Multiple-choice Questions for Introduction to Business Management
3rd edition
SOLUTIONS
SUGGESTED SOLUTIONS TO THE QUESTIONS IN CHAPTER 1
The business world and business management
Question Option Reason
1 4 The task of business management relates to the economic principle,
namely to achieve the highest possible satisfaction of needs with
scarce resources. More specifically, it entails an examination of
factors, methods and principles that enable a business to function as
efficiently and productively as possible in order to maximise its profits.
2 4 The question concerns the definition of the economic principle.
The economic principle can be broadly defined as the achievement
of the highest possible satisfaction of needs by means of scarce
resources. In other words, it has to do with obtaining maximum output
from existing scarce inputs. Statement 4 is therefore correct. Defining
the economic principle in any other way would be wrong. This means
that the other statements in the question are wrong.
3 4 Since there is no economic advantage to working harder, socialistic
systems provide no inherent incentive to participate.
Not more so than in state organisations. Typically health care and
education starts to become unproductive.
4
3 Society’s limited resources consist of natural resources, human
resources, capital and entrepreneurship. Capital is represented by the
buildings, machinery, cash registers, computers and other products
not used for final human consumption.
5 4 Public relations are seen as a functional area within a business.
The public relations function relates to the creation of a favourable
and objective image of the business. Public relations must promote
good relations and goodwill between the business and the external
groups and other businesses that are directly and indirectly involved
in the business.
6 3 In a free market system most products and services are supplied by
1
, private organisations and individuals seeking profits in return for the
productive investment and utilisation of their assets and capital.
Therefore the driving force behind entrepreneurs and their
businesses in a free market is profit. Therefore statement (a) is
correct.
In a command economy, individuals cannot own land,
factories and equipment as the state owns and controls the
community’s resources or factors of production. Therefore statement
(b) is incorrect.
Under both the free-market system and socialism the state
intervenes to help solve the economic problems and stabilise
economic fluctuations. Therefore statement c is correct.
Within the free-market economy, the economic environment is
unstable, and so statement (d) is also correct.
7 3 Option 1 is incorrect because only in a free-market economy are
farmers, factory owners, industrialists and individuals free to do what
they like with their assets.
Option 2 is incorrect. Socialism may be regarded as a compromise
between a pure market economy and a pure command economy.
Because the socialist system is a compromise, the state does not
own and control all the businesses, as in a command economy, but
only those undertakings which have strategic value, such as those
concerned with fuel or energy and mass transport. Less important
and smaller matters such as trade and construction, and the
production of materials and services of lesser strategic importance,
are left to private initiative.
Option 3 is correct because in a socialistic system the state does own
and control many of the country’s principle industries such as
transportation, health services and energy.
Option 4 is incorrect because minimum state interference in markets
is a characteristic of a free-market economy and not socialism.
8
3 The primary purpose in a free-market system is to make a profit
while satisfying the needs of the people. In an economy such as
South Africa, businesses can grow into industries with their own set of
rules and dynamics, all with the view of striving for the ultimate
business goal: making a profit.
9 2 Capital includes buildings, machinery, computers and cash registers
that are not for human consumption, but rather used for making
further production of final consumer products possible.
Capital products usually have a long working life. The cash register
and building are capital items.
2
,10 3 The only correct description befits option 3, as the boxes and ribbons
used by Nomsa are production factors and contribute towards the
final product. Production factors are basic inputs in the production of
products and services.
11 2 If there is more involvement from the state in a free market economy,
it does not indicate a move towards a command economy or centrally
controlled economy. An expanding entrepreneurial role by the state
does not eventually lead to a democracy. The only correct options are
(b) and (c).
12 1 The free-market economy functions on the following assumptions:
members of the community may possess assets and earn profits on
such assets; the allocation of resources is affected by the free
market; members of the community have the free choice of
Products, services and careers and the state has minimum
interference in the system.
13
4 Business involves production, in other words the transformation of
certain resources (such as water and ingredients used by SAB) into
products and services (such as beer and other alcoholic beverages).
14
Socialism can be seen as a compromise between a pure market
1 economy and a pure command economy
15 1 The economic principle refers to a business’s endeavour to keep its
input costs as low as possible. Option (b) is incorrect.
The highest possible amount of profit is what is sought after when
businesses apply the economic principle. Option (c) is incorrect.
Economic systems are tried and tested means of communities to
apply the economic principle. Option (d) is incorrect.
Self-realisation is a higher order need. Option (d) is incorrect.
16 1 Lower order needs need to be met first before self-esteem needs
will be satisfied. Option (a) is correct. Social needs such as love
and recognition need to be satisfied first before self-realisation
needs will be satisfied. Option (b) is correct.
Survival needs have to be met before security needs will be
satisfied. Option (c) is incorrect.
17
3 Statement a is linked to option (iii). The role of business with regards
to social responsibility includes, among other things, the provision of
a responsible and safe workplace, the provision of housing, concern
about health issues, involvement with community issues and
environmental awareness. FNB being involved in numerous
3
, community-based projects is therefore indicative of the businesses
social responsibility efforts.
Statement b is linked to option (v). Affirmative action is a way of
making the workplace more representative and fair.
