Final Exam Chapter 1 The U.S. Business Environment (Ch 01-16)

Final Exam (Ch 01-16) Chapter 1 The U.S. Business Environment Chapter 2 Business Ethics and Social Responsibility Chapter 3 Entrepreneurship, New Ventures, and Business Ownership Chapter 4 The Global Context of Business Chapter 5 Business Management Chapter 7 Operations Management and Quality Chapter 8 Employee Behavior and Motivation Chapter 9 Leadership and Decision Making Chapter 10 Human Resource Management and Labor Chapter 11 Marketing Processes and Consumer Behavior Chapter 12 Pricing, Distributing, and Promoting Products Chapter 14 The Role of Accountants and Accounting Information Chapter 16 Managing Finances Chapter 1 The U.S. Business Environment 25) Which environment is NOT an important dimension of a business organization's external environment? A) the political-legal environment B) the sociocultural environment C) the technological environment D) the corporate cultural environment E) the global business environment Answer: 26) What term denotes a nation's basis for allocating its resources among its citizens? A) capital structure B) economic system C) ownership processes D) distribution network E) national regulations Answer: 27) What is the process for converting government enterprises into individually owned firms known as? A) production allocation B) privatization C) entrepreneurship D) demand assessment E) profit maximization Answer: 28) What is the point at which the supply curve and the demand curve intersect on a graph? A) equilibrium price B) decision point C) surplus price D) perfect price E) parity point Answer: 29) What is the price at which the quantity of goods demanded and the quantity of goods supplied are equal? A) the going rate B) the margin rate C) the market price D) the optimum price E) the cost price Answer: 30) What occurs when the quantity demanded exceeds the quantity supplied? A) demand deficit B) surplus C) equilibrium point D) shortage E) supply schedule Answer: 31) Which of the following does NOT represent a degree of competition in a private enterprise system? A) oligopoly B) socialism C) monopoly D) perfect competition E) monopolistic competition Answer: 32) Which of the following exists when an industry or market has only one producer? A) competition B) oligopoly C) monopoly D) communism E) socialism Answer: 33) Which term refers to the pattern of short-term ups and downs in an economy? A) aggregate output B) business cycle C) standard of living D) balance of payments E) demand and supply schedule Answer: 34) Which term refers to the total quantity and quality of goods and services that people living in an economic system can purchase? A) business cycle B) demand and supply schedule C) standard of living D) aggregate output E) consumer price index Answer: Explanation:) The standard of living is the total quantity and quality of goods and services that people can purchase with the currency used in their economic system. Standard of living is determined by economic conditions such as inflation and purchasing power. Page Ref: 17 Difficulty: Easy Objective: 1.5 Learning Outcome: Explain how economic performance is monitored Skill: Concept 35) Which term refers to the total value of all goods and services produced within a given period by a national economy? A) standard of living B) aggregate output C) gross domestic product D) gross national produce E) purchasing power parity Answer: Explanation:) Gross domestic product is the total value of all goods and services produced within a given period by a national economy through domestic factors of production. Page Ref: 17 Difficulty: Easy Objective: 1.5 Learning Outcome: Explain how economic performance is monitored Skill: Concept 36) Which of the following measures indicates the prices of typical products purchased by American consumers living in urban areas? A) GDP per capita B) standard of living C) consumer price index D) purchasing power parity E) Big Mac index Answer: Explanation:) The consumer price index is a measure of the prices of typical products purchased by consumers living in urban areas. It is used as a comparative standard, to tell whether inflation or deflation is occurring, for example. Page Ref: 22 Difficulty: Easy Objective: 1.5 Learning Outcome: Explain how economic performance is monitored Skill: Concept 37) What does productivity measure? A) the total value of all goods and services produced by a national economy B) how much a system produces with the resources needed to produce it C) how much output is necessary to produce a certain level of demand D) the standard of living relative to purchasing power parity E) how much gross national product results from inputs of labor Answer: Explanation:) Productivity is a measure of economic growth that compares how much a system produces with the resources needed to produce it. Page Ref: 19 Difficulty: Easy Objective: 1.5 Learning Outcome: Explain how economic performance is monitored Skill: Concept 38) What is the economic condition characterized by widespread increased prices without increased purchasing power? A) unemployment B) inflation C) expansion D) deflation E) recession Answer: Explanation:) Inflation is the condition that occurs when widespread price increases are present throughout an economic system. This happens when the amount of money in the economy grows faster than the amount of products available to buy. Page Ref: 21-22 Difficulty: Easy Objective: 1.5 Learning Outcome: Explain how economic performance is monitored Skill: Concept 39) What is the condition in an economic system in which the amount of money available and the number of goods and services produced are growing at about the same rate? A) unemployment B) stability C) deflation D) inflation E) oversupply Answer: Explanation:) Economic stability happens when the amount of money available in an economic system and the quantity of goods and services produced in it are growing at about the same rate. When this occurs, there is neither inflation nor deflation. Page Ref: 23 Difficulty: Easy Objective: 1.5 Learning Outcome: Explain how economic performance is monitored Skill: Concept 40) What are profits? A) total money taken in by a corporation B) increases in income from year to year C) increases in a corporation's stock price D) revenue generated by goods and services E) difference between revenues and expenses Answer: E Explanation: E) Profits represent the difference between an organization's revenues and its expenses; profits are the goal of most businesses and allow people to open and expand businesses. Page Ref: 4 Difficulty: Moderate Objective: 1.1 Learning Outcome: Explain how economic performance is monitored Skill: Concept 41) A new U.S. company plans to introduce an inexpensive, high-quality line of shoes to the American market. It has found a manufacturer in another country that can produce the shoes at a low enough cost that they will still be cheaper than other brands of the same quality. Which of the following represents a potential ethical implication that the company should consider before beginning production? A) the country's existing labor laws and the factory working conditions B) the average exchange rate of the country's currency over a ten-year period C) the challenges of doing business in a country with a nonconvertible currency D) the energy demands of the manufacturer's facility E) the basic international business strategy it will use Answer: Explanation:) When choosing a country to outsource to, a company should not only consider the financial implications of offshoring, but also the ethical implications of conducting business