Solution Manual df
Foundations of Business 7th Edition
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by William M. Pride, All chapter 1 - 47
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,Chapter 1 df
End of Chapter Questions
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Quiz Yourselfdf
1. Scarcity implies that the allocation decision chosen by society can
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a) not make more of any one good. df df df df df df
b) always make more of any good. df df df df df
c) typically make more of one good but at the expense of making less
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of another. df df
d) always make more of all goods simultaneously. df df df df df df
Explanation: Scarcity implies that choices involve trade-
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offs.
AACSB: Reflective Thinking df df
Accessibility: Keyboard Navigation
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Blooms: Understand
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Difficulty: 02 Medium df df
Gradeable: automatic
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Learning Objective: 01-01
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Topic: Economics and Opportunity Cost
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2. A production possibilities frontier is a simple model of
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a) allocating scarce inputs to the production of alternative outputs.df df df df df df df df
a) price and production/consumption in a market.
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b) the cost of producing goods.df df df df
c) the number of inputs required to produce varying levels of output.
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d f Explanation: The production possibilities frontier shows the quantity of two goods
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df that can be produced. It implies that scarcity requires that choices be made as to
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df how to use resources.
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AACSB: Reflective Thinking df df
Accessibility: Keyboard Navigation
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Blooms: Understand
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Difficulty: 02 Medium df df
Gradeable: automatic
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Learning Objective: 01-01
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Topic: Modeling Opportunity Cost Using the Production Possibilities Frontier
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,3. The underlying reason that there are unattainable points on a production
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possibilities frontier is that there
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a. is government. df
b. are always choices that must be made. df df df df df df
c. are scarce resources within a fixed level of technology.
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d. is unemployment of resources. df df df
Explanation: The points outside the production possibilities frontier are unattainable.
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This means that currently available resources and technology are insufficient to
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produce amounts greater than those illustrated on the frontier. On a graph, everything
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beyond the frontier is unattainable.
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AACSB: Reflective Thinking df df
Accessibility: Keyboard Navigation
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Blooms: Remember
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Difficulty: 01 Easy df df
Gradeable: automatic
df df
Learning Objective: 01-01
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Topic: Modeling Opportunity Cost Using the Production Possibilities Frontier
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4. The underlying reason production possibilities frontiers are likely to be bowed
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out (rather than linear) is because
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a. choices have consequences. df df
b. there are always opportunity costs. df df df df
c. some resources and people can be better used producing one good
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rather than another.
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d. there is always some level of unemployment. df df df df df df
Explanation: If the production possibilities frontier is not a line but is bowed out
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away from the origin, then opportunity cost is increasing. The reason for this is that
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as we add more resources to the production of, for example, pizza, we are using
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fewer resources to produce soda. Compounding that problem, at each stage as we
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take the resources away from soda and put them into pizza, we are moving workers
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who are worse at pizza production and better at soda production than those moved in
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the previous stage. This means that the increase in pizza production is diminishing
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and the loss in soda production is increasing. An economist would call this an
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example of increasing opportunity cost. If the production possibilities frontier is a
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straight line that is not bowed out away from the origin, then opportunity cost is
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constant.
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AACSB: Knowledge Application df df
Accessibility: Keyboard Navigation
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Blooms: Remember
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Difficulty: 01 Easy df df
Gradeable: automatic
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Learning Objective: 01-02
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Topic: Attributes of the Production Possibilities Frontier
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, 5. Suppose you were modeling the impact of the introduction of computer
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automation into manufacturing on a production possibilities frontier (PPF) with two
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manufactured goods on their respective axes. It would be more likely that the result
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would be
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a) generalized growth with the PPF moving both up and to the right. df df df df df df df df df df df
b) specialized growth with the PPF moving both up and to the right. df df df df df df df df df df df
c) generalized growth with the PPF just moving up and not to the right. df df df df df df df df df df df df
d) specialized growth with the PPF just moving up and not to the right. df df df df df df df df df df df df
Explanation: Computer automation is a general improvement in technology so it
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would improve all manufacturing. As a result, it would result in generalized growth
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and move the PPF both up and to the right.
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AACSB: Knowledge Application
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Accessibility: Keyboard Navigation
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Blooms: Remember
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Difficulty: 01 Easy df df
Gradeable: automatic
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Learning Objective: 01-03
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Topic: Economic Growth
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6. The optimization assumption suggests that people make
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a. irrational decisions. df
b. unpredictable decisions. df
c. decisions to make themselves as well off as possible. df df df df df df df df
d. decisions without thinking very hard. df df df df
Explanation: The optimization assumption suggests that the person in question is
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trying to maximize some objective. Consumers are assumed to be making decisions
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that maximize their happiness subject to a scarce amount of money.
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AACSB: Reflective Thinking
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Accessibility: Keyboard Navigation
df df df
Blooms: Remember
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Difficulty: 01 Easy df df
Gradeable: automatic
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Learning Objective: 01-01
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Topic: Thinking Economically
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Foundations of Business 7th Edition
df df df df df
by William M. Pride, All chapter 1 - 47
df df df df df df df df df
,Chapter 1 df
End of Chapter Questions
df df df
Quiz Yourselfdf
1. Scarcity implies that the allocation decision chosen by society can
df df df df df df df df df
a) not make more of any one good. df df df df df df
b) always make more of any good. df df df df df
c) typically make more of one good but at the expense of making less
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of another. df df
d) always make more of all goods simultaneously. df df df df df df
Explanation: Scarcity implies that choices involve trade-
df df df df df df df
offs.
