at the same time they are produced and cannot exist before or after that time. This means that most services are ________.

A) separable B) scalable C) perishable D) measurable E) standardized Answer: C Explanation: C) Most services are consumed at the same time they are produced and cannot exist before or after that time. This refers to the perishable nature of services.

Page Ref: 207 Difficulty: Moderate Chapter LO: 5 Course LO: Describe the major components of effective distribution Classification: Concept 76) ________ is the potential to increase production by expanding or replicating its initial production capacity.

A) Perishability B) separability C) Serviceability D) Scalability E) Capacity Answer: D Explanation: D) Scalability is the potential to increase production by expanding or replicating its initial production capacity. Any business that wants to grow must consider the issue of scalability.

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77) ________ refers to the degree to which a product or process meets reasonable or agreedupon expectations.

A) Quality B) Standard C) Scalability D) Capacity E) Serviceability Answer: A Explanation: A) Quality refers to the degree to which a product or process meets reasonable or agreed-upon expectations. A specific set of parameters can be identified that define quality in each situation.

Page Ref: 209 Difficulty: Easy Chapter LO: 6 Course LO: Describe the major components of effective distribution Classification: Concept 78) ________ refers to measuring quality against established standards after the good or service has been produced and weeding out any defective products.

A) Statistical process control B) Quality assurance C) Quality control D) Continuous quality E) Total quality management Answer: C Explanation: C) Quality control refers to measuring quality against established standards after the good or service has been produced and weeding out any defective products.

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79) Which of the following is a key difference between quality control and quality assurance?

A) High level managers perform quality control whereas middle managers perform quality assurance.

B) Quality assurance is more proactive than quality control.

C) Quality assurance is a subset of quality control process.

D) Quality control is continuous, whereas quality assurance is intermittent.

E) Quality control is typically preferred by organizations that focus on quality.

Answer: B Explanation: B) Quality control involves measuring quality after production, whereas quality assurance is a more proactive approach.

Page Ref: 209; 210 Difficulty: Moderate Chapter LO: 6 Course LO: Describe the major components of effective distribution Classification: Concept 80) ________ is a comprehensive approach of companywide policies, practices, and procedures to ensure that every product meets quality standards.

A) Statistical process control B) Quality assurance C) Quality control D) Quality directive E) Corrective management Answer: B Explanation: B) Quality assurance is a comprehensive approach of companywide policies, practices, and procedures to ensure that every product meets quality standards. It is a holistic system of integrated policies.

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81) ________ refers to the use of random sampling and tools, such as control charts, to monitor the production process.

A) Total Quality Management B) Six Sigma C) ISO 9000 D) JIT quality E) Statistical process control Answer: E Explanation: E) Statistical process control refers to the use of random sampling and tools, such as control charts, to monitor the production process. Control chart is one of the most important SPC tools.

Page Ref: 210 Difficulty: Easy Chapter LO: 6 Course LO: Describe the major components of effective distribution Classification: Concept 82) Kaizen refers to ________.

A) customization of production processes B) continuous quality improvements C) intensification of quality control D) use of statistical process control E) standardization of production processes Answer: B Explanation: B) Companies empower their employees to continuously improve the quality of goods production or service delivery, a strategy often expressed through the Japanese word kaizen.

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83) ________ is a rigorous quality management program that strives to eliminate deviations between the actual and desired performance of a business system and reduce defects to 3.4 per 1 million opportunities.

A) Statistical process control B) Six Sigma C) ISO 9000 D) ISO 9001 E) Total quality management Answer: B Explanation: B) Six Sigma is a rigorous quality management program that strives to eliminate deviations between the actual and desired performance of a business system. It strives to reduce defects to 3.4 per 1 million opportunities.

Page Ref: 210 Difficulty: Easy Chapter LO: 6 Course LO: Describe the major components of effective distribution Classification: Concept 84) ________ is a globally recognized family of standards for quality management systems.

A) Statistical process control B) Six Sigma C) Kaizen D) ISO 9000 E) Total quality management Answer: D Explanation: D) ISO 9000 is a globally recognized family of standards for quality management systems. It is administered by the International Organization for Standardization.

Page Ref: 211 Difficulty: Easy Chapter LO: 6 Course LO: Describe the major components of effective distribution Classification: Concept 85) Achieving ISO certification indicates that the ________.

A) company has recently effected a drastic quality change B) company is responsive toward its environment C) company manufactures goods in a European country D) company's internal processes meet accepted standards E) company ensures that the defects are limited to 3.4 in million Answer: D Explanation: D) Achieving ISO certification sends a reassuring signal to other companies that your internal processes meet these widely accepted standards.

Page Ref: 211 Difficulty: Moderate Chapter LO: 6 Course LO: Describe the major components of effective distribution Classification: Concept 32 .

86) Explain how systems are found in a company.

Answer: A system is an interconnected and coordinated set of elements and processes that converts inputs into desired outputs. A company is made up of numerous individual systems in the various functional areas, not only in manufacturing or operations but also in engineering, marketing, accounting, and other areas that together constitute the overall system that is the company itself. Each of these individual systems can also be thought of as a subsystem of the overall business.

Page Ref: 193 Difficulty: Moderate Chapter LO: 1 Course LO: Describe the major components of effective distribution Classification: Concept 87) Select a company of your choice and create a systems model for the company. Create the model by identifying various systems and by representing the company itself as a large system that receives inputs and provides outputs. Clearly mention the transformation processes in your model.

Answer: The students should create a model by clearly specifying the inputs and the outputs of the system as a whole and for the subsystems. Inputs will come from the suppliers and outputs are served to customers. Student answers will vary due to the nature of this question.

Page Ref: 195 Difficulty: Difficult AACSB: Reflective Thinking Skills Chapter LO: 1 Course LO: Describe the major components of effective distribution Classification: Synthesis 88) Choose a company of your choice and clearly depict the company's value chain. Mention the actual transformation process in the value chain that you have created.

Answer: A sample value chain of a restaurant is given below.

Hungry customers, food ingredients chef, wait staff, physical environment prepare and serve food, satisfied diners.

Students should create a similar value chain by clearly mentioning the transformation processes.

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89) Explain the concept of value webs.

Answer: Instead of the linear value chain, some businesses now think in terms of value webs, multidimensional networks of suppliers and outsourcing partners. Value webs enable the virtual or network organization structures and the unstructured organizations. They can be viewed as dynamic value webs that grow, shrink, or change as the company's needs change.

Page Ref: 198 Difficulty: Moderate Chapter LO: 2 Course LO: Describe the major components of effective distribution Classification: Concept 90) Why is the offshoring debate an excellent example of conflicting priorities in the stakeholder model?

Answer: Offshoring may maximize a company's profits by reducing labor and materials costs, and this would benefit its shareholders. Offshoring may also open new markets for the company's products, thus benefiting customers in the region. It may also make the company more globally competitive, which may ultimately save jobs in the U.S. However, losing jobs to locations with cheaper labor may also eliminate jobs in the U.S., and this would negatively affect the company's employees in the U.S. Offshoring operations may also make the company less responsive to its customers in the U.S. Page Ref: 198 Difficulty: Moderate Chapter LO: 2 Course LO: Describe the major components of effective distribution Classification: Concept 91) One way for a country to protect its domestic industries is by levying tariffs against imported goods. The tariff makes the imported goods more expensive. It has been suggested that the U.S. establish a tariff against imported labor as well. A company that offshores jobs in pursuit of lower labor costs would have to pay a tariff or tax that would make that labor more expensive, and this action may discourage further offshoring. Do you think this tax or tariff would be a good idea? Why or why not? Do you think it would serve its intended purpose of slowing down offshoring?

Answer: Offshoring will often increase the productivity and effectiveness of organizations. At the same time, many believe that it takes away jobs from the U.S. Students may present arguments to either support or oppose offshoring. Student answers will vary due to the nature of this question.

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92) Explain the various ways in which an SCM can have a profound strategic impact on companies and the broader economy.

Answer: Managing risks: SCM can help companies manage the complex risks involved in a supply chain, risks that include everything from cost and availability to health and safety issues.

Managing relationships: SCM can coordinate the numerous relationships in the supply chain and help managers focus their attention on the most important company-to-company relationships.

Managing trade-offs: SCM helps managers address the many trade-offs in the supply chain.

These trade-offs can be a source of conflict within the company, and SCM helps balance the competing interests of the various functional areas.

Promoting sustainability: As the part of business that moves raw materials and finished goods around the world, supply chains have an enormous effect on resource usage, waste, and environmental impact. A major effort is underway in the field of SCM to develop greener supply chains.

Page Ref: 200; 201 Difficulty: Moderate Chapter LO: 3 Course LO: Describe the major components of effective distribution Classification: Concept 93) Explain the significance of procurement in a business.

Answer: Procurement is the acquisition of the raw materials, parts, components, supplies, and finished products required to produce goods and services. The goal of purchasing is to make sure that the company has all the materials it needs, when it needs them, at the lowest possible cost. A company must always have enough supplies on hand to cover a product's lead time - the period that elapses between placing the supply order and receiving materials.

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94) Compare and contrast MRP systems and ERP systems.

Answer: Material requirements planning (MRP) helps a manufacturer get the correct materials where they are needed, when they are needed, without unnecessary stockpiling. Managers use MRP software to calculate when certain materials will be required, when they should be ordered, and when they should be delivered so that storage costs will be minimal. These systems are so effective at reducing inventory levels that they are used almost universally in both large and small manufacturing firms.

ERP extends the scope of resource planning and management even further to encompass the entire organization. ERP soft ware programs are typically made up of modules that address the needs of the various functional areas, from manufacturing to sales to human resources. Some companies deploy ERP on a global scale, with a single centralized system connecting all their operations worldwide.

Page Ref: 201; 202 Difficulty: Difficult AACSB: Reflective Thinking Skills Chapter LO: 3 Course LO: Describe the major components of effective distribution Classification: Synthesis 95) What is production and operations management?

Answer: The term production and operations management, or simply operations management, refers to overseeing all the activities involved in producing goods and services. Operations managers are responsible for a wide range of strategies and decisions, from locating production facilities to managing the supply chain.

Page Ref: 202 Difficulty: Easy Chapter LO: 4 Course LO: Describe the major components of effective distribution Classification: Concept 96) Create a sample capacity plan for a business that you want to start. Clearly mention such aspects as future demand and starting capacity.

Answer: Capacity planning refers to establishing the overall level of resources needed to meet customer demand. Students should identify all resources needed to serve their prospective customers. Student answers will vary due to the nature of this question.

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97) Describe lean systems and just-in-time (JIT) inventory systems.

Answer: Lean systems that maximize productivity by reducing waste and delays are at the heart of many productivity improvement efforts. Many lean systems borrow techniques from Toyota; the Toyota Production System is world renowned for its ability to continually improve both productivity and quality. Central to the notion of lean systems is just-in-time (JIT) inventory management, in which goods and materials are delivered throughout the production process right before they are needed rather than being stockpiled in inventories. Reducing stocks to immediate needs reduces waste and forces factories to keep production flowing smoothly.

Page Ref: 203; 204; 206 Difficulty: Easy Chapter LO: 4 Course LO: Describe the major components of effective distribution Classification: Concept 98) Compare and contrast mass production, customized production, and mass customization.

Answer: Both goods and services can be created through mass production, customized production, or mass customization, depending on the nature of the product and the desires of target customers.

In mass production, identical goods or services are created, usually in large quantities, such as when Apple churns out a million identical iPhones.

At the other extreme is customized production, sometimes called batch-of-one production in manufacturing, in which the producer creates a unique good or service for each customer.

An attractive compromise in many cases is mass customization, in which part of the product is mass produced and then the remaining features are customized for each buyer.

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99) Compare and contrast the production of goods and services.

Answer: Perishability - Services are consumed at the same time they are produced. The producer cannot make the services ahead of time and store them in inventory until someone is ready to buy. If the service is unavailable when the buyer wants it, the sale is lost forever.

Location constraints - Unlike the production of goods, which can be shipped to customers wherever they are, a service provider needs to make certain the services are available where the customers are.

Scalability challenges - A service provider relies on the skills of specific professionals to provide their services to customers and cannot ramp up production by incorporating robotics or other technology. It can expand only by hiring additional professionals.

Performance variability/perceptions of quality - Services are often judged by subjective terms, rather than objective terms. Additionally, service is also judged on the basis of quality of experience, not just results.

Customer involvement - Unlike the manufacturing process, customers are often involved in and can affect the quality of the service delivery.

Page Ref: 207; 208 Difficulty: Difficult AACSB: Reflective Thinking Skills Chapter LO: 5 Course LO: Describe the major components of effective distribution Classification: Synthesis 100) Compare and contrast quality control and quality assurance.

Answer: Quality control means "catching the bad ones." It measures the quality of production against established standards after the goods have been produced, and the defects are weeded out. Quality assurance means "doing it right the first time". It involves policies, procedures and practices to build quality into the product from the start, rather than finding defects after the production process.

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Business in Action, 6e (Bovee/Thill) Chapter 10 Employee Motivation 1) Engagement predicts the likelihood that employees will stay or leave their jobs.

Answer: FALSE Explanation: Rootedness predicts the likelihood that employees will stay or leave their jobs.

Page Ref: 219 Difficulty: Easy Chapter LO: 1 Course LO: Discuss the factors that affect motivation and behavior in the workplace Classification: Concept 2) The four indicators, engagement, satisfaction, commitment, and rootedness can identify who is motivated and who isn't, as well as explain why.

Answer: FALSE Explanation: The four indicators, engagement, satisfaction, commitment, and rootedness can identify who is motivated and who isn't, but they don't explain why.

Page Ref: 220 Difficulty: Moderate Chapter LO: 1 Course LO: Discuss the factors that affect motivation and behavior in the workplace Classification: Concept 3) The fundamental motivational need called the "drive to defend" can be both positive and negative.

Answer: TRUE Explanation: The fundamental motivational need called the "drive to defend" can be both positive and negative.

Page Ref: 220 Difficulty: Easy Chapter LO: 1 Course LO: Discuss the factors that affect motivation and behavior in the workplace Classification: Concept 4) The Hawthorne studies were simpler and less influential than suggested by the Hawthorne effect.

Answer: FALSE Explanation: The Hawthorne studies led to a phenomenon known as the Hawthorne effect.

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5) Frederick W. Taylor's scientific management approach focused on intrinsic motivational elements, such as opportunities for personal satisfaction.

Answer: FALSE Explanation: Scientific management is a management approach designed to improve employees' efficiency by scientifically studying their work.

Page Ref: 221 Difficulty: Easy Chapter LO: 1 Course LO: Discuss the factors that affect motivation and behavior in the workplace Classification: Concept 6) According to Maslow, higher level needs can serve as motivators even if lower level needs are not yet met.

Answer: FALSE Explanation: Maslow's hierarchy is a model in which human needs are arranged in a hierarchy, with the most basic needs at the bottom and the more advanced needs toward the top.

Page Ref: 222 Difficulty: Easy Chapter LO: 1 Course LO: Discuss the factors that affect motivation and behavior in the workplace Classification: Application 7) At the top of Maslow's hierarchy is self-actualization need.

Answer: TRUE Explanation: Self-actualization need is at the top of Maslow's hierarchy. It refers to the need to become everything one can be.

Page Ref: 222 Difficulty: Easy Chapter LO: 1 Course LO: Discuss the factors that affect motivation and behavior in the workplace Classification: Concept 8) Theory X-oriented managers believe that most employees are motivated by intrinsic rewards.

Answer: FALSE Explanation: Theory X refers to the managerial assumption that employees are irresponsible, are unambitious, and dislike work and that managers must use force, control, or threats to motivate them.

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9) Theory Y-oriented managers believe that employees like to work.

Answer: TRUE Explanation: Theory Y-oriented managers believe that employees like to work. It is the managerial assumption that employees enjoy meaningful work, are naturally committed to certain goals.

Page Ref: 222 Difficulty: Easy Chapter LO: 1 Course LO: Discuss the factors that affect motivation and behavior in the workplace Classification: Concept 10) Unlike with the other classical theories, there is a lot of research to validate Herzberg's twofactor theory.

Answer: FALSE Explanation: Unlike with the other classical theories, there is a lot of research to validate McClelland's ideas and to explain particular outcomes in the workplace.

Page Ref: 223 Difficulty: Easy Chapter LO: 1 Course LO: Discuss the factors that affect motivation and behavior in the workplace Classification: Concept 11) Expectancy theory refers to the idea that employees base their level of satisfaction on the ratio of their inputs to the job and the outputs or rewards they receive from it.

Answer: FALSE Explanation: Expectancy theory refers to the idea that the effort employees put into their work depends on expectations about their own ability to perform, expectations about likely rewards, and the attractiveness of those rewards.

Page Ref: 224 Difficulty: Easy Chapter LO: 2 Course LO: Discuss the factors that affect motivation and behavior in the workplace Classification: Concept 12) The idea that your job satisfaction is based on how much you put into your job versus how much you get out of your job is the basis of the equity theory of motivation.

Answer: TRUE Explanation: The idea that your job satisfaction is based on how much you put into your job versus how much you get out of your job is the basis of the equity theory of motivation.

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13) Complaints about gender pay fairness, where men get more money than women for the same work, are instances of equity issues.

Answer: TRUE Explanation: Complaints about gender pay fairness, where men get more money than women for the same work, are instances of equity issues.

Page Ref: 225 Difficulty: Easy Chapter LO: 2 Course LO: Discuss the factors that affect motivation and behavior in the workplace Classification: Concept 14) Goals that are specific enough to give employees clarity and focus can function as effective motivators.

Answer: TRUE Explanation: Goals that are specific enough to give employees clarity and focus can function as effective motivators.

Page Ref: 226 Difficulty: Easy Chapter LO: 3 Course LO: Discuss the factors that affect motivation and behavior in the workplace Classification: Concept 15) For goals to function as a motivator, the employee must believe in his or her ability to meet that goal.

Answer: TRUE Explanation: For goals to function as a motivator, the employee must believe in his or her ability to meet that goal.

Page Ref: 227 Difficulty: Moderate Chapter LO: 3 Course LO: Discuss the factors that affect motivation and behavior in the workplace Classification: Concept 16) Management by objectives is a motivational approach where managers set specific goals for each employee.

Answer: FALSE Explanation: Management by objectives is a motivational approach in which managers and employees work together to structure personal goals and objectives for every individual, department, and project to mesh with the organization's goals.

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17) Task identity refers to the employee's perception of how his or her job impacts the lives of other employees.

Answer: FALSE Explanation: Task identity refers to the degree to which the employee has responsibility for completing an entire task. Greater task identity contributes to the sense of meaning in work.

Page Ref: 229 Difficulty: Easy Chapter LO: 4 Course LO: Discuss the factors that affect motivation and behavior in the workplace Classification: Concept 18) Job enrichment expands a job horizontally.

Answer: FALSE Explanation: Job enrichment refers to making jobs more challenging and interesting by expanding the range of skills required. It is a sort of vertical expansion.

Page Ref: 230 Difficulty: Easy Chapter LO: 4 Course LO: Discuss the factors that affect motivation and behavior in the workplace Classification: Concept 19) Cross-training involves expanding the scope of an individual job.

Answer: FALSE Explanation: Cross-training refers to training workers to perform multiple jobs and rotating them through these various jobs to combat boredom or burnout.

Page Ref: 230 Difficulty: Easy Chapter LO: 4 Course LO: Discuss the factors that affect motivation and behavior in the workplace Classification: Concept 20) Using reinforcement theory, managers try to systematically encourage those actions considered beneficial to the company.

Answer: TRUE Explanation: Using reinforcement theory, managers try to systematically encourage those actions considered beneficial to the company.

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21) Negative reinforcement and punishment are the same thing.

Answer: FALSE Explanation: Negative reinforcement refers to encouraging the repetition of a particular behavior (desirable or not) by removing unpleasant consequences for the behavior. It is not the same as punishment.

Page Ref: 231 Difficulty: Moderate Chapter LO: 5 Course LO: Discuss the factors that affect motivation and behavior in the workplace Classification: Concept 22) Negative reinforcement encourages a particular behavior to be repeated through the reduction, removal, or absence of an unpleasant outcome.

Answer: TRUE Explanation: Negative reinforcement encourages a particular behavior to be repeated through the reduction, removal, or absence of an unpleasant outcome.

Page Ref: 231 Difficulty: Easy Chapter LO: 5 Course LO: Discuss the factors that affect motivation and behavior in the workplace Classification: Concept 23) Reinforcement needs to involve explicit monetary incentives to distort behavior.

Answer: FALSE Explanation: Reinforcement doesn't have to involve explicit monetary incentives to distort behavior.

Page Ref: 232 Difficulty: Moderate Chapter LO: 5 Course LO: Discuss the factors that affect motivation and behavior in the workplace Classification: Concept 24) Motivation is a deeply personal phenomenon.

Answer: TRUE Explanation: Motivation is the combination of forces that move individuals to take certain actions and avoid other actions.

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25) Micromanagement refers to overseeing every small detail of employees' work and refusing to give them freedom or autonomy.

Answer: TRUE Explanation: Micromanagement refers to overseeing every small detail of employees' work and refusing to give them freedom or autonomy.

Page Ref: 235 Difficulty: Easy Chapter LO: 6 Course LO: Discuss the factors that affect motivation and behavior in the workplace Classification: Concept 26) ________ refers to the combination of forces that moves individuals to take certain actions and avoid other actions.

A) Engagement B) Reinforcement C) Aptitude D) Motivation E) Ethics Answer: D Explanation: D) Motivation refers to the combination of forces that moves individuals to take certain actions and avoid other actions.

Page Ref: 219 Difficulty: Easy Chapter LO: 1 Course LO: Discuss the factors that affect motivation and behavior in the workplace Classification: Concept 27) An employee's rational and emotional commitment to his or her work is termed as ________.

A) engagement B) motivation C) work satisfaction D) drive E) competence Answer: A Explanation: A) An employee's rational and emotional commitment to his or her work is called engagement. It reflects the degree of energy, enthusiasm, and effort each employee brings to his or her work.

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28) Which of the following refers to the degree to which an employee intends to stay with his or her employer?

A) drive B) satisfaction C) rootedness D) engagement E) commitment Answer: C Explanation: C) Rootedness refers to the degree to which an employee intends to stay with his or her employer.

Page Ref: 219; 220 Difficulty: Easy Chapter LO: 1 Course LO: Discuss the factors that affect motivation and behavior in the workplace Classification: Concept 29) In the workplace, motivation can be assessed by measuring four indicators: satisfaction, engagement, rootedness, and ________.

A) intelligence B) commitment C) creativity D) work performance E) cognitive dissonance Answer: B Explanation: B) In a workplace setting, motivation can be assessed by measuring four indicators: engagement, satisfaction, commitment, and rootedness.

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30) Which of the following is true about Frederick W. Taylor's scientific management approach?

A) It consists of a model in which a person's needs are arranged in a hierarchy, with the most basic needs at the bottom and the more advanced needs toward the top.

B) It refers to the managerial assumption that employees are irresponsible, unambitious, and dislike work and that managers must use force, control, or threats to motivate them.

C) It is an approach that divides motivational forces into satisfiers and dissatisfiers.

D) It highlighted subjective motivational elements, such as opportunities for personal satisfaction.

E) It involved analyzing work and business processes in order to improve employees' efficiency.

Answer: E Explanation: E) Scientific management is a management approach designed to improve employees' efficiency by scientifically studying their work.

Page Ref: 221 Difficulty: Moderate Chapter LO: 1 Course LO: Discuss the factors that affect motivation and behavior in the workplace Classification: Concept 31) ________ refers to a supposed effect of organizational research, in which employees change their behavior because they are being studied and given special treatment.

A) Herzberg's two-factor theory B) Maslow's hierarchy C) Theory X D) Hawthorne effect E) Theory Y Answer: D Explanation: D) Hawthorne effect refers to a supposed effect of organizational research in which employees change their behavior because they are being studied and given special treatment; the validity of the effect is uncertain.

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32) Andy works as a junior accountant in a firm. He has a nice house, a good insurance plan, a secure job, an affectionate family, and a close circle of friends. However, he is always sidelined at work, and his contributions and initiatives go unrecognized. His suggestions to improve the work environment are also overlooked. He feels that his superiors at his firm do not respect him.

He begins to feel unsatisfied and his productivity reduces. Andy's manager uses Maslow's hierarchy, and identifies that Andy is on ________ needs level.

A) physiological B) safety C) esteem D) self-actualization E) social Answer: C Explanation: C) Abraham Maslow hypothesized that behavior is determined by a variety of needs, which he organized into categories arranged in a hierarchy. Esteem needs refers to the need for a sense of self-worth and integrity.

Page Ref: 222 Difficulty: Difficult AACSB: Analytic Skills Chapter LO: 1 Course LO: Discuss the factors that affect motivation and behavior in the workplace Classification: Application 33) Workplace factors such as health insurance, pension plans, and retirement benefits would satisfy which of the following needs in Maslow's hierarchy?

A) safety needs B) social needs C) esteem needs D) physiological needs E) self-actualization needs Answer: A Explanation: A) In Maslow's hierarchy all of the requirements for basic survival - food, clothing, shelter, and the like - fall into the category of physiological needs. These basic needs must be satisfied before the person can consider higher-level needs such as safety needs (health insurance; pension plan).

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34) According to Maslow's hierarchy of needs theory, which of the following are selfactualization needs?

A) A person's need to give and receive love and to feel a sense of belonging.

B) A person's need for a sense of self-worth, status, and attention.

C) A person's need to become what he or she is capable of becoming.

D) A person's needs for security and protection from physical and emotional harm.

E) A person's needs for food, clothing, and shelter.

Answer: C Explanation: C) At the top of Maslow's hierarchy is self-actualization - the need to become everything one can be.

Page Ref: 222 Difficulty: Easy Chapter LO: 1 Course LO: Discuss the factors that affect motivation and behavior in the workplace Classification: Concept 35) Cheryl R. Lucas works as a food technologist at Maxiserve Inc., a leading food and nutrition company. She has a good salary, pension plan, high job security, and many friends at work. She has won "employee of the year" award twice, and her co-workers respect her. Cheryl has an inner drive to achieve her full potential, and feels that her work is worthwhile and satisfying in itself. Cheryl's manager uses Maslow's hierarchy to identify the need level she is at. He is most likely to classify her as being at the ________ need level.

A) physiological B) safety C) esteem D) self-actualization E) social Answer: D Explanation: D) At the top of Maslow's hierarchy is self-actualization - the need to become everything one can be. Employees who reach this point work not just because they want to make money or impress others, but because they feel their work is worthwhile and satisfying in itself.

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36) According to McGregor, Theory X-oriented managers believe that ________.

A) employees dislike work and can be motivated only by the fear of losing their jobs or by extrinsic rewards B) employees can be motivated by working for goals that promote creativity C) physiological needs must be satisfied before an employee can consider higher-level needs D) employees work not just because they want to make money or impress others, but because they feel their work is worthwhile and satisfying in itself E) they need to remove dissatisfying elements and add satisfying elements - doing one or the other is not enough Answer: A Explanation: A) According to McGregor, Theory X-oriented managers believe that employees dislike work and can be motivated only by the fear of losing their jobs or by extrinsic rewards those given by other people, such as money and promotions.

Page Ref: 222 Difficulty: Easy Chapter LO: 1 Course LO: Discuss the factors that affect motivation and behavior in the workplace Classification: Concept 37) Elaine DeWitte, project head in a firm, framed management policies which followed McGregor's Theory X style of thinking. Which of the following actions is she most likely to have implemented?

A) Elaine closely tracks the daily performance of her employees and asks them to work according to a pre-determined schedule to prevent them from slacking.

B) Elaine asks employees to volunteer for additional tasks assuming that all employees are motivated to accept responsibility.

C) Elaine allows her employees to work from home as she believes that they would exercise selfdirection.

D) Elaine arranges skill-based training for her employees during the weekends, believing that all employees enjoy their work and are ambitious.

E) Elaine motivates employees through intrinsic rewards, such as the freedom to choose how to accomplish their work, and involves them in decision-making processes.

Answer: A Explanation: A) Theory X refers to a managerial assumption that employees are irresponsible, unambitious, and dislike work and that managers must use force, control, or threats to motivate them.

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38) At Creative Solutions, an event management firm, employees are given ample creative freedom, flexible work-timings, and they can choose their own working styles. The top management of the firm believes that all employees enjoy meaningful work, and are naturally committed to the firm's goals. Team leaders are advised not to use force, control, or threats to motivate team members. The top management of Creative Solutions is most likely to be using which of the following approaches?

A) Theory X B) Hawthorne's effect C) Scientific management D) Expectancy theory E) Theory Y Answer: E Explanation: E) Theory Y is a managerial assumption that employees enjoy meaningful work, are naturally committed to certain goals, are capable of creativity, and seek out responsibility under the right conditions.

Page Ref: 222 Difficulty: Difficult AACSB: Analytic Skills Chapter LO: 1 Course LO: Discuss the factors that affect motivation and behavior in the workplace Classification: Application 39) ________ proposed a model that divides motivational forces into satisfiers ("motivators") and dissatisfiers ("hygiene factors").

A) Douglas McGregor B) Abraham Maslow C) David McClelland D) Frederick W. Taylor E) Frederick Herzberg Answer: E Explanation: E) Frederick Herzberg's two-factor theory refers to a model that divides motivational forces into satisfiers ("motivators") and dissatisfiers ("hygiene factors").

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40) According to Frederick Herzberg's two-factor theory, which of the following factors acts as a motivator?

A) favorable working conditions B) favorable company policies C) increase in pay D) job security E) responsibility Answer: E Explanation: E) In Herzberg's two-factor theory, motivators are associated with satisfying experiences. Motivators tend to be intrinsic and include achievement, recognition, responsibility, and other personally rewarding factors.

Page Ref: 223 Difficulty: Easy Chapter LO: 1 Course LO: Discuss the factors that affect motivation and behavior in the workplace Classification: Concept 41) Kelly, who had recently joined an organization, participates in all corporate events as she wants to be accepted as a friend by her co-workers. According to David McClelland's threeneeds theory, this desire is known as ________.

A) need for power B) need for achievement C) need for self-esteem D) need for affiliation E) need for security Answer: D Explanation: D) McClelland's model highlights the need for affiliation (being accepted by others and having opportunities for social interaction).

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42) In Herzberg's two-factor theory, hygiene factors are ________.

A) associated with dissatisfying experiences B) mostly intrinsic and include achievement, recognition, responsibility, and other personally rewarding factors C) the requirements for basic survival such as food, clothing, and shelter D) related to the need to give and receive love and to feel a sense of belonging E) related to the need for a sense of self-worth and integrity Answer: A Explanation: A) In Herzberg's two-factor theory, hygiene factors are associated with dissatisfying experiences, and motivators are associated with satisfying experiences.

Page Ref: 223 Difficulty: Moderate Chapter LO: 1 Course LO: Discuss the factors that affect motivation and behavior in the workplace Classification: Concept 43) Which of the following theorists developed the three-needs theory of motivation that highlights needs for power, affiliation, and achievement?

A) Douglas McGregor B) Abraham Maslow C) David McClelland D) Frederick W. Taylor E) Frederick Herzberg Answer: C Explanation: C) The three-needs theory was developed by David McClelland. It highlights the need for power, the need for affiliation, and the need for achievement.

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44) Justin M. Brown, the operations manager at Vernon Manufacturing Company, formulated a strategy to motivate the firm's employees. Justin addressed employee's dissatisfaction by increasing their salary and incentives; he employed several industrial counsellors to help employees deal with work-related stress, and improved the health insurance plan provided to employees. He also motivated employees by providing greater opportunity for advancement; recognizing employees who perform well; and giving employees greater responsibility to foster a sense of achievement in them. Justin's measures are based on which of the following approaches?

A) McClelland's three needs theory B) Theory X C) Theory Y D) Herzberg's two-factor theory E) scientific management Answer: D Explanation: D) Herzberg's two-factor theory is a model that divides motivational forces into satisfiers ("motivators") and dissatisfiers ("hygiene factors").

Page Ref: 223 Difficulty: Difficult AACSB: Analytic Skills Chapter LO: 1 Course LO: Discuss the factors that affect motivation and behavior in the workplace Classification: Application 45) Which of the following is a drawback of David McClelland's three-needs theory?

A) it explains motivation in limited contexts B) it has limited practicality in terms of identifying needs C) it is criticized because of the methodology used in the original research D) subsequent research was unable to validate the model E) it is illogical Answer: B Explanation: B) While it helps explain motivation in various contexts, the biggest drawback to McClelland's approach is its limited practicality in terms of identifying needs and crafting motivational programs to harness them in beneficial directions.

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46) ________ connects an employee's efforts to the outcome he or she thinks will result from those efforts.

A) Maslow's hierarchy B) Herzberg's two-factor theory C) David McClelland's three needs theory D) Expectancy theory E) Equity theory Answer: D Explanation: D) Expectancy theory refers to the idea that the effort employees put into their work depends on expectations about their own ability to perform, expectations about likely rewards, and the attractiveness of those rewards.

Page Ref: 224 Difficulty: Easy Chapter LO: 2 Course LO: Discuss the factors that affect motivation and behavior in the workplace Classification: Concept 47) Which of the following statements is true about expectancy theory?

A) Expectancy theory focuses more on the specific forces that motivate employees and less on the process they follow to seek satisfaction in their jobs.

B) Expectancy theory suggests that employee satisfaction depends on the perceived ratio of inputs to outputs.

C) Research into expectancy theory has led to thinking about the broader concept of organizational justice, or perceptions of fairness in the workplace.

D) Expectancy theory identifies four primary drives that underlie all motivation.

E) Expectancy theory states that the effort employees will put forth depends on their beliefs regarding the rewards that the organization will give in response to that performance.

Answer: E Explanation: E) Expectancy theory connects an employee's efforts to the outcome he or she expects from those efforts.

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48) Belief in your ability to complete a task is known as ________.

A) drive B) self-efficacy C) self-actualization D) rootedness E) self-motivation Answer: B Explanation: B) Belief in your ability to complete a task is known as self-efficacy, and it can be increased by gaining experience, mimicking successful role models, getting encouragement from others, and sometimes even "psyching yourself up."

Page Ref: 225 Difficulty: Easy Chapter LO: 2 Course LO: Discuss the factors that affect motivation and behavior in the workplace Classification: Concept 49) ________ suggests that employee satisfaction depends on the perceived ratio of inputs to outputs.

A) Maslow's hierarchy B) Herzberg's two-factor theory C) David McClelland's three needs theory D) Expectancy theory E) Equity theory Answer: E Explanation: E) Equity theory suggests that employee satisfaction depends on the perceived ratio of inputs to outputs.

Page Ref: 225 Difficulty: Easy Chapter LO: 2 Course LO: Discuss the factors that affect motivation and behavior in the workplace Classification: Concept 50) Research into equity theory has led to thinking about the broader concept of ________.

A) scientific management B) self-actualization C) organizational justice D) intrinsic rewards E) self-efficacy Answer: C Explanation: C) Research into equity theory has led to thinking about the broader concept of organizational justice, or perceptions of fairness in the workplace.

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51) ________ refers to the idea that carefully designed performance targets and aims can motivate employees to higher performance.

A) Goal-setting theory B) Equity theory C) Herzberg's two-factor theory D) David McClelland's three needs theory E) Expectancy theory Answer: A Explanation: A) Goal-setting theory is a motivational theory suggesting that setting goals can be an effective way to motivate employees.

Page Ref: 226 Difficulty: Easy Chapter LO: 3 Course LO: Discuss the factors that affect motivation and behavior in the workplace Classification: Concept 52) Goal-setting theory of motivation suggests that ________.

A) setting goals is unrelated to motivation in most employees B) setting goals is an effective way to motivate employees C) managers, not employees, need to set goals D) collaborative goal setting can undermine managerial authority E) employees should set their own goals without input from managers Answer: B Explanation: B) Goal-setting theory is a motivational theory suggesting that setting goals can be an effective way to motivate employees.

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53) ________ refers to a motivational approach in which managers and employees work together to structure personal goals and objectives for every individual, department, and project to mesh with the organization's goals.

A) Scientific management B) Theory X-oriented management C) Management by objectives D) Theory Y-oriented management E) Micromanagement Answer: C Explanation: C) Management by objectives refers to a motivational approach in which managers and employees work together to structure personal goals and objectives for every individual, department, and project to mesh with the organization's goals.

Page Ref: 227 Difficulty: Easy Chapter LO: 3 Course LO: Discuss the factors that affect motivation and behavior in the workplace Classification: Concept 54) Which of the following statements is true about management by objectives?

A) It suggests that employee satisfaction depends on the perceived ratio of inputs to outputs.

B) It has not been validated by experimental research.

C) It reduces employee involvement in goal setting and decision making.

D) It reduces employee stress by removing specific goals and targets.

E) It ensures that employee's activities are directly linked to achieving the organization's longterm goals.

Answer: E Explanation: E) One of the key elements of management by objectives is a collaborative goalsetting process. Together, a manager and an employee define the employee's goals, the responsibilities for achieving those goals, and the means of evaluating individual and group performance so that the employee's activities are directly linked to achieving the organization's long-term goals.

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55) Nelly Kaszton is the manager of a team of financial analysts at M&A Analytics, a Chicagobased firm which offers software, advisory services, and research facilities for financial risk management. The firm uses management by objectives technique to motivate employees to higher performance. As a part of the management by objectives (MBO) technique, Nelly Kaszton is most likely to implement which of the following actions?

A) Nelly discourages people she supervises from focusing on goals, as she believes that it will lead to unhealthy competition.

B) Nelly creates an action plan aimed at achieving department, and project-related goals, while ignoring the personal goals and objectives of the people she supervises.

C) Nelly focuses on the individual needs and goals of the people she supervises, while ignoring the departmental and project-related objectives.

D) Nelly collaborates with the people she supervises to set specific individual goals that mesh with the larger goals of M&A Analytics.

E) Nelly gives employees full freedom to set their own goal, without supervision, as MBO techniques state that employees are naturally committed to certain goals.

Answer: D Explanation: D) Management by objectives refers to a motivational approach in which managers and employees work together to structure personal goals and objectives for every individual, department, and project to mesh with the organization's goals.

Page Ref: 227 Difficulty: Difficult AACSB: Analytic Skills Chapter LO: 3 Course LO: Discuss the factors that affect motivation and behavior in the workplace Classification: Application 56) Which of the following is a limitation of the goal-setting theory?

A) decreased extrinsic motivation B) reduced internal competition C) missed learning opportunities D) less challenging goals E) reduced emphasis on short-term performance Answer: C Explanation: C) Goal setting can misfire in a variety of ways, such as missed learning opportunities. Employees can get so focused on meeting deadlines and other goals that they overlook opportunities to learn.

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57) ________ refers to a model suggesting that five core job dimensions influence three critical psychological states that determine motivation, performance, and other outcomes.

A) Job characteristics model B) Management by objectives C) Goal-setting theory D) Theory X E) Theory Y Answer: A Explanation: A) Job characteristics model refers to a model suggesting that five core job dimensions influence three critical psychological states that determine motivation, performance, and other outcomes.

Page Ref: 229 Difficulty: Easy Chapter LO: 4 Course LO: Discuss the factors that affect motivation and behavior in the workplace Classification: Concept 58) According to the job characteristics model, the degree to which the employee has responsibility for completing an entire task is called ________.

A) task significance B) skill variety C) autonomy D) task availability E) task identity Answer: E Explanation: E) Task identity refers to the degree to which the employee has responsibility for completing an entire task. Greater task identity contributes to the sense of meaning in work.

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59) According to the job characteristics model, ________ refers to the range of abilities and talents needed to accomplish the responsibilities associated with the job.

A) task significance B) skill variety C) autonomy D) task availability E) task identity Answer: B Explanation: B) Skill variety refers to the range of skills and talents needed to accomplish the responsibilities associated with the job. The broader the range of skills required, the more meaningful the work is likely to be to the employee.

Page Ref: 229 Difficulty: Easy Chapter LO: 4 Course LO: Discuss the factors that affect motivation and behavior in the workplace Classification: Concept 60) According to the job characteristics model, the employee's perception of the impact the job has on the lives of other people is called ________.

A) skill variety B) task identity C) task significance D) autonomy E) emotional labor Answer: C Explanation: C) Task significance refers to the employee's perception of the impact the job has on the lives of other people.

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61) According to the job characteristics model, experienced meaningfulness of the work is ________.

A) a measure of how much employees care about the jobs they are doing B) the sense each employee has that his or her efforts contribute to the outcome C) an employees' intention to stay in the company D) an employees' support of the company and its mission E) employees' awareness of the real-life results of their efforts Answer: A Explanation: A) Experienced meaningfulness of the work is a measure of how much employees care about the jobs they are doing.

Page Ref: 229 Difficulty: Easy Chapter LO: 4 Course LO: Discuss the factors that affect motivation and behavior in the workplace Classification: Concept 62) According to the the job characteristics model, experienced responsibility for results refers to ________.

A) how much employees care about the jobs they are doing B) the sense each employee has that his or her efforts contribute to the outcome C) an employees' intention to stay in the company D) an employees' support of the company and its mission E) employees' awareness of the real-life results of their efforts Answer: B Explanation: B) Experienced responsibility for results refers to the sense each employee has that his or her efforts contribute to the outcome.

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63) Jason is an assembly-line worker at Mellick Manufacturers. He feels dissatisfied and frustrated with his job, which consists of tightening three bolts on each washing machine as it passes by him on the assembly line. At Mellick Manufacturers, assembly-line workers are closely supervised, and their incentives are linked to quantitative measures of productivity.

According to the job characteristics model, which of the following is true about Jason's job?

A) It has high task significance.

B) It has low task identity.

C) It has high autonomy.

D) It has low skill variety.

E) It has low feedback.

Answer: D Explanation: D) Skill variety refers to the range of skills and talents needed to accomplish the responsibilities associated with the job. The broader the range of skills required, the more meaningful the work is likely to be to the employee.

Page Ref: 229 Difficulty: Difficult AACSB: Analytic Skills Chapter LO: 4 Course LO: Discuss the factors that affect motivation and behavior in the workplace Classification: Application 64) Nathan works as an adolescent and family counselor in a private school. He feels motivated to come to work everyday because he is acutely aware of the impact he has on his clients. Being able to assist young people and their families through difficult situations gives him a profound sense of satisfaction. According to the job characteristics model, which of the following best describes Nathan's job?

A) It involves high extrinsic motivation.

B) It has high task significance.

C) It has low task identity.

D) It has low autonomy.

E) It requires low feedback.

Answer: B Explanation: B) Task significance refers to the employee's perception of the impact the job has on the lives of other people.

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65) Which of the following statements is true regarding the job characteristics model?

A) According to the job characteristics model, the narrower the range of skills required, the more meaningful the work is likely to be to the employee.

B) According to the job characteristics model, lower task identity contributes to the sense of meaning in work.

C) According to the job characteristics model, autonomy is one of the three critical psychological states that determine motivation, performance, and other outcomes.

D) According to the job characteristics model, employees with little growth needs respond most dramatically to improvements in job dimensions.

E) According to the job characteristics model, experienced meaningfulness of the work is a measure of how much employees care about the jobs they are doing.

Answer: E Explanation: E) Experienced meaningfulness of the work is a measure of how much employees care about the jobs they are doing.

Page Ref: 229 Difficulty: Easy Chapter LO: 4 Course LO: Discuss the factors that affect motivation and behavior in the workplace Classification: Concept 66) Making jobs more challenging and interesting by expanding the range of skills required is called ________.

A) job enlargement B) cross-training C) job enrichment D) flextime E) task identity Answer: C Explanation: C) The strategy behind job enrichment is to make jobs more challenging and interesting by expanding the range of skills required - typically by expanding upward, giving employees some of the responsibilities previously held by their managers.

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67) ________ refers to training workers to perform multiple jobs and rotating them through these various jobs to combat boredom or burnout.

A) Job enrichment B) Behavior modification C) Cross-training D) Job enlargement E) Task significance Answer: C Explanation: C) Cross-training, or job rotation, involves training workers to perform multiple jobs and rotating them through these various jobs to combat boredom or burnout.

Page Ref: 230 Difficulty: Easy Chapter LO: 4 Course LO: Discuss the factors that affect motivation and behavior in the workplace Classification: Concept 68) Which of the following statements is true about job enlargement?

A) It is best described as vertically expanding jobs.

B) It involves training workers to perform multiple jobs.

C) It makes jobs more interesting by expanding the range of skills required.

D) It involves adding tasks that aren't necessarily more challenging.

E) It is a measure of how much employees care about the jobs they are doing.

Answer: D Explanation: D) Whereas job enrichment expands vertically, job enlargement is more of a horizontal expansion, adding tasks that aren't necessarily any more challenging.

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69) Donald is the customer service manager at Artemis Technologies, a software development firm. During a lean period, employees who handle customer issues over the telephone are trained and asked to handle walk-in customers for 2 months; similarly, employees who handle walk-in customers are trained and asked to handle customer issues over the telephone for 2 months.

Donald makes these changes to improve employee motivation. In this example, Donald is most likely to be using which of the following strategies?

A) centralization B) cross-training C) decentralization D) horizontal integration E) benchmarking Answer: B Explanation: B) Cross-training, or job rotation, involves training workers to perform multiple jobs and rotating them through these various jobs to combat boredom or burnout.

Page Ref: 230 Difficulty: Difficult AACSB: Analytic Skills Chapter LO: 4 Course LO: Discuss the factors that affect motivation and behavior in the workplace Classification: Application 70) Carrey works as a bank teller who handles deposits and disbursement. In an attempt to improve her motivation, Carrie's manager asks her to distribute traveler's checks and sell certificates of deposit as well. Though the additional tasks are not more challenging than what Carrey has been doing, they give her more to do. This is an example of ________.

A) job rotation B) cross-training C) job enlargement D) benchmarking E) centralization Answer: C Explanation: C) Job enlargement is more of a horizontal expansion, adding tasks that aren't necessarily any more challenging. If it simply gives workers more to do, job enlargement won't do much to motivate and will more likely demotivate.

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71) Luke is the store manager at the departmental store of Nature's Basket, a multinational retailer corporation, located in Cincinnati. He decides to use cross-training to improve motivation levels amongst people who work at the store. Luke is most likely to implement which of the following measures?

A) Luke asks people who stock the shelves to handle the cash registers, and the cashiers are taught to stock shelves.

B) Luke provides detailed feedback to all employees at the store and sets performance goals for them.

C) Luke starts a "Retail Apprenticeship Scheme" that allows employees to get certified and learn new skills.

D) Luke hires temporary workers to assist store employees during peak periods.

E) Luke implements an incentive scheme based on the individual performance of employees.

Answer: A Explanation: A) Cross-training refers to training workers to perform multiple jobs and rotating them through these various jobs to combat boredom or burnout.

Page Ref: 230 Difficulty: Difficult AACSB: Analytic Skills Chapter LO: 4 Course LO: Discuss the factors that affect motivation and behavior in the workplace Classification: Application 72) Allan Donegan is the creative director of Barton Advertising, an advertising company based in Dallas. He notices that Barry, the team-lead of the graphic designers has been demotivated and distracted for the past couple of months. In an attempt to motivate Barry, Allen decides to uses job enrichment strategy. Which of the following actions is Allen most likely to implement?

A) Allen trains Barry to lead the team of copywriters and asks the team-lead of the copywriters to handle the graphic designers.

B) Allen asks Barry to begin handling some of the client meetings and presentations that were earlier done by Allen.

C) Allen asks Barry to handle some of the basic, uninteresting graphic designing tasks, to help his team meet tight deadlines.

D) Allen begins to closely supervise Barry's work and even sits in during Barry's monthly meetings with his team members.

E) Allen increases Barry's salary and improves his incentive scheme.

Answer: B Explanation: B) Job enrichment involves making jobs more challenging and interesting by expanding the range of skills required.

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73) Alex has been working as technical service representative for Convergence Technologies, a software development firm for two years. His duties and responsibilities include providing technical assistance to end users and preparing reports on product problems encountered. During a performance review meeting with his manager, Alex mentions that he finds his job to be very monotonous. Alex's manager makes his job more challenging and interesting by asking him to conduct technical interviews of potential employees, as well as train and mentor new hires. In this example, Alex's manager uses which of the following strategies to motivate him?

A) benchmarking B) centralization C) decentralization D) job enrichment E) cross-training Answer: D Explanation: D) Job enrichment refers to making jobs more challenging and interesting by expanding the range of skills required.

Page Ref: 230 Difficulty: Difficult AACSB: Analytic Skills Chapter LO: 4 Course LO: Discuss the factors that affect motivation and behavior in the workplace Classification: Application 74) ________ theory suggests that managers can motivate employees by shaping their actions through behavior modification.

A) Expectancy B) Two-factor C) Equity D) Reinforcement E) Maslow's Answer: D Explanation: D) Reinforcement theory is a motivational approach based on the idea that managers can motivate employees by influencing their behaviors with positive and negative reinforcement.

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75) If an employee has perfect attendance for the month, he or she is given a $25 bonus. This would be an example of _______.

A) an incentive B) job enrichment C) an intrinsic reward D) punishment E) negative reinforcement Answer: A Explanation: A) Incentives refer to monetary payments and other rewards of value used for positive reinforcement.

Page Ref: 231 Difficulty: Moderate Chapter LO: 5 Course LO: Discuss the factors that affect motivation and behavior in the workplace Classification: Concept 76) Employees who receive positive reinforcement for one type of behavior are motivated to perform well in other areas as well. This process is known as ________.

A) cross-training B) job enrichment C) benchmarking D) chaining E) horizontal integration Answer: D Explanation: D) Positive reinforcement can also have a multiplier effect, in which employees who receive positive reinforcement for one type of behavior are motivated to perform well in other areas, a process known as chaining.

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77) Encouraging the repetition of a particular behavior by not offering unpleasant consequences for the behavior is called ________.

A) negative reinforcement B) cognitive restructuring C) transactional analysis D) positive reinforcement E) cross-training Answer: A Explanation: A) Negative reinforcement encourages a particular behavior to be repeated through the reduction, removal, or absence of an unpleasant outcome.

Page Ref: 231 Difficulty: Easy Chapter LO: 5 Course LO: Discuss the factors that affect motivation and behavior in the workplace Classification: Concept 78) John stayed late in order to finish up a project. When his manager found the completed project on her desk, she immediately sent John an email praising his good work and thanking him for going the extra mile. In this example, John's manager uses ________.

A) chaining B) transactional analysis C) cognitive restructuring D) negative reinforcement E) positive reinforcement Answer: E Explanation: E) Positive reinforcement refers to encouraging desired behaviors by offering pleasant consequences for completing or repeating those behaviors.

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79) Which of the following statements is true regarding reinforcement theory?

A) Both positive and negative reinforcement encourage behaviors to be repeated.

B) Negative reinforcement is the opposite of positive reinforcement.

C) Positive reinforcement cannot encourage undesirable behaviors.

D) Reinforcement has to involve explicit monetary incentives to distort behavior.

E) Punishment encourages the repetition of a particular behavior by not offering unpleasant consequences for the behavior.

Answer: A Explanation: A) Reinforcement can be either positive or negative. Both positive and negative reinforcement encourage behaviors to be repeated; the difference is in how they do it.

Page Ref: 231 Difficulty: Moderate Chapter LO: 5 Course LO: Discuss the factors that affect motivation and behavior in the workplace Classification: Concept 80) Dick works as the first-line manager of a team of sales persons at Dowson's Store, a leading clothes retail store. To motivate the sales agents in his team, Dick says that he will not assign weekend work and overtime to the top three sales agents, as per quantitative performance measures. In this example, Dick uses ________.

A) positive reinforcement B) cognitive heuristic C) negative reinforcement D) decentralization E) onboarding Answer: C Explanation: C) Negative reinforcement encourages a particular behavior to be repeated through the reduction, removal, or absence of an unpleasant outcome.

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81) Reinforcement theory suggests that managers can motivate employees by shaping their actions through ________.

A) carefully designed goals B) cross-training C) management by objectives D) behavior modification E) intrinsic motivation Answer: D Explanation: D) Reinforcement theory suggests that managers can motivate employees by shaping their actions through behavior modification.

Page Ref: 231 Difficulty: Moderate Chapter LO: 5 Course LO: Discuss the factors that affect motivation and behavior in the workplace Classification: Concept 82) A manager demotes an employee who does not meet performance goals. This is an example of ________.

A) chaining B) negative reinforcement C) punishment D) mentoring E) scaffolding Answer: C Explanation: C) Punishment refers to actions used to diminish the repetition of unwanted behaviors by adding unpleasant outcomes.

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83) Which of the following statements is true regarding motivational strategies?

A) Managers should use micromanaging to motivate employees.

B) Managers should avoid personalizing motivational efforts.

C) Managers must address workplace problems and conflicts slowly.

D) Managers need to adapt motivational tactics to circumstances and special needs.

E) Managers should avoid letting employees choose which opportunities and rewards they want to pursue, as employees may not be capable of making the correct decisions.

Answer: D Explanation: D) Managers need to adapt motivational tactics to circumstances and special needs.

Just as the dynamics of motivation vary from person to person, they can vary from one situation to the next.

Page Ref: 234 Difficulty: Moderate Chapter LO: 6 Course LO: Discuss the factors that affect motivation and behavior in the workplace Classification: Concept 84) The tendency for a manager to oversee every detail of their employees' work and give them little autonomy in how to perform their jobs is known as ________.

A) vertical integration B) micromanaging C) empowering D) centralization E) reinforcement Answer: B Explanation: B) Micromanaging refers to overseeing every small detail of employees' work and refusing to give them freedom or autonomy.

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85) Charles is the owner and manager of Fresh Bakes, a bakery and cafe in New York. Charles keeps a close tab on all the employees at the store, and closely reviews their work. All the chefs have to get his approval before choosing the daily specials. Charles often gets irritated if any decision is made without his input. He even supervises the simple tasks such as store decorations, and the arrangement of the window display. In this example, Charles is most likely to be using which of the following strategies?

A) vertical integration B) micromanaging C) empowering D) macromanaging E) reinforcing Answer: B Explanation: B) Micromanaging refers to overseeing every small detail of employees' work and refusing to give them freedom or autonomy.

Page Ref: 235 Difficulty: Difficult AACSB: Analytic Skills Chapter LO: 6 Course LO: Discuss the factors that affect motivation and behavior in the workplace Classification: Application 86) Discuss the four indicators that can be used to measure motivation in a workplace setting?

Answer: In a workplace setting, motivation can be assessed by measuring four indicators: engagement, satisfaction, commitment, and rootedness. First, engagement reflects the degree of energy, enthusiasm, and effort each employee brings to his or her work. If you're "just not into it," chances are you won't perform at your best. Second, satisfaction indicates how happy employees are with the experience of work and the way they are treated. Third, commitment suggests the degree to which employees support the company and its mission. Fourth, rootedness (or its opposite, intention to quit) predicts the likelihood that employees will stay or leave their jobs. A person who is engaged, satisfied, and committed and who has no intention of quitting can be safely said to be motivated.

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87) Compare and contrast scientific management with Hawthorne effect.

Answer: Frederick W. Taylor, a machinist and engineer from Philadelphia, studied employee efficiency and motivation in the late 19th and early 20th centuries. He is credited with developing scientific management, an approach that sought to improve employee efficiency through the scientific study of work. In addition to analyzing work and business processes in order to develop better methods, Taylor popularized financial incentives for good performance.

Hawthorne effect refers to a supposed effect of organizational research, in which employees change their behavior because they are being studied and given special treatment. The validity of the effect is uncertain, and the Hawthorne studies were richer and more influential than this simple outcome would suggest.

Page Ref: 221 Difficulty: Difficult AACSB: Reflective Thinking Skills Chapter LO: 1 Course LO: Discuss the factors that affect motivation and behavior in the workplace Classification: Synthesis 88) Discuss Maslow's hierarchy of needs.

Answer: In 1943, psychologist Abraham Maslow hypothesized that behavior is determined by a variety of needs, which he organized into categories arranged in a hierarchy. In Maslow's hierarchy all of the requirements for basic survival - food, clothing, shelter, and the like - fall into the category of physiological needs. These basic needs must be satisfied before the person can consider higher-level needs such as safety needs, social needs (the need to give and receive love and to feel a sense of belonging), and esteem needs (the need for a sense of self-worth and integrity). At the top of Maslow's hierarchy is self-actualization - the need to become everything one can be. This need is also the most difficult to fulfill - and even to identify in many cases.

Page Ref: 222 Difficulty: Easy Chapter LO: 1 Course LO: Discuss the factors that affect motivation and behavior in the workplace Classification: Concept 89) Compare and contrast Theory X with Theory Y. Answer: In the 1960s, psychologist Douglas McGregor proposed two radically different sets of assumptions that underlie most management thinking, which he classified as Theory X and Theory Y. According to McGregor, Theory X -oriented managers believe that employees dislike work and can be motivated only by the fear of losing their jobs or by extrinsic rewards - those given by other people, such as money and promotions. In contrast, Theory Y-oriented managers believe that employees like to work and can be motivated by working for goals that promote creativity or for causes they believe in. Consequently, Theory Y-oriented managers seek to motivate employees through intrinsic rewards - which employees essentially give to themselves.

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90) What is Herzberg's two-factor theory? How do hygiene factors differ from motivators.

Answer: Herzberg's two-factor theory refers to a model that divides motivational forces into satisfiers ("motivators") and dissatisfiers ("hygiene factors"). In Herzberg's two-factor theory, hygiene factors are associated with dissatisfying experiences, and motivators are associated with satisfying experiences. Hygiene factors are mostly extrinsic and include working conditions, company policies, pay, and job security. Motivators tend to be intrinsic and include achievement, recognition, responsibility, and other personally rewarding factors.

Page Ref: 223 Difficulty: Difficult AACSB: Reflective Thinking Skills Chapter LO: 1 Course LO: Discuss the factors that affect motivation and behavior in the workplace Classification: Synthesis 91) Discuss McClelland's three-needs theory. How does the three-needs theory differ from other classical theories?

Answer: The three-needs theory was developed by David McClelland. It highlights the need for power (having - and demonstrating - control over others), the need for affiliation (being accepted by others and having opportunities for social interaction), and the need for achievement (attaining personally meaningful goals).

Unlike with the other classical theories, there is a lot of research to validate McClelland's ideas and to explain particular outcomes in the workplace. For example, those with a high need for achievement tend to make successful entrepreneurs, but this focus on personal achievement can actually get in the way of managerial effectiveness, which relies on the ability to influence others toward shared goals.

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92) Compare and contrast expectancy theory with equity theory.

Answer: Expectancy theory refers to the idea that the effort employees put into their work depends on expectations about their own ability to perform, expectations about likely rewards, and the attractiveness of those rewards. Expectancy theory focuses less on the specific forces that motivate employees and more on the process they follow to seek satisfaction in their jobs.

Equity theory refers to the idea that employees base their level of satisfaction on the ratio of their inputs to the job and the outputs or rewards they receive from it. Equity issues can show up in a number of areas, such as in complaints about gender pay fairness and executive compensation and in many unionizing efforts, whenever employees feel they aren't getting a fair share of corporate profits or are being asked to shoulder more than their fair share of hardships.

Page Ref: 224; 225 Difficulty: Difficult AACSB: Reflective Thinking Skills Chapter LO: 2 Course LO: Discuss the factors that affect motivation and behavior in the workplace Classification: Synthesis 93) Discuss the criteria that must be met for goals to function as effective motivators.

Answer: For goals to function as effective motivators, a number of criteria must be met. These criteria include: ∙ Goals that are specific enough to give employees clarity and focus ∙ Goals that are difficult enough to inspire energetic and committed effort ∙ Clear "ownership" of goals so that accountability can be established ∙ Timely feedback that lets people know if they're progressing toward their goals and, if not, how to change course ∙ Individuals' belief in their ability to meet their goals ∙ Cultural support for the individual achievement and independence needed to reach the goals Page Ref: 226; 227 Difficulty: Easy Chapter LO: 3 Course LO: Discuss the factors that affect motivation and behavior in the workplace Classification: Concept

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94) Discuss the risks and limitations of the goal-setting theory.

Answer: The weaknesses of goal setting generally lie in ways that the pursuit of goals can distort behavior. Some of the potential problems are: ∙ Overly narrow goals. When goals are too narrow, people can miss or intentionally ignore vital aspects of the bigger picture. ∙ Overly challenging goals can inspire great performance, but they can also lead to risky behavior, belligerent negotiating tactics, and ethical lapses as employees cut corners to reach targets. ∙ Inappropriate time horizons. Too much emphasis on short-term performance can degrade longterm performance. ∙ Unintentional performance limitations. Goals can limit performance potential when employees reach their targets and then stop trying, even though they could go beyond that level if reaching the goal didn't signal that it was acceptable to stop there. ∙ Missed learning opportunities. Employees can get so focused on meeting deadlines and other goals that they overlook opportunities to learn, whether to improve their own skills, fix process problems, or adapt to changes in the business environment - all of which could benefit the company more than meeting the original goal. ∙ Unhealthy internal competition. Goals can pit groups within a company against each other, which can be beneficial if the competition is healthy, but ultimately harmful if it is not. ∙ Decreased intrinsic motivation. Relying too heavily on public goals and their extrinsic rewards can eventually dull the intrinsic motivation to do well for the sake of the work itself.

Page Ref: 228 Difficulty: Moderate Chapter LO: 3 Course LO: Discuss the factors that affect motivation and behavior in the workplace Classification: Concept 95) Compare and contrast management by objectives with the job characteristics model.

Answer: Management by objectives (MBO) is a motivational approach in which managers and employees work together to structure personal goals and objectives for every individual, department, and project to mesh with the organization's goals. This process consists of four steps: setting goals, planning actions, implementing plans, and reviewing performance. One of the key elements of MBO is a collaborative goal-setting process.

On the other hand, job characteristics model refers to a model suggesting that five core job dimensions (skill variety, task identity, task significance, autonomy, and feedback) influence three critical psychological states (experienced meaningfulness of the work, experienced responsibility for results, and knowledge of actual results). Achieving these three states leads to improvements in motivation, job satisfaction, performance, absenteeism, and turnover.

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96) Compare and contrast the three critical psychological states described in the job characteristics model.

Answer: Job characteristics model suggests that five core job dimensions influence three critical psychological states that determine motivation, performance, and other outcomes. The three critical psychological states are: Experienced meaningfulness of the work, which is a measure of how much employees care about the jobs they are doing.

Experienced responsibility for results, which refers to the sense each employee has that his or her efforts contribute to the outcome.

Knowledge of actual results, which refers to employees' awareness of the real-life results of their efforts.

Page Ref: 229 Difficulty: Difficult AACSB: Reflective Thinking Skills Chapter LO: 4 Course LO: Discuss the factors that affect motivation and behavior in the workplace Classification: Synthesis 97) Compare and contrast job enrichment with job enlargement.

Answer: The strategy behind job enrichment is to make jobs more challenging and interesting by expanding the range of skills required - typically by expanding upward, giving employees some of the responsibilities previously held by their managers. For example, an employee who had been preparing presentations for his or her boss to give to customers could be asked to give the presentations as well.

Whereas job enrichment expands vertically, job enlargement is more of a horizontal expansion, adding tasks that aren't necessarily any more challenging. If it simply gives workers more to do, job enlargement won't do much to motivate and will more likely demotivate. However, if jobs are enlarged in ways that increase worker knowledge, expansion can improve job satisfaction.

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98) Compare and contrast positive reinforcement with negative reinforcement.

Answer: Both positive and negative reinforcement encourage a behavior to be repeated - they reinforce it, in other words. The difference is in how they work. Positive reinforcement offers pleasant consequences for particular actions or behaviors, increasing the likelihood that the behaviors will be repeated. For example, even a simple but sincere "thank you" provides emotional reward and encourages employees to repeat whatever behavior elicited the praise.

Negative reinforcement also encourages a particular behavior to be repeated, but it does so through the reduction, removal, or absence of an unpleasant outcome.

Page Ref: 231 Difficulty: Difficult AACSB: Reflective Thinking Skills Chapter LO: 5 Course LO: Discuss the factors that affect motivation and behavior in the workplace Classification: Synthesis 99) What is the difference between negative reinforcement and punishment?

Answer: Negative reinforcement refers to encouraging the repetition of a particular behavior (desirable or not) by not offering unpleasant consequences for the behavior. On the other hand, punishment refers to actions used to diminish the repetition of unwanted behaviors by adding unpleasant outcomes. Fear can certainly be a powerful motivator, but it also adds stress and anxiety that can eventually lead to burnout and attrition as employees decide they don't want to deal with the constant pressure. Punishment (not negative reinforcement) is the opposite of positive reinforcement.

Page Ref: 231; 232 Difficulty: Difficult AACSB: Reflective Thinking Skills Chapter LO: 5 Course LO: Discuss the factors that affect motivation and behavior in the workplace Classification: Synthesis 100) List the managerial strategies that are vital to maintaining a motivated workforce.

Answer: Regardless of the specific motivational theories that a company chooses to implement in its management policies and reward systems, managers can improve their ability to motivate employees by providing timely and frequent feedback, personalizing motivational efforts, adapting to circumstances and special needs, tackling workplace problems before they have a chance to destroy morale, and being inspirational leaders.

Page Ref: 233 Difficulty: Easy Chapter LO: 6 Course LO: Discuss the factors that affect motivation and behavior in the workplace Classification: Concept

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Business in Action, 6e (Bovee/Thill) Chapter 11 Human Resources Management 1) Work-life balance is the concept that employees need to juggle the competing demands of their professional and personal lives.

Answer: TRUE Explanation: Work-life balance is the concept that employees need to juggle the competing demands of their professional and personal lives.

Page Ref: 241 Difficulty: Easy Chapter LO: 1 Course LO: Summarize the functions carried out by human resources Classification: Concept 2) Job description refers to a statement describing the kind of person who would be best for a given job.

Answer: FALSE Explanation: Job description is a statement of the tasks involved in a given job and the conditions under which the holder of a job will work.

Page Ref: 242 Difficulty: Easy Chapter LO: 1 Course LO: Summarize the functions carried out by human resources Classification: Concept 3) Turnover rate refers to the percentage of the workforce that is hired every year.

Answer: FALSE Explanation: Turnover rate is the percentage of the workforce that leaves every year.

Page Ref: 242 Difficulty: Easy Chapter LO: 1 Course LO: Summarize the functions carried out by human resources Classification: Concept 4) An employee who works from home and uses electronic communications to stay in touch with colleagues is said to be telecommuting.

Answer: TRUE Explanation: Telecommuting refers to working from home or another location using electronic communications to stay in touch with colleagues, suppliers, and customers.

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5) Flextime allows two employees to share a single full-time job and split the salary and benefits.

Answer: FALSE Explanation: Flextime is a scheduling system that allows employees to choose their own hours, within certain limits.

Page Ref: 242 Difficulty: Easy Chapter LO: 1 Course LO: Summarize the functions carried out by human resources Classification: Concept 6) In U.S. culture, elderly is often associated with strength, energy, possibilities, and freedom.

Answer: FALSE Explanation: In U.S. culture, youth is often associated with strength, energy, possibilities, and freedom.

Page Ref: 244 Difficulty: Moderate Chapter LO: 2 Classification: Concept 7) Baby Boomers, the youngest generation currently in the workforce, is noted for its entrepreneurial instincts and technological savvy.

Answer: FALSE Explanation: Baby Boomers are a large segment of the workforce who were born between 1946 to 1964.

Page Ref: 245 Difficulty: Moderate Chapter LO: 2 Classification: Concept 8) Sexism refers to discrimination on the basis of gender.

Answer: TRUE Explanation: Sexism refers to discrimination on the basis of gender.

Page Ref: 246 Difficulty: Easy Chapter LO: 2 Classification: Concept 9) The ethnic composition of the United States has been on a long-term trend of decreasing diversity.

Answer: FALSE Explanation: United States has been on a long-term trend of greater and greater diversity.

Page Ref: 246 Difficulty: Moderate Chapter LO: 2 Classification: Concept

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10) Creation of a sexist environment in which employees are made to feel uncomfortable by lewd jokes, remarks, or gestures is a form of sexual harassment.

Answer: TRUE Explanation: Creation of a sexist environment in which employees are made to feel uncomfortable by lewd jokes, remarks, or gestures is a form of sexual harassment.

Page Ref: 246 Difficulty: Easy Chapter LO: 2 Classification: Concept 11) Headhunters refer to outside agencies that specialize in finding and placing employees.

Answer: TRUE Explanation: Headhunters refer to outside agencies that specialize in finding and placing employees.

Page Ref: 248 Difficulty: Easy Chapter LO: 3 Course LO: Summarize the functions carried out by human resources Classification: Concept 12) Layoffs involve terminating employees because of poor performance or other disciplinary reasons.

Answer: FALSE Explanation: Layoffs are the termination of employees for economic or business reasons unrelated to employee performance.

Page Ref: 248 Difficulty: Easy Chapter LO: 3 Course LO: Summarize the functions carried out by human resources Classification: Concept 13) Outplacement services refers to external professionals who help an organization in terminating employees.

Answer: FALSE Explanation: Outplacement services refer to secretarial help are offered to laid-off executives and blue-collar employees alike.

Page Ref: 249 Difficulty: Easy Chapter LO: 3 Course LO: Summarize the functions carried out by human resources Classification: Concept

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14) The Age Discrimination in Employment Act outlaws mandatory retirement based on age alone.

Answer: TRUE Explanation: The Age Discrimination in Employment Act outlaws mandatory retirement based on age alone.

Page Ref: 250; 251 Difficulty: Easy Chapter LO: 3 Course LO: Summarize the functions carried out by human resources Classification: Concept 15) The worst possible outcome in an annual review is a negative surprise.

Answer: TRUE Explanation: The worst possible outcome in an annual review is called a negative surprise.

Page Ref: 251 Difficulty: Easy Chapter LO: 4 Course LO: Summarize the functions carried out by human resources Classification: Concept 16) The 360-degree review can uncover weaknesses that employees and even their direct managers might not be aware of.

Answer: TRUE Explanation: The 360-degree review can uncover weaknesses that employees and even their direct managers might not be aware of.

Page Ref: 253 Difficulty: Easy Chapter LO: 4 Course LO: Summarize the functions carried out by human resources Classification: Concept 17) Effective orientation programs help employees become more productive in less time, help eliminate confusion and mistakes, and can significantly increase employee retention rates.

Answer: TRUE Explanation: Effective orientation programs help employees become more productive in less time, help eliminate confusion and mistakes, and can significantly increase employee retention rates.

Page Ref: 253 Difficulty: Easy Chapter LO: 4 Course LO: Summarize the functions carried out by human resources Classification: Concept

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18) Salary is paid by the unit of time or by the unit of output.