in a country that may have very different laws and legal standards. Page Ref: 6 Difficulty: Moderate AACSB: Reflective thinking skills Objective: 1.1 Learning Outcome: Compare and contrast different economic systems Skill: Application 42) What marks the key difference between economic systems? A) the way they manage the factors of production B) the way they transport goods within their borders C) the way rules and regulations are legislated D) the way workers are relocated to different regions E) the way basic necessities are determined Answer: Explanation:) Economic systems manage the factors of production differently; management of these factors often revolves around the degree of government control of them. Page Ref: 7 Difficulty: Moderate Objective: 1.3 Learning Outcome: Compare and contrast different economic systems Skill: Concept 43) What does a planned economy rely on a centralized government to do? A) support free enterprise in every way possible B) allocate all or most factors of production C) encourage citizens to buy shares of stock in small companies D) keep its control activities to a minimum E) direct workers to start their own small businesses Answer: Explanation:) A centralized government controls all or most of the factors of production. Page Ref: 10 Difficulty: Moderate AACSB: Dynamics of the global economy Objective: 1.3 Learning Outcome: Compare and contrast different economic systems Skill: Concept 44) Which economic system emphasizes the private ownership of most factors of production? A) socialism B) communism C) capitalism D) Marxism E) federalism Answer: Explanation:) Capitalism makes use of the profit incentive for private ownership of the factors of production and encourages entrepreneurship by offering profits as an incentive. Page Ref: 10 Difficulty: Easy AACSB: Dynamics of the global economy Objective: 1.3 Learning Outcome: Compare and contrast different economic systems Skill: Concept 45) A city of 150,000 people has a large commercial sector bringing in businesses from the surrounding region. In 2005, there was 2.75 million square feet of commercial space available. Five years later, after a building boom, there was 5.5 million square feet of commercial space available. Which effect will most likely occur? A) The equilibrium price of commercial real estate will not be effected. B) The increase in the supply of commercial real estate will lead to a corresponding increase in its price. C) The price of commercial real estate will decrease, absent a dramatic increase in demand. D) The increase in the supply of commercial real estate will lead to an increase in resource prices. E) The increase in supply will cause a corresponding increase in demand. Answer: Explanation:) Since the supply of commercial real estate has dramatically increased, unless there was a dramatic increase in demand we would expect the price of commercial real estate to decrease. Page Ref: 12 Difficulty: Moderate AACSB: Reflective thinking skills Objective: 1.4 Learning Outcome: Discuss strategies for setting and adjusting prices Skill: Application 46) A new watch manufacturer would like to determine the market price of a new line of watches. How could the manufacturer most effectively determine the market price? A) Place several of the new watches on sale at a watch store and see which sells most quickly. B) Arrange to sell the watches in a number of diverse auctions. C) Set the price of one watch higher than another and see which sells the most quickly. D) Survey potential customers and retailers on what they think the price should be. E) Canvass executives from competing companies about what they think the price should be. Answer: Explanation:) Auctions are an effective way to determine market prices because consumers determine the selling price. Page Ref: 16 Difficulty: Moderate AACSB: Reflective thinking skills Objective: 1.4 Learning Outcome: Discuss strategies for setting and adjusting prices Skill: Application 47) A new feature on the the latest Acme smart phone has made it wildly popular. Which action should Acme take to maximize profits? A) Increase the supply of the smart phone. B) Decrease the supply of the smart phone. C) Reduce the price of the smart phone. D) Maintain the current supply until demand falls. E) Create a shortage of the smart phone. Answer: Explanation:) Acme will want to have more phones available when demand is high. Page Ref: 12 Difficulty: Moderate AACSB: Reflective thinking skills Objective: 1.4 Learning Outcome: Discuss strategies for setting and adjusting prices Skill: Application 48) Which of the following is NOT a likely reason why a small business in a free enterprise system should seek the ideal combination of price charged and quantity supplied? A) to maintain goodwill among customers B) to maximize profits C) to avoid surpluses and shortages D) to avoid government regulation E) to discourage competition Answer: Explanation:) A small business is unlikely to be a monopoly so how it sets its prices will not attract the attention of government regulators. Page Ref: 12 Difficulty: Moderate AACSB: Reflective thinking skills Objective: 1.4 Learning Outcome: Discuss strategies for setting and adjusting prices Skill: Application 49) In a small town of 3,000 people, the number of car washes has grown from two to five in the last two months. Which result will likely occur? A) The increase in supply will have no effect on the equilibrium price. B) The increase in supply will lead to a decrease in demand. C) The increase in supply will lead to a decrease in the equilibrium price. D) The increase in supply will lead to an increase in demand. E) The increase in supply will lead to an increase in equilibrium price. Answer: Explanation:) In general, greater availability of goods and services leads to a decrease in cost. Page Ref: 12 Difficulty: Moderate AACSB: Reflective thinking skills Objective: 1.4 Learning Outcome: Discuss strategies for setting and adjusting prices Skill: Application 50) Ernesto's Pizza is about to offer customers a new variety of a personal pizza. Which of the following actions by Ernesto's Pizza would most likely prevent a surplus or a shortage of the personal pizzas in its first week? A) limit the supply of the personal pizza B) lower demand for the personal pizza C) set the price of substitute goods D) estimate the market price of the personal pizza E) lower the price of the pizza throughout the week Answer: Explanation:) The market price occurs where there is neither a surplus nor a shortage of supply. Page Ref: 12 Difficulty: Moderate AACSB: Reflective thinking skills Objective: 1.4 Learning Outcome: Describe the major components of effective distribution Skill: Application 51) Which of the following is one of the elements required in private enterprise? A) adequate representation in the government B) freedom from foreign competition C) the opportunity for market leadership D) the right to ownership of property E) numerous regulatory agencies Answer: Explanation:) Necessary elements of capitalism include private property rights, freedom of choice, profits, and competition. Page Ref: 14 Difficulty: Moderate AACSB: Analytic skills Objective: 1.4 Learning Outcome: Compare and contrast different economic systems Skill: Application 52) In perfect competition, which of the following conditions must prevail? A) All firms must adhere to cost and pricing standards. B) The number of firms in the industry must be limited. C) A single firm is able to influence the price of its product. D) It is relatively difficult to enter the industry. E) All firms in a given industry must be small. Answer: E