AACSB: Reflective Thinking df df
Accessibility: Keyboard Navigation
df df df
Blooms: Understand
df df
Difficulty: 02 Medium df df
Gradeable: automatic
df df
Learning Objective: 01-01
df df df
Topic: Economics and Opportunity Cost
df df df df
2. A production possibilities frontier is a simple model of
df df df df df df df df
a) allocating scarce inputs to the production of alternative outputs.df df df df df df df df
a) price and production/consumption in a market.
df df df df df
b) the cost of producing goods.df df df df
c) the number of inputs required to produce varying levels of output.
df df df df df df df df df df
d f Explanation: The production possibilities frontier shows the quantity of two goods
df df df df df df df df df df
df that can be produced. It implies that scarcity requires that choices be made as to
df df df df df df df df df df df df df df
df how to use resources.
df df df
AACSB: Reflective Thinking df df
Accessibility: Keyboard Navigation
df df df
Blooms: Understand
df df
Difficulty: 02 Medium df df
Gradeable: automatic
df df
Learning Objective: 01-01
df df df
Topic: Modeling Opportunity Cost Using the Production Possibilities Frontier
df df df df df df df df
,3. The underlying reason that there are unattainable points on a production
df df df df df df df df df df
possibilities frontier is that there
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a. is government. df
b. are always choices that must be made. df df df df df df
c. are scarce resources within a fixed level of technology.
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d. is unemployment of resources. df df df
Explanation: The points outside the production possibilities frontier are unattainable.
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This means that currently available resources and technology are insufficient to
df df df df df df df df df df df
produce amounts greater than those illustrated on the frontier. On a graph, everything
df df df df df df df df df df df df df
beyond the frontier is unattainable.
df df df df df
AACSB: Reflective Thinking df df
Accessibility: Keyboard Navigation
df df df
Blooms: Remember
df df
Difficulty: 01 Easy df df
Gradeable: automatic
df df
Learning Objective: 01-01
df df df
Topic: Modeling Opportunity Cost Using the Production Possibilities Frontier
df df df df df df df df
4. The underlying reason production possibilities frontiers are likely to be bowed
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out (rather than linear) is because
df df df df df df
a. choices have consequences. df df
b. there are always opportunity costs. df df df df
c. some resources and people can be better used producing one good
df df df df df df df df df df
rather than another.
df df df
d. there is always some level of unemployment. df df df df df df
Explanation: If the production possibilities frontier is not a line but is bowed out
df df df df df df df df df df df df df
away from the origin, then opportunity cost is increasing. The reason for this is that
df df df df df df df df df df df df df df df
as we add more resources to the production of, for example, pizza, we are using
df df df df df df df df df df df df df df df
fewer resources to produce soda. Compounding that problem, at each stage as we
df df df df df df df df df df df df df
take the resources away from soda and put them into pizza, we are moving workers
df df df df df df df df df df df df df df df
who are worse at pizza production and better at soda production than those moved in
df df df df df df df df df df df df df df df
the previous stage. This means that the increase in pizza production is diminishing
df df df df df df df df df df df df df
and the loss in soda production is increasing. An economist would call this an
df df df df df df df df df df df df df df
example of increasing opportunity cost. If the production possibilities frontier is a
df df df df df df df df df df df df
straight line that is not bowed out away from the origin, then opportunity cost is
df df df df df df df df df df df df df df df
constant.
df
AACSB: Knowledge Application df df
Accessibility: Keyboard Navigation
df df df
Blooms: Remember
df df
Difficulty: 01 Easy df df
Gradeable: automatic
df df
Learning Objective: 01-02
df df df
Topic: Attributes of the Production Possibilities Frontier
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, 5. Suppose you were modeling the impact of the introduction of computer
df df df df df df df df df df
automation into manufacturing on a production possibilities frontier (PPF) with two
df df df df df df df df df df df
manufactured goods on their respective axes. It would be more likely that the result
df df df df df df df df df df df df df df
would be
df df df .
a) generalized growth with the PPF moving both up and to the right. df df df df df df df df df df df
b) specialized growth with the PPF moving both up and to the right. df df df df df df df df df df df
c) generalized growth with the PPF just moving up and not to the right. df df df df df df df df df df df df
d) specialized growth with the PPF just moving up and not to the right. df df df df df df df df df df df df
Explanation: Computer automation is a general improvement in technology so it
df df df df df df df df df df df
would improve all manufacturing. As a result, it would result in generalized growth
df df df df df df df df df df df df df
and move the PPF both up and to the right.
df df df df df df df df df df
AACSB: Knowledge Application
df df
Accessibility: Keyboard Navigation
df df df
Blooms: Remember
df df
Difficulty: 01 Easy df df
Gradeable: automatic
df df
Learning Objective: 01-03
df df df
Topic: Economic Growth
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6. The optimization assumption suggests that people make
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a. irrational decisions. df
b. unpredictable decisions. df
c. decisions to make themselves as well off as possible. df df df df df df df df
d. decisions without thinking very hard. df df df df
Explanation: The optimization assumption suggests that the person in question is
df df df df df df df df df df
trying to maximize some objective. Consumers are assumed to be making decisions
df df df df df df df df df df df df
that maximize their happiness subject to a scarce amount of money.
df df df df df df df df df df df
AACSB: Reflective Thinking
df df
Accessibility: Keyboard Navigation
df df df
Blooms: Remember
df df
Difficulty: 01 Easy df df
Gradeable: automatic
df df
Learning Objective: 01-01
df df df
Topic: Thinking Economically
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