Answer: FALSE Explanation: Salary refers to fixed amount of compensation employees receive per year.

Page Ref: 254 Difficulty: Easy Chapter LO: 5 Course LO: Summarize the functions carried out by human resources Classification: Concept 19) Wage employees are exempt from the Fair Labor Standards Act. Answer: FALSE Explanation: The Fair Labor Standards Act, introduced in 1938 and amended many times since then, sets specific guidelines that employers must follow when administering salaries and wages.

Waged employees are not exempted from this act.

Page Ref: 254 Difficulty: Moderate Chapter LO: 5 Course LO: Summarize the functions carried out by human resources Classification: Concept 20) In contrast to commissions, bonus is a form of compensation that pays employees in sales positions based on the level of sales they make within a given time frame.

Answer: FALSE Explanation: Bonus is a cash payment, in addition to regular wage or salary, that serves as a reward for achievement.

Page Ref: 255 Difficulty: Easy Chapter LO: 5 Course LO: Summarize the functions carried out by human resources Classification: Concept 21) Gain sharing ties rewards to employees' knowledge and abilities rather than to their job per se.

Answer: FALSE Explanation: Gain sharing refers to tying rewards to profits or cost savings achieved by meeting specific goals.

Page Ref: 256 Difficulty: Easy Chapter LO: 5 Course LO: Summarize the functions carried out by human resources Classification: Concept

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22) Pay for performance requires employees to accept a lower base pay but rewards them with bonuses, commissions, or stock options if they reach agreed-upon goals.

Answer: TRUE Explanation: Pay for performance requires employees to accept a lower base pay but rewards them with bonuses, commissions, or stock options if they reach agreed-upon goals.

Page Ref: 256 Difficulty: Easy Chapter LO: 5 Course LO: Summarize the functions carried out by human resources Classification: Concept 23) In 2010, the Patient Protection and Affordable Care Act (PPACA) was signed into law, featuring a variety of changes designed to improve access to health care.

Answer: TRUE Explanation: In 2010, the Patient Protection and Affordable Care Act (PPACA) was signed into law, featuring a variety of changes designed to improve access to health care.

Page Ref: 257 Difficulty: Easy Chapter LO: 6 Course LO: Summarize the functions carried out by human resources Classification: Concept 24) A 401(k) plan refers to a defined-benefit plan in which companies specify how much they will pay employees upon retirement.

Answer: FALSE Explanation: 401(k) plan is a defined contribution retirement plan in which employers often match the amount employees invest.

Page Ref: 258 Difficulty: Easy Chapter LO: 6 Course LO: Summarize the functions carried out by human resources Classification: Concept 25) The Family Medical Leave Act (FMLA) of 1993 requires employers with 50 or more workers to provide up to 12 weeks of unpaid leave per year for childbirth, adoption, or the care of oneself, a child, a spouse, or a parent with serious illness.

Answer: TRUE Explanation: The Family Medical Leave Act (FMLA) of 1993 requires employers with 50 or more workers to provide up to 12 weeks of unpaid leave per year for childbirth, adoption, or the care of oneself, a child, a spouse, or a parent with serious illness.

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26) Due to understaffing in his department, Matthew has been working 60-hour weeks for the last few months and is both physically and emotionally exhausted. Matthew is experiencing ________.

A) employee burnout B) worker buyout C) discrimination D) work-life balance E) ergonomic stress Answer: A Explanation: A) Employee burnout refers to a state of physical and emotional exhaustion that can result from constant exposure to stress over a long period of time.

Page Ref: 241 Difficulty: Moderate AACSB: Analytic Skills Chapter LO: 1 Course LO: Summarize the functions carried out by human resources Classification: Application 27) ________ refers to a state of physical and emotional exhaustion that can result from constant exposure to stress over a long period of time.

A) Worker buyout B) Discrimination C) Employee burnout D) Work-life balance E) Ergonomic stress Answer: C Explanation: C) Employee burnout refers to a state of physical and emotional exhaustion that can result from constant exposure to stress over a long period of time.

Page Ref: 241 Difficulty: Easy Chapter LO: 1 Course LO: Compare and contrast different economic systems Classification: Concept

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28) M&Z Information Systems, a software development company, has built a day care center in the office premises to help working women take care of their children. The company also has flexible working hours, and work-from-home policies to enable employees to better manage both their personal and professional tasks. In this example, the company's efforts are aimed at ________.

A) aligning the workforce B) improving motivation through job enrichment C) succession planning D) improving employee's work-life balance E) cross-training employees Answer: D Explanation: D) Efforts to help employees balance the competing demands of their personal and professional lives are termed as work-life balance.

Page Ref: 241 Difficulty: Moderate AACSB: Analytic Skills Chapter LO: 1 Course LO: Discuss the functions of different types of financial institutions in the monetary system Classification: Application 29) Aligning the workforce refers to ________.

A) making jobs more challenging and interesting by expanding the range of skills required B) helping employees balance the competing demands of their personal and professional lives C) improving overall work environment D) training workers to perform multiple jobs E) matching the right employees to the right jobs at the right time Answer: E Explanation: E) Aligning the workforce with organizational needs involves matching the right employees to the right jobs at the right time.

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30) An overall environment that results from job and work conditions is called ________.

A) ergonomics B) work-life balance C) quality of work life D) job enrichment E) employee turnover Answer: C Explanation: C) Quality of work life (QWL) is an overall environment that results from job and work conditions.

Page Ref: 241 Difficulty: Easy Chapter LO: 1 Course LO: Summarize the functions carried out by human resources Classification: Concept 31) ________ is the process of gathering information about the demands, responsibilities and worker requirements of each position in the organization.

A) Employee orientation B) Performance monitoring C) Compensation analysis D) Competency analysis E) Job analysis Answer: E Explanation: E) Through the process of job analysis, employers try to identify the nature and demands of each position within the firm as well as the optimal employee profile to fill each position.

Page Ref: 242 Difficulty: Easy Chapter LO: 1 Course LO: Summarize the functions carried out by human resources Classification: Concept 32) ________ refers to a statement of the tasks involved in a given job and the conditions under which the holder of a job will work.

A) Job specification B) Job description C) Succession planning D) Job analysis E) Job enrichment Answer: B Explanation: B) Job description refers to a statement of the tasks involved in a given job and the conditions under which the holder of a job will work.

Page Ref: 242 Difficulty: Easy Chapter LO: 1 Course LO: Summarize the functions carried out by human resources Classification: Concept 9 .

33) ________ refers to a statement describing the kind of person who would be best for a given job - including the skills, education, and previous experience that the job requires.

A) Job specification B) Job enrichment C) Succession planning D) Job analysis E) Job description Answer: A Explanation: A) Job specification refers to a statement describing the kind of person who would be best for a given job - including the skills, education, and previous experience that the job requires.

Page Ref: 242 Difficulty: Easy Chapter LO: 1 Course LO: Summarize the functions carried out by human resources Classification: Concept 34) ________ refers to the percentage of the workforce that leaves every year.

A) Cyclical unemployment B) Attrition rate C) Employee alignment D) Employee retention E) Employee turnover Answer: E Explanation: E) Turnover rate refers to the percentage of the workforce that leaves every year.

Page Ref: 242 Difficulty: Easy Chapter LO: 1 Course LO: Summarize the functions carried out by human resources Classification: Concept 35) Manthis Manufacturing is losing approximately 19% of its workforce each year. This shows that it has high ________.

A) performance monitoring B) employee alignment C) turnover rate D) employee retention E) job security Answer: C Explanation: C) Turnover rate refers to the percentage of the workforce that leaves every year.

Page Ref: 242 Difficulty: Moderate Chapter LO: 1 Course LO: Summarize the functions carried out by human resources Classification: Concept

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36) Megan is an HR representative at Canales Investment firm. The firm needs to recruit new sales representatives, as the firm plans to expand its business. Megan is asked to review the job responsibilities of the current sales representatives, and makes a list of the key tasks and responsibilities associated with the position. She is also asked to create an optimal employee profile to fill the sales representative position. The task assigned to Megan can be classified under which of the following processes?

A) job analysis B) job enrichment C) forced ranking D) onboarding E) job expansion Answer: A Explanation: A) Through the process of job analysis, employers try to identify the nature and demands of each position within the firm as well as the optimal employee profile to fill each position.

Page Ref: 242 Difficulty: Difficult AACSB: Analytic Skills Chapter LO: 1 Course LO: Summarize the functions carried out by human resources Classification: Application 37) Linda W. Taylor is the recruitment manager at Creative Solutions, a brand management firm.

The creative director of the firm recently quits, and Linda needs to find a replacement for the position. She conducts a job analysis to identify the nature and demands associated with the position of the creative director, as well as the skills required to fill the position. Based on this research, she creates a summary stating the tasks the creative director is responsible for, the working hours, and the working conditions. Linda posts this document in key job portals to inform potential applicants what to expect from the job. This document is an example of a ________.

A) statement-of-purpose B) business proposal C) contract of employment D) job description E) code of ethics Answer: D Explanation: D) Job description refers to a statement of the tasks involved in a given job and the conditions under which the holder of a job will work.

Page Ref: 242 Difficulty: Difficult AACSB: Analytic Skills Chapter LO: 1 Course LO: Summarize the functions carried out by human resources Classification: Application

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38) ________ identifies key employees who are considered critical to the company's ongoing operations and lists potential replacements.

A) Replacement chart B) Job specification C) Pareto chart D) Depth chart E) Job analysis Answer: A Explanation: A) Every company has a number of employees and managers who are considered critical to the company's ongoing operations. A replacement chart identifies these key employees and lists potential replacements.

Page Ref: 242 Difficulty: Easy Chapter LO: 1 Course LO: Summarize the functions carried out by human resources Classification: Concept 39) Workforce planning efforts that identify possible replacements for specific employees, usually senior executives, is called ________.

A) job specification B) employee retention C) 360-degree review D) succession planning E) job enrichment Answer: D Explanation: D) Succession planning refers to workforce planning efforts that identify possible replacements for specific employees, usually senior executives.

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40) The human resource department at Wagner Group, a financial services firm, identified a list of key executives who were critical to the functioning of the firm. The HR department then worked with these executives to identify potential middle-level managers who would go through a mentoring and leadership development program. These middle-level managers were to act as potential replacements if the firm lost any of its key executives. In this example, the Wagner Group uses which of the following strategies?

A) job specification B) decentralization C) 360-degree review D) succession planning E) vertical integration Answer: D Explanation: D) Succession planning refers to workforce planning efforts that identify possible replacements for specific employees, usually senior executives.

Page Ref: 242 Difficulty: Difficult AACSB: Analytic Skills Chapter LO: 1 Course LO: Summarize the functions carried out by human resources Classification: Application 41) Pearl Architectural Design, an architecture firm in Vermont, hired several junior-level architects on a temporary basis to fill the workforce requirement for a specific project. In this example, Pearl Architectural Design uses ________ employees.

A) unskilled B) contingent C) full-time D) permanent E) existing Answer: B Explanation: B) Contingent employees refers to nonpermanent employees, including temporary workers, independent contractors, and full-time employees hired on a probationary basis.

Page Ref: 242 Difficulty: Easy Chapter LO: 1 Course LO: Summarize the functions carried out by human resources Classification: Concept

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42) Employee retention programs ________.

A) aim to increase the turnover rate B) list potential replacements for key positions in a firm C) evaluate job requirements and create job specifications D) aim to hire more contingent employees E) ensure a steady supply of experienced employees for new opportunities Answer: E Explanation: E) To ensure a steady supply of experienced employees for new opportunities and to maintain existing operations, successful companies focus heavily on employee retention.

Employee retention involves efforts to keep current employees.

Page Ref: 242 Difficulty: Moderate Chapter LO: 1 Course LO: Summarize the functions carried out by human resources Classification: Concept 43) WNIC, a publishing firm, allows its employees to choose their own work hours as long as they work for 8 hours everyday. This is an example of ________.

A) job sharing B) succession planning C) telecommuting D) flextime E) diversity initiatives Answer: D Explanation: D) Flextime is a scheduling system that allows employees to choose their own hours, within certain limits.

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44) Janet teaches the first grade at Meadows Elementary on Monday, Wednesday and Friday.

Jeff teaches the class on Tuesday and Thursday. They split the salary and benefits of the job on a pro-rata basis. In this example, the human resource team at Meadows Elementary uses which of the following alternative work arrangements?

A) job sharing B) cross-training C) flextime D) performance monitoring E) succession planning Answer: A Explanation: A) Job sharing lets two employees share a single full-time job and split the salary and benefits.

Page Ref: 243 Difficulty: Moderate AACSB: Analytic Skills Chapter LO: 1 Course LO: Summarize the functions carried out by human resources Classification: Application 45) Michelle works as a nurse at Queens Diagnostic and Treatment Center, in New York. She wants to leave the hospital for two years to work with "Doctors Without Borders," a volunteer organization that provides urgent medical care to victims of war and disaster. The human resource manager at the hospital is reluctant to lose a good employee, and considers using alternative work arrangements to meet her needs. Which of the following initiatives is he most likely to take to address this particular situation?

A) decentralization B) benchmarking C) flexible career paths D) job rotation E) job enrichment Answer: C Explanation: C) Situations in which employees want to limit their work time or leave the workforce entirely for an extended period, firms can use flexible career paths. Programs such as Deloitte's mass career customization give employees more freedom in designing their own career paths.

Page Ref: 243 Difficulty: Moderate AACSB: Analytic Skills Chapter LO: 1 Course LO: Compare and contrast different economic systems Classification: Application

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46) John did not promote Cynthia because he thought that a woman could not supervise male construction crews in his company. Given that Cynthia had the necessary experience and credentials, John may have been guilty of ________.

A) narcissism B) collective bargaining C) nepotism D) sexism E) ethnocentrism Answer: D Explanation: D) Sexism refers to discrimination on the basis of gender. The Civil Rights Act of 1964 made it illegal for employers to practice sexism.

Page Ref: 246 Difficulty: Moderate Chapter LO: 2 Course LO: Summarize the functions carried out by human resources Classification: Concept 47) ________ made it illegal for employers to practice sexism or discrimination on the basis of gender.

A) The Equal Pay Act of 1963 B) The Civil Rights Act of 1964 C) The Wagner Act D) The Social Security Act E) The Fair Labor Standards Act Answer: B Explanation: B) The Equal Pay Act of 1963 mandated equal pay for comparable work, and the Civil Rights Act of 1964 made it illegal for employers to practice sexism or discrimination on the basis of gender.

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48) Irene has been working as the senior manager at Ashton Industries for the past four years.

Though she has high performance levels, she finds it difficult to move to a top executive position because of subtle discrimination, such as lack of mentoring, limited access to informal networks of communication, and biased rating and testing systems. She is often assigned to projects where there is very limited scope for career growth. In this example, Irene faces ________.

A) nepotism B) ethnocentrism C) narcissism D) affirmative action E) the glass ceiling Answer: E Explanation: E) Glass ceiling refers to an invisible barrier attributable to subtle discrimination that keeps women and minorities out of the top positions in business.

Page Ref: 246 Difficulty: Moderate AACSB: Analytic Skills Chapter LO: 2 Course LO: Summarize the functions carried out by human resources Classification: Application 49) Discriminatory practices that have prevented women and minorities from advancing to executive level jobs are referred to as ________.

A) nepotism B) the glass ceiling C) ethnocentrism D) narcissism E) affirmative action Answer: B Explanation: B) Glass ceiling refers to an invisible barrier attributable to subtle discrimination that keeps women and minorities out of the top positions in business.

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50) Which of the following initiatives is most likely to be taken by a firm that aims to help employees with disabilities perform activities that might otherwise be difficult or impossible for them?

A) informally promoting glass ceiling B) using job enrichment C) investing in assistive technologies D) using succession planning E) promoting ethnocentrism Answer: C Explanation: C) Employers can invest in a variety of assistive technologies that help people with disabilities perform activities that might otherwise be difficult or impossible.

Page Ref: 247 Difficulty: Moderate Chapter LO: 2 Course LO: Summarize the functions carried out by human resources Classification: Concept 51) IBM established executive-led task forces to represent women, Asian Americans, African Americans, Hispanic Americans, Native Americans, people with disabilities, and individuals who are gay, lesbian, bisexual, and transgender. This is an example of ________.

A) diversity initiatives B) horizontal integration C) ethnocentric policies D) decentralization E) deregulation Answer: A Explanation: A) Diversity initiatives refer to programs and policies that help companies support diverse workforces and markets.

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52) K.M. Retailers, an international consumer products retail chain, gives preference to women and minority owned suppliers and sub-contractors. The firm hires a large number of employees from ethnic minorities, and the human resource department keeps the interests of these groups in mind while framing company policies. In this example, K.M. Retailers uses which of the following strategies?

A) job enrichment B) ethnocentric policies C) decentralization D) deregulation E) diversity initiatives Answer: E Explanation: E) Diversity initiatives refer to programs and policies that help companies support diverse workforces and markets.

Page Ref: 247 Difficulty: Difficult AACSB: Analytic Skills Chapter LO: 2 Course LO: Summarize the functions carried out by human resources Classification: Application 53) The process of attracting appropriate applicants for an organization's jobs is known as ________.

A) de-layering B) recruiting C) positioning D) downsizing E) onboarding Answer: B Explanation: B) Recruiting refers to the process of attracting appropriate applicants for an organization's jobs.

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54) Quality of hire measures ________.

A) the amount of money spent in hiring and training new employees B) the level of productivity of employees in the probationary period C) how closely incoming employees meet the company's needs D) the percentage of minority groups in a firm's workforce E) the percentage of the workforce that leaves every year Answer: C Explanation: C) Quality of hire measures how closely incoming employees meet the company's needs.

Page Ref: 248 Difficulty: Easy Chapter LO: 3 Course LO: Summarize the functions carried out by human resources Classification: Concept 55) Which of the following acts prohibits any form or testing that can be construed as a preemployment medical examination?

A) the Taft-Hartley Act B) the Landrum-Griffin Act C) the Wagner Act D) Americans with Disabilities Act E) Fair Labor Standards Act Answer: D Explanation: D) Federal and state laws and regulations govern many aspects of the hiring process. Any form or testing that can be construed as a preemployment medical examination is prohibited by the Americans with Disabilities Act. Page Ref: 248 Difficulty: Moderate Chapter LO: 3 Classification: Concept

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56) Harmony House, a software development firm, had recently hired a large number of software developers to work on several new projects. Colleen, the manager of the human resource department, wanted to assess the effectiveness of the recruitment team. She used a combination of criteria including the percentage of qualifications met, and subjective assessment by managers to measure how closely newly-hired employees met the company's needs. Colleen is most likely to be using which of the following tools?

A) quality of hire B) employee satisfaction C) utilization percent D) job enrichment E) outplacement Answer: A Explanation: A) Quality of hire measures how closely incoming employees meet the company's needs.

Page Ref: 248 Difficulty: Moderate AACSB: Analytic Skills Chapter LO: 3 Course LO: Summarize the functions carried out by human resources Classification: Application 57) ________ is a euphemism used to suggest that an organization is making changes in the workforce to match its business needs more precisely.

A) Restructuring B) Repositioning C) Nearshoring D) Work sharing E) Rightsizing Answer: E Explanation: E) Rightsizing is a euphemism used to suggest that an organization is making changes in the workforce to match its business needs more precisely.

Page Ref: 248 Difficulty: Easy Chapter LO: 3 Course LO: Summarize the functions carried out by human resources Classification: Concept

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58) Which of the following statements is true about terminating employees?

A) Employers have legal rights to fire employees for whistle-blowing.

B) The Age Discrimination in Employment Act requires dismissal of an employee who reaches a certain age.

C) Worker buyouts are usually undertaken to stop employees from voluntarily departing.

D) Rightsizing usually involves downsizing the workforce.

E) Layoffs refer to firing employees because of violation of company policies.

Answer: D Explanation: D) Although rightsizing usually involves downsizing the workforce, companies sometimes add workers in some areas while eliminating jobs in others.

Page Ref: 248 Difficulty: Moderate Chapter LO: 3 Course LO: Summarize the functions carried out by human resources Classification: Concept 59) ________ services, such as resume-writing courses, career counseling, and secretarial assistance are offered to laid-off employees by many companies.

A) Rightsizing B) Termination C) Coaching D) Affirmative action E) Outplacement Answer: E Explanation: E) Outplacement services such as résumé-writing courses, career counseling, office space, and secretarial help are offered to laid-off executives and blue-collar employees alike.

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60) Arc Techsystems Inc., a global technology services and outsourcing company, was forced to layoff several employees due to a business slow-down. To help laid-off employees re-orientate to the job market, the company provided them résumé-writing courses, career counseling, office space, and secretarial help. In this example, Arc Techsystems Inc. provides which of the following services to the laid-off employees?

A) rightsizing B) outplacement C) coaching D) affirmative action E) diversity initiatives Answer: B Explanation: B) Outplacement services such as résumé-writing courses, career counseling, office space, and secretarial help are offered to laid-off executives and blue-collar employees alike.

Page Ref: 249 Difficulty: Moderate AACSB: Analytic Skills Chapter LO: 3 Course LO: Summarize the functions carried out by human resources Classification: Application 61) The ________ provides retirement, disability and medical coverage for employees and their dependents and is jointly funded by employers and employees.

A) Fair Labor Standards Act B) Civil Rights Act C) Employee Retirement Income Security Act D) Social Security Act E) Lilly Ledbetter Fair Pay Act Answer: D Explanation: D) The Social Security Act provides a level of retirement, disability, and medical coverage for employees and their dependents; jointly funded by employers and employees.

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62) Which of the following is true about the Landrum-Griffin Act? A) It requires employers to fund programs that provide income for qualified unemployed persons.

B) It requires employers to let employees or their beneficiaries buy continued health insurance coverage after employment ends.

C) It establishes the right of employees to form, join, and assist unions and the right to strike.

D) It combats financial fraud within unions.

E) It governs the establishment and operation of private pension programs.

Answer: D Explanation: D) Labor-Management Reporting and Disclosure Act, also known as the LandrumGriffin Act gives union members the right to nominate and vote for union leadership candidates and combats financial fraud within unions.

Page Ref: 250 Difficulty: Easy Chapter LO: 3 Classification: Concept 63) Which of the following is true about the Wagner Act? A) It prohibits employers from interfering in union activities.

B) It gives the president the authority to impose injunctions against strikes.

C) It gives individual employees the right to choose not to join a union.

D) It prohibits employers from hiring illegal immigrants.

E) It sets strict guidelines for child labor.

Answer: A Explanation: A) National Labor Relations Act, also known as the Wagner Act establishes the right of employees to form, join, and assist unions and the right to strike; it also prohibits employers from interfering in union activities.

Page Ref: 250 Difficulty: Moderate Chapter LO: 3 Classification: Concept 64) ________ refers to distributions of financial incentives to employees who voluntarily depart; usually undertaken in order to reduce the payroll.

A) Mandatory retirement B) Affirmative action C) Worker buyout D) Decentralization E) Outplacement Answer: C Explanation: C) Worker buyouts refer to distributions of financial incentives to employees who voluntarily depart; usually undertaken in order to reduce the payroll.

Page Ref: 250 Difficulty: Easy Chapter LO: 3 Course LO: Summarize the functions carried out by human resources Classification: Concept 24 .

65) ________ refers to a multidimensional review in which a person is given feedback from subordinates, peers, superiors, and possibly outside stakeholders such as customers and business partners.

A) Skills inventory B) Coaching C) 360-degree review D) Behaviorally anchored rating scale E) Benchmarking Answer: C Explanation: C) 360-degree review refers to a multidimensional review in which a person is given feedback from subordinates, peers, superiors, and possibly outside stakeholders such as customers and business partners. This practice promotes fairness by correcting for possible biases.

Page Ref: 253 Difficulty: Easy Chapter LO: 4 Course LO: Summarize the functions carried out by human resources Classification: Concept 66) James C. Massey is the team-lead of a team of twelve associate consultants and two senior associate consultants at AMZ Inc., a global management consulting firm. James's performance appraisal requires a web-based feedback form to be filled by his manager, the members of his team, as well as several other team-leaders he has worked with. The HR department consolidates data obtained from these forms and provides James with detailed feedback regarding his performance during the past year. In this example, which of the following performance appraisal methods is used?

A) 360-degree review B) behaviorally anchored rating scale C) benchmarking D) skills inventory E) coaching Answer: A Explanation: A) 360-degree review refers to a multidimensional review in which a person is given feedback from subordinates, peers, superiors, and possibly outside stakeholders such as customers and business partners. This practice promotes fairness by correcting for possible biases.

Page Ref: 253 Difficulty: Difficult Chapter LO: 4 Course LO: Summarize the functions carried out by human resources Classification: Application

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67) A(n) ________ identifies both the current skill levels of the company's workforce as well as those the company needs in order to succeed.

A) employee turnover analysis B) replacement chart C) EPM D) skills inventory E) 360-degree review Answer: D Explanation: D) A skills inventory identifies both the current skill levels of all the employees and the skills the company needs in order to succeed.

Page Ref: 253 Difficulty: Easy Chapter LO: 4 Course LO: Summarize the functions carried out by human resources Classification: Concept 68) Salary differs from wages in that the salary ________.

A) falls under the purview of the Fair Labor Standards Act B) does not fall under the purview of the Fair Labor Standards Act C) is based on a fixed amount per year D) relates to exempt employees E) is paid by the unit of time Answer: C Explanation: C) Most employees receive the bulk of their compensation in the form of salary, if they receive a fixed amount per year, or wages, if they are paid by the unit of time (hourly, daily, or weekly) or by the unit of output (often called "getting paid by the piece" or "piecework").

Page Ref: 254 Difficulty: Moderate Chapter LO: 5 Course LO: Summarize the functions carried out by human resources Classification: Concept 69) A wage differs from salary in that the wage ________.

A) is based on a fixed amount per year B) falls under the purview of the Fair Labor Standards Act C) is paid by the unit of time D) does not fall under the purview of the Fair Labor Standards Act E) relates to nonexempt employees Answer: C Explanation: C) Most employees receive the bulk of their compensation in the form of salary, if they receive a fixed amount per year, or wages, if they are paid by the unit of time (hourly, daily, or weekly) or by the unit of output (often called "getting paid by the piece" or "piecework").

Page Ref: 254 Difficulty: Moderate Chapter LO: 5 Course LO: Summarize the functions carried out by human resources Classification: Concept 26 .

70) Which of the following statements is true about administering employee compensation?

A) Fixed cash compensation for work, independent of the number of hours worked, is termed as wages.

B) Cash payment based on an employee's unit of output is called salary.

C) Labor-Management Relations Act sets specific guidelines that employers must follow when administering salaries and wages.

D) Compensation comprises of direct payments such as wages or salary, and excludes indirect payments through employee benefits.

E) Compensation is dictated by prevailing conditions in the job market and the value each employee brings to the organization.

Answer: E Explanation: E) In the broadest terms, compensation is dictated by prevailing conditions in the job market and the value each employee brings to the organization.

Page Ref: 255 Difficulty: Moderate Chapter LO: 5 Course LO: Summarize the functions carried out by human resources Classification: Concept 71) Melissa is a pharmaceutical sales representative and her compensation includes a percentage of her sales each quarter. This type of pay is called ________.

A) sliding-scale plan B) cafeteria plan C) knowledge-based pay D) salary E) commission Answer: E Explanation: E) Commissions refer to employee compensation based on a percentage of sales made.

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72) ________ refers to tying rewards to profits or cost savings achieved by meeting specific goals.

A) Gain sharing B) Employee benefits C) Wellness program D) Sliding-scale plan E) Cafeteria plan Answer: A Explanation: A) Gain sharing refers to tying rewards to profits or cost savings achieved by meeting specific goals.

Page Ref: 256 Difficulty: Easy Chapter LO: 5 Course LO: Summarize the functions carried out by human resources Classification: Concept 73) ________ refers to an incentive program that rewards employees for meeting specific, individual goals.

A) Pay for performance B) Knowledge-based pay C) Salary D) Competency-based pay E) Commission Answer: A Explanation: A) Pay for performance refers to an incentive program that rewards employees for meeting specific, individual goals.

Page Ref: 256 Difficulty: Easy Chapter LO: 5 Course LO: Summarize the functions carried out by human resources Classification: Concept 74) ________ refers to pay tied to an employee's acquisition of skills.

A) Cafeteria plan B) Knowledge-based pay C) Sliding-scale plan D) Gain sharing E) Commission Answer: B Explanation: B) Knowledge-based pay refers to pay tied to an employee's acquisition of knowledge or skills; also called competency-based pay or skill-based pay.

Page Ref: 256 Difficulty: Easy Chapter LO: 5 Course LO: Summarize the functions carried out by human resources Classification: Concept 28 .

75) Kyle Creative Solutions, an advertising firm based in Lakeland, Florida, achieves costcutting goals through significant reduction in use of resources, better time-management, and increased productivity. The top managers of the firm decide to reward the employees of the firm, for their contribution towards the company's goals, by distributing a portion of the savings amongst the employees. In this example, Kyle Creative Solutions uses which of the following incentive programs?

A) commission B) cafeteria plan C) gain sharing D) sliding-scale plans E) wellness programs Answer: C Explanation: C) Gain sharing refers to tying rewards to profits or cost savings achieved by meeting specific goals.

Page Ref: 256 Difficulty: Difficult AACSB: Analytic Skills Chapter LO: 5 Course LO: Summarize the functions carried out by human resources Classification: Application 76) Employee benefits refer to ________.

A) pay tied to an employee's acquisition of knowledge or skills B) tying rewards to profits or cost savings achieved by meeting specific goals C) compensation other than wages, salaries, and incentive programs D) employee compensation based on a percentage of sales made E) a cash payment, in addition to regular wage or salary, that serves as a reward for achievement Answer: C Explanation: C) Employee benefits refers to compensation other than wages, salaries, and incentive programs. These benefits may be offered as either a preset package or as flexible plans.

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77) ________ refers to flexible benefit programs that let employees personalize their benefits packages.

A) Cafeteria plans B) Gain sharing C) Profit sharing D) Commissions E) Bonus Answer: A Explanation: A) Cafeteria plans refer to flexible benefit programs that let employees personalize their benefits packages.

Page Ref: 256 Difficulty: Easy Chapter LO: 6 Course LO: Summarize the functions carried out by human resources Classification: Concept 78) Massay Manufacturers, a toy manufacturing company, provides free consultation with a professional dietitian who comes to the office premises every friday. The HR department also encourages employees with low immunity to avail the gym facilities provided by the firm.

Massay Manufacturers uses which of the following tools to tackle the high health-care costs?

A) sliding-scale plans B) health insurance buying groups C) wellness programs D) health savings accounts E) high-deductible insurance Answer: C Explanation: C) Many employers, including most midsized and large companies, are working to cut health-care costs by encouraging employees to get and stay healthy; wellness programs can include everything from dietary advice to exercise facilities to smoking-cessation classes.

Page Ref: 257 Difficulty: Difficult AACSB: Analytic Skills Chapter LO: 6 Course LO: Summarize the functions carried out by human resources Classification: Application

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79) Greytip Information Systems, a software development firm, tackles high health-care costs by encouraging employees to enroll in smoking-cessation classes, and teaches them relaxation techniques to help them to deal with stress. Greytip Information Systems is most likely to be using which of the following cost-cutting tools?

A) sliding-scale plans B) health insurance buying groups C) wellness programs D) 401(k) plan E) high-deductible insurance Answer: C Explanation: C) Many employers, including most midsized and large companies, are working to cut health-care costs by encouraging employees to get and stay healthy; wellness programs can include everything from dietary advice to exercise facilities to smoking-cessation classes.

Page Ref: 257 Difficulty: Difficult AACSB: Analytic Skills Chapter LO: 6 Course LO: Summarize the functions carried out by human resources Classification: Application 80) With a(n) ________, employers charge for health insurance based on salary, making insurance more affordable for lower-wage workers.

A) sliding-scale plan B) wellness plan C) employee stock-ownership plan D) 401(k) E) pension plan Answer: A Explanation: A) With a sliding-scale program, employers charge for health insurance based on salary, making insurance more affordable for lower-wage workers.

Page Ref: 257 Difficulty: Easy Chapter LO: 6 Course LO: Summarize the functions carried out by human resources Classification: Concept

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81) ________ is a defined contribution retirement plan in which employers often match the amount employees invest.

A) Self-insurance B) In-house clinic C) Sliding-scale plan D) Wellness program E) 401(k) plan Answer: E Explanation: E) 401(k) plan is a defined contribution retirement plan in which employers often match the amount employees invest.

Page Ref: 258 Difficulty: Easy Chapter LO: 6 Course LO: Summarize the functions carried out by human resources Classification: Concept 82) Which of the following enables employees to become partial owners of a company?

A) a self-insurance plan B) a cafeteria plan C) an employee stock-ownership plan D) a sliding-scale plan E) a wellness plan Answer: C Explanation: C) Employee stock-ownership plan (ESOP) refers to a program that enables employees to become partial owners of a company.

Page Ref: 258 Difficulty: Easy Chapter LO: 6 Course LO: Summarize the functions carried out by human resources Classification: Concept 83) Stock options grant employees the right to purchase a set number of shares of the employer's stock at a specific price, called the ________.

A) 401(k) plan B) sliding-scale plan C) convenience yield D) exercise price E) market price Answer: D Explanation: D) Stock options grant employees the right to purchase a set number of shares of the employer's stock at a specific price, called the grant or exercise price, during a certain time period.

Page Ref: 258 Difficulty: Easy Chapter LO: 6 Course LO: Summarize the functions carried out by human resources Classification: Concept 32 .

84) ________ refers to a company-sponsored counseling or referral plan for employees with personal problems.

A) Health savings accounts B) Employee assistance program C) High-deductible insurance D) Sliding-scale plans E) 401(k) plan Answer: B Explanation: B) Employee assistance program (EAP) refers to a company-sponsored counseling or referral plan for employees with personal problems.

Page Ref: 259 Difficulty: Easy Chapter LO: 6 Course LO: Summarize the functions carried out by human resources Classification: Concept 85) Karen works at Pinnacle Industries, a manufacturer of snowmobiles, ATVs, and neighborhood electric vehicles based in Minnesota. She was a victim of domestic violence, and suffered from severe depression. The firm offered her company-sponsored private psychotherapy sessions with a certified therapist. In this example, Pinnacle Industries offers Karen which of the following employee benefit plans?

A) 401(k) plan B) sliding-scale plans C) employee assistance program D) health savings accounts E) health insurance buying groups Answer: C Explanation: C) Employee assistance program (EAP) refers to a company-sponsored counseling or referral plan for employees with personal problems.

Page Ref: 259 Difficulty: Difficult AACSB: Analytic Skills Chapter LO: 6 Course LO: Summarize the functions carried out by human resources Classification: Application

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86) Discuss some of the contemporary staffing challenges.

Answer: Managers in every organization face an ongoing array of staffing challenges such as: ∙ Aligning the workforce. Matching the right employees to the right jobs at the right time is a constant challenge. ∙ Fostering employee loyalty. Most companies can't guarantee long-term employment, but they want employees to commit themselves to the company. With the increasing number of temporary employees and independent contractors, this challenge will continue to grow. ∙ Monitoring workloads and avoiding employee burnout. As companies try to beat competitors and keep workforce costs to a minimum, managers need to be on guard for employee burnout, a state of physical and emotional exhaustion that can result from constant exposure to stress over a long period of time. ∙ Managing work-life balance. The concern over workloads is one of the factors behind the growing interest in work-life balance, the idea that employees, managers, and entrepreneurs need to balance the competing demands of their professional and personal lives. Many companies are trying to make it easier for employees to juggle multiple responsibilities with on-site day-care facilities, flexible work schedules, and other options designed to improve quality of work life (QWL).

Page Ref: 241 Difficulty: Easy Chapter LO: 1 Course LO: Summarize the functions carried out by human resources Classification: Concept 87) Compare and contrast job description with job specification.

Answer: Through the process of job analysis, employers try to identify the nature and demands of each position within the firm as well as the optimal employee profile to fill each position.

Once job analysis has been completed, the HR staff develops a job description, a formal statement summarizing the tasks involved in the job and the conditions under which the employee will work. In most cases, the staff will also develop a job specification, which identifies the type of personnel a job requires, including the skills, education, experience, and personal attributes that candidates need to possess.

Page Ref: 242 Difficulty: Difficult AACSB: Reflective Thinking Skills Chapter LO: 1 Course LO: Summarize the functions carried out by human resources Classification: Synthesis

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88) List the factors HR managers weigh to forecast demand for the numbers and types of employees who will be needed at various times in the firm.

Answer: To forecast demand for the numbers and types of employees who will be needed at various times, HR managers weigh (1) forecasted sales revenues; (2) the expected turnover rate, the percentage of the workforce that leaves every year; (3) the current workforce's skill level, relative to the company's future needs; (4) impending strategic decisions; (5) changes in technology or other business factors that could affect the number and type of workers needed; and (6) the company's current and projected financial status. In addition to overall workforce levels, every company has a number of employees and managers who are considered so critical to the company's ongoing operations that HR managers work with top executives to identify potential replacements in the event of the loss of any of these people, a process known as succession planning.

Page Ref: 242 Difficulty: Easy Chapter LO: 1 Course LO: Summarize the functions carried out by human resources Classification: Concept 89) What are the alternative work arrangements that a company can use to better accommodate the needs of employees?

Answer: To meet today's staffing and demographic challenges, many companies are adopting alternative work arrangements to better accommodate the needs of employees - and to reduce costs in many cases. Four of the most popular arrangements are flextime, telecommuting, job sharing, and flexible career paths: ∙ Flextime is a scheduling system that allows employees to choose their own hours, within certain limits. ∙ Telecommuting, working from home or another location using electronic communications to stay in touch with colleagues, suppliers, and customers, helps employees balance their professional and personal commitments because they can spend less time in transit between home and work. ∙ Job sharing, which lets two employees share a single full-time job and split the salary and benefits, can be an attractive alternative for people who want part-time hours in situations normally reserved for full-time employees. ∙ Perhaps the most challenging of all alternative work arrangements are situations in which employees want to limit their work time or leave the workforce entirely for an extended period to raise children, attend school, volunteer, or pursue other personal interests. Programs such as Deloitte's mass career customization give employees more freedom in designing their own career paths.

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90) Compare and contrast the workforce implications of the Baby Boomers generation with those of the Generation X. Answer: The multiple generations within a culture present a dimension of diversity in the workplace.

Baby Boomers refers to people within the 1946 to 1964 range of birth years. This large segment of the workforce, which now occupies many mid- and upper-level managerial positions, got its name from the population boom in the years following World War II. The older members of this generation are just now reaching retirement age, but many will continue to work beyond age 65 meaning that younger workers waiting for some of these management spots to open up might have to wait a while longer.

Generation X refers to people within the 1965 to 1980 range of birth years. This relatively small "MTV generation" is responsible for many of the innovations that have shaped communication habits today, but sometimes feels caught between the large mass of Baby Boomers ahead of them and the younger Generation Y employees entering the workforce. When Generation X does finally get the chance to take over starting in 2015 or 2020, it will be managing in a vastly different business landscape, one in which virtual and networked organizations replace much of the hierarchy inherited from the Baby Boomers.

Page Ref: 245 Difficulty: Difficult AACSB: Reflective Thinking Skills Chapter LO: 2 Course LO: Summarize the functions carried out by human resources Classification: Synthesis 91) Compare and contrast the terms race and ethnicity.

Answer: Ethnicity is a broader concept than race, incorporating both the genetic background of race and cultural issues such as language and national origin. Neither term is absolute nor precise; millions of people have mixed racial heritage, and ethnicity doesn't always have fixed boundaries that clearly distinguish one group from another.

Page Ref: 246 Difficulty: Difficult AACSB: Reflective Thinking Skills Chapter LO: 2 Course LO: Summarize the functions carried out by human resources Classification: Synthesis

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92) What are diversity initiatives?

Answer: To respond to the many challenges - and to capitalize on the business opportunities offered by both diverse marketplaces and diverse workforces - companies across the country are finding that embracing diversity in the richest sense is simply good business. In response, thousands of U.S. companies have established diversity initiatives, which can include such steps as contracting with more suppliers owned by women and minorities, targeting a more diverse customer base, and supporting the needs and interests of a diverse workforce.

Page Ref: 247 Difficulty: Easy Chapter LO: 2 Course LO: Summarize the functions carried out by human resources Classification: Concept 93) When can an employee file a wrongful discharge lawsuit against the employer?

Answer: State laws vary, but in general, employers cannot discriminate in firing, nor can they fire employees for whistle-blowing, filing a worker's compensation claim, or testifying against the employer in harassment or discrimination lawsuits. If a terminated employee believes any of these principles have been violated, he or she can file a wrongful discharge lawsuit against the employer. In addition, employers must abide by the terms of an employment contract, if one has been entered into with the employee.

Page Ref: 249 Difficulty: Difficult AACSB: Reflective Thinking Skills Chapter LO: 3 Course LO: Summarize the functions carried out by human resources Classification: Concept 94) Compare and contrast layoffs with worker buyouts.

Answer: Layoffs are the termination of employees for economic or business reasons unrelated to employee performance. To help ease the pain of layoffs, many companies provide laid-off employees with outplacement services. On the other hand, worker buyouts refer to distributions of financial incentives to employees who voluntarily depart; usually undertaken in order to reduce the payroll.

Page Ref: 248, 250 Difficulty: Difficult AACSB: Reflective Thinking Skills Chapter LO: 3 Course LO: Summarize the functions carried out by human resources Classification: Synthesis

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95) What is performance appraisal? Compare and contrast the 360-degree review method with electronic performance monitoring (EPM).

Answer: Performance appraisals refer to periodic evaluations of employees' work according to specific criteria.

In the 360-degree review, a person is given feedback from subordinates, peers, superiors, and possibly customers or outside business partners. The multiple viewpoints can uncover weaknesses that employees, and even their direct managers, might not be aware of, as well as contributions and achievements that might have been overlooked in normal reviews.

In addition to formal, periodic performance evaluations, many companies evaluate some workers' performance continuously, using electronic performance monitoring (EPM), sometimes called computer activity monitoring. For instance, customer service and telephone sales representatives are often evaluated by the number of calls they complete per hour and other variables. Newer soft ware products extend this monitoring capability, from measuring data input accuracy to scanning for suspicious words in employee emails.

Page Ref: 251; 253 Difficulty: Difficult AACSB: Reflective Thinking Skills Chapter LO: 4 Course LO: Summarize the functions carried out by human resources Classification: Synthesis 96) Discuss the processes involved in training and developing employees.

Answer: Most successful companies place heavy emphasis on employee training and development efforts for everyone from entry-level workers to the CEO. Training usually begins with orientation programs designed to ease the new hire's transition into the company and to impart vital knowledge about the organization and its rules, procedures, and expectations.

Effective orientation programs help employees become more productive in less time, help eliminate confusion and mistakes, and can significantly increase employee retention rates.

Training and other forms of employee development continue throughout the employee's career in most cases. Many HR departments maintain a skills inventory, which identifies both the current skill levels of all the employees and the skills the company needs in order to succeed.

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97) Compare and contrast wage and salary?

Answer: Most employees receive the bulk of their compensation in the form of salary, if they receive a fixed amount per year, or wages, if they are paid by the unit of time (hourly, daily, or weekly) or by the unit of output. The Fair Labor Standards Act, introduced in 1938 and amended many times since then, sets specific guidelines that employers must follow when administering salaries and wages, including setting a minimum wage and paying overtime for time worked beyond 40 hours a week. However, most professional and managerial employees are considered exempt from these regulations, meaning, for instance, their employers don't have to pay them for overtime. The distinction between exempt employees and nonexempt employees is based on job responsibilities and pay level. In general, salaried employees are exempt, although there are many exceptions.

Page Ref: 254 Difficulty: Difficult AACSB: Reflective Thinking Skills Chapter LO: 5 Course LO: Summarize the functions carried out by human resources Classification: Synthesis 98) Compare and contrast commissions with bonus.

Answer: Commissions and bonus are both types of incentive programs. Bonus refers to a cash payment, in addition to regular wage or salary, that serves as a reward for achievement. Paying performance-based bonuses has become an increasingly popular approach to compensation as more companies shift away from automatic annual pay increases. In contrast to bonuses, commissions are a form of compensation that pays employees in sales positions based on the level of sales they make within a given time frame.

Page Ref: 255 Difficulty: Difficult AACSB: Reflective Thinking Skills Chapter LO: 5 Course LO: Summarize the functions carried out by human resources Classification: Synthesis 99) Compare and contrast retirement plans with pension plans.

Answer: Retirement plans are designed to provide continuing income after an employee retires.

Company-sponsored retirement plans can be categorized as either defined-benefit plans, in which companies specify how much they will pay employees upon retirement, or defined-contribution plans, in which companies specify how much they will put into the retirement fund (by matching employee contributions, for instance), without guaranteeing any specific payouts during retirement. Although both types are technically pension plans, when most people speak of pension plans, they are referring to traditional defined-benefit plans, which are far less common than they were in years past.

Page Ref: 258 Difficulty: Difficult AACSB: Reflective Thinking Skills Chapter LO: 6 Course LO: Summarize the functions carried out by human resources Classification: Synthesis 39 .

100) What is a 401(k) plan? How does it differ from an employee stock-ownership plan?

Answer: The most common type of defined-contribution plans is known as a 401(k) plan. In a 401(k) plan, employees contribute a percentage of their pretax income, and employers often match that amount or some portion of it. Defined-contribution plans are similar to savings plans; they provide a future benefit based on annual employer contributions, voluntary employee matching contributions, and accumulated investment earnings.

Many U.S. employees are now enrolled in a type of defined-benefit plan known as an employee stock-ownership plan (ESOP), in which a company places some or all of its stock in trust, with each eligible employee entitled to a certain portion. (Most ESOPs are in closely-held corporations whose stock isn't available for sale to the public.) Many companies report that ESOPs help boost employee productivity because workers perceive a direct correlation between their efforts and the value of the company stock price.

Page Ref: 258 Difficulty: Difficult AACSB: Reflective Thinking Skills Chapter LO: 6 Course LO: Summarize the functions carried out by human resources Classification: Synthesis

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Business in Action, 6e (Bovee/Thill) Chapter 12 Labor Relations 1) Labor unions are organizations that represent employees in negotiations with management.

Answer: TRUE Explanation: Labor unions are organizations that seek to protect employee interests by negotiating with employers for better wages and benefits, improved working conditions, and increased job security.

Page Ref: 266 Difficulty: Easy Chapter LO: 1 Course LO: Summarize the functions carried out by human resources Classification: Concept 2) Nonunion employees typically receive greater benefits than union members.

Answer: FALSE Explanation: Union members receive greater benefits, on average, than nonunion employees.

Page Ref: 267 Difficulty: Moderate Chapter LO: 1 Course LO: Summarize the functions carried out by human resources Classification: Concept 3) Seniority refers to the length of time someone has worked for his or her current employer.

Answer: TRUE Explanation: Seniority refers to the length of time someone has worked for his or her current employer.

Page Ref: 267-268 Difficulty: Easy Chapter LO: 1 Course LO: Summarize the functions carried out by human resources Classification: Concept 4) Work rules specify such things as the tasks certain employees are required to do or are forbidden to do.

Answer: TRUE Explanation: Work rules are a common element of labor contracts that specifies such things as the tasks certain employees are required to do or are forbidden to do.

Page Ref: 268 Difficulty: Easy Chapter LO: 1 Course LO: Summarize the functions carried out by human resources Classification: Concept

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5) National Labor Relations Act is a legislation established to restrict labor unions.

Answer: FALSE Explanation: National Labor Relations Act is a legislation passed in 1935 that established labor relations policies and procedures for most sectors of private industry. It is commonly known as the Wagner Act. Page Ref: 269 Difficulty: Moderate Chapter LO: 2 Course LO: Summarize the functions carried out by human resources Classification: Concept 6) Norris-La Guardia Act of 1932 allows companies freedom to obtain injunctions against union strikes.

Answer: FALSE Explanation: Norris—La Guardia Act of 1932 limits companies' ability to obtain injunctions against union strikes, picketing, membership drives, and other activities.

Page Ref: 270 Difficulty: Easy Chapter LO: 2 Course LO: Summarize the functions carried out by human resources Classification: Concept 7) Labor-Management Reporting and Disclosure Act is designed to ensure democratic processes and financial accountability within unions.

Answer: TRUE Explanation: Labor-Management Reporting and Disclosure Act Legislation is a legislation passed in 1959 designed to ensure democratic processes and financial accountability within unions; commonly known as the Landrum—Griffith Act. Page Ref: 271 Difficulty: Easy Chapter LO: 2 Course LO: Summarize the functions carried out by human resources Classification: Concept 8) A union insists that the organization must hire workers only if they are union members. This union is implementing a union shop.

Answer: FALSE Explanation: In a union shop, employees don't have to be members when they are hired, but they must join the union within a specified period of time.

Page Ref: 272 Difficulty: Difficult AACSB: Analytic Skills Chapter LO: 3 Course LO: Summarize the functions carried out by human resources Classification: Application

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9) In an agency shop, employees aren't required to join the union but must pay the equivalent of union dues.

Answer: TRUE Explanation: In an agency shop, employees aren't required to join the union but must pay the equivalent of union dues.

Page Ref: 272 Difficulty: Easy Chapter LO: 3 Course LO: Summarize the functions carried out by human resources Classification: Concept 10) Right-to-work laws promote the implementation of union shops to promote union security.

Answer: FALSE Explanation: Right-to-work laws are state laws that prohibit union and agency shops. These laws remain a strong point of contention between union supporters and opponents.

Page Ref: 272 Difficulty: Moderate Chapter LO: 3 Course LO: Summarize the functions carried out by human resources Classification: Concept 11) Craft unions offer membership to all workers who are involved in the manufacturing process of a product.

Answer: FALSE Explanation: Craft unions offer membership to workers with a specific craft or skill, such as carpentry, masonry, or electrical work.

Page Ref: 272 Difficulty: Moderate Chapter LO: 3 Course LO: Summarize the functions carried out by human resources Classification: Concept 12) The United Brotherhood of Carpenters and Joiners of America give membership to carpenters and joiners who work in the United States. This is an example of an industrial union.

Answer: FALSE Explanation: In contrast to craft unions, industrial unions seek to represent all workers at a given employer or location, regardless of profession or skill level. The United Brotherhood of Carpenters and Joiners of America is an example of a craft union.

Page Ref: 272 Difficulty: Difficult AACSB: Analytic Skills Chapter LO: 3 Course LO: Summarize the functions carried out by human resources Classification: Application

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13) A national union is composed of many local unions that represent employees in specific locations.

Answer: TRUE Explanation: A national union is a nationwide organization composed of many local unions that represent employees in specific locations.

Page Ref: 273 Difficulty: Moderate Chapter LO: 3 Course LO: Summarize the functions carried out by human resources Classification: Concept 14) Authorization cards are cards signed by employees to indicate interest in having a union represent them.

Answer: TRUE Explanation: Authorization cards are cards signed by employees to indicate interest in having a union represent them.

Page Ref: 274 Difficulty: Easy Chapter LO: 3 Course LO: Summarize the functions carried out by human resources Classification: Concept 15) Union members take a decertification vote to increase the scope of a union's objectives.

Answer: FALSE Explanation: Decertification is an employee vote to take away a union's right to represent them.

If the majority votes for decertification, the union is removed as the bargaining agent.

Page Ref: 275 Difficulty: Moderate Chapter LO: 3 Course LO: Summarize the functions carried out by human resources Classification: Concept 16) Collective bargaining is a negotiation between union and management negotiators to forge the human resources policies that will apply to all employees covered by a contract.

Answer: TRUE Explanation: Collective bargaining is a negotiation between union and management negotiators to forge the human resources policies that will apply to all employees covered by a contract.

Collective bargaining agreements (CBAs), the contracts that result from this process, are always a compromise between the desires of union members and those of management.

Page Ref: 276 Difficulty: Easy Chapter LO: 4 Course LO: Summarize the functions carried out by human resources Classification: Concept

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17) A solution obtained through mediation is legally binding.

Answer: FALSE Explanation: Mediation refers to the use of an impartial third party to help resolve bargaining impasses. The solutions obtained through mediation are not legally binding.

Page Ref: 277 Difficulty: Moderate Chapter LO: 4 Course LO: Summarize the functions carried out by human resources Classification: Concept 18) Arbitration is a process in which an impartial referee listens to both sides and then makes a judgment by accepting one side's view.

Answer: TRUE Explanation: When a legally binding settlement is needed, the negotiators may submit to arbitration–a process in which an impartial referee listens to both sides and then makes a judgment by accepting one side's view.

Page Ref: 277 Difficulty: Easy Chapter LO: 4 Course LO: Summarize the functions carried out by human resources Classification: Concept 19) Boycott is a temporary work stoppage aimed at forcing management to accept union demands.

Answer: FALSE Explanation: Boycott is a pressure action by union members and sympathizers who refuse to buy or handle the product of a target company.

Page Ref: 278 Difficulty: Easy Chapter LO: 4 Course LO: Summarize the functions carried out by human resources Classification: Concept 20) An injunction is an order issued by a union to stop work temporarily.

Answer: FALSE Explanation: An injunction is a court order that requires one side in a dispute to refrain from or engage in a particular action.

Page Ref: 278 Difficulty: Moderate Chapter LO: 4 Course LO: Summarize the functions carried out by human resources Classification: Concept

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21) Strikebreakers are nonunion workers hired to do the jobs of striking workers.

Answer: TRUE Explanation: When union members walk off their jobs, management can legally replace them with strikebreakers, nonunion workers hired to do the jobs of striking workers.

Page Ref: 278 Difficulty: Easy Chapter LO: 4 Course LO: Summarize the functions carried out by human resources Classification: Concept 22) Unfair labor practices refers to unlawful acts made by either unions or management.

Answer: TRUE Explanation: Unfair labor practices refer to unlawful acts made by either unions or management.

Page Ref: 279 Difficulty: Easy Chapter LO: 5 Course LO: Summarize the functions carried out by human resources Classification: Concept 23) Grievance is an informal complaint made to the immediate supervisor.

Answer: FALSE Explanation: Grievance is a formal complaint against an employer. Grievances can range from the petty to the profound.

Page Ref: 280 Difficulty: Easy Chapter LO: 5 Course LO: Summarize the functions carried out by human resources Classification: Concept 24) Progressive discipline usually starts with a written warning or a suspension without pay.

Answer: FALSE Explanation: Progressive discipline usually starts with an oral warning for the first offense, followed by a written warning, then another written warning and suspension without pay, and then finally termination after the fourth offense.

Page Ref: 280 Difficulty: Moderate Chapter LO: 5 Course LO: Summarize the functions carried out by human resources Classification: Concept

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25) Employee Free Choice Act will make it easier for unions to organize groups of workers.

Answer: TRUE Explanation: Employee Free Choice Act is a proposed legislation that would significantly alter the union election provisions of the Wagner Act, making it easier for unions to organize groups of workers. The EFCA has been introduced in congress several times in recent years but has so far failed to pass.

Page Ref: 282 Difficulty: Easy Chapter LO: 6 Course LO: Summarize the functions carried out by human resources Classification: Concept 26) Typically, labor unions seek to protect employee interests by ________.

A) negotiating with employers for better wages and benefits B) funding skill-improvement programs for employees C) indirectly working to improve working conditions D) providing annual bonuses and benefits to employees E) indirectly involving in salary negotiations with the employer Answer: A Explanation: A) Labor unions are organizations that seek to protect employee interests by negotiating with employers for better wages and benefits, improved working conditions, and increased job security.

Page Ref: 266 Difficulty: Moderate Chapter LO: 1 Course LO: Summarize the functions carried out by human resources Classification: Concept 27) Which of the following is an advantage of labor unions?

A) Labor unions do not involve in direct negotiations with the management.

B) Most unions do not collect money from the members.

C) Most unions are not related to political activities.

D) Labor unions promote skill-based pay systems and promotions.

E) Union members receive greater benefits compared to nonunion employees.

Answer: E Explanation: E) As with compensation, union members receive greater benefits, on average, than nonunion employees.

Page Ref: 267 Difficulty: Moderate Chapter LO: 1 Course LO: Summarize the functions carried out by human resources Classification: Concept

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28) Seniority refers to the ________.

A) length of time someone has worked for his or her current employer B) skills that an employee has acquired over a period of time C) present productivity level of an employee D) lifetime productivity value of an employee E) total compensation and benefits offered to an employee Answer: A Explanation: A) Seniority is the length of time someone has worked for his or her current employer. Union contracts usually have specific provisions with regard to seniority.

Page Ref: 267-268 Difficulty: Easy Chapter LO: 1 Course LO: Summarize the functions carried out by human resources Classification: Concept 29) Labor unions ________.

A) form contracts to spell out formal procedures for disciplining B) will lead to lower employee compensation levels C) give more importance to skills than seniority D) are fully sponsored by the employers E) cause a significant improvement in organizational productivity Answer: A Explanation: A) Labor union contracts typically spell out formal procedures for such matters as disciplining employees.

Page Ref: 268 Difficulty: Moderate Chapter LO: 1 Course LO: Summarize the functions carried out by human resources Classification: Concept 30) Which of the following is a disadvantage of becoming a union member?

A) Unions give little importance to the length of time someone has worked.

B) Unions do not promote formal procedures for disciplining employees.

C) Unions often force employees to help fund political activities.

D) Unions do not have any impact in determining the work rules.

E) Unions do not provide tangible and measurable benefits to employees.

Answer: C Explanation: C) Some of the reasons why employees might not want to join unions include being forced to pay union dues, being forced to help fund political activities they may not support, being held back in their careers by union seniority rules, and being forced to accept the union as the sole intermediary.

Page Ref: 268 Difficulty: Moderate Chapter LO: 1 Course LO: Summarize the functions carried out by human resources Classification: Concept 8 .

31) ________ are a common element of labor contracts and specify such things as the tasks certain employees are required to do or are forbidden to do.

A) Compensation definition B) Work rules C) Authorization cards D) Employee certificates E) Productivity certificates Answer: B Explanation: B) Work rules are a common element of labor contracts that specifies such things as the tasks certain employees are required to do or are forbidden to do.

Page Ref: 268 Difficulty: Easy Chapter LO: 1 Course LO: Summarize the functions carried out by human resources Classification: Concept 32) ________ is a legislation passed in 1935 that established labor relations policies and procedures for most sectors of private industry.

A) Labor-Management Relations Act B) National Labor Relations Act C) Norris-La Guardia Act D) Landrum-Griffin Act E) Labor-Management Reporting Act Answer: B Explanation: B) National Labor Relations Act is a legislation passed in 1935 that established labor relations policies and procedures for most sectors of private industry. It is commonly known as the Wagner Act. Page Ref: 269 Difficulty: Easy Chapter LO: 2 Course LO: Summarize the functions carried out by human resources Classification: Concept

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33) ________ Act was formed in 1932 to limit companies' ability to obtain injunctions against union strikes, picketing, membership drives, and other activities.

A) Labor-Management Reporting B) Landrum-Griffin C) National Labor Relations D) Norris-La Guardia E) Labor-Management Relations Answer: D Explanation: D) Norris-La Guardia Act was formed in 1932 to limit companies' ability to obtain injunctions against union strikes, picketing, membership drives, and other activities.

Page Ref: 270 Difficulty: Easy Chapter LO: 2 Course LO: Summarize the functions carried out by human resources Classification: Concept 34) The Wagner Act ________.

A) allowed employers to limit the employees' rights to organize B) required employers to bargain in good faith with unions C) led to a major fall in union membership in the United States D) was widely welcomed by employers and employees alike E) did not have a significant impact on the balance of power in U.S. industry Answer: B Explanation: B) The Wagner Act required employers to bargain in good faith with unions and outlawed attempts by employers to interfere with employees' rights to organize.

Page Ref: 270 Difficulty: Moderate Chapter LO: 2 Course LO: Summarize the functions carried out by human resources Classification: Concept 35) ________ is a legislation passed in 1947 that addressed many concerns raised by business owners and shifted the balance of power back to business owners.

A) Labor-Management Reporting Act B) National Labor Relations Act C) Norris-La Guardia Act D) Landrum-Griffin Act E) Labor-Management Relations Act Answer: E Explanation: E) Labor-Management Relations Act is a legislation passed in 1947 that addressed many concerns raised by business owners and shifted the balance of power again. It is commonly known as the Taft-Hartley Act. Page Ref: 271 Difficulty: Easy Chapter LO: 2 Course LO: Summarize the functions carried out by human resources Classification: Concept 10 .

36) The Labor-Management Relations Act ________.

A) restricts employees' freedom of speech and outlaws promotional activities of unionization B) guarantees the right of employees not to join or support unions C) allows unions to strike for creating new jobs for union workers D) gives employers the right to stop strikes and protests at the workplace E) restricts employers' freedom of speech to dissuade workers from voting for unionization Answer: B Explanation: B) The Labor-Management Relations Act guarantees the right of employees not to join or support unions, except where required by a union shop agreement, and granting to each state the right to choose whether it would allow union shops.

Page Ref: 271 Difficulty: Moderate Chapter LO: 2 Course LO: Summarize the functions carried out by human resources Classification: Concept 37) ________ is a legislation passed in 1959 to ensure democratic processes and financial accountability within unions.

A) National Labor Relations Act B) Norris-La Guardia Act C) Landrum-Griffith Act D) Wagner Act E) Labor-Management Relations Act Answer: C Explanation: C) Labor-Management Reporting and Disclosure Act is a legislation passed in 1959 that is designed to ensure democratic processes and financial accountability within unions.

It is commonly known as the Landrum-Griffith Act. Page Ref: 271 Difficulty: Easy Chapter LO: 2 Course LO: Summarize the functions carried out by human resources Classification: Concept

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38) Albert's union follows voice vote instead of the secret ballot method for elections. Albert feels that this leads to biased elections. Albert can sue the union to stop this practice by using the ________ Act. A) National Labor Relations B) Wagner C) Norris-La Guardia D) Labor-Management Relations E) Labor-Management Reporting and Disclosure Answer: E Explanation: E) Labor-Management Reporting and Disclosure Act is a legislation passed in 1959 that is designed to ensure democratic processes and financial accountability within unions.

The legislation gives union members the right to secret ballot.

Page Ref: 271 Difficulty: Difficult AACSB: Analytic Skills Chapter LO: 2 Course LO: Summarize the functions carried out by human resources Classification: Application 39) Union security refers to the measures that ________.

A) protect a union's right to represent workers B) provide democratic rights within unions C) protect employees' freedom of speech D) disallow compulsory union membership E) protect businesses against strikes imposed by unions Answer: A Explanation: A) Union security refers to the measures that protect a union's right to represent workers.

Page Ref: 272 Difficulty: Easy Chapter LO: 3 Course LO: Summarize the functions carried out by human resources Classification: Concept

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40) Which of the following is a form of union security where an employer is allowed to hire only union members?

A) closed shop B) union shop C) agency shop D) open shop E) voluntary shop Answer: A Explanation: A) Union security refers to the measures that protect a union's right to represent workers. The most extreme form is a closed shop, in which an employer is allowed to hire only union members.

Page Ref: 272 Difficulty: Easy Chapter LO: 3 Course LO: Summarize the functions carried out by human resources Classification: Concept 41) Caltrex Manufacturing is a firm that manufactures surgical equipment. The company is unionized and has only one union. The union insists that all the individuals should become a member of the union before being hired by the company. This is an example of a(n) ________.

A) intermediate shop B) union shop C) agency shop D) open shop E) closed shop Answer: E Explanation: E) Union security refers to the measures that protect a union's right to represent workers. The most extreme form is a closed shop, in which an employer is allowed to hire only union members. The given situation is an example of a closed shop.

Page Ref: 272 Difficulty: Difficult AACSB: Analytic Skills Chapter LO: 3 Course LO: Summarize the functions carried out by human resources Classification: Application

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42) In a(n) ________, employees don't have to be members when they are hired, but they must join the union within a specified period of time.

A) open shop B) union shop C) closed shop D) agency shop E) voluntary shop Answer: B Explanation: B) In a union shop, employees don't have to be members when they are hired, but they must join the union within a specified period of time. It is a type of union security.

Page Ref: 272 Difficulty: Easy Chapter LO: 3 Course LO: Summarize the functions carried out by human resources Classification: Concept 43) Andrew joins a company as a production worker. The Human Resource department informs him that he has to be a part of the company's labor union within six months in order to continue working in the company. Identify the union security measure that the company is following.

A) agency shop B) open shop C) closed shop D) union shop E) voluntary shop Answer: D Explanation: D) In a union shop, employees don't have to be members when they are hired, but they must join the union within a specified period of time. Andrew's organization is following a union shop.

Page Ref: 272 Difficulty: Difficult AACSB: Analytic Skills Chapter LO: 3 Course LO: Summarize the functions carried out by human resources Classification: Application

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44) In a(n) ________, employees aren't required to join the union but must pay the equivalent of union dues.

A) closed shop B) open shop C) agency shop D) union shop E) permanent shop Answer: C Explanation: C) In an agency shop, employees aren't required to join the union but must pay the equivalent of union dues.

Page Ref: 272 Difficulty: Easy Chapter LO: 3 Course LO: Summarize the functions carried out by human resources Classification: Concept 45) Norman is working in a bottled water production unit. Norman's company is unionized, but he has not joined the union. However, every year he pays an amount equivalent to the union's annual fee. Norman's company is using a(n) ________.

A) permanent shop B) closed shop C) agency shop D) union shop E) open shop Answer: C Explanation: C) In an agency shop, employees aren't required to join the union but must pay the equivalent of union dues.

Page Ref: 272 Difficulty: Difficult AACSB: Analytic Skills Chapter LO: 3 Course LO: Summarize the functions carried out by human resources Classification: Application

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46) Craft unions are unions that offer membership to workers ________.

A) who are not directly employed B) with a specific skill C) of the same age D) with the same seniority E) with a part-time membership Answer: B Explanation: B) Craft unions offer membership to workers with a specific craft or skill, such as carpentry, masonry, or electrical work.

Page Ref: 272 Difficulty: Easy Chapter LO: 3 Course LO: Summarize the functions carried out by human resources Classification: Concept 47) Which of the following is an example of an industrial union?

A) a union that provides membership only to those with a specific skill B) a union of electrical workers in the United States C) a union of engineers across the world D) a union that gives membership only to salespeople in an industry E) a union that represents all the employees of a manufacturing company Answer: E Explanation: E) Industrial unions seek to represent all workers at a given employer or location, regardless of profession or skill level.

Page Ref: 272 Difficulty: Difficult AACSB: Analytic Skills Chapter LO: 3 Course LO: Summarize the functions carried out by human resources Classification: Application 48) Local unions represent employees ________.

A) who have membership in many industrial unions B) with a specific skill or ability C) who work in more than one country D) in a specific geographic area or facility E) who do not have a formal union membership Answer: D Explanation: D) Local unions represent employees in a specific geographic area or facility.

Members of local unions are informally known as the rank-and-file.

Page Ref: 273 Difficulty: Easy Chapter LO: 3 Course LO: Summarize the functions carried out by human resources Classification: Concept

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49) The members of local unions are informally known as the ________.

A) internal-card B) advocate C) lobbyist D) activist E) rank-and-file Answer: E Explanation: E) Members of local unions are informally known as the rank-and-file. Each department or facility also elects a shop steward, who works in the facility as a regular employee and serves as a liaison with supervisors whenever problems arise.

Page Ref: 273 Difficulty: Easy Chapter LO: 3 Course LO: Summarize the functions carried out by human resources Classification: Concept 50) Employees in one of the plants of a leather manufacturing company form a labor union to represent all employees of the plant. The union does not give membership to employees of other plants and is not associated with any political party or other union. This union is an example of a ________ union.

A) geographic B) local C) craft D) national E) skill-based Answer: B Explanation: B) Local unions represent employees in a specific geographic area or facility. The given union represents employees of a facility.

Page Ref: 273 Difficulty: Difficult AACSB: Analytic Skills Chapter LO: 3 Course LO: Summarize the functions carried out by human resources Classification: Application

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51) National unions ________.

A) do not have the power to negotiate with individual companies B) are composed of many local unions C) are not bounded by geographical restrictions D) do not undertake their own membership activities E) are open to members who have a specific set of skills Answer: B Explanation: B) A national union is a nationwide organization composed of many local unions that represent employees in specific locations.

Page Ref: 273 Difficulty: Easy Chapter LO: 3 Course LO: Summarize the functions carried out by human resources Classification: Concept 52) Authorization cards are ________.

A) cards signed by employees to indicate interest in having a union represent them B) cards issued by employers to distinguish the members of a union C) documents issued by unions to employees when awarding membership D) cards issued by employers to the employees who are not part of any union E) cards signed by employees to indicate that they have attended a union meeting Answer: A Explanation: A) Authorization cards are cards signed by employees to indicate interest in having a union represent them. Company management usually tries to persuade employees that unionization would not be in their best interest.

Page Ref: 274 Difficulty: Easy Chapter LO: 3 Course LO: Summarize the functions carried out by human resources Classification: Concept

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53) Alfa Electrical is a firm that manufactures electrical products. The employees believe that they are not being paid adequately and decide to form a union. More than seventy percent of the employees issue authorization cards for forming a union, but the management refuses to accept the union. In order to form a union in this company, the employees ________.

A) must obtain support of all the employees in the organization B) should form an informal union and function for more than a year C) must obtain support of at least 75 percent of the employees D) should petition the NLRB to remove the management from authority E) should petition the NLRB to conduct a secret-ballot certification election Answer: E Explanation: E) If the employer doesn't voluntarily accept a union, employees or the union can petition the NLRB to conduct a secret-ballot certification election. The NLRB usually requires verification that at least 30 percent of the employees in an appropriate bargaining unit are interested in union membership before it will proceed with an election.

Page Ref: 274 Difficulty: Difficult AACSB: Analytic Skills Chapter LO: 3 Course LO: Summarize the functions carried out by human resources Classification: Application 54) Which of the following statements is true of a certification election?

A) Such elections are not bound by NLRB guidelines.

B) It is usually carried out using a voice vote.

C) It can be conducted only if at least 30 percent of the employees agree.

D) It can be conducted only if the management gives approval.

E) Employees sharing different working conditions are allowed to vote.

Answer: C Explanation: C) If the employer doesn't voluntarily accept the union, employees or the union can petition the NLRB to conduct a secret-ballot certification election. The NLRB usually requires verification that at least 30 percent of the employees in an appropriate bargaining unit are interested in union membership before it will proceed with an election.

Page Ref: 274 Difficulty: Moderate Chapter LO: 3 Course LO: Summarize the functions carried out by human resources Classification: Concept

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55) Identify the action that is typically taken after a company has recognized a union.