Explanation: E) In perfect competition, all firms in a given industry must be small, the number of firms in the industry must be large, and no single firm is powerful enough to influence the price of its product; therefore, prices are determined completely by supply and demand. Page Ref: 14 Difficulty: Moderate Objective: 1.4 Learning Outcome: Compare and contrast different economic systems Skill: Concept 53) How does monopolistic competition differ from perfect competition? A) There are more sellers in a market characterized by monopolistic competition. B) It is easier for sellers to enter a market or industry characterized by monopolistic competition. C) In a perfectly competitive market, products are more dissimilar. D) In a market characterized by monopolistic competition, individual firms have some control over price. E) In a perfectly competitive market, the size of the firms must be large. Answer: Explanation:) Individual firms have some control over price in monopolistic competition; in perfect competition price is determined by supply and demand. Page Ref: 14 Difficulty: Moderate AACSB: Analytic skills Objective: 1.4 Learning Outcome: Compare and contrast different economic systems Skill: Concept 54) Which of the following is characterized by having few sellers, similar prices among sellers, and difficult market entry? A) oligopoly B) pure competition C) monopoly D) monopolistic competition E) state socialism Answer: Explanation:) An oligopoly has few sellers. Because there is competition between those sellers, they will offer similar prices. Because those sellers will be large and well-established, it will be difficult for new companies to enter the market. Page Ref: 15 Difficulty: Moderate Objective: 1.4 Learning Outcome: Compare and contrast different economic systems Skill: Concept 55) In an oligopoly, when one firm reduces its prices, how do other sellers react? A) There is no reaction from other firms to change their prices. B) Other firms reduce their prices also, usually quite quickly. C) Other firms may reduce their prices, but usually gradually. D) Other firms are not usually aware that price has changed. E) There is a combined response from other firms to stabilize prices. Answer: Explanation:) Because there are few firms competing in an oligopoly, competition between firms tends to be close, and firms thus respond quickly to price reductions by one firm. Therefore, other firms will likely quickly reduce their prices as well. For example, when an airline announces new fare discounts, others adopt the same strategy. Page Ref: 15 Difficulty: Moderate AACSB: Analytic skills Objective: 1.4 Learning Outcome: Compare and contrast different economic systems Skill: Application 56) Which of the following is the most likely pricing approach for a monopoly? A) Charge customers whatever you please. B) Give customers a real bargain on price. C) Charge a price that will not cause consumer demand to drop. D) Undercut the prices of the competition. E) Give customers a fair price that cannot be matched by competitors. Answer: Explanation:) A monopoly happens when one firm dominates the market. The monopolizing firm does not have to factor competitors' prices when determining its own prices, so it only needs to charge a price that will not be so high that it causes demand to drop. Page Ref: 16 Difficulty: Moderate Objective: 1.4 Learning Outcome: Compare and contrast different economic systems Skill: Concept 57) What term do economists use for the pattern of short-term expansions and contractions in the economy? A) business cycle B) aggregate output C) standard of living D) consumer price index E) purchasing power parity Answer: Explanation:) Short-term ups and downs are referred to as the business cycle. Page Ref: 17 Difficulty: Easy Objective: 1.5 Learning Outcome: Compare and contrast different economic systems Skill: Concept 58) Which indicator refers to the total quantity of goods and services produced by an economic system during a given period? A) the business cycle B) aggregate output C) gross domestic product D) the consumer price index E) gross national product Answer: Explanation:) Aggregate output is the primary measure of growth in the business cycle. Page Ref: 17 Difficulty: Moderate Objective: 1.5 Learning Outcome: Explain how economic performance is monitored Skill: Concept 59) Azucks is a socially responsible American company engaged in the manufacture of sports shoes. The CEO cautions that there is a disadvantage associated with the company planning increased globalization of production. Which of the following is the most likely disadvantage he is referring to? A) Heavy job losses can ensue in the domestic market. B) Greater disparities in living standards will emerge. C) Trade barriers will be reduced between countries. D) Substantial job losses will occur in developing markets. E) Increased competition will emerge between companies. Answer: Explanation:) Developed countries usually have higher labor costs than developing countries so some companies will choose to outsource production to a developing country in order to lower costs. This results in the loss of jobs in the developed countries where the goods were originally produced. Page Ref: 19 Difficulty: Moderate AACSB: Reflective thinking skills Objective: 1.5 Learning Outcome: Compare and contrast different economic systems Skill: Application 60) A financial analyst has noticed a serious rise in inflation. What course of action might the financial analyst advise the government to take in order to reduce inflation? A) The government can lower taxes. B) The government can raise taxes. C) Encourage the government to increase spending. D) Encourage consumers to increase spending. E) Encourage the government to increase spending and lower taxes. Answer: Explanation:) Raising taxes encourages consumers to spend less, thereby curbing inflation. Page Ref: 21 Difficulty: Moderate AACSB: Reflective thinking skills Objective: 1.5 Learning Outcome: Compare and contrast different economic systems Skill: Application 61) Which course of action should the Federal Reserve take if it wishes to reduce inflation and curb consumer spending? A) The Federal Reserve should buy securities. B) The Federal Reserve should sell securities. C) The Federal Reserve should decrease the reserve requirement. D) The Federal Reserve should lower the discount rate. E) The Federal Reserve should sell securities and lower the discount rate. Answer: Explanation:) Selling securities reduces the money supply, thus curbing consumer spending and bringing prices down. Page Ref: 23 Difficulty: Moderate AACSB: Reflective thinking skills Objective: 1.5 Learning Outcome: Compare and contrast different economic systems Skill: Application 62) The Fed has opted to buy securities and lower the reserve requirement. What will most likely happen as a result of this course of action? A) The money supply will increase thereby stimulating the economy. B) The money supply will increase thereby reducing inflation. C) The money supply will increase thereby causing disinflation. D) The money supply will decrease thereby reducing the possibility of a recession. E) The money supply will decrease thereby reducing deflation. Answer: Explanation:) Buying securities and lowering the reserve requirement will increase the money supply, which in turn stimulates the economy. Page Ref: 23 Difficulty: Moderate AACSB: Reflective thinking skills Objective: 1.5 Learning Outcome: Compare and contrast different economic systems Skill: Application 63) If the Fed is concerned with a potential recession, what course of action should it take? A) Lower