A) union petition filing B) NLRB inspection C) collective bargaining D) certification election E) decertification election Answer: C Explanation: C) After a company has recognized a union, the union and management begin collective bargaining.

Page Ref: 274 Difficulty: Easy Chapter LO: 3 Course LO: Summarize the functions carried out by human resources Classification: Concept 56) The National Labor Relations Board (NLRB) certifies a union if ________.

A) thirty percent of the employees favor certification B) a union wins certification election C) it receives a union petition from employees D) a union is conducting a decertification election E) it receives a request from 30 percent of the employees for a collective bargaining Answer: B Explanation: B) If a majority of the affected employees vote to make the union their bargaining agent, the NLRB certifies the results and grants the union the authority to begin negotiating with the employer on the employees' behalf.

Page Ref: 274 Difficulty: Easy Chapter LO: 3 Course LO: Summarize the functions carried out by human resources Classification: Concept 57) If a union is certified, the employer is then required to negotiate with the union for at least a period of ________.

A) six months B) five years C) one year D) three years E) three months Answer: C Explanation: C) If a union is certified, the employer is then required to negotiate with the union for at least one year on the terms of the contract with employees.

Page Ref: 275 Difficulty: Easy Chapter LO: 3 Course LO: Summarize the functions carried out by human resources Classification: Concept 20 .

58) Union members take a decertification vote to ________.

A) have membership in more than one union B) increase the scope of a union's objectives C) demand a pay hike from the employer D) increase the strength of an industrial union E) take away a union's right to represent them Answer: E Explanation: E) Decertification is an employee vote to take away a union's right to represent them. If the majority votes for decertification, the union is removed as the bargaining agent.

Page Ref: 275 Difficulty: Easy Chapter LO: 3 Course LO: Summarize the functions carried out by human resources Classification: Concept 59) Which of the following refers to a negotiation between union and management negotiators to forge the human resources policies that will apply to all employees covered by a contract?

A) collective bargaining B) grievance procedure C) product negotiation D) progressive discipline E) grievance negotiation Answer: A Explanation: A) Collective bargaining refers to a negotiation between union and management negotiators to forge the human resources policies that will apply to all employees covered by a contract.

Page Ref: 276 Difficulty: Easy Chapter LO: 4 Course LO: Summarize the functions carried out by human resources Classification: Concept 60) A labor contract is ________.

A) an agreement between employers for labor arrangements B) formed when negotiations are not initiated by unions C) a labor union contract for managerial staff D) often used as a synonym for collective bargaining E) a contract signed by employees who are not part of the union Answer: D Explanation: D) Labor contract is often used as a synonym for a collective bargaining agreement. Individual employees, particularly in upper management positions, can also have employment contracts that aren't associated with union membership.

Page Ref: 276 Difficulty: Easy Chapter LO: 4 Course LO: Summarize the functions carried out by human resources Classification: Concept 21 .

61) Which of the following is a key difference between mediation and arbitration?

A) Mediation involves a third party, whereas arbitration is performed without third parties.

B) Arbitrators give suggestions, whereas mediators give directives.

C) Mediation is compulsory, whereas an arbitration is voluntary in nature.

D) Arbitration provides a legally binding settlement, whereas mediation is not binding.

E) Mediation has a win-lose orientation, whereas arbitration has a win-win orientation.

Answer: D Explanation: D) Mediators can only offer suggestions and their solutions are not binding. The solutions of arbitration are binding.

Page Ref: 277 Difficulty: Moderate Chapter LO: 4 Course LO: Summarize the functions carried out by human resources Classification: Concept 62) In collective bargaining, a mediator is a(n) ________.

A) committee comprising many employees B) impartial third party C) financial intermediary D) representative of the union E) representative of management Answer: B Explanation: B) Mediation refers to bringing in an impartial third party to study the situation, explore new options, improve communication, and make recommendations for resolution of the differences. The third party is called a mediator.

Page Ref: 277 Difficulty: Moderate Chapter LO: 4 Course LO: Summarize the functions carried out by human resources Classification: Concept

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63) A new union is formed through a certification election in Alberco Manufacturing. The company and the union fail to reach an agreement in collective bargaining. Both parties appoint a panel of judges to intercede the discussions and agree that the decision of the panel will be binding. This solution is an example of ________.

A) grievance procedure B) arbitration C) mediation D) injunction suit E) decertification Answer: B Explanation: B) Arbitration is a decision process in which an impartial referee listens to both sides and then makes a judgment by accepting one side's view. The given situation describes arbitration.

Page Ref: 277 Difficulty: Difficult AACSB: Analytic Skills Chapter LO: 4 Course LO: Summarize the functions carried out by human resources Classification: Application 64) ________ is a temporary work stoppage aimed at forcing management to accept union demands.

A) Arbitration B) Boycott C) Lockout D) Strike E) Injunction Answer: D Explanation: D) A strike is a temporary work stoppage aimed at forcing management to accept union demands. The most powerful weapon that organized labor can use is the strike.

Page Ref: 278 Difficulty: Easy Chapter LO: 4 Course LO: Summarize the functions carried out by human resources Classification: Concept

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65) Dorco Cycles is a leading manufacturer of sports bicycles. The company has not revised employee benefits for a long time now. The labor union representatives interacted with the management a number of times to increase the wages, but the company maintained that it is not in good shape to offer a pay hike. The union finally decides to stop work for a week to pressure management. This is an example of a(n) ________.

A) arbitration B) strike C) boycott D) lockout E) injunction Answer: B Explanation: B) A strike is a temporary work stoppage aimed at forcing management to accept union demands. The stoppage described in this case is a form of strike.

Page Ref: 278 Difficulty: Easy Chapter LO: 4 Course LO: Summarize the functions carried out by human resources Classification: Concept 66) ________ is a union weapon where union members and sympathizers refuse to buy or handle the product of a target company.

A) Injunction B) Lockout C) Strike D) Boycott E) Arbitration Answer: D Explanation: D) A less direct union weapon than the strike is the boycott, in which union members and sympathizers refuse to buy or handle the product of a target company.

Page Ref: 278 Difficulty: Easy Chapter LO: 4 Course LO: Summarize the functions carried out by human resources Classification: Concept

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67) Corgo Inc. is a manufacturer of personal care products. It manufactures such products as cosmetics, soaps, and toothpastes. The company has more than 4000 workers. In order to pressure the company to give a pay hike, the labor union asks the employees to avoid buying the company's products for their own families and relatives. This tactic is known as ________.

A) injunction B) lockout C) strike D) boycott E) arbitration Answer: D Explanation: D) Boycott is a protest method where union members and sympathizers refuse to buy or handle the product of a target company. The labor union is adopting boycott in this case.

Page Ref: 278 Difficulty: Difficult AACSB: Analytic Skills Chapter LO: 4 Course LO: Summarize the functions carried out by human resources Classification: Application 68) Which of the following terms refers to a court order that requires one side in a dispute to refrain from or engage in a particular action?

A) injunction B) boycott C) lockout D) arbitration E) infringement Answer: A Explanation: A) An injunction is a court order that requires one side in a dispute to refrain from or engage in a particular action. The NLRB has the authority to ask federal courts to issue injunctions aimed at halting unfair labor practices while a dispute is moving through the board's resolution process.

Page Ref: 278 Difficulty: Easy Chapter LO: 4 Course LO: Summarize the functions carried out by human resources Classification: Concept

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69) Strikebreakers refers to ________.

A) injunctions issued by the employer to break strikes B) nonunion workers hired during strikes C) lawsuits filed against striking employees D) lawsuits filed against striking unions E) striking employees who are not in favor of the strike Answer: B Explanation: B) Strikebreakers are nonunion workers hired to do the jobs of striking workers.

Management can legally use strikebreakers.

Page Ref: 278 Difficulty: Easy Chapter LO: 4 Course LO: Summarize the functions carried out by human resources Classification: Concept 70) Robert Plantations has more than 500 employees. The employees announce a strike to pressure the management to provide a salary hike. However, the management is defiant and thinks that the salaries are adequate for the job that employees are doing. The management uses replacement workers to detriment the strike. In this case, the management is using ________ to put pressure on employees.

A) strikebreakers B) publicity campaigns C) boycott D) lockout E) reverse strike Answer: A Explanation: A) Strikebreakers are nonunion workers hired to do the jobs of striking workers.

Management can legally use strikebreakers.

Page Ref: 278 Difficulty: Difficult AACSB: Analytic Skills Chapter LO: 4 Course LO: Summarize the functions carried out by human resources Classification: Application

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71) Which of the following terms refers to a formal complaint against an employer?

A) arbitration B) boycott C) grievance D) mediation E) injunction Answer: C Explanation: C) Grievance is a formal complaint against an employer. Grievances can range from the petty to the profound.

Page Ref: 280 Difficulty: Easy Chapter LO: 5 Course LO: Summarize the functions carried out by human resources Classification: Concept 72) Arbex Manufacturing allows its employees to file formal complaints against the managers, managerial actions, and violations of agreements. Employees are required to fill out a form to file a complaint. Such complaints are called ________.

A) collective bargains B) injunctions C) grievances D) arbitrations E) disciplining procedures Answer: C Explanation: C) Grievance is a formal complaint against an employer. The given case describes the procedures for filing a grievance.

Page Ref: 280 Difficulty: Difficult AACSB: Analytic Skills Chapter LO: 5 Course LO: Summarize the functions carried out by human resources Classification: Application

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73) Which of the following statements is true of employee grievance?

A) Labor unions cannot file grievances on employees' behalf.

B) Only profound complaints can be filed as grievances.

C) Employee grievances are informal in nature.

D) Grievance procedures are not followed by escalations.

E) Most collective bargaining agreements specify procedures for filing grievances.

Answer: E Explanation: E) If an employee or a union believes an employer is not abiding by the terms of a collective bargaining agreement, most agreements specify procedures for filing a grievance, a formal complaint against the employer.

Page Ref: 280 Difficulty: Moderate Chapter LO: 5 Course LO: Summarize the functions carried out by human resources Classification: Concept 74) ________ is an escalating process of discipline that gives employees several opportunities to correct performance problems before being terminated.

A) Collective bargaining B) Labor relation C) Progressive discipline D) Grievance procedure E) Total quality management Answer: C Explanation: C) Progressive discipline is an escalating process of discipline that gives employees several opportunities to correct performance problems before being terminated.

Page Ref: 280 Difficulty: Easy Chapter LO: 5 Course LO: Summarize the functions carried out by human resources Classification: Concept

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75) Lothex Manufacturing is a firm that produces automobile accessories such as seat belts, leather seats, and cushions. The company has a collective bargaining agreement with the labor union and the contract has specified steps for punishing employees. The firm has to give a warning to an employee for his or her first offence. The employer can issue a suspension if the employee commits the mistake again and the employee is terminated on committing the mistake for a third time. This is an example of ________.

A) employee mediation B) progressive discipline C) labor arbitration D) grievance procedure E) total quality management Answer: B Explanation: B) Progressive discipline is an escalating process of discipline that gives employees several opportunities to correct performance problems before being terminated.

Page Ref: 280 Difficulty: Difficult AACSB: Analytic Skills Chapter LO: 5 Course LO: Summarize the functions carried out by human resources Classification: Application 76) Progressive discipline usually starts with a(n) ________.

A) suspension without pay B) oral warning C) written warning D) reduction in pay E) suspension with pay Answer: B Explanation: B) Progressive discipline usually starts with an oral warning for the first offense, followed by a written warning, then another written warning and suspension without pay, and then finally termination after the fourth offense.

Page Ref: 280 Difficulty: Moderate Chapter LO: 5 Course LO: Summarize the functions carried out by human resources Classification: Concept

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77) One of the key differences between arbitration and the civil justice system is that in arbitration the ________.

A) arbitration cannot be used for alternative dispute resolution B) employer gets preference over the employee union C) union and the employer get to select the arbitrator D) employee union gets preference over the employer E) decisions made through arbitration are not legally binding Answer: C Explanation: C) One of the key differences between arbitration and the civil justice system is that in arbitration, the union and the employer get to select the arbitrator (they also share the cost of the service).

Page Ref: 280 Difficulty: Moderate Chapter LO: 5 Course LO: Summarize the functions carried out by human resources Classification: Concept 78) Which of the following is a valid observation of arbitrators?

A) Arbitrators usually represent the management rather than the union.

B) Collective bargaining contracts must specify a permanent arbitrator.

C) Most arbitrators are chosen on a case-by-case basis.

D) Most decisions by arbitrators are not legally binding.

E) Arbitrators usually represent the union rather than the management.

Answer: C Explanation: C) Most arbitrators are chosen on a case-by-case basis, but in some instances, a union and an employer agree to a permanent arbitrator to hear grievances throughout the life of the contract.

Page Ref: 280 Difficulty: Moderate Chapter LO: 5 Course LO: Summarize the functions carried out by human resources Classification: Concept 79) Labor unions place a high priority on ________.

A) increasing organizational productivity B) engaging in disciplining procedures C) recruiting and retaining members D) keeping operational costs low E) attaining operational flexibility in the organization Answer: C Explanation: C) With their influence based on having a collective voice, unions place a high priority on recruiting and retaining members.

Page Ref: 281 Difficulty: Easy Chapter LO: 6 Course LO: Summarize the functions carried out by human resources Classification: Concept 30 .

80) Which of the following statements is true of the long-term trends observed in organized labor?

A) Labor unions have become stronger in private sector than in public sector.

B) Businesses have become tolerant to unionization in workplaces.

C) The trend has been against unions in the private sector.

D) Unions have been eradicated fully from the public sector.

E) Labor unions have become stronger in both public and private sectors.

Answer: C Explanation: C) The long-term trend has been against unions, at least in the private sector. True to the often combative nature of the relationship, each side blames the decline of organized labor on the other.

Page Ref: 281 Difficulty: Easy Chapter LO: 6 Course LO: Summarize the functions carried out by human resources Classification: Concept 81) Which of the following legislations propose a card check-only certification option?

A) Labor-Management Relations Act B) Employee Free Choice Act C) National Labor Relations Act D) Labor-Management Reporting Act E) Norris-La Guardia Act Answer: B Explanation: B) Employee Free Choice Act would significantly alter the election provisions of the Wagner Act. One of its significant provisions is a new card check-only certification option, in which a union would be automatically certified if more than 50 percent of the affected employees signed authorization cards.

Page Ref: 282 Difficulty: Easy Chapter LO: 6 Course LO: Summarize the functions carried out by human resources Classification: Concept

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82) Which of the following legislations has a requirement that new collective bargaining agreements be submitted to binding arbitration if agreement can't be reached after specified periods of negotiation and mediation?

A) Labor-Management Relations Act B) Norris-La Guardia Act C) National Labor Relations Act D) Employee Free Choice Act E) Labor-Management Reporting Act Answer: D Explanation: D) One of the major provisions of Employee Free Choice Act (EFCA) is a requirement that new collective bargaining agreements be submitted to binding arbitration if agreement can't be reached after specified periods of negotiation and mediation.

Page Ref: 282 Difficulty: Easy Chapter LO: 6 Course LO: Summarize the functions carried out by human resources Classification: Concept 83) Which of the following is a valid observation of the proposed Employee Free Choice Act? A) The Act is welcomed by both employee unions and business managements.

B) The Act outlaws the use of arbitration in collective bargaining discussions.

C) The Act was subject to huge opposition from labor unions across the U.S. D) The Act is proposed to outlaw the use of authorization cards for unionization.

E) The act would significantly alter the union election provisions of the Wagner Act. Answer: E Explanation: E) Employee Free Choice Act (EFCA) is a proposed legislation that would significantly alter the union election provisions of the Wagner Act, making it easier for unions to organize groups of workers. The EFCA has been introduced in Congress several times in recent years but has so far failed to pass.

Page Ref: 282 Difficulty: Easy Chapter LO: 6 Course LO: Summarize the functions carried out by human resources Classification: Concept

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84) Which of the following is a major reason why the Congress has been unsuccessful in passing the Employee Free Choice Act? A) anti-constitutional provisions of the Act B) lack of necessary drafting policies C) opposition from the business lobby D) opposition from the labor unions E) lack of support from international employees Answer: C Explanation: C) The Employee Free Choice Act has been introduced in Congress several times in the past decade, most recently in 2009, but with heavy opposition from the business lobby, it has failed to pass each time.

Page Ref: 282 Difficulty: Moderate Chapter LO: 6 Course LO: Summarize the functions carried out by human resources Classification: Concept 85) "Unions have a negative impact on productivity." Do you agree with this statement? Explain your answer.

Answer: Negotiations and stress on seniority often affect the productivity of organizations. It also affects organizational flexibility. Supporters of the argument will stress these points. The main argument against this view will be the level of employee protection that labor unions provide. Student answers will vary due to the nature of this question.

Page Ref: 266; 267; 268 Difficulty: Difficult AACSB: Reflective Thinking Skills Chapter LO: 1 Course LO: Summarize the functions carried out by human resources Classification: Synthesis

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86) Explain the benefits of unionization.

Answer: Higher compensation: According to the U.S. Bureau of Labor Statistics, union members currently earn about 28 percent more than nonunion workers, taken as an average across the entire workforce.

Greater benefits: As with compensation, union members receive greater benefits, on average, than nonunion employees. For instance, 51 percent of nonunion workers have retirement plans through their employers, compared to 86 percent of union workers.

Influence over hiring, promotions, and layoffs: Union contracts usually have specific provisions about hiring, promotions, and layoff s, particularly with regard to seniority.

Formal processes for employee grievances, discipline, and other matters: Union contracts typically spell out formal procedures for such matters as disciplining employees.

Solidarity and recognition: Aside from tangible and measurable benefits, union membership can appeal to workers who feel unappreciated, humiliated, or let down by management.

Page Ref: 266; 267; 268 Difficulty: Moderate Chapter LO: 1 Course LO: Summarize the functions carried out by human resources Classification: Concept 87) Compare and contrast the Wagner act of 1935 and The Taft-Hartley Act of 1947.

Answer: The Taft-Hartley Act provided power to the management, whereas the Wagner Act gave the power to unions.

The Wagner Act established labor relations policies and procedures for most sectors of private industry and its provisions remain a topic of ongoing controversy. Key provisions of the Wagner Act include protecting the rights of employees to join unions and requiring employers to carry out collective bargaining.

The Taft-Hartley Act guaranteed the right of employees not to join or support unions. It outlawed coercion of or discrimination against employees by unions. It allows employers more freedom of speech.

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88) Explain the importance of the Landrum-Griffith Act. Answer: Congressional inquiries into financial fraud by union leaders led to passage of the Labor-Management Reporting and Disclosure Act of 1959, commonly known as the LandrumGriffith Act. The overall intent of this act is to ensure democratic processes and financial accountability within unions, including freedom of speech for union members, the right to secret ballot elections of union leadership, and financial transparency in the use of union funds.

Page Ref: 271 Difficulty: Moderate Chapter LO: 2 Course LO: Summarize the functions carried out by human resources Classification: Concept 89) Compare and contrast craft unions and industrial unions.

Answer: Craft unions offer membership to workers with a specific craft or skill, such as carpentry, masonry, or electrical work. In some instances, craft unions negotiate contracts for certain categories of work at a single employer. In others, particularly in the building trades, these unions oft en negotiate with a number of employers in a given geographic area.

In contrast to craft unions, industrial unions seek to represent all workers at a given employer or location, regardless of profession or skill level. Rather than belonging to a single union for their entire careers as with craft unions, workers usually join an industrial union.

Page Ref: 272; 273 Difficulty: Difficult AACSB: Reflective Thinking Skills Chapter LO: 3 Course LO: Summarize the functions carried out by human resources Classification: Synthesis 90) Compare and contrast a closed shop with a union shop.

Answer: In a closed shop, an employer is allowed to hire only union members. Closed shops were outlawed by the Taft-Hartley Act. In a union shop, employees don't have to be members when they are hired, but they must join the union within a specified period of time. Any employee who doesn't join the union by that time, or maintain union membership after that, must be released by the employer.

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91) Explain the concept of national unions.

Answer: A national union is a nationwide organization composed of many local unions that represent employees in specific locations; examples include the UAW and the United Steelworkers. International unions, such as the Service Employees International Union (SEIU), have members in more than one country. A national union is responsible for such activities as organizing in new areas or industries, negotiating industry-wide contracts, assisting locals with negotiations, administering benefits, lobbying Congress, and lending assistance in the event of a strike. Local unions send representatives to the national delegate convention, submit negotiated contracts to the national union for approval, and provide financial support in the form of dues.

Page Ref: 273 Difficulty: Moderate Chapter LO: 3 Course LO: Summarize the functions carried out by human resources Classification: Concept 92) Most employees of a manufacturing firm want to form a labor union. However, the management is totally against the formation of a union and opposes it outright. Suggest a union organization for employees under this circumstance.

Answer: If the employer doesn't voluntarily accept the union, as in this case, employees or the union can petition the NLRB to conduct a secret-ballot certification election. The NLRB usually requires verification that at least 30 percent of the employees in an appropriate bargaining unit are interested in union membership before it will proceed with an election. The NLRB has a number of guidelines for determining which employees are eligible to vote as part of the bargaining unit, but roughly speaking, it requires that employees share the same working conditions.

The employees of the organization can form the election if they win the certification election and NLRB will also ask the management to engage in collective bargaining.

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93) Form two student groups of five members each. Conduct a mock trial of a collective bargaining process using the groups with one group representing the management of an industry and another group representing the labor union.

Answer: Each group should have an agenda and discuss issues that are relevant for the groups that they are representing. Each group should try to achieve more than the other group. They should follow the following steps: (1) Preparation (includes deciding the offer and preparing the demands) (2) Actual meeting and discussion (3) Reaching an agreement (4) Voting and ratification Students may skip the drafting of contract in this activity. This activity is aimed at giving the students a clear idea of the difficulty in conducting a collective bargaining discussion.

Page Ref: 276 Difficulty: Difficult AACSB: Reflective Thinking Skills Chapter LO: 4 Course LO: Summarize the functions carried out by human resources Classification: Synthesis 94) Consider an industry of your choice and compose and draft a collective bargaining agreement with a firm in the industry and the labor union in the company.

Answer: The agreement should include details of employee benefits, salary, retirement benefits, disciplining procedures, working conditions, working hours and other relevant aspects. Students may conduct a secondary research to obtain a model of a collective bargaining agreement.

Page Ref: 276; 277 Difficulty: Difficult AACSB: Reflective Thinking Skills Chapter LO: 4 Course LO: Summarize the functions carried out by human resources Classification: Synthesis 95) The management at RXF Constructions has failed to convince the employee union to accept an hourly wage of $10. The union is demanding a wage of $13 per hour. The management feels that such high wages will not be feasible. Conduct a mock trial of compulsory arbitration to resolve this issue.

Answer: Students should form three groups. One group will act as representatives of management and the second group will represent the union. The third group will be the arbitrator group. The decisions of the arbitrators will be binding. This is an activity to be performed in class.

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96) Compare and contrast mediation and arbitration.

Answer: If negotiations reach an impasse, outside help may be needed. Mediation and arbitration are examples of such outside help. Mediation brings in an impartial third party to study the situation, explore new options, improve communication, and make recommendations for resolution of the differences. However, mediation cannot provide a legally binding settlement.

When a legally binding settlement is needed, the negotiators may submit to arbitration - a process in which an impartial referee listens to both sides and then makes a judgment by accepting one side's view. In compulsory arbitration, the parties are required by a government agency to submit to arbitration; in voluntary arbitration, the parties agree on their own to use arbitration to settle their differences.

Page Ref: 277 Difficulty: Difficult AACSB: Reflective Thinking Skills Chapter LO: 4 Course LO: Summarize the functions carried out by human resources Classification: Synthesis 97) Explain how unions use publicity campaigns to pressure management.

Answer: Labor can press its case by launching publicity campaigns, often called corporate campaigns, against the target company and various stakeholders and business partners affiliated with it. These campaigns might include initiating shareholder resolutions aimed at undermining management, recruiting celebrities to speak out against the company, creating Web sites and using social media to disseminate negative information about the company, sending investors alerts that question the firm's solvency, staging rallies during peak business hours, sending letters to charitable groups questioning executives' motives, alleging safety and health-code violations, and stimulating negative stories in the press.

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98) What are unfair labor practices? Provide examples.

Answer: Unlawful acts made by either unions or management are referred to as unfair labor practices.

The NLRB lists the following as examples of unfair practices by employers: (1) Threatening employees with termination or cuts in benefits if they vote for a union or engage in any other activity protected by the Wagner Act or other laws (2) Threatening to close a facility if employees vote for union representation (3) Interrogating employees about union sympathies or activities in ways that could "interfere with, restrain, or coerce" employees trying to exercise their legal rights (4) Responding to organizing campaigns by offering wage or benefit improvements as a way to thwart unionization efforts (5) Punishing employees for unionization activity by transferring them, giving them more difficult work assignments, or terminating them Page Ref: 279 Difficulty: Moderate Chapter LO: 5 Course LO: Summarize the functions carried out by human resources Classification: Concept 99) Do you think labor unions will survive in the long term? Frame arguments to support your claim.

Answer: Many think that unions have lost their significance in modern times. The long-term trend also has been against unions. Given the benefits that employees obtain through unionization, many would expect it to survive. Student answers will vary due to the nature of this question.

Page Ref: 281 Difficulty: Difficult AACSB: Reflective Thinking Skills Chapter LO: 6 Course LO: Summarize the functions carried out by human resources Classification: Synthesis 100) Explain the major changes that will take place if Employee Free Choice Act is enacted.

Answer: Employee Free Choice Act (EFCA), if enacted, would significantly alter the election provisions of the Wagner Act. Two of its most significant provisions are a new card check-only certification option, in which a union would be automatically certified if more than 50 percent of the affected employees signed authorization cards, and a requirement that new collective bargaining agreements be submitted to binding arbitration if agreement can't be reached after specified periods of negotiation and mediation.

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Business in Action, 6e (Bovee/Thill) Chapter 13 The Art and Science of Marketing 1) A developing country markets itself as a good destination of foreign investment. This would be an example of place marketing.

Answer: TRUE Explanation: Place marketing refers to the marketing efforts to attract people and organizations to a particular geographical area.

Page Ref: 291 Difficulty: Moderate Chapter LO: 1 Course LO: Explain the role of marketing in organizations Classification: Concept 2) Producers do not create needs, but they do try to shape your wants by exposing you to attractive choices.

Answer: TRUE Explanation: Producers do not create needs, but they do try to shape your wants by exposing you to attractive choices.

Page Ref: 291 Difficulty: Easy Chapter LO: 1 Course LO: Explain the role of marketing in organizations Classification: Concept 3) When a supermarket provides fresh, ready-to-eat dishes as an alternative to buying all of the ingredients needed to make dinner, it is creating place utility.

Answer: FALSE Explanation: Utility is the power of a good or service to satisfy a human need. Place utility refers to the convenience attached with place.

Page Ref: 292 Difficulty: Easy Chapter LO: 1 Course LO: Explain the role of marketing in organizations Classification: Concept 4) The sales concept is an approach to business management that stresses customer needs and wants, seeks long-term profitability, and integrates marketing with other functional units within the organization.

Answer: FALSE Explanation: The sales concept emphasizes building a business by generating as many sales transactions as possible.

Page Ref: 292 Difficulty: Easy Chapter LO: 1 Course LO: Explain the role of marketing in organizations Classification: Concept 1 .

5) Customer loyalty is one of the most significant goals of relationship marketing.

Answer: TRUE Explanation: Customer loyalty is one of the most significant goals of relationship marketing.

Page Ref: 293 Difficulty: Moderate Chapter LO: 1 Course LO: Explain the role of marketing in organizations Classification: Concept 6) A central element in the marketing concept is involving the customer as a partner in a mutually beneficial relationship rather than treating the customer as a passive recipient of products and promotional messages.

Answer: TRUE Explanation: A central element in the marketing concept is involving the customer as a partner in a mutually beneficial relationship rather than treating the customer as a passive recipient of products and promotional messages.

Page Ref: 294 Difficulty: Moderate Chapter LO: 2 Course LO: Explain the role of marketing in organizations Classification: Concept 7) Social commerce refers to a type of information system that captures, organizes, and capitalizes on all the interactions that a company has with its customers.

Answer: FALSE Explanation: Social commerce refers to the creation and sharing of product-related information among customers and potential customers.

Page Ref: 295 Difficulty: Easy Chapter LO: 2 Course LO: Explain the role of marketing in organizations Classification: Concept 8) Google Analytics helps online advertisers measure the effectiveness of specific search-term keywords and track the behavior of website visitors.

Answer: TRUE Explanation: Google Analytics helps online advertisers measure the effectiveness of specific search-term keywords and track the behavior of website visitors.

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9) Ethnographic research refers to research that measures brain activity while customers are viewing or interacting with product, Web site, or other elements.

Answer: FALSE Explanation: Ethnographic research is a branch of anthropology that studies people in their daily lives to learn about their needs, wants, and behaviors in real-life settings.

Page Ref: 296 Difficulty: Easy Chapter LO: 2 Course LO: Explain the role of marketing in organizations Classification: Concept 10) The launch of a product under real-world conditions but on a limited scale (such as in a single city), is a form of neuromarketing studies.

Answer: FALSE Explanation: The launch of a product under real-world conditions but on a limited scale (such as in a single city), is known as test marketing.

Page Ref: 296 Difficulty: Easy Chapter LO: 2 Course LO: Explain the role of marketing in organizations Classification: Concept 11) Many Web sites use stealth marketing, letting visitors sign up for specific content streams with the promise that they won't be bombarded with information they don't care about.

Answer: FALSE Explanation: Stealth marketing refers to the delivery of marketing messages to people who are not aware that they are being marketed to. These messages can be delivered by either acquaintances or strangers, depending on the technique.

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12) The U.S. Federal Trade Commission (FTC) and the Word of Mouth Marketing Association assert that stealth marketing techniques are deceptive because they don't give their targets the opportunity to raise their instinctive defenses against the persuasive powers of marketing messages.

Answer: TRUE Explanation: The U.S. Federal Trade Commission (FTC) and the Word of Mouth Marketing Association assert that stealth marketing techniques are deceptive because they don't give their targets the opportunity to raise their instinctive defenses against the persuasive powers of marketing messages.

Page Ref: 297 Difficulty: Moderate Chapter LO: 2 Course LO: Explain the role of marketing in organizations Classification: Concept 13) Organizational market is made up of individuals and families who buy goods and services for personal or household use.

Answer: FALSE Explanation: The organizational market is composed of companies and a variety of noncommercial institutions, from local school districts to the federal government.

Page Ref: 298 Difficulty: Easy Chapter LO: 3 Course LO: Explain the role of marketing in organizations Classification: Concept 14) Consumers make all kinds of decisions that are hard to explain by any rational means.

Answer: TRUE Explanation: Consumers make all kinds of decisions that are hard to explain by any rational means.

Page Ref: 299 Difficulty: Easy Chapter LO: 3 Course LO: Explain the role of marketing in organizations Classification: Concept 15) At one time or another, all consumers suffer from cognitive dissonance.

Answer: TRUE Explanation: At one time or another, all consumers suffer from cognitive dissonance, which occurs when one's beliefs and behaviors don't match.

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16) Aspirational groups are those to which consumers actually belong, such as families, networks of friends, clubs, and work groups.

Answer: FALSE Explanation: Membership groups are those to which consumers actually belong, such as families, networks of friends, clubs, and work groups.

Page Ref: 299 Difficulty: Easy Chapter LO: 3 Course LO: Explain the role of marketing in organizations Classification: Concept 17) The purchasing behavior of organizations is easier to understand than the purchasing behavior of consumers because it's more clearly driven by economics and influenced less by subconscious and emotional factors.

Answer: TRUE Explanation: The purchasing behavior of organizations is easier to understand than the purchasing behavior of consumers because it's more clearly driven by economics and influenced less by subconscious and emotional factors.

Page Ref: 299 Difficulty: Moderate Chapter LO: 3 Course LO: Explain the role of marketing in organizations Classification: Concept 18) Close relationships between buyers and sellers are not common in organizational purchasing.

Answer: FALSE Explanation: Close relationships between buyers and sellers are common in organizational purchasing. In some cases, employees of the seller even have offices inside the buyer's facility to promote close interaction.

Page Ref: 300 Difficulty: Easy Chapter LO: 3 Course LO: Explain the role of marketing in organizations Classification: Concept 19) Strategic marketing planning refers to the process of examining an organization's current marketing situation, assessing opportunities and setting objectives, and then developing a marketing strategy to reach those objectives.

Answer: TRUE Explanation: Strategic marketing planning refers to the process of examining an organization's current marketing situation, assessing opportunities and setting objectives, and then developing a marketing strategy to reach those objectives.

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20) Successful marketers try to identify sources of competitive advantage and areas that need improvement.

Answer: TRUE Explanation: Successful marketers try to identify sources of competitive advantage and areas that need improvement.

Page Ref: 302 Difficulty: Easy Chapter LO: 4 Course LO: Explain the role of marketing in organizations Classification: Concept 21) Market share can be defined by either number of units sold or by sales revenue.

Answer: TRUE Explanation: Market share refers to a firm's portion of the total sales in a market.

Page Ref: 302 Difficulty: Easy Chapter LO: 4 Course LO: Explain the role of marketing in organizations Classification: Concept 22) Concentrated marketing is the narrowest strategy of all market-coverage strategies, in which firms target a single location or even a single customer.

Answer: FALSE Explanation: Concentrated marketing focuses on only a single market segment. With this approach, a marketer acknowledges that various other market segments may exist but you choose to target just one.

Page Ref: 305 Difficulty: Moderate Chapter LO: 5 Course LO: Explain the role of marketing in organizations Classification: Concept 23) Customer lifetime value refers to the total potential revenue from each customer over a certain time span minus the cost of attracting and keeping that customer.

Answer: TRUE Explanation: Customer lifetime value refers to the total potential revenue from each customer over a certain time span minus the cost of attracting and keeping that customer.

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24) A firm's marketing mix consists of product, price, distribution, and customer communication.

Answer: TRUE Explanation: A firm's marketing mix consists of product, price, distribution, and customer communication.

Page Ref: 306 Difficulty: Easy Chapter LO: 6 Course LO: Explain the role of marketing in organizations Classification: Concept 25) The basic distinction between wholesalers and retailers is that retailers sell to other companies whereas wholesalers sell to individual consumers.

Answer: FALSE Explanation: The basic distinction between wholesalers and retailers is that wholesalers sell to businesses whereas retailers sell to individual consumers.

Page Ref: 308 Difficulty: Moderate Chapter LO: 6 Course LO: Explain the role of marketing in organizations Classification: Concept 26) Differences between a person's actual state and his or her ideal state is termed as ________.

A) cognition B) utility C) needs D) perception E) drive Answer: C Explanation: C) Needs refer to differences between a person's actual state and his or her ideal state; it provides the basic motivation to make a purchase.

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27) Wants differ from needs in that wants ________.

A) are more specific B) are independent of culture C) create demand for products D) are the focus of marketing efforts E) are independent of a person's experiences Answer: A Explanation: A) Your wants are based on your needs but are more specific. Producers do not create needs, but they do try to shape your wants by exposing you to attractive choices.

Page Ref: 291 Difficulty: Easy Chapter LO: 1 Course LO: Explain the role of marketing in organizations Classification: Concept 28) The advertising campaign for Fort Wayne, Indiana, is based on the slogan "Room for Dreams." The city uses this logo to attract businesses and visitors to the city; it also encourages Fort Wayne businesses to incorporate "Room for Dreams" into their marketing campaigns. This would be an example of ________ marketing.

A) cause-related B) guerrilla C) place D) ambush E) stealth Answer: C Explanation: C) Place marketing refers to marketing efforts to attract people and organizations to a particular geographical area product.

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29) ACZ Pharmaceuticals, an American multinational pharmaceutical corporation, conducts "HIV/AIDS Awareness" camps in various cities across the United States. The firm also uses this campaign to promote its latest range of drugs. In this example, ACZ Pharmaceuticals uses ________.

A) place marketing B) social commerce C) stealth marketing D) cause-related marketing E) diversification Answer: D Explanation: D) Cause-related marketing promotes a cause or a social issue - such as physical fitness, cancer awareness, environmental sustainability - while also promoting a company and its products.

Page Ref: 291 Difficulty: Moderate AACSB: Analytic Skills Chapter LO: 1 Course LO: Explain the role of marketing in organizations Classification: Application 30) The exchange of value between parties is referred to as a(n) ________.

A) emolument B) sale C) purchase D) transition E) transaction Answer: E Explanation: E) Transaction refers to an exchange of value between parties.

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31) When a manufacturer combines fabric, buttons, and zippers to create clothing, it creates ________.

A) time utility B) form utility C) place utility D) value utility E) possession utility Answer: B Explanation: B) When organizations change raw materials into finished goods, they are creating form utility desired by consumers. When supermarkets provide fresh, ready-to-eat dishes as an alternative to food ingredients, they are creating form utility.

Page Ref: 292 Difficulty: Moderate Chapter LO: 1 Course LO: Explain the role of marketing in organizations Classification: Concept 32) ________ utility is the benefit provided by making the company's products available where customers want to purchase them.

A) Form B) Possession C) Value D) Place E) Time Answer: D Explanation: D) Marketers try to make their products available when and where customers want to buy them, creating time utility and place utility. Coffee carts in office buildings and ATMs in shopping malls create place utility.

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33) Which of the following statements is true about the marketing concept?

A) It views the customer only as a target to be sold to.

B) It views the primary purpose of a business as making things.

C) It believes in building short-term relationships with customers.

D) It refers to the view that companies should respond to customers' needs.

E) It counts on customers to figure out which products they need and take the steps to find and purchase them.

Answer: D Explanation: D) Today's most successful companies tend to embrace the marketing concept, the idea that companies should respond to customers' needs and wants while seeking long-term profitability and coordinating their own marketing efforts to achieve the company's long-term goals.

Page Ref: 292; 293 Difficulty: Moderate Chapter LO: 1 Course LO: Explain the role of marketing in organizations Classification: Concept 34) KLM Inc., a textile manufacturing firm, has been supplying mesh fabric to Clarence Furnitures for one year. KLM Inc. is delayed by two days in delivering a scheduled batch of mesh fabric to Clarence Furnitures. The firm had met all its previous supply dates, and adhered to all the required quality standards. KLM Inc. follows a relationship marketing strategy. In keeping with this strategy, KLM Inc. is most likely to ________.

A) give Clarence Furnitures a 20% discount on the material supplied B) send an email to Clarence Furnitures informing them about the delay C) ask Clarence Furnitures for an extension on future supplies as well D) take disciplinary action against employees who were responsible for the delay E) make structural changes to enable the firm to detect and prevent such delays Answer: A Explanation: A) Relationship marketing involves a focus on developing and maintaining longterm relationships with customers, suppliers, and distribution partners for mutual benefit.

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35) ________ refers to the creation and sharing of product-related information among customers and potential customers.

A) Guerrilla marketing B) Cause-related marketing C) Vertical integration D) Social commerce E) Diversification Answer: D Explanation: D) Social commerce refers to the creation and sharing of product-related information among customers and potential customers. Social commerce can be enabled using blogs, wikis, user-generated content such as online videos or customer-created advertising, and other social media technologies.

Page Ref: 295 Difficulty: Easy Chapter LO: 2 Course LO: Explain the role of marketing in organizations Classification: Concept 36) Just Read, an online retailer of books, encourages users to write reviews of the books which they purchase and rate them. This allows potential customers to know more about the books offered for sale. In this example, Just Read uses which of the following strategies?

A) diversification B) product development C) social commerce D) market segmentation E) vertical integration Answer: C Explanation: C) Social commerce refers to the creation and sharing of product-related information among customers and potential customers.

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37) Chicago Music Academy, a private music school, uses online advertisement as a large part of its advertising campaign. The firm uses Google Analytics to measure the effectiveness of specific search-term keywords and track the behavior of website visitors. The firm uses this information to focus on the most productive marketing efforts. In this example, Chicago Music Academy uses ________.

A) stealth marketing B) product development C) marketing research D) market development E) diversification Answer: C Explanation: C) The process of gathering and analyzing market intelligence about customers, competitors, and related marketing issues through any combination of methods is known as marketing research.

Page Ref: 295 Difficulty: Difficult AACSB: Analytic Skills Chapter LO: 2 Course LO: Explain the role of marketing in organizations Classification: Application 38) The process of collecting, analyzing, and interpreting information about customers, competitors, and other related marketing issues is known as ________.

A) social commerce B) product development C) market development D) data mining E) marketing research Answer: E Explanation: E) The process of gathering and analyzing market intelligence about customers, competitors, and related marketing issues through any combination of methods is known as marketing research.

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39) Eight women, with children within the age range of 3 to 7 years, participated in a panel discussion conducted by the marketing department of Ecospace Beach Resorts, based in California. The facilitator asked the women what amenities they wanted in a resort when they go on a vacation. They were also asked to discuss which facilities made a resort more convenient for people with young children. In this example, Ecospace Beach Resorts uses which of the following methods?

A) survey B) ethnographic research study C) focus group D) process data collection E) neuromarketing study Answer: C Explanation: C) Focus groups involve a small number of people guided by a facilitator while being observed or recorded by researchers. Their real value is in uncovering issues that might require further study.

Page Ref: 296 Difficulty: Difficult AACSB: Analytic Skills Chapter LO: 2 Course LO: Explain the role of marketing in organizations Classification: Application 40) A research technique that measures the brain activity of customers while they are viewing or interacting with your company's products or brands is known as ________.

A) neuromarketing studies B) experiments C) psychoanalysis D) transactional analysis E) focus groups Answer: A Explanation: A) Neuromarketing studies refer to research that measures brain activity while customers are viewing or interacting with product, websites, or other elements.

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41) Studying people in their daily lives to learn about their needs, wants, and behaviors in reallife settings is called ________.

A) neuromarketing studies B) ethnographic research C) experiments D) focus groups E) process data collection Answer: B Explanation: B) Ethnographic research is a branch of anthropology that studies people in their daily lives to learn about their needs, wants, and behaviors in real-life settings.

Page Ref: 296 Difficulty: Easy Chapter LO: 2 Course LO: Explain the role of marketing in organizations Classification: Concept 42) Unlike surveys, focus groups ________.

A) require knowledge of statistical techniques B) are not designed to collect statistics that represent a larger group C) fail to uncover issues that might require further study D) are not used to probe deeper into issues E) study people in their daily lives to learn about their needs, wants, and behaviors in real-life settings Answer: B Explanation: B) Unlike surveys, interviews and focus groups are not designed to collect statistics that represent a larger group; their real value is in uncovering issues that might require further study.

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43) Bell & Rubio, a camera manufacturing company, hires actors in different cities to approach strangers and ask them to take their picture with a Bell & Rubio camera. The actors strike up conversations with people, tell them about the advantages of the camera, and encourage them to buy one for themselves without informing them that it's an advertising campaign. In this example, Bell & Rubio uses which of the following strategies?

A) social commerce B) data mining C) permission-based marketing D) stealth marketing E) projective techniques Answer: D Explanation: D) Stealth marketing involves attempting to promote products and services to customers who don't know they're being marketed to. A common stealth marketing technique is rewarding someone for promoting products to his or her friends without telling them it's a form of advertising.

Page Ref: 297 Difficulty: Difficult AACSB: Analytic Skills Chapter LO: 2 Course LO: Explain the role of marketing in organizations Classification: Application 44) An e-commerce website allows visitors to sign up for specific content streams with the promise that they won't be bombarded with information they don't care about. This is an example of ________.

A) stealth marketing B) social commerce C) permission-based marketing D) market development E) cause-related marketing Answer: C Explanation: C) Permission-based marketing refers to a marketing approach in which firms first ask permission to deliver messages to an audience and then promise to restrict their communication efforts to those subject areas in which audience members have expressed interest.

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45) Tension that exists when a person's beliefs don't match his or her behaviors is called ________.

A) cognitive dissonance B) anchoring C) hindsight bias D) self-serving bias E) fundamental attribution error Answer: A Explanation: A) Cognitive dissonance occurs when one's beliefs and behaviors don't match.

Page Ref: 299 Difficulty: Easy Chapter LO: 3 Course LO: Explain the role of marketing in organizations Classification: Concept 46) Buyer's remorse, in which one makes a purchase and then regrets doing so, is an example of ________.

A) anchoring B) hindsight bias C) self-serving bias D) fundamental attribution error E) cognitive dissonance Answer: E Explanation: E) Cognitive dissonance occurs when one's beliefs and behaviors don't match.

Page Ref: 299 Difficulty: Easy Chapter LO: 3 Course LO: Explain the role of marketing in organizations Classification: Concept 47) Before you decide to purchase a new laptop, you ask some friends and coworkers which model they have purchased and how pleased they are with its performance. This influence factor is known as ________.

A) socioeconomic level B) situational factors C) self-image D) culture E) reference groups Answer: E Explanation: E) Individuals are influenced by reference groups that provide information about product choices and establish values that they perceive as important. Reference groups can be either membership or aspirational.

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48) Consumer purchasing differs from organizational purchasing in that consumer purchasing ________.

A) is influenced more by subconscious and emotional factors B) follows a formal buying process C) has greater complexity in product usage D) involves a closer relationships between buyers and sellers E) has a greater emphasis on economic payback Answer: A Explanation: A) The purchasing behavior of organizations is easier to understand than the purchasing behavior of consumers because it's more clearly driven by economics and influenced less by subconscious and emotional factors.

Page Ref: 299 Difficulty: Moderate Chapter LO: 3 Course LO: Explain the role of marketing in organizations Classification: Concept 49) Which of the following statements is true about the consumer decision process?

A) Behavioral economics suggests that consumer behavior follows a completely rational process.

B) Cognitive dissonance refers to the delivery of marketing messages to people who are not aware that they are being marketed to.

C) Companies, government agencies, and other organizations that buy goods and services are a part of the consumer market.

D) Many consumers tend to believe that "you are what you buy," so they make or avoid choices that support their desired self-images.

E) Aspirational reference groups are those to which consumers actually belong, such as families, networks of friends, clubs, and work groups.

Answer: D Explanation: D) Many consumers tend to believe that "you are what you buy," so they make or avoid choices that support their desired self-images. Marketers capitalize on people's need to express their identity through their purchases by emphasizing the image value of goods and services.

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50) Organizational purchasing differs from consumer purchasing in that organizational purchasing ________.

A) is influenced more by subconscious and emotional factors B) usually involves closer relationships between buyers and sellers C) has lower complexity in product usage D) lacks a formal buying process E) is less clearly driven by economics Answer: B Explanation: B) Close relationships between buyers and sellers are common in organizational purchasing. In some cases, employees from the seller even have offices inside the buyer's facility to promote close interaction.

Page Ref: 300 Difficulty: Moderate Chapter LO: 3 Course LO: Explain the role of marketing in organizations Classification: Concept 51) ________ refers to the increase in the value of a product with the number of customers who use it.

A) Cognitive dissonance B) Possession utility C) Network effect D) Positioning E) Form utility Answer: C Explanation: C) The network effect, in which the value of a product increases with the number of customers who use it, can be a key decision driver for the organizational customer decision process.

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52) The process of examining an organization's current marketing situation, assessing opportunities and setting objectives, and then developing a marketing strategy to reach those objectives is called ________.

A) stealth marketing B) strategic marketing planning C) marketing research D) social commerce E) marketing concept Answer: B Explanation: B) The process of examining an organization's current marketing situation, assessing opportunities and setting objectives, and then developing a marketing strategy to reach those objectives is called strategic marketing planning. Companies often record the results of their planning efforts in a formal marketing plan.

Page Ref: 301 Difficulty: Easy Chapter LO: 4 Course LO: Explain the role of marketing in organizations Classification: Concept 53) ________ involves selling more of your existing products into the markets you already serve.

A) Product development B) Market development C) Diversification D) Market penetration E) Benchmarking Answer: D Explanation: D) Market penetration involves selling more of your existing products into the markets you already serve.

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54) Creating new goods and services for a firm's current markets is called ________.

A) market penetration B) product development C) market development D) diversification E) pure play Answer: B Explanation: B) Product development refers to creating new products for a firm's current markets.

Page Ref: 302 Difficulty: Easy Chapter LO: 4 Course LO: Explain the role of marketing in organizations Classification: Concept 55) Selling existing products to new markets is called ________.

A) market development B) product development C) market segmentation D) market penetration E) vertical integration Answer: A Explanation: A) Market development refers to selling existing products to new markets.

Page Ref: 302 Difficulty: Easy Chapter LO: 4 Course LO: Explain the role of marketing in organizations Classification: Concept 56) Creating new products for new markets is called ________.

A) market penetration B) vertical integration C) diversification D) horizontal integration E) decentralization Answer: C Explanation: C) Diversification refers to creating new products for new markets.

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57) Yummy Times, a canned soup manufacturing firm, uses advertisements that highlight new ways in which their customers can use Yummy Times canned soups, such as in casseroles or as sauces. The firm aims to get its existing customers to buy more of its products. This strategy is known as ________.

A) product development B) market development C) diversification D) benchmarking E) market penetration Answer: E Explanation: E) Market penetration involves selling more of your existing products into the markets you already serve.

Page Ref: 302 Difficulty: Difficult AACSB: Analytic Skills Chapter LO: 4 Course LO: Explain the role of marketing in organizations Classification: Application 58) Erikson Manufacturers, a firm that designs and manufactures fire, carbon monoxide, and heat detection and notification devices, has been selling its products to U.S. corporate firms for several years. After examining its current marketing condition, the firm decides to open sales offices in Italy and Germany to sell its existing products. The firm aims to gain market share in Europe. This strategy is known as ________.

A) product development B) market segmentation C) market penetration D) market development E) vertical integration Answer: D Explanation: D) Market development refers to selling existing products to new markets.

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59) Quick Bite is a hugely popular U.S. chain of drive-in fast food restaurants. After assessing the current marketing situation, the firm opens a coffeehouse in Japan. The coffeehouse has a classic style and relaxed atmosphere, which is completely different from the firm's Quick Bite outlets. In this example, the firm uses which of the following marketing strategies?

A) market penetration B) diversification C) vertical integration D) horizontal integration E) decentralization Answer: B Explanation: B) Diversification refers to creating new products for new markets.

Page Ref: 302 Difficulty: Difficult AACSB: Analytic Skills Chapter LO: 4 Course LO: Explain the role of marketing in organizations Classification: Application 60) Sterling Fashions, an apparel manufacturer, sells women's clothes and fashion apparel in it's stores across the U.S. and Canada. Following extensive market research, the firm decides to manufacture and sell women's footwear and designer handbags in its existing markets. In this example, Sterling Fashions uses which of the following strategies?

A) market penetration B) decentralization C) market development D) diversification E) product development Answer: E Explanation: E) Product development refers to creating new products for a firm's current markets.

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61) Market penetration differs from diversification in that market penetration ________.

A) involves division of a diverse market into smaller, relatively homogeneous groups B) involves selling more of the existing products in current target markets C) involves selling new products in existing markets D) involves a higher amount of risk E) involves selling existing products to new markets Answer: B Explanation: B) Market penetration involves selling more of your existing products into the markets you already serve, while diversification involves creating new products for new markets.

Page Ref: 302 Difficulty: Moderate Chapter LO: 4 Course LO: Explain the role of marketing in organizations Classification: Concept 62) High Fashion, a firm that manufactures and sells ready-to-wear fashion apparel in Chicago, becomes a very popular brand within a few years of its launch. After examining the current market situation, Fernanda Rhone, the owner of the firm, decides to pursue market opportunities through market development. Which of the following actions is she most likely to take based on this decision?

A) She offers discount coupons to her current market through a popular lifestyle magazine.

B) She opens another store in Cincinnati, which stocks the same ready-to-wear fashion apparel that she sells in Chicago.

C) She starts selling new home decor products such as quilts, wall hangings, and table cloths at her current fashion outlet in Chicago.

D) She opens a new home furnishing outlet in Cincinnati, which sells home furnishings and home decor items at affordable prices.

E) She changes the layout and decor of her current fashion outlet in Chicago, to make it more attractive and customer friendly.

Answer: B Explanation: B) Market development is selling your existing products to new markets.

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63) Grouping customers with similar characteristics, behaviors, and needs is known as ________.

A) a marketing mix B) market development C) social commerce D) market segmentation E) market penetration Answer: D Explanation: D) The division of a diverse market into smaller, relatively homogeneous groups with similar needs, wants, and purchase behaviors is known as market segmentation.

Page Ref: 304 Difficulty: Easy Chapter LO: 5 Course LO: Explain the role of marketing in organizations Classification: Concept 64) Lifestyle Apparels Inc., an international fashion and apparel manufacturing and selling company, divides its target market segment into groups based on the climatic conditions of the locations where the customers reside. This enables the firm to offer products that are suited to the climatic conditions of the place where the customers reside. In this example, Lifestyle Apparels Inc. uses which of the following strategies?

A) market development B) vertical integration C) market segmentation D) horizontal integration E) cause-related marketing Answer: C Explanation: C) The division of a diverse market into smaller, relatively homogeneous groups with similar needs, wants, and purchase behaviors is known as market segmentation.

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65) The study of the statistical characteristics of a population is called ________.

A) demographics B) psychographics C) behavioral segmentation D) anthropology E) ethnographic research Answer: A Explanation: A) Demographics refers to the study of statistical characteristics of a population.

Page Ref: 304 Difficulty: Easy Chapter LO: 5 Course LO: Explain the role of marketing in organizations Classification: Concept 66) ________ classifies people by focusing on why they behave the way they do by examining such issues as brand preferences, media preferences, values, attitudes, self-concept, and opinions.

A) Social commerce B) Demographics C) Geographic segmentation D) Psychographics E) Market penetration Answer: B Explanation: B) Psychographics refers to the classification of customers on the basis of their psychological makeup, interests, and lifestyles. Psychographic analysis focuses on why people behave the way they do by examining such issues as brand preferences, media preferences, values, self-concept, and behavior.

Page Ref: 304 Difficulty: Easy Chapter LO: 5 Course LO: Explain the role of marketing in organizations Classification: Concept 67) ________ refers to the categorization of customers according to their relationship with products or response to product characteristics.

A) Demographic segmentation B) Geographic segmentation C) Ethnographic segmentation D) Psychographic segmentation E) Behavioral segmentation Answer: E Explanation: E) Behavioral segmentation groups customers according to their relationship with products or response to product characteristics.

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68) Demographics differs from psychographics in that demographics ________.

A) involves analyzing customers' self-concept and behavior B) involves segmenting the market into geographic units C) involves grouping customers according to characteristics such as age, gender, and income D) involves grouping customers according to their relationship with products E) involves grouping customers according to their response to product characteristics Answer: C Explanation: C) When you segment a market using demographics you subdivide your customers according to characteristics such as age, gender, income, race, occupation, and ethnic group.

Psychographics refers to the classification of customers on the basis of their psychological makeup, interests, and lifestyles.

Page Ref: 304 Difficulty: Moderate Chapter LO: 5 Course LO: Explain the role of marketing in organizations Classification: Concept 69) When you segment a market using demographics, you subdivide your customers according to characteristics such as their ________.

A) attitudes B) lifestyles C) neighborhoods D) habits E) ethnic group Answer: E Explanation: E) When you segment a market using demographics, the statistical analysis of a population, you subdivide your customers according to characteristics such as age, gender, income, race, occupation, and ethnic group.

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70) When you segment a market using psychographics, you subdivide your customers according to characteristics such as their ________.

A) gender B) ethnic group C) self-concept D) counties E) occupation Answer: C Explanation: C) Psychographic analysis focuses on why people behave the way they do by examining such issues as brand preferences, media preferences, values, self-concept, and behavior.

Page Ref: 304 Difficulty: Easy Chapter LO: 5 Course LO: Explain the role of marketing in organizations Classification: Concept 71) Majestic Shoes Inc., an international shoes and footwear manufacturing firm, groups its customers according to the region in which they live. The firm markets its range of waterproof, cold-weather footwear in mountainous regions. In this example, Majestic Shoes Inc. uses which of the following targeting strategies?

A) demographic segmentation B) psychographic segmentation C) horizontal integration D) cause-related marketing E) geographic segmentation Answer: E Explanation: E) Geographic segmentation refers to the categorization of customers according to their geographical location.

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72) Which of the following can be cited as an example of geographic segmentation?

A) Affinity Bank, an international bank, issues Golden Eagle cards by invitation only to customers who spend more than $250,000 a year on their Affinity credit cards.

B) A luxury car company creates a hybrid line for consumers who are concerned about the environment.

C) Harley-Davidson offers a wide variety of motorcycles, and each model attempts to cater to a particular lifestyle.

D) P&G acquires the list of parents-to-be and showers them with samples of Pampers and other baby products to capture a share of their future purchases.

E) A toy manufacturing company launches a special line of Hispanic books, dolls, puppets, and toys for areas with high Hispanic habitation.

Answer: E Explanation: E) Geographic segmentation refers to the categorization of customers according to their geographical location.

Page Ref: 304 Difficulty: Difficult AACSB: Analytic Skills Chapter LO: 5 Course LO: Explain the role of marketing in organizations Classification: Application 73) Marks Inc., a company that manufactures carbonated soft drinks called Quick Drinks, classifies its target market based on the occasions that prompt customers to buy Quick Drinks, their frequency of purchasing the drinks, and their preference for the Quick Drinks brand. This data enables the firm to better market its products. In this example, Marks Inc. uses which of the following targeting strategies?

A) geographic segmentation B) demographic segmentation C) behavioral segmentation D) horizontal integration E) cause-related marketing Answer: C Explanation: C) Behavioral segmentation groups customers according to their relationship with products or response to product characteristics.

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74) A company ignores differences among buyers and offers only one product line and presents it with the same communication, pricing, and distribution strategies to all potential buyers. This company is most likely to be using which of the following targeting strategies?

A) mass marketing B) cause-related marketing C) individualized marketing D) micromarketing E) differentiated marketing Answer: A Explanation: A) Companies that practice undifferentiated marketing (also known as mass marketing) ignore differences among buyers and offer only one product or product line and present it with the same communication, pricing, and distribution strategies to all potential buyers.

Page Ref: 304 Difficulty: Easy Chapter LO: 5 Course LO: Explain the role of marketing in organizations Classification: Concept 75) Woodworks Inc., an American furniture manufacturing company, has stores across America that sell furniture. The firm offers the Fine Furnishings collection of residential furniture designed for the middle and upper middle income group segments. It offers a Platinum Collection of luxury furniture for high income groups. The firm also has a range of corporate office furniture that includes desks, chairs, filing cabinets, cubicles, and other office furniture.

Woodworks Inc. uses which of the following targeting strategies?

A) mass marketing B) differentiated marketing C) concentrated marketing D) individualized marketing E) niche marketing Answer: B Explanation: B) Companies that manufacture or sell a variety of products to several target customer groups practice differentiated marketing. It requires substantial resources because the company has to tailor products, prices, promotional efforts, and distribution arrangements for each customer group.

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76) Mass marketing differs from differentiated marketing in that mass marketing ________.

A) has one marketing mix for the entire market B) focuses on only a single market segment C) requires substantial resources D) sells a variety of products to several target customer groups E) targets a single location or even a single customer Answer: A Explanation: A) Companies that practice mass marketing offer only one product or product line and present it with the same communication, pricing, and distribution strategies to all potential buyers. By contrast, companies that manufacture or sell a variety of products to several target customer groups practice differentiated marketing.

Page Ref: 304; 305 Difficulty: Moderate Chapter LO: 5 Course LO: Explain the role of marketing in organizations Classification: Concept 77) Concentrated marketing differs from micromarketing in that concentrated marketing ________.

A) targets a single location or even a single customer B) focuses on only a single market segment C) ignores differences among buyers D) involves crafting entire marketing programs of products for an individual customer E) sells a variety of products to several target customer groups Answer: B Explanation: B) Concentrated marketing focuses on only a single market segment.

Micromarketing is the narrowest strategy of all, in which firms target a single location or even a single customer.

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78) Micromarketing differs from undifferentiated marketing in that micromarketing ________.

A) ignores differences among buyers B) focuses on only a single market segment C) has one marketing mix for the entire market D) sells a variety of products to several target customer groups E) targets a single location or even a single customer Answer: E Explanation: E) Companies that practice undifferentiated marketing offer only one product or product line and present it with the same communication, pricing, and distribution strategies to all potential buyers. Micromarketing is the narrowest strategy of all, in which firms target a single location or even a single customer.

Page Ref: 305 Difficulty: Moderate Chapter LO: 5 Course LO: Explain the role of marketing in organizations Classification: Concept 79) Solitaire Jewellers, a jewelry store in New York, sells custom-made jewelry. Customers are involved in the design process and can order one-of-a-kind jewels made of platinum, gold, and silver, as well as precious (diamonds, rubies, sapphires, emeralds) and semi-precious (tanzanite, etc.) gemstones. Every customer can order jewelry that is different from the friends of previous and future customers, and made to match their tastes. Solitaire Jewellers uses which of the following targeting strategies?

A) mass marketing B) differentiated marketing C) concentrated marketing D) micromarketing E) undifferentiated marketing Answer: D Explanation: D) Micromarketing, in which firms target a single location or even a single customer, can range from customizable products to major accounts sales teams that craft entire marketing programs for each of their largest customers.

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80) Which of the following is true about concentrated marketing?

A) It ignores differences among buyers.

B) It has the advantages of simplicity and economies of scale.

C) It allows a firm to focus all its time and resources on a single type of customer.

D) It refers to firms that use a different marketing mix for each marketing segment.

E) It refers to firms that use the same marketing mix for the entire market.

Answer: C Explanation: C) The biggest advantage of concentrated marketing is that it allows you to focus all your time and resources on a single type of customer.

Page Ref: 305 Difficulty: Moderate Chapter LO: 5 Course LO: Explain the role of marketing in organizations Classification: Concept 81) Amadillo Racing Automobiles Inc., a Detroit-based manufacturer of sports cars, makes automobiles of light weight and fine handling characteristics. The firm provides four brands of standardized racing cars. Although the firm is aware that there are other market segments, such as the small-car segment, the firm focuses its efforts only on racing cars. In this example, Amadillo Racing Automobiles Inc. uses which of the following targeting strategies?

A) undifferentiated marketing B) mass marketing C) micromarketing D) concentrated marketing E) differentiated marketing Answer: D Explanation: D) Concentrated marketing focuses on only a single market segment. With this approach, you acknowledge that various other market segments may exist but you choose to target just one.

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82) ________ refers to managing a business in a way designed to occupy a particular place in the minds of target customers.

A) Positioning B) Vertical integration C) Horizontal integration D) Decentralization E) Delayering Answer: A Explanation: A) Positioning is the process of designing a company's offerings, messages, and operating policies so that both the company and its products occupy distinct and desirable competitive positions in your target customers' minds.

Page Ref: 305 Difficulty: Moderate Chapter LO: 5 Course LO: Explain the role of marketing in organizations Classification: Concept 83) ________ consists of the four key elements of marketing strategy: product, price, distribution, and customer communication.

A) Positioning B) Marketing mix C) Social commerce D) Market development E) Product development Answer: B Explanation: B) A firm's marketing mix consists of product, price, distribution, and customer communication.

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84) Which of the following is true about the elements of marketing mix?

A) A firm's marketing mix consists of the combination of print, broadcast, online, and other media to be used in the promotion campaign.

B) Retailers sell to other companies, whereas wholesalers sell to individual consumers.

C) Customer communication consists of the organized network of firms and systems that move goods and services from the producer to the customer.

D) Channel decisions are independent of everything else in the marketing mix.

E) Price elasticity is a measure of how sensitive customers are to changes in price.

Answer: E Explanation: E) Products exhibit different levels of price elasticity, which is a measure of how sensitive customers are to changes in price.

Page Ref: 308 Difficulty: Moderate Chapter LO: 6 Course LO: Explain the role of marketing in organizations Classification: Concept 85) ________ is an element of marketing mix that refers to a wide variety of persuasive techniques used by companies to communicate with their target markets and the general public.

A) Distribution B) Promotion C) Decentralization D) Market segmentation E) Differentiation Answer: B Explanation: B) Promotion refers to a wide variety of persuasive techniques used by companies to communicate with their target markets and the general public.

Page Ref: 308 Difficulty: Easy Chapter LO: 6 Course LO: Explain the role of marketing in organizations Classification: Concept 86) Define marketing. Compare and contrast place marketing with cause-related marketing.

Answer: Marketing refers to the process of creating value for customers and building relationships with those customers in order to capture value back from them. In addition to goods and services, marketing applies to not-for-profit organizations, people, places, and causes. Place marketing describes efforts to market geographic areas ranging from neighborhoods to entire countries. Cause-related marketing promotes a cause or a social issue - such as physical fitness, cancer awareness, environmental sustainability - while also promoting a company and its products.

Page Ref: 291 Difficulty: Moderate AACSB: Reflective Thinking Skills Chapter LO: 1 Course LO: Explain the role of marketing in organizations Classification: Synthesis 35 .

87) Compare and contrast needs with wants.

Answer: Needs refers to differences between a person's actual state and his or her ideal state. As a consumer, you experience needs any time there are differences or gaps between your actual state and your ideal state. Needs provide the basic motivation to make a purchase. Your wants are based on your needs but are more specific. Wants refer to specific goods, services, experiences, or other entities that are desirable in light of a person's experiences, culture, and personality.

Page Ref: 291 Difficulty: Moderate AACSB: Reflective Thinking Skills Chapter LO: 1 Course LO: Explain the role of marketing in organizations Classification: Synthesis 88) Compare and contrast marketing concept with product and sales concept.

Answer: The product concept views the primary purpose of a business as making things, not satisfying customers. As markets evolved and competition heated up, the sales concept began to take over, which emphasizes building a business by generating as many sales transactions as possible. The customer features more prominently in the sales concept, but only as a target to be sold to, not as a partner in a mutually satisfying relationship.

In contrast, today's most successful companies tend to embrace the marketing concept, the idea that companies should respond to customers' needs and wants while seeking long-term profitability and coordinating their own marketing efforts to achieve the company's long-term goals. These customer-focused companies build their marketing strategies around the goal of long-term relationships with satisfied customers. The term relationship marketing is often applied to these efforts to distinguish them from efforts that emphasize production or sales transactions.

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89) Compare and contrast the influence of customer relationship management (CRM) systems on the marketing process with that of social commerce.

Answer: Two sets of technologies have helped foster communication and collaboration between companies and their customers.The first is customer relationship management (CRM) systems, which capture, organize, and capitalize on all the interactions that a company has with its customers, from marketing surveys and advertising through sales orders and customer support. A CRM system functions like an institutional memory for a company, allowing it to record and act on the information that is pertinent to each customer relationship.

CRM can be a powerful means to foster relationships, but to a certain degree, conventional CRM simply computerizes an existing way of doing business. A more dramatic step is enabling social commerce, using blogs, wikis, user-generated content such as online videos or customer-created advertising, and other social media technologies. These tools let customers communicate with companies, with each other, and with influences in the marketplace such as prominent bloggers and journalists.

Page Ref: 295 Difficulty: Difficult AACSB: Reflective Thinking Skills Chapter LO: 2 Course LO: Explain the role of marketing in organizations Classification: Synthesis 90) Compare and contrast surveys with interviews and focus groups.

Answer: Surveys refer to data collection efforts that measure responses from a representative subset of a larger group of people. They can be conducted in person, over the phone, by mail or email, or online. Designing and conducting a meaningful survey requires thorough knowledge of statistical techniques, such as sampling, to ensure valid results that truly represent the larger group. For this reason, many of the simple surveys that you see online these days do not produce statistically valid results.

One-on-one or group discussions try to probe deeper into issues than a survey typically does.

Focus groups involve a small number of people guided by a facilitator while being observed or recorded by researchers. Unlike surveys, interviews and focus groups are not designed to collect statistics that represent a larger group; their real value is in uncovering issues that might require further study.

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91) Discuss the implications of stealth marketing for business communication transparency.

Answer: The widespread adoption of social media has increased the attention given to transparency which, in the context of marketing, refers to a sense of openness, of giving all participants in a conversation access to the information they need to accurately process the messages they are receiving. A key aspect of transparency is knowing who is behind the messages one receives.

A major issue in business communication transparency is stealth marketing, which involves attempting to promote products and services to customers who don't know they're being marketed to. A common stealth marketing technique is rewarding someone for promoting products to his or her friends without telling them it's a form of advertising. Critics - including the U.S. Federal Trade Commission (FTC) and the Word of Mouth Marketing Association assert that such techniques are deceptive because they don't give their targets the opportunity to raise their instinctive defenses against the persuasive powers of marketing messages.

Page Ref: 297 Difficulty: Moderate Chapter LO: 2 Course LO: Explain the role of marketing in organizations Classification: Concept 92) Compare and contrast consumer market with organizational market.

Answer: Consumer market is made up of individuals and families who buy for personal or household use, and the organizational market is composed of companies and a variety of noncommercial institutions, from local school districts to the federal government. Classical economic theory suggests that consumers follow a largely rational process of recognizing a need, searching for information, evaluating alternatives, making a purchase, and evaluating the product after use or consumption. However, recent research into behavioral economics and consumer psychology suggests that many consumer purchases are far less rational. Much of this decision making happens subconsciously and is driven, to a large degree, by emotion, culture, and situational factors. The purchasing behavior of organizations is easier to understand than the purchasing behavior of consumers because it's more clearly driven by economics and influenced less by subconscious and emotional factors. The most significant ways in which organizational purchasing differs from consumer purchasing are an emphasis on economic payback, a formal buying process, greater complexity in product usage, the participation and influence of multiple people, and close relationships between buyers and sellers.

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93) What is cognitive dissonance?

Answer: Cognitive dissonance refers to the tension that exists when a person's beliefs don't match his or her behaviors; a common example is buyer's remorse, when someone regrets a purchase immediately after making it. At one time or another, all consumers suffer from cognitive dissonance.

Page Ref: 299 Difficulty: Moderate Chapter LO: 4 Course LO: Explain the role of marketing in organizations Classification: Concept 94) What are the steps involved in strategic marketing planning?

Answer: Strategic marketing planning involves three steps: (1) examining the current marketing situation (including past performance, competition, internal strengths and weaknesses, and the external environment); (2) assessing market opportunities and setting marketing objectives; and (3) developing a marketing strategy to reach those objectives.

Page Ref: 301 Difficulty: Easy Chapter LO: 4 Course LO: Explain the role of marketing in organizations Classification: Concept 95) Compare and contrast market penetration with diversification.

Answer: Market penetration involves selling more of a firms existing products into the markets it already serves. Diversification refers to creating new products for new markets. Market penetration can be the least risky because your products already exist and the market has already demonstrated some level of demand for your products. However, diversification has high levels of risk. It involves creating new products for new markets which is usually the riskiest choice of all because you encounter uncertainties in both products and market dimensions.

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96) Compare and contrast product development with market development. Explain using an example.

Answer: Product development refers to creating new products for a firm's current markets.

Herbal Care, a cosmetics manufacturing company based in the United States, decides to introduce a new range of shampoos and hair conditioners for its existing target customer group.

This is an example of product development.

Market development involves selling existing products to new markets. Amtech Systems, a financial software manufacturing firm, sells its products in the United States. Based on its huge success, the firm decides to sell its existing products in Britain and France as well. In this example, Amtech Systems uses the market development strategy.

Page Ref: 302 Difficulty: Difficult AACSB: Reflective Thinking Skills Chapter LO: 4 Course LO: Explain the role of marketing in organizations Classification: Synthesis 97) What is market segmentation. List the four fundamental factors marketers use to identify market segments.

Answer: Market segmentation refers to the division of a diverse market into smaller, relatively homogeneous groups with similar needs, wants, and purchase behaviors. The overall goal of market segmentation is to understand why and how certain customers buy what they buy so that you use your finite resources to create and market products in the most efficient manner possible.

Four fundamental factors marketers use to identify market segments are demographics, psychographics, geography, and behavior.

Page Ref: 304 Difficulty: Moderate Chapter LO: 5 Classification: Concept 98) Compare and contrast undifferentiated marketing with differentiated marketing.

Answer: Companies that practice undifferentiated marketing (also known as mass marketing ) ignore differences among buyers and offer only one product or product line and present it with the same communication, pricing, and distribution strategies to all potential buyers.

Undifferentiated marketing has the advantages of simplicity and economies of scale, but it can be less effective at reaching some portions of the market.

By contrast, companies that manufacture or sell a variety of products to several target customer groups practice differentiated marketing. Differentiated marketing is a popular strategy, but it requires substantial resources because the company has to tailor products, prices, promotional efforts, and distribution arrangements for each customer group. The differentiation should be based on meaningful differences that don't alienate any audiences.

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99) Compare and contrast concentrated marketing with micromarketing.

Answer: Concentrated marketing focuses on only a single market segment. With this approach, you acknowledge that various other market segments may exist but you choose to target just one.

The biggest advantage of concentrated marketing is that it allows you to focus all your time and resources on a single type of customer. The strategy can be risky, however, because you've staked your fortunes on just one segment.

Micromarketing, or individualized marketing, is the narrowest strategy of all, in which firms target a single location or even a single customer. This approach can range from customizable products to major accounts sales teams that craft entire marketing programs for each of their largest customers.

Page Ref: 305 Difficulty: Moderate AACSB: Reflective Thinking Skills Chapter LO: 5 Course LO: Explain the role of marketing in organizations Classification: Synthesis 100) What is marketing mix? Discuss the four main components of the marketing mix.

Answer: The marketing mix consists of four key elements of marketing strategy: the products a company offers to potential buyers, the price it asks in return, its methods of distributing those products to customers, and the various efforts it makes to communicate with customers before and after the sale. Products are goods, services, persons, places, ideas, organizations, or anything else offered for the purpose of satisfying a want or need in a marketing exchange. Price is the amount of money customers pay for the product. Distribution is the organized network of firms that move the goods and services from the producer to the customer. Customer communication involves the activities used to communicate with and promote products to target markets.

Page Ref: 306; 307; 308 Difficulty: Easy Chapter LO: 6 Course LO: Explain the role of marketing in organizations Classification: Concept

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Business in Action, 6e (Bovee/Thill) Chapter 14 Product and Pricing Strategies 1) Providing education in return of fees is an example of a service.

Answer: TRUE Explanation: Products contain both tangible and intangible components. Predominantly intangible products are categorized as services. Education is predominantly intangible.

Page Ref: 315 Difficulty: Moderate Chapter LO: 1 Course LO: Describe the major components of effective distribution Classification: Concept 2) Shopping products are particular brands that the buyer especially wants and will seek out, regardless of location or price.

Answer: FALSE Explanation: Particular brands that the buyer especially wants and will seek out, regardless of location or price, are called specialty products. Buyers perform comparison shopping for shopping goods.

Page Ref: 316 Difficulty: Easy Chapter LO: 1 Course LO: Describe the major components of effective distribution Classification: Concept 3) Food grains and wheat are examples of shopping products.

Answer: FALSE Explanation: Shopping products are fairly important goods and services that people buy less frequently with more planning and comparison. Food grains and wheat are not shopping products. They are convenience products.

Page Ref: 316 Difficulty: Moderate Chapter LO: 1 Course LO: Describe the major components of effective distribution Classification: Concept 4) Expense items are inexpensive products that organizations generally use within a year of purchase.

Answer: TRUE Explanation: Expense items are inexpensive products that organizations generally use within a year of purchase. They include such products as printer cartridges and paper.

Page Ref: 317 Difficulty: Easy Chapter LO: 1 Course LO: Describe the major components of effective distribution Classification: Concept 1 .

5) Capital items are less expensive than expense items.

Answer: FALSE Explanation: Capital items are more expensive products than expensive items and have a longer useful life.

Page Ref: 317 Difficulty: Moderate Chapter LO: 1 Course LO: Describe the major components of effective distribution Classification: Concept 6) A software firm buys 250 personal computers for a new facility that it is opening. This is an example of an expense item.

Answer: FALSE Explanation: Expense items are inexpensive products that organizations generally use within a year of purchase. The computers that the firm bought are considered capital items.

Page Ref: 317 Difficulty: Moderate AACSB: Analytic Skills Chapter LO: 1 Course LO: Describe the major components of effective distribution Classification: Application 7) Product life cycle refers to the four stages through which a product progresses.

Answer: TRUE Explanation: Product life cycle refers to the four stages through which a product progresses. The stages are introduction, growth, maturity, and decline.

Page Ref: 317 Difficulty: Easy Chapter LO: 1 Course LO: Describe the major components of effective distribution Classification: Concept 8) Crowdsourcing is a technique that companies use to generate new product ideas.

Answer: TRUE Explanation: Crowdsourcing refers to inviting the public to submit ideas or product designs.

This technique is used for idea generation.

Page Ref: 319 Difficulty: Easy Chapter LO: 2 Course LO: Describe the major components of effective distribution Classification: Concept

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9) Prototypes are diagrammatic representations of a business model.

Answer: FALSE Explanation: Prototypes are preproduction samples of products used for testing and evaluation.

Page Ref: 320 Difficulty: Easy Chapter LO: 2 Course LO: Describe the major components of effective distribution Classification: Concept 10) Commercialization refers to the large-scale production and distribution of products that have survived the testing process.

Answer: TRUE Explanation: The final stage of development is commercialization, the large-scale production and distribution of products that have survived the testing process.

Page Ref: 321 Difficulty: Easy Chapter LO: 2 Course LO: Describe the major components of effective distribution Classification: Concept 11) Target customers are familiar with a brand and are likely to consider buying it. This brand has high brand preference.

Answer: FALSE Explanation: Brand preference means people will purchase the product if it is available, although they may still be willing to experiment. The given situation exemplifies brand awareness rather than brand preference.

Page Ref: 322 Difficulty: Moderate AACSB: Analytic Skills Chapter LO: 3 Course LO: Describe the major components of effective distribution Classification: Application 12) A logo is a graphical or textual representation of a brand.

Answer: TRUE Explanation: A logo is a graphical and/or textual representation of a brand. It is considered a nonverbal brand mark.

Page Ref: 322 Difficulty: Easy Chapter LO: 3 Course LO: Describe the major components of effective distribution Classification: Concept

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13) A product carrying the label of a wholesaler is an example of a private brand.

Answer: TRUE Explanation: Private brands are brands that carry the label of a retailer or a wholesaler rather than a manufacturer.

Page Ref: 322 Difficulty: Moderate Chapter LO: 3 Course LO: Describe the major components of effective distribution Classification: Concept 14) License is an agreement to produce and market another company's product in exchange for a royalty or fee.

Answer: TRUE Explanation: License is an agreement to produce and market another company's product in exchange for a royalty or fee.

Page Ref: 323 Difficulty: Easy Chapter LO: 3 Course LO: Describe the major components of effective distribution Classification: Concept 15) A product line comprises all products from a single manufacturer.

Answer: FALSE Explanation: Product line is a series of related products offered by a firm. It may not comprise all products of a firm.

Page Ref: 325 Difficulty: Moderate Chapter LO: 4 Course LO: Describe the major components of effective distribution Classification: Concept 16) Product mix is a complete list of all products that a company offers for sale.

Answer: TRUE Explanation: Product mix is a complete list of all products that a company offers for sale.

Page Ref: 325 Difficulty: Easy Chapter LO: 4 Course LO: Describe the major components of effective distribution Classification: Concept

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17) Creating variations of an existing product is referred to as line stretching.

Answer: FALSE Explanation: Line stretching refers to adding items with price points above or below the current product line. Creating variations of an existing product is referred to as line extension.

Page Ref: 326 Difficulty: Easy Chapter LO: 4 Course LO: Describe the major components of effective distribution Classification: Concept 18) A firm uses the brand of an existing product on a new product in a different new category.

This is an example of line filling.

Answer: FALSE Explanation: Line filling refers to developing items to fill gaps in the market that have been overlooked by competitors or have emerged as consumer tastes and needs shift. The given situation is an example of brand extension rather than line filling.

Page Ref: 326 Difficulty: Moderate AACSB: Analytic Skills Chapter LO: 4 Course LO: Describe the major components of effective distribution Classification: Application 19) Price elasticity is a measure of the sensitivity of demand to changes in price.

Answer: TRUE Explanation: Price elasticity is a measure of the sensitivity of demand to changes in price.

Page Ref: 328 Difficulty: Easy Chapter LO: 5 Course LO: Discuss strategies for setting and adjusting prices Classification: Concept 20) Variable costs are not dependent on the magnitude of production.

Answer: FALSE Explanation: Variable costs are business costs that increase with the number of units produced.

They are dependent on the magniude of production.

Page Ref: 329 Difficulty: Moderate Chapter LO: 5 Course LO: Discuss strategies for setting and adjusting prices Classification: Concept

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21) Break-even point refers to the sales volume at a given price that will cover all of a company's costs.

Answer: TRUE Explanation: Break-even point refers to the sales volume at a given price that will cover all of a company's costs.

Page Ref: 329 Difficulty: Easy Chapter LO: 5 Course LO: Discuss strategies for setting and adjusting prices Classification: Concept 22) Optimal pricing is a computer-based pricing method.

Answer: TRUE Explanation: Optimal pricing is a computer-based pricing method that creates a demand curve for every product to help managers select a price that meets specific marketing objectives.

Page Ref: 332 Difficulty: Easy Chapter LO: 6 Course LO: Discuss strategies for setting and adjusting prices Classification: Concept 23) Skim pricing refers to introducing a new product at a low price in hopes of building sales volume quickly.

Answer: FALSE Explanation: Skim pricing refers to charging a high price for a new product during the introductory stage and lowering the price later.

Page Ref: 332 Difficulty: Easy Chapter LO: 6 Course LO: Discuss strategies for setting and adjusting prices Classification: Concept 24) Participative pricing allows customers to pay the amount they think a product is worth.

Answer: TRUE Explanation: Participative pricing allows customers to pay the amount they think a product is worth.

Page Ref: 334 Difficulty: Easy Chapter LO: 6 Course LO: Discuss strategies for setting and adjusting prices Classification: Concept

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25) Dynamic pricing refers to offering temporary price reductions to stimulate sales.

Answer: FALSE Explanation: Temporary price reductions that stimulate sales are called discounts. Dynamic pricing refers to continually adjusting prices to reflect changes in supply and demand.

Page Ref: 334 Difficulty: Easy Chapter LO: 6 Course LO: Discuss strategies for setting and adjusting prices Classification: Concept 26) Which of the following is the best example of a good?

A) e-learning storyboard B) digital music C) air travel D) life insurance E) a pair of shoes Answer: E Explanation: E) Products contain both tangible and intangible components. Predominantly tangible products are categorized as goods, whereas predominantly intangible products are categorized as services. Most tangible of the given set of products is a pair of shoes.

Page Ref: 315 Difficulty: Moderate Chapter LO: 1 Course LO: Describe the major components of effective distribution Classification: Concept 27) A product is called a good if ________.

A) its price is below the market standards B) it is predominantly tangible C) it has been standardized D) it is sold directly to the end consumers E) its price is above the market standards Answer: B Explanation: B) Products contain both tangible and intangible components. Predominantly tangible products are categorized as goods, whereas predominantly intangible products are categorized as services.

Page Ref: 315 Difficulty: Easy Chapter LO: 1 Course LO: Describe the major components of effective distribution Classification: Concept

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28) ________ are everyday individual goods and services that people buy frequently without much conscious planning.

A) Convenience products B) Shopping products C) Expense items D) Capital items E) Specialty products Answer: A Explanation: A) Everyday goods and services that people buy frequently, usually without much conscious planning, are known as convenience products.

Page Ref: 316 Difficulty: Easy Chapter LO: 1 Course LO: Describe the major components of effective distribution Classification: Concept 29) Jennifer buys such items as bread, flour, and beverages every week from nearby shops.

These items are examples of a(n) ________.

A) shopping product B) expense item C) capital item D) specialty product E) convenience product Answer: E Explanation: E) Everyday goods and services that people buy frequently, usually without much conscious planning, are known as convenience products.

Page Ref: 316 Difficulty: Difficult AACSB: Analytic Skills Chapter LO: 1 Course LO: Describe the major components of effective distribution Classification: Application 30) ________ are fairly important individual goods and services that people buy less frequently.

A) Convenience products B) Expense items C) Specialty products D) Capital items E) Shopping products Answer: E Explanation: E) Shopping products are fairly important goods and services that people buy less frequently, such as computers and college educations.

Page Ref: 316 Difficulty: Easy Chapter LO: 1 Course LO: Describe the major components of effective distribution Classification: Concept 8 .

31) John decides to buy a new car. He compares many products and considers such aspects as fuel efficiency, power, and size before finalizing a model. In this case, the new car is an example of a(n) ________.

A) convenience product B) expense item C) specialty product D) capital item E) shopping product Answer: E Explanation: E) Shopping products are fairly important goods and services that people buy less frequently, such as computers and college educations. A car is a shopping product in this case.

Shopping products require comparison shopping.

Page Ref: 316 Difficulty: Difficult AACSB: Analytic Skills Chapter LO: 1 Course LO: Describe the major components of effective distribution Classification: Application 32) ________ are particular brands that the buyer especially wants and will seek out.

A) Specialty products B) Expense items C) Capital items D) Convenience products E) Shopping products Answer: A Explanation: A) Specialty products are particular brands that the buyer especially wants and will seek out, regardless of location or price, such as Suzuki violin lessons or Bang & Olufsen home entertainment gear.

Page Ref: 316 Difficulty: Easy Chapter LO: 1 Course LO: Describe the major components of effective distribution Classification: Concept

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33) Expense items are ________.

A) fairly important goods and services that people buy less frequently B) everyday goods and services that individuals buy C) inexpensive products that organizations generally use D) expensive organizational products with a longer useful life E) particular brands that the buyer especially wants and will seek out Answer: C Explanation: C) Expense items are relatively inexpensive organizational goods that are generally used within a year of purchase, such as printer cartridges and paper.

Page Ref: 317 Difficulty: Easy Chapter LO: 1 Course LO: Describe the major components of effective distribution Classification: Concept 34) Charles is the purchase agent for a consulting firm. He places orders for office stationeries and consumables once in two weeks. The purchases are made in large quantities and are billed in the firm's name. The items that Charles buys are examples of ________.

A) specialty products B) expense items C) capital items D) shopping products E) convenience products Answer: B Explanation: B) Expense items are relatively inexpensive organizational goods that are generally used within a year of purchase, such as printer cartridges and paper.

Page Ref: 317 Difficulty: Difficult AACSB: Analytic Skills Chapter LO: 1 Course LO: Describe the major components of effective distribution Classification: Application 35) ________ are expensive organizational products with a long useful life.

A) Shopping products B) Capital items C) Expense items D) Specialty products E) Convenience products Answer: B Explanation: B) Capital items are expensive organizational products with a long useful life, ranging from office and plant equipment to entire factories.

Page Ref: 317 Difficulty: Easy Chapter LO: 1 Course LO: Describe the major components of effective distribution Classification: Concept 10 .

36) Five college graduates decide to open a laundry service company. They import six commercial washing machines from Italy to set up a factory. In this case the commercial washing machines are best referred to as a(n) ________.

A) capital item B) shopping product C) expense item D) convenience product E) specialty product Answer: A Explanation: A) Capital items are expensive organizational products with a long useful life, ranging from office and plant equipment to entire factories. In this case, the graduates are buying the machines as a long-term capital investment.

Page Ref: 317 Difficulty: Difficult AACSB: Analytic Skills Chapter LO: 1 Course LO: Describe the major components of effective distribution Classification: Application 37) Research and development is carried out usually during the ________ stage of product development.

A) maturity B) introduction C) growth D) saturation E) intensification Answer: B Explanation: B) The first stage in the product life cycle is the introductory stage, which extends from the research-and-development (R&D) phase through the product's first commercial availability.

Page Ref: 318 Difficulty: Easy Chapter LO: 1 Course LO: Describe the major components of effective distribution Classification: Concept

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38) Absco computers introduced a low cost, cloud-based storage service. The company adopted a unit-based pricing for the product and many small businesses found the product to be very effective in reducing their storage costs. The sale of the product has increased swiftly in the recent months and is at an all time high. The product is presently in the ________ stage of product lifecycle.

A) maturity B) growth C) saturation D) research E) introduction Answer: B Explanation: B) After the introductory stage comes the growth stage, marked by a rapid jump in sales - if the product is successful - and, usually, an increase in the number of competitors and distribution outlets.

Page Ref: 318 Difficulty: Difficult AACSB: Analytic Skills Chapter LO: 1 Course LO: Describe the major components of effective distribution Classification: Application 39) The introductory stage will be followed by a ________ stage for a successful product.

A) maturity B) research C) saturation D) growth E) infiltration Answer: D Explanation: D) After the introductory stage comes the growth stage, marked by a rapid jump in sales - if the product is successful - and, usually, an increase in the number of competitors and distribution outlets.

Page Ref: 318 Difficulty: Easy Chapter LO: 1 Course LO: Describe the major components of effective distribution Classification: Concept

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40) The maturity stage of product lifecycle is ________.

A) a stage where a product's price is at a high level B) usually the shortest stage in a product's lifetime C) characterized by steep decline in profits D) typically followed by a growth stage E) a stage where firms have to win sales away from others Answer: E Explanation: E) During the maturity stage, markets tend to get saturated with all the supply that buyers demand, so the only way a firm can expand its sales in this phase is to win sales away from other suppliers.

Page Ref: 318 Difficulty: Moderate Chapter LO: 1 Course LO: Describe the major components of effective distribution Classification: Concept 41) An organization decides to use crowdsourcing in its new-product development process.

Crowdsourcing will be used during the ________ stage of product development.

A) business analysis B) idea generation C) idea screening D) test marketing E) commercialization Answer: B Explanation: B) Crowdsourcing refers to inviting the public to submit ideas or product designs.

It is often used during the idea generation step in new product development.

Page Ref: 319 Difficulty: Moderate Chapter LO: 2 Course LO: Describe the major components of effective distribution Classification: Concept 42) People who monitor social media to spot shifts in consumer tastes are called ________.

A) social arbitrators B) trend watchers C) crowd pullers D) social developers E) social programmers Answer: B Explanation: B) Companies hire trend watchers, people who can monitor social media to spot shifts in consumer tastes. They are often used as a source to generate ideas.

Page Ref: 319 Difficulty: Easy Chapter LO: 2 Course LO: Describe the major components of effective distribution Classification: Concept 13 .

43) Indoxo Autoparts is a company that manufactures automobile accessories. The company is considering the manufacture of a special type of helmet that helps reduce hair loss. The company conducts an online survey to know what customers think of this idea. This process of validating ideas through customers is known as ________.

A) business analysis B) beta testing C) test marketing D) concept testing E) prototyping Answer: D Explanation: D) In some cases, potential customers are asked what they think of a new product idea. This process is known as concept testing.

Page Ref: 320 Difficulty: Difficult AACSB: Analytic Skills Chapter LO: 2 Course LO: Describe the major components of effective distribution Classification: Application 44) During the business analysis stage, a company ________.

A) sells the product on a limited basis to gauge its market appeal B) invests significantly in research and development C) reviews the sales, costs, and profit projections D) screens the business ideas that it has generated E) generates a wide variety of ideas to introduce a new product Answer: C Explanation: C) During the business analysis stage, a company reviews the sales, costs, and profit projections to determine whether they meet the company's objectives.

Page Ref: 320 Difficulty: Moderate Chapter LO: 2 Course LO: Describe the major components of effective distribution Classification: Concept

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45) Prototypes are ________.

A) layouts used in the design of a product B) analysts who screen product ideas C) tools used to design a new product D) preproduction samples of products E) networks used in the commercialization of products Answer: D Explanation: D) Prototypes are preproduction samples of products used for testing and evaluation.

Page Ref: 320 Difficulty: Easy Chapter LO: 2 Course LO: Describe the major components of effective distribution Classification: Concept 46) Goblo Chemicals is a Japanese drug manufacturer. The company has spent a considerable amount in R&D to invent a drug that fosters weight loss. The company has tested the product inhouse and has now sold the product to a selected group of customers to gauge its demand. The company is in the ________ stage of product development now.

A) idea screening B) business analysis C) commercialization D) idea generation E) test marketing Answer: E Explanation: E) Test marketing is a product development stage in which a product is sold on a limited basis to gauge its market appeal. Goblo Chemicals is conducting a test marketing in this case.

Page Ref: 320 Difficulty: Difficult AACSB: Analytic Skills Chapter LO: 2 Course LO: Describe the major components of effective distribution Classification: Application

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47) ________ is a product development stage in which a product is sold on a limited basis to gauge its market appeal.

A) Business analysis B) Test marketing C) Crowdsourcing D) Prototyping E) Commercialization Answer: B Explanation: B) During test marketing, a firm introduces the product in selected markets and monitors consumer reactions. It is a product development stage in which a product is sold on a limited basis to gauge its market appeal.

Page Ref: 320 Difficulty: Easy Chapter LO: 2 Course LO: Describe the major components of effective distribution Classification: Concept 48) A survey revealed that a product has good brand awareness. This means that ________.

A) buyers will not accept substitutes of the brand B) the brand does not have many substitutes C) people are familiar with the brand D) the brand represents a specialty product E) majority considered the brand as a preferred one Answer: C Explanation: C) The first level of brand loyalty is brand awareness. It means that people are more likely to buy a product because they are familiar with it.

Page Ref: 322 Difficulty: Moderate Chapter LO: 3 Course LO: Describe the major components of effective distribution Classification: Concept 49) Brand preference means that people ________.

A) are not willing to accept substitutes for the product B) will purchase the product if it is available C) are willing to wait long for the product D) are not willing to experiment with other brands E) will buy the product only if it is availed in small numbers Answer: B Explanation: B) Brand preference means people will purchase the product if it is available, although they may still be willing to experiment with alternatives if they cannot find the preferred brand.

Page Ref: 322 Difficulty: Easy Chapter LO: 3 Course LO: Describe the major components of effective distribution Classification: Concept 16 .

50) ________ refers to a stage at which buyers will not accept a substitute for the product.

A) Brand insistence B) Brand preference C) Brand saturation D) Brand awareness E) Brand knowledge Answer: A Explanation: A) Brand insistence is a stage at which buyers will accept no substitute. This is a deep level of meaning to loyal consumers.

Page Ref: 322 Difficulty: Easy Chapter LO: 3 Course LO: Describe the major components of effective distribution Classification: Concept 51) Which of the following refers to a graphical representation of a brand?

A) brand equity B) brand name C) trademark D) logo E) prototype Answer: D Explanation: D) A graphical representation of a brand is called a logo. The logo can also be a textual representation.

Page Ref: 322 Difficulty: Easy Chapter LO: 3 Course LO: Describe the major components of effective distribution Classification: Concept 52) ________ refer to brands that have been given legal protection so that their owners have exclusive rights to their use.

A) Brand equities B) Prototypes C) Licenses D) Trademarks E) Brand marks Answer: D Explanation: D) Trademarks are brands that have been given legal protection so that their owners have exclusive rights to their use. Brands can be registered as trademarks with the Patent and Trademark Office.

Page Ref: 322 Difficulty: Easy Chapter LO: 3 Course LO: Describe the major components of effective distribution Classification: Concept 17 .

53) Co-branding is ________.

A) a legal protection given to owners for exclusive rights to the use of brands B) a partnership to closely link brand names for a single product C) the process of selling a famous brand to a third party D) a method of testing and evaluating a new product E) an agreement to produce and market another company's product Answer: B Explanation: B) Co-branding is a partnership between two or more companies to closely link their brand names together for a single product.

Page Ref: 323 Difficulty: Easy Chapter LO: 3 Course LO: Describe the major components of effective distribution Classification: Concept 54) ________ is an agreement to produce and market another company's product in exchange for a royalty or fee.

A) Trademark B) License C) Patent D) Copyright E) Co-branding Answer: B Explanation: B) License is an agreement to produce and market another company's product in exchange for a royalty or fee. This is common with well-known brands.

Page Ref: 323 Difficulty: Easy Chapter LO: 3 Course LO: Describe the major components of effective distribution Classification: Concept

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55) Which of the following is a key difference between product mix and product line?

A) Product line is the complete set of the products in an industry, whereas product mix is an incomplete set of products.

B) Product mix contains products that are similar, whereas product line may contain dissimilar products also.

C) A product mix is used by larger companies, whereas a product line is used by smaller companies.

D) Product line is a set of heterogeneous goods or services whereas product mix is a set of homogenous products.

E) Product mix includes all products from a single manufacturer, whereas product line contains a group of similar products.

Answer: E Explanation: E) A product mix is a complete list of all products that a company offers for sale.

A product line is a group of products from a single manufacturer that are similar in terms of use or characteristics.

Page Ref: 325 Difficulty: Moderate Chapter LO: 4 Course LO: Describe the major components of effective distribution Classification: Concept 56) Proctor and Gamble offers products under more than fifty brand names. The company's products vary from cosmetics to cat foods. A complete list of all these products that the company offers will refer to the company's ________.

A) core product line B) marketing mix C) product mix D) product line E) co-branding list Answer: C Explanation: C) Product mix a complete list of all products that a company offers for sale.

Page Ref: 325 Difficulty: Difficult AACSB: Analytic Skills Chapter LO: 4 Course LO: Describe the major components of effective distribution Classification: Application

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57) ________ refers to developing items to fill gaps in the market that have been overlooked by competitors or have emerged as consumer tastes and needs shift.

A) Brand extension B) Line filling C) Brand stretching D) Line extension E) Line stretching Answer: B Explanation: B) Line filling refers to developing items to fill gaps in the market that have been overlooked by competitors or have emerged as consumer tastes and needs shift.

Page Ref: 326 Difficulty: Easy Chapter LO: 4 Course LO: Describe the major components of effective distribution Classification: Concept 58) Which of the following refers to creating variations of an existing product?

A) brand extension B) line filling C) brand filling D) line extension E) line stretching Answer: D Explanation: D) Line extension refers to creating variations of an existing product.

Page Ref: 326 Difficulty: Easy Chapter LO: 4 Course LO: Describe the major components of effective distribution Classification: Concept 59) ________ refers to using the brand of existing products on products in a different new category.

A) Brand filling B) Line extension C) Line filling D) Brand stretching E) Brand extension Answer: E Explanation: E) Brand extension refers to using the brand of existing products on products in a different new category.

Page Ref: 326 Difficulty: Easy Chapter LO: 4 Course LO: Describe the major components of effective distribution Classification: Concept

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60) Mr. White is a detergent brand. The brand is owned by Unitech, a company that produces consumer products. Unitech uses the same brand for a new kitchen utensil that the company is launching. Identify the product-line expansion method used in this case.

A) brand extension B) brand stretching C) line filling D) line extension E) line stretching Answer: A Explanation: A) Brand extension refers to using the brand of existing products on products in a different new category. The company is using brand extension in this case.

Page Ref: 326 Difficulty: Difficult AACSB: Analytic Skills Chapter LO: 4 Course LO: Describe the major components of effective distribution Classification: Application 61) Line stretching refers to ________.

A) using the brand of existing products on products in a different new category B) adding items with price points above or below the current product line C) creating variations of a current product D) creating variations of an existing product E) developing items to fill gaps in the market that have been overlooked by competitors Answer: B Explanation: B) Line stretching refers to adding items with price points above or below the current product line.

Page Ref: 326 Difficulty: Easy Chapter LO: 4 Course LO: Describe the major components of effective distribution Classification: Concept

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62) MaCton is a Chinese manufacturer of personal computers. The company decides to extend its product line by adding two premium products that are priced much more than the existing products. Identify the product-line expansion method that the company is using.

A) Brand extension B) Line filling C) Line extension D) Brand filling E) Line stretching Answer: E Explanation: E) Line stretching refers to adding items with price points above or below the current product line. MaCton is using line stretching in this case.

Page Ref: 326 Difficulty: Difficult AACSB: Analytic Skills Chapter LO: 4 Course LO: Describe the major components of effective distribution Classification: Application 63) Using a brand name on a variety of related products is known as ________.

A) brand filling B) brand extension C) line extension D) family branding E) brand stretching Answer: D Explanation: D) Family branding is the technique of using a brand name on a variety of related products. It is used to expand a company's product line.

Page Ref: 327 Difficulty: Easy Chapter LO: 4 Course LO: Describe the major components of effective distribution Classification: Concept 64) Which of the following statements is true of a brand extension strategy?

A) Brand extension cuts the costs and risks of introducing new products.

B) It is used by firms that have a weak brand name.

C) It is a strategy used by start-up firms.

D) It refers to developing items to fill gaps in the market.

E) Brand extension refers to creating variations of a product.

Answer: A Explanation: A) Building on the name recognition of an existing brand cuts the costs and risks of introducing new products.

Page Ref: 327 Difficulty: Moderate Chapter LO: 4 Course LO: Describe the major components of effective distribution Classification: Concept 22 .

65) Price elasticity is a measure of the sensitivity of ________ to changes in price.

A) variable cost B) demand C) income D) yield E) total cost Answer: B Explanation: B) Price elasticity is a measure of the sensitivity of demand to changes in price.

Page Ref: 328 Difficulty: Easy Chapter LO: 5 Course LO: Discuss strategies for setting and adjusting prices Classification: Concept 66) Which of the following is an example of a fixed cost that businesses have to incur?

A) cost of raw materials B) cost of supplies C) shipping costs D) sales commissions E) cost of building plants Answer: E Explanation: E) Fixed costs are business costs that remain constant regardless of the number of units produced. Cost incurred in building industrial plants is an example of a fixed cost.

Page Ref: 329 Difficulty: Moderate Chapter LO: 5 Course LO: Discuss strategies for setting and adjusting prices Classification: Concept 67) Which of the following is an example of a variable cost that businesses have to incur?

A) insurance premiums B) real estate taxes C) unit-based incentives D) employee salaries E) mortgage payments Answer: C Explanation: C) Variable costs are business costs that increase with the number of units produced. Unit-based incentives lead to variable costs.

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68) A group of fifteen entrepreneurs starts a manufacturing firm. The total fixed costs that they have incurred in setting up the business amounts to $50000. The variable cost of selling a unit of product is $25. What is the break-even point if each unit is priced at $50?

A) 2000 B) 500 C) 333 D) 666 E) 1000 Answer: A Explanation: A) Break-even point = Fixed costs / (Selling price-Variable costs per unit)=$50000/(50-25) = 2000 Page Ref: 329 Difficulty: Difficult AACSB: Analytic Skills Chapter LO: 5 Course LO: Discuss strategies for setting and adjusting prices Classification: Application 69) Break-even analysis is a method of ________.

A) calculating the minimum sales needed to cover all costs B) classifying the variable costs incurred by a firm C) classifying the fixed costs incurred by a firm D) balancing the costs and risks of a business E) estimating the fixed costs required to minimize the operational costs Answer: A Explanation: A) Break-even analysis is a method of calculating the minimum volume of sales needed at a given price to cover all costs.

Page Ref: 329 Difficulty: Easy Chapter LO: 5 Course LO: Discuss strategies for setting and adjusting prices Classification: Concept 70) Cost-based pricing ________.

A) uses a software to generate the ideal price for each item B) introduces a new product at a very low price C) is based on customer perceptions of cost D) doesn't consider factors such as customer demand E) uses a high price for a new product during the introductory stages Answer: D Explanation: D) Cost-based pricing is simple, but it suffers from a major weakness: It doesn't consider any external factors such as customer demand or competitive prices.

Page Ref: 331 Difficulty: Moderate Chapter LO: 6 Course LO: Discuss strategies for setting and adjusting prices Classification: Concept 24 .

71) ________ is a method of setting prices based on customer perceptions of a product's worth.

A) Cost-based pricing B) Optimal pricing C) Skim pricing D) Freemium pricing E) Value-based pricing Answer: E Explanation: E) Value-based pricing is a method of setting prices based on customer perceptions of value.

Page Ref: 331 Difficulty: Easy Chapter LO: 6 Course LO: Discuss strategies for setting and adjusting prices Classification: Concept 72) ________ is a computer-based pricing method that creates a demand curve for every product to help managers select a price that meets specific marketing objectives.

A) Value-based pricing B) Cost-based pricing C) Freemium pricing D) Optimal pricing E) Participative pricing Answer: D Explanation: D) Optimal pricing is a computer-based pricing method that creates a demand curve for every product to help managers select a price that meets specific marketing objectives.

Optimal pricing attempts to minimize the errors and guesswork of other methods.

Page Ref: 332 Difficulty: Easy Chapter LO: 6 Course LO: Discuss strategies for setting and adjusting prices Classification: Concept 73) Which of the following pricing methods is characterized by charging a high price for a new product during the introductory stage and lowering the price later?

A) cost-based pricing B) value-based pricing C) optimal pricing D) skim pricing E) auction pricing Answer: D Explanation: D) Skim pricing refers to charging a high price for a new product during the introductory stage and lowering the price later.

Page Ref: 332 Difficulty: Easy Chapter LO: 6 Course LO: Discuss strategies for setting and adjusting prices Classification: Concept 25 .

74) Rose Perfumes is a well known perfume brand in Europe. The firm markets a large collection of perfumes. In order to expand its business, the firm decides to enter the U.S. market.

The firm keeps its prices very low to capture the market rapidly. Identify the pricing strategy that the firm is using.

A) cost-based pricing B) value-based pricing C) penetration pricing D) freemium pricing E) optimal pricing Answer: C Explanation: C) Penetration pricing refers to introducing a new product at a low price in hopes of building sales volume quickly. Rose Perfumes is using penetration pricing in this case.

Page Ref: 332 Difficulty: Difficult AACSB: Analytic Skills Chapter LO: 6 Course LO: Discuss strategies for setting and adjusting prices Classification: Application 75) Skim pricing is used during the ________ stage of a product.

A) introductory B) maturity C) decline D) growth E) saturation Answer: A Explanation: A) Skim pricing refers to charging a high price for a new product during the introductory stage and lowering the price later.

Page Ref: 332 Difficulty: Easy Chapter LO: 6 Course LO: Discuss strategies for setting and adjusting prices Classification: Concept

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76) Novice Telecom is a manufacturer of cell phones. The company is planning to launch a new model of smart phone and the pre-launch marketing has created much hype in the market. In order to cash in on the hype, the company charges a high price during the initial stages of the product's launch. Identify the pricing strategy this company is using.

A) optimal pricing B) skim pricing C) penetration pricing D) auction pricing E) freemium pricing Answer: B Explanation: B) Skim pricing refers to charging a high price for a new product during the introductory stage and lowering the price later. The company is using skim pricing in this case.

Page Ref: 332 Difficulty: Difficult AACSB: Analytic Skills Chapter LO: 6 Course LO: Discuss strategies for setting and adjusting prices Classification: Application 77) Penetration pricing doesn't work if ________.

A) the company can't sustain the low price levels profitably B) there is some level of competition in the market C) a company is entering a market that is totally new D) the customers in a market are highly price sensitive E) the product is characterized by high extent of price elasticity Answer: A Explanation: A) Penetration pricing doesn't work if the company can't sustain the low price levels profitably, if prices for a particular product are inelastic, or if customers weigh other factors more heavily than price.

Page Ref: 332 Difficulty: Moderate Chapter LO: 6 Course LO: Discuss strategies for setting and adjusting prices Classification: Concept

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78) In ________, the seller doesn't set a firm price but allows buyers to competitively propose the prices that they are willing to pay.

A) cost-based pricing B) value-based pricing C) optimal pricing D) auction pricing E) freemium pricing Answer: D Explanation: D) In an auction, the seller doesn't set a firm price but allows buyers to competitively bid on the products being sold. Auctions used to be confined to a few market sectors such as fine art, agricultural products, and government bonds, but that all changed when eBay became prominent.

Page Ref: 333 Difficulty: Easy Chapter LO: 6 Course LO: Discuss strategies for setting and adjusting prices Classification: Concept 79) Which of the following is a pricing method that allows customers to pay the amount they think a product is worth?

A) cost-based pricing B) participative pricing C) penetration pricing D) optimal pricing E) value-based pricing Answer: B Explanation: B) Participative pricing refers to allowing customers to pay the amount they think a product is worth.

Page Ref: 334 Difficulty: Easy Chapter LO: 6 Course LO: Discuss strategies for setting and adjusting prices Classification: Concept

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80) A number of applications in the Android Market do not charge the customer for using the basic version of the application. However, the customers are charged if they want a version of the product with better features. This pricing strategy is referred to as ________ pricing.

A) value-based B) freemium C) optimal D) auction E) penetration Answer: B Explanation: B) Freemium pricing is a hybrid pricing strategy of offering some products for free while charging for others, or offering a product for free to some customers while charging others for it. Offering a free version and paid version is an example of this pricing strategy.

Page Ref: 334 Difficulty: Difficult AACSB: Analytic Skills Chapter LO: 6 Course LO: Discuss strategies for setting and adjusting prices Classification: Application 81) ________ refers to continually adjusting prices to reflect changes in supply and demand.

A) Freemium pricing B) Auction pricing C) Optimal pricing D) Dynamic pricing E) Participative pricing Answer: D Explanation: D) Dynamic pricing refers to continually adjusting prices to reflect changes in supply and demand.

Page Ref: 334 Difficulty: Easy Chapter LO: 6 Course LO: Discuss strategies for setting and adjusting prices Classification: Concept

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82) ________ are temporary price reductions to stimulate sales or lower prices to encourage certain behaviors such as paying with cash.

A) Promotions B) Discounts C) Auctions D) Brokerages E) Allowances Answer: B Explanation: B) Discounts are temporary price reductions to stimulate sales or lower prices to encourage certain behaviors such as paying with cash. Discounts are typically offered for paying early, paying in cash, or volume discounts for buying in bulk.

Page Ref: 334 Difficulty: Easy Chapter LO: 6 Course LO: Discuss strategies for setting and adjusting prices Classification: Concept 83) Products such as cosmetics are often sold together. The price offered for a set of products is usually lower than the overall price of individual units. This practice refers to ________.

A) freemium pricing B) discounting C) bundling D) balanced pricing E) dynamic pricing Answer: C Explanation: C) Bundling refers to offering several products for a single price that is presumably lower than the total of the products' individual prices. The given case refers to bundling.

Page Ref: 334 Difficulty: Difficult AACSB: Analytic Skills Chapter LO: 6 Course LO: Discuss strategies for setting and adjusting prices Classification: Application 84) Select twenty products of your choice. Classify these products as goods and services.

Answer: Products contain both tangible and intangible components; predominantly tangible products are categorized as goods, whereas predominantly intangible products are categorized as services. Every product has a certain level of intangibility. Student answers will vary due to the nature of this question.

Page Ref: 315 Difficulty: Difficult AACSB: Reflective Thinking Skills Chapter LO: 1 Course LO: Describe the major components of effective distribution Classification: Synthesis 85) Compare and contrast convenience products, shopping products, and specialty products.

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Answer: Everyday goods and services that people buy frequently, usually without much conscious planning, are known as convenience products. These products are likely purchased faster and involve least risk.

Shopping products are fairly important goods and services that people buy less frequently, such as computers and college educations. Because the stakes are higher and the decisions more complex, such products require more thought and comparison shopping.

Specialty products are particular brands that the buyer especially wants and will seek out, regardless of location or price, such as Suzuki violin lessons or Bang & Olufsen home entertainment gear.

Page Ref: 316 Difficulty: Difficult AACSB: Reflective Thinking Skills Chapter LO: 1 Course LO: Describe the major components of effective distribution Classification: Synthesis 86) Describe how products are classified according to their intended use.

Answer: The following is a classification of products according to the intended use.

Raw materials such as iron ore, crude petroleum, lumber, and chemicals are used in the production of final products.

Components such as semiconductors and fasteners also become part of the manufacturers' final products.

Supplies such as pencils, nails, and light bulbs that are used in a firm's daily operations are considered expense items.

Installations such as factories, power plants, and airports are major capital projects.

Equipment includes items such as desks, computers, and factory robots.

Business services range from landscaping and cleaning to complex services such as management consulting and auditing.

Page Ref: 317 Difficulty: Moderate Chapter LO: 1 Course LO: Describe the major components of effective distribution Classification: Concept 87) Choose a product that has been widely regarded as successful. Construct a product life cycle model for the product that you have selected.

Answer: Product life cycle refers to the four stages through which a product progresses. The stages are introduction, growth, maturity, and decline. The student should depict each of these stages for the product that he or she has selected. Student answers will vary due to the nature of this question.

Page Ref: 317; 318 Difficulty: Difficult AACSB: Reflective Thinking Skills Chapter LO: 1 Course LO: Describe the major components of effective distribution Classification: Synthesis 88) Choose ten different products from ten different industries. Classify each of these products 31 .

according to the product life cycle stage they currently belong to.

Answer: Products that are just launched and have only a small percent of the market share are in the introduction stage. Products that are growing rapidly after the initial stages are in the growth stage. Products that have low growth but high revenues are likely to be in the maturity stage.

Products that are being wiped off the market are in the decline stage. Students should classify each of the products that they have selected into different life cycle stages.

Page Ref: 317; 318 Difficulty: Difficult AACSB: Reflective Thinking Skills Chapter LO: 1 Course LO: Describe the major components of effective distribution Classification: Synthesis 89) Explain how a business analysis is carried out.

Answer: A product idea that survives the screening stage is subjected to a business analysis.

During this stage, the company reviews the sales, costs, and profit projections to determine whether they meet the company's objectives. In addition, it estimates the costs associated with various levels of production. Given these projections, analysts calculate the potential profit that will be achieved if the product is introduced. If the product meets the company's objectives, it can then move to the prototype development stage.

Page Ref: 320 Difficulty: Moderate Chapter LO: 2 Course LO: Describe the major components of effective distribution Classification: Concept 90) Explain how a firm conducts test marketing for a new product.

Answer: During test marketing, the firm introduces the product in selected markets and monitors consumer reactions. Test marketing gives the marketer experience with marketing the product before going to the expense of a full introduction. For instance, producers of television programs can test shows in local or regional markets to gauge viewer appeal before going nationwide.

Companies can also release products early to get feedback from potential customers before finalizing features and functions. Software developers often do so through beta versions. Test marketing can be expensive and time consuming, however, so not all companies choose to take this step with every new product.

Page Ref: 320; 321 Difficulty: Moderate Chapter LO: 2 Course LO: Describe the major components of effective distribution Classification: Concept

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91) Compare and contrast national brands and private brands.

Answer: Brands offered and promoted by a national manufacturer, such as Procter & Gamble's Tide detergent and Pampers disposable diapers, are called national brands. Private brands are not linked to a manufacturer but instead carry a wholesaler's or a retailer's brand. National brands tend to be larger brands than private brands.

Page Ref: 322 Difficulty: Difficult AACSB: Reflective Thinking Skills Chapter LO: 3 Course LO: Describe the major components of effective distribution Classification: Synthesis 92) Compare and contrast co-branding and licensing.

Answer: Co-branding occurs when two or more companies team up to closely link their names in a single product, usually to leverage the brand associations and awareness of one product onto the other. Licensing refers to selling the rights to well-known brand names and symbols.

Mainstream movies, for example, often hit the market with an array of licensing deals with fastfood chains and other consumer products companies.

Page Ref: 323 Difficulty: Difficult AACSB: Reflective Thinking Skills Chapter LO: 3 Course LO: Describe the major components of effective distribution Classification: Synthesis 93) Explain the significance of labeling.

Answer: Labeling is an integral part of packaging. Whether the label is a separate element attached to the package or a printed part of the container, it serves to identify a brand and communicate multiple types of information, from promotional messages to legally required safety or nutritional data. The labeling of foods, drugs, cosmetics, and many health products is regulated under various federal laws, which often require disclosures about potential dangers, benefits, and other issues consumers need to consider when making a buying decision.

Page Ref: 324 Difficulty: Moderate Chapter LO: 3 Course LO: Describe the major components of effective distribution Classification: Concept

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94) What is a product line?

Answer: A product line is a group of products from a single manufacturer that are similar in terms of use or characteristics. Within each product line, a company confronts decisions about the number of goods and services to offer. On the other hand, creating too many products and product variations can be expensive for everyone in the supply chain and can be confusing to buyers.

Page Ref: 325 Difficulty: Easy Chapter LO: 4 Course LO: Describe the major components of effective distribution Classification: Concept 95) Explain the concept of price elasticity.

Answer: Market demand usually fluctuates as prices fluctuate. However, some goods and services are relatively insensitive to changes in price; others are highly sensitive. Buyers can also exhibit individual levels of price sensitivity. For instance, brand-loyal customers tend to be less sensitive to price, meaning they will stick with a brand even as the price increases, whereas other buyers will begin switching to cheaper alternatives. Marketers refer to this sensitivity as price elasticity - how responsive demand will be to a change in price.

Page Ref: 328 Difficulty: Moderate Chapter LO: 5 Course LO: Discuss strategies for setting and adjusting prices Classification: Concept 96) Choose a business that you want to launch. Construct an investment plan and estimate the break-even point for the business.

Answer: The students should identify possible fixed costs and variable costs to determine the break-even point.

Break-even point = Fixed costs / (Selling price - Variable costs per unit) Student answers will vary due to the nature of this question.

Page Ref: 329 Difficulty: Difficult AACSB: Reflective Thinking Skills Chapter LO: 5 Course LO: Discuss strategies for setting and adjusting prices Classification: Synthesis

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97) Compare and contrast cost-based pricing and value-based pricing.

Answer: Some companies simplify the pricing task by using cost-based pricing, also known as cost-plus pricing, in which they start with the cost of producing a good or a service and then add a markup to arrive at the selling price. Cost-based pricing is simple, but it suffers from a major weakness: It doesn't consider any external factors such as customer demand or competitive prices. The price could be too high for market conditions, leaving the company uncompetitive, or it could be too low, generating less profit than it could otherwise.

In contrast to cost-based pricing, value-based pricing establishes a price on a product's potential or perceived value in the marketplace. In other words, rather than starting with cost and then figuring out a price, this method starts with a target price and works backward to identify a cost structure that will yield acceptable profit margins. The disadvantage of this method is that it requires more information and more analysis, because managers need to measure, or at least estimate, perceptions of customer value in order to establish the price.

Page Ref: 331 Difficulty: Difficult AACSB: Reflective Thinking Skills Chapter LO: 6 Course LO: Discuss strategies for setting and adjusting prices Classification: Synthesis 98) Explain loss-leader pricing.

Answer: Loss-leader pricing refers to selling one product at a loss as a way to entice customers to consider other products. For instance, grocery stores can use milk and other staples as loss leaders to encourage shoppers to visit. Loss-leader attracts the customer to the shop rather than producing sales by itself.

Page Ref: 332 Difficulty: Moderate Chapter LO: 6 Course LO: Discuss strategies for setting and adjusting prices Classification: Concept 99) Identify a new product that you would like to launch in one of the cities in the United States.

Choose a suitable pricing model for the product and design a pricing strategy.

Answer: The students may choose skim pricing if the product is highly innovative and has huge market expectation. Penetration pricing can be use to build market share in a competitive market.

Other pricing strategies also can be used by describing the reasons for choosing the strategy.

Page Ref: 331; 334 Difficulty: Difficult AACSB: Reflective Thinking Skills Chapter LO: 6 Course LO: Discuss strategies for setting and adjusting prices Classification: Synthesis

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100) Compare and contrast auctions and participative pricing.

Answer: In an auction, the seller doesn't set a firm price but allows buyers to competitively bid on the products being sold. Auctions used to be confined to a few market sectors such as fine art, agricultural products, and government bonds, but that all changed when eBay turned selling and buying via auctions into a new national pastime.

In participative pricing, customers literally get to pay as much as they think a product is worth.

With participative pricing, buyers sometimes pay more than the company would normally charge. Unlike auctions this pricing does not involve competitive bidding from buyers.

Page Ref: 333; 334 Difficulty: Difficult AACSB: Reflective Thinking Skills Chapter LO: 6 Course LO: Discuss strategies for setting and adjusting prices Classification: Synthesis

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Business in Action, 6e (Bovee/Thill) Chapter 15 Distribution and Marketing Logistics 1) Distribution strategy refers to a firm's overall plan for moving products through intermediaries and on to final customers.

Answer: TRUE Explanation: Distribution strategy refers to a firm's overall plan for moving products through intermediaries and on to final customers.

Page Ref: 341 Difficulty: Easy Chapter LO: 1 Course LO: Describe the major components of effective distribution Classification: Concept 2) Unlike retailers, wholesalers primarily sell products to consumers for personal use.

Answer: FALSE Explanation: Unlike wholesalers, retailers primarily sell products to consumers for personal use.

Page Ref: 341 Difficulty: Easy Chapter LO: 1 Course LO: Describe the major components of effective distribution Classification: Concept 3) Consumers (reached by retailers) and organizations (reached by wholesalers) respond to marketing programs the same way, because their motivations are similar.

Answer: FALSE Explanation: Consumers (reached by retailers) and organizations (reached by wholesalers) respond to marketing programs in different ways with dissimilar motivations.

Page Ref: 341 Difficulty: Easy Chapter LO: 1 Course LO: Describe the major components of effective distribution Classification: Concept

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4) Sam's Club sells sports apparel to individual consumers for their personal use and to small businesses who resell those goods to consumers. Sam's Club functions both as a retailer and a wholesaler.

Answer: TRUE Explanation: Wholesalers are intermediaries that sell products to other intermediaries for resale or to organizations for internal use. Retailers are intermediaries that sell goods and services to individuals for their own personal use. In this case, Sam's Club is acting both as a retailer and a wholesaler.

Page Ref: 341 Difficulty: Difficult AACSB: Analytic Skills Chapter LO: 2 Course LO: Describe the major components of effective distribution Classification: Application 5) Retail intermediaries collect valuable data about customer purchases: who buys, how often, and how much.

Answer: TRUE Explanation: Retail intermediaries collect valuable data about customer purchases: who buys, how often, and how much.

Page Ref: 342 Difficulty: Easy Chapter LO: 1 Course LO: Describe the major components of effective distribution Classification: Concept 6) Full-service merchant wholesalers never actually own the products they handle, and they perform fewer services than agents and brokers.

Answer: FALSE Explanation: Full-service merchant wholesalers provide a wide variety of services, such as storage, selling, order processing, delivery, and promotional support.

Page Ref: 344 Difficulty: Moderate Chapter LO: 2 Course LO: Describe the major components of effective distribution Classification: Concept

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7) Drop shippers take legal title to and possession of goods from a producer and then resell those goods to retailers or organizational buyers.

Answer: FALSE Explanation: Drop shippers take ownership but not physical possession of the goods they handle.

Page Ref: 344 Difficulty: Easy AACSB: Dynamics of the Global Economy Chapter LO: 2 Course LO: Describe the major components of effective distribution Classification: Concept 8) Merchant wholesalers that sell products to organizational customers for internal operations or the production of other goods, rather than to retailers for sale, are known as manufacturers' representatives.

Answer: FALSE Explanation: Merchant wholesalers are independent wholesalers that take legal title to goods they distribute.

Page Ref: 344 Difficulty: Easy Chapter LO: 2 Course LO: Describe the major components of effective distribution Classification: Concept 9) A growing number of customers are pursuing strategic sourcing, in which they forge closer relationships with a smaller number of strategic distribution partners.

Answer: TRUE Explanation: A growing number of customers are pursuing strategic sourcing. In strategic courcing customers forge closer relationships with a smaller number of strategic distribution partners.

Page Ref: 345 Difficulty: Moderate Chapter LO: 2 Course LO: Describe the major components of effective distribution Classification: Concept 10) Shopper marketing efforts can range from printed signs to in-store video screens to smartphone apps that help shoppers find products or stores in a mall.

Answer: TRUE Explanation: Shopper marketing efforts can range from printed signs to in-store video screens to smartphone apps that help shoppers find products or stores in a mall.

Page Ref: 346 Difficulty: Easy Chapter LO: 3 Course LO: Describe the major components of effective distribution Classification: Concept 3 .

11) Online retailers can be either Internet-only operations or online extensions of store-based operations.

Answer: TRUE Explanation: Online retailers can be either Internet-only operations or online extensions of storebased operations.

Page Ref: 347 Difficulty: Moderate Chapter LO: 3 Course LO: Describe the major components of effective distribution Classification: Concept 12) The growth of online retailing has lagged store-based retailing in recent years.

Answer: FALSE Explanation: The rise of online retailing and the growth of stand-alone discounters were drawing shoppers away from malls in the United States.

Page Ref: 348 Difficulty: Moderate Chapter LO: 3 Course LO: Describe the major components of effective distribution Classification: Concept 13) Hybrid stores refers to stores that exist for only a short time and are designed more as attention-getting events than as ongoing retail operations.

Answer: FALSE Explanation: Hybrid stores combine different types of retailers or different retail companies in the same facility.

Page Ref: 348 Difficulty: Moderate Chapter LO: 3 Course LO: Describe the major components of effective distribution Classification: Concept 14) Celebrations is a store that is only open for several weeks during the summer, selling fireworks and decorations before the 4th of July. It is designed more as an attention-getting event than as an ongoing retail operation. Celebrations would be an example of a convenience store.

Answer: FALSE Explanation: Convenience stores offer limited range of convenience good. They are characterized by long service hours and quick checkouts. Celebrations is not a convenience store.

Page Ref: 348 Difficulty: Moderate AACSB: Analytic Skills Chapter LO: 3 Course LO: Describe the major components of effective distribution Classification: Application

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15) Like wholesalers, retailers face the threat of disintermediation if suppliers or customers don't think they add sufficient value, or if other types of retailers can do the job better.

Answer: TRUE Explanation: Like wholesalers, retailers face the threat of disintermediation if suppliers or customers don't think they add sufficient value, or if other types of retailers can do the job better.

Page Ref: 348 Difficulty: Moderate Chapter LO: 3 Course LO: Describe the major components of effective distribution Classification: Concept 16) The primary function of distribution channels is delivering value to producers, so channel strategy decisions should start with producers' needs and expectations.

Answer: FALSE Explanation: The primary function of distribution channels is delivering value to customers, so channel strategy decisions should start with customer needs and expectations.

Page Ref: 349 Difficulty: Moderate Chapter LO: 4 Course LO: Describe the major components of effective distribution Classification: Concept 17) Products vary widely in the amount of skilled support they may require before and after a sale.

Answer: TRUE Explanation: Products vary widely in the amount of skilled support they may require before and after a sale.

Page Ref: 350 Difficulty: Easy Chapter LO: 4 Course LO: Describe the major components of effective distribution Classification: Concept 18) A slotting allowance is a payment to a retailer in exchange for carrying a producer's products for an agreed-upon length of time.

Answer: TRUE Explanation: A slotting allowance is a payment to a retailer in exchange for carrying a producer's products for an agreed-upon length of time.

Page Ref: 350 Difficulty: Easy Chapter LO: 4 Course LO: Describe the major components of effective distribution Classification: Concept

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19) The shortest distribution channel is from the producer, to the retailer, to the consumer.

Answer: FALSE Explanation: Producers that sell directly to consumers through catalogs, telemarketing, infomercials, and the Internet are using the shortest, simplest distribution channel. This channel does not use retailers.

Page Ref: 351 Difficulty: Moderate Chapter LO: 5 Course LO: Describe the major components of effective distribution Classification: Concept 20) Having your products available in as many outlets as possible is known as exclusive distribution.

Answer: FALSE Explanation: Exclusive distribution is a market coverage strategy that gives intermediaries exclusive rights to sell a product in a specific geographic area.

Page Ref: 353 Difficulty: Easy Chapter LO: 5 Course LO: Describe the major components of effective distribution Classification: Concept 21) Channel conflict refers to disagreement over rights and responsibilities of the organizations in a distribution channel.

Answer: TRUE Explanation: Channel conflict refers to disagreement over rights and responsibilities of the organizations in a distribution channel.

Page Ref: 353 Difficulty: Easy Chapter LO: 5 Course LO: Describe the major components of effective distribution Classification: Concept 22) Channel organization and control refers to attempts to coordinate the activities of a channel into a cohesive marketing system.

Answer: TRUE Explanation: Channel organization and control refers to attempts to coordinate the activities of a channel into a cohesive marketing system.

Page Ref: 353 Difficulty: Easy Chapter LO: 5 Course LO: Describe the major components of effective distribution Classification: Concept

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23) All activities required to move products from producer to consumer comprise the logistics function.

Answer: FALSE Explanation: Physical distribution encompasses all the activities required to move finished products from the producer to the consumer, including forecasting, order processing, inventory control, warehousing, and transportation.

Page Ref: 355 Difficulty: Easy Chapter LO: 6 Course LO: Describe the major components of effective distribution Classification: Concept 24) Order processing involves preparing orders for shipment and receiving orders when shipments arrive.

Answer: TRUE Explanation: Order processing involves preparing orders for shipment and receiving orders when shipments arrive.

Page Ref: 356 Difficulty: Easy Chapter LO: 6 Course LO: Describe the major components of effective distribution Classification: Concept 25) The coordinated use of multiple modes of transportation is known as warehousing.

Answer: FALSE Explanation: The coordinated use of multiple modes of transportation, particularly with containers that can be shipped by truck, rail, and sea is referred to as intermodal transportation.

Page Ref: 356 Difficulty: Easy Chapter LO: 6 Course LO: Describe the major components of effective distribution Classification: Concept

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26) Wholesalers differ from retailers in that wholesalers ________.

A) sell products to organizational customers B) are marketing intermediaries C) primarily sell products to consumers for personal use D) cannot sell products to consumers for personal use E) create place utility and time utility Answer: A Explanation: A) Wholesalers sell to organizational customers, including other wholesalers, companies, government agencies, and educational institutions. Unlike wholesalers, retailers primarily sell products to consumers for personal use.

Page Ref: 341 Difficulty: Moderate Chapter LO: 1 Course LO: Describe the major components of effective distribution Classification: Concept 27) ________ refer(s) to intermediaries that sell products to other intermediaries for resale or to organizations for internal use.

A) Retailers B) Wholesalers C) Department store D) Specialty store E) Convenience store Answer: B Explanation: B) Wholesalers refers to intermediaries that sell products to other intermediaries for resale or to organizations for internal use.

Page Ref: 341 Difficulty: Easy Chapter LO: 1 Course LO: Describe the major components of effective distribution Classification: Concept 28) Retailers differ from wholesalers in that retailers ________.

A) sell products to small-business owners B) sell products to wholesalers, government agencies, and educational institutions C) primarily sell products to consumers for personal use D) receive bulk shipments from producers E) create possession utility Answer: C Explanation: C) Wholesalers sell to organizational customers, including other wholesalers, companies, government agencies, and educational institutions. Unlike wholesalers, retailers primarily sell products to consumers for personal use.

Page Ref: 341 Difficulty: Moderate Chapter LO: 1 Course LO: Describe the major components of effective distribution Classification: Concept 8 .

29) Intermediaries that primarily sell goods and services to individuals for their own personal use are called ________.

A) drop shippers B) agents C) brokers D) distributors E) retailers Answer: E Explanation: E) Intermediaries that sell goods and services to individuals for their own personal use are called retailers.

Page Ref: 341 Difficulty: Easy Chapter LO: 1 Course LO: Describe the major components of effective distribution Classification: Concept 30) One of the valuable services that a wholesaler might perform is ________, in which it receives large shipments from the producer and then sells smaller quantities to retailers.

A) rack jobbing B) drop shipping C) bundling D) breaking bulk E) system integration Answer: D Explanation: D) Many intermediaries receive bulk shipments from producers and break them into more convenient units (known as breaking bulk) by sorting, standardizing, and dividing bulk quantities into smaller packages.

Page Ref: 343 Difficulty: Easy Chapter LO: 1 Course LO: Describe the major components of effective distribution Classification: Concept

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31) AMS Technologies, a computer hardware reseller, purchases computer components from leading manufacturers and builds fully operational personal-computer systems customized for specific consumer requirements, such as non-linear video editing capabilities. The firm sells its products to various companies and educational institutions. AMS Technologies belongs to which of the following class of intermediaries?

A) retail outlet B) drop shippers C) manufacturers' representatives D) system integrators E) specialty stores Answer: D Explanation: D) In some industries, producers rely on a class of intermediaries often called value-added resellers (VARs) or system integrators to complete or customize solutions for customers.

Page Ref: 343 Difficulty: Difficult AACSB: Analytic Skills Chapter LO: 1 Course LO: Describe the major components of effective distribution Classification: Application 32) Producers rely on a class of intermediaries called value-added resellers (VARs) to assist with which of the following functions?

A) transport the goods from the producer to the retail outlets B) assist with advertising, in-store displays, and other promotional efforts C) provide market information D) divide bulk quantities into smaller packages E) complete or customize solutions for customers Answer: E Explanation: E) In some industries, producers rely on a class of intermediaries often called value-added resellers (VARs) or system integrators to complete or customize solutions for customers.

Page Ref: 343 Difficulty: Easy Chapter LO: 1 Course LO: Describe the major components of effective distribution Classification: Concept

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33) Independently-owned businesses that buy from producers, take legal title to the goods, and then resell them to retailers or to organizational buyers, are called ________.

A) agents B) brokers C) merchant wholesalers D) department stores E) manufacturers' representatives Answer: C Explanation: C) The majority of wholesalers are merchant wholesalers, independently-owned businesses that buy from producers, take legal title to the goods, and then resell them to retailers or to organizational buyers.

Page Ref: 344 Difficulty: Easy Chapter LO: 2 Course LO: Describe the major components of effective distribution Classification: Concept 34) ________ are full-service merchant wholesalers that set up displays in retail outlets, stock inventory, and perform other services such as marking prices on merchandise.

A) Rack jobbers B) Agents C) Brokers D) System integrators E) Value-added resellers Answer: A Explanation: A) Rack jobbers are full-service merchant wholesalers that set up displays in retail outlets, stock inventory, and perform other services such as marking prices on merchandise.

Page Ref: 344 Difficulty: Easy Chapter LO: 2 Course LO: Describe the major components of effective distribution Classification: Concept

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35) Natural resources such as lumber, grain and coal are usually marketed through ________ who take ownership but not physical possession of the goods.

A) manufacturers' representatives B) brokers C) rack jobbers D) drop shippers E) agents Answer: D Explanation: D) Natural resources such as lumber, grain, and coal are usually marketed through a class of limited-service wholesalers called drop shippers, which take ownership but not physical possession of the goods they handle.

Page Ref: 344 Difficulty: Easy Chapter LO: 2 Course LO: Describe the major components of effective distribution Classification: Concept 36) Merchant wholesalers that sell products to organizational customers for internal operations or the production of other goods, rather than to retailers for resale, are called ________.

A) manufacturers' representatives B) drop shippers C) rack jobbers D) distributors E) system integrators Answer: D Explanation: D) Merchant wholesalers that sell products to organizational customers for internal operations or the production of other goods, rather than to retailers for resale, are called distributors.

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37) Which of the following is a defining characteristic of manufacturers' representatives?

A) They take ownership, but not physical possession, of the goods they handle.

B) They sell various noncompeting products to customers in a specific region.

C) They set up displays in retail outlets, stock inventory, and perform other services such as marking prices on merchandise.

D) They sort, standardize, and divide bulk quantities into smaller packages.

E) They complete or customize solutions for customers.

Answer: B Explanation: B) Manufacturers' representatives sell various noncompeting products to customers in a specific region. By representing several manufacturers' products, these reps achieve enough volume to justify the cost of a direct sales call.

Page Ref: 344 Difficulty: Easy Chapter LO: 2 Course LO: Describe the major components of effective distribution Classification: Concept 38) Merchant wholesalers differ from brokers in that merchant wholesalers ________.

A) are generally paid a commission for arranging sales B) never actually own the products they handle C) take legal title to goods they distribute D) sell various noncompeting products to customers in a specific region E) offer a limited range of convenience goods, long service hours, and quick checkouts Answer: C Explanation: C) Merchant wholesalers are independent wholesalers that take legal title to goods they distribute. Unlike merchant wholesalers, agents and brokers never actually own the products they handle, and they perform fewer services.

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39) Agents differ from merchant wholesalers in that agents ________.

A) take legal title to goods they distribute B) never actually own the products they handle C) take ownership, but not physical possession, of the goods they handle D) provide a wide variety of services, such as storage, selling, order processing, delivery, and promotional support E) set up displays in retail outlets, stock inventory, and perform other services such as marking prices on merchandise Answer: B Explanation: B) Merchant wholesalers are independent wholesalers that take legal title to goods they distribute. Unlike merchant wholesalers, agents and brokers never actually own the products they handle, and they perform fewer services.

Page Ref: 344 Difficulty: Moderate Chapter LO: 2 Course LO: Describe the major components of effective distribution Classification: Concept 40) Which of the following is a defining characteristic of distributors?

A) They do not take title to the goods they distribute.

B) They take ownership, but not physical possession, of the goods they handle.

C) They sell various noncompeting products to customers in a specific region.

D) They complete or customize solutions for customers.

E) They sell products to organizational customers for internal operations or the production of other goods.

Answer: E Explanation: E) Wholesalers that sell goods to companies for use in their own products and operations are usually called distributors.

Page Ref: 344 Difficulty: Moderate Chapter LO: 2 Course LO: Describe the major components of effective distribution Classification: Concept

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41) Rack jobbers differ from drop shippers in that rack jobbers ________.

A) provide fewer services B) perform services such as setting up displays in retail outlets C) sell goods and services to individuals for their own personal use D) customize solutions for customers E) take title to the goods they distribute Answer: B Explanation: B) Rack jobbers are full-service merchant wholesalers that set up displays in retail outlets, stock inventory, and perform other services such as marking prices on merchandise.

Drop shippers take ownership, but not physical possession, of the goods they handle.

Page Ref: 344 Difficulty: Moderate Chapter LO: 2 Course LO: Describe the major components of effective distribution Classification: Concept 42) Which of the following is a defining characteristic of drop shippers?

A) They take ownership, but not physical possession, of the goods they handle.

B) They do not do take title to the goods they distribute but take possession of those goods.

C) They sell various noncompeting products to customers in a specific region.

D) They set up displays in retail outlets, stock inventory, and perform other services such as marking prices on merchandise.

E) They complete or customize solutions for customers.

Answer: A Explanation: A) Natural resources such as lumber, grain, and coal are usually marketed through a class of limited-service wholesalers called drop shippers, which take ownership, but not physical possession, of the goods they handle.

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43) MacyPools is a firm that distributes pool chemicals, pool equipment, and pool supplies. The firm purchases the products from manufacturers, takes legal title to the goods, and then resells it to companies and government agencies. MacyPools also sells its products to small-business owners who then resell it to individuals for their own personal use. MacyPools can be classified as ________.

A) brokers B) drop shippers C) merchant wholesalers D) manufacturers' representatives E) a specialty store Answer: C Explanation: C) The majority of wholesalers are merchant wholesalers, independently-owned businesses that buy from producers, take legal title to the goods, and then resell them to retailers or to organizational buyers.

Page Ref: 344 Difficulty: Difficult AACSB: Analytic Skills Chapter LO: 2 Course LO: Describe the major components of effective distribution Classification: Application 44) M&K Wholesalers, owned by Jonathan McCloud, sells rough lumber to furniture manufacturers. M&K Wholesalers take ownership, but not physical possession, of the goods they handle. The firm does not keep goods in stock, but instead transfers customer orders and shipment details to American Timber and Lumber Inc., a producer and manufacturer of quality hardwood lumber. M&K Wholesalers can be classified as ________.

A) brokers B) drop shippers C) agents D) value-added resellers E) manufacturers representatives Answer: B Explanation: B) Natural resources such as lumber, grain, and coal are usually marketed through a class of limited-service wholesalers called drop shippers, which take ownership, but not physical possession, of the goods they handle.

Page Ref: 344 Difficulty: Difficult AACSB: Analytic Skills Chapter LO: 2 Course LO: Describe the major components of effective distribution Classification: Application

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45) TechSource Inc. is a wholesaler of electronic components, including connectors and semiconductors. The firm purchases electronic components directly from technology manufacturers, has physical possession of the products, takes legal title to the goods, and then resells it to organizational customers for internal operations or the production of other goods.

TechSource Inc. does not sell products to retailers for resale. TechSource Inc. can be classified as a(n) ________.

A) drop shipper B) manufacturers' representative C) agent D) distributor E) broker Answer: D Explanation: D) Distributors refers to merchant wholesalers that sell products to organizational customers for internal operations or the production of other goods, rather than to retailers for resale.

Page Ref: 344 Difficulty: Difficult AACSB: Analytic Skills Chapter LO: 2 Course LO: Describe the major components of effective distribution Classification: Application 46) JustBooks Company is a U.S.-based international wholesaler specializing in Afro-American books and children's literature. The firm purchases books from publishers, has physical possession of the books, takes legal title to them, and sells them to retailers for resale. The firm also offers a wide variety of services including setting up displays in retail outlets, and marking prices on books. JustBooks Company can be classified as a(n) ________.

A) rack jobber B) drop shipper C) broker D) agent E) specialty store Answer: A Explanation: A) Rack jobbers are full-service merchant wholesalers that set up displays in retail outlets, stock inventory, and perform other services such as marking prices on merchandise.

Page Ref: 344 Difficulty: Difficult AACSB: Analytic Skills Chapter LO: 2 Course LO: Describe the major components of effective distribution Classification: Application

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47) When the role of an intermediary is taken over by manufacturers upstream or customers downstream, ________ occurs.