the reserve requirement and sell securities. B) Lower the discount rate and increase the reserve requirement. C) Sell securities and lower the discount rate. D) Buy securities and lower the discount rate. E) Buy securities and increase the reserve requirement. Answer: Explanation:) Buying securities and lowering the discount rate increases the money supply, which encourages spending. Page Ref: 23 Difficulty: Moderate AACSB: Reflective thinking skills Objective: 1.5 Learning Outcome: Compare and contrast different economic systems Skill: Application 64) The global business environment encompasses many international forces that influence the outcomes of companies doing business in foreign countries. Which of the following scenarios would best count as evidence of globalization? A) Diamonds mined in Country X are sold on the markets in Country Y. The proceeds are then used to fund a coup against the government in Country X. B) A natural disaster disables factories in Country X that produce computer chips for Company Y. Company Y reduces the number of employee shifts and raises the price of its products. C) Farmers in Country X have lost most of their wheat crops due to a drought. The market price for wheat triples and the government pays the farmers for a percentage of the lost wheat. D) Country X has almost mined all of its available natural energy sources. The government has been investing in alternative energy research for years and now an efficient synthetic energy source has been developed. E) Country X has raised the tax on oil products. As a result more people are taking public transportation and reducing unnecessary car travel. Answer: Explanation:) Globalization is the movement toward a more interconnected and interdependent world market. One consequence of this is that countries and companies become more reliant on each other and events in one part of the world can directly affect conditions in another part of the world. Page Ref: 6 Difficulty: Difficult AACSB: Reflective thinking skills Objective: 1.1 Learning Outcome: Compare and contrast different economic systems Skill: Application 65) The CEOs of Company A and B are investigating expansion into new markets, which will provide greater trade volume. Which scenario describes an economic environment that is most suitable for an importing- exporting opportunity? A) Country X invests primarily in its textile industry while Country Y focuses on producing high-yield crops. B) Company A is willing to provide parts used in the production of equipment by Company B in exchange for discounts on manufacturing equipment. C) The southern region of Country X over-produces a wide range of produce, while few crops can be efficiently grown in the northern region. D) Company A and Company B are exploring the possibility of a joint venture to provide goods to Country X. E) Country X is looking to invest in foreign markets and Country Y currently has a large trade deficit. Answer: Explanation:) The economic environment refers to relevant conditions, such as import and export opportunities, that exist in the economic system in which a company operates. In the above case, importing and exporting both refer to the movement of goods between different countries. Countries X and Y focus on a particular industry, which implies that these are areas in which they have an import-export opportunity. Page Ref: 6 Difficulty: Difficult AACSB: Reflective thinking skills Objective: 1.1 Learning Outcome: Compare and contrast different economic systems Skill: Application 66) Robert has established a start-up business manufacturing a range of outdoor wear for the leisure market. Which possible scenario would best show that Robert is positioning his business for the global business market? A) Robert launched a Web site for his business and hired two new employees to handle national and international shipping. B) Robert launched a Web site and filmed a commercial for television and recorded a radio version for local stations. C) Robert created a page for his business on a networking site and offered store coupons to his first 100 friends. D) Robert had his Web site translated into Korean in order to better serve the local Korean community. E) Robert took a full page ad out in the state's official tourism brochure. Answer: Explanation:) By creating a Web site, which can be viewed worldwide, and expanding his business to handle national and international shipping, Robert is actively engaging in market globalization. Page Ref: 6 Difficulty: Difficult AACSB: Reflective thinking skills Objective: 1.1 Learning Outcome: Compare and contrast different economic systems Skill: Application 67) What is a chief goal of an economic system? A) economic stability B) income equality C) money supply growth D) national debt reduction E) product innovation Answer: Explanation:) With stability, the amount of money available in an economic system and the quantity of goods and services produced in it are growing at about the same rate. Page Ref: 21 Difficulty: Moderate Objective: 1.5 Learning Outcome: Compare and contrast different economic systems Skill: Concept 68) Which of the following best describes economic stability? A) the measure of economic growth that compares how much a system produces with the resources needed to produce it B) a condition in an economic system in which the amount of money available and the number of goods and services produced are growing at about the same rate C) the economic condition in which a country's exports exceed its imports D) a relative equality between what the government owes its creditors and the revenue it gets from imports E) the economic value of all the products that a country exports minus the economic value of all the products it imports Answer: Explanation:) Economic stability is evident when the amount of money available and the number of goods and services produced are growing at about the same rate; inflation and unemployment, in particular, threaten economic stability. Page Ref: 21 Difficulty: Moderate AACSB: Analytic skills Objective: 1.5 Learning Outcome: Compare and contrast different economic systems Skill: Concept 69) Which of the following statements about inflation is true? A) The consumer price index is a good way of measuring inflation. B) Productivity decreases the purchasing power of consumer dollars. C) Inflation increases the purchasing power of consumer dollars. D) Localized price increases can cause inflation across the economic system. E) The amount of money tends to be distributed evenly during inflationary periods. Answer: Explanation:) The consumer price index is a good measurement of inflation; inflation occurs with widespread price increases. Page Ref: 22 Difficulty: Moderate Objective: 1.5 Learning Outcome: Explain how economic performance is monitored Skill: Concept 70) How would supply affect the aggregate output of an economy? A) Supply would decrease aggregate output. B) Increases in both would cause inflation. C) Aggregate output would grow with supply. D) Supply would have no direct effect on aggregate output. E) Aggregate output would increase the money supply. Answer: Explanation:) Supply is the amount of goods available, and aggregate output is the production of goods, so increased supply would increase aggregate output. Page Ref: 17 Difficulty: Moderate Objective: 1.4 Learning Outcome: Explain how economic performance is monitored Skill: Synthesis 71) Which of the following best describes what the consumer price index is used to indicate? A) the average wage rate for a given region B) the economic performance of key consumer product companies C) the