A) centralization B) disintermediation C) drop shipping D) market penetration E) horizontal integration Answer: B Explanation: B) The replacement of intermediaries by producers, customers, or other intermediaries when those other parties can perform channel functions more effectively or efficiently is called disintermediation.

Page Ref: 345 Difficulty: Easy Chapter LO: 2 Course LO: Describe the major components of effective distribution Classification: Concept 48) Which of the following is an example of disintermediation?

A) A manufacturing firm introduces a new line of products.

B) A manufacturing firm uses in-store marketing to help customers locate its products.

C) A manufacturing firm chooses retailers that can provide customer support for its products.

D) A manufacturing firm closely monitors the activities of its retailers to ensure that its brand image is not harmed.

E) A manufacturing firm supplies its products directly to the retailers, instead of selling them to the wholesaler.

Answer: E Explanation: E) The replacement of intermediaries by producers, customers, or other intermediaries when those other parties can perform channel functions more effectively or efficiently is called disintermediation.

Page Ref: 345 Difficulty: Difficult AACSB: Analytic Skills Chapter LO: 2 Course LO: Describe the major components of effective distribution Classification: Application

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49) Weaver and Sharpe Inc., a firm that manufactures home & kitchen appliances, uses an intensive distribution strategy. However, the firm finds that the retailers in the same marketing area compete with each other for greater market share, which negatively affects the sale of Weaver and Sharpe products. Which of the following can help Weaver and Sharpe Inc. to resolve the problem of channel conflict?

A) decentralization B) disintermediation C) centralization D) diversification E) product development Answer: B Explanation: B) Disintermediation refers to the replacement of intermediaries by producers, customers, or other intermediaries when those other parties can perform channel functions more effectively or efficiently.

Page Ref: 345 Difficulty: Difficult AACSB: Analytic Skills Chapter LO: 2 Course LO: Describe the major components of effective distribution Classification: Application 50) PopArt, an American manufacturer of music and pop culture-related clothing and accessories, sells its products to selected retail stores, who then resell them to consumers.

However, the firm finds that the retail stores do not market their products effectively. PopArt begins to market its products directly to the consumers to have greater control over pricing, promotion, service, and delivery of their products. Thus the firm replaces the retailers. This exemplifies ________.

A) decentralization B) disintermediation C) centralization D) diversification E) the wheel of retailing Answer: B Explanation: B) Disintermediation refers to the replacement of intermediaries by producers, customers, or other intermediaries when those other parties can perform channel functions more effectively or efficiently.

Page Ref: 345 Difficulty: Difficult AACSB: Analytic Skills Chapter LO: 2 Course LO: Describe the major components of effective distribution Classification: Application

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51) InfiniTea Inc. is a manufacturer of a range of organic teas. The firm provides free samples of their products in stalls at retail stores that stock their products to increase their brand awareness.

In this example, InfiniTea Inc. uses ________.

A) stealth marketing B) cause-related marketing C) drop shipping D) shopper marketing E) disintermediation Answer: D Explanation: D) The term shopper marketing refers to communication efforts directed at consumers while they are in the retail setting. These efforts can range from printed signs to instore video screens to smartphone apps that help shoppers find products or stores in a mall.

Page Ref: 346 Difficulty: Difficult AACSB: Analytic Skills Chapter LO: 3 Course LO: Describe the major components of effective distribution Classification: Application 52) Communication efforts directed at consumers while they are in the retail setting are referred to as ________.

A) stealth marketing B) shopper marketing C) disintermediation D) breaking bulk E) cause-related marketing Answer: B Explanation: B) The term shopper marketing refers to communication efforts directed at consumers while they are in the retail setting. These efforts can range from printed signs to instore video screens to smartphone apps that help shoppers find products or stores in a mall.

Page Ref: 346 Difficulty: Easy Chapter LO: 3 Course LO: Describe the major components of effective distribution Classification: Concept

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53) ________ refers to an evolutionary process by which stores that feature low prices gradually upgrade until they no longer appeal to price-sensitive shoppers and are replaced by a new generation of leaner, low-price competitors.

A) Benchmarking B) Decision tree model C) Hawthorne effect D) Wheel of retailing E) Hyper-retailing Answer: D Explanation: D) Wheel of retailing refers to an evolutionary process by which stores that feature low prices gradually upgrade until they no longer appeal to price-sensitive shoppers and are replaced by a new generation of leaner, low-price competitors.

Page Ref: 346 Difficulty: Easy Chapter LO: 3 Course LO: Describe the major components of effective distribution Classification: Concept 54) Large stores that carry a variety of products in multiple categories, such as clothing, house wares, gifts, bedding, and furniture are termed as ________.

A) specialty stores B) convenience stores C) department stores D) distributors E) drop shippers Answer: C Explanation: C) Department stores refers to large stores that carry a variety of products in multiple categories, such as clothing, house wares, gifts, bedding, and furniture.

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55) Stores that carry only a particular type of goods, often with deep selection in those specific categories, are called ________.

A) department stores B) specialty stores C) distributors D) drop shippers E) convenience stores Answer: B Explanation: B) Specialty stores such as jewelers and bicycle shops offer a limited number of product lines but an extensive selection of brands, styles, sizes, models, colors, materials, and prices within each line.

Page Ref: 346 Difficulty: Easy Chapter LO: 3 Course LO: Describe the major components of effective distribution Classification: Concept 56) ________ refers to a type of specialty store that focuses on specific products on a massive scale and dominates retail sales in respective products categories.

A) Warehouse club B) Department store C) Category killer D) Off-price store E) Hypermarket Answer: C Explanation: C) Huge specialty stores such as The Home Depot and Bed Bath & Beyond that tend to dominate those sectors of retail are known as category killers.

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57) PetCare is a retail store based in New York that offers only pet supplies and pet accessories.

The shop stocks a limited number of product lines such as dog and cat products (canned and dry food, and hard goods), and bird, fish and small animal products (fish tanks, stands, aquarium decorations, cages, bowls, perches, etc). The shop stocks several brands of varying prices rages within these product lines. PetCare can be classified as a(n) ________.

A) department store B) manufacturers' representative C) supermarket D) specialty store E) convenience store Answer: D Explanation: D) Specialty stores refer to stores that carry only a particular type of goods, often with deep selection in those specific categories.

Page Ref: 346 Difficulty: Difficult AACSB: Analytic Skills Chapter LO: 3 Course LO: Describe the major components of effective distribution Classification: Application 58) Discount stores differ from off-price retailers in that discount stores ________.

A) sell limited selections of designer labels at steep discounts B) use e-commerce technologies to sell over the Internet C) offer a limited range of convenience goods, long service hours, and quick checkouts D) feature a wide variety of aggressively priced everyday merchandise E) focus on specific products on a massive scale and dominate retail sales in respective products categories Answer: D Explanation: D) Discount stores feature a wide variety of aggressively priced everyday merchandise. Off-price retailers offer limited selections of higher-end products such as designer label clothing at steeply discounted prices.

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59) Off-price retailers differ from discount stores in that off-price retailers ________.

A) offer many customer services B) require club membership C) offer a limited range of convenience goods, long service hours, and quick checkouts D) sell a variety of everyday goods below the market price by keeping their overhead low E) sell designer labels and other fashionable products at steep discounts Answer: E Explanation: E) Off-price retailers offer limited selections of higher-end products such as designer label clothing at steeply discounted prices. Discount stores feature a wide variety of aggressively priced everyday merchandise.

Page Ref: 347 Difficulty: Moderate Chapter LO: 3 Course LO: Describe the major components of effective distribution Classification: Concept 60) Which of the following is a key feature of a supermarket?

A) It is a store that offers a complete selection in a narrow range of merchandise.

B) It is a large outlet store that sells discontinued items, overruns, and factory seconds.

C) It is a web-based store that offers anything from a single product line to comprehensive selections in multiple product areas.

D) It is a large, self-service store that offers a wide selection of food and non-food merchandise.

E) It is a store that sells designer labels and other fashionable products at steep discounts.

Answer: D Explanation: D) Supermarket is a large, self-service store that offers a wide selection of food and non-food merchandise.

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61) Which of the following statements is true about retailing formats?

A) Online retailers can be either Internet-only operations or online extensions of store-based operations.

B) Off-price retailers refer to large stores that carry a variety of products in multiple categories, such as clothing, house wares, gifts, bedding, and furniture.

C) Department stores sell various noncompeting products to customers in a specific region.

D) All retailing efforts can be divided into wholesalers and distributors.

E) The replacement of intermediaries by producers when the producers can perform channel functions more effectively is referred to as the wheel of retailing.

Answer: A Explanation: A) In the nonstore arena, online retailers can be either Internet-only operations such as fashion retailer Bluefly or online extensions of store-based operations, such as the sites run by J.C. Penney and other department stores.

Page Ref: 347 Difficulty: Moderate Chapter LO: 3 Course LO: Describe the major components of effective distribution Classification: Concept 62) Retail stores that exist for only a short time and are designed more as attention-getting events than as ongoing retail operations are called ________.

A) pop-up stores B) retail theaters C) hybrid stores D) off-price stores E) specialty stores Answer: A Explanation: A) Pop-up stores exist for only a short time and are designed more as attentiongetting events than as ongoing retail operations.

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63) Stores that specialize in Halloween costumes and decorations open in retail spots in middleclass areas during the beginning of September. These stores typically sell unusual items like animatronic witches, various stage props, as well as a range of makeup, wigs, etc. They are temporary stores, and close shortly after Halloween. These stores would be examples of ________.

A) pop-up stores B) retail theaters C) distributors D) off-price stores E) drop shippers Answer: A Explanation: A) Pop-up stores exist for only a short time and are designed more as attentiongetting events than as ongoing retail operations.

Page Ref: 348 Difficulty: Difficult AACSB: Analytic Skills Chapter LO: 3 Course LO: Describe the major components of effective distribution Classification: Application 64) ________ combine different types of retailers or different retail companies in the same facility.

A) Pop-up stores B) Interactive kiosks C) Off-price stores D) Factory outlets E) Hybrid stores Answer: E Explanation: E) Hybrid stores combine different types of retailers or different retail companies in the same facility.

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65) Hybrid stores differ from pop-up stores in that hybrid stores ________.

A) exist for only a short time B) combine different types of retailers in the same facility C) require club membership D) are designed more as attention-getting events than as ongoing retail operations E) focus on specific products on a massive scale Answer: B Explanation: B) Hybrid stores combine different types of retailers or different retail companies in the same facility. Pop-up stores exist for only a short time and are designed more as attentiongetting events than as ongoing retail operations.

Page Ref: 348 Difficulty: Moderate Chapter LO: 3 Course LO: Describe the major components of effective distribution Classification: Concept 66) The Bookstop, a chain of bookstores in the United States, sells books to individuals for personal use. The firm began with a traditional retail storefront, and then began to "sell through" mail order catalogs as well. Recently, the store also opened a website and sells its books online.

The website also allows customers to place requests for specific books that are not in the stock.

In this example, The Bookstop uses ________.

A) strategic sourcing B) disintermediation C) retail theater D) multichannel retailing E) wheel of retailing Answer: D Explanation: D) Multichannel retailing refers to coordinated efforts to reach consumers through more than one retail channel.

Page Ref: 348 Difficulty: Difficult AACSB: Analytic Skills Chapter LO: 3 Course LO: Describe the major components of effective distribution Classification: Application

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67) ________ refers to the addition of entertainment or education aspects to the retail experience.

A) Multichannel retailing B) Off-price retailers C) Unbundling of services D) Retail theater E) Wheel of retailing Answer: D Explanation: D) The addition of entertainment or education aspects to the retail experience is known as retail theater.

Page Ref: 348 Difficulty: Easy Chapter LO: 3 Course LO: Describe the major components of effective distribution Classification: Concept 68) When you enter a Sonicboom store, you won't find shelves of its products. Instead, it has attractive, interactive displays that help you "audition" various Sonicboom music players. The store has a soundproof room where customers can listen to music and play high-definition videos, see and hear the audio and video performance of Sonicboom products. Customers are given free monthly newsletters, with reviews of Sonicboom, and articles on latest trends in the music industry. This would be an example of ________.

A) strategic sourcing B) disintermediation C) retail theater D) multichannel retailing E) wheel of retailing Answer: C Explanation: C) Retail theater refers to the addition of entertainment or education aspects to the retail experience.

Page Ref: 348 Difficulty: Difficult AACSB: Analytic Skills Chapter LO: 3 Course LO: Describe the major components of effective distribution Classification: Application

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69) The ________ is a combination of intermediaries and channels that producers use to reach its target customers.

A) marketing mix B) trading channel C) distribution mix D) wheel of retailing E) market segmentation Answer: C Explanation: C) Distribution mix refers to a combination of intermediaries and channels a producer uses to reach target customers.

Page Ref: 349 Difficulty: Easy Chapter LO: 4 Course LO: Describe the major components of effective distribution Classification: Concept 70) Because grocery stores have limited shelf space for products, they often require a(n) ________ from producers before they will agree to carry a new, unproven product.

A) space allotment B) slotting allowance C) channel conflict allowance D) opportunity cost E) bandwidth payment Answer: B Explanation: B) In some industries, channel capacity is at such a premium that retailers can demand payments from producers in exchange for carrying their products for an agreed-upon length of time. These slotting allowances are now common in the grocery business, for example, particularly for new products.

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71) The number of layers between producers and their target customers is known as ________.

A) market coverage B) channel length C) logistics D) wheel of retailing E) multichannel retailing Answer: B Explanation: B) The number of layers between producers and their target customers is known as channel length. Distribution channels come in all shapes and sizes.

Page Ref: 351 Difficulty: Easy Chapter LO: 5 Course LO: Describe the major components of effective distribution Classification: Concept 72) Market coverage refers to ________.

A) the arrangements by which channel partners coordinate their activities under the leadership of one of the partners B) the number of layers between producers and target customers C) all the activities required to move finished products from the producer to the consumer D) the planning, movement, and flow of goods and related information throughout the supply chain E) the number of wholesalers or retailers that will carry a product Answer: E Explanation: E) Market coverage refers to the number of wholesalers or retailers that will carry a product. The appropriate market coverage depends on a number of factors in the marketing strategy.

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73) ________ refers to a market coverage strategy that tries to place a product in as many outlets as possible.

A) Intensive distribution B) Selective distribution C) Exclusive distribution D) Disintermediation E) Strategic sourcing Answer: A Explanation: A) Intensive distribution refers to a market coverage strategy that tries to place a product in as many outlets as possible. It requires wholesalers and retailers of many types.

Page Ref: 353 Difficulty: Easy Chapter LO: 5 Course LO: Describe the major components of effective distribution Classification: Concept 74) Only specially selected retailers are allowed to stock and sell the orthopedic shoes by Ace Footware Manufacturers. The firm sells through a limited number of retailers and develops solid working relationships with the retailers to ensure that the product is properly merchandised. The retailers selling the products also provide sales and service support for Ace Footware products.

Ace Footware Manufacturers uses which of the following market coverage strategies?

A) strategic sourcing B) multichannel retailing C) selective distribution D) retail theater E) disintermediation Answer: C Explanation: C) Selective distribution refers to selling through a limited number of outlets that can give the product adequate sales and service support.

Page Ref: 353 Difficulty: Difficult AACSB: Analytic Skills Chapter LO: 5 Course LO: Describe the major components of effective distribution Classification: Application

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75) CTM Manufacturers, a firm that manufactures luxury cars, offers its products in only one outlet in each market area. The car dealers are carefully chosen by the firm and monitored to ensure that CTM cars are properly merchandised. The firm chooses the optimum number of outlets carefully to balance cost and market coverage. CTM Manufacturers uses which of the following market coverage strategies?

A) selective distribution B) exclusive distribution C) intensive distribution D) disintermediation E) multichannel retailing Answer: B Explanation: B) Exclusive distribution refers to a market coverage strategy that gives intermediaries exclusive rights to sell a product in a specific geographic area.

Page Ref: 353 Difficulty: Difficult AACSB: Analytic Skills Chapter LO: 5 Course LO: Describe the major components of effective distribution Classification: Application 76) Hamilton Manufacturing Group manufactures stationary products such as various types of pens, papers, pencils, paper clips, etc. The firm tries to place a product in as many outlets as possible. Hamilton Manufacturing Group works with wholesalers and retailers of many types to ensure that their products have a wide market coverage. Hamilton Manufacturing Group uses which of the following strategies?

A) intensive distribution B) selective distribution C) multichannel retailing D) exclusive distribution E) disintermediation Answer: A Explanation: A) Intensive distribution refers to a market coverage strategy that tries to place a product in as many outlets as possible. It requires wholesalers and retailers of many types.

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77) Intensive distribution differs from selective distribution in that intensive distribution ________.

A) offers products in only one outlet in each market area B) tries to place a product in as many outlets as possible C) refers to producers that sell directly to consumers D) involves selling through a limited number of outlets E) involves retailers that give the product adequate sales and service support Answer: B Explanation: B) Intensive distribution is a market coverage strategy that tries to place a product in as many outlets as possible. Selective distribution is a market coverage strategy that uses a limited number of carefully chosen outlets to distribute products.

Page Ref: 353 Difficulty: Moderate Chapter LO: 5 Course LO: Describe the major components of effective distribution Classification: Concept 78) Exclusive distribution differs from intensive distribution in that exclusive distribution ________.

A) involves offering products in a limited number of outlets in each market area B) requires wholesalers and retailers of many types C) refer to producers who sell directly to customers D) tries to place a product in as many outlets as possible E) offers products in only one outlet in each market area Answer: E Explanation: E) Intensive distribution refers to a market coverage strategy that tries to place a product in as many outlets as possible. Exclusive distribution refers to a market coverage strategy that gives intermediaries exclusive rights to sell a product in a specific geographic area.

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79) Disagreement over rights and responsibilities of the organizations in a distribution channel is termed as ________.

A) shopper marketing B) category killer C) channel conflict D) disintermediation E) positioning Answer: C Explanation: C) Channel conflict refers to disagreement or tension between two or more members in a distribution channel, such as competition between channel partners trying to reach the same group of customers.

Page Ref: 353 Difficulty: Easy Chapter LO: 5 Course LO: Describe the major components of effective distribution Classification: Concept 80) Arrangements by which channel partners coordinate their activities under the leadership of one of the partners is termed as ________.

A) vertical integration B) benchmarking C) affirmative action D) marketing systems E) disintermediation Answer: D Explanation: D) Marketing systems refers to arrangements by which channel partners coordinate their activities under the leadership of one of the partners.

Page Ref: 353 Difficulty: Easy Chapter LO: 5 Course LO: Describe the major components of effective distribution Classification: Concept

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81) ________ refers to the planning, movement, and flow of goods and related information throughout the supply chain.

A) Logistics B) Distribution mix C) Wheel of retailing D) Marketing mix E) Multichannel retailing Answer: A Explanation: A) The planning, movement, and flow of goods and related information throughout the supply chain is termed as logistics. As managers try to squeeze cost efficiencies and competitive advantages everywhere they can, logistics has taken on key strategic importance for many companies.

Page Ref: 355 Difficulty: Easy Chapter LO: 6 Course LO: Describe the major components of effective distribution Classification: Concept 82) Advanced warehouse facilities that specialize in collecting and shipping merchandise are called ________.

A) distribution centers B) digital networks C) outboard transportations D) retail outlets E) warehouse clubs Answer: A Explanation: A) Distribution centers refer to advanced warehouse facilities that specialize in collecting and shipping merchandise.

Page Ref: 357 Difficulty: Easy Chapter LO: 6 Course LO: Describe the major components of effective distribution Classification: Concept

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83) Which of the following is the cheapest method of transportation?

A) rail B) trucks C) ships and barges D) pipelines E) air Answer: C Explanation: C) The cheapest method of transportation is via water, and this is the preferred method for such low-cost bulk items as oil, coal, ore, cotton, and lumber.

Page Ref: 357 Difficulty: Easy Chapter LO: 6 Course LO: Describe the major components of effective distribution Classification: Concept 84) ________ refers to the coordinated use of multiple modes of transportation, particularly with containers that can be shipped by truck, rail, and sea.

A) Digital networks B) Intermodal transportation C) Intensive distribution D) Selective distribution E) Marketing system Answer: B Explanation: B) Intermodal transportation refers to the coordinated use of multiple modes of transportation, particularly with containers that can be shipped by truck, rail, and sea.

Page Ref: 357 Difficulty: Easy Chapter LO: 6 Course LO: Describe the major components of effective distribution Classification: Concept

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85) Which of the following statements is true about physical distribution and logistics?

A) Physical distribution refers to the planning, movement, and flow of goods and related information throughout the supply chain.

B) Forecasting includes a number of activities, such as recording the sale, making the appropriate accounting entries, and billing the customer.

C) Containerized shipping restricts flexibility in transportation.

D) Air transport tends to be the cheapest method of transportation.

E) In a typical distribution center, goods produced at a variety of locations are collected, sorted, coded, and redistributed to fill customer orders.

Answer: E Explanation: E) Warehouses, known as distribution centers, serve as command posts for moving products to customers. In a typical distribution center, goods produced at a variety of locations are collected, sorted, coded, and redistributed to fill customer orders.

Page Ref: 357 Difficulty: Moderate Chapter LO: 6 Course LO: Describe the major components of effective distribution Classification: Concept 86) Compare and contrast wholesalers with retailers.

Answer: Intermediaries can be grouped into two general types: wholesalers and retailers.

Wholesalers sell to organizational customers, including other wholesalers, companies, government agencies, and educational institutions. In turn, the customers of wholesalers either resell the products or use them to make products of their own. Unlike wholesalers, retailers primarily sell products to consumers for personal use. The distinction is important because business strategies for wholesaling and retailing are dramatically different in many ways. Even when they buy the same products, consumers and organizations usually make purchases for different reasons. Because their motivations and expectations are different, consumers (reached by retailers) and organizations (reached by wholesalers) don't respond to marketing programs the same way.

Page Ref: 341 Difficulty: Difficult AACSB: Reflective Thinking Skills Chapter LO: 1 Course LO: Describe the major components of effective distribution Classification: Synthesis

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87) Discuss the distribution functions performed by wholesalers and retailers.

Answer: Wholesalers and retailers perform the following distribution functions: ∙ Matching buyers and sellers. By making sellers' products available to multiple buyers, intermediaries reduce the number of transactions between producers and customers. ∙ Providing market information. Retail intermediaries collect valuable data about customer purchases: who buys, how often, and how much. ∙ Providing promotional and sales support. Many intermediaries assist with advertising, in-store displays, and other promotional efforts for some or all of the products they sell. ∙ Gathering assortments of goods. Many intermediaries receive bulk shipments from producers and break them into more convenient units (known as breaking bulk) by sorting, standardizing, and dividing bulk quantities into smaller packages. ∙ Transporting and storing products. Intermediaries often maintain inventories of merchandise that they acquire from producers so they can quickly fill customers' orders. In many cases, retailers purchase this merchandise from wholesalers who, in addition to breaking bulk, may also transport the goods from the producer to the retail outlets. ∙ Assuming risks. When intermediaries accept goods from manufacturers, they usually take on the risks associated with damage, theft, product perishability (in the sense of tangible goods that are vulnerable to rotting, for instance), and obsolescence. ∙ Providing financing. Large intermediaries sometimes provide loans to smaller producers. ∙ Completing product solutions. In some industries, producers rely on a class of intermediaries often called value-added resellers (VARs) or system integrators to complete or customize solutions for customers. ∙ Facilitating transactions and supporting customers. Intermediaries can perform a variety of functions that help with the selection, purchase, and use of products.

Page Ref: 342; 343 Difficulty: Moderate Chapter LO: 1 Course LO: Describe the major components of effective distribution Classification: Concept 88) Compare and contrast merchant wholesalers with agents and brokers.

Answer: The majority of wholesalers are merchant wholesalers, independently-owned businesses that buy from producers, take legal title to the goods, and then resell them to retailers or to organizational buyers. Most merchant wholesalers are small businesses, but the field includes a handful of multibillion-dollar firms. Unlike merchant wholesalers, agents and brokers never actually own the products they handle, and they perform fewer services. Their primary role is to bring buyers and sellers together; they are generally paid a commission (a percentage of the money received) for arranging sales.

Page Ref: 344 Difficulty: Difficult AACSB: Reflective Thinking Skills Chapter LO: 2 Course LO: Describe the major components of effective distribution Classification: Synthesis

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89) Compare and contrast full-service merchant wholesalers with limited-service merchant wholesalers.

Answer: Full-service merchant wholesalers provide a wide variety of services, such as storage, selling, order processing, delivery, and promotional support. Rack jobbers, for example, are fullservice merchant wholesalers that set up displays in retail outlets, stock inventory, and perform other services such as marking prices on merchandise. Limited-service merchant wholesalers, on the other hand, provide fewer services. Natural resources such as lumber, grain, and coal are usually marketed through a class of limited-service wholesalers called drop shippers, which take ownership, but not physical possession, of the goods they handle.

Page Ref: 344 Difficulty: Difficult AACSB: Reflective Thinking Skills Chapter LO: 2 Course LO: Describe the major components of effective distribution Classification: Synthesis 90) What is disintermediation? What are the similarities and differences between disintermediation and unbundling of services?

Answer: The threat of disintermediation and the unbundling of services are two trends shaping wholesaling.

Threat of disintermediation: For many years, and particularly since the advent of the Internet and the growth of e-commerce, various observers have predicted the widespread disintermediation of wholesalers, meaning their role would be taken over by manufacturers on the upstream end or by customers (retailers and other organizational buyers) on the downstream end.

Unbundling of services:The conventional way that merchant wholesalers generate revenue and earn profits is by purchasing products from manufacturers at a discount and reselling them to retailers or organizational buyers at a markup. Whatever services a wholesaler provides are covered by that markup. However, a growing number of wholesaling customers would like to see these services "unbundled" so they can pay for specific distribution services individually. If this trend catches on, it could change the business model for many wholesalers.

Page Ref: 345 Difficulty: Difficult AACSB: Reflective Thinking Skills Chapter LO: 2 Course LO: Describe the major components of effective distribution Classification: Synthesis

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91) What is the wheel of retailing?

Answer: Wheel of retailing refers to an evolutionary process by which stores that feature low prices gradually upgrade until they no longer appeal to price-sensitive shoppers and are replaced by a new generation of leaner, low-price competitors. For instance, Walmart reshaped retailing with low prices enabled by the company's extraordinary abilities at cost control and efficiency but now finds itself facing new low-price competition from the likes of Family Dollar Stores and Dollar General.

Page Ref: 346 Difficulty: Easy Chapter LO: 3 Course LO: Describe the major components of effective distribution Classification: Concept 92) Compare and contrast department stores with specialty stores.

Answer: Department stores refer to large stores that carry a variety of products in multiple categories, such as clothing, house wares, gifts, bedding, and furniture. Specialty stores refer to stores that carry only a particular type of goods, often with deep selection in those specific categories. Huge specialty stores such as The Home Depot and Bed Bath & Beyond that tend to dominate those sectors of retail are known as category killers.

Page Ref: 346 Difficulty: Difficult AACSB: Reflective Thinking Skills Chapter LO: 3 Course LO: Describe the major components of effective distribution Classification: Synthesis 93) Compare and contrast discount stores with off-price retailers?

Answer: Retailers can also be distinguished by their pricing strategies. Family Dollar Stores and Walmart, for example, are discount stores, which feature a wide variety of aggressively priced everyday merchandise. Discount stores are retailers that sell a variety of everyday goods below the market price by keeping their overhead low. Off -price retailers such as Filene's Basement and T.J. Maxx take a slightly different approach, offering more limited selections of higher-end products such as designer label clothing at steeply discounted prices.

Page Ref: 347 Difficulty: Difficult AACSB: Reflective Thinking Skills Chapter LO: 3 Course LO: Describe the major components of effective distribution Classification: Synthesis

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94) Compare and contrast multichannel retailing with retail theater.

Answer: The growth in online retailing reflects the fact that today's consumers increasingly combine online and offline shopping, such as researching products online and then making the purchase in a physical store or the other way around. To stay in contact with consumers as they move from one retail channel to the next, more companies now emphasize multichannel retailing, a term for any coordinated effort to reach customers through more than one retail channel. Retail theater refers to the addition of entertainment or education aspects to the retail experience. Increasingly, retail stores aren't just places to buy things; they're becoming places to research new technologies, learn about cooking, socialize, or simply be entertained for a few minutes while going through the drudgery of picking out the week's groceries.

Page Ref: 348 Difficulty: Difficult AACSB: Reflective Thinking Skills Chapter LO: 3 Course LO: Describe the major components of effective distribution Classification: Synthesis 95) What is a distribution mix? List the issues that need to be considered while choosing distribution channels.

Answer: Distribution mix refers to a combination of intermediaries and channels a producer uses to reach target customers. The ideal distribution mix varies widely from industry to industry and even from company to company within the same industry. Defining a distribution strategy requires consideration of such issues as customer needs and expectations; product support requirements; segmentation, targeting, and positioning objectives; competitors' distribution channels; and established distribution patterns and requirements.

Page Ref: 349 Difficulty: Easy Chapter LO: 4 Course LO: Describe the major components of effective distribution Classification: Concept 96) What are slotting allowances?

Answer: In some industries, channel capacity is at such a premium that retailers can demand payments from producers in exchange for carrying their products for an agreed-upon length of time. These slotting allowances are now common in the grocery business, for example, particularly for new products. Retailers are naturally reluctant to give up shelf space to unproven products, so slotting allowances help offset the financial risk of bringing in new products.

Slotting allowances have grown common enough, in fact, that economic policymakers have begun to investigate their potential impact on competition and consumer prices.

Page Ref: 350 Difficulty: Easy Chapter LO: 4 Course LO: Describe the major components of effective distribution Classification: Concept

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97) Compare and contrast intensive distribution with selective distribution.

Answer: Intensive distribution refers to a market coverage strategy that tries to place a product in as many outlets as possible. Inexpensive convenience goods or organizational supplies such as computer paper and pens sell best if they are available in as many outlets as possible. Such intensive distribution requires wholesalers and retailers of many types. In contrast, shopping goods such as home appliances and autos require different market coverage, because customers shop for such products by comparing features and prices. For these items, the best strategy is usually selective distribution, selling through a limited number of outlets that can give the product adequate sales and service support.

Page Ref: 353 Difficulty: Difficult AACSB: Reflective Thinking Skills Chapter LO: 5 Course LO: Describe the major components of effective distribution Classification: Synthesis 98) Discuss marketing systems.

Answer: To minimize costs and the potential for channel conflict, channel partners can take steps to work out issues of organization and control. Without some degree of coordination, the various companies involved will pursue their own economic interests, often to the detriment of the channel as a whole. Producers and intermediaries can achieve this coordination through marketing systems, in which the channel participants agree to operate as a cohesive system under the leadership of one of the participants. The agreement can be brought about through ownership (when the production and distribution firms are owned by a single company), contracts (when the participants have formal agreements that specify their rights and responsibilities), and economic power (when one player is so big that its economic presence is enough to encourage or even force cooperation from the other participants in the channel).

Page Ref: 353; 354 Difficulty: Moderate Chapter LO: 5 Course LO: Describe the major components of effective distribution Classification: Concept

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99) Compare and contrast order processing with warehousing.

Answer: Order processing involves preparing orders for shipment and receiving orders when shipments arrive. It includes a number of activities, such as checking the customer's credit, recording the sale, making the appropriate accounting entries, arranging for the item to be shipped, adjusting the inventory records, and billing the customer. Because order processing involves direct interaction with the customer, it affects a company's reputation for customer service. To keep buyers happy, companies should establish ambitious standards for accuracy and timeliness in order fulfillment.

Products held in inventory are physically stored in warehouses, which may be owned by the manufacturer, by an intermediary, or by a private company that leases space to others. Some warehouses are almost purely holding facilities, in which goods are stored for relatively long periods. Other warehouses, known as distribution centers, serve as command posts for moving products to customers. In a typical distribution center, goods produced at a variety of locations are collected, sorted, coded, and redistributed to fill customer orders. Leading edge distribution centers use some of the most advanced technologies in business today.

Page Ref: 356; 357 Difficulty: Difficult AACSB: Reflective Thinking Skills Chapter LO: 6 Course LO: Describe the major components of effective distribution Classification: Synthesis 100) Compare and contrast transportation through air with transportation via water. What is intermodal transportation.

Answer: Air transport offers the primary advantage of speed over long distances, but it imposes limitations on the size, shape, and weight of shipments. It also tends to be the most expensive form of transportation; however, when speed is a priority, air is usually the only way to go. The cheapest method of transportation is via water, and this is the preferred method for such low-cost bulk items as oil, coal, ore, cotton, and lumber. Water transport is slow, however, and like rail, must be combined with another mode of delivery for most shipments. Intermodal transportation refers to the coordinated use of multiple modes of transportation, particularly with containers that can be shipped by truck, rail, and sea. Shippers can combine the benefits of multiple modes by using intermodal transportation. With containerized shipping, for instance, standard-size freight containers can be moved from trucks to railroads to ships for maximum flexibility.

Page Ref: 357 Difficulty: Difficult AACSB: Reflective Thinking Skills Chapter LO: 6 Course LO: Describe the major components of effective distribution Classification: Synthesis

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Business in Action, 6e (Bovee/Thill) Chapter 16 Customer Communication 1) The new social model of customer communication is unidirectional and intrusive.

Answer: FALSE Explanation: The new social model of customer communication is multidirectional and less intrusive.

Page Ref: 365 Difficulty: Easy Chapter LO: 1 Course LO: Describe the major components of effective promotion Classification: Concept 2) Reminder advertising tells past customers that a product is still available or a company is ready to serve their needs.

Answer: TRUE Explanation: Reminder advertising tells past customers that a product is still available or a company is ready to serve their needs.

Page Ref: 365 Difficulty: Easy Chapter LO: 1 Course LO: Describe the major components of effective promotion Classification: Concept 3) Six months after you bought a new car, you receive a letter from the manufacturer telling you about a special price being offered by the dealer for an oil change. This is an example of "reminder advertising."

Answer: TRUE Explanation: Past customers are often the best prospects for future sales, so reminder advertising tells these buyers that a product is still available or a company is ready to serve their needs.

Page Ref: 365 Difficulty: Moderate AACSB: Analytic Skills Chapter LO: 1 Course LO: Describe the major components of effective promotion Classification: Application

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4) One of the most significant changes that the social communication model has brought to marketing is that companies now have far less control of their messages.

Answer: TRUE Explanation: One of the most significant changes that the social communication model has brought to marketing is that companies now have far less control of their messages.

Page Ref: 365 Difficulty: Moderate Chapter LO: 1 Course LO: Describe the major components of effective promotion Classification: Concept 5) The blend of communication vehicles a company uses to reach its current and potential customers is its marketing mix.

Answer: FALSE Explanation: Communication mix refers to a blend of communication vehicles–advertising, direct marketing, personal selling, sales promotion, social media, and public relations–that a company uses to reach current and potential customers.

Page Ref: 366 Difficulty: Easy Chapter LO: 1 Course LO: Describe the major components of effective promotion Classification: Concept 6) With a push strategy, the producer appeals directly to end customers.

Answer: FALSE Explanation: With a pull strategy, the producer appeals directly to end customers.

Page Ref: 366 Difficulty: Easy Chapter LO: 1 Course LO: Describe the major components of effective promotion Classification: Concept 7) According to the FTC, you can support claims for your product by offering a money-back guarantee or providing letters from satisfied customers.

Answer: FALSE Explanation: According to the FTC, offering a money-back guarantee or providing letters from satisfied customers is not enough to back up claims.

Page Ref: 367 Difficulty: Moderate AACSB: Ethical Understanding and Reasoning Abilities Chapter LO: 1 Course LO: Describe the major components of effective promotion Classification: Concept

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8) Comparative advertising is useful whenever a company believes it has some specific product strengths that are important to customers.

Answer: TRUE Explanation: Comparative advertising is useful whenever a company believes it has some specific product strengths that are important to customers.

Page Ref: 369 Difficulty: Easy Chapter LO: 2 Course LO: Describe the major components of effective promotion Classification: Concept 9) Institutional advertising refers to advertising that presents a company's opinions on public issues such as education or health care.

Answer: FALSE Explanation: Institutional advertising is designed to create goodwill and build a desired image for a company rather than to promote specific products.

Page Ref: 369 Difficulty: Easy Chapter LO: 2 Course LO: Describe the major components of effective promotion Classification: Concept 10) Business-to-business advertising relies heavily on emotional appeals.

Answer: FALSE Explanation: Business-to-business advertising relies heavily on logical appeals rather than emotional appeals because businesses have logical concerns–profitability, process improvements, quality, and other financial and technical concerns.

Page Ref: 369 Difficulty: Moderate Chapter LO: 2 Course LO: Describe the major components of effective promotion Classification: Concept 11) The thinking behind celebrity involvement in advertising is that people will be more inclined to use products endorsed by a celebrity because they will identify with and want to be like this person.

Answer: TRUE Explanation: The thinking behind celebrity involvement in advertising is that people will be more inclined to use products endorsed by a celebrity because they will identify with and want to be like this person.

Page Ref: 370 Difficulty: Easy Chapter LO: 2 Course LO: Describe the major components of effective promotion Classification: Concept

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12) One of the biggest disadvantages to advertising in newspapers is declining readership in many cities.

Answer: TRUE Explanation: One of the biggest disadvantages to advertising in newspapers is declining readership in many cities.

Page Ref: 372 Difficulty: Moderate Chapter LO: 2 Course LO: Describe the major components of effective promotion Classification: Concept 13) The paid display or use of products in television shows, movies, and video games is referred to as media mix.

Answer: FALSE Explanation: The paid display or use of products in television shows, movies, and video games is referred to as product placement.

Page Ref: 373 Difficulty: Easy Chapter LO: 2 Course LO: Describe the major components of effective promotion Classification: Concept 14) When you go to a website for textbooks, a pop-up ad appears for another company. This is an example of direct marketing.

Answer: FALSE Explanation: Direct marketing refers to direct communication other than personal sales contacts designed to stimulate a measurable response.

Page Ref: 374 Difficulty: Moderate Chapter LO: 3 Course LO: Describe the major components of effective promotion Classification: Concept 15) The measurability of direct marketing is one of its greatest appeals.

Answer: TRUE Explanation: The impact of direct marketing is measured easily. This feature appeals to many marketers.

Page Ref: 374 Difficulty: Easy Chapter LO: 3 Course LO: Describe the major components of effective promotion Classification: Concept

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16) Targeted display advertising allows customers or website visitors to opt-in to mailing lists.

Answer: FALSE Explanation: Targeted display advertising involves ads with graphical (as opposed to just textual) content served up on web pages based on some knowledge of an individual's interests or behaviors.

Page Ref: 375 Difficulty: Easy Chapter LO: 3 Course LO: Describe the major components of effective promotion Classification: Concept 17) National Do Not Call Registry gives individuals the opportunity to have their numbers removed from telemarketers' lists.

Answer: TRUE Explanation: Congress created the National Do Not Call Registry, which gives individuals the opportunity to have their numbers removed from telemarketers' lists.

Page Ref: 375 Difficulty: Easy Chapter LO: 3 Course LO: Describe the major components of effective promotion Classification: Concept 18) The first step in the personal-selling process is uncovering needs and presenting solutions.

Answer: FALSE Explanation: The first step in personal selling is prospecting, the process of finding and qualifying potential customers.

Page Ref: 377 Difficulty: Easy Chapter LO: 4 Course LO: Describe the major components of effective promotion Classification: Concept 19) In a canned sales pitch, the salesperson focuses on questioning and listening before offering a solution that meets each prospect's unique needs.

Answer: FALSE Explanation: In the canned sales pitch, a salesperson recites or even reads a stock message, with no regard for the customer's unique circumstances.

Page Ref: 377 Difficulty: Easy Chapter LO: 4 Course LO: Describe the major components of effective promotion Classification: Concept

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20) Sales promotion consists of two basic categories: consumer promotion and trade promotion.

Answer: TRUE Explanation: Sales promotion consists of two basic categories: consumer promotion and trade promotion.

Page Ref: 378 Difficulty: Easy Chapter LO: 5 Course LO: Describe the major components of effective promotion Classification: Concept 21) Paper couponing is an efficient technique.

Answer: FALSE Explanation: Paper couponing is an inefficient technique. Consumers redeem only 1 percent of the 300 billion printed coupons distributed every year in the United States.

Page Ref: 378 Difficulty: Easy Chapter LO: 5 Course LO: Describe the major components of effective promotion Classification: Concept 22) With rebates, companies offer partial reimbursement of the price as a purchase incentive.

Answer: TRUE Explanation: With rebates, companies offer partial reimbursement of the price as a purchase incentive.

Page Ref: 379 Difficulty: Easy Chapter LO: 5 Course LO: Describe the major components of effective promotion Classification: Concept 23) The chief downside of trade allowances is that they can create the controversial practice of forward buying, in which customers load up on merchandise while the price is low.

Answer: TRUE Explanation: The chief downside of trade allowances is that they can create the controversial practice of forward buying, in which customers load up on merchandise while the price is low.

Page Ref: 380 Difficulty: Moderate Chapter LO: 5 Course LO: Describe the major components of effective promotion Classification: Concept

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24) The social communication model is limited to the consumer sector.

Answer: FALSE Explanation: The social communication model is by no means limited to the consumer sector.

Technical professionals were using the Internet for communication years before the World Wide Web was invented.

Page Ref: 381 Difficulty: Moderate Chapter LO: 6 Course LO: Describe the major components of effective promotion Classification: Concept 25) Brand communities refer to formal or informal groups of people united by their interest in and ownership of particular products.

Answer: TRUE Explanation: Brand communities refer to formal or informal groups of people united by their interest in and ownership of particular products.

Page Ref: 382 Difficulty: Easy Chapter LO: 6 Course LO: Describe the major components of effective promotion Classification: Concept 26) The new social model of customer communication differs from the conventional promotion model in that the social communication model ________.

A) is unidirectional and intrusive B) is hierarchical and static C) views audiences as passive recipients of messages D) is interactive and conversational E) broadcasts carefully scripted messages to a mass audience Answer: D Explanation: D) In contrast to the "we talk, you listen" mindset of the past, this new social communication model is interactive and conversational.

Page Ref: 364 Difficulty: Moderate Chapter LO: 1 Course LO: Describe the major components of effective promotion Classification: Concept

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27) The conventional promotion model differs from the new social model of customer communication in that the conventional promotion model ________.

A) tends to be interactive and conversational B) tends to be bidirectional or multidirectional C) tends to have a higher message frequency D) focuses on collaboration with customers E) tends to be intrusive and unidirectional Answer: E Explanation: E) Conventional promotion model tendencies include intrusion and unidirectional communication. In contrast to the "we talk, you listen" mindset of the past, the new social communication model is interactive and conversational.

Page Ref: 364; 365 Difficulty: Moderate Chapter LO: 1 Course LO: Describe the major components of effective promotion Classification: Concept 28) The defining characteristic of which of the following types of advertisements is that it tells past customers that a product is still available or a company is ready to serve their needs?

A) reminder advertising B) cooperative advertising C) bait and switch advertising D) comparative advertising E) advocacy advertising Answer: A Explanation: A) Reminder advertising refers to reminding past customers that a product is still available or a company is ready to serve their needs.

Page Ref: 365 Difficulty: Easy Chapter LO: 1 Course LO: Describe the major components of effective promotion Classification: Concept

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29) The single most important idea the company hopes to convey to its target audience about a product is the ________.

A) promotional mix B) marketing mix C) core message D) call to action E) media mix Answer: C Explanation: C) The core message is the single most important idea the company hopes to convey to the target audience about a product.

Page Ref: 365 Difficulty: Easy Chapter LO: 1 Course LO: Describe the major components of effective promotion Classification: Concept 30) In the commercial for their new asthma drug, CHL Pharmaceuticals suggests that viewers should consult with their doctors for more information about the medication. In this example, CHL Pharmaceuticals uses which of the following strategies?

A) push strategy B) bait and switch C) behavioral targeting D) pull strategy E) remarketing Answer: D Explanation: D) Pull strategy refers to a promotional strategy that stimulates consumer demand via advertising and other communication efforts, thereby creating a pull effect through the channel.

Page Ref: 366 Difficulty: Moderate Chapter LO: 1 Course LO: Describe the major components of effective promotion Classification: Concept

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31) A promotional strategy that focuses on intermediaries is termed as ________.

A) push strategy B) digital strategy C) pull strategy D) operations strategy E) pricing strategy Answer: A Explanation: A) Push strategy refers to a promotional strategy that focuses on intermediaries, motivating them to promote, or push, products toward end users.

Page Ref: 366 Difficulty: Easy Chapter LO: 1 Course LO: Describe the major components of effective promotion Classification: Concept 32) A promotional strategy that directly stimulates consumer demand via advertising and other communication efforts is known as ________.

A) pricing strategy B) push strategy C) digital strategy D) pull strategy E) operations strategy Answer: D Explanation: D) Pull strategy refers to a promotional strategy that stimulates consumer demand via advertising and other communication efforts, thereby creating a pull effect through the channel.

Page Ref: 366 Difficulty: Easy Chapter LO: 1 Course LO: Describe the major components of effective promotion Classification: Concept 33) Push strategy differs from pull strategy because in push strategy a producer ________.

A) appeals directly to end customers B) uses integrated marketing communications C) focuses on wholesalers or retailers D) uses reminder advertising E) uses "bait and switch" advertising Answer: C Explanation: C) With a push strategy, a producer focuses on intermediaries, trying to persuade wholesalers or retailers to carry its products and promote those products to their customers.

Conversely, with a pull strategy, the producer appeals directly to end customers.

Page Ref: 366 Difficulty: Moderate Chapter LO: 1 Course LO: Describe the major components of effective promotion Classification: Concept 10 .

34) Pull strategy differs from push strategy because in pull strategy a producer ________.

A) supports advertising claims with real evidence B) appeals directly to end customers C) focuses on intermediaries D) motivates wholesalers to promote its products E) uses integrated marketing communications Answer: B Explanation: B) With a push strategy, a producer focuses on intermediaries, trying to persuade wholesalers or retailers to carry its products and promote those products to their customers.

Conversely, with a pull strategy, the producer appeals directly to end customers.

Page Ref: 366 Difficulty: Moderate Chapter LO: 1 Course LO: Describe the major components of effective promotion Classification: Concept 35) Roseberry Inc., an American grocery manufacturing firm, introduces a new brand of cookies and snacks called TasteyBites. The firm negotiates with several retailers and wholesalers to stock TasteyBites range of cookies and snacks, as well as promote them thorough in-store marketing activities. However, the firm does not directly market its products to end consumers. In this example, Roseberry Inc. uses which of the following promotional strategies?

A) digital strategy B) pull strategy C) operations strategy D) pricing strategy E) push strategy Answer: E Explanation: E) Push strategy refers to a promotional strategy that focuses on intermediaries, motivating them to promote, or push, products toward end users.

Page Ref: 366 Difficulty: Difficult AACSB: Analytic Skills Chapter LO: 1 Course LO: Describe the major components of effective promotion Classification: Application

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36) FunLearning Inc. is an American manufacturer of science kits and build-it toys for children between 3 and 12 years of age. The firm uses organic and eco-friendly policies. It invests a lot of money in advertisements aimed at increasing its brand awareness. The advertisements encourage customers to ask local retailers for FunLearning toys. In this example, FunLearning Inc. uses which of the following promotional strategies?

A) operations strategy B) digital strategy C) pull strategy D) push strategy E) pricing strategy Answer: C Explanation: C) Pull strategy refers to a promotional strategy that stimulates consumer demand via advertising and other communication efforts, thereby creating a pull effect through the channel.

Page Ref: 366 Difficulty: Difficult AACSB: Analytic Skills Chapter LO: 1 Course LO: Describe the major components of effective promotion Classification: Application 37) Trying to attract buyers by advertising a product that you don't intend to sell, and then trying to sell them another, usually more expensive, product is known as ________.

A) stealth advertising B) bait and switch advertising C) implied claims D) reminder advertising E) a push strategy Answer: B Explanation: B) Trying to attract buyers by advertising a product that you don't intend to sell, and then trying to sell them another (and usually more expensive) product is known as bait and switch advertising.

Page Ref: 367 Difficulty: Easy Chapter LO: 1 Course LO: Describe the major components of effective promotion Classification: Concept

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38) The government agency that has the authority to impose penalties against advertisers who violate federal standards for truthful advertising is the ________.

A) Federal Communications Commission B) Consumer Product Safety Commission C) Federal Trade Commission D) Federal Advertising Administration E) Federal Regulatory Commission Answer: C Explanation: C) In the United States, the Federal Trade Commission (FTC) has the authority to impose penalties against advertisers that violate federal standards for truthful advertising.

Page Ref: 367 Difficulty: Easy Chapter LO: 1 Course LO: Describe the major components of effective promotion Classification: Concept 39) E-Shopper is an online retailer of books, movies, music, games, electronics, toys, apparel and general home items. The firm tracks the online activities of website visitors such as the links that their website visitors click on, the searches they make, and the things that they interact with.

Based on this information, they serve up ads based on what the website visitor appears to be interested in. In this example, E-Shopper uses which of the following promotional strategies?

A) behavioral targeting B) bait and switch advertising C) remarketing D) comparative advertising E) reminder advertising Answer: A Explanation: A) Behavioral targeting tracks the online behavior of website visitors and serves up ads based on what they appear to be interested in.

Page Ref: 368 Difficulty: Difficult AACSB: Analytic Skills Chapter LO: 1 Course LO: Describe the major components of effective promotion Classification: Concept

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40) In ________, behaviorally targeted ads follow users even as they move on to other Web sites.

A) attack ads B) advocacy advertising C) cooperative advertising D) remarketing E) search engine marketing Answer: D Explanation: D) Remarketing is a communication strategy in which behaviorally targeted ads follow users even as they move on to other websites.

Page Ref: 368 Difficulty: Easy Chapter LO: 1 Course LO: Describe the major components of effective promotion Classification: Concept 41) KM Group, a home products manufacturer, owns a brand of paper towels called EasyWipes.

The firm creates a commercial showing how an EasyWipes paper towel absorbs a spill faster than the competitor's paper towel. In this example, the commercial used by KM Group can be classified as a(n) ________ advertising.

A) institutional B) guerrilla C) comparative D) stealth E) cooperative Answer: C Explanation: C) The term comparative advertising is applied to ads that specifically highlight how one product is better than its competitors. Strong comparative messages can boost sales, but the approach is risky.

Page Ref: 369 Difficulty: Difficult AACSB: Analytic Skills Chapter LO: 2 Course LO: Describe the major components of effective promotion Classification: Concept

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42) A television commercial promoting a new range of naturally-flavoured ice creams, manufactured by Ice Fountain, an ice cream and candy manufacturing firm, is an example of which of the following elements in the communication mix?

A) institutional advertising B) sales promotion C) social media D) product advertising E) personal selling Answer: D Explanation: D) Product advertising promotes the features and benefits of specific products.

Page Ref: 369 Difficulty: Moderate Chapter LO: 2 Course LO: Describe the major components of effective promotion Classification: Concept 43) Institutional advertisements that present a company's point of view on public issues such as education or health care are known as ________ advertising.

A) product B) comparative C) cooperative D) advocacy E) consultative Answer: D Explanation: D) Institutional ads that address public issues are called advocacy advertising.

Page Ref: 369 Difficulty: Easy Chapter LO: 2 Course LO: Describe the major components of effective promotion Classification: Concept 44) Advertising that seeks to create goodwill and to build a desired image for a company, rather than to promote specific products is termed as ________.

A) product advertising B) institutional advertising C) comparative advertising D) bait and switch advertising E) reminder advertising Answer: B Explanation: B) Institutional advertising refers to advertising that seeks to create goodwill and to build a desired image for a company, rather than to promote specific products.

Page Ref: 369 Difficulty: Easy Chapter LO: 2 Course LO: Describe the major components of effective promotion Classification: Concept 15 .

45) ________ involves a financial arrangement in which companies with products sold nationally share the costs of local advertising with local marketing intermediaries.

A) Cooperative advertising B) Prospecting C) Canned sales pitch D) Specialty advertising E) Trade allowances Answer: A Explanation: A) Cooperative advertising involves a financial arrangement in which companies with products sold nationally share the costs of local advertising with local marketing intermediaries.

Page Ref: 369 Difficulty: Easy Chapter LO: 2 Course LO: Describe the major components of effective promotion Classification: Concept 46) Premium Hardware is an American manufacturer of hardware products that sells its products across the country. The firm runs a full-page ad in the local newspapers in Chicago, advertising specials that are available at Venture Hardware Store, a chain of retail outlets in Chicago. Since both Venture Hardware Store and Premium Hardware have shared the cost of this ad, this would be ________ advertising.

A) comparative B) bait and switch C) reminder D) specialty E) cooperative Answer: E Explanation: E) Cooperative advertising involves a financial arrangement in which companies with products sold nationally share the costs of local advertising with local marketing intermediaries.

Page Ref: 369 Difficulty: Difficult AACSB: Analytic Skills Chapter LO: 2 Course LO: Describe the major components of effective promotion Classification: Application

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47) TechSmart Inc., a software solutions firm, runs full-page advertisements in the newspaper and commercials emphasizing the firm's commitment to employment generation, affirmative action, and multiculturalism. The aim of the promotional strategy is to create goodwill and build a positive image for the firm. In this example, TechSmart Inc. uses ________ advertising.

A) product advertising B) institutional advertising C) comparative advertising D) bait and switch advertising E) reminder advertising Answer: B Explanation: B) Institutional advertising refers to advertising that seeks to create goodwill and to build a desired image for a company, rather than to promote specific products.

Page Ref: 369 Difficulty: Difficult AACSB: Analytic Skills Chapter LO: 2 Course LO: Describe the major components of effective promotion Classification: Application 48) Amgen Laboratories Ltd., a pharmaceutical company, runs advertisements and commercials promoting child health and stressing healthy eating habits in children. These advertisements also provide health tips to parents. In this example, Amgen Laboratories Ltd. uses ________ advertising.

A) product B) comparative C) advocacy D) cooperative E) consultative Answer: C Explanation: C) Institutional ads that address public issues are called advocacy advertising.

Page Ref: 369 Difficulty: Difficult AACSB: Analytic Skills Chapter LO: 2 Course LO: Describe the major components of effective promotion Classification: Application

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49) ________ refers to a creative tactic designed to capture the audience's attention and promote preference for the product or company being advertised.

A) Media mix B) Advertising appeal C) Advertising media D) Specialty advertising E) Communication mix Answer: B Explanation: B) Advertising appeal refers to a creative tactic designed to capture the audience's attention and promote preference for the product or company being advertised.

Page Ref: 369 Difficulty: Easy Chapter LO: 2 Course LO: Describe the major components of effective promotion Classification: Concept 50) Myers and Co., a firm that manufactures fire alarm systems for organizational customers, uses statistics, product testing reports, and other quality assurance certificates to convince corporate clients of the effectiveness of their products. In this example, Myers and Co. uses advertising appeal based on ________.

A) logic B) emotion C) humor D) scarcity E) sentiment Answer: A Explanation: A) The basic approach with a logical appeal is to make a claim based on a rational argument supported by solid evidence.

Page Ref: 369 Difficulty: Moderate AACSB: Analytic Skills Chapter LO: 2 Course LO: Describe the major components of effective promotion Classification: Application

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51) The ad that tells you to "call within the next ten minutes because supplies are limited" is using advertising appeal based on ________.

A) logic B) emotion C) humor D) scarcity E) sentiment Answer: D Explanation: D) If a product is in limited supply or available only for a limited time, advertisers can use this scarcity to encourage consumer responses.

Page Ref: 370 Difficulty: Moderate Chapter LO: 2 Course LO: Describe the major components of effective promotion Classification: Concept 52) Which of the following is an advantage of using newspapers as an advertising media?

A) long lead time for placing ads B) low visual competition from other ads C) extensive market coverage D) long life span E) printed papers have rapidly increasing readership in most cities Answer: C Explanation: C) Newspapers have several advantages such as extensive market coverage, low cost, short lead time for placing ads, good local market coverage, geographic selectivity, and credibility.

Page Ref: 372 Difficulty: Moderate Chapter LO: 2 Course LO: Describe the major components of effective promotion Classification: Concept 53) One significant advantage to using television for advertising is the ________.

A) entertainment carryover B) high audience selectivity C) long life for the message D) short preparation time E) low cost for production Answer: A Explanation: A) Some of the advantages of using television as an advertising media include great impact, broad reach, appealing to senses of sight, sound, and motion, creative opportunities for demonstration, high attention, and entertainment carryover.

Page Ref: 372 Difficulty: Easy Chapter LO: 2 Course LO: Describe the major components of effective promotion Classification: Concept 19 .

54) Which of the following is an advantage of product placement?

A) It is predictable.

B) Its effectiveness is independent of the popularity of the programming.

C) It provides extensive choice of vehicles.

D) It offers a way to get around viewers' advertising filters.

E) It has low visibility.

Answer: D Explanation: D) Some of the advantages of using product placement are: it offers a way to get around viewers' advertising filters; and there is a chance for high visibility in the right program, movie, or game.

Page Ref: 372 Difficulty: Moderate Chapter LO: 2 Course LO: Describe the major components of effective promotion Classification: Concept 55) Which of the following is a disadvantage of product placement?

A) It cannot get around viewers' advertising filters.

B) It is predictable.

C) It provides extensive choice of vehicles.

D) It has less scope for visibility in the right program.

E) Its effectiveness is linked to the popularity of the programming.

Answer: E Explanation: E) Some of the disadvantages of using product placement are: limited choice of vehicles, unpredictable, effectiveness is linked to the popularity of the programming, and risk of overuse could reduce effectiveness over time.

Page Ref: 372 Difficulty: Moderate Chapter LO: 2 Course LO: Describe the major components of effective promotion Classification: Concept

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56) Which of the following is a disadvantage of using fixed web (from stationary computers) as an advertising media?

A) reduced clutter B) limited media options C) cannot be measured D) changes and additions cannot be made easily E) extreme degree of audience fragmentation Answer: E Explanation: E) Disadvantages of using fixed web (from stationary computers) as an advertising media include extreme degree of audience fragmentation; increasing clutter; technical glitches can interrupt ad display; and ad-blocking software can prevent ads from being displayed.

Page Ref: 372 Difficulty: Easy Chapter LO: 2 Course LO: Describe the major components of effective promotion Classification: Concept 57) Orville Manufacturers produce a popular line of cola drinks called Pep-Up. In order to promote the drink, the firm pays the producers of a popular television show to depict some of the characters drinking Pep-Up drinks. In this example, Orville Manufacturers uses ________.

A) integrated advertising B) product placement C) advocacy advertising D) stealth marketing E) push strategy Answer: B Explanation: B) Product placement refers to the paid display or use of products in television shows, movies, and video games.

Page Ref: 373 Difficulty: Difficult AACSB: Analytic Skills Chapter LO: 2 Course LO: Describe the major components of effective promotion Classification: Application

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58) Some interactive purchasing systems combine product placement with direct-response retailing so that consumers can use their TV remotes to buy products shown in a program. This is an example of ________.

A) behavioral targeting B) push strategy C) hybrid media D) implied claims E) remarketing Answer: C Explanation: C) The number of hybrid media will grow; one example is "webified" interactive purchasing systems that merge the television and Internet platforms so that consumers can use their TV remotes to buy products shown in a program.

Page Ref: 373 Difficulty: Easy Chapter LO: 2 Course LO: Describe the major components of effective promotion Classification: Concept 59) Using personalized letters and email messages to deliver targeted messages to individual consumers or organizational purchasers would be classified as ________.

A) institutional advertising B) direct marketing C) product placement D) guerrilla advertising E) personal selling Answer: B Explanation: B) Direct marketing refers to direct communication other than personal sales contacts designed to stimulate a measurable response.

Page Ref: 374 Difficulty: Moderate Chapter LO: 3 Course LO: Describe the major components of effective promotion Classification: Concept

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60) Direct marketing differs from advertising in that direct marketing ________.

A) is carried by someone else's medium B) promotes the features and benefits of specific products C) refers to personal sales contacts D) involves the purchase of time or space in other media E) often uses personally addressable media Answer: E Explanation: E) Direct marketing can differ from advertising in important ways, such as it often uses personally addressable media, such as letters and email messages, to deliver targeted messages to individual consumers or organizational purchasers.

Page Ref: 374 Difficulty: Moderate Chapter LO: 3 Course LO: Describe the major components of effective promotion Classification: Concept 61) Advertising differs from direct marketing in that advertising ________.

A) often uses personally addressable media B) doesn't involve the purchase of time or space in other media C) often excludes a direct response aspect D) works to build lasting relationships with customers E) involves personal sales contacts Answer: C Explanation: C) Direct marketing has a direct response aspect that often isn't present in advertising.

Page Ref: 374 Difficulty: Moderate Chapter LO: 3 Course LO: Describe the major components of effective promotion Classification: Concept 62) Which of the following statements is true about direct marketing?

A) Direct marketing refers to one-on-one interaction between a salesperson and a prospective buyer.

B) In direct marketing, the salesperson acts as an advisor who helps customers find the best solutions to their needs.

C) It is difficult to measure the results of direct marketing efforts.

D) Direct marketing is a static approach, with little scope for experimentation and improvement.

E) The heart of any direct marketing effort is a customer database.

Answer: E Explanation: E) The heart of any direct marketing effort is a customer database that contains contact histories, purchase records, and profiles of each buyer or potential buyer.

Page Ref: 374 Difficulty: Moderate Chapter LO: 3 Course LO: Describe the major components of effective promotion Classification: Concept 23 .

63) If a company asks its customers or website visitors to opt-in to its mailing lists, it is using ________.

A) stealth marketing B) search engine marketing C) targeted display advertising D) permission-based marketing E) remarketing Answer: D Explanation: D) To minimize the level of annoyance and to help potential customers get the information they really do want, many companies now emphasize permission-based email marketing, usually by asking customers or website visitors to opt-in to mailing lists.

Page Ref: 374 Difficulty: Easy Chapter LO: 3 Course LO: Describe the major components of effective promotion Classification: Concept 64) Fashion Tree, an online retailer of fashion apparel, asks its website visitors if they want to opt-in to its mailing list, via a pop-up screen. This enables the firm to avoid annoying its customers. Every month Fashion Tree sends an e-mail highlighting current fashion trends to individuals who opt-in to its mailing list. In this example, Fashion Tree uses ________.

A) remarketing B) stealth marketing C) search engine marketing D) targeted display advertising E) permission-based marketing Answer: E Explanation: E) To minimize the level of annoyance and to help potential customers get the information they really do want, many companies now emphasize permission-based email marketing, usually by asking customers or website visitors to opt-in to mailing lists.

Page Ref: 374 Difficulty: Difficult AACSB: Analytic Skills Chapter LO: 3 Course LO: Describe the major components of effective promotion Classification: Application

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65) ________ involves ads with graphical content served up on web pages based on some knowledge of an individual's interests or behaviors.

A) Targeted display advertising B) Infomercials C) Institutional advertising D) Guerrilla advertising E) Product placement Answer: A Explanation: A) Targeted display advertising involves ads with graphical (as opposed to just textual) content served up on web pages based on some knowledge of an individual's interests or behaviors.

Page Ref: 375 Difficulty: Easy Chapter LO: 3 Course LO: Describe the major components of effective promotion Classification: Concept 66) One-on-one interaction between a salesperson and a prospective buyer is called ________.

A) personal selling B) direct marketing C) prospecting D) sales promotion E) specialty advertising Answer: A Explanation: A) Personal selling refers to one-on-one interaction between a salesperson and a prospective buyer.

Page Ref: 376 Difficulty: Easy Chapter LO: 4 Course LO: Describe the major components of effective promotion Classification: Concept

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67) In ________, a salesperson acts as a consultant and advisor who helps current and potential customers find the best solutions to their personal or business needs.

A) direct marketing B) prospecting C) consultative selling D) specialty advertising E) sales promotion Answer: C Explanation: C) Consultative selling refers to an approach in which a salesperson acts as a consultant and advisor to help customers find the best solutions to their personal or business needs.

Page Ref: 376 Difficulty: Easy Chapter LO: 4 Course LO: Describe the major components of effective promotion Classification: Concept 68) The process of finding and qualifying potential customers is known as ________.

A) consultative selling B) behavioral targeting C) consumer promotion D) prospecting E) trade promotion Answer: D Explanation: D) The process of finding and qualifying potential customers is known as prospecting.

Page Ref: 377 Difficulty: Easy Chapter LO: 4 Course LO: Describe the major components of effective promotion Classification: Concept

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69) Joseph is a new sales agent at Clevenger & Co., a firm that sells life and health insurance plans. Joseph is asked to generate a list of individuals in a specific neighborhood who might need insurance services, and then shortlist those individuals who are likely to have the available money to purchase the firm's insurance plans. In this example, the task given to Joseph is termed as ________.

A) consumer promotion B) consultative selling C) prospecting D) behavioral targeting E) trade promotion Answer: C Explanation: C) The process of finding and qualifying potential customers is known as prospecting.

Page Ref: 377 Difficulty: Moderate AACSB: Analytic Skills Chapter LO: 4 Course LO: Describe the major components of effective promotion Classification: Application 70) In ________, the salesperson recites or even reads a stock message, with no regard for the customer's unique circumstances.

A) canned sales pitch B) prospecting C) direct marketing D) behavioral targeting E) consultative selling Answer: A Explanation: A) In the canned sales pitch, the salesperson recites or even reads a stock message, with no regard for the customer's unique circumstances.

Page Ref: 377 Difficulty: Easy Chapter LO: 4 Course LO: Describe the major components of effective promotion Classification: Concept

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71) ________ involve(s) short-term incentives to build the reputation of a brand and stimulate interest in a product.

A) Direct selling B) Sales promotion C) Institutional advertising D) Public relations E) Brand communities Answer: B Explanation: B) Sales promotion consists of short-term incentives to build the reputation of a brand, encourage the purchase of a product, or simply enhance relationships with current and potential customers.

Page Ref: 378 Difficulty: Easy Chapter LO: 5 Course LO: Describe the major components of effective promotion Classification: Concept 72) ________ refer(s) to printed or electronic certificates that offer discounts on particular items and are redeemed at the time of purchase.

A) Coupons B) Rebates C) Premiums D) Trade allowances E) Trade promotions Answer: A Explanation: A) The biggest category of consumer promotion is coupons, printed or electronic certificates that spur sales by giving buyers a discount when they purchase specified products.

Page Ref: 378 Difficulty: Easy Chapter LO: 5 Course LO: Describe the major components of effective promotion Classification: Concept

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73) The manufacturers of Zap Deodorant, a newly launched brand of men's deodorants, decide to provide coupons for 50-cents off on all their products in the Sunday newspaper. This is an example of what element in the communication mix?

A) conversation advertising B) social media C) public relations D) personal selling E) sales promotion Answer: E Explanation: E) Sales promotion refers to a wide range of events and activities designed to promote a brand or stimulate interest in a product.

Page Ref: 378 Difficulty: Difficult AACSB: Analytic Skills Chapter LO: 5 Course LO: Describe the major components of effective promotion Classification: Application 74) Advertising or display materials set up at retail locations to promote products to potential customers as they are making their purchase decisions are called ________.

A) rebates B) trade allowances C) point-of-purchase displays D) specialty advertising E) coupons Answer: C Explanation: C) Point-of-purchase (POP) display refers to advertising or other display materials set up at retail locations to promote products to potential customers as they are making their purchase decisions.

Page Ref: 380 Difficulty: Easy Chapter LO: 5 Course LO: Describe the major components of effective promotion Classification: Concept

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75) Jones' Treats, a food manufacturing company located in Massachusetts, produces a range of candy products. The firm negotiates with its retailers to set up jars with Jones' Treats candies at the billing counters. Jones' Treat also puts up wall posters and window clings advertising its candies in the retail stores that stock its products. In this example, Jones' Treats uses which of the following promotional strategies?

A) rebates B) trade allowances C) point-of-purchase displays D) specialty advertising E) coupons Answer: C Explanation: C) Point-of-purchase (POP) display refers to advertising or other display materials set up at retail locations to promote products to potential customers as they are making their purchase decisions.

Page Ref: 380 Difficulty: Difficult AACSB: Analytic Skills Chapter LO: 5 Course LO: Describe the major components of effective promotion Classification: Application 76) Luminescent Inc. manufactures and sells products related to surfing, skateboarding, and snowboarding. During Christmas, the firm gave free sports bottles with a Luminescent logo to all its customers, with the aim of keeping the firm's name in front of customers for a long period of time. This is an example of ________ advertising.

A) institutional B) comparative C) cooperative D) consultative E) specialty Answer: E Explanation: E) Specialty advertising refers to advertising that appears on various items such as coffee mugs, pens, and calendars, designed to help keep a company's name in front of customers.

Page Ref: 380 Difficulty: Difficult AACSB: Analytic Skills Chapter LO: 5 Course LO: Describe the major components of effective promotion Classification: Application

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77) Free or bargain-priced items offered to encourage consumers to buy a product are termed as ________.

A) premiums B) point-of-purchase displays C) coupons D) rebates E) trade allowances Answer: A Explanation: A) Premiums are free or bargain-priced items offered to encourage the consumer to buy a product.

Page Ref: 380 Difficulty: Easy Chapter LO: 5 Course LO: Describe the major components of effective promotion Classification: Concept 78) Bell Laboratories, a pharmaceutical company, launches a new, over-the-counter drug for pain relief. The firm supplies the new drug to pharmacies and physicians at a discounted rate to encourage the retailers to carry the new product. In this example, Bell Laboratories uses which of the following promotional strategies?

A) point-of-purchase displays B) product placement C) conversation marketing D) trade allowances E) premiums Answer: D Explanation: D) Trade allowances refer to discounts or other financial considerations offered by producers to wholesalers and retailers.

Page Ref: 380 Difficulty: Difficult AACSB: Analytic Skills Chapter LO: 5 Course LO: Describe the major components of effective promotion Classification: Application

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79) The chief downside of trade allowances is that they can lead to ________, in which the retailer buys a large quantity of a product when the price is low, thus reducing the producer's profit in the long run.

A) push marketing B) forward buying C) slotting allowances D) viral marketing E) pull strategies Answer: B Explanation: B) The chief downside of trade allowances is that they can create the controversial practice of forward buying, in which customers load up on merchandise while the price is low.

Page Ref: 380 Difficulty: Easy Chapter LO: 5 Course LO: Describe the major components of effective promotion Classification: Concept 80) Discounts or other financial considerations offered by producers to wholesalers and retailers are termed as ________.

A) trade allowances B) point-of-purchase displays C) product placement D) conversation marketing E) premiums Answer: A Explanation: A) Trade allowances refer to discounts or other financial considerations offered by producers to wholesalers and retailers.

Page Ref: 380 Difficulty: Easy Chapter LO: 5 Course LO: Describe the major components of effective promotion Classification: Concept

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81) Word-of-mouth marketing is often called ________.

A) guerrilla advertising B) institutional advertising C) sales promotion D) prospecting E) viral marketing Answer: E Explanation: E) Word-of-mouth marketing is often called viral marketing, in reference to the transmission of messages in much the same way that biological viruses are transmitted from person to person.

Page Ref: 381 Difficulty: Easy Chapter LO: 6 Course LO: Describe the major components of effective promotion Classification: Concept 82) Matrix Electronics Inc. is a manufacturer of flash equipment for photography. The firm has a discussion forum in its official website aimed at facilitating customers and other audiences to connect with the company and with each other. Matrix Electronics Inc. often invites professional photographers to join these discussion threads, to enable budding photographers to better their craft. In this example, Matrix Electronics Inc. uses ________.

A) conversation marketing B) advocacy advertising C) guerrilla advertising D) sales promotion E) product placement Answer: A Explanation: A) Conversation marketing refers to an approach to customer communication in which companies initiate and facilitate conversations in a networked community of potential buyers and other interested parties.

Page Ref: 382 Difficulty: Difficult AACSB: Analytic Skills Chapter LO: 6 Course LO: Describe the major components of effective promotion Classification: Application

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83) ________ encompasses a wide variety of nonsales communications that businesses have with their many stakeholders, including communities, investors, industry analysts, government agencies, and activists.

A) Push strategy B) Trade allowances C) Brand communities D) Public relations E) Pull strategy Answer: D Explanation: D) Public relations refers to nonsales communication that businesses have with their various audiences (including both communication with the general public and press relations).

Page Ref: 382 Difficulty: Easy Chapter LO: 6 Course LO: Describe the major components of effective promotion Classification: Concept 84) Immediately after a news report about people getting sick from eating at Waikiki Delights, a delicatessen store, the President of Waikiki Delights appeared on a number of TV shows to describe their stringent supply chain management and health regulations. This communication can be best classified as ________.

A) sales promotion B) conversation advertising C) social media D) public relations E) personal selling Answer: D Explanation: D) Public relations refers to nonsales communication that businesses have with their various audiences (including both communication with the general public and press relations).

Page Ref: 382 Difficulty: Difficult AACSB: Analytic Skills Chapter LO: 6 Course LO: Describe the major components of effective promotion Classification: Application

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85) An in-person or online gathering of media representatives at which companies announce new information is called a ________.

A) press conference B) press release C) conversation marketing D) sale promotion E) trade promotion Answer: A Explanation: A) Press conference refers to an in-person or online gathering of media representatives at which companies announce new information; also called a news conference.

Page Ref: 382 Difficulty: Easy Chapter LO: 6 Course LO: Describe the major components of effective promotion Classification: Concept 86) Compare and contrast the conventional promotion model with the new social model of customer communication.

Answer: Conventional marketing communication was largely about companies broadcasting carefully scripted messages to a mass audience that often had few, if any, ways to respond.

Moreover, customers and other interested parties had few ways to connect with one another to ask questions about products, influence company decisions, or offer each other support.

Conventional promotion model tendencies include publication, lecture, intrusion, unidirectional, one to many, control, low message frequency, few channels, information hoarding, static, hierarchical, structured, isolation, planned, and isolated.

In contrast to the "we talk, you listen" mindset of the past, the new social communication model is based on interactive social media and conversational communication styles. Social model tendencies include conversation, discussion, permission, bidirectional, multidirectional, one to one, many to many, influence, high message frequency, many channels, information sharing, dynamic, egalitarian, amorphous, collaboration, reactive, and responsive.

Page Ref: 364; 365 Difficulty: Difficult AACSB: Reflective Thinking Skills Chapter LO: 1 Course LO: Describe the major components of effective promotion Classification: Synthesis

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87) Compare and contrast push strategy with pull strategy.

Answer: Push strategy refers to a promotional strategy that focuses on intermediaries, motivating them to promote, or push, products toward end users. A producer focuses on intermediaries, trying to persuade wholesalers or retailers to carry its products and promote those products to their customers. Conversely, with a pull strategy, the producer appeals directly to end customers. Customers learn of the product through these communication efforts and request it from retailers (in the case of consumers) or wholesalers (in the case of business customers). For example, if a television commercial encourages you to "ask your pharmacist" about a specific product, the company is using a pull strategy. Many companies use both push and pull strategies to increase the impact of their promotional efforts.

Page Ref: 366 Difficulty: Difficult AACSB: Reflective Thinking Skills Chapter LO: 1 Course LO: Describe the major components of effective promotion Classification: Synthesis 88) Discuss integrated marketing communications.

Answer: With the number of communication vehicles continuing to expand, the need for companies to "speak with one voice" becomes even greater. Integrated marketing communications (IMC) is a strategy of coordinating and integrating all communication and promotional efforts to ensure clarity, consistency, and maximum communications impact.

However, companies obviously can't control all the messages their target audiences receive, particularly now that customers are empowered through social media. While the company is working to integrate its outgoing communication efforts, the customer is also integrating all the incoming messages he or she is receiving.

Page Ref: 366 Difficulty: Easy Chapter LO: 1 Course LO: Describe the major components of effective promotion Classification: Concept 89) Compare and contrast institutional advertising with advocacy advertising.

Answer: Institutional advertising is designed to create goodwill and build a desired image for a company rather than to promote specific products. For example, a firm might promote its commitment to sustainable business practices or workforce diversity. Institutional ads that address public issues are called advocacy advertising. With recent efforts to overhaul health insurance in the United States, for instance, many companies with a financial stake in the outcome have been using advertising to present their points of view.

Page Ref: 369 Difficulty: Difficult AACSB: Reflective Thinking Skills Chapter LO: 2 Course LO: Describe the major components of effective promotion Classification: Synthesis

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90) Compare and contrast advertising based on logical appeal with that based on emotional appeal.

Answer: The basic approach with a logical appeal is to make a claim based on a rational argument supported by solid evidence. Not surprisingly, business-to-business advertising relies heavily on logical appeals because businesses have logical concerns - profitability, process improvements, quality, and other financial and technical concerns. However, marketers should not ignore the emotional aspects of business purchasing. Managers put their reputations and sometimes their careers on the line when they make major purchase decisions, so advertisers need to consider these emotional elements. Logical appeals are also used in consumer advertising whenever the purchase decision has a rational component and logic might help persuade buyers to consider or prefer a particular product.

An emotional appeal calls on audience feelings and sympathies rather than facts, figures, and rational arguments. Emotional appeals range from sentimental to terrifying. On the lighter side, flowers, greeting cards, and gifts are among the products usually sold with a positive emotional appeal. At the other end of the spectrum are appeals to a broad range of fears: personal and family safety, financial security, social acceptance, and business success or failure. To be effective, appeals to fear must be managed carefully. Laying it on too thick can anger the audience or even cause them to block out the message entirely.

Page Ref: 369; 370 Difficulty: Difficult AACSB: Reflective Thinking Skills Chapter LO: 2 Course LO: Describe the major components of effective promotion Classification: Synthesis 91) Compare and contrast the advantages and disadvantages of newspapers as advertising media, with that of television.

Answer: The advantages of using newspaper as an advertising media include extensive market coverage, low cost, short lead time for placing ads, good local market coverage, geographic selectivity, and credibility. Disadvantages include poor graphic quality, short life span, and declining readership in many markets.

The advantages of using television as an advertising media include great impact, broad reach, appealing to senses of sight, sound, and motion, creative opportunities for demonstration, high attention,and entertainment carryover. Disadvantages include high cost for production and air time, less audience selectivity, long preparation time, commercial clutter, short life for message, vulnerability to being skipped or muted, and losing ground to new media options.

Page Ref: 372 Difficulty: Difficult AACSB: Reflective Thinking Skills Chapter LO: 2 Course LO: Describe the major components of effective promotion Classification: Synthesis

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92) Discuss the three trends that are likely to shape advertising media in the coming years.

Answer: Three trends are likely to shape advertising media in the coming years. First, the media landscape will continue to fragment as new online and mobile formats emerge and conventional print and broadcast media fight to hang on to their share of advertisers' budgets. With Facebook emerging as amultibillion-dollar advertising platform, for example, companies have yet another choice to consider when it comes to dividing up their advertising budgets.

Second, the lines between advertising, entertainment, and value-added content (such as informative articles and how-to videos) will continue to blur. For example, more advertisers are borrowing storytelling techniques and other methods from the entertainment industry to make their TV commercials, online videos, and other ads more entertaining and thus, more likely to be watched.

Third, technical innovations will continue to create new advertising tools and techniques, and more sophisticated tracking and pricing models that tie advertising costs to measurable results.

To counter the low response rates of conventional banner ads on Web sites, for instance, marketers are trying new ways of integrating advertising with site content. The number of hybrid media will grow; one example is "webified" interactive purchasing systems that merge the television and Internet platforms so that consumers can use their TV remotes to buy products shown in a program.

Page Ref: 372; 373 Difficulty: Moderate Chapter LO: 2 Course LO: Describe the major components of effective promotion Classification: Concept 93) Discuss the similarities and differences between using search engine marketing and direct response television as marketing media.

Answer: With millions of web users relying on search engines such as Google and Bing every day, search engine marketing, or search advertising, has become an important marketing medium. Search engine marketing comes closer to being a direct medium because it is individualized to each web user. Search advertising works in two basic ways. First, advertisers can pay to have small ads presented whenever the keywords they select are used in a search.

These are the "sponsored results" that can appear above and to the right of the actual search results. Second, these ads can also appear on the many Web sites that are in the search engine's advertising exchange or advertising network, a collection of Web sites that sell space on their pages for such ads.

On the other hand, direct response television refers to the use of television commercials and longer-format infomercials that are designed to stimulate an immediate purchase response from viewers. Direct-response television programs have the major advantage of time, allowing companies demonstrate products and engage viewers in a way that isn't possible with 30- or 60second commercials.

Page Ref: 375 Difficulty: Difficult AACSB: Reflective Thinking Skills Chapter LO: 3 Course LO: Compare and contrast different economic systems Classification: Synthesis 38 .

94) Compare and contrast personal selling with consultative selling.

Answer: Personal selling refers to one-on-one interaction between a salesperson and a prospective buyer. Even with the rapid advance of e-commerce and other marketing technologies, personal selling remains a fundamentally important part of the promotional mix in many consumer and organizational markets. Although a salesforce can't reach millions of customers at once like a website or a direct marketing program can, today's highly-trained sales professionals are able to build relationships and solve problems in ways that impersonal media can't match.

One of the most important shifts in the sales profession is the advent of consultative selling, in which the salesperson acts as a consultant and advisor who helps current and potential customers find the best solutions to their personal or business needs. And even if a shopper isn't ready to buy something immediately, a good consultative salesperson will view the interaction as a chance to build a long-term relationship that could lead to sales in the future.

Page Ref: 376 Difficulty: Difficult AACSB: Reflective Thinking Skills Chapter LO: 4 Course LO: Describe the major components of effective promotion Classification: Synthesis 95) What are the seven general steps in personal selling?

Answer: The seven general steps in personal selling are: Step 1: Prospecting. The process of finding and qualifying potential customers is known as prospecting. This step usually involves three activities: (1) generating sales leads, (2) identifying prospects, and (3) qualifying prospects.

Step 2: Preparing. In this research phase, the sales staff tries to learn more about the people and organizations they will be contacting, their buying needs, their motives for buying, and the names of current suppliers. They create a prospect profile, setting objectives for the call, and preparing a presentation.

Step 3: Approaching the prospect with the goal of making a positive first impression Step 4: Uncovering needs and presenting solutions. After the conversation has been initiated, the next step is understanding the customer's specific needs.

Step 5: Handling objections. Potential customers can express a variety of objections to the products they are considering, and salespeople need to be ready with answers and alternatives.

Step 6: Closing. Bringing the sales process to a successful conclusion by asking for and receiving an affirmative purchase decision is known as closing.

Step 7: Following up. Checking in with the customer after the sale to make sure the solution is working out as expected and keep building a long-term relationship.

Page Ref: 377; 378 Difficulty: Moderate Chapter LO: 4 Course LO: Describe the major components of effective promotion Classification: Concept

39 .

96) Compare and contrast coupons with rebates.

Answer: Coupons and rebates are both consumer promotional tools. The biggest category of consumer promotion is coupons, printed or electronic certificates that spur sales by giving buyers a discount when they purchase specified products. Paper couponing is an inefficient technique, however; consumers redeem only 1 percent of the 300 billion printed coupons distributed every year in the United States. The rapid growth of mobile couponing via smartphones and new social systems are revolutionizing couponing. While they are creating opportunities for businesses, the spread of these coupons is changing buyer behavior as more and more consumers now expect stores and restaurants to offer coupons.

With rebates, companies offer partial reimbursement of the price as a purchase incentive.

Rebates can be an effective tool for boosting sales, but they obviously cut into per-unit profits and the effect can be more or less permanent when frequent rebates in an industry encourage buyers to delay purchases until a rebate program is available.

Page Ref: 378; 379 Difficulty: Difficult AACSB: Reflective Thinking Skills Chapter LO: 5 Course LO: Describe the major components of effective promotion Classification: Synthesis 97) Compare and contrast trade promotions with consumer promotions.

Answer: The two main types of sales promotion are consumer promotion and trade promotion.

Consumer promotions are intended to motivate the final consumer to try new products or to experiment with the company's brands. Examples include contests, coupons, rebates, point-ofpurchase displays, samples, special-event sponsorship, premiums, and specialty advertising.

Although shoppers are more aware of consumer promotions, trade promotions aimed at inducing wholesalers or retailers to sell a company's products actually account for the larger share of promotional spending and can be the single largest item in a manufacturer's marketing budget.

Common trade promotions include trade allowances, dealer contests, bonus programs, and samples.

Page Ref: 378; 379; 380 Difficulty: Difficult AACSB: Reflective Thinking Skills Chapter LO: 5 Course LO: Describe the major components of effective promotion Classification: Synthesis

40 .

98) Compare and contrast viral marketing with conversation marketing.

Answer: Social media activities combine the newest communication technologies with the oldest form of marketing communication in the world, word-of-mouth - customers and other parties transmitting information about companies and products through personal conversations.

Word-of-mouth marketing is often called viral marketing, in reference to the transmission of messages in much the same way that biological viruses are transmitted from person to person.

Marketers need to give people a good reason - good content, in other words - to pass along their messages.

Audiences in the social media environment are not willing to be passive recipients in a structured, one-way information delivery process - or to rely solely on promotional messages from marketers. This notion of interactive participation is the driving force behind conversation marketing, in which companies initiate and facilitate conversations in a networked community of customers, journalists, bloggers, Twitter users, and other interested parties.

Page Ref: 381; 382 Difficulty: Difficult AACSB: Reflective Thinking Skills Chapter LO: 6 Course LO: Describe the major components of effective promotion Classification: Synthesis 99) Discuss the guidelines that companies should follow while using social media.

Answer: Social media can be a powerful communication channel, but companies should follow these guidelines in order to meet audience expectations: ∙ Remember that it's a conversation, not a lecture or a sales pitch. One of the great appeals of social media is the feeling of conversation, of people talking with one another instead of one person talking at everyone else. ∙ Facilitate community building. Make sure customers and other audiences can connect with the company and with each other. ∙ Initiate and respond to conversations within the community. Marketers can start or join conversations by providing useful information to current and potential customers. ∙ Identify and support champions. In marketing, champions are enthusiastic fans of a company and its products - so enthusiastic that they help spread the company's message, defend it against detractors, and help other customers use its products. ∙ Restrict conventional promotional efforts to the right time and right place. Persuasive communication efforts are still valid for specific communication tasks, such as regular advertising and the product information pages on a website, but efforts to inject "salespeak" into social media conversations will be rejected by the audience.

Page Ref: 382 Difficulty: Moderate Chapter LO: 6 Course LO: Describe the major components of effective promotion Classification: Concept

41 .

100) What is public relations?

Answer: Public relations encompasses a wide variety of nonsales communications that businesses have with their many stakeholders, including communities, investors, industry analysts, government agencies, and activists. Companies rely on public relations to build a favorable corporate image and foster positive relations with all these groups. Public relations efforts often involve the news media, with companies offering information to print, broadcast, and online journalists in the hope that these intermediaries will pass the message along to their audiences. Two standard tools for communicating with the media are the press release and the press conference.

Page Ref: 382 Difficulty: Moderate Chapter LO: 6 Course LO: Describe the major components of effective promotion Classification: Concept

42 .

Business in Action, 6e (Bovee/Thill) Chapter 17 Financial Information and Accounting Concepts 1) Financial accounting is concerned with preparing cost analyses, profitability reports, budgets, and other information for insiders such as management and other company decision makers.

Answer: FALSE Explanation: Financial accounting is concerned with preparing financial statements and other information for outsiders such as stockholders and creditors. Management accounting is concerned with such reports as profitability reports.

Page Ref: 391 Difficulty: Easy Chapter LO: 1 Course LO: Describe the goals and stages of financial management for companies Classification: Concept 2) Bookkeeping is the clerical function of recording the economic activities of a business.

Answer: TRUE Explanation: Bookkeeping is the clerical function of recording the economic activities of a business.

Page Ref: 391 Difficulty: Easy Chapter LO: 1 Course LO: Describe the goals and stages of financial management for companies Classification: Concept 3) Financial analysis refers to combining accounting and investigating skills to assist in legal and criminal matters.

Answer: FALSE Explanation: Financial analysis refers to evaluating a company's performance and the financial implications of strategic decisions such as product pricing, employee benefits, and business acquisitions.

Page Ref: 391; 392 Difficulty: Easy Chapter LO: 1 Course LO: Describe the goals and stages of financial management for companies Classification: Concept 4) Controller is the highest-ranking accountant in a company.

Answer: TRUE Explanation: Controller is the highest-ranking accountant in a company. Controller is responsible for overseeing all accounting functions.

Page Ref: 392 Difficulty: Easy Chapter LO: 1 Course LO: Describe the goals and stages of financial management for companies Classification: Concept 1 .

5) Audit is a formal evaluation of the fairness and reliability of a client's financial statements.

Answer: TRUE Explanation: Audit is a formal evaluation of the fairness and reliability of a client's financial statements.

Page Ref: 393 Difficulty: Easy Chapter LO: 1 Course LO: Describe the goals and stages of financial management for companies Classification: Concept 6) External auditors are independent accounting firms that provide auditing services for public companies.

Answer: TRUE Explanation: External auditors are independent accounting firms that provide auditing services for public companies.

Page Ref: 394 Difficulty: Easy Chapter LO: 2 Course LO: Describe the goals and stages of financial management for companies Classification: Concept 7) Sarbanes-Oxley Act prohibits companies from testing their internal financial controls and processes.

Answer: FALSE Explanation: Sarbanes-Oxley Act is the informal name of comprehensive legislation designed to improve integrity and accountability of financial information. It requires companies to document and test their internal financial controls and processes.

Page Ref: 395 Difficulty: Moderate Chapter LO: 2 Course LO: Describe the goals and stages of financial management for companies Classification: Concept 8) Sarbanes-Oxley Act outlaws most loans by corporations to their own directors and executives.

Answer: TRUE Explanation: Sarbanes-Oxley Act is the informal name of comprehensive legislation designed to improve integrity and accountability of financial information. It outlaws most loans by corporations to their own directors and executives.

Page Ref: 395 Difficulty: Easy Chapter LO: 2 Course LO: Describe the goals and stages of financial management for companies Classification: Concept

2 .

9) Owners' equity refers to the total assets of a company.

Answer: FALSE Explanation: Owners' equity is the portion of a company's assets that belongs to the owners after obligations to all creditors have been met. Owners' equity = Assets — Liabilities.

Page Ref: 396 Difficulty: Easy Chapter LO: 3 Classification: Concept 10) Cash basis is an accounting method in which revenue is recorded when a sale is made.

Answer: FALSE Explanation: Cash basis is an accounting method in which revenue is recorded when payment is received and expense is recorded when cash is paid.

Page Ref: 397 Difficulty: Moderate Chapter LO: 3 Course LO: Describe the goals and stages of financial management for companies Classification: Concept 11) Depreciation is an accounting procedure used for intangible assets.

Answer: FALSE Explanation: Depreciation is an accounting procedure for systematically spreading the cost of a tangible asset over its estimated useful life. For intangible assets, this allocation over time is known as amortization.

Page Ref: 397 Difficulty: Moderate Chapter LO: 3 Course LO: Describe the goals and stages of financial management for companies Classification: Concept 12) Double-entry bookkeeping is a method that requires to keep the accounting equation in balance.

Answer: TRUE Explanation: Double-entry bookkeeping is a method of recording financial transactions that requires a debit entry and credit entry for each transaction to ensure that the accounting equation is always kept in balance.

Page Ref: 397 Difficulty: Easy Chapter LO: 3 Course LO: Describe the goals and stages of financial management for companies Classification: Concept

3 .

13) Transferring net revenue and expense account balances to retained earnings for the period is referred to as closing the books.

Answer: TRUE Explanation: Closing the books refers to transferring net revenue and expense account balances to retained earnings for the period.

Page Ref: 398 Difficulty: Easy Chapter LO: 4 Course LO: Describe the goals and stages of financial management for companies Classification: Concept 14) Balance sheet presents a firm's financial position on a particular date.

Answer: TRUE Explanation: Balance sheet is a statement of a firm's financial position on a particular date. It is also known as a statement of financial position.

Page Ref: 398 Difficulty: Easy Chapter LO: 4 Course LO: Describe the goals and stages of financial management for companies Classification: Concept 15) Fiscal year is a 12-month accounting period that begins on January 1 and ends on December 31.

Answer: FALSE Explanation: Calendar year is a 12-month accounting period that begins on January 1 and ends on December 31. Fiscal year can be any 12 consecutive months used as an accounting period.

Page Ref: 399 Difficulty: Moderate Chapter LO: 4 Course LO: Describe the goals and stages of financial management for companies Classification: Concept 16) Intellectual property and goodwill are considered liabilities in accounting.

Answer: FALSE Explanation: Intellectual property (such as patents and business methods) and goodwill (which includes company reputation) are considered assets in accounting.

Page Ref: 400 Difficulty: Moderate Chapter LO: 4 Course LO: Describe the goals and stages of financial management for companies Classification: Concept

4 .

17) Accounts payable is an example of a long-term liability.

Answer: FALSE Explanation: Current liabilities are obligations that must be met within a year. Accounts payable is an example of a current, short-term, liability.

Page Ref: 401 Difficulty: Moderate Chapter LO: 4 Course LO: Describe the goals and stages of financial management for companies Classification: Concept 18) Income statement is a record of a company's total assets and liabilities.

Answer: FALSE Explanation: Income statement is a financial record of a company's revenues, expenses, and profits over a given period of time; also known as a profit and loss statement.

Page Ref: 402 Difficulty: Easy Chapter LO: 5 Course LO: Describe the goals and stages of financial management for companies Classification: Concept 19) Net income refers to profit earned or loss incurred by a firm.

Answer: TRUE Explanation: Net income refers to profit earned or loss incurred by a firm, determined by subtracting expenses from revenues. It is casually referred to as the bottom line.

Page Ref: 402 Difficulty: Easy Chapter LO: 5 Course LO: Describe the goals and stages of financial management for companies Classification: Concept 20) Marketing and distributing expenses are examples of general expenses.

Answer: FALSE Explanation: Marketing and distributing expenses are examples of selling expenses. General expenses are operating expenses incurred in the overall administration of a business. They include such items as professional services (such as accounting and legal fees), office salaries, depreciation of office equipment, insurance for office operations, and supplies.

Page Ref: 403 Difficulty: Moderate Chapter LO: 5 Course LO: Describe the goals and stages of financial management for companies Classification: Concept

5 .

21) Statement of cash flows is a statement of a firm's cash receipts and cash payments.

Answer: TRUE Explanation: Statement of cash flows is a statement of a firm's cash receipts and cash payments that presents information on its sources and uses of cash.

Page Ref: 404 Difficulty: Easy Chapter LO: 5 Course LO: Describe the goals and stages of financial management for companies Classification: Concept 22) Working capital refers to the amount of cash an organization has in hand.

Answer: FALSE Explanation: Working capital refers to current assets minus current liabilities. Cash is only one of the components of current assets.

Page Ref: 406 Difficulty: Moderate Chapter LO: 6 Course LO: Describe the goals and stages of financial management for companies Classification: Concept 23) Quick ratio is a measure of a firm's long-term liquidity.

Answer: FALSE Explanation: Quick ratio is a measure of a firm's short-term liquidity, calculated by adding cash, marketable securities, and receivables, then dividing that sum by current liabilities.

Page Ref: 406 Difficulty: Easy Chapter LO: 6 Course LO: Describe the goals and stages of financial management for companies Classification: Concept 24) Accounts receivable turnover ratio is calculated by dividing sales by the average value of accounts receivable for a period.

Answer: TRUE Explanation: Accounts receivable turnover ratio is a measure of the time a company takes to turn its accounts receivable into cash, calculated by dividing sales by the average value of accounts receivable for a period.

Page Ref: 408 Difficulty: Easy Chapter LO: 6 Course LO: Describe the goals and stages of financial management for companies Classification: Concept

6 .

25) Leverage ratios indicate a company's ability to pay its long-term debts.

Answer: TRUE Explanation: A company's ability to pay its long-term debts is reflected in its leverage ratios.

They are also known as debt ratios.

Page Ref: 408 Difficulty: Easy Chapter LO: 6 Course LO: Describe the goals and stages of financial management for companies Classification: Concept 26) Generating a(n) ________ is a function of financial accounting.

A) organizational budget B) balance sheet C) cost analysis D) profitability report E) productivity analysis Answer: B Explanation: B) Financial accounting is concerned with preparing financial statements and other information for outsiders such as stockholders and creditors. Balance sheet is such a financial document. Other alternatives given in the question are generated using management accounting.

Page Ref: 391 Difficulty: Moderate Chapter LO: 1 Course LO: Describe the goals and stages of financial management for companies Classification: Concept

7 .

27) Which of the following is a key difference between financial accounting and management accounting?

A) Financial accounting is concerned with preparing cost analyses, whereas management accounting is concerned with creating reports.

B) Financial accounting considers such aspects as profitability, whereas management accounting does not consider profitability.

C) Financial accounting creates information for outsiders, whereas management accounting is for insiders.

D) Management accounting is based on historical data, whereas financial accounting is based on real time data.

E) Accounting knowledge is crucial to perform management accounting, whereas limited accounting knowledge is sufficient for financial accounting.

Answer: C Explanation: C) Financial accounting is concerned with preparing financial statements and other information for outsiders such as stockholders and creditors. Management accounting is concerned with preparing cost analyses, profitability reports, budgets, and other information for insiders such as management and other company decision makers.

Page Ref: 391 Difficulty: Moderate Chapter LO: 1 Course LO: Describe the goals and stages of financial management for companies Classification: Concept 28) Which of the following is generated through management accounting rather than financial accounting?

A) profit and loss statement B) cash flow statement C) balance sheet D) profitability reports E) statement of retained earnings Answer: D Explanation: D) Profitability reports are for management rather than for public use. Hence it is concerned with management accounting rather than financial accounting.

Page Ref: 391 Difficulty: Moderate Chapter LO: 1 Course LO: Describe the goals and stages of financial management for companies Classification: Concept

8 .

29) Bookkeeping refers to ________.

A) the cost accounting component of accounting B) analyzing financial information C) preparing financial forecasts D) the clerical aspect of accounting E) performing profitability analysis for a company Answer: D Explanation: D) Bookkeeping is the clerical function of recording the economic activities of a business. It does not include financial analyses.

Page Ref: 391 Difficulty: Easy Chapter LO: 1 Course LO: Describe the goals and stages of financial management for companies Classification: Concept 30) AccBiz is a tool used commonly by small businesses. It is a simple application that records financial transactions. It records such transactions as sales, purchases, income, receipts, and payments. However, the software cannot be used for financial analyses or higher-level applications. The functions that AccBiz performs can be referred to as ________.

A) forensic accounting B) bookkeeping C) auditing D) cost analysis E) cost accounting Answer: B Explanation: B) The clerical function of recording the economic activities of a business is referred to as bookkeeping. AccBiz performs only bookkeeping.

Page Ref: 391 Difficulty: Difficult AACSB: Analytic Skills Chapter LO: 1 Course LO: Describe the goals and stages of financial management for companies Classification: Application

9 .

31) Samuel works as a finance executive in a U.S.-based firm. His major task is calculating and analyzing the production and operating expenditures of the organization. The tasks that Samuel performs refer to ________.

A) tax accounting B) bookkeeping C) cost accounting D) auditing E) forensic accounting Answer: C Explanation: C) Cost accounting refers to computing and analyzing production and operating costs of a business. The tasks that Samuel performs relate to cost accounting.

Page Ref: 391 Difficulty: Difficult AACSB: Analytic Skills Chapter LO: 1 Course LO: Describe the goals and stages of financial management for companies Classification: Application 32) Which of the following refers to evaluating a company's performance and the economic implications of strategic decisions such as product pricing, employee benefits, and business acquisitions?

A) financial analysis B) tax accounting C) bookkeeping D) cost accounting E) forensic accounting Answer: A Explanation: A) Financial analysis refers to evaluating a company's performance and the financial implications of strategic decisions such as product pricing, employee benefits, and business acquisitions.

Page Ref: 391; 392 Difficulty: Easy Chapter LO: 1 Course LO: Describe the goals and stages of financial management for companies Classification: Concept

10 .

33) ________ refers to combining accounting and investigating skills to assist in legal and criminal matters.

A) Financial analysis B) Tax accounting C) Bookkeeping D) Cost accounting E) Forensic accounting Answer: E Explanation: E) Forensic accounting refers to combining accounting and investigating skills to assist in legal and criminal matters.

Page Ref: 392 Difficulty: Easy Chapter LO: 1 Course LO: Describe the goals and stages of financial management for companies Classification: Concept 34) A(n) ________ is the highest-ranking accountant in a company, responsible for overseeing all accounting functions.

A) inventory manager B) controller C) treasurer D) credit manager E) cost accountant Answer: B Explanation: B) A controller is the highest-ranking accountant in a company, responsible for overseeing all accounting functions.

Page Ref: 392 Difficulty: Easy Chapter LO: 1 Course LO: Describe the goals and stages of financial management for companies Classification: Concept 35) Which of the following terms refers to a formal evaluation of the fairness and reliability of a client's financial statements?

A) cost accounting B) audit C) control D) bookkeeping E) management accounting Answer: B Explanation: B) Audit is a formal evaluation of the fairness and reliability of a client's financial statements. Certified public accountants are authorized to perform audits.

Page Ref: 393 Difficulty: Easy Chapter LO: 1 Course LO: Describe the goals and stages of financial management for companies Classification: Concept 11 .

36) Public accountants are professionals who provide ________.

A) accounting services to businesses and individuals for a fee B) accounting services to publically owned firms only C) financial services to not-for-profit organizations D) financial services without charging a fee for them E) financial services to people who trade in the stock market Answer: A Explanation: A) Public accountants are professionals who provide accounting services to businesses and individuals for a fee. They are independent of the businesses, organizations, and individuals they serve.

Page Ref: 392 Difficulty: Easy Chapter LO: 1 Course LO: Describe the goals and stages of financial management for companies Classification: Concept 37) Robert Consultants was incorporated in the year 2010. The company is now performing a formal evaluation to ensure and certify the integrity and reliability of the company's financial statements. This formal evaluation is referred to as ________.

A) cost accounting B) control C) bookkeeping D) audit E) management accounting Answer: D Explanation: D) Audit is a formal evaluation of the fairness and reliability of a client's financial statements. Certified public accountants are authorized to perform audits.

Page Ref: 393 Difficulty: Difficult AACSB: Analytic Skills Chapter LO: 1 Course LO: Describe the goals and stages of financial management for companies Classification: Application

12 .

38) Independent accounting firms that provide auditing services for public companies are called ________.

A) forensic auditors B) external auditors C) cost accountants D) domestic auditors E) financial analysts Answer: B Explanation: B) Independent accounting firms that provide auditing services for public companies are called external auditors. They review a client's financial records to determine whether the statements that summarize these records have been prepared in accordance with GAAP. Page Ref: 394 Difficulty: Easy Chapter LO: 2 Course LO: Describe the goals and stages of financial management for companies Classification: Concept 39) Jefferson Accounting is an independent accounting firm that provides auditing services for public companies. The firm thoroughly evaluates its clients' financial statements and certifies them. The firm is a(n) ________.

A) forensic auditor B) cost accountant C) external auditor D) domestic auditor E) financial analyst Answer: C Explanation: C) Independent accounting firms that provide auditing services for public companies are called external auditors. They review a client's financial records to determine whether the statements that summarize these records have been prepared in accordance with GAAP. Page Ref: 394 Difficulty: Difficult AACSB: Analytic Skills Chapter LO: 2 Course LO: Describe the goals and stages of financial management for companies Classification: Application

13 .

40) The GAAP is overseen in the United States by the ________.

A) Consumer Financial Protection Agency B) Financial Management Service C) Office of Financial Stability D) Financial Accounting Standards Board E) Office of Terrorism and Financial Intelligence Answer: D Explanation: D) GAAP (generally accepted accounting principles), overseen in the United States by the Financial Accounting Standards Board (FASB), aims to give a fair and true picture of a company's financial position and enable outsiders to make confident analyses and comparisons.

Page Ref: 394 Difficulty: Easy Chapter LO: 2 Course LO: Describe the goals and stages of financial management for companies Classification: Concept 41) The GAAP aims to ________.

A) prohibit firms from documenting their internal financial controls and processes B) give companies the freedom to determine the salaries of its employees C) prevent firms from using internal auditors to audit operations D) enable outsiders to make confident analyses and comparisons E) provide the users with business intelligence to make informed decisions Answer: D Explanation: D) GAAP (generally accepted accounting principles), overseen in the United States by the Financial Accounting Standards Board (FASB), aims to give a fair and true picture of a company's financial position and enable outsiders to make confident analyses and comparisons.

Page Ref: 394 Difficulty: Easy Chapter LO: 2 Course LO: Describe the goals and stages of financial management for companies Classification: Concept

14 .

42) The Sarbanes-Oxley Act outlaws ________.

A) loans by corporations to their own executives B) the use of external auditors C) internal financial tests by companies D) loans obtained through pledging assets E) having financial experts in the director board Answer: A Explanation: A) The Sarbanes-Oxley Act outlaws most loans by corporations to their own directors and executives.

Page Ref: 395 Difficulty: Moderate Chapter LO: 2 Course LO: Describe the goals and stages of financial management for companies Classification: Concept 43) Jacob is the CEO of Drabo Associates, a firm that offers financial consulting to firms in the U.S. Drabo Associates gives Jacob an unguaranteed personal loan of $500,000. Which of the following legislations has outlawed such a transaction?

A) Reconstruction Finance Corporation Act B) Public Utility Company Act C) Ethics in Government Act D) Sarbanes-Oxley Act E) Financial Services Modernization Act Answer: D Explanation: D) The Sarbanes-Oxley Act outlaws most loans by corporations to their own directors and executives.

Page Ref: 395 Difficulty: Difficult AACSB: Analytic Skills Chapter LO: 2 Course LO: Describe the goals and stages of financial management for companies Classification: Application

15 .

44) The Public Company Accounting Reform and Investor Protection Act is informally known as the ________ Act. A) Sarbanes-Oxley B) Mann C) Cable D) Basel E) Glass-Steagall Answer: A Explanation: A) The Sarbanes-Oxley Act is the informal name of the comprehensive legislation designed to improve integrity and accountability of financial information, the Public Company Accounting Reform and Investor Protection Act. Page Ref: 395 Difficulty: Easy Chapter LO: 2 Course LO: Describe the goals and stages of financial management for companies Classification: Concept 45) The Sarbanes-Oxley Act requires ________.

A) the board of directors to be comprised of at least fifteen members B) external auditors to provide nonaudit services also C) directors and executives to avail loans from the corporate D) companies to publicize operational budgets E) corporate lawyers to report evidence of financial wrongdoing Answer: E Explanation: E) The Sarbanes-Oxley Act requires corporate lawyers to report evidence of financial wrongdoing.

Page Ref: 395 Difficulty: Moderate Chapter LO: 2 Course LO: Describe the goals and stages of financial management for companies Classification: Concept

16 .

46) Identify the legislation that prohibits investment bankers from influencing stock analysts and requires CEOs and CFOs to sign statements attesting to the accuracy of their financial statements.

A) Reconstruction Finance Corporation Act B) Public Utility Company Act C) Ethics in Government Act D) Sarbanes-Oxley Act E) Financial Services Modernization Act Answer: D Explanation: D) The Sarbanes-Oxley Act prohibits investment bankers from influencing stock analysts. It also requires CEOs and CFOs to sign statements attesting to the accuracy of their financial statements.

Page Ref: 395 Difficulty: Easy Chapter LO: 2 Course LO: Describe the goals and stages of financial management for companies Classification: Concept 47) Assets - Liabilities = ________.

A) variable cost B) fixed cost C) liquidity D) business cost E) owner's equity Answer: E Explanation: E) Owners' equity refers to the portion of a company's assets that belongs to the owners after obligations to all creditors have been met. Owners' equity = Assets - Liabilities.

Page Ref: 396 Difficulty: Moderate Chapter LO: 3 Course LO: Describe the goals and stages of financial management for companies Classification: Concept

17 .

48) A company has the following assets: (1) Fixed assets worth $30,000 and (2) investments worth $6,000. The company's total liabilities amount to $25,000. What is the owner's equity of the company?

A) $24,000 B) $36,000 C) $5000 D) $30,000 E) $11,000 Answer: E Explanation: E) Owners' equity = Assets - Liabilities = $36,000-$25,000 = $11,000 Page Ref: 396 Difficulty: Difficult AACSB: Analytic Skills Chapter LO: 3 Course LO: Describe the goals and stages of financial management for companies Classification: Application 49) A company has $20,000 cash and $100,000 worth of land. Other assets of the company amount to $300,000. The firm has an outstanding loan of $200,000 and other liabilities adding up to $25,000. What is the owner's equity of the company?

A) $395,000 B) $95,000 C) $195,000 D) $175,000 E) $220,000 Answer: C Explanation: C) Total assets = $20,000 + $100,000 + $ 300,000 = $420,000 Total liabilities = $200,000 + $ 25,000 = $225,000 Owners' equity = Assets - Liabilities = $420,000-$225,000 = $195,000 Page Ref: 396 Difficulty: Difficult AACSB: Analytic Skills Chapter LO: 3 Course LO: Describe the goals and stages of financial management for companies Classification: Application

18 .

50) Which of the following is an example of company's asset?

A) inventory in the warehouse B) mortgage loans C) bonds issued by the company D) short-term loans E) debt security raised by the company Answer: A Explanation: A) Assets are things of value owned or leased by a business. Inventory is a thing of value that the company owns.

Page Ref: 396 Difficulty: Moderate Chapter LO: 3 Course LO: Describe the goals and stages of financial management for companies Classification: Concept 51) Which of the following statements is true of the double-entry bookkeeping system?

A) Depreciation is not considered when recording transactions under this system.

B) Only credit transactions are recorded under this system.

C) The system records only those transactions that bring in revenue.

D) The accounting equation is always kept in balance under the system.

E) A business does not run on a cash basis under the double-entry bookkeeping system.

Answer: D Explanation: D) Double-entry bookkeeping is a method of recording financial transactions that requires a debit entry and credit entry for each transaction to ensure that the accounting equation is always kept in balance.

Page Ref: 397 Difficulty: Moderate Chapter LO: 3 Course LO: Describe the goals and stages of financial management for companies Classification: Concept 52) The ________ requires that expenses incurred in producing revenues be deducted from the revenue they generated during the same accounting period.

A) principle of prudence B) deferral principle C) materiality principle D) matching principle E) principle of continuity Answer: D Explanation: D) The matching principle is the fundamental principle requiring that expenses incurred in producing revenue be deducted from the revenues they generate during an accounting period.

Page Ref: 397 Difficulty: Easy Chapter LO: 3 Course LO: Describe the goals and stages of financial management for companies Classification: Concept 19 .

53) ________ is an accounting method in which revenue is recorded when a sale is made and expense is recorded when it is incurred.

A) Accrual basis B) Cash basis C) Profit basis D) Depreciation E) Deferral basis Answer: A Explanation: A) Accrual basis is an accounting method in which revenue is recorded when a sale is made and expense is recorded when it is incurred rather than deferring it.

Page Ref: 397 Difficulty: Easy Chapter LO: 3 Course LO: Describe the goals and stages of financial management for companies Classification: Concept 54) ________ is an accounting method in which revenue is recorded when payment is received and expense is recorded when money is paid.

A) Accrual basis B) Profit basis C) Cash basis D) Depreciation E) Deferral basis Answer: C Explanation: C) Cash basis is an accounting method in which revenue is recorded when payment is received and expense is recorded when cash is paid. Checking account is a simple cash-based accounting system in this case.

Page Ref: 397 Difficulty: Easy Chapter LO: 3 Course LO: Describe the goals and stages of financial management for companies Classification: Concept

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55) Charles Associates is an accounting firm that provides accounting services to many companies across the United States. The company follows an accounting system where it records revenue only when the money is actually received. Identify the accounting system that this company is using.

A) depreciation B) deferral basis C) accrual basis D) profit basis E) cash basis Answer: E Explanation: E) If a business runs on a cash basis, it records revenue only when money from the sale is actually received. Charles associates is following such a system here.

Page Ref: 397 Difficulty: Difficult AACSB: Analytic Skills Chapter LO: 3 Course LO: Describe the goals and stages of financial management for companies Classification: Application 56) ________ is an accounting procedure for systematically spreading the cost of a tangible asset over its estimated useful life.

A) Profit basis B) Accrual basis C) Cash basis D) Depreciation E) Deferral basis Answer: D Explanation: D) Depreciation is an accounting procedure for systematically spreading the cost of a tangible asset over its estimated useful life.

Page Ref: 397 Difficulty: Easy Chapter LO: 3 Course LO: Describe the goals and stages of financial management for companies Classification: Concept

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57) Rambo Footwear is a Chinese shoe manufacturing company. The company spends a large amount to buy machinery for a new plant that it has set up. Instead of adding this in the current year's expense the company's accounting spreads the cost over a period of fifteen years. This accounting practice of spreading costs is called ________.

A) accrual basis B) depreciation C) amortization D) cash basis E) cash balancing Answer: B Explanation: B) Depreciation is an accounting procedure for systematically spreading the cost of a tangible asset over its estimated useful life. The company is using depreciation in this case.

Page Ref: 397 Difficulty: Difficult AACSB: Analytic Skills Chapter LO: 3 Course LO: Describe the goals and stages of financial management for companies Classification: Application 58) Which of the following is a key difference between depreciation and amortization?

A) Amortization is applicable for long-term assets, whereas depreciation is applicable for shortterm assets.

B) Depreciation applies to tangible assets, whereas amortization applies to intangible assets.

C) Amortization is calculated for liabilities, whereas depreciation is calculated for assets.

D) Amortization is calculated for assets, whereas depreciation is calculated for liabilities.

E) Depreciation is applicable for long-term assets, whereas amortization is applicable for shortterm assets.

Answer: B Explanation: B) Depreciation refers to the cost of a tangible long-term asset over a period of time and is a way that companies match expenses with revenue. For intangible assets, this allocation over time is known as amortization.

Page Ref: 397 Difficulty: Moderate Chapter LO: 3 Course LO: Describe the goals and stages of financial management for companies Classification: Concept

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59) Transferring net revenue and expense account balances to retained earnings for the period is referred to as ________.

A) multiple-entry bookkeeping B) matching the account C) closing the books D) single-entry bookkeeping E) measuring current balance Answer: C Explanation: C) Closing the books refers to transferring net revenue and expense account balances to retained earnings for the period. It is performed after all individual transactions are recorded and summarized.

Page Ref: 398 Difficulty: Easy Chapter LO: 4 Course LO: Describe the goals and stages of financial management for companies Classification: Concept 60) You are planning to invest in a real estate firm. You want to analyze the firm's financial strengths in terms of the overall assets and liabilities. Which of the following reports is best suited to estimate this on a particular date?

A) long-term expense report B) profit and loss statement C) balance sheet D) cash flow statement E) short-term expense report Answer: C Explanation: C) The balance sheet, also known as the statement of financial position, is a snapshot of a company's financial position on a particular date. It lists all assets and liabilities of a firm.

Page Ref: 398 Difficulty: Difficult AACSB: Analytic Skills Chapter LO: 4 Course LO: Describe the goals and stages of financial management for companies Classification: Application

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61) ________ is a statement of a firm's financial position on a particular date and is known as a statement of financial position.

A) Cash flow statement B) Balance sheet C) Income statement D) Expense report E) Profit and loss statement Answer: B Explanation: B) Balance sheet is a statement of a firm's financial position on a particular date. It is also known as a statement of financial position.

Page Ref: 398 Difficulty: Easy Chapter LO: 4 Course LO: Describe the goals and stages of financial management for companies Classification: Concept 62) Which of the following is an example of a current asset?

A) accounts receivable B) goodwill C) land D) equipment E) intellectual property Answer: A Explanation: A) Current assets include cash and other items that will or can become cash within the following year. Accounts receivable is a current asset.

Page Ref: 401 Difficulty: Easy Chapter LO: 4 Course LO: Describe the goals and stages of financial management for companies Classification: Concept 63) Which of the following is an example of a fixed asset?

A) transportation equipment B) money-market funds C) cash in hand D) accounts receivable E) short-term investments Answer: A Explanation: A) Fixed assets are assets retained for long-term use, such as land, buildings, machinery, and equipment. Transportation equipment is a long-term asset and is typically used for more than one year.

Page Ref: 401 Difficulty: Moderate Chapter LO: 4 Course LO: Describe the goals and stages of financial management for companies Classification: Concept 24 .

64) Which of the following statements is true of the order in which assets are listed in the balance sheet?

A) Assets such as property and plant are mentioned first in a balance sheet.

B) Fixed assets are listed before current assets in a balance sheet.

C) Current assets are not generally mentioned in a balance sheet.

D) Assets are listed in descending order by liquidity in the balance sheet.

E) Current and fixed assets are listed in no particular order in a balance sheet.

Answer: D Explanation: D) In a balance sheet, assets are listed in descending order by liquidity, or the ease with which they can be converted into cash. Thus, current assets are listed before fixed assets.

Page Ref: 401 Difficulty: Moderate Chapter LO: 4 Course LO: Describe the goals and stages of financial management for companies Classification: Concept 65) Accrued expenses are expenses that ________.

A) are likely to be incurred at a future time in a different financial year B) have been incurred but for which bills have not yet been received C) are long-term liabilities that have been incurred in a financial year D) have been incurred and for which the bills have been received E) are likely to be incurred at a future time in the same financial year Answer: B Explanation: B) Accrued expenses are expenses that have been incurred but for which bills have not yet been received. For example, because salespeople at Computer Central Services earn commissions, the company has a liability to those employees after the sale is made - regardless of when a check is issued to the employee.

Page Ref: 401 Difficulty: Easy Chapter LO: 4 Course LO: Describe the goals and stages of financial management for companies Classification: Concept

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66) Robex Woodworks is a furniture manufacturer. The company has purchased timber worth $5,000 from one of its suppliers and has not paid them yet. This amount is recorded as ________ in the balance sheet.

A) accrued expense B) owners' equity C) supplier's equity D) accounts payable E) deferred expense Answer: D Explanation: D) Accounts payable includes the money the company owes its suppliers as well as money it owes vendors for miscellaneous services (such as electricity and telephone charges).

Page Ref: 401 Difficulty: Difficult AACSB: Analytic Skills Chapter LO: 4 Course LO: Describe the goals and stages of financial management for companies Classification: Application 67) Which of the following expenses is classified as accounts payable?

A) electricity charges B) sales commissions C) employee salaries D) interest on bonds E) loans from banks Answer: A Explanation: A) Accounts payable includes the money the company owes its suppliers as well as money it owes vendors for miscellaneous services (such as electricity and telephone charges).

Page Ref: 401 Difficulty: Moderate Chapter LO: 4 Course LO: Describe the goals and stages of financial management for companies Classification: Concept

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68) A U.S. company issues bonds to generate money for expanding its business to China. The company generates a sum of $50,000 in this fashion. This money is an example of a(n) ________.

A) short-term finance B) long-term liability C) owners' equity D) accrued expense E) payable account Answer: B Explanation: B) Long-term liabilities are obligations that fall due more than a year from the date of the balance sheet. Long-term liabilities include loans, leases, and bonds.

Page Ref: 401 Difficulty: Difficult AACSB: Analytic Skills Chapter LO: 4 Course LO: Describe the goals and stages of financial management for companies Classification: Application 69) ________ is a financial record of a company's revenues, expenses, and profits over a given period of time.

A) Statement of current assets B) Income statement C) Balance sheet D) Cash flow statement E) Statement of financial position Answer: B Explanation: B) Income statement is a financial record of a company's revenues, expenses, and profits over a given period of time. It is also known as a profit and loss statement.

Page Ref: 402 Difficulty: Easy Chapter LO: 5 Course LO: Describe the goals and stages of financial management for companies Classification: Concept

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70) Which of the following reports is best suited to analyze an organization's profitability over a period of time?

A) statement of financial position B) balance sheet C) cash flow statement D) income statement E) statement of current assets Answer: D Explanation: D) The income statement or profit-and-loss statement shows an organization's profit performance over a period of time, typically one year.

Page Ref: 402 Difficulty: Moderate Chapter LO: 5 Course LO: Describe the goals and stages of financial management for companies Classification: Concept 71) The profit earned or loss incurred by a firm, determined by subtracting expenses from revenues, is referred to as the ________.

A) working capital B) current asset C) net income D) net sales E) gross income Answer: C Explanation: C) Net income is the profit earned or loss incurred by a firm, determined by subtracting expenses from revenues. It is casually referred to as the bottom line.

Page Ref: 402 Difficulty: Easy Chapter LO: 5 Course LO: Describe the goals and stages of financial management for companies Classification: Concept 72) Net sales - cost of goods sold = ________.

A) working capital B) current asset C) gross profit D) net profit E) current liability Answer: C Explanation: C) Gross profit is the amount remaining when the cost of goods sold is deducted from net sales. It is also known as gross margin.

Page Ref: 403 Difficulty: Easy Chapter LO: 5 Course LO: Describe the goals and stages of financial management for companies Classification: Concept 28 .

73) Which of the following is classified as a general expense?

A) promotional expenses B) wages of salespeople C) legal fees paid D) advertising costs E) depreciation costs of showroom Answer: C Explanation: C) General expenses are operating expenses incurred in the overall administration of a business. They include such items as professional services (such as accounting and legal fees), office salaries, depreciation of office equipment, insurance for office operations, and supplies.

Page Ref: 403 Difficulty: Moderate Chapter LO: 5 Course LO: Describe the goals and stages of financial management for companies Classification: Concept 74) Expenses incurred through marketing and distributing a product are referred to as ________ expenses.

A) organization B) permanent C) general D) selling E) administration Answer: D Explanation: D) Selling expenses are operating expenses incurred through marketing and distributing the product (such as wages or salaries of salespeople, advertising, supplies, insurance for the sales operation, depreciation for the store and sales equipment, and other sales department expenses such as telephone charges).

Page Ref: 403 Difficulty: Easy Chapter LO: 5 Classification: Concept

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75) A firm has $30,000 cash and other current assets amount to $55,000. Total amount of current liabilities add up to $50,000. Calculate the total working capital of this firm.

A) $20,000 B) $5,000 C) $30,000 D) $85,000 E) $35,000 Answer: E Explanation: E) Working capital = Current assets - current liabilities.

Current assets = $30,000 + $55,000 = $85,000 Working capital = $85,000-$50,000 = $35,000 Page Ref: 406 Difficulty: Difficult AACSB: Analytic Skills Chapter LO: 6 Course LO: Describe the goals and stages of financial management for companies Classification: Application 76) ________ ratio is calculated by dividing current assets by current liabilities.

A) Debt-to-equity B) Current C) Quick D) Acid-test E) Inventory turnover Answer: B Explanation: B) Current ratio is a measure of a firm's short-term liquidity. It is calculated by dividing current assets by current liabilities.

Page Ref: 406 Difficulty: Easy Chapter LO: 6 Course LO: Describe the goals and stages of financial management for companies Classification: Concept 77) Which of the following ratios is used to measure a firm's short-term liquidity?

A) accounts receivable turnover ratio B) inventory turnover ratio C) quick ratio D) debt-to-equity ratio E) equity-to-debt ratio Answer: C Explanation: C) Quick ratio is a measure of a firm's short-term liquidity. It is calculated by adding cash, marketable securities, and receivables, then dividing that sum by current liabilities.

Page Ref: 406 Difficulty: Easy Chapter LO: 6 Course LO: Describe the goals and stages of financial management for companies Classification: Concept 30 .

78) Which of the following is an example of an activity ratio?

A) inventory turnover ratio B) acid-test ratio C) debt-to-equity ratio D) current ratio E) debt-to-assets ratio Answer: A Explanation: A) Activity ratios analyze how well a company is managing and making use of its assets. The inventory turnover ratio, which measures how fast a company's inventory is turned into sales, is an example of an activity ratio.

Page Ref: 406 Difficulty: Easy Chapter LO: 6 Course LO: Describe the goals and stages of financial management for companies Classification: Concept 79) Activity ratios analyze ________.

A) how well a company is making use of its assets B) a firm's ability to pay its short-term obligations C) a firm's ability to pay its long-term obligations D) the leverage status of a company in question E) the extent to which a business is financed by debt Answer: A Explanation: A) Activity ratios analyze how well a company is managing and making use of its assets. The inventory turnover ratio and accounts receivable turnover ratio are examples of activity ratios.

Page Ref: 406 Difficulty: Easy Chapter LO: 6 Course LO: Describe the goals and stages of financial management for companies Classification: Concept

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80) A firm's current liabilities amount to $30,000. It does not have any marketable securities and receivables amount to $20,000. Calculate the acid-test ratio of the firm if it has $40,000 cash in hand.

A) 2.0 B) 0.5 C) 1.0 D) 1.67 E) 1.5 Answer: A Explanation: A) Acid-test ratio is calculated by adding cash, marketable securities, and receivables, then dividing that sum by current liabilities. It is a measure of a firm's short-term liquidity.

Acid-test ratio = (cash + marketable securities + receivables)/current liabilities = ($40,000 + 0 + $20,000)/$30,000 = 2.0.

Page Ref: 406 Difficulty: Difficult AACSB: Analytic Skills Chapter LO: 6 Course LO: Describe the goals and stages of financial management for companies Classification: Application 81) A reduction in a manufacturer's inventory turnover ratio is likely to indicate that the ________.

A) market growth has been very high B) sales are slowing down C) forecasting has been accurate D) company is in a strong financial position E) company has long-term debt obligations Answer: B Explanation: B) A decline in a manufacturer's inventory turnover ratio would indicate that sales are slowing down, or it could mean sales are steady but the company made some forecasting errors and as a result produced more goods than it needed.

Page Ref: 408 Difficulty: Moderate Chapter LO: 6 Course LO: Describe the goals and stages of financial management for companies Classification: Concept

32 .

82) Which of the following is a leverage ratio?

A) inventory turnover ratio B) debt-to-equity ratio C) current ratio D) acid-test ratio E) accounts receivable turnover ratio Answer: B Explanation: B) A company's ability to pay its long-term debts is reflected in its leverage ratios.

Debt-to-equity ratio is a leverage ratio.

Page Ref: 408 Difficulty: Easy Chapter LO: 6 Course LO: Describe the goals and stages of financial management for companies Classification: Concept 83) Leverage ratios indicate ________.

A) how well a company is making use of its assets B) a firm's ability to pay its short-term debts C) how well a company is making use of its investments D) a firm's ability to pay its long-term obligations E) a firm's ability to meet short-term obligations Answer: D Explanation: D) A company's ability to pay its long-term debts is reflected in its leverage ratios, also known as debt ratios.

Page Ref: 408 Difficulty: Easy Chapter LO: 6 Course LO: Describe the goals and stages of financial management for companies Classification: Concept 84) Total liabilities divided by total assets will yield the ________ ratio.

A) debt-to-equity ratio B) current ratio C) acid-test ratio D) asset turnover ratio E) debt-to-assets ratio Answer: E Explanation: E) Debt-to-assets ratio is a measure of a firm's ability to carry long-term debt, calculated by dividing total liabilities by total assets.

Page Ref: 408 Difficulty: Easy Chapter LO: 6 Course LO: Describe the goals and stages of financial management for companies Classification: Concept

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85) Compare and contrast management accounting with financial accounting.

Answer: Because outsiders and insiders use accounting information for different purposes, accounting has two distinct facets. Financial accounting is concerned with preparing financial statements and other information for outsiders such as stockholders and creditors (people or organizations that have lent a company money or have extended it credit); management accounting is concerned with preparing cost analyses, profitability reports, budgets, and other information for insiders such as management and other company decision makers. Management accounting is for internal use, whereas financial accounting is for external use.

Page Ref: 391 Difficulty: Difficult AACSB: Reflective Thinking Skills Chapter LO: 1 Course LO: Describe the goals and stages of financial management for companies Classification: Synthesis 86) Explain how private accountants function.

Answer: Private accountants work for corporations, government agencies, and not-for-profit organizations. Their titles vary by function and include corporate accountant, managerial accountant, and cost accountant. Private accountants generally work together as a team under the supervision of the organization's controller, who reports to the vice president of finance or the chief financial officer (CFO). In smaller organizations, the controller may be in charge of the company's entire finance operation and report directly to the president.

Page Ref: 392 Difficulty: Moderate Chapter LO: 1 Course LO: Describe the goals and stages of financial management for companies Classification: Concept 87) Compare and contrast public accountants and private accountants.

Answer: Private accountants are in-house accountants employed by organizations and businesses other than a public accounting firm. They are also called corporate accountants.

In contrast to private accountants, public accountants are independent of the businesses, organizations, and individuals they serve. Most public accountants are employed by public accounting firms that provide a variety of accounting and consulting services to their clients.

Page Ref: 392; 393 Difficulty: Difficult AACSB: Reflective Thinking Skills Chapter LO: 1 Course LO: Describe the goals and stages of financial management for companies Classification: Synthesis

34 .

88) What is GAAP? Answer: GAAP refers to generally accepted accounting principles. They refer to the standards and practices used by publicly-held corporations in the United States, and a few other countries, in the preparation of financial statements. GAAP is on course to converge with IFRS. Page Ref: 394 Difficulty: Easy Chapter LO: 2 Course LO: Describe the goals and stages of financial management for companies Classification: Concept 89) Analyze the major postulates of the international financial reporting standards and conduct a class discussion on its relevance.

Answer: Students should form groups and prepare well before the discussion.

The discussion should include such issues as a comparison with GAAP and the significance of IFRS. This is an activity to be performed in class.

Page Ref: 394 Difficulty: Difficult AACSB: Reflective Thinking Skills Chapter LO: 2 Course LO: Describe the goals and stages of financial management for companies Classification: Synthesis 90) Describe the major provisions of the Sarbanes-Oxley Act. Answer: The major provisions of the Sarbanes-Oxley act include the following: (1) Outlawing most loans by corporations to their own directors and executives (2) Creating the Public Company Accounting Oversight Board (PCAOB) to oversee external auditors (3) Requiring corporate lawyers to report evidence of financial wrongdoing (4) Prohibiting external auditors from providing certain nonaudit services (5) Requiring that audit committees on the board of directors have at least one financial expert and that the majority of board members be independent (not employed by the company in an executive position) (6) Prohibiting investment bankers from influencing stock analysts (7) Requiring CEOs and CFOs to sign statements attesting to the accuracy of their financial statements (8) Requiring companies to document and test their internal financial controls and processes Page Ref: 395 Difficulty: Easy Chapter LO: 2 Course LO: Describe the goals and stages of financial management for companies Classification: Concept

35 .

91) Describe double-entry bookkeeping and the matching principle.

Answer: Double-entry bookkeeping is a method of recording financial transactions that requires a debit entry and credit entry for each transaction to ensure that the accounting equation is always kept in balance. Matching principle is the fundamental principle requiring that expenses incurred in producing revenue be deducted from the revenues they generate during an accounting period.

Page Ref: 397 Difficulty: Easy Chapter LO: 3 Course LO: Describe the goals and stages of financial management for companies Classification: Concept 92) Compare and contrast accrual basis accounting and cash basis accounting.

Answer: Accountants match revenue to expenses by adopting the accrual basis of accounting, which states that revenue is recognized when you make a sale or provide a service, not when you get paid. Similarly, your expenses are recorded when you receive the benefit of a service or when you use an asset to produce revenue - not when you pay for it. Accrual accounting focuses on the economic substance of an event rather than on the movement of cash. It's a way of recognizing that revenue can be earned either before or after cash is received and that expenses can be incurred when a company receives a benefit (such as a shipment of supplies) either before or after the benefit is paid for.

If a business runs on a cash basis, the company records revenue only when money from the sale is actually received. Your checking account is a simple cash-based accounting system. You record checks, debit card charges, and ATM withdrawals at the time of purchase and record deposits at the time of receipt. Cash-based accounting is simple, but it can be misleading. It's easy to inflate income, for example, by delaying the payment of bills. For that reason, public companies are required to keep their books on an accrual basis.

Page Ref: 397 Difficulty: Difficult AACSB: Reflective Thinking Skills Chapter LO: 6 Course LO: Describe the goals and stages of financial management for companies Classification: Synthesis 93) What is a balance sheet? Why is it called a balance sheet?

Answer: Balance sheet is a statement of a firm's financial position on a particular date. It is also known as a statement of financial position. In effect, it freezes all business actions and provides a baseline from which a company can measure change from that point forward. The statement is called a balance sheet because it includes all elements in the accounting equation and shows the balance between assets on one side of the equation and liabilities and owners' equity on the other side.

Page Ref: 398; 399 Difficulty: Moderate Chapter LO: 4 Course LO: Describe the goals and stages of financial management for companies Classification: Concept 36 .

94) Explain the significance of the income statement of a business.

Answer: The income statement, or profit-and-loss statement, shows an organization's profit performance over a period of time, typically one year. It summarizes revenue from all sources as well as all expenses, the costs that have arisen in generating revenues. Expenses and income taxes are then subtracted from revenues to show the actual profit or loss of a company, a figure known as net income - also called profit or, informally, the bottom line. By briefly reviewing a company's income statements, you should have a general sense of the company's size, its trend in sales, its major expenses, and the resulting net income or loss.

Page Ref: 402 Difficulty: Moderate Chapter LO: 5 Course LO: Describe the goals and stages of financial management for companies Classification: Concept 95) Describe cost of goods sold and operating expenses.

Answer: Cost of goods sold refers to the cost of producing or acquiring a company's products for sale during a given period. Operating expenses refer to all costs of operation that are not included under cost of goods sold.

Page Ref: 403 Difficulty: Easy Chapter LO: 5 Course LO: Describe the goals and stages of financial management for companies Classification: Concept 96) Briefly explain trend analysis.

Answer: The process of comparing financial data from year to year is known as trend analysis.

You can use trend analysis to uncover shifts in the nature of a business over time. Of course, when you are comparing one period with another, it's important to take into account the effects of extraordinary or unusual items such as the sale of major assets, the purchase of a new line of products from another company, weather, or economic conditions that may have affected the company in one period but not the next. These extraordinary items are usually disclosed in the text portion of a company's annual report or in the notes to the financial statements.

Page Ref: 405 Difficulty: Moderate Chapter LO: 6 Course LO: Describe the goals and stages of financial management for companies Classification: Concept

37 .

97) Compare and contrast quick ratio and current ratio. Which one do you think is more accurate?

Answer: Current ratio is a measure of a firm's short-term liquidity, calculated by dividing current assets by current liabilities. Quick ratio is also a measure of a firm's short-term liquidity.

It is calculated by adding cash, marketable securities, and receivables, then dividing that sum by current liabilities. Quick ratio leaves out inventories which may often be difficult to sell. Because of this difference, quick ratio is a better indicator of a firm's ability to pay creditors than the current ratio.

Page Ref: 406 Difficulty: Difficult AACSB: Reflective Thinking Skills Chapter LO: 6 Course LO: Describe the goals and stages of financial management for companies Classification: Synthesis 98) Compare and contrast different types of financial ratios.

Answer: Organizations can analyze how well a company is conducting its ongoing operations by computing profitability ratios. They show the state of the company's financial performance or how well it's generating profits.

Liquidity ratios measure a firm's ability to pay its short-term obligations. As you might expect, lenders and creditors are keenly interested in liquidity measures. A company's working capital (current assets minus current liabilities) is an indicator of liquidity because it represents current assets remaining after the payment of all current liabilities.

Activity ratios analyze how well a company is managing and making use of its assets.

A company's ability to pay its long-term debts is reflected in its leverage ratios, also known as debt ratios. Both lenders and investors use these ratios to judge a company's risk and growth potential.

Page Ref: 406; 407; 408 Difficulty: Difficult AACSB: Reflective Thinking Skills Chapter LO: 6 Course LO: Describe the goals and stages of financial management for companies Classification: Synthesis

38 .

99) Select a manufacturing industry of your choice. Conduct a ratio analysis of three major firms in the industry to determine and compare the activity ratios in the industry. Analyze the results that you have calculated.

Answer: Activity ratios analyze how well a company is managing and making use of its assets.

In this exercise, the students should calculate inventory turnover ratio and accounts receivable turnover ratio.

Inventory turnover ratio is a measure of the time a company takes to turn its inventory into sales, calculated by dividing cost of goods sold by the average value of inventory for a period.

Accounts receivable turnover ratio is a measure of the time a company takes to turn its accounts receivable into cash, calculated by dividing sales by the average value of accounts receivable for a period.

Student answers will vary due to the nature of this exercise.

Page Ref: 406; 407; 408 Difficulty: Difficult AACSB: Reflective Thinking Skills Chapter LO: 6 Course LO: Describe the goals and stages of financial management for companies Classification: Synthesis 100) Obtain the financial statements of a public company of your choice. Conduct a ratio analysis to determine the leverage ratios of the company. Comment on the company's growth potential and risk based on your analysis.

Answer: A company's ability to pay its long-term debts is reflected in its leverage ratios, also known as debt ratios. Both lenders and investors use these ratios to judge a company's risk and growth potential.

Students should calculate the debt-to-equity ratio and the debt-to-assets ratio.

The debt-to-equity ratio (total liabilities divided by total equity) indicates the extent to which a business is financed by debt as opposed to invested capital (equity). From a lender's standpoint, the higher this ratio is, the riskier the loan, because the company must devote more of its cash to debt payments. From an investor's standpoint, a higher ratio indicates that the company is spending more of its cash on interest payments than on investing in activities that will help raise the stock price. Students should analyze the ratio based on the company and industry they have selected.

The debt-to-assets ratio (total liabilities divided by total assets) indicates how much of the company's assets are financed by creditors. As with the debt-to-equity ratio, the higher this ratio gets, the riskier the company looks to a lender. From an investor's perspective, though, a high level of debt relative to assets could indicate that a company is making aggressive moves to grow without diluting the value of existing shares by offering more shares for sale.

Student answers will vary due to the nature of this question.

Page Ref: 408 Difficulty: Difficult AACSB: Reflective Thinking Skills Chapter LO: 6 Course LO: Describe the goals and stages of financial management for companies Classification: Synthesis

39 .

Business in Action, 6e (Bovee/Thill) Chapter 18 Financial Management 1) Financial decisions with high perceived risk will have low potential for rewards.

Answer: FALSE Explanation: Most financial decisions involve balancing potential risks against potential rewards. Generally speaking, the higher the perceived risk, the higher the potential reward.

Page Ref: 415 Difficulty: Moderate Chapter LO: 1 Course LO: Describe the goals and stages of financial management for companies Classification: Concept 2) Highly leveraged companies will have adequate funds to spend on advertising, staffing, and product development.

Answer: FALSE Explanation: Companies that are highly leveraged (that is, carrying a lot of debt) are forced to devote more of their cash flow to debt service and therefore can't spend that money on advertising, staffing, or product development.

Page Ref: 415 Difficulty: Easy Chapter LO: 1 Course LO: Describe the goals and stages of financial management for companies Classification: Concept 3) A financial plan outlines the funds needed for a certain period of time.

Answer: TRUE Explanation: A financial plan is a document that outlines the funds needed for a certain period of time, along with the sources and intended uses of those funds.

Page Ref: 416 Difficulty: Easy Chapter LO: 1 Course LO: Describe the goals and stages of financial management for companies Classification: Concept 4) Revenue obtained through selling assets is an example of an external source of income.

Answer: FALSE Explanation: Internal sources of income are the following: (1) revenue from sales, (2) investment income, (3) revenue from selling assets.

Page Ref: 417 Difficulty: Moderate Chapter LO: 1 Course LO: Describe the goals and stages of financial management for companies Classification: Concept

1 .

5) Accounts receivable refers to the money owed to a firm by its customers.

Answer: TRUE Explanation: The money owed to a firm by its customers is referred to as accounts receivable.

Page Ref: 417 Difficulty: Easy Chapter LO: 1 Course LO: Describe the goals and stages of financial management for companies Classification: Concept 6) Inventory represents a cost while it is waiting to be sold.

Answer: TRUE Explanation: Inventory represents a cost while it's sitting there waiting to be sold. It has the potential to be converted to cash but must be sold first.

Page Ref: 418 Difficulty: Easy Chapter LO: 1 Course LO: Describe the goals and stages of financial management for companies Classification: Concept 7) Budget reflects expected revenues, cash receipts, and outlays.

Answer: TRUE Explanation: Budget is a planning and control tool that reflects expected revenues, operating expenses, and cash receipts and outlays.

Page Ref: 419 Difficulty: Easy Chapter LO: 2 Course LO: Describe the goals and stages of financial management for companies Classification: Concept 8) Hedging refers to selling a product at a higher rate than what was determined.

Answer: FALSE Explanation: Hedging refers to protecting against cost increases with contracts that allow a company to buy supplies in the future at designated prices.

Page Ref: 420 Difficulty: Easy Chapter LO: 2 Course LO: Describe the goals and stages of financial management for companies Classification: Concept

2 .

9) Rolling forecasts are not based on revenue budgets and cost assumptions.

Answer: FALSE Explanation: In rolling forecasts, a company starts the year with a budget based on revenue and cost assumptions made at that point but then reviews economic performance every month or every quarter to see whether the budget needs to be modified as the year progresses.