changes in the cost of consumer products over time D) the percentage of consumers in the total population looking for work E) the number of price increases within a given period of time Answer: Explanation:) The consumer price index is a measure of the prices of typical products purchased by consumers living in urban areas. It is expressed as a percentage of prices as compared to a base period. Page Ref: 22 Difficulty: Moderate Objective: 1.5 Learning Outcome: Explain how economic performance is monitored Skill: Concept 72) Which of the following is a likely cause of increased prices for products, decreased purchasing power, and decreased profit margins? A) low unemployment B) stagnant wages C) declining living standards D) cyclical inflation E) limited credit Answer: Explanation:) Potential results of low unemployment include increased prices, decreased purchasing power, and decreased profits. Page Ref: 22 Difficulty: Difficult Objective: 1.5 Learning Outcome: Explain how economic performance is monitored Skill: Synthesis 73) What type of policy is made up of fiscal and monetary policy? A) trade B) employment C) stabilization D) tax E) foreign Answer: Explanation:) A stabilization policy is a government goal to smooth out fluctuations in output and unemployment and to even out prices. Page Ref: 23 Difficulty: Moderate Objective: 1.5 Learning Outcome: Compare and contrast different economic systems Skill: Concept 74) In the city of Westminster, Christmas trees are being sold for $25. At this price, buyers are able to satisfy their demand, though some trees remain unsold. What is the term used to describe this market condition? A) surplus B) stoppage C) shortage D) demand deficit E) equilibrium price Answer: Explanation:) A surplus is defined as a situation in which quantity supplied exceeds quantity demanded. Page Ref: 13 Difficulty: Moderate Objective: 1.4 Learning Outcome: Explain how economic performance is monitored Skill: Application 75) In the United States, milk is produced on thousands of farms, with no producer dominating the market. Producers sell milk at the going price and are unable to influence this price. Millions of gallons of milk are purchased every day. What type of competition is the market for milk? A) a monopoly B) an oligopoly C) perfect competition D) monopolistic competition E) a cooperative Answer: Explanation:) In perfect competition, there are many sellers who are not individually powerful enough to influence price. Page Ref: 14 Difficulty: Difficult Objective: 1.4 Learning Outcome: Compare and contrast different economic systems Skill: Application 76) Which of the following best gives the meaning of the term gross domestic product? A) total quantity of goods and services produced by an economic system B) total quantity of goods that a country's citizens can purchase with the currency used in their economic system C) conditions of the economic system in which an organization operates D) total value of all goods and services produced within a given period by a national economy through domestic factors of production E) indicators of available goods and services produced within a specific domestic market Answer: Explanation:) Gross domestic product (GDP) is the total value of all goods and services produced within a given period by a national economy through domestic factors of production; this figure does not include goods and services produced by domestic firms overseas. Page Ref: 17 Difficulty: Difficult Objective: 1.5 Learning Outcome: Explain how economic performance is monitored Skill: Concept 77) Which of the following best gives the meaning of the term business cycle? A) the conditions of the economic system in which an organization operates B) the total quantity and quality of goods and services that a country's citizens can purchase with the currency used in their economic system C) the measure of economic growth that compares how much a system produces with the resources needed to produce it D) the number of businesses started during a given time period E) the pattern of short-term ups and downs in an economy Answer: E Explanation: E) A business cycle is represented in the short-term ups and downs in the economy, as measured by prosperity, recession, and so on. Page Ref: 17 Difficulty: Moderate AACSB: Reflective thinking skills Objective: 1.5 Learning Outcome: Explain how economic performance is monitored Skill: Application 78) Which of the following best gives the meaning of the term gross national product? A) total quantity of goods and services produced by an economic system B) total quantity of goods and services produced within a given period by a national economy, not including foreign production C) total value of all goods and services produced within a given period by a national economy through domestic factors of production D) total value of all goods and services produced within a given period regardless of where the factors of production are located E) total value of all goods and services that are exported Answer: Explanation:) Gross national product includes even the value of goods and services produced by domestic companies abroad. Page Ref: 18 Difficulty: Moderate Objective: 1.5 Learning Outcome: Explain how economic performance is monitored Skill: Concept 79) Which of the following best describes nominal GDP? A) total quantity of goods and services produced by an economic system B) total value of all goods and services produced within a given period by a national economy through domestic factors of production measured in current dollars or with all components valued at current prices C) total value of all goods and services produced within a given period by a national economy regardless of where the factors of production are located D) total value of all goods and services produced within a given period by a national economy through domestic factors of production adjusted to account for changes in currency values and price changes E) total quantity of goods and services that are imported within a given period of time Answer: Explanation:) Nominal GDP is not adjusted to make up for inflation and/or changes in currency values. Page Ref: 18 Difficulty: Moderate Objective: 1.5 Learning Outcome: Explain how economic performance is monitored Skill: Concept 80) Which of the following would be included in the gross domestic product of Brazil? A) the profits earned by a U.S.-owned automobile plant in Brazil B) the profits earned by a Brazilian coffee company operating in the United States C) the profits earned by a Brazilian coffee company operating in Peru D) the profits earned by U.S. suppliers to Brazil operating in the United States E) the profits earned by Peruvian companies operating outside Brazil Answer: Explanation:) Gross domestic product refers to the value of goods and services produced in a given period domestically. Page Ref: 18 Difficulty: Difficult Objective: 1.5 Learning Outcome: Explain how economic performance is monitored Skill: Application 81) Honata Automobiles is a South Korean-owned company. Honata has factories in Indonesia and Brazil. Which of the following is/are affected by the production of Honata automobiles? A) Indonesia, Brazil, and South Korea's GDP B) Indonesia and Brazil's GDP C) South Korea's GDP D) Indonesia and Brazil's GNP E) Indonesia, Brazil, and South Korea's GNP Answer: Explanation:) GDP measures goods and services produced within a country regardless of where the companies are based. Page Ref: 18 Difficulty: Difficult AACSB: Reflective thinking skills Objective: 1.5 Learning Outcome: Explain how economic performance is monitored Skill: Application 82) Which