Page Ref: 420 Difficulty: Easy Chapter LO: 2 Course LO: Describe the goals and stages of financial management for companies Classification: Concept 10) An operational budget outlines expenditures for real estate, new facilities, and major equipments.

Answer: FALSE Explanation: A capital budget outlines expenditures for real estate, new facilities, major equipment, and other capital investments.

Page Ref: 421 Difficulty: Easy Chapter LO: 2 Course LO: Describe the goals and stages of financial management for companies Classification: Concept 11) Equity financing refers to arranging funding by selling ownership shares in the company.

Answer: TRUE Explanation: Equity financing refers to arranging funding by selling ownership shares in the company. Shares can be sold publicly or privately.

Page Ref: 422 Difficulty: Easy Chapter LO: 3 Course LO: Describe the goals and stages of financial management for companies Classification: Concept 12) Short-term financing is financing that will be repaid within one year.

Answer: TRUE Explanation: Short-term financing is financing that will be repaid within one year. It is used to cover current expenses.

Page Ref: 423 Difficulty: Easy Chapter LO: 3 Course LO: Describe the goals and stages of financial management for companies Classification: Concept

3 .

13) Shareholders of a firm have prior claims on the firm's assets.

Answer: FALSE Explanation: Lenders have prior claims on assets. Shareholders have claims only after the firm satisfies claims of lenders.

Page Ref: 423 Difficulty: Moderate Chapter LO: 3 Course LO: Describe the goals and stages of financial management for companies Classification: Concept 14) Cost of capital is the average rate of interest a firm pays on its combination of debt and equity.

Answer: TRUE Explanation: Cost of capital is the average rate of interest a firm pays on its combination of debt and equity.

Page Ref: 423 Difficulty: Easy Chapter LO: 3 Course LO: Describe the goals and stages of financial management for companies Classification: Concept 15) Leverage is the technique of increasing the rate of return on an investment by financing it with borrowed funds.

Answer: TRUE Explanation: Leverage is the technique of increasing the rate of return on an investment by financing it with borrowed funds.

Page Ref: 424 Difficulty: Easy Chapter LO: 3 Course LO: Describe the goals and stages of financial management for companies Classification: Concept 16) Secured loans are backed up with assets that the lender can claim in case of default.

Answer: TRUE Explanation: Secured loans are loans backed up with assets that the lender can claim in case of default, such as a piece of property.

Page Ref: 427 Difficulty: Easy Chapter LO: 4 Course LO: Describe the goals and stages of financial management for companies Classification: Concept

4 .

17) Commercial paper is an arrangement in which a financial institution makes money available for use at any time after the loan has been approved.

Answer: FALSE Explanation: An arrangement in which a financial institution makes money available for use at any time after the loan has been approved is referred to as line of credit.

Page Ref: 427 Difficulty: Moderate Chapter LO: 4 Course LO: Describe the goals and stages of financial management for companies Classification: Concept 18) Factoring refers to lending a lump sum of cash via a promissory note or on-demand access without accepting any other securities.

Answer: FALSE Explanation: Factoring is a source of finance where a company sells its accounts receivable to an intermediary that collects from the customer.

Page Ref: 427 Difficulty: Moderate Chapter LO: 4 Course LO: Describe the goals and stages of financial management for companies Classification: Concept 19) Term loans have maturities between three months to one year.

Answer: FALSE Explanation: Term loans can have maturities between 1 and 25 years, depending on the lender and the purpose of the loan.

Page Ref: 429 Difficulty: Easy Chapter LO: 5 Course LO: Describe the goals and stages of financial management for companies Classification: Concept 20) Long-term loans on real estate are called mortgages.

Answer: TRUE Explanation: Long-term loans on real estate are called mortgages. Such loans can provide substantial capital to businesses.

Page Ref: 429 Difficulty: Easy Chapter LO: 5 Course LO: Describe the goals and stages of financial management for companies Classification: Concept

5 .

21) Lease is an agreement to use an asset in exchange for regular payment.

Answer: TRUE Explanation: Lease is an agreement to use an asset in exchange for regular payment. It is similar to renting.

Page Ref: 430 Difficulty: Easy Chapter LO: 5 Course LO: Describe the goals and stages of financial management for companies Classification: Concept 22) Debentures are backed by specific assets that will be given to bondholders if the borrowed amount is not repaid.

Answer: FALSE Explanation: Debentures are unsecured bonds. They are backed only by the corporation's promise to pay.

Page Ref: 430 Difficulty: Easy Chapter LO: 5 Course LO: Describe the goals and stages of financial management for companies Classification: Concept 23) Venture capital is an example of private equity.

Answer: TRUE Explanation: Private equity refers to ownership assets that aren't publicly traded. It includes venture capital.

Page Ref: 432 Difficulty: Easy Chapter LO: 6 Course LO: Describe the goals and stages of financial management for companies Classification: Concept 24) Venture capital is one of the least specialized and most widely available forms of funding.

Answer: FALSE Explanation: Venture capital is a specialized form of funding known as private equity (ownership assets that aren't publicly traded). It is one of the most specialized and least widely available forms of funding.

Page Ref: 432 Difficulty: Moderate Chapter LO: 6 Course LO: Describe the goals and stages of financial management for companies Classification: Concept

6 .

25) Underwriter is a specialized type of bank that buys the shares from the company preparing an IPO and sells them to investors.

Answer: TRUE Explanation: Underwriter is a specialized type of bank that buys the shares from the company preparing an IPO and sells them to investors.

Page Ref: 432 Difficulty: Easy Chapter LO: 6 Course LO: Describe the goals and stages of financial management for companies Classification: Concept 26) Which of the following is an internal source for obtaining funds for business?

A) issuing corporate bonds B) unsecured loans C) factoring D) commercial papers E) selling assets to obtain revenue Answer: E Explanation: E) Internal sources of revenue include revenue from sales, investment income, and revenue from selling assets.

Page Ref: 417 Difficulty: Moderate Chapter LO: 1 Course LO: Describe the goals and stages of financial management for companies Classification: Concept 27) Which of the following is the best example of an external source for obtaining funds for business?

A) revenue from selling assets B) funds from shareholders C) interest from deposits D) issuing corporate bonds E) earnings from investments Answer: D Explanation: D) Raising funds by issuing corporate bonds is an example of an external source of revenue.

Page Ref: 417 Difficulty: Moderate Chapter LO: 1 Course LO: Describe the goals and stages of financial management for companies Classification: Concept

7 .

28) Accounts receivable refers to ________.

A) the total of owner's funds invested in a business B) the total annual revenue of a company C) amounts that a firm owes to other parties D) the money owed to a firm by its customers E) the total interest payments made by the firm Answer: D Explanation: D) Accounts receivable is the amounts that are currently owed to a firm. It refers to the money owed to a firm by its customers.

Page Ref: 417 Difficulty: Easy Chapter LO: 1 Course LO: Describe the goals and stages of financial management for companies Classification: Concept 29) Doron is a manufacturer of plastic products. The company produces utensils and gift items.

Which of the following would appear as accounts payable in the company's balance sheet?

A) revenue obtained by selling assets to a supplier B) funds obtained through issuing corporate bonds C) a default payment made on a long-term loan D) funds obtained through issuing preference shares E) a bill that one of the suppliers has sent for a purchase Answer: E Explanation: E) Accounts payable refers to the amounts that a firm currently owes to other parties. A bill from the supplier for a purchase belongs to this category.

Page Ref: 417 Difficulty: Difficult AACSB: Analytic Skills Chapter LO: 1 Course LO: Describe the goals and stages of financial management for companies Classification: Application 30) Which of the following is a component of a firm's working capital account?

A) long-term loans B) debentures C) inventory D) mortgage bonds E) convertible bonds Answer: C Explanation: C) The working capital accounts represent a firm's cash on hand as well as economic value that can be converted to cash (inventory) or is expected from customers (accounts receivable), minus what it is scheduled to pay out (accounts payable).

Page Ref: 418 Difficulty: Moderate Chapter LO: 1 Course LO: Describe the goals and stages of financial management for companies Classification: Concept 8 .

31) ________ accounts represent a firm's cash on hand as well as economic value that can be converted to cash or is expected from customers, minus what it is scheduled to pay out.

A) Capital budget B) Trade credit C) Project budget D) Working capital E) Operating budget Answer: D Explanation: D) The working capital accounts represent a firm's cash on hand as well as economic value that can be converted to cash (inventory) or is expected from customers (accounts receivable), minus what it is scheduled to pay out (accounts payable).

Page Ref: 418 Difficulty: Easy Chapter LO: 1 Course LO: Describe the goals and stages of financial management for companies Classification: Concept 32) A company keeps $150,000 cash reserve to meet day-to-day expenses. The cash reserve is centralized and various branches can access money from the reserve to meet every-day expenses.

This cash reserve is part of the company's ________ account.

A) trade credit B) project budget C) fixed budget D) working capital E) capital budget Answer: D Explanation: D) The working capital accounts represent a firm's cash on hand as well as economic value that can be converted to cash (inventory) or is expected from customers (accounts receivable), minus what it is scheduled to pay out (accounts payable).

Page Ref: 418 Difficulty: Difficult AACSB: Analytic Skills Chapter LO: 1 Course LO: Describe the goals and stages of financial management for companies Classification: Application

9 .

33) Which of the following statements is true of a company's inventory?

A) It is an example of a long-term asset that companies hold.

B) It is the most liquid current asset of a company.

C) It has the potential to be converted to cash.

D) It is classified under accounts receivable.

E) It is not associated with costs when it is waiting to be sold.

Answer: C Explanation: C) Inventory has the potential to be converted to cash but must be sold first. It represents a cost while it's sitting there waiting to be sold.

Page Ref: 418 Difficulty: Moderate Chapter LO: 1 Course LO: Describe the goals and stages of financial management for companies Classification: Concept 34) A ________ is a planning and control tool that reflects expected revenues, operating expenses, and cash receipts and outlays.

A) data structure B) financial plan C) cash flow D) budget E) capital structure Answer: D Explanation: D) In addition to developing a financial plan and monitoring cash flow, financial managers are responsible for developing a budget. A budget is a planning and control tool that reflects expected revenues, operating expenses, and cash receipts and outlays.

Page Ref: 419 Difficulty: Easy Chapter LO: 2 Course LO: Describe the goals and stages of financial management for companies Classification: Concept 35) Hedging refers to forming contracts that allow a company to ________.

A) obtain funds for a short period without paying interest B) buy supplies in the future at designated prices C) finance long-term debt on a continuous basis D) engage in buyer-seller relationships with many firms E) issue letters of credit to buyers exterior to the home country Answer: B Explanation: B) Hedging refers to protecting against cost increases with contracts that allow a company to buy supplies in the future at designated prices.

Page Ref: 420 Difficulty: Easy Chapter LO: 2 Course LO: Describe the goals and stages of financial management for companies Classification: Concept 10 .

36) USS Agro is a firm that markets agricultural products. The firm procures supplies from agricultural cooperatives across the world. The firm forms agreements with the cooperatives to provide supplies at a fixed price in the future to protect them against changing prices. This is an example of ________.

A) zero-based budgeting B) inventorying C) liquidation D) hedging E) standardization Answer: D Explanation: D) Hedging refers to protecting against cost increases with contracts that allow a company to buy supplies in the future at designated prices. The given situation is an example of hedging.

Page Ref: 420 Difficulty: Difficult AACSB: Analytic Skills Chapter LO: 2 Course LO: Describe the goals and stages of financial management for companies Classification: Application 37) When using ________, a company starts the year with a budget based on revenue and cost assumptions made at that point but then reviews economic performance every month or every quarter to see whether the budget needs to be modified as the year progresses.

A) hedge-based budgeting B) scenario planning C) rolling forecasts D) product segmentation E) judgmental forecasting Answer: C Explanation: C) In rolling forecasts, the company starts the year with a budget based on revenue and cost assumptions made at that point but then reviews economic performance every month or every quarter to see whether the budget needs to be modified as the year progresses.

Page Ref: 420 Difficulty: Easy Chapter LO: 2 Course LO: Describe the goals and stages of financial management for companies Classification: Concept

11 .

38) ________ budget identifies the money a new company will need to spend to launch operations.

A) Master B) Start-up C) Capital D) Project E) Operating Answer: B Explanation: B) Start-up budget is a budget that identifies the money a new company will need to spend to launch operations.

Page Ref: 421 Difficulty: Easy Chapter LO: 2 Course LO: Describe the goals and stages of financial management for companies Classification: Concept 39) ________ refers to the rate at which the company is using up the funds from its initial investors.

A) Capital ratio B) Order rate C) Hedge rate D) Burn rate E) Current ratio Answer: D Explanation: D) Burn rate is the rate at which the company is using up the funds from its initial investors. It is a major concern while preparing a start-up budget.

Page Ref: 421 Difficulty: Easy Chapter LO: 2 Course LO: Describe the goals and stages of financial management for companies Classification: Concept 40) Burn rate is a major concern when preparing a(n) ________ budget.

A) start-up B) operating C) capital D) project E) master Answer: A Explanation: A) Burn rate is the rate at which the company is using up the funds from its initial investors. It is a major concern while preparing a start-up budget.

Page Ref: 421 Difficulty: Moderate Chapter LO: 2 Course LO: Describe the goals and stages of financial management for companies Classification: Concept 12 .

41) ________ budget identifies all sources of revenue and coordinates the spending of those funds throughout the coming year. It is also known as the master budget.

A) Launch B) Start-up C) Capital D) Project E) Operating Answer: E Explanation: E) Operating budget is a budget that identifies all sources of revenue and coordinates the spending of those funds throughout the coming year. It is also known as the master budget.

Page Ref: 421 Difficulty: Easy Chapter LO: 2 Course LO: Describe the goals and stages of financial management for companies Classification: Concept 42) Albert is the financial manager of a manufacturing firm. Albert has been an integral part of the firm ever since it started business in 2006. Albert's job has transformed over the years and every year he is responsible for creating a budget to identify all sources of raising funds and coordinates the spending of those funds throughout the company. This budget is an example of a(n) ________ budget.

A) start-up B) capital C) launch D) project E) operating Answer: E Explanation: E) After a company gets through the start-up phase, the financial manager's attention turns to the operating budget, sometimes known as the master budget, which identifies all sources of revenue and coordinates the spending of those funds throughout the coming year.

Page Ref: 421 Difficulty: Difficult AACSB: Analytic Skills Chapter LO: 2 Course LO: Describe the goals and stages of financial management for companies Classification: Application

13 .

43) ________ budget is a budget that outlines expenditures for real estate, new facilities, major equipment, and other such investments.

A) Operating B) Project C) Master D) Capital E) Start-up Answer: D Explanation: D) Capital budget is a budget that outlines expenditures for real estate, new facilities, major equipment, and other capital investments. For smaller capital purchases, a company might designate a certain percentage of its annual operating budget for capital items every year.

Page Ref: 421 Difficulty: Easy Chapter LO: 2 Course LO: Describe the goals and stages of financial management for companies Classification: Concept 44) Forter Consultants is a firm that provides cloud computing and remote storage services to firms in the United States. The company plans to buy more servers to increase its operating and storing capacity. It also creates a budget for the purchase and it estimates the total cost to be about $3 million. The budget created for this transaction is an example of a(n) ________ budget.

A) operating B) project C) master D) launch E) capital Answer: E Explanation: E) Capital budget is a budget that outlines expenditures for real estate, new facilities, major equipment, and other capital investments. The given case describes budgeting for buying capital equipments.

Page Ref: 421 Difficulty: Difficult AACSB: Analytic Skills Chapter LO: 2 Course LO: Describe the goals and stages of financial management for companies Classification: Application

14 .

45) ________ budget identifies the costs needed to accomplish a particular assignment.

A) Operating B) Project C) Master D) Capital E) Start-up Answer: B Explanation: B) Project budget identifies the costs needed to accomplish a particular project.

Project managers typically request funding based on their estimates of the cost to complete the project and its value to the company.

Page Ref: 421 Difficulty: Easy Chapter LO: 2 Course LO: Describe the goals and stages of financial management for companies Classification: Concept 46) 4Learning is a firm that sells learning solutions to customers. The company identifies the training needs of organizations and designs flash-based online training programs for them. The company has recently received an order to create product training platforms for an electronic manufacturer. The company creates a budget specifically for this order to determine the pricing of the project. This budget is an example of a ________ budget.

A) operating B) capital C) project D) master E) start-up Answer: C Explanation: C) Project budget identifies the costs needed to accomplish a particular project.

Here the company is preparing a project-specific budget.

Page Ref: 421 Difficulty: Difficult AACSB: Analytic Skills Chapter LO: 2 Course LO: Describe the goals and stages of financial management for companies Classification: Application

15 .

47) Equity financing refers to arranging funding by ________.

A) borrowing money from institutions B) selling corporate bonds C) selling shares ownership D) issuing commercial papers E) borrowing money from individuals Answer: C Explanation: C) Equity financing refers to arranging funding by selling ownership shares in the company. Ownership shares can be sold publicly or privately.

Page Ref: 422 Difficulty: Easy Chapter LO: 3 Course LO: Describe the goals and stages of financial management for companies Classification: Concept 48) Short-term financing is financing that will typically be repaid within ________.

A) one year B) two years C) three years D) five years E) ten years Answer: A Explanation: A) Short-term financing is financing that will typically be repaid within one year.

It is used to cover current expenses.

Page Ref: 423 Difficulty: Easy Chapter LO: 3 Course LO: Describe the goals and stages of financial management for companies Classification: Concept 49) Short-term financing is used to cover ________ of a business.

A) current expenses B) start-up costs C) launch costs D) fixed costs E) capital expenses Answer: A Explanation: A) Short-term financing is financing that will be repaid within one year. It is used to cover current expenses.

Page Ref: 423 Difficulty: Moderate Chapter LO: 3 Course LO: Describe the goals and stages of financial management for companies Classification: Concept

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50) Duromart is an American multinational retailer corporation that runs chains of large discount department stores and warehouse stores. Which of the following actions of Duromart is an example of availing short-term credit?

A) The company issues bonds with a face value of $10 to raise money.

B) The company issues debentures that offer 8 percent interest.

C) The company pledges its assets to obtain a mortgage loan.

D) The company opens a trade credit account with a major bank.

E) The company leases a plot of land that it owns to raise money.

Answer: D Explanation: D) Short-term financing is financing that will typically be repaid within one year.

It is used to cover current expenses. A trade credit account is a means of obtaining short-term debt.

Page Ref: 423; 426 Difficulty: Difficult AACSB: Analytic Skills Chapter LO: 3, 4 Course LO: Describe the goals and stages of financial management for companies Classification: Application 51) Which of the following is a major difference between debt financing and equity financing?

A) Equity financing has a specific maturity period, whereas debt financing usually has no specific maturity period.

B) Debt financing is not linked to organizational performance, unlike equity financing.

C) Equity holders have primary claims on assets unlike debt financiers.

D) Payments to equity holders reduce taxable income, whereas debt payments are not tax deductible.

E) Debt financing is used to cover long term expenses, whereas equity financing is used for current expenses.

Answer: B Explanation: B) The cost of debt financing is usually a recurring cost and usually fixed. Debt obligations must be repaid, regardless of whether the company is profitable or not. Based on management's discretion and if a company is profitable, shareholders may receive dividends after creditors have been paid. However, a company is not required to pay dividends.

Page Ref: 423 Difficulty: Moderate Chapter LO: 3 Course LO: Describe the goals and stages of financial management for companies Classification: Concept

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52) ________ is the average rate of interest a firm pays on its combination of debt and equity.

A) Economic surplus B) Marginal cost C) Working capital D) Cost of capital E) Economic deficit Answer: D Explanation: D) A company's cost of capital is the average rate of interest it must pay on its debt and equity financing. For any form of financing to make economic sense, the expected returns must exceed the cost of capital.

Page Ref: 423 Difficulty: Easy Chapter LO: 3 Course LO: Describe the goals and stages of financial management for companies Classification: Concept 53) Boston Ceramics is a manufacturer of semiconductors. The company produces such parts as ceramic machine components. The company wants to raise $ 15 million to launch operations in a new country. The company decides to fund the launch entirely by using debt financing. Which of the following observations, if true, would most strengthen this financing decision?

A) Research has revealed that the company has high chance of succeeding in the new market.

B) The company is looking to obtain funding that does not have a specific maturity period.

C) The management feels that the new project is a very risky affair.

D) The management wants to establish discretionary costs for the new project.

E) Tax rates are high in the new market and the company wants to minimize taxable income.

Answer: E Explanation: E) Dividend payments are not tax deductible. Debt payments reduce taxable income. High levels of debt funding will reduce tax burden.

Page Ref: 423 Difficulty: Difficult AACSB: Reflective Thinking Skills Chapter LO: 3 Course LO: Describe the goals and stages of financial management for companies Classification: Application

18 .

54) Financing would cost more if ________.

A) opportunity cost is low for the financier B) investors lend less money C) funding is for long-term D) perceived risk is less E) a company is financially solid Answer: C Explanation: C) Cost of financing is dependent on the quality and length of time of the venture.

Long-term financing generally costs a company more than short-term financing.

Page Ref: 424 Difficulty: Moderate Chapter LO: 3 Course LO: Describe the goals and stages of financial management for companies Classification: Concept 55) Prime interest rate is the ________.

A) lowest rate of interest that banks charge for short-term loans B) average rate of interest charged by banks on their customers C) interest rate that the Federal Reserve charges on loans D) interest that the Federal Reserve pays for deposits E) interest rate banks charge to their least creditworthy customers Answer: A Explanation: A) Prime interest rate is the lowest rate of interest that banks charge for short-term loans to their most creditworthy customers.

Page Ref: 424 Difficulty: Easy Chapter LO: 3 Course LO: Describe the goals and stages of financial management for companies Classification: Concept

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56) Roder Industries is a multinational production firm. Invo Bank is the firm's major financier in the United States. The bank offers short-term loans to Roder at a very low rate and the bank considers Roder to be its best customer. The interest rate the Invo bank charges on these shortterm loans are called ________ interest rate.

A) risk-based B) deferred C) prime D) federal E) inflationary Answer: C Explanation: C) Prime interest rate is the lowest rate of interest that banks charge for short-term loans to their most creditworthy customers. Here prime interest rate is charged for Roder's loans.

Page Ref: 424 Difficulty: Difficult AACSB: Analytic Skills Chapter LO: 3 Course LO: Describe the goals and stages of financial management for companies Classification: Application 57) ________ is the technique of increasing the rate of return on an investment by financing it with borrowed funds.

A) Returns projection B) Budgeting C) Leverage D) Forecasting E) Financial projection Answer: C Explanation: C) Leverage is the technique of increasing the rate of return on an investment by financing it with borrowed funds Leverage magnifies the power of the borrower to generate profits.

Page Ref: 424 Difficulty: Easy Chapter LO: 3 Course LO: Describe the goals and stages of financial management for companies Classification: Concept

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58) Capital structure is ________.

A) the original monetary value of an economic item B) a statement of the financial position of a company C) the summary of the financial balances of a business D) a firm's mix of debt and equity financing E) a combination of operational expenses and capital expenses Answer: D Explanation: D) Capital structure is a firm's mix of debt and equity financing. Capital structure helps firms identify how much should be raised, by what means, and when.

Page Ref: 424 Difficulty: Easy Chapter LO: 3 Course LO: Describe the goals and stages of financial management for companies Classification: Concept 59) Which of the following sources of short-term debt is characterized by revolving credit terms?

A) unsecured loan B) secured loan C) trade credit D) credit card E) commercial paper Answer: D Explanation: D) Credit cards have revolving credit terms with no fixed repayment date. They create a short-term loan every time the cardholder makes purchases or gets a cash advance.

Page Ref: 426 Difficulty: Easy Chapter LO: 4 Course LO: Describe the goals and stages of financial management for companies Classification: Concept 60) ________ refers to short-term promissory notes, or contractual agreements, to repay a borrowed amount by a specified time with a specified interest rate.

A) Corporate bond B) Factoring C) Trade credit D) Lease agreement E) Commercial paper Answer: E Explanation: E) Commercial paper refers to short-term promissory notes, or contractual agreements, to repay a borrowed amount by a specified time with a specified interest rate.

Page Ref: 427 Difficulty: Easy Chapter LO: 4 Course LO: Describe the goals and stages of financial management for companies Classification: Concept

21 .

61) ________ is an arrangement in which a financial institution makes money available for use at any time after the loan has been approved.

A) Corporate bond B) Factoring C) Line of credit D) Lease agreement E) Commercial paper Answer: C Explanation: C) Line of credit is an arrangement in which a financial institution makes money available for use at any time after the loan has been approved. It is a common example of an unsecured loan.

Page Ref: 427 Difficulty: Easy Chapter LO: 4 Course LO: Describe the goals and stages of financial management for companies Classification: Concept 62) ________ is an arrangement in which a financial institution makes money available for use at any time after the loan has been approved.

A) Leasing agreement B) Credit card C) Secured loan D) Line of credit E) Commercial paper Answer: D Explanation: D) Line of credit is an arrangement in which a financial institution makes money available for use at any time after the loan has been approved. It is a common example of an unsecured loan.

Page Ref: 427 Difficulty: Easy Chapter LO: 4 Course LO: Describe the goals and stages of financial management for companies Classification: Concept

22 .

63) A company sells its accounts receivable to an intermediary. The intermediary collects the receivables from the customer. This is an example of ________.

A) an unsecured loan B) factoring C) trade credit D) a secured loan E) a commercial paper Answer: B Explanation: B) Factoring refers to obtaining funding by selling accounts receivable. Factoring is an alternative to short-term debt financing.

Page Ref: 427 Difficulty: Moderate Chapter LO: 4 Course LO: Describe the goals and stages of financial management for companies Classification: Concept 64) RS Bank provides short-term loans to small businesses. Many of the bank's customers take months to pay their bills. The bank often buys the companies' accounts receivable and pays them in return. This is an example of ________.

A) an unsecured loan B) trade credit C) a secured loan D) factoring E) a commercial paper Answer: D Explanation: D) Factoring refers to obtaining funding by selling accounts receivable. Factoring is an alternative to short-term debt financing. The given situation is an example of factoring.

Page Ref: 427 Difficulty: Difficult AACSB: Analytic Skills Chapter LO: 4 Course LO: Describe the goals and stages of financial management for companies Classification: Application

23 .

65) Compensating balance refers to the portion of an unsecured loan that ________.

A) is kept on deposit at a lending institution B) has already been paid by the borrower C) has not been paid by the borrower D) is charged by the lender as interest E) is not supported by any collateral securities Answer: A Explanation: A) Compensating balance refers to the portion of an unsecured loan that is kept on deposit at a lending institution to protect the lender and increase the lender's return.

Page Ref: 427 Difficulty: Moderate Chapter LO: 4 Course LO: Describe the goals and stages of financial management for companies Classification: Concept 66) Frost Bank lends $500,000 to Arbex Manufacturer. Arbex has agreed to pay this amount back in fifty equal installments over a period of ten years. This is an example of a ________.

A) lease agreement B) trade credit C) corporate bond D) long-term loan E) commercial paper Answer: D Explanation: D) In long-term loans, a bank or other lender provides cash to borrowers. The borrower agrees to repay according to specific terms.

Page Ref: 429 Difficulty: Difficult AACSB: Analytic Skills Chapter LO: 5 Course LO: Describe the goals and stages of financial management for companies Classification: Application 67) Which of the following is a disadvantage of long-term loans?

A) They cannot provide substantial sums of money to businesses.

B) They require diluting ownership in organizations.

C) They are available to firms with a weak credit rating.

D) Such loans can restrict the way an organization uses its assets.

E) Not all companies can qualify for loans and acceptable terms.

Answer: E Explanation: E) Not all companies can qualify for long-term loans and acceptable terms.

Payments tie up part of cash flow for the duration of the loan. Purchases made via loans require substantial down payments.

Page Ref: 429 Difficulty: Moderate Chapter LO: 5 Course LO: Describe the goals and stages of financial management for companies Classification: Concept 24 .

68) Which of the following is a source of long-term debt financing?

A) corporate bond B) trade credit C) credit card D) factoring E) commercial paper Answer: A Explanation: A) Corporate bond is an example of a long-term debt financing. Sources such as trade credit, credit card, factoring, and commercial paper are examples of short-term debt financing.

Page Ref: 430 Difficulty: Easy Chapter LO: 5 Course LO: Describe the goals and stages of financial management for companies Classification: Concept 69) ________ is an agreement to use an asset in exchange for regular payment.

A) Credit card B) Lease C) Mortgage D) Trade credit E) Commercial paper Answer: B Explanation: B) Lease is an agreement to use an asset in exchange for regular payment. It is similar to renting.

Page Ref: 430 Difficulty: Easy Chapter LO: 5 Course LO: Describe the goals and stages of financial management for companies Classification: Concept 70) ________ are unsecured bonds, backed only by the corporation's promise to pay.

A) Convertible bonds B) Protected bonds C) Bills of exchange D) Debentures E) Non-convertible bonds Answer: D Explanation: D) Debentures are unsecured bonds, backed only by the corporation's promise to pay. Debentures are riskier than other types of bonds.

Page Ref: 430 Difficulty: Easy Chapter LO: 5 Course LO: Describe the goals and stages of financial management for companies Classification: Concept

25 .

71) Gordon Glass is a large manufacturer of glass products. The company's product range includes glass vessels, car glasses, mirrors and so forth. In order to raise money to open a new plant in Alaska, the company issues corporate bonds. The bonds are unsecured, but include the corporation's promise to pay an interest of 12 percent. The tenure of the bond is five years and neither party can change the maturity date. These bonds are examples of ________.

A) redeemable bonds B) callable bonds C) debentures D) mortgaged bonds E) collateralized bonds Answer: C Explanation: C) Debentures are unsecured bonds, backed only by the corporation's promise to pay. Debentures are riskier than other types of bonds. Gordon Glass is issuing a debenture in this case.

Page Ref: 430 Difficulty: Difficult AACSB: Analytic Skills Chapter LO: 5 Course LO: Describe the goals and stages of financial management for companies Classification: Application 72) Rex Associates has a poor credit rating and is finding it difficult to obtain loans. In order to fund a new project, the company decides to let out one of its buildings to a bank. The company obtains funds in return from the bank. This is an example of ________.

A) unsecured lending B) factoring C) leasing D) long-term lending E) short-term lending Answer: C Explanation: C) Leasing may be a good alternative for a company that has difficulty obtaining a loan because of a poor credit rating. Lease is an agreement to use an asset in exchange for regular payment. It is similar to renting.

Page Ref: 430 Difficulty: Difficult AACSB: Analytic Skills Chapter LO: 5 Course LO: Describe the goals and stages of financial management for companies Classification: Application

26 .

73) ________ can be exchanged at the investor's option for a certain number of shares of the corporation's common stock.

A) Collateralized bonds B) Protected bonds C) Bills of exchange D) Debentures E) Convertible bonds Answer: E Explanation: E) Convertible bonds can be exchanged at the investor's option for a certain number of shares of the corporation's common stock. Because of this feature, convertible bonds generally pay lower interest rates.

Page Ref: 430 Difficulty: Easy Chapter LO: 5 Course LO: Describe the goals and stages of financial management for companies Classification: Concept 74) Incobar Steel is a large manufacturer of steel. The company decides to issue bonds to raise money to expand its operations. The final maturity term of the bonds is three years, but a portion of the outstanding bonds matures once in every six months. The bonds are backed only by the corporation's promise to pay. The bonds that Incobar Steel is issuing are best referred to as ________ bonds.

A) mortgage B) callable C) term D) secured E) serial Answer: E Explanation: E) To ease the cash flow burden of redeeming its bonds all at once, a company can issue serial bonds, which mature at various times, as opposed to term bonds, which mature all at the same time.

Page Ref: 430 Difficulty: Difficult AACSB: Analytic Skills Chapter LO: 5 Course LO: Describe the goals and stages of financial management for companies Classification: Application

27 .

75) Term bonds are bonds that ________.

A) mature all at the same time B) can be paid off when needed C) mature four times a year D) mature at various times E) are backed by company-owned property Answer: A Explanation: A) Term bonds are bonds that mature all at the same time. Costs of retiring debt are high in such bonds.

Page Ref: 430 Difficulty: Easy Chapter LO: 5 Course LO: Describe the goals and stages of financial management for companies Classification: Concept 76) With most bond issues, a corporation retains the right to pay off the bonds before maturity.

Such bonds are called ________.

A) secured bonds B) fixed bonds C) debentures D) callable bonds E) convertible bonds Answer: D Explanation: D) With most bond issues, a corporation retains the right to pay off the bonds before maturity. Bonds containing this provision are known as callable bonds, or redeemable bonds.

Page Ref: 430 Difficulty: Easy Chapter LO: 5 Course LO: Describe the goals and stages of financial management for companies Classification: Concept

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77) Which of the following is a major advantage of raising funds through selling shares of ownership?

A) Selling shares to the public makes the company's operations less complicated.

B) It does not change the way a company is managed.

C) It consumes less time than other forms of financing.

D) It has tremendous potential to fuel organizational growth.

E) Owners do not risk their position in the firm when selling shares.

Answer: D Explanation: D) Equity financing, selling shares of ownership, has tremendous upside potential for the company as a whole and for any individual or organization that owns shares. Equity financing has fueled the growth of most of the major corporations in the world, and it has contributed to the financial security of millions of employees.

Page Ref: 431 Difficulty: Moderate Chapter LO: 6 Course LO: Describe the goals and stages of financial management for companies Classification: Concept 78) ________ is a specialized type of bank that buys the shares from the company preparing an IPO and sells them to investors.

A) Financial adviser B) Underwriter C) Controller D) Treasurer E) Financial renovator Answer: B Explanation: B) Underwriter is a specialized type of bank that buys the shares from the company preparing an IPO and sells them to investors. To spread the risk, a lead underwriter usually assembles a syndicate of other underwriters.

Page Ref: 432 Difficulty: Easy Chapter LO: 6 Course LO: Describe the goals and stages of financial management for companies Classification: Concept

29 .

79) DS Bank is a bank specialized in buying shares of ownership from firms that want to sell it to investors. The bank sells the shares to investors on the company's behalf. DS Bank is a(n) ________.

A) financial renovator B) controller C) treasurer D) underwriter E) non-banking firm Answer: D Explanation: D) Underwriter is a specialized type of bank that buys the shares from the company preparing an IPO and sells them to investors. DS Bank, as described here, is an underwriter.

Page Ref: 432 Difficulty: Difficult AACSB: Analytic Skills Chapter LO: 6 Course LO: Describe the goals and stages of financial management for companies Classification: Application 80) Before a company can sell shares to the public in the United States, it must ________.

A) generate a profit of $1 billion B) have a turnover of $1 billion C) register with the SEC D) have fifty or more shareholders E) have a hundred or more shareholders Answer: C Explanation: C) Before a company can sell shares to the public in the United States, it must first register with the SEC. This process includes submitting a prospectus.

Page Ref: 432 Difficulty: Easy Chapter LO: 6 Course LO: Describe the goals and stages of financial management for companies Classification: Concept

30 .

81) Private equity refers to ________.

A) shares that are owned by institutions rather than individuals B) ownership assets that aren't publicly traded C) preference shares issued by a corporation D) shares that are traded in stock exchanges E) shares that are owned by individuals rather than institutions Answer: B Explanation: B) Private equity refers to ownership assets that aren't publicly traded. It includes venture capital.

Page Ref: 432 Difficulty: Easy Chapter LO: 6 Course LO: Describe the goals and stages of financial management for companies Classification: Concept 82) Preparing a public offering involves ________.

A) issuing corporate bonds to the employees of the firm B) hiring a public accounting firm to serve as auditor C) hiring a private company as a proxy firm D) raising $1 million as a security deposit to the SEC E) engaging in collective bargaining with the employees Answer: B Explanation: B) Preparing an offering involves assembling a team of advisors that includes legal experts, a public accounting firm to serve as auditor, and an underwriter, a specialized type of bank known as an investment bank, that buys the shares from the company and sells them to investors.

Page Ref: 432 Difficulty: Moderate Chapter LO: 6 Course LO: Describe the goals and stages of financial management for companies Classification: Concept 83) Which of the following is a valid observation of venture capital?

A) Venture Capital counts on getting very high returns from a few winners.

B) Venture is a specialized form of public equity.

C) Venture capital is the most common type of funding in the United States.

D) Venture capital is one of the least specialized forms of funding.

E) Venture capital is one of the most widely available forms of funding.

Answer: A Explanation: A) Venture capital is a specialized form of funding known as private equity. Not all VC-backed firms grow enough to pay back their investors, so VCs count on getting very high returns from a handful of winners.

Page Ref: 432 Difficulty: Moderate Chapter LO: 6 Course LO: Describe the goals and stages of financial management for companies Classification: Concept 31 .

84) ________ is an SEC-required document that discloses required information about the company, its finances, and its plans for using the money it hopes to raise.

A) Memorandum of agreement B) Chairperson's report C) Prospectus D) Articles of association E) Memorandum of association Answer: C Explanation: C) Prospectus is an SEC-required document that discloses required information about the company, its finances, and its plans for using the money it hopes to raise.

Page Ref: 432; 433 Difficulty: Easy Chapter LO: 6 Course LO: Describe the goals and stages of financial management for companies Classification: Concept 85) The purpose of issuing a prospectus during a public stock offering is to ________.

A) validate the corporate bonds issued by them B) provide information to the underwriters C) disclose information to the SEC D) create opportunities for debt financing E) obtain short-term financing from institutions Answer: C Explanation: C) Prospectus is an SEC-required document that discloses required information about the company, its finances, and its plans for using the money it hopes to raise. Its main purpose is disclosing information to SEC. Page Ref: 433 Difficulty: Moderate Chapter LO: 6 Course LO: Describe the goals and stages of financial management for companies Classification: Concept 86) Explain the concept of risk/return trade-off.

Answer: Most financial decisions involve balancing potential risks against potential rewards, known as a risk/return trade-off. Generally speaking, the higher the perceived risk, the higher the potential reward, and vice versa. However, this situation doesn't always hold true. For example, a company with free cash could (a) invest it in the stock market, which offers potentially high returns but at moderate to high risk; (b) put the money in a bank account, which has little to no risk but very low return; or (c) invest in a new facility or a new product, which could yield high returns, moderate returns, or no returns at all.

Page Ref: 415 Difficulty: Moderate Chapter LO: 1 Course LO: Describe the goals and stages of financial management for companies Classification: Concept

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87) A company decides to remain highly leveraged to minimize the ownership shares. Critically analyze this approach.

Answer: Companies that are highly leveraged (that is, carrying a lot of debt) are forced to devote more of their cash flow to debt service and therefore, can't spend that money on advertising, staffing, or product development. Heavy debt loads and low cash flow make a company especially vulnerable to economic downturns, too. In contrast, companies with lots of cash on hand can weather tough times and make strategic moves that their debt-constrained competitors can't make. Companies should strike a balance between leveraging and funding from internal sources.

Page Ref: 415 Difficulty: Difficult AACSB: Reflective Thinking Skills Chapter LO: 1 Course LO: Describe the goals and stages of financial management for companies Classification: Synthesis 88) Dulbor is a manufacturer of automobile tires. The company requires such raw materials as natural rubber, activators, and other chemicals. Total fund available to the company in the current financial year is $500,000. Construct a financial plan for Dulbor. Make the necessary assumptions.

Answer: Financial plan is a document that outlines the funds needed for a certain period of time, along with the sources and intended uses of those funds. Students should allocate funds for buying raw materials, advertising, promotions, and staffing. Students should state the assumptions that they are making to create the financial plan. Student answers will vary due to the nature of this question.

Page Ref: 416 Difficulty: Difficult AACSB: Reflective Thinking Skills Chapter LO: 1 Course LO: Describe the goals and stages of financial management for companies Classification: Synthesis 89) Explain why companies form hedging agreements with their suppliers.

Answer: Companies protect themselves against future price increases by hedging, arranging contracts that allow them to buy supplies in the future at designated prices. The obvious risk of hedging against rising prices is that prices could instead drop over the duration of the contract, leaving a company paying more than it would have to otherwise.

Page Ref: 420 Difficulty: Moderate Chapter LO: 2 Course LO: Describe the goals and stages of financial management for companies Classification: Concept

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90) Compare and contrast various types of budgets.

Answer: Start-up budget is a budget that identifies the money a new company will need to spend to launch operations.

Operating budget is a budget that identifies all sources of revenue and coordinates the spending of those funds throughout the coming year.

A capital budget outlines expenditures for real estate, new facilities, major equipment, and other capital investments.

A project budget is a budget that identifies the costs needed to accomplish a particular project.

Page Ref: 421 Difficulty: Difficult AACSB: Reflective Thinking Skills Chapter LO: 2 Course LO: Describe the goals and stages of financial management for companies Classification: Synthesis 91) A group of six entrepreneurs are starting a paper manufacturing unit. The owners have contributed $ 20,000 and have availed a long-term loan of $15,000. Use zero-based budgeting to create a launch budget for this firm. Make necessary assumptions and list all the assumptions that you are making.

Answer: A launch budget identifies the money a new company will need to spend to launch operations. Students should calculate the burn rate, the rate at which the company is using up the funds from its initial investors. Student answers will vary due to the nature of this question.

Page Ref: 421 Difficulty: Difficult AACSB: Reflective Thinking Skills Chapter LO: 2 Course LO: Describe the goals and stages of financial management for companies Classification: Synthesis 92) Choose an operational unit of your unit (for example, the marketing department in a firm) and construct an operating budget for the unit. Make necessary assumptions and list all the assumptions that you are making.

Answer: Operating budget is a budget that identifies all sources of revenue and coordinates the spending of those funds throughout the coming year. Students shall make assumptions regarding the spending and the funds available. The budget should be for a year. Student answers will vary due to the nature of this question.

Page Ref: 421 Difficulty: Difficult AACSB: Reflective Thinking Skills Chapter LO: 2 Course LO: Describe the goals and stages of financial management for companies Classification: Synthesis

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93) Compare and contrast debt financing and equity financing.

Answer: Debt financing refers to arranging funding by borrowing money. Equity financing refers to arranging funding by selling ownership shares in the company, publicly or privately.

Maturity is specific in debt financing. In most cases, contracts specify a date by which debt must be repaid. Equity funding does not need to be repaid.

Claim on income is nondiscretionary for debt financing. It is usually a recurring cost and fixed.

Debt obligations must be repaid, regardless of whether the company is profitable. Equity financing is a discretionary cost. At management's discretion, and if a company is profitable, shareholders may receive dividends after creditors have been paid.

Lenders have prior claims on assets. Shareholders have claims only after the firm satisfies claims of lenders.

Lenders usually have no influence over management unless debit vehicles come with conditions or management fails to make payments on time.

Debt payments reduce taxable income, and they lower tax obligations. Dividend payments are not tax deductible.

Page Ref: 422; 423 Difficulty: Difficult AACSB: Reflective Thinking Skills Chapter LO: 3 Course LO: Describe the goals and stages of financial management for companies Classification: Synthesis 94) Explain the importance of considering interest fluctuations in financial planning.

Answer: Regardless of how financially solid a company is, the cost of money will vary over time because interest rates fluctuate. The prime interest rate (often called simply the prime) is the lowest interest rate offered on short-term bank loans to preferred borrowers. The prime changes irregularly and, at times, quite frequently. Sometimes it changes because of supply and demand; at other times it changes because the prime rate is closely tied to the discount rate, the interest rate that the Federal Reserve charges on loans to commercial banks and other depository institutions.

Companies must take such interest rate fluctuations into account when making financing decisions. For instance, a company planning to finance a short-term project when the prime rate is 3 percent would want to reevaluate the project if the prime rose to 6 percent a few months later. Even though companies try to time their borrowing to take advantage of drops in interest rates, this option is not always possible.

Page Ref: 424 Difficulty: Moderate Chapter LO: 3 Course LO: Describe the goals and stages of financial management for companies Classification: Concept

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95) Compare and contrast credit cards and trade credit.

Answer: Credit cards are one of the most expensive forms of financing, but they are sometimes the only form available to business owners. They create a short-term loan every time a cardholder makes purchases or gets a cash advance. They have no fixed repayment date and are widely available.

Trade credit, often called open-account purchasing, occurs when suppliers provide goods and services to their customers without requiring immediate payment. Such transactions create accounts receivable. The repayment term for trade credit is typically 30 to 90 days. They are usually free (no interest) as long as payment is made by due date.

Page Ref: 426 Difficulty: Difficult AACSB: Reflective Thinking Skills Chapter LO: 4 Course LO: Describe the goals and stages of financial management for companies Classification: Synthesis 96) Compare and contrast secured loans and unsecured loans.

Answer: Secured loans are loans backed up with assets that the lender can claim in case of default, such as a piece of property. Unsecured loans are loans that require a good credit rating but no collateral. The following is a comparison of secured and unsecured loans.

Secured Loans Unsecured Loans Lender provides cash using Lender provides lump sum of cash borrower's assets (such as inventory via a promissory note or on-demand or equipment) as collateral. They are access to cash via a credit line. also known as asset-based loans.

Term up to one year Term up to one year Can provide financing for companies Provides cash or access to cash that don't qualify for unsecured loans without requiring borrower to pledge or other alternatives. assets as collateral More expensive than some other Cost varies according to borrower's options credit rating; often not available to customers with unproven or poor credit history Page Ref: 426; 427 Difficulty: Difficult AACSB: Reflective Thinking Skills Chapter LO: 4 Course LO: Describe the goals and stages of financial management for companies Classification: Synthesis

36 .

97) Explain why businesses use factoring to raise funds.

Answer: Businesses with slow-paying trade credit customers - some organizational customers can take months to pay their bills - and tight cash flow have the option of selling their accounts receivable, a method known as factoring. Although it's not really a form of borrowing in the conventional sense, factoring is an alternative to short-term debt financing.

Page Ref: 427 Difficulty: Moderate Chapter LO: 4 Course LO: Describe the goals and stages of financial management for companies Classification: Concept 98) Gordon Consultants is planning to raise money by leasing a building that it owns. What do you think are the components of a lease agreement? Draft a lease agreement for Gordon Consultants.

Answer: Lease is an agreement to use an asset in exchange for regular payment. It is similar to renting and should contain all details present in a rental agreement. The agreement can be made directly or by having a bank as intermediary. The agreement should specify such details as payment terms, tenure, terms of usage, terms of cautions. Student answers will vary due to the nature of this question.

Page Ref: 430 Difficulty: Difficult AACSB: Reflective Thinking Skills Chapter LO: 5 Course LO: Describe the goals and stages of financial management for companies Classification: Synthesis 99) Compare and contrast secured bonds and debentures.

Answer: Secured bonds, like secured loans, are backed by company-owned property (such as airplanes or plant equipment) that pass to the bondholders if the issuer does not repay the amount borrowed. Mortgage bonds, a type of secured bond, are backed by real property owned by the issuing corporation. Debentures are unsecured bonds, backed only by the corporation's promise to pay. Because debentures are riskier than other types of bonds, the companies that issue them must pay higher interest rates to attract buyers.

Page Ref: 430 Difficulty: Difficult AACSB: Reflective Thinking Skills Chapter LO: 5 Course LO: Describe the goals and stages of financial management for companies Classification: Synthesis

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100) Explain the concept of venture capital.

Answer: Venture capitalists are a key source of equity financing for a certain class of start-up companies. In exchange for a share of ownership, VCs can invest millions of dollars in companies long before those firms can qualify for most other forms of financing, so they represent an essential form of funding for high-growth ventures. VCs also provide managerial expertise and industry connections that can be crucial to new companies. However, VCs are one of the most specialized and least widely available forms of funding, and most firms have no chance of getting venture capital. VCs typically look for privately held firms that are already well established enough to be able to use a significant amount of money and are positioned to grow aggressively enough to give the VCs a good shot at eventually selling their interests at an acceptable profit. Not all VC-backed firms grow enough to pay back their investors, so VCs count on getting very high returns from a handful of winners. Venture capital is a specialized form of funding known as private equity (ownership assets that aren't publicly traded), and other forms of private equity can provide funding for companies that are beyond the start-up stage.

Page Ref: 432 Difficulty: Moderate Chapter LO: 6 Course LO: Describe the goals and stages of financial management for companies Classification: Concept

38 .

Business in Action, 6e (Bovee/Thill) Chapter 19 Financial Markets and Investment Strategies 1) Preferred stock appreciates in value much faster than common stock.

Answer: FALSE Explanation: Preferred stock is usually less volatile than common stock, which makes it attractive to risk-averse investors, but it also doesn't appreciate in value to the degree that common stock does.

Page Ref: 440 Difficulty: Moderate Chapter LO: 1 Course LO: Identify the tools and resources used for managing personal finances Classification: Concept 2) Preferred stock owners have no voting rights in a corporation.

Answer: TRUE Explanation: Preferred stock does not come with any voting rights, and it can be called, or repurchased on demand, by the issuing company.

Page Ref: 440 Difficulty: Easy Chapter LO: 1 Course LO: Identify the tools and resources used for managing personal finances Classification: Concept 3) The value assigned to each share of stock when it is first issued is known as its book value.

Answer: FALSE Explanation: Book value is the difference between the assets and liabilities as listed on the balance sheet.

Page Ref: 441 Difficulty: Easy Chapter LO: 1 Course LO: Identify the tools and resources used for managing personal finances Classification: Concept 4) Stock of companies whose earnings tend to track the ups and downs of the economy in a predictable pattern are known as defensive stocks.

Answer: FALSE Explanation: Stocks from companies whose earnings tend to track the ups and downs of the economy in a predictable pattern are known as cyclical stocks. Their revenue and profits grow as the economy grows and shrink as the economy shrinks.

Page Ref: 441 Difficulty: Easy Chapter LO: 1 Course LO: Identify the tools and resources used for managing personal finances Classification: Concept

1 .

5) Albert buys the stock of an established corporation, mainly to obtain good dividends.

However, the corporation's growth is limited. This stock is an example of a defensive stock.

Answer: FALSE Explanation: Stocks purchased primarily for dividend payouts rather than capital gains potential are called income stocks.

Page Ref: 441 Difficulty: Difficult AACSB: Analytic Skills Chapter LO: 1 Course LO: Identify the tools and resources used for managing personal finances Classification: Application 6) A company's price/earnings ratio is determined by dividing the market value per share by the earnings per share.

Answer: TRUE Explanation: A company's price/earnings ratio is determined by dividing the market value per share by the earnings per share.

Page Ref: 443 Difficulty: Easy Chapter LO: 1 Course LO: Identify the tools and resources used for managing personal finances Classification: Concept 7) A stock split is performed if a company's management team believes that the firm's shares are undervalued.

Answer: FALSE Explanation: A stock split is performed if a company's management team believes that the firm's shares are overvalued.

Page Ref: 443 Difficulty: Moderate Chapter LO: 1 Course LO: Identify the tools and resources used for managing personal finances Classification: Concept 8) The amount of money or principle that the purchaser of a bond lends to the bond issuer is known as its coupon.

Answer: FALSE Explanation: The specific interest rate that the issuer offers on a bond is known as its coupon.

Page Ref: 444 Difficulty: Easy Chapter LO: 2 Course LO: Identify the tools and resources used for managing personal finances Classification: Concept

2 .

9) Maturity date is the date on which the principle of a bond will be repaid in full.

Answer: TRUE Explanation: Maturity date is the date on which the principle of a bond will be repaid in full.

Page Ref: 444 Difficulty: Easy Chapter LO: 2 Course LO: Identify the tools and resources used for managing personal finances Classification: Concept 10) Investing in bonds typically has higher risk than investing in stocks.

Answer: FALSE Explanation: Investing in bonds typically has lesser risk than investing in stocks. Bonds offer fixed returns.

Page Ref: 445 Difficulty: Moderate Chapter LO: 2 Course LO: Identify the tools and resources used for managing personal finances Classification: Concept 11) With a zero-coupon bond the purchaser buys the bond at a discount from the face value.

Answer: TRUE Explanation: With a zero-coupon bond, the purchaser buys the bond at a discount from the face value and then at maturity is repaid the full face value; the difference is the interest earned.

Page Ref: 445 Difficulty: Easy Chapter LO: 2 Course LO: Identify the tools and resources used for managing personal finances Classification: Concept 12) Treasury notes are debt securities issued by the federal government that are repaid within 1 to 10 years after issuance.

Answer: TRUE Explanation: Treasury notes are debt securities issued by the federal government that are repaid within 1 to 10 years after issuance.

Page Ref: 446 Difficulty: Easy Chapter LO: 2 Course LO: Identify the tools and resources used for managing personal finances Classification: Concept

3 .

13) Treasury bills are sold at a discount and redeemed at face value.

Answer: TRUE Explanation: Treasury bills are sold at a discount and redeemed at face value.

Page Ref: 446 Difficulty: Moderate Chapter LO: 2 Course LO: Identify the tools and resources used for managing personal finances Classification: Concept 14) Treasury bonds are short-term debt securities issued by the federal government that are repaid within a year.

Answer: FALSE Explanation: Treasury bonds are long-term U.S. government bonds with maturities of more than 10 years.

Page Ref: 447 Difficulty: Moderate Chapter LO: 2 Course LO: Identify the tools and resources used for managing personal finances Classification: Concept 15) Money-market funds are financial instruments that invest in stocks considered to be selling below their true value.

Answer: FALSE Explanation: Money-market funds are funds that invest in high-quality, short-term debt issues from governments and corporations.

Page Ref: 448 Difficulty: Easy Chapter LO: 3 Course LO: Identify the tools and resources used for managing personal finances Classification: Concept 16) Balanced funds refer to funds that invest in a combination of stocks and bonds.

Answer: TRUE Explanation: Balanced funds are funds that invest in a combination of stocks and bonds.

Page Ref: 449 Difficulty: Easy Chapter LO: 3 Course LO: Identify the tools and resources used for managing personal finances Classification: Concept

4 .

17) Funds that invest in foreign and U.S. securities are called international funds.

Answer: FALSE Explanation: International funds are funds that invest strictly in foreign securities. They do not invest in U.S. securities.

Page Ref: 449 Difficulty: Easy Chapter LO: 3 Course LO: Identify the tools and resources used for managing personal finances Classification: Concept 18) Derivatives are contracts whose value is derived from some other entity.

Answer: TRUE Explanation: Derivatives are contracts whose value is derived from some other entity (usually an asset of some kind, but not necessarily). They are used to hedge against or speculate on risk.

Page Ref: 451 Difficulty: Easy Chapter LO: 4 Course LO: Identify the tools and resources used for managing personal finances Classification: Concept 19) An investor buys a right and obligation when he or she buys an option.

Answer: FALSE Explanation: An option is the purchased right–but not the obligation–to buy or sell a specified number of shares of a stock or other security at a predetermined price during a specified period.

Page Ref: 451 Difficulty: Moderate Chapter LO: 4 Course LO: Identify the tools and resources used for managing personal finances Classification: Concept 20) Suppliers use future contracts to protect themselves from future price decreases.

Answer: TRUE Explanation: Suppliers use future contracts to protect themselves from future price decreases.

Page Ref: 452 Difficulty: Moderate Chapter LO: 4 Course LO: Identify the tools and resources used for managing personal finances Classification: Concept 21) The loans themselves are not transferred when a credit default swap is performed.

Answer: TRUE Explanation: The loans themselves are not transferred when a credit default swap is performed.

Page Ref: 452 Difficulty: Moderate Chapter LO: 4 Course LO: Identify the tools and resources used for managing personal finances Classification: Concept 5 .

22) A stock exchange is an organization that buys and sells securities on behalf of individual and institutional investors.

Answer: FALSE Explanation: Stock exchanges are organizations that facilitate the buying and selling of stock.

Page Ref: 453 Difficulty: Moderate Chapter LO: 5 Course LO: Identify the tools and resources used for managing personal finances Classification: Concept 23) Most trading in the bond market occurs over the counter and takes place outside organized exchanges.

Answer: TRUE Explanation: Most trading in the bond market occurs over the counter and takes place outside organized exchanges.

Page Ref: 454 Difficulty: Moderate Chapter LO: 5 Course LO: Identify the tools and resources used for managing personal finances Classification: Concept 24) Bear market is a market situation in which most stocks are increasing in value.

Answer: FALSE Explanation: Bear market refers to a market situation in which most stocks are decreasing in value.

Page Ref: 456 Difficulty: Easy Chapter LO: 6 Course LO: Identify the tools and resources used for managing personal finances Classification: Concept 25) Stop order is an order to sell a stock when its price falls to a particular point.

Answer: TRUE Explanation: Stop order is an order to sell a stock when its price falls to a particular point.

Page Ref: 457 Difficulty: Easy Chapter LO: 6 Course LO: Identify the tools and resources used for managing personal finances Classification: Concept

6 .

26) ________ refers to shares of ownership without voting rights but with defined dividends.

A) Treasury bond B) Preferred stock C) Derivative D) Equity stock E) Common stock Answer: B Explanation: B) Preferred stock refers to shares of ownership without voting rights but with defined dividends. It is a hybrid that combines attributes of common stock and corporate bonds.

Page Ref: 440 Difficulty: Easy Chapter LO: 1 Course LO: Identify the tools and resources used for managing personal finances Classification: Concept 27) Josephine would like to invest part of her Individual Retirement Account (IRA) in the stock market, but she wants to minimize the risk as much as possible. Which of the following is the most suitable investment alternative for Josephine?

A) financial futures B) derivatives C) options D) preferred stock E) commodities futures Answer: D Explanation: D) Preferred stock is usually less volatile than common stock, which makes it attractive to risk-averse investors, but it also doesn't appreciate in value to the degree that common stock does. It has the least risk among the given alternatives.

Page Ref: 440 Difficulty: Difficult AACSB: Analytic Skills Chapter LO: 1 Course LO: Identify the tools and resources used for managing personal finances Classification: Application

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28) Stocks of major, well-established corporations with demonstrated ability to manage their way through every kind of economic condition are known as ________ stocks.

A) blue chip B) income C) growth D) penny E) cyclical Answer: A Explanation: A) Blue chip stocks refer to stocks of major, well-established corporations with demonstrated ability to manage their way through every kind of economic condition. Such stocks are usually considered safe, if not necessarily thrilling, choices.

Page Ref: 441 Difficulty: Easy Chapter LO: 1 Course LO: Identify the tools and resources used for managing personal finances Classification: Concept 29) Stocks that are purchased primarily for dividend payouts rather than capital gains potential are known as ________ stocks.

A) blue chip B) growth C) income D) penny E) defensive Answer: C Explanation: C) Income stocks refer to stocks that are purchased primarily for dividend payouts rather than capital gains potential. Companies tend to be older, stable firms with fairly predictable profits but lower prospects for growth.

Page Ref: 441 Difficulty: Easy Chapter LO: 1 Course LO: Identify the tools and resources used for managing personal finances Classification: Concept

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30) Riban Industries is a manufacturer of watches. The company's profits are predictable and the stock yields huge dividends, although the prospects for growth are low. Riban Industries is an example of a(n) ________ stock.

A) blue chip B) income C) cyclical D) penny E) defensive Answer: B Explanation: B) Income stocks refer to stocks that are purchased primarily for dividend payouts rather than capital gains potential. Riban Industries is an example of an income stock.

Page Ref: 441 Difficulty: Difficult AACSB: Analytic Skills Chapter LO: 1 Course LO: Identify the tools and resources used for managing personal finances Classification: Application 31) Jackson Associates is a firm that owns many stationary stores across the United States. The company's stock performance is highly linked to the overall performance of the stock market.

The company's stock performs well when the economy and the stock market perform well and vice-versa. Jackson Associates is an example of a(n) ________ stock.

A) blue chip B) penny C) defensive D) income E) cyclical Answer: E Explanation: E) Cyclical stocks are stocks from companies whose earnings tend to track the ups and downs of the economy in a predictable pattern - in other words, their revenue and profits grow as the economy grows and shrink as the economy shrinks. Many of these companies are in basic industries such as housing and transportation.

Page Ref: 441 Difficulty: Difficult AACSB: Analytic Skills Chapter LO: 1 Course LO: Identify the tools and resources used for managing personal finances Classification: Application

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32) Stocks that sell for less than one dollar per share or stocks that are highly speculative are called ________ stocks.

A) penny B) income C) defensive D) cyclical E) mid cap Answer: A Explanation: A) Stocks that sell for less than one dollar per share or, more generally, stocks that are highly speculative (risky, but with upside potential, in other words) are called penny stocks.

They tend to be from newer companies or established companies whose stock has plummeted for some reason.

Page Ref: 441 Difficulty: Easy Chapter LO: 1 Course LO: Identify the tools and resources used for managing personal finances Classification: Concept 33) ________ stocks tend to fare better when the economy is doing worse and vice versa.

A) Blue chip B) Income C) Penny D) Cyclical E) Defensive Answer: E Explanation: E) Defensive stocks are stocks of companies that tend to fare better when the economy is doing worse and vice versa. For example, new car sales decline in a falling economy but car repair businesses usually increase revenue as people try to hang onto their automobiles longer.

Page Ref: 441 Difficulty: Easy Chapter LO: 1 Course LO: Identify the tools and resources used for managing personal finances Classification: Concept

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34) The price at which the stock is actually selling is referred to as its ________ value.

A) face B) par C) book D) intrinsic E) market Answer: E Explanation: E) The market value, or market price, is the price at which a stock is actually selling in the stock market. Market value is forward looking in that it incorporates investor expectations about future earnings.

Page Ref: 442 Difficulty: Easy Chapter LO: 1 Course LO: Identify the tools and resources used for managing personal finances Classification: Concept 35) ________ value is an estimate of what a company is actually worth, independent of other values.

A) Intrinsic B) Face C) Par D) Book E) Market Answer: A Explanation: A) Intrinsic value is an estimate of what a company is actually worth, independent of book and market values.

Page Ref: 442 Difficulty: Easy Chapter LO: 1 Course LO: Identify the tools and resources used for managing personal finances Classification: Concept 36) ________ ratio is calculated by dividing the market value per share by the earnings per share.

A) Return on capital B) Price/earnings C) Sales/income D) Gross value E) Gross margin Answer: B Explanation: B) Price/earnings ratio is calculated by dividing the market value per share by the earnings per share. The ratio is often used to assess how a stock is priced.

Page Ref: 443 Difficulty: Easy Chapter LO: 1 Course LO: Identify the tools and resources used for managing personal finances Classification: Concept 11 .

37) Companies attempt to increase the market valuation of a share by ________.

A) repurchasing some of the shares through a stock buyback B) maintaining a lower than average price/earnings ratio C) announcing a stock split of its shares D) dividing the shares into multiple shares E) reducing the percentage of dividend being paid out to investors Answer: A Explanation: A) If a company's management team believes that the firm's shares are undervalued, it can opt to repurchase some of the shares through a stock buyback. A buyback reduces the number of shares outstanding and increases market valuation.

Page Ref: 443 Difficulty: Moderate Chapter LO: 1 Course LO: Identify the tools and resources used for managing personal finances Classification: Concept 38) In your portfolio, you own 450 shares of General Electric. The company announces that each share of stock is being divided into three new shares, so you now own 1,350 shares. This is known as a stock ________.

A) option B) buyback C) valuation D) dilution E) split Answer: E Explanation: E) Stock split is the act of dividing a share into two or more new shares and reducing the market value by the same ratio.

Page Ref: 443 Difficulty: Difficult AACSB: Analytic Skills Chapter LO: 1 Course LO: Identify the tools and resources used for managing personal finances Classification: Application

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39) The amount of money that the bond buyer is lending to the bond issuer is known as the ________.

A) par value B) yield C) dividend D) coupon rate E) intrinsic value Answer: A Explanation: A) The face value, also called par value or denomination, is the amount of money, or principle, the bond buyer is lending to the bond issuer.

Page Ref: 444 Difficulty: Easy Chapter LO: 2 Course LO: Identify the tools and resources used for managing personal finances Classification: Concept 40) The annual interest rate that an issuer offers when a bond is first sold is known as the ________.

A) current yield B) coupon C) market yield D) par value E) market value Answer: B Explanation: B) When a bond is first sold, the issuer offers a specific annual interest rate, known as the coupon.

Page Ref: 444 Difficulty: Easy Chapter LO: 2 Course LO: Identify the tools and resources used for managing personal finances Classification: Concept 41) Maturity date is the date on which ________.

A) interest will be paid every month to a bond's investors B) interest will be paid every year to a bond's investors C) a bond will be converted to a common stock D) the principle of a bond will be repaid in full E) an installment of interest will be paid to investors of bonds Answer: D Explanation: D) Maturity date is the date on which the principle of a bond will be repaid in full.

Page Ref: 444 Difficulty: Easy Chapter LO: 2 Course LO: Identify the tools and resources used for managing personal finances Classification: Concept

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42) A bond's face value is $2000. Its coupon is 9 percent. The bond's present market value is $1800. What is the current yield of the bond?

A) 12 percent B) 6 percent C) 9 percent D) 8.1 percent E) 10 percent Answer: E Explanation: E) Face value = $2000 Coupon (9%) = $180 Current yield = $180/$1800 = 10 percent Page Ref: 444 Difficulty: Difficult AACSB: Analytic Skills Chapter LO: 2 Course LO: Identify the tools and resources used for managing personal finances Classification: Application 43) Annual interest/closing price = ________.

A) current yield B) maturity C) coupon D) par value E) face value Answer: A Explanation: A) Current yield is equal to the coupon divided by the current market value. When the market value goes down, the yield goes up, and vice versa.

Page Ref: 444; 445 Difficulty: Easy Chapter LO: 2 Course LO: Identify the tools and resources used for managing personal finances Classification: Concept

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44) With a zero-coupon bond, the ________.

A) purchaser buys the bond at a discount from the face value B) full face value is not paid to the investor at maturity C) investor receives interest on a regular basis D) interest is paid immediately after a bond is purchased E) purchaser buys a bond by paying exactly the face value Answer: A Explanation: A) With a zero-coupon bond, for example, the purchaser buys the bond at a discount from the face value and then at maturity is repaid the full face value. The difference is the interest earned.

Page Ref: 445 Difficulty: Easy Chapter LO: 2 Course LO: Identify the tools and resources used for managing personal finances Classification: Concept 45) A call provision allows the issuer to ________.

A) reduce the interest rate of the bond B) change the face value of the bond C) repurchase the bond before maturity D) downgrade the status of the bond E) change the coupon rate of the bond Answer: C Explanation: C) A call provision means that the issuer has the right to call, or repurchase, the bond before maturity. Call provision exists for preferred stocks also.

Page Ref: 445 Difficulty: Easy Chapter LO: 2 Course LO: Identify the tools and resources used for managing personal finances Classification: Concept 46) ________ refer to short-term debt securities issued by the federal government.

A) Municipal bonds B) Treasury bills C) TIPS D) Treasury notes E) Treasury bonds Answer: B Explanation: B) Treasury bills refer to short-term debt securities issued by the federal government. It is also referred to as T-bills.

Page Ref: 446 Difficulty: Easy Chapter LO: 2 Course LO: Identify the tools and resources used for managing personal finances Classification: Concept

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47) ________ refer to debt securities issued by the federal government that are repaid within 1 to 10 years after issuance.

A) Municipal bonds B) Treasury bills C) Treasury bonds D) TIPS E) Treasury notes Answer: E Explanation: E) Treasury notes refer to debt securities issued by the federal government that are repaid within 1 to 10 years after issuance.

Page Ref: 446 Difficulty: Easy Chapter LO: 2 Course LO: Identify the tools and resources used for managing personal finances Classification: Concept 48) ________ refer to debt securities issued by the federal government that are repaid more than 10 years after issuance.

A) Treasury bonds B) TIPS C) Treasury notes D) Municipal bonds E) Treasury bills Answer: A Explanation: A) Treasury bonds refer to debt securities issued by the federal government that are repaid more than 10 years after issuance.

Page Ref: 447 Difficulty: Easy Chapter LO: 2 Course LO: Identify the tools and resources used for managing personal finances Classification: Concept

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49) ________ refer to treasury issues in which the principle amount is tied to the Consumer Price Index to protect the buyer against the effects of inflation.

A) Treasury notes B) Treasury bills C) Treasury bonds D) TIPS E) Municipal bonds Answer: D Explanation: D) Treasury inflation-protected securities (TIPS) refer to treasury issues in which the principle amount is tied to the Consumer Price Index to protect the buyer against the effects of inflation.

Page Ref: 447 Difficulty: Easy Chapter LO: 2 Course LO: Identify the tools and resources used for managing personal finances Classification: Concept 50) Bonds issued by states, cities, and various government agencies to fund public projects are known as ________.

A) treasury bonds B) treasury bills C) TIPS D) treasury notes E) municipal bonds Answer: E Explanation: E) Municipal bonds (often informally called munis) are issued by states, cities, and various government agencies to raise money for public projects such as building schools, highways, and airports.

Page Ref: 447 Difficulty: Easy Chapter LO: 2 Course LO: Identify the tools and resources used for managing personal finances Classification: Concept

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51) Portfolio diversification is performed to ________.

A) protect against significant declines in any one vehicle B) maximize the returns from any one vehicle C) reduce the load that intermediaries charge D) maximize the earning potential of a portfolio E) maximize the earning potential of an investment vehicle Answer: A Explanation: A) Portfolio diversification refers to spreading investments across enough different vehicles to protect against significant declines in any one vehicle.

Page Ref: 447 Difficulty: Easy Chapter LO: 3 Course LO: Identify the tools and resources used for managing personal finances Classification: Concept 52) Norbon Securities is a financial intermediary. The firm facilitates the sale of mutual funds and charges commission when selling mutual funds to investors. This commission is referred to as ________.

A) bill B) index C) load D) yield E) coupon Answer: C Explanation: C) Load refers to the sales commission charged when buying or selling a mutual fund.

Page Ref: 448 Difficulty: Difficult AACSB: Analytic Skills Chapter LO: 3 Course LO: Identify the tools and resources used for managing personal finances Classification: Application 53) No-load funds are mutual funds that ________.

A) do not charge sales commission B) offer high rates of interest C) offer low rates of interest D) do not invest in equity shares E) offer huge tax benefits to investors Answer: A Explanation: A) Load refers to the sales commission charged when buying or selling a mutual fund. No-load funds are mutual funds that do not charge loads.

Page Ref: 448 Difficulty: Moderate Chapter LO: 3 Course LO: Identify the tools and resources used for managing personal finances Classification: Concept 18 .

54) Funds that invest in a combination of stocks and bonds are called ________ funds.

A) specialized B) sector C) restricted D) balanced E) socially responsible Answer: D Explanation: D) Balanced funds are funds that invest in a combination of stocks and bonds.