of the following best describes purchasing power parity? A) total quantity of goods and services produced by an economic system B) total quantity of goods and services that can be purchased with one paycheck C) total quantity of goods and services that could have been purchased if one's pay rose in the same proportion as inflation D) the principle that exchange rates are set so that prices of similar products in different countries are about the same E) the principle that a market economy determines supply and demand for consumer products Answer: Explanation:) Purchasing power parity gives us a good idea of what people can actually buy with the financial resources allocated to them by their respective economic systems. Page Ref: 19 Difficulty: Difficult Objective: 1.5 Learning Outcome: Explain how economic performance is monitored Skill: Concept 83) Which is the best explanation for why standard of living only increases through productivity? A) The more goods that are available, the lower prices will be. B) More goods are available without having to come by additional resources. C) Productivity increases the money supply in an economy. D) Purchasing power increases when there is more consumer choice. E) Prices are determined by the standard of living. Answer: Explanation:) Productivity is the amount of goods that can be made using a given amount of resources. If it takes more resources to produce more goods, prices will not decrease as long as demand keeps pace. But if more goods can be made using the same resources, prices will go down and purchasing power will increase. Page Ref: 19 Difficulty: Difficult AACSB: Reflective thinking skills Objective: 1.5 Learning Outcome: Explain how economic performance is monitored Skill: Synthesis 84) Why would a government most likely be concerned about its country carrying a trade deficit? A) A trade deficit means that the country's productivity is low. B) A trade deficit means local companies do not have enough competition. C) A trade deficit ties up money that could be used for economic growth. D) A trade deficit decreases demand for goods overall. E) A trade deficit means that consumers do not have enough purchasing power. Answer: Explanation:) A trade deficit implies a carrying of debt; when there is a trade deficit imports are not paid for in full. Page Ref: 20-21 Difficulty: Moderate AACSB: Reflective thinking skills Objective: 1.5 Learning Outcome: Explain how economic performance is monitored Skill: Application 85) If, in the long run, international trade improves the standards of living in participating countries, why might some countries want to place trade barriers such as extra taxes on imported products? A) Imported products compete with domestic products and thus put pressure on local business. B) Imported products are usually not as good quality as domestically made products. C) Generating government revenue is often more economically valuable than free trade. D) This is necessary to keep a country's currency strong. E) International trade tends to lead to political tension. Answer: Explanation:) In the course of international trade, jobs are often initially lost in those industries in which a country does not have a comparative advantage. Trade barriers are used as a way to protect these industries from strenuous competition. Page Ref: 20 Difficulty: Difficult AACSB: Reflective thinking skills Objective: 1.5 Learning Outcome: Explain the benefits and challenges of engaging in international business Skill: Synthesis 86) Through various stimulus programs, the U.S. government injected money into the economy during the recession. What was the concern that this type of action would lead to? A) increased labor costs B) increased spending C) increased unemployment D) increased inflation E) increased trade imbalance Answer: Explanation:) Some experts feared that increasing the money supply might also lead to inflation. Page Ref: 23 Difficulty: Moderate Objective: 1.5 Learning Outcome: Explain how economic performance is monitored Skill: Application 87) The government is concerned that the economy is being stifled by low consumer spending. Which course of action should the Federal Reserve take if it wishes to improve the economy? A) The Federal Reserve should buy securities. B) The Federal Reserve should sell securities. C) The Federal Reserve should increase the reserve requirement. D) The Federal Reserve should increase the discount rate. E) The Federal Reserve should sell securities and lower the discount rate. Answer: Explanation:) Buying securities will increase the money supply, which will increase consumer spending, thereby improving the economy. Page Ref: 23 Difficulty: Difficult AACSB: Reflective thinking skills Objective: 1.5 Learning Outcome: Explain how economic performance is monitored Skill: Application Chapter 2 Business Ethics and Social Responsibility 27) What are beliefs about what is right and wrong or good and bad called? A) motivators B) rules C) cultures D) ethics E) laws Answer: Explanation:) Ethics are beliefs about what is right and wrong or good and bad in actions that affect others. Page Ref: 32 Difficulty: Easy AACSB: Ethical understanding and reasoning abilities Objective: 2.1 Learning Outcome: Discuss the roles of ethics and corporate responsibility in business Skill: Concept 28) Which of the following should be the first step in assessing ethical behavior in a certain situation? A) Seek the advice of managers. B) Make a judgment based on the outcome of the activity. C) Consider appropriate moral values. D) Collect facts related to the situation. E) Gather a range of opinions on the effectiveness of the policy. Answer: Explanation:) The first step in assessing ethical behavior is to gather the correct factual information. Page Ref: 35 Difficulty: Easy AACSB: Ethical understanding and reasoning abilities Objective: 2.1 Learning Outcome: Discuss the roles of ethics and corporate responsibility in business Skill: Concept 29) What is likely the single most effective step that a company can take to set ethical standards? A) Offer large cash awards for whistle-blowing. B) Suggest that employees take ethics training. C) Post ethical rules on bulletin boards. D) State that the workplace values diversity. E) Demonstrate support from top management. Answer: E Explanation: E) Perhaps the single most effective step a company can take in setting ethical standards is to demonstrate top management support of ethical standards. Page Ref: 36 Difficulty: Easy AACSB: Ethical understanding and reasoning abilities Objective: 2.1 Learning Outcome: Discuss the roles of ethics and corporate responsibility in business Skill: Concept 30) How do top managers best demonstrate a commitment to ethical business practices? A) by adopting written codes of ethics B) by reading employees' e-mails C) by decentralized decision-making practices D) by cooperating with other companies E) by monitoring employees' Web searches Answer: Explanation:) A common approach to formalizing top management commitment to ethical business practices is the adoption of a written code of ethics. Page Ref: 36 Difficulty: Easy AACSB: Ethical understanding and reasoning abilities Objective: 2.1 Learning Outcome: Discuss the roles of ethics and corporate responsibility in business Skill: Concept 31) Which statement about codes of ethics is FALSE? A) Fewer and fewer companies are adopting codes of ethics. B) Codes of ethics are determined by company managers. C) Some ethical responses can be learned through experience. D) Social responsibility involves providing quality products and pricing products fairly. E) Core principles and values should remain a constant characteristic of a company. Answer: Explanation:) The number of companies adopting an ethical code has risen sharply in the last thirty years. Page Ref: 37 Difficulty: Easy AACSB: Ethical understanding and reasoning abilities Objective: 2.1 Learning Outcome: Discuss the roles of ethics and corporate responsibility in business Skill: Application 32) Which of the following statements is most likely to be included in a company's code of ethics? A) We reward high achievers. B) We strive for domination in the market. C) We achieve our objective by raising capital. D) We believe in our company brand. E) We reward all valuable contributions. Answer: E Explanation: E) This statement reflects a strong corporate value and a high ethical standard. Page Ref: 37-38 Difficulty: Easy AACSB: Ethical understanding and reasoning abilities Objective: 2.1 Learning Outcome: Discuss the roles of ethics and corporate responsibility in business Skill: Application 33) What term refers to the way in which a business tries to balance its commitments to groups and individuals in its social environment? A) business ethics B) socialization C) stakeholder consciousness D) social responsibility E) corporatization Answer: Explanation:) Social responsibility refers to the way in which a business tries to work responsibly within its social environment by benefiting all stakeholders. Page Ref: 38 Difficulty: Easy AACSB: Ethical understanding and reasoning abilities Objective: 2.2 Learning Outcome: Discuss the roles of ethics and corporate responsibility in business Skill: Concept 34) How often should an organization change its objectives? A) constantly B) infrequently C) every year D) every decade E) never Answer: Explanation:) The objectives of a business should change only occasionally. Page Ref: 38 Difficulty: Easy AACSB: Ethical understanding and reasoning abilities Objective: 2.2 Learning Outcome: Discuss the factors that influence decisions about organizational structure Skill: Concept 35) What is the term given to the groups, individuals, and organizations that are directly affected by the practices of an organization? A) primary agents of interest B) social auditors C) senior managers D) organizational stakeholders E) local communities Answer: Explanation:) Organizational stakeholders are the groups, individuals, and organizations that are directly affected by the practices of an organization. Page Ref: 39 Difficulty: Easy AACSB: Ethical understanding and reasoning abilities Objective: 2.2 Learning Outcome: Discuss the factors that influence decisions about organizational structure Skill: Concept 36) Advertising for which of the following products is most likely to have ethical ramifications? A) swimwear B) sporting equipment C) decaffeinated beverages D) books E) alcohol Answer: E Explanation: E) Laws regulate the advertisement of such items as underwear, condoms, alcohol, and firearms. Page Ref: 45 Difficulty: Easy AACSB: Ethical understanding and reasoning abilities Objective: 2.3 Learning Outcome: Discuss the roles of ethics and corporate responsibility in business Skill: Application 37) What must every corporation do in maintaining and reporting its financial status? A) purchase stocks on margin B) use creative accounting practices C) support increased stock prices D) aim to maximize predicted profit margins E) conform to generally accepted accounting principles Answer: E Explanation: E) Every corporation must conform to generally accepted accounting practices. This ensures that all corporations are held to the same standards for assessing their financial information. Page Ref: 47 Difficulty: Easy AACSB: Ethical understanding and reasoning abilities Objective: 2.3 Learning Outcome: Identify the basic concepts of and tools used for business accounting Skill: Concept 38) Which of the following occurs when someone uses confidential information to gain from the purchase or sale of stocks? A) identity theft B) a margin purchase C) insider trading D) collusion E) a guarantee Answer: Explanation:) Insider trading is the illegal practice of using special knowledge about a firm for profit or gain. Page Ref: 47 Difficulty: Easy AACSB: Ethical understanding and reasoning abilities Objective: 2.3 Learning Outcome: Identify the basic concepts of and tools used for business accounting Skill: Concept 39) What does the Sarbanes-Oxley Act of 2002 require a chief financial officer to do? A) prevent insider trading B) engage in strategic management C) guarantee the accuracy of financial reporting D) hire a forensic accountant E) oversee the implementation of ethical standards Answer: Explanation:) The Sarbanes-Oxley Act of 2002 requires that the chief financial officer personally guarantee the accuracy of financial reporting. Page Ref: 47 Difficulty: Easy AACSB: Ethical understanding and reasoning abilities Objective: 2.4 Learning Outcome: Identify the basic concepts of and tools used for business accounting Skill: Concept 40) If a firm hides responsibility for wrongdoing, what type of stance are they taking toward social responsibility? A) responsible B) obstructionist C) accommodative D) proactive E) moderate Answer: Explanation:) An obstructionist stance toward social responsibility means a company will do as little as possible to solve social or environmental problems. Page Ref: 48 Difficulty: Easy AACSB: Ethical understanding and reasoning abilities Objective: 2.4 Learning Outcome: Discuss the roles of ethics and corporate responsibility in business Skill: Concept 41) Which of the following is a way to tell how an organization is doing in meeting its social responsibility goals? A) governmental mandate B) executive summary C) social audit D) government initiative E) financial report Answer: Explanation:) A social audit is a systematic analysis of an organization's success in using funds earmarked for its social responsibility goals. Page Ref: 50 Difficulty: Moderate AACSB: Ethical understanding and reasoning abilities Objective: 2.4 Learning Outcome: Discuss the roles of ethics and corporate responsibility in business Skill: Concept 42) What is the term for an activity that may benefit the individual to the detriment of his or her employer? A) agency dispute B) leadership challenge C) conflict of interest D) proactive stance E) ethical standard Answer: Explanation:) For example, many companies have policies that forbid buyers from accepting gifts from suppliers since such gifts might be construed as a bribe or an attempt to induce favoritism. Page Ref: 34 Difficulty: Moderate AACSB: Ethical understanding and reasoning abilities Objective: 2.1 Learning Outcome: Discuss the roles of ethics and corporate responsibility in business Skill: Concept 43) Which of the following would NOT be included among the primary agents of interest with regard to a company's ethical behavior? A) stockholders B) unions C) bloggers D) customers E) competitors Answer: Explanation:) Primary agents of interest include customers, competitors, stockholders, suppliers, unions, and dealers. A business and its employees must consider ethical behaviors in its relationship with these groups. Page Ref: 34 Difficulty: Moderate AACSB: Ethical understanding and reasoning abilities Objective: 2.1 Learning Outcome: Discuss the factors that influence decisions about organizational structure Skill: Concept 44) Which ethical norm considers whether a particular act optimizes the benefits to those who are affected by it? A) utility B) rights C) justice D) caring E) respect Answer: Explanation:) The ethical norm of utility considers whether a particular act optimizes the benefits