Page Ref: 449 Difficulty: Easy Chapter LO: 3 Course LO: Identify the tools and resources used for managing personal finances Classification: Concept 55) Dobex Investing is a fund management company. Most of the firm's funds are invested in a wide mixture of stocks and bonds. Such funds are called ________ funds.

A) balanced B) sector C) restricted D) specialized E) socially responsible Answer: A Explanation: A) Balanced funds are funds that invest in a combination of stocks and bonds. The given case describes a balanced fund.

Page Ref: 449 Difficulty: Difficult AACSB: Analytic Skills Chapter LO: 3 Course LO: Identify the tools and resources used for managing personal finances Classification: Application 56) RS Bank introduces a mutual fund that is designed to invest only in the telecom sector. This mutual fund is an example of a(n) ________.

A) target-date fund B) sector fund C) optimal fund D) balanced fund E) socially responsible fund Answer: B Explanation: B) Sector funds, also known as specialty funds, or industry funds, invest in companies in a particular industry, such as technology or health care.

Page Ref: 449 Difficulty: Difficult AACSB: Analytic Skills Chapter LO: 3 Course LO: Identify the tools and resources used for managing personal finances Classification: Application 19 .

57) ________ funds attempt to maintain a desirable balance of risk and growth potential based on a planned retirement date.

A) Balanced B) Sector C) International D) Speciality E) Target-date Answer: E Explanation: E) Target-date funds are funds that attempt to maintain a desirable balance of risk and growth potential based on a target retirement date.

Page Ref: 449 Difficulty: Easy Chapter LO: 3 Course LO: Identify the tools and resources used for managing personal finances Classification: Concept 58) Global funds are funds that ________.

A) invest in U.S. securities from foreign countries B) invest in special sectors or industries C) invest in foreign and U.S. securities D) invest strictly in foreign securities E) make investment choices based on social responsibility Answer: C Explanation: C) Global funds are funds that invest in foreign and U.S. securities.

Page Ref: 449 Difficulty: Easy Chapter LO: 3 Course LO: Identify the tools and resources used for managing personal finances Classification: Concept 59) You invest $6,000 in a no-load mutual fund whose net asset value per share is $36. How many shares of the mutual fund will you receive if the coupon is 8 percent?

A) 4.92 B) 166.66 C) 750 D) 288 E) 20.83 Answer: B Explanation: B) If you invest $6,000 in a no-load fund whose NAV per share that day is $36, you will receive 166.66 shares ($6,000 divided by $36).

Page Ref: 450 Difficulty: Difficult AACSB: Analytic Skills Chapter LO: 3 Course LO: Identify the tools and resources used for managing personal finances Classification: Application 20 .

60) Mutual fund's assets - its liabilities = ________.

A) net asset value B) face value C) par value D) load value E) market value Answer: A Explanation: A) Net asset value (NAV) refers to a mutual fund's assets minus its liabilities. It is usually expressed as NAV per share.

Page Ref: 450 Difficulty: Easy Chapter LO: 3 Course LO: Identify the tools and resources used for managing personal finances Classification: Concept 61) ________ are contracts whose value is derived from some other entity.

A) Preference shares B) Derivatives C) Equities D) Secured bonds E) Unsecured bonds Answer: B Explanation: B) Derivatives are contracts whose value is derived from some other entity (usually an asset of some kind, but not necessarily). It is used to hedge against or speculate on risk.

Page Ref: 451 Difficulty: Easy Chapter LO: 4 Course LO: Identify the tools and resources used for managing personal finances Classification: Concept 62) Which of the following is the basic premise of a derivative?

A) limiting the value of an asset attached to them B) transferring risk from one party to another C) linking shares to governmental bonds D) minimizing the risk for all parties involved E) maximizing the dividend payout on equities Answer: B Explanation: B) The basic premise of a derivative is transferring risk from a party that wants to decrease its risk exposure to a party that is willing to increase its risk exposure in exchange for the opportunity to pursue higher profits.

Page Ref: 451 Difficulty: Moderate Chapter LO: 4 Course LO: Identify the tools and resources used for managing personal finances Classification: Concept 21 .

63) A(n) ________ is the purchased right, but not the obligation, to buy or sell a specified number of shares of a stock or other security at a predetermined price during a specified period.

A) credit derivative B) secured bond C) option D) financial future E) commodity future Answer: C Explanation: C) An option is the purchased right - but not the obligation - to buy or sell a specified number of shares of a stock or other security at a predetermined price during a specified period. Investors who trade options are betting that the price of the stock will either rise or decline.

Page Ref: 451 Difficulty: Easy Chapter LO: 4 Course LO: Identify the tools and resources used for managing personal finances Classification: Concept 64) Which of the following is an example of a call option?

A) a purchased right that gives the right to buy a stock at a fixed price until an expiration date B) a contract to buy amounts of specified currency at some future date C) a contract to sell a foreign currency for a set price without an expiry date D) a contract to sell a treasury bond for a set price without an expiry date E) a purchased right that gives the right to sell the stock at a fixed price until the expiration date Answer: A Explanation: A) The right to buy the stock at a fixed price until the expiration date is known as a call option. In a call option, the buyer believes the price of underlying stock will increase.

Page Ref: 451 Difficulty: Moderate Chapter LO: 4 Course LO: Identify the tools and resources used for managing personal finances Classification: Concept 65) A put option is purchased when the buyer believes that the ________.

A) price of underlying stock will have no effect on options B) price of underlying stock will decrease C) option will not be profitable D) price of underlying stock will increase E) price of underlying stock will remain constant Answer: B Explanation: B) The right to sell the stock at a fixed price until the expiration date is known as a put option. In a put option, the buyer believes the price of underlying stock will decline.

Page Ref: 451 Difficulty: Moderate Chapter LO: 4 Course LO: Identify the tools and resources used for managing personal finances Classification: Concept 22 .

66) A(n) ________ is a contract to buy or sell a financial instrument for a set price at a later date.

A) financial future B) put option C) credit derivative D) call option E) commodities future Answer: A Explanation: A) Financial futures are contracts to buy or sell a financial instrument (such as stocks, Treasury bonds, and foreign currencies) for a set price at a future date.

Page Ref: 452 Difficulty: Easy Chapter LO: 4 Course LO: Identify the tools and resources used for managing personal finances Classification: Concept 67) Robex Retail forms a contract with one of its suppliers to buy specific amounts of agricultural produce at a later date. This contract is an example of a(n) ________.

A) financial future B) put option C) credit derivative D) call option E) commodities future Answer: E Explanation: E) Commodities futures are contracts to buy or sell specific amounts of commodities for a set price at a future date. Agricultural produce is a commodity.

Page Ref: 452 Difficulty: Moderate Chapter LO: 4 Course LO: Identify the tools and resources used for managing personal finances Classification: Concept 68) Currency futures are used to ________.

A) reduce a lender's exposure to credit risk B) buy commodities at a fixed price C) avoid obligations to buy or sell assets D) hedge against exchange rate shifts E) reduce a borrower's exposure to credit risk Answer: D Explanation: D) Currency futures are contracts to buy or sell amounts of specified currency at some future date. It is used by firms to hedge against exchange rate shifts that will affect them negatively.

Page Ref: 452 Difficulty: Moderate Chapter LO: 4 Course LO: Identify the tools and resources used for managing personal finances Classification: Concept 23 .

69) Credit derivatives are derivatives used to ________.

A) reduce a lender's exposure to risk B) link liabilities to a federal agency C) hedge against exchange rate shifts D) link assets to a federal agency E) avoid obligations to buy or sell assets Answer: A Explanation: A) Credit derivatives are used to reduce a lender's exposure to credit risk. The most notable - and notorious - type of credit derivative is the credit default swap.

Page Ref: 452 Difficulty: Moderate Chapter LO: 4 Course LO: Identify the tools and resources used for managing personal finances Classification: Concept 70) Stock exchanges are organizations that ________.

A) issue cash in exchange for pledging stock B) function as underwriters in public issues C) facilitate the buying and selling of stock D) issue stock on behalf of small companies E) combine multiple stocks to create mutual funds Answer: C Explanation: C) Organizations that facilitate the buying and selling of stock are known as stock exchanges. Some of these are actual physical facilities, whereas others are primarily computer networks.

Page Ref: 453 Difficulty: Easy Chapter LO: 5 Course LO: Identify the tools and resources used for managing personal finances Classification: Concept 71) JSE Limited is a South African organization that facilitates exchange of equities between investors. JSE Limited is a(n) ________.

A) financial broker B) fund manager C) treasury D) stock exchange E) underwriter firm Answer: D Explanation: D) Organizations that facilitate the buying and selling of stock are known as stock exchanges. JSE Limited, as described here, is a stock exchange.

Page Ref: 453 Difficulty: Difficult AACSB: Analytic Skills Chapter LO: 5 Course LO: Identify the tools and resources used for managing personal finances Classification: Application 24 .

72) Which of the following statements is true of bond markets?

A) Treasury bills and commercial papers are traded in a bond market.

B) A bond market is a component of a stock market.

C) Exchange trading of futures occurs at a bond market.

D) Most trading is done over the counter in a bond market.

E) A bond market is less diffuse and centralized than the stock market.

Answer: D Explanation: D) Unlike the stock market, in which most buying and selling is coordinated by organizations, most trading in the bond market is over the counter, taking place outside organized exchanges.

Page Ref: 454 Difficulty: Moderate Chapter LO: 5 Course LO: Identify the tools and resources used for managing personal finances Classification: Concept 73) ________ is an over-the-counter marketplace for short-term debt instruments such as Treasury bills and commercial papers.

A) Options market B) Bond market C) Money market D) Stock market E) Futures market Answer: C Explanation: C) The money market is an over-the-counter marketplace for short-term debt instruments such as Treasury bills and commercial paper. Its purpose is to help corporations and government agencies meet short-term liquidity needs.

Page Ref: 454 Difficulty: Easy Chapter LO: 5 Course LO: Identify the tools and resources used for managing personal finances Classification: Concept

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74) Gordon Fiber is a firm that manufactures fiber products. The firm is facing a credit crunch and wants to liquidize the treasury bills and commercial papers they have. The firm can sell these at the ________ market.

A) options B) bond C) money D) stock E) futures Answer: C Explanation: C) The money market is an over-the-counter marketplace for short-term debt instruments such as Treasury bills and commercial paper. Its purpose is to help corporations and government agencies meet short-term liquidity needs.

Page Ref: 454 Difficulty: Difficult AACSB: Analytic Skills Chapter LO: 5 Course LO: Identify the tools and resources used for managing personal finances Classification: Application 75) Which of the following markets includes exchange trading and over-the-counter trading?

A) derivatives market B) bond market C) money market D) stock market E) currency market Answer: A Explanation: A) Derivatives market is a market that includes exchange trading (for futures and some options) and over-the-counter trading (for all other derivatives, at least currently). The derivatives market is as diverse as derivatives themselves.

Page Ref: 454 Difficulty: Easy Chapter LO: 5 Course LO: Identify the tools and resources used for managing personal finances Classification: Concept

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76) You want to trade some of the futures that you have. Which of the following markets will facilitate such a trade?

A) money market B) bond market C) stock market D) currency market E) derivatives market Answer: E Explanation: E) Derivatives market is a market that includes exchange trading (for futures and some options) and over-the-counter trading (for all other derivatives). You can sell futures at the derivatives market.

Page Ref: 454 Difficulty: Moderate Chapter LO: 5 Course LO: Identify the tools and resources used for managing personal finances Classification: Concept 77) Arabex is a stock market in one of the developing countries. Most of the stocks listed in the market are increasing in value. Arabex is an example of a(n) ________.

A) partial bear market B) bull market C) derivative market D) bear market E) commodity market Answer: B Explanation: B) Bull market is a market situation in which most stocks are increasing in value.

Arabex, as described here, is a bull market.

Page Ref: 456 Difficulty: Difficult AACSB: Analytic Skills Chapter LO: 6 Course LO: Identify the tools and resources used for managing personal finances Classification: Application 78) Bear market is a market situation in which ________.

A) there are more buyers than sellers B) the value of assets are increasing C) short selling is rarely observed D) most stocks are declining in value E) most portfolios are not diversified Answer: D Explanation: D) Bear market is a market situation in which most stocks are decreasing in value.

Page Ref: 456 Difficulty: Easy Chapter LO: 6 Course LO: Identify the tools and resources used for managing personal finances Classification: Concept 27 .

79) James wants to buy some shares of JE Electricals. He instructs the broker to buy 1000 shares at the best possible price immediately. This is an example of a(n) ________.

A) market order B) control order C) limit order D) stop order E) bounded order Answer: A Explanation: A) Market order is a type of securities order that instructs the broker to buy or sell at the best price that can be negotiated at the market. The given situation describes a market order.

Page Ref: 457 Difficulty: Difficult AACSB: Analytic Skills Chapter LO: 6 Course LO: Identify the tools and resources used for managing personal finances Classification: Application 80) You ask your broker to buy 500 shares of Microsoft, if it is available, at a price less than or equal to $26. This is an example of a ________ order.

A) market B) limit C) discount D) stop E) control Answer: B Explanation: B) Limit order is an order that stipulates the highest or lowest price at which the customer is willing to trade securities. The order described here specifies a limit of $26.

Page Ref: 457 Difficulty: Difficult AACSB: Analytic Skills Chapter LO: 6 Course LO: Identify the tools and resources used for managing personal finances Classification: Application

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81) Stop order is an order to sell a stock when ________.

A) an order is placed by a specific buyer in the stock exchange B) its price falls to a particular point C) its p/e ratio crosses a certain level D) brokerage cost is lower than a specified amount E) overall price index of the stock exchange exceeds a certain amount Answer: B Explanation: B) Stop order is an order to sell a stock when its price falls to a particular point. It is an order to limit an investor's losses.

Page Ref: 457 Difficulty: Easy Chapter LO: 6 Course LO: Identify the tools and resources used for managing personal finances Classification: Concept 82) Short selling refers to selling ________.

A) a stock at a price much above the market price B) stocks partially from an investor's portfolio C) stock borrowed from a broker D) a contract to sell a product at a later date E) a stock at a price much below the market price Answer: C Explanation: C) Short selling refers to selling stock borrowed from a broker with the intention of buying it back later at a lower price, repaying the broker, and keeping the profit.

Page Ref: 457 Difficulty: Easy Chapter LO: 6 Course LO: Identify the tools and resources used for managing personal finances Classification: Concept 83) Which of the following is the most important purpose of issuing a stop order?

A) restricting the possible losses an investor is likely to incur B) buying a stock if its price reaches a certain level C) buying stock even without having adequate capital D) buying a stock if its price falls below a certain level E) minimizing the brokerage fee on a particular transaction Answer: A Explanation: A) Stop order is an order to sell a stock when its price falls to a particular point. A stop order is placed to limit an investor's losses.

Page Ref: 457 Difficulty: Moderate Chapter LO: 6 Course LO: Identify the tools and resources used for managing personal finances Classification: Concept

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84) Margin trading occurs when a ________.

A) buyer pays the broker immediately after buying a stock B) broker does not charge brokerage fee for a transaction C) buyer pays the broker before placing an order D) broker gives volume discounts to a good buyer E) buyer borrows money from the broker to buy stock Answer: E Explanation: E) Margin trading occurs when buyers borrow money from brokers to buy stock.

Buyers pay interest on the borrowed money and leave the stock with the broker as collateral.

Page Ref: 457 Difficulty: Easy Chapter LO: 6 Course LO: Identify the tools and resources used for managing personal finances Classification: Concept 85) A buyer engages in short selling when he or she ________.

A) thinks that a stock has high long-term growth potential B) wants to diversify his or her portfolio C) believes that a stock's price is about to drop D) wants to partially liquidate his or her portfolio E) thinks that a stock has high short-term growth potential Answer: C Explanation: C) If investors believe that a stock's price is about to drop, they choose a trading procedure known as short selling. With this procedure, they sell stock they have borrowed from a broker in the hope of buying it back later at a lower price.

Page Ref: 457 Difficulty: Moderate Chapter LO: 6 Course LO: Identify the tools and resources used for managing personal finances Classification: Concept 86) Compare and contrast common stock and preferred stock.

Answer: The primary reason that people invest in common stock is the potential for capital gains, or increases in the value of the stock over time. Common stock may or may not pay dividends. Common stock enables the shareholders to vote on certain major corporate decisions, including electing the board of directors.

Preferred stock is usually less volatile than common stock and may not have the same potential for capital gains. Holders of preferred stock do not have any voting rights in the corporation.

Preferred stock pay fixed dividends and at higher rates than common stocks or bonds, so it is often attractive to those investors seeking a regular income stream and some appreciation of price.

Page Ref: 440 Difficulty: Difficult AACSB: Reflective Thinking Skills Chapter LO: 1 Course LO: Identify the tools and resources used for managing personal finances Classification: Synthesis 30 .

87) Compare and contrast blue chip, income, growth and cyclical stocks.

Answer: Blue chip: Stocks of major, well-established corporations with demonstrated ability to manage their way through every kind of economic condition; such stocks are usually considered safe, if not necessarily thrilling, choices.

Income: Stocks purchased primarily for dividend payouts rather than capital gains potential; companies tend to be older, stable firms with fairly predictable profits but lower prospects for growth.

Growth: Stocks from rapidly growing companies that usually reinvest profits (to keep growing) rather than paying dividends; investors buy these stocks for potential capital gains, not income; companies tend to be smaller and younger, and many are in the technology sector.

Cyclical: Stocks from companies whose earnings tend to track the ups and downs of the economy in a predictable pattern - in other words, their revenue and profits grow as the economy grows and shrink as the economy shrinks; many of these companies are in basic industries such as housing and transportation.

Page Ref: 441 Difficulty: Difficult AACSB: Reflective Thinking Skills Chapter LO: 1 Course LO: Identify the tools and resources used for managing personal finances Classification: Synthesis 88) Explain why companies perform stock split.

Answer: If a board determines that a stock's price has risen so high that it has become prohibitive for many investors to purchase, or has simply gotten out of line with similar stocks, the company may announce a stock split. This action divides each share into two or more new shares, and the market value is then reduced by the same ratio. Although a stock split doesn't create more wealth for shareholders, it does give them more shares to take advantage of future price increases.

Page Ref: 443 Difficulty: Moderate Chapter LO: 1 Course LO: Identify the tools and resources used for managing personal finances Classification: Concept

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89) Explain the advantages and disadvantages of investing in bonds rather than in stocks.

Answer: Advantages: 1) Bonds are less risky than stocks, so it is less likely that your investment will decline in value. 2) Bonds are less volatile and can be a good choice for investors who want a predictable rate of return on their investments. 3) Bonds with regular interest payments can provide a regular source of income for the investor.

Disadvantages: 1) While bonds are predictable and safe, they have lower average returns than stocks. 2) The credit quality of a bond is closely tied to the financial stability of the issuing company, so a bond can be downgraded and its market price affected if rating agencies determine that the issuer's finances are deteriorating. 3) Some bonds have a call provision whereby the issuer has the right to repurchase the bond before maturity, so the bondholder would no longer receive the anticipated interest income.

Page Ref: 445; 446 Difficulty: Moderate Chapter LO: 2 Course LO: Identify the tools and resources used for managing personal finances Classification: Concept 90) Explain the advantages and disadvantages of investing in mutual funds rather than in individual stocks.

Answer: Advantages: 1) Diversification - the mutual fund pools the money of thousands of investors and can purchase stock from many more companies than an individual investor could, so it spreads investment risk across a wide variety of securities.

2) Professional management - mutual funds are managed by experienced investors or teams of investors who have access to extensive research and market information and decide which securities to buy or sell for the fund.

3) Simplicity - most investors have neither the time nor the expertise to effectively manage their portfolios, so investing in a mutual fund is a much easier choice.

Disadvantages: 1) Cost - mutual funds charge an annual management fee (typically 1-1.5% per year).

2) Performance - many mutual funds do not perform as well as the overall markets in which they invest.

Page Ref: 448 Difficulty: Moderate Chapter LO: 3 Course LO: Identify the tools and resources used for managing personal finances Classification: Concept 91) What is load? What are no-load funds?

Answer: Load is the sales commission charged when buying or selling a mutual fund. No-load funds are mutual funds that do not charge loads.

Page Ref: 448 Difficulty: Easy Chapter LO: 3 Course LO: Identify the tools and resources used for managing personal finances Classification: Concept 32 .

92) Compare and contrast growth funds, income funds, and value funds.

Answer: Growth funds are funds which invest in stocks of rapidly growing companies. Value funds are funds that invest in stocks considered to be selling below their true value. Income funds invest in securities that pay high dividends and interest.

Page Ref: 448 Difficulty: Difficult AACSB: Reflective Thinking Skills Chapter LO: 3 Course LO: Identify the tools and resources used for managing personal finances Classification: Synthesis 93) What are derivatives?

Answer: Derivatives are contracts whose value is derived from some other entity, which is usually an asset of some kind, but not necessarily. Derivatives can be based on stocks, bonds, pools of debt, agriculture products, interest rates, life insurance policies, and even the weather.

The basic premise of a derivative is transferring risk from a party that wants to decrease its risk exposure to a party that is willing to increase its risk exposure in exchange for the opportunity to pursue higher profits. In other words, derivatives can be used defensively, to protect profits by hedging a position to guard against the risk of a sudden loss, or offensively, to seek profits by speculating on future price changes.

Page Ref: 451 Difficulty: Easy Chapter LO: 4 Course LO: Identify the tools and resources used for managing personal finances Classification: Concept

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94) Compare and contrast call options and put options.

Answer: All stock options fall into two broad categories: puts and calls. The following is a comparison of the two: Option Holder's Type Right Buyer's Belief Seller's Belief Call The right to buy Buyer believes the Seller believes the the stock at a price of price of fixed price until underlying stock underlying stock the expiration will increase. will decline and date.

Buyer can buy that the option stock at a set price will not be and sell it at a exercised. Seller higher price for a earns a premium. capital gain.

Put The right to sell Buyer believes the Seller believes the the stock at a price of price of fixed price until underlying stock underlying stock the expiration will decline and will rise and that date. wants to lock in a the option will not fixed profit. be exercised.

Buyer usually Seller earns a already owns premium. shares of underlying stock.

Page Ref: 451 Difficulty: Difficult AACSB: Reflective Thinking Skills Chapter LO: 4 Course LO: Identify the tools and resources used for managing personal finances Classification: Synthesis 95) Compare and contrast options and futures.

Answer: An option is the purchased right - but not the obligation - to buy or sell a specified number of shares of a stock or other security at a predetermined price during a specified period.

Investors who trade options are betting that the price of the stock will either rise or decline.

Seller will get a premium if an option is not exercised.

Financial futures are similar to options, but they are legally binding contracts to buy or sell a financial instrument (such as stocks, Treasury bonds, and foreign currencies) for a set price at a future date.

Page Ref: 451; 452 Difficulty: Difficult AACSB: Reflective Thinking Skills Chapter LO: 4 Course LO: Identify the tools and resources used for managing personal finances Classification: Synthesis

34 .

96) Compare and contrast stock market and bond markets.

Answer: Organizations that facilitate the buying and selling of stock are known as stock exchanges. Some of these are actual physical facilities, whereas others are primarily computer networks. The most famous of the physical variety is the New York Stock Exchange. Stocks that don't meet the listing requirements of an exchange are sold over the counter (OTC). Together, the various stock exchanges around the world and the OTC market make up the overall stock market.

Unlike the stock market, in which most buying and selling is coordinated by organizations such as the NYSE and NASDAQ, most trading in the bond market is over the counter, taking place outside organized exchanges. Consequently, the bond market is much more diffuse and decentralized than the stock market, and the processes for buying and selling depends on the type of bond. In the primary market, new issues of bonds can be purchased. In the secondary market, bonds are traded through a wide variety of brokers, agents and dealers.

Page Ref: 453; 454 Difficulty: Difficult AACSB: Reflective Thinking Skills Chapter LO: 5 Course LO: Identify the tools and resources used for managing personal finances Classification: Synthesis 97) Compare and contrast a money market and derivatives market.

Answer: The money market is an over-the-counter marketplace for short-term debt instruments such as Treasury bills and commercial paper. Its purpose is to help corporations and government agencies meet short-term liquidity needs. Individuals can invest indirectly by purchasing money market mutual funds. These funds generally offer low returns.

The derivatives market is as diverse as derivatives themselves and includes both exchange-traded and OTC derivatives. Futures and some options are traded on organized exchanges with timetested financial controls and government regulation. All other derivatives, including the credit default swaps that made headlines in recent years, are traded over the counter.

Page Ref: 454 Difficulty: Difficult AACSB: Reflective Thinking Skills Chapter LO: 5 Course LO: Identify the tools and resources used for managing personal finances Classification: Synthesis 98) Describe a bull market and a bear market.

Answer: A market situation in which most stocks are increasing in value is called a bull market.

A bear market refers to a market situation in which most stocks are decreasing in value.

Page Ref: 456 Difficulty: Easy Chapter LO: 6 Course LO: Identify the tools and resources used for managing personal finances Classification: Concept

35 .

99) Go to a web site that allows you maintain a virtual portfolio (Example: Yahoo). Create a diversified portfolio in the web site.

Answer: This is an activity that students need to perform. Students should select a variety of investment vehicles and create a portfolio.

Page Ref: 456 Difficulty: Difficult AACSB: Reflective Thinking Skills Chapter LO: 6 Course LO: Identify the tools and resources used for managing personal finances Classification: Synthesis 100) Describe the different order types you can use when you buy or sell a stock.

Answer: A market order tells the broker to buy or sell the stock at the prevailing market price.

The order is filled at the best available price. This order type does not allow any control over the price.

A limit order tells the broker to buy a stock at no more, or sell a stock at no less, than an established price. This gives the investor control over the price at which the trade is executed. A stop order tells the broker to sell a stock if the price drops below a specified level.

Page Ref: 457 Difficulty: Easy Chapter LO: 6 Course LO: Identify the tools and resources used for managing personal finances Classification: Concept

36 .

Business in Action, 6e (Bovee/Thill) Chapter 20 The Money Supply and Banking Systems 1) Money is anything generally accepted as a means of paying for goods and services.

Answer: TRUE Explanation: Money is anything generally accepted as a means of paying for goods and services.

It serves as a medium of exchange, a unit of accounting, a store of value, and a standard of deferred value.

Page Ref: 463 Difficulty: Easy Chapter LO: 1 Course LO: Explain how economic performance is monitored Classification: Concept 2) Federal funds rate is the interest rate that member banks pay when they borrow funds from the Fed. Answer: FALSE Explanation: The federal funds rate is the rate that member banks charge each other to borrow money overnight from the funds they keep in the Federal Reserve accounts.

Page Ref: 464 Difficulty: Easy Chapter LO: 1 Course LO: Explain how economic performance is monitored Classification: Concept 3) Discount rate is the interest rate that member banks charge each other to borrow money overnight from the funds they keep in the Federal Reserve accounts.

Answer: FALSE Explanation: Discount rate is the rate that member banks pay when they borrow funds from the Fed. Page Ref: 464 Difficulty: Easy Chapter LO: 1 Course LO: Explain how economic performance is monitored Classification: Concept 4) If the Fed sells Treasuries in open-market operations, the country's money supply increases.

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

Page Ref: 464 Difficulty: Moderate Chapter LO: 1 Course LO: Explain how economic performance is monitored Classification: Concept

1 .

5) If the Fed buys Treasuries on the open market, the country's money supply increases.

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

Page Ref: 465 Difficulty: Moderate Chapter LO: 1 Course LO: Explain how economic performance is monitored Classification: Concept 6) The prime rate is the interest rate that a bank charges its most credit-worthy customers.

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

Page Ref: 465 Difficulty: Easy Chapter LO: 1 Course LO: Explain how economic performance is monitored Classification: Concept 7) If the Fed decreases the reserve requirement, banks will have less money to lend.

Answer: FALSE Explanation: If the Fed decreases the reserve requirement, banks will have more money to lend to their customers.

Page Ref: 465 Difficulty: Moderate Chapter LO: 1 Course LO: Explain how economic performance is monitored Classification: Concept 8) Both Fannie Mae and Freddie Mac participate in the secondary mortgage market by purchasing loans originated by banks and other lenders.

Answer: TRUE Explanation: Secondary mortgage market is the financial market in which mortgages are bought and sold, providing much of the funds that are loaned to home buyers. Both Fannie Mae and Freddie Mac participate in the secondary mortgage market by purchasing loans originated by banks and other lenders.

Page Ref: 465; 466 Difficulty: Moderate Chapter LO: 1 Course LO: Explain how economic performance is monitored Classification: Concept

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9) Both Fannie Mae and Freddie Mac are agencies of the FDIC. Answer: FALSE Explanation: Federal Deposit Insurance Corporation is the federal agency responsible for protecting money in customer accounts and managing the transition of assets whenever a bank fails Fannie Mae The government sponsored enterprise responsible for guaranteeing and funding home mortgages.

Page Ref: 465; 466 Difficulty: Moderate Chapter LO: 1 Course LO: Explain how economic performance is monitored Classification: Concept 10) Thrift banks offer a variety of services related to initial public stock offerings and mergers and acquisitions.

Answer: FALSE Explanation: Thrift banks are banking institutions that offer deposit accounts and focus on offering home mortgage loans.

Page Ref: 467 Difficulty: Easy Chapter LO: 2 Course LO: Explain how economic performance is monitored Classification: Concept 11) Savings and loan associations are not-for-profit, member-owned cooperatives that focus on offering home mortgage loans.

Answer: FALSE Explanation: Savings and loan associations offer deposit accounts and focus on offering home mortgage loans. They may not be not-for-profit organizations.

Page Ref: 467 Difficulty: Easy Chapter LO: 2 Course LO: Explain how economic performance is monitored Classification: Concept 12) Investment banks are banks that assist high net-worth individuals in managing real estate, establishing trust funds, and planning philanthropic giving.

Answer: FALSE Explanation: Investment banks are firms that offer a variety of services related to initial public stock offerings, mergers and acquisitions, and other investment matters.

Page Ref: 467 Difficulty: Easy Chapter LO: 2 Course LO: Explain how economic performance is monitored Classification: Concept

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13) Non-bank companies that use their own funds to offer mortgages are known as mortgage brokers.

Answer: FALSE Explanation: Mortgage brokers are nonbank companies that initiate loans on behalf of a mortgage lender in exchange for a fee.

Page Ref: 467 Difficulty: Easy Chapter LO: 2 Course LO: Explain how economic performance is monitored Classification: Concept 14) Finance companies are non-bank institutions that lend money to consumers and businesses for a wide variety of purposes.

Answer: TRUE Explanation: Finance companies are non-bank institutions that lend money to consumers and businesses for a wide variety of purposes.

Page Ref: 468 Difficulty: Easy Chapter LO: 2 Course LO: Explain how economic performance is monitored Classification: Concept 15) The term bubble is used to describe a market situation in which low demand for an asset reduces its price far below its true economic value.

Answer: FALSE Explanation: Bubble refers to a market situation in which frenzied demand for an asset pushes the price of that asset far beyond its true economic value.

Page Ref: 469 Difficulty: Easy Chapter LO: 3 Course LO: Explain how economic performance is monitored Classification: Concept 16) If you purchase a house, do some repairs and then resell it for a significant profit, you are flipping the house.

Answer: TRUE Explanation: Flipping refers to buying a house, making some quick fixes to raise its value or simply waiting for prices to rise, and reselling it for a big profit.

Page Ref: 470 Difficulty: Moderate Chapter LO: 3 Course LO: Explain how economic performance is monitored Classification: Concept

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17) Loan-to-value (LTV) is commonly defined as the amount of a loan relative to a house's assessed value.

Answer: TRUE Explanation: Loan-to-value is the percentage of an asset's market value that a lender is willing to finance when offering a loan. The rest of the purchase price has to be paid by the buyer as a down payment.

Page Ref: 471 Difficulty: Easy Chapter LO: 3 Course LO: Explain how economic performance is monitored Classification: Concept 18) Negative amortization occurs when the balance on your mortgage decreases over time.

Answer: FALSE Explanation: Negative amortization is a payment situation in which the balance owed on a loan increases over time rather than decreases.

Page Ref: 471 Difficulty: Easy Chapter LO: 3 Course LO: Explain how economic performance is monitored Classification: Concept 19) If you have reliable income, sufficient assets and a good credit history, you would likely qualify for a prime mortgage.

Answer: TRUE Explanation: Prime mortgage is offered to people who have reliable income, sufficient assets and a good credit history.

Page Ref: 472 Difficulty: Moderate Chapter LO: 3 Course LO: Explain how economic performance is monitored Classification: Concept 20) A borrower is foreclosing when he stops making payments on his mortgage.

Answer: FALSE Explanation: Foreclosures are situations in which lenders take possession of homes after borrowers default on their mortgage payments.

Page Ref: 472 Difficulty: Easy Chapter LO: 3 Course LO: Explain how economic performance is monitored Classification: Concept

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21) Credit derivatives based on home mortgages are known as mortgage-backed securities.

Answer: TRUE Explanation: Credit derivatives based on home mortgages are known as mortgage-backed securities.

Page Ref: 474 Difficulty: Easy Chapter LO: 4 Course LO: Explain how economic performance is monitored Classification: Concept 22) A security based on auto loans is not an example of an asset-backed security.

Answer: FALSE Explanation: Asset-backed securities (ABSs) are credit derivatives based on auto loans, credit card debts, and other loan assets.

Page Ref: 474 Difficulty: Moderate Chapter LO: 4 Course LO: Explain how economic performance is monitored Classification: Concept 23) Foreclosures are situations in which lenders take possession of homes after borrowers default on their mortgage payments.

Answer: TRUE Explanation: Foreclosures are situations in which lenders take possession of homes after borrowers default on their mortgage payments.

Page Ref: 476 Difficulty: Easy Chapter LO: 4 Course LO: Explain how economic performance is monitored Classification: Concept 24) During a liquidity crisis, companies can't get enough cash to meet their operating needs.

Answer: TRUE Explanation: A liquidity crisis occurs when companies can't get enough cash to meet their operating needs.

Page Ref: 478 Difficulty: Moderate Chapter LO: 5 Course LO: Explain how economic performance is monitored Classification: Concept

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25) Credit freeze is a situation in which the federal government bans the issue of new loans.

Answer: FALSE Explanation: Credit freeze is a situation in which credit has become so scarce that it is virtually unavailable, at any cost, to most potential borrowers.

Page Ref: 478 Difficulty: Moderate Chapter LO: 5 Course LO: Explain how economic performance is monitored Classification: Concept 26) Dodd-Frank Act is a legislation aimed at reforming the banking industry.

Answer: TRUE Explanation: Dodd-Frank Act, passed in 2010, aimed at reforming the banking industry and offering consumers greater protection.

Page Ref: 481 Difficulty: Easy Chapter LO: 6 Course LO: Explain how economic performance is monitored Classification: Concept 27) Dodd-Frank Act created the Financial Stability Oversight Council to monitor for systemic risks.

Answer: TRUE Explanation: Dodd-Frank created the Financial Stability Oversight Council to monitor for such systemic risks , those that aff ect a signifi cant portion of the economy.

Page Ref: 481 Difficulty: Easy Chapter LO: 6 Course LO: Explain how economic performance is monitored Classification: Concept 28) Money serves as a ________ when it is used as a way of accumulating wealth until it is needed.

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

Page Ref: 464 Difficulty: Moderate Chapter LO: 1 Course LO: Explain how economic performance is monitored Classification: Concept 7 .

29) Money serves as a ________ when it is used to measure the value of goods and services.

A) unit of accounting B) means of payment C) store of value D) medium of exchange E) standard of deferred payment Answer: A Explanation: A) Money is used as a measure of value so that buyers and sellers don't have to negotiate the relative worth of dissimilar items with every transaction. Here money is used as unit of accounting.

Page Ref: 464 Difficulty: Moderate Chapter LO: 1 Course LO: Explain how economic performance is monitored Classification: Concept 30) The ________ rate is the interest rate that Federal Reserve member banks charge each other to borrow money from the funds they keep in the Federal Reserve accounts.

A) federal reserve B) discount C) prime member D) federal funds E) federal leaves rate Answer: D Explanation: D) The federal funds rate is the rate that member banks charge each other to borrow money overnight from the funds they keep in the Federal Reserve accounts.

Page Ref: 464 Difficulty: Easy Chapter LO: 1 Course LO: Explain how economic performance is monitored Classification: Concept

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31) When the Federal Reserve buys or sells U.S. Treasury bonds, bills and notes, it is influencing the money supply through ________.

A) imposing reserve requirements B) offering discount rates C) selective credit controls D) open-market operations E) changing the value of derivatives Answer: D Explanation: D) Federal government buys treasuries to increase money supply and sells treasuries to decreases money supply. Because these transactions take place on the open market, they are known as open-market operations.

Page Ref: 464 Difficulty: Easy Chapter LO: 1 Course LO: Explain how economic performance is monitored Classification: Concept 32) Which of the following is an example of an open market operation?

A) Fed reducing the discount rate for banks B) Fed imposing selective credit controls C) Fed buying Treasury bonds D) Fed increasing the discount rate for banks E) Fed increasing the reserve requirement on deposits Answer: C Explanation: C) Fed buys and sells Treasury bonds, bills, and notes to increase or decrease the money supply. Because these transactions take place on the open market, they are known as open-market operations.

Page Ref: 464 Difficulty: Moderate Chapter LO: 1 Course LO: Explain how economic performance is monitored Classification: Concept

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33) The Fed sets the federal funds rate by ________.

A) lending money directly to consumers B) issuing a mandatory directive C) issuing a selective directive D) buying and selling Treasuries E) securitizing loans issued by member banks Answer: D Explanation: D) The federal funds rate is the rate that member banks charge each other to borrow money overnight from the funds they keep in the Federal Reserve accounts. The Fed doesn't set this rate directly. Instead, it sets a target rate and then works toward that rate by buying and selling Treasuries.

Page Ref: 464 Difficulty: Moderate Chapter LO: 1 Course LO: Explain how economic performance is monitored Classification: Concept 34) Which of the following federal actions is aimed at increasing the money supply in markets?

A) The Fed imposes more selective credit controls on loans.

B) The Fed buys Treasury bonds from the market.

C) The Federal Reserve raises the discount rate.

D) The Federal Reserve controls the issue of new loans.

E) The Federal Reserve increases the reserve requirement.

Answer: B Explanation: B) Buying Treasury bonds is an example of an open market operation. It will increase the money supply.

Page Ref: 465 Difficulty: Difficult AACSB: Analytic Skills Chapter LO: 1 Course LO: Explain how economic performance is monitored Classification: Application

10 .

35) Which of the following federal actions is aimed at reducing the money supply in markets?

A) The Fed liberalizes credit controls actions on loans.

B) The Fed buys treasury bills from the market.

C) The Federal Reserve raises the discount rate.

D) The Federal Reserve reduces the reserve requirement.

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

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

Page Ref: 465 Difficulty: Difficult AACSB: Analytic Skills Chapter LO: 1 Course LO: Explain how economic performance is monitored Classification: Application 36) ________ rate is the rate a bank charges its best loan customers.

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

Page Ref: 465 Difficulty: Easy Chapter LO: 1 Course LO: Explain how economic performance is monitored Classification: Concept 37) By altering margin requirements, the Fed is able to influence ________.

A) the foreign exchange value of other currencies trading with the dollar B) how much cash is tied up in stock market transactions C) the types of collateral accepted to issue loans D) how banks receive securities for the loans that they issue E) the terms of credit for various types of short-term funding alternatives Answer: B Explanation: B) Margin requirements refer to the percentage of the purchase price that an investor must pay in cash when purchasing a stock or a bond on margin. By altering margin requirements, the Fed is able to influence how much cash is tied up in stock market transactions.

Page Ref: 465 Difficulty: Moderate Chapter LO: 1 Course LO: Explain how economic performance is monitored Classification: Concept 11 .

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

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

Page Ref: 465 Difficulty: Easy Chapter LO: 1 Course LO: Explain how economic performance is monitored Classification: Concept 39) ________ is the government-sponsored enterprise responsible for guaranteeing and funding home mortgages.

A) The secondary mortgage market B) Freddie Mac C) Fannie Mae D) The NYSE E) The Federal Deposit Insurance Corporation Answer: C Explanation: C) Fannie Mae is the government-sponsored enterprise responsible for guaranteeing and funding home mortgages.

Page Ref: 465 Difficulty: Easy Chapter LO: 1 Course LO: Explain how economic performance is monitored Classification: Concept

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

A) Securities B) Mortgages C) Reserves D) Savings E) Collaterals Answer: C Explanation: C) Reserves refers to sums of money, equal to a certain percentage of their deposits, that banks are legally required to keep on hand. It is a Fed tool to manage money supply.

Page Ref: 465 Difficulty: Easy Chapter LO: 1 Course LO: Explain how economic performance is monitored Classification: Concept 41) The Fed decides to lower the discount rate offered to banks in the United States. This would ________.

A) slow down economic activities B) lead to high interest rates C) slow down market activity D) increase the money supply E) reduce the availability of credit Answer: D Explanation: D) Lowering the interest rate will increase the availability of money and credit.

This would promote economic activity.

Page Ref: 465 Difficulty: Difficult AACSB: Analytic Skills Chapter LO: 1 Course LO: Explain how economic performance is monitored Classification: Application

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42) The Fed decides to increase the reserve requirements on the deposits of banks. This would ________.

A) reduce the money supply B) lead to low interest rates C) intensify market activity D) boost economic activities E) increase the availability of credit Answer: A Explanation: A) Increasing the reserve requirements reduces the availability of money with the banks and in turn reduces the money in the markets.

Page Ref: 465 Difficulty: Difficult AACSB: Analytic Skills Chapter LO: 1 Course LO: Explain how economic performance is monitored Classification: Application 43) Which of the following is a tool available to the Fed to manage the money supply?

A) federal insurance scheme B) federal funds rate C) national credit union D) deposit insurance E) credit rating agencies Answer: B Explanation: B) The major tools available to the Fed to manage the money supply are federal funds rate, discount rate, and reserve.

Page Ref: 465 Difficulty: Easy Chapter LO: 1 Course LO: Explain how economic performance is monitored Classification: Concept 44) ________ is a secondary mortgage quasi-independent corporation created in 1970.

A) The secondary mortgage market B) Freddie Mac C) Fannie Mae D) The NYSE E) The Federal Deposit Insurance Corporation Answer: B Explanation: B) Freddie Mac is a secondary mortgage quasi-independent corporation created in 1970.

Page Ref: 466 Difficulty: Easy Chapter LO: 1 Course LO: Explain how economic performance is monitored Classification: Concept 14 .

45) Banks that provide financial services to consumers are called ________.

A) loan associations B) retail banks C) thrift banks D) credit unions E) merchant banks Answer: B Explanation: B) Retail banks are banks that provide financial services to consumers. Retail banks service consumers with checking and savings accounts, debit and credit cards, and loans for homes, cars, and other major purchases.

Page Ref: 466 Difficulty: Easy Chapter LO: 2 Course LO: Explain how economic performance is monitored Classification: Concept 46) Loather Bank is a commercial bank in Italy. The bank offers financial services to individuals in Italy. The major products of the bank include personal loans, savings accounts, credit cards, and debit cards. Loather Bank is a(n) ________.

A) investment bank B) retail bank C) thrift bank D) credit union E) merchant bank Answer: B Explanation: B) Retail banks are banks that provide financial services to consumers. Retail banks service consumers with checking and savings accounts, debit and credit cards, and loans for homes, cars, and other major purchases. Loather Bank is a retail bank.

Page Ref: 466 Difficulty: Difficult AACSB: Analytic Skills Chapter LO: 2 Course LO: Explain how economic performance is monitored Classification: Application

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

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

Page Ref: 467 Difficulty: Easy Chapter LO: 2 Course LO: Explain how economic performance is monitored Classification: Concept 48) Banking institutions that offer deposit accounts and focus on offering home mortgage loans are known as ________.

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

Page Ref: 467 Difficulty: Easy Chapter LO: 2 Course LO: Explain how economic performance is monitored Classification: Concept

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49) Rhombus bank is a bank that focuses on home mortgages. The bank has 283 offices and has issued more than 0.1 million home loans to people with different income levels. The bank also accepts deposits to generate money for providing home loans. Rhombus bank is best referred to as a(n) ________.

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

Page Ref: 467 Difficulty: Difficult AACSB: Analytic Skills Chapter LO: 2 Course LO: Explain how economic performance is monitored Classification: Application 50) ________ are not-for-profit, member-owned cooperatives that offer deposit accounts and lending services to consumers and small businesses.

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

Page Ref: 467 Difficulty: Easy Chapter LO: 2 Course LO: Explain how economic performance is monitored Classification: Concept

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51) EBL is a financial institution headquartered in Rochester, New York. Membership in EBL is open to residents of Rochester and is financed by the members themselves. EBL accepts deposits from its members and provides loans to its members. EBL provides a low-cost finance option to the residents of Rochester. EBL is a ________.

A) loan association B) retail bank C) credit union D) thrift bank E) merchant bank Answer: C Explanation: C) Credit unions are not-for-profit, member-owned cooperatives that offer deposit accounts and lending services to consumers and small businesses.

Page Ref: 467 Difficulty: Difficult AACSB: Analytic Skills Chapter LO: 2 Course LO: Explain how economic performance is monitored Classification: Application 52) ________ banking refers to a range of banking services for high-net-worth individuals and families, such as managing real estate and other investments.

A) Investment B) Retail C) Thrift D) Private E) Merchant Answer: D Explanation: D) Private banking is a range of banking services for high-net-worth (that is, wealthy) individuals and families, such as managing real estate and other investments, setting up trust funds, and planning philanthropic giving.

Page Ref: 467 Difficulty: Easy Chapter LO: 2 Course LO: Explain how economic performance is monitored Classification: Concept

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53) DBS bank has formed a special department to attract investments from wealthy individuals.

The new department aims to obtain accounts that maintain a minimum balance of $20,000 or more. It also aims to offer premium credit cards and asset management services to such individuals. This is an example of ________.

A) investment banking B) retail banking C) thrift banking D) merchant banking E) private banking Answer: E Explanation: E) Private banking is a range of banking services for high-net-worth (that is, wealthy) individuals and families, such as managing real estate and other investments, setting up trust funds, and planning philanthropic giving. The new department is engaged in private banking.

Page Ref: 467 Difficulty: Difficult AACSB: Analytic Skills Chapter LO: 2 Course LO: Explain how economic performance is monitored Classification: Application 54) ________ banks offer a variety of services related to initial public stock offerings, mergers and acquisitions.

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

Page Ref: 467 Difficulty: Easy Chapter LO: 2 Course LO: Explain how economic performance is monitored Classification: Concept

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55) Which of the following is a service that is typically offered by investment banks?

A) current accounts B) personal loans C) stock offerings D) home loans E) collateralized loans Answer: C Explanation: C) Investment banks offer a variety of services related to initial public stock offerings, mergers and acquisitions, and other investment matters.

Page Ref: 467 Difficulty: Moderate Chapter LO: 2 Course LO: Explain how economic performance is monitored Classification: Concept 56) Jackson Group, Inc. is an American multinational banking firm. It offers such services as stock market brokerage, underwriting, and initial public offering. Jackson Group is an example of a(n) ________.

A) merchant bank B) credit union C) thrift bank D) private bank E) investment bank Answer: E Explanation: E) Investment banks offer a variety of services related to initial public stock offerings, mergers and acquisitions, and other investment matters. Jackson Group, Inc. is an investment bank.

Page Ref: 467 Difficulty: Difficult AACSB: Analytic Skills Chapter LO: 2 Course LO: Explain how economic performance is monitored Classification: Application

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57) ________ are non-bank companies that initiate loans on behalf of a mortgage lender in exchange for a fee.

A) Mortgage brokers B) Credit unions C) Thrifts D) Loan associations E) Independent mortgage companies Answer: A Explanation: A) Mortgage brokers are non-bank companies that initiate loans on behalf of a mortgage lender in exchange for a fee.

Page Ref: 467 Difficulty: Easy Chapter LO: 2 Course LO: Explain how economic performance is monitored Classification: Concept 58) Independent mortgage companies are non-bank companies that ________.

A) initiate loans on behalf of an investment bank B) use their own funds to offer mortgages C) use pooled funds to offer mortgages D) initiate loans on behalf of a mortgage lender E) offer opinions about the creditworthiness of borrowers Answer: B Explanation: B) Independent mortgage companies are non-bank companies that use their own funds to offer mortgages.

Page Ref: 467 Difficulty: Easy Chapter LO: 2 Course LO: Explain how economic performance is monitored Classification: Concept 59) ________ are non-bank companies that use their own funds to offer mortgages.

A) Mortgage agencies B) Mortgage brokers C) Credit unions D) Loan associations E) Independent mortgage companies Answer: E Explanation: E) Independent mortgage companies are non-bank companies that use their own funds to offer mortgages.

Page Ref: 467 Difficulty: Easy Chapter LO: 2 Course LO: Explain how economic performance is monitored Classification: Concept

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60) ________ are non-bank institutions that lend money to consumers and businesses for such purposes as cars, home improvements, and purchases.

A) Finance companies B) Mortgage brokers C) Thrifts D) Credit unions E) Loan associations Answer: A Explanation: A) Finance companies are non-bank institutions that lend money to consumers and businesses for cars and other vehicles, home improvements, expansion, purchases, and other purposes.

Page Ref: 468 Difficulty: Easy Chapter LO: 2 Course LO: Explain how economic performance is monitored Classification: Concept 61) Experian, TransUnion, and Equifax are the three major ________ in the United States.

A) credit rating agencies B) mortgage brokers C) investment bankers D) credit unions E) finance companies Answer: A Explanation: A) Credit rating agencies are companies that offer opinions about the creditworthiness of borrowers and of specific investments. Equifax, Experian, and TransUnion are the major agencies that rate consumer creditworthiness.

Page Ref: 468 Difficulty: Easy Chapter LO: 2 Course LO: Explain how economic performance is monitored Classification: Concept

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62) ________ is a market situation in which frenzied demand for an asset pushes the price of that asset far beyond its true economic value.

A) Liquidity crisis B) Bubble C) Default D) Asset crisis E) Credit freeze Answer: B Explanation: B) Bubble is a market situation in which frenzied demand for an asset pushes the price of that asset far beyond its true economic value.

Page Ref: 469 Difficulty: Easy Chapter LO: 3 Course LO: Explain how economic performance is monitored Classification: Concept 63) Labex Chemicals has invented a new vaccine for pneumonia in children. The vaccine is hyped to bring in huge profits for the firm. Because of this hype, the market value of Labex's shares increase by 300 percent. Many experts believe that this appreciation is much more than the likely benefits that the shareholders will receive. This situation exemplifies a(n) ________.

A) liquidity crisis B) bubble C) payment shock D) asset crisis E) credit freeze Answer: B Explanation: B) Bubble is a market situation in which frenzied demand for an asset pushes the price of that asset far beyond its true economic value. The given scenario describes a bubble.

Page Ref: 469 Difficulty: Difficult AACSB: Analytic Skills Chapter LO: 3 Course LO: Explain how economic performance is monitored Classification: Application

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64) The dot-com bubble occurred due to ________.

A) faulty securitization by investment bankers B) the lack of infrastructure to build web sites C) subprime lending by commercial bankers D) the rush among internet companies to go public E) reduced governmental spending in the technology sector Answer: D Explanation: D) The stock market had tumbled after the burst of the dot-com bubble of the late 1990s, in which waves of Internet companies rushed to go public to take advantage of the growing investor interest in Internet-related stocks.

Page Ref: 469 Difficulty: Moderate Chapter LO: 3 Course LO: Explain how economic performance is monitored Classification: Concept 65) Lower interest rates will ________.

A) tempt people buy cheaper homes B) lead to low prices of houses C) boost the housing market D) make the credit procedures stricter E) have an overall negative impact in the housing market Answer: C Explanation: C) Lower interest rates can heat up the housing market in several ways. First, lower rates mean lower monthly payments for a given loan amount, so more people can afford houses. Second, for the same monthly payment, people can afford bigger mortgages, which can spur them to move up to more expensive homes.

Page Ref: 469 Difficulty: Moderate Chapter LO: 3 Course LO: Explain how economic performance is monitored Classification: Concept

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66) Charles buys a house and waits till its value rises. He then resells the house to make a big profit. This act of making profit by reselling is referred to as ________.

A) credit swapping B) flipping C) defaulting D) foreclosing E) securitization Answer: B Explanation: B) Flipping refers to buying a house, making some quick fixes to raise its value or simply waiting for prices to rise, and reselling it for a big profit. Charles is engaging in flipping in the given case.

Page Ref: 470 Difficulty: Difficult AACSB: Analytic Skills Chapter LO: 3 Course LO: Explain how economic performance is monitored Classification: Application 67) You have purchased your first home for $100,000, and the mortgage lender tells you that you will need a down payment of $15,000 because it will only lend you 85% of the purchase price.

This percentage is known as the ________.

A) mortgage-ownership ratio B) loan-to-value C) prime mortgage ratio D) ownership criterion E) mortgage-to-price Answer: B Explanation: B) Loan-to-value (LTV) is the percentage of an asset's market value that a lender is willing to finance when offering a loan. The LTV is 85 percent in the given scenario.

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68) The LTV value of the home loans issued by a bank is 80 percent. This means that the ________.

A) borrowers must make a down payment of at least 20 percent B) loan is offered at a low interest rate C) loan is offered at prime rate to borrowers D) interest charged on the loan amount is 8 percent E) borrowers should provide a third-party guarantee for 80 percent of the loan amount Answer: A Explanation: A) Loan-to-value (LTV) is the amount of the loan relative to a house's assessed value. If the LTV is 80 percent, the bank wouldn't lend more than 80 percent of market value.

Borrowers have to come up with a 20 percent down payment.

Page Ref: 471 Difficulty: Moderate Chapter LO: 3 Course LO: Explain how economic performance is monitored Classification: Concept 69) In an adjustable rate mortgage, ________.

A) collateral is not accepted as security B) initial interest rates are very high C) amortization is always positive D) borrowers will have a low credit rating E) people can buy more house than they can afford Answer: E Explanation: E) Adjustable rate mortgages can appeal to home buyers because of teaser rates. It offers low introductory rates that, in addition to saving money on interest, can make it possible for some people to buy more house than they can really afford.

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70) A mortgage loan that has a variable interest rate over the life of the loan is known as a(n) ________ mortgage.

A) adjustable term B) secondary C) subprime D) prime E) adjustable rate Answer: E Explanation: E) Adjustable rate mortgage (ARM) is a mortgage that features variable interest rates over the life of the loan.

Page Ref: 471 Difficulty: Easy Chapter LO: 3 Course LO: Explain how economic performance is monitored Classification: Concept 71) ________ is a payment situation in which the balance owed on a loan increases over time rather than decreases.

A) Loan-to-value shock B) Subprime crisis C) Payment shock D) Negative amortization E) Loan depreciation Answer: D Explanation: D) Negative amortization is a payment situation in which the balance owed on a loan increases over time rather than decreases. It occurs when borrowers make monthly payments that didn't even cover the accruing interest on their mortgages.

Page Ref: 471 Difficulty: Easy Chapter LO: 3 Course LO: Explain how economic performance is monitored Classification: Concept 72) Prime mortgages refer to home loans that ________.

A) offer loan-to-value as high as 125 percent B) require high levels of documentation C) are offered at a very high interest rate D) lead to negative amortization E) are offered to the most creditworthy customers Answer: E Explanation: E) Prime mortgages are offered to people who have reliable incomes, sufficient assets, and good credit histories. Such loans are offered to the most creditworthy customers.

Page Ref: 472 Difficulty: Easy Chapter LO: 3 Course LO: Explain how economic performance is monitored Classification: Concept 27 .

73) Andrew has a low credit score and his home loan application was rejected by many banks.

However, RS bank offers a home loan to him with loan-to-value at 80 percent. This loan is an example of a(n) ________.

A) subprime mortgage B) high LTV loan C) option ARM D) zero LTV loan E) unsecured loan Answer: A Explanation: A) Subprime mortgages are home loans for borrowers with low credit scores. The loan offered to Andrew is a subprime mortgage.

Page Ref: 472 Difficulty: Difficult AACSB: Analytic Skills Chapter LO: 3 Course LO: Explain how economic performance is monitored Classification: Application 74) ________ is a situation in which borrowers stop making payments on a loan.

A) Liquidity crisis B) Bubble C) Foreclosure D) Default E) Securitization Answer: D Explanation: D) Default is a situation in which borrowers stop making payments on a loan.

Page Ref: 472 Difficulty: Easy Chapter LO: 3 Course LO: Explain how economic performance is monitored Classification: Concept 75) A(n) ________ is a licensed professional who is hired to give an independent assessment of a home's value.

A) value analyst B) appraiser C) broker D) thrift E) loan agent Answer: B Explanation: B) Appraisers are professionals hired to give an independent assessment of a home's value. Lenders and builders hire appraisers to assess the value of homes.

Page Ref: 473 Difficulty: Easy Chapter LO: 3 Course LO: Explain how economic performance is monitored Classification: Concept 28 .

76) In the secondary mortgage market, ________.

A) mortgage originators sell their loans to investors B) deposits are collected to fund mortgages C) non-banking companies issue prime loans D) stocks are traded to fund mortgages E) non-banking companies issue subprime loans Answer: A Explanation: A) In the secondary mortgage market, mortgage originators sell their loans to investors. The system has been in place since Fannie Mae's creation in the 1930s.

Page Ref: 474 Difficulty: Moderate Chapter LO: 4 Course LO: Explain how economic performance is monitored Classification: Concept 77) ________ is a process in which debts, such as mortgages, are pooled together and transformed into investments.

A) Stock splitting B) Collateralization C) Securitization D) Amortization E) Derivatization Answer: C Explanation: C) Securitization is a process in which debts, such as mortgages, are pooled together and transformed into investments. Securitization allows investors to buy shares of a given pool.

Page Ref: 474 Difficulty: Easy Chapter LO: 4 Course LO: Explain how economic performance is monitored Classification: Concept 78) Which of the following is an example of an asset-backed security?

A) a debenture issued by a reputed U.S. corporation B) a derivative based on auto loans C) a home loan issued by a bank D) equity share of a U.S. company E) a preference share issued by a U.S corporation Answer: B Explanation: B) Asset-backed securities are credit derivatives based on auto loans, credit card debts, and other loan assets. A derivative based on auto loans is an asset-backed security.

Page Ref: 474 Difficulty: Difficult AACSB: Analytic Skills Chapter LO: 4 Course LO: Explain how economic performance is monitored Classification: Application 29 .

79) ________ refers to a situation in which a lender takes possession of the collateralized home after the borrower defaults on his or her mortgage payments.

A) Liquidity crisis B) Foreclosure C) Securitization D) Credit freeze E) Negative amortization Answer: B Explanation: B) Foreclosures refer to situations in which lenders take possession of homes after borrowers default on their mortgage payments.

Page Ref: 476 Difficulty: Easy Chapter LO: 4 Course LO: Explain how economic performance is monitored Classification: Concept 80) ________ helped fuel the housing bubble by expanding the secondary market for subprime loans.

A) Collateralization B) Privatization C) Securitization D) Mortgaging E) Amortization Answer: C Explanation: C) Securitization helped fuel the housing bubble by making more money available for lending in general and by expanding the secondary market for subprime loans in particular.

Page Ref: 476 Difficulty: Moderate Chapter LO: 4 Course LO: Explain how economic performance is monitored Classification: Concept 81) The recession is 2007 was caused due to ________.

A) poor performance of the automobile sector B) a fall in imports to the United States C) an unstable housing market D) a fall in foreign direct investments E) the slow growth of manufacturing industries Answer: C Explanation: C) Through the fall of 2007, the unstable housing market remained a primary concern for business and political leaders alike. Property values and home sales continued to plummet despite governmental interventions and the country fell into a recession.

Page Ref: 477 Difficulty: Moderate Chapter LO: 5 Course LO: Explain how economic performance is monitored Classification: Concept 30 .

82) ________ refers to a severe shortage of cash during which companies can't get enough cash to meet their operating needs.

A) Liquidity crisis B) Credit swap C) Asset crisis D) Payment shock E) Credit default Answer: A Explanation: A) Liquidity crisis is a severe shortage of liquidity throughout a sector of the economy or the entire economy, during which companies can't get enough cash to meet their operating needs.

Page Ref: 478 Difficulty: Easy Chapter LO: 5 Course LO: Explain how economic performance is monitored Classification: Concept 83) The situation in which loans and other sources of funding become scarce is known as a(n) ________.

A) credit default B) asset crisis C) payment shock D) credit freeze E) liquidity crisis Answer: D Explanation: D) Credit freeze is a situation in which credit has become so scarce that it is virtually unavailable, at any cost, to most potential borrowers.

Page Ref: 478 Difficulty: Easy Chapter LO: 5 Course LO: Explain how economic performance is monitored Classification: Concept 84) The Dodd-Frank Act is a legislation aimed at ________.

A) promoting subprime mortgages B) reforming the banking industry C) outlawing financial insurances D) outlawing loan foreclosures E) establishing more credit agencies Answer: B Explanation: B) The Dodd-Frank Act is a legislation passed in 2010 aimed at reforming the banking industry and offering consumers greater protection.

Page Ref: 481 Difficulty: Easy Chapter LO: 6 Course LO: Explain how economic performance is monitored Classification: Concept 31 .

85) Which of the following statements is true of the Dodd-Frank Act legislation passed in 2010?

A) The Act was formed to reform the software industry.

B) The Act made it mandatory to bail out suffering banks.

C) The Act outlawed transferring risk on investments.

D) The Act called for closer scrutiny of the derivatives market.

E) The Act recommends short-term incentives to long-term incentives.

Answer: D Explanation: D) The Dodd-Frank Act is a legislation passed in 2010 aimed at reforming the banking industry and offering consumers greater protection. The Act requires closer scrutiny of the derivatives market and aims to provide more transparency and accountability in the markets for derivatives, hedge funds, and other financial products.

Page Ref: 481 Difficulty: Moderate Chapter LO: 6 Course LO: Explain how economic performance is monitored Classification: Concept 86) Compare and contrast federal funds rate and discount rate.

Answer: The federal funds rate is the rate that member banks charge each other to borrow money overnight from the funds they keep in the Federal Reserve accounts. Fed sets this rate indirectly by open-market operations. The Fed's other key interest rate (which it does set directly) is the discount rate, the rate that member banks pay when they borrow funds from the Fed. When the Fed changes the discount rate, each member bank generally changes its prime rate. The Fed changes federal funds rates indirectly, whereas it changes discount rates directly.

Page Ref: 464; 465 Difficulty: Difficult Chapter LO: 1 Course LO: Explain how economic performance is monitored Classification: Synthesis 87) Explain how changing reserves will affect the money supply.

Answer: All financial institutions must set aside reserves, sums of money equal to a certain percentage of their deposits. The Fed can change the reserve requirement, the percentage of deposits that banks must set aside, to influence the money supply. Raising the reserve requirement slows down the economy because banks have less money to lend; lowering it boosts the economy. However, the Fed rarely uses this technique, because it is costly to implement and a small change can have a drastic effect.

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88) Explain how selective credit controls can control stock market transactions.

Answer: The Fed can use selective credit controls to set the terms of credit for various kinds of loans. Using this method gives the Fed the power to set margin requirements, the percentage of the purchase price that an investor must pay in cash when purchasing a stock or a bond on margin. By altering margin requirements, the Fed is able to influence how much cash is tied up in stock market transactions.

Page Ref: 465 Difficulty: Moderate Chapter LO: 1 Course LO: Explain how economic performance is monitored Classification: Concept 89) Compare and contrast commercial banks and investment banks.

Answer: Commercial banks are financial institutions that, generally speaking, accept deposits, offer various types of checking and savings accounts, and provide loans. The terminology can be confusing because some of these institutions don't call themselves banks, and some people use the term commercial bank to refer to banks that serve businesses only, not consumers.

Investment banks offer a variety of services related to initial public stock offerings, mergers and acquisitions, and other investment matters. For example, the underwriting function for a company going public is performed by investment banks. Investment banks are typically active investors of their own funds as well.

Page Ref: 466; 467 Difficulty: Difficult AACSB: Reflective Thinking Skills Chapter LO: 2 Course LO: Explain how economic performance is monitored Classification: Synthesis 90) Compare and contrast retail banks and merchant banks.

Answer: Retail banks service consumers with checking and savings accounts, debit and credit cards, and loans for homes, cars, and other major purchases. Merchant banks offer financial services to businesses, particularly in the area of international finance. Merchant banking is sometimes more narrowly defined as managing private equity investments, making it more akin to investment banking.

Page Ref: 466; 467 Difficulty: Difficult AACSB: Reflective Thinking Skills Chapter LO: 2 Course LO: Explain how economic performance is monitored Classification: Synthesis

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91) Compare and contrast thrift banks and credit unions.

Answer: Thrift banks, also called thrifts, or savings and loan associations, offer deposit accounts and focus on offering home mortgage loans. Credit unions are not-for-profit, member-owned cooperatives that offer deposit accounts and lending services to consumers and small businesses.

Note that thrifts and credit unions do not refer to themselves as banks, but the broad definition of banking distinguishes them from investment banks.

Page Ref: 467 Difficulty: Difficult AACSB: Reflective Thinking Skills Chapter LO: 2 Course LO: Explain how economic performance is monitored Classification: Synthesis 92) Compare and contrast independent mortgage companies and mortgage brokers.

Answer: Independent mortgage companies are non-bank companies that use their own funds to offer mortgages. Mortgage brokers are non-bank companies that initiate loans on behalf of a mortgage lender in exchange for a fee.

Page Ref: 467 Difficulty: Difficult AACSB: Reflective Thinking Skills Chapter LO: 2 Course LO: Explain how economic performance is monitored Classification: Synthesis 93) Discuss the different ways in which lowering mortgage interest rates can heat up the housing market.

Answer: Lower interest rates mean lower monthly payments, and this means that people with lower incomes can now qualify for a loan and buy a home for the first time. Second, lower interest rates enable people to purchase more expensive homes, so those with existing homes can "buy up" and purchase newer or more expensive homes. Third, lower interest rates, coupled with easier access to credit, encourages people to buy homes not simply as residences but also as investments (to rent to others) and opportunities to renovate and resell them for a large profit (flipping).

Page Ref: 469 Difficulty: Moderate Chapter LO: 3 Course LO: Explain how economic performance is monitored Classification: Concept 94) What is a bubble?

Answer: A bubble is a market situation in which frenzied demand for an asset pushes the price of that asset far beyond its true economic value.

Page Ref: 469 Difficulty: Easy Chapter LO: 3 Course LO: Explain how economic performance is monitored Classification: Concept 34 .

95) Many borrowers have suffered financially as a result of adjustable rate mortgages and option ARM's. Some borrowers purchased homes based on low introductory rates and then suffered payment shock when interest rates increased and so did their monthly payments. Option ARM's allowed borrowers to make payments that did not even cover accruing interest on the mortgage, resulting in negative amortization in some cases. Should the federal government regulate adjustable rate mortgages and option ARM's? Why or why not? Support your reasoning.

Answer: Students should present their view in this case. Student answers will vary due to the nature of this question.

Page Ref: 471 Difficulty: Difficult AACSB: Ethical Understanding and Reasoning Abilities Chapter LO: 3 Course LO: Explain how economic performance is monitored Classification: Synthesis 96) Subprime mortgages can help the poor build their own houses. Critically analyze this statement.

Answer: Subprime mortgages are home loans for borrowers with low credit scores. Subprime mortgages had been in limited use for decades as a means to accommodate borrowers with blemished credit histories, but when the housing boom took off, so did subprime lending. It was a major liquidity crisis that triggered in the late 2000s. Subprime mortgages may not be a solution to uplift the poor. Student answers will vary due to the nature of this question.

Page Ref: 472 Difficulty: Difficult AACSB: Reflective Thinking Skills Chapter LO: 3 Course LO: Explain how economic performance is monitored Classification: Synthesis 97) Describe how MBS issuers tranch an MBS into multiple layers.

Answer: To offer a range of bonds to satisfy various needs of investors, MBS issuers can slice, or tranch, the MBS into multiple layers, each offering bonds of different credit ratings and interest rates. All tranches might contain risky debt, including option ARMs, no-documentation loans, and subprimes. However, the tranches at the top of the "container" are the first to receive cash as monthly mortgage payments come in. Because these tranches are paid first, the risk of their defaulting is lower and, as a result, credit rating agencies give these tranches their highest quality ratings. Some risky mortgages will surely default, but the thinking is that there will always be enough money to at least pay off the mortgages in the upper tranches, hence the high credit rating the bonds at this level received.

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98) What are foreclosures? When do such situations occur?

Answer: Situations in which lenders take possession of homes after borrowers default on their mortgage payments are referred to as foreclosures. Foreclosures increase when defaulting increases. Defaulting will be more if a bank issues more subprime loans.

Page Ref: 476 Difficulty: Easy Chapter LO: 4 Course LO: Explain how economic performance is monitored Classification: Concept 99) Explain how the housing bubble collapsed in 2008 to lead to a financial crisis.

Answer: Through the fall of 2007, the unstable housing market remained a primary concern for business and political leaders alike. In September, the Fed pushed its funds rate down to 4.75 percent, the first decrease in more than four years, hoping to ease the pressure on mortgages and reinvigorate the economy. However, property values and home sales continued to plummet as the country fell into a recession so deep that many began to worry about a second Great Depression. In January 2008, Bank of America bought out Countrywide Financial, rescuing the nation's largest mortgage company - and one of the most aggressive forces behind the subprime boom. By May, Bear Stearns's subprime woes had pushed it to the edge of bankruptcy; it was rescued by JP Morgan Chase with financial help from the Treasury Department. In June, the FBI announced the arrest of more than 400 mortgage brokers, appraisers, and builders for fraudulent mortgage schemes. A month later, federal banking regulators shut down IndyMac Bank after customers, worried about the bank's collapse, withdrew more than $1 billion in a matter of days.

IndyMac's collapse was then the second-largest bank failure in U.S. history, but it would soon be pushed down to third place by a new all-time champion of banking failure.

Page Ref: 477 Difficulty: Moderate Chapter LO: 5 Course LO: Explain how economic performance is monitored Classification: Concept 100) Compare and contrast liquidity crisis and a credit freeze.

Answer: Liquidity crisis refers to a severe shortage of liquidity throughout a sector of the economy or the entire economy, during which companies can't get enough cash to meet their operating needs. Credit freeze is a situation in which credit has become so scarce that it is virtually unavailable, at any cost, to most potential borrowers. Credit freeze is more severe than the liquidity crisis and liquidity crisis would often lead to a credit freeze.

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