to those who are affected. Page Ref: 36 Difficulty: Moderate AACSB: Ethical understanding and reasoning abilities Objective: 2.1 Learning Outcome: Discuss the roles of ethics and corporate responsibility in business Skill: Concept 45) Which of the following is the best description of organizational stakeholders? A) competitors B) government regulators C) the officers and key employees of an organization D) individuals and businesses that own stock in a company E) individuals and groups that are directly affected by the practices of a company Answer: E Explanation: E) Individuals and groups that are directly affected by the practices of an organization are considered to have a "stake" in the company's performance. Page Ref: 39 Difficulty: Moderate AACSB: Ethical understanding and reasoning abilities Objective: 2.2 Learning Outcome: Discuss the factors that influence decisions about organizational structure Skill: Application 46) The CEO of Perry's Pizzeria, a rapidly growing restaurant chain, is committed to a high level of corporate social responsibility along with continued business success. Which action by the CEO would most enhance the company's reputation for social responsibility? A) using more nutritious, but more expensive, ingredients B) cutting employees' wages and benefits to boost the company's stock price C) using marketing or advertising methods that would allow the company to discreetly reduce pizza size without also reducing the price D) packaging products in material that costs less, even if customers object to the change E) taking steps that would cause competitors to close their doors Answer: Explanation:) Although Perry's Pizzeria has a responsibility to make the best business decisions for its stakeholders (i.e., bring in a high profit for investors), being socially responsible requires making the best decision for the community as well. Purchasing nutritious ingredients that are expensive would benefit the company's reputation for social responsibility. Its effect on investor profits would also be an issue of contention for the company's CEO. Page Ref: 40 Difficulty: Moderate AACSB: Reflective thinking skills Objective: 2.2 Learning Outcome: Discuss the roles of ethics and corporate responsibility in business Skill: Application 47) Dara's Dress Shop was honored last year for its strong commitment to corporate social responsibility. Which of the following would MOST likely decrease the shop's chances of being recognized again this year? A) The shop has laid off two employees during the past six months. B) Fewer clearance sales have been offered to the public this year. C) An experienced ethics professional has been added to the Board of Directors. D) Many of the dresses are made from fabrics spun by unprotected child laborers. E) The shop has reduced its line of designer merchandise. Answer: Explanation:) A socially responsible company makes decisions in the area of human rights and employment standards in the workplace. Using unprotected child laborers for production goes against this tenet. Page Ref: 41 Difficulty: Moderate AACSB: Reflective thinking skills Objective: 2.2 Learning Outcome: Discuss the roles of ethics and corporate responsibility in business Skill: Application 48) What role does accountability play in business life? A) It encourages businesses to strive for increased revenue. B) It fosters laissez-faire attitudes to economic growth. C) It protects and enhances the general welfare of society. D) It restricts health warnings on harmful products. E) It helps to maximize profits for shareholders. Answer: Explanation:) New laws that dictate an expanded role for business in protecting and enhancing the general welfare of society have improved business accountability. Page Ref: 41 Difficulty: Moderate AACSB: Ethical understanding and reasoning abilities Objective: 2.1 Learning Outcome: Discuss the roles of ethics and corporate responsibility in business Skill: Concept 49) Jana and Kate are the owners of an upscale jewelry boutique that offers unique and much desired accessories in an affluent neighborhood. Jana and Kate are concerned, however, that the company's commitment to social responsibility has begun to diminish in various respects. How would this MOST likely be evident? A) Other local businesses may be forced to close their doors. B) The health of employees and their children is starting to suffer. C) Local investors and stakeholders seek to invest their money elsewhere. D) The boutique's customer base may decrease sharply due to moderate increases in price. E) Employees may begin making fewer charitable personal donations. Answer: Explanation:) If this trend is seen across the board for the company's employees, it likely indicates that working conditions for them are not good, or that they have insufficient health benefits with their job. Page Ref: 41 Difficulty: Moderate AACSB: Reflective thinking skills Objective: 2.2 Learning Outcome: Discuss the roles of ethics and corporate responsibility in business Skill: Synthesis 50) Jordan is a recent college graduate with a degree in computer programming. He has just begun his first full-time job and is excited to apply the skills that he worked so hard to acquire. Though he excelled as a student, Jordan is anxious about how successful he will be as an employee. When an opportunity unexpectedly presents itself to take credit for a brilliant software program that someone else wrote, Jordan does not resist and claims the program as his own. Which of the following statements must be true about Jordan's decision? A) It was made with careful thought. B) It does not reveal anything about his beliefs or character. C) It raises questions about his personal ethics. D) It will benefit him professionally. E) It will not benefit him professionally. Answer: Explanation:) Personal ethics are the guiding principles that help you make ethical decisions in your life. Jordan's decision to take credit for, and essentially steal, someone else's invention reflects questionable personal ethics. Page Ref: 41 Difficulty: Moderate Objective: 2.2 Learning Outcome: Discuss the roles of ethics and corporate responsibility in business Skill: Application 51) Jordan is a recent college graduate with a degree in computer programming. He has just begun his first full-time job and is excited to apply the skills that he worked so hard to acquire. Though he excelled as a student, Jordan is anxious about how successful he will be as an employee. When an opportunity unexpectedly presents itself to take credit for a brilliant software program that someone else wrote, Jordan does not resist and claims the program as his own. Which of the following would LEAST likely also happen along with Jordan's decision? A) Other recently hired employees who learn of Jordan's dishonesty are hesitant to report him because they think he is the boss's favorite new employee. B) After thinking deeply about his behavior, Jordan becomes better equipped to act ethically in the future. C) Without recognizing his behavior as unethical, Jordan steals office supplies and reports more hours on his time sheet than he has actually worked. D) The company's ethics committee agrees that employees should not be expected to tell the truth if honesty is not part of their personal ethics. E) An employee who reports Jordan's dishonesty consequently suffers from psychological and emotional stress. Answer: Explanation:) Personal ethics are the guiding principles that help you make ethical decisions in your life. A company with an ethics committee holds ethical behavior and good character as a priority, not something to be overlo