Statement c is linked to option (i). Society has become more
concerned about environmental sustainability and puts pressure on
businesses to take the environment into consideration. For example,
because of pressure from the birding community, a study was
commissioned on the impact of the new King Shaka International
Airport on the nearby Mount Moreland barn swallow roosting site.
Statement d is linked to option (ii). Consumerism is a social force that
protects consumers against unsafe products and malpractice by
exerting moral and economic pressure on business. In South Africa,
the South African National Consumer Union acts as a watchdog for
consumers.
18 1 Concept (a) is paired with option (ii). Within a free-market profit and
reward is a driving force based on individual ability.
Concept (b) is paired with option (i). Within a command economy
there is generally very low productivity. Planning within this
economy is virtually impossible to achieve due to low productivity
levels.
Concept (c) is paired with option (iv). Employees are free to choose
their own employment and they have a limited right to strike within
government institutions.
19 3 Concept (a) is paired with option (iii). The marketing function of a
business includes assessment of the market and the needs of the
customers, as well as the development of a strategy to satisfy those
needs profitably.
Concept (b) is paired with option (v). The financial function within a
business includes activities that will ensure maximum profitability
without the danger of insolvency or liquidation.
Concept (c) is paired with option (i). The purchasing function within a
business is responsible for the acquisition of all products and
materials required by the business to function profitably.
These products and materials could include tools, equipment, raw
materials, inventory, etc.
Concept (d) is paired with option (iv). The production and operations
function deals with the establishment and layout of the production
unit, the conversion of raw materials and semi-finished products into
finished products, as well as the scheduling of services that are
produced for the market.
4
3rd edition
SOLUTIONS
SUGGESTED SOLUTIONS TO THE QUESTIONS IN CHAPTER 1
The business world and business management
Question Option Reason
1 4 The task of business management relates to the economic principle,
namely to achieve the highest possible satisfaction of needs with
scarce resources. More specifically, it entails an examination of
factors, methods and principles that enable a business to function as
efficiently and productively as possible in order to maximise its profits.
2 4 The question concerns the definition of the economic principle.
The economic principle can be broadly defined as the achievement
of the highest possible satisfaction of needs by means of scarce
resources. In other words, it has to do with obtaining maximum output
from existing scarce inputs. Statement 4 is therefore correct. Defining
the economic principle in any other way would be wrong. This means
that the other statements in the question are wrong.
3 4 Since there is no economic advantage to working harder, socialistic
systems provide no inherent incentive to participate.
Not more so than in state organisations. Typically health care and
education starts to become unproductive.
4
3 Society’s limited resources consist of natural resources, human
resources, capital and entrepreneurship. Capital is represented by the
buildings, machinery, cash registers, computers and other products
not used for final human consumption.
5 4 Public relations are seen as a functional area within a business.
The public relations function relates to the creation of a favourable
and objective image of the business. Public relations must promote
good relations and goodwill between the business and the external
groups and other businesses that are directly and indirectly involved
in the business.
6 3 In a free market system most products and services are supplied by
1
, private organisations and individuals seeking profits in return for the
productive investment and utilisation of their assets and capital.
Therefore the driving force behind entrepreneurs and their
businesses in a free market is profit. Therefore statement (a) is
correct.
In a command economy, individuals cannot own land,
factories and equipment as the state owns and controls the
community’s resources or factors of production. Therefore statement
(b) is incorrect.
Under both the free-market system and socialism the state
intervenes to help solve the economic problems and stabilise
economic fluctuations. Therefore statement c is correct.
Within the free-market economy, the economic environment is
unstable, and so statement (d) is also correct.
7 3 Option 1 is incorrect because only in a free-market economy are
farmers, factory owners, industrialists and individuals free to do what
they like with their assets.
Option 2 is incorrect. Socialism may be regarded as a compromise
between a pure market economy and a pure command economy.
Because the socialist system is a compromise, the state does not
own and control all the businesses, as in a command economy, but
only those undertakings which have strategic value, such as those
concerned with fuel or energy and mass transport. Less important
and smaller matters such as trade and construction, and the
production of materials and services of lesser strategic importance,
are left to private initiative.
Option 3 is correct because in a socialistic system the state does own
and control many of the country’s principle industries such as
transportation, health services and energy.
Option 4 is incorrect because minimum state interference in markets
is a characteristic of a free-market economy and not socialism.
8
3 The primary purpose in a free-market system is to make a profit
while satisfying the needs of the people. In an economy such as
South Africa, businesses can grow into industries with their own set of
rules and dynamics, all with the view of striving for the ultimate
business goal: making a profit.
9 2 Capital includes buildings, machinery, computers and cash registers
that are not for human consumption, but rather used for making
further production of final consumer products possible.
Capital products usually have a long working life. The cash register
and building are capital items.
2
,10 3 The only correct description befits option 3, as the boxes and ribbons
used by Nomsa are production factors and contribute towards the
final product. Production factors are basic inputs in the production of
products and services.
11 2 If there is more involvement from the state in a free market economy,
it does not indicate a move towards a command economy or centrally
controlled economy. An expanding entrepreneurial role by the state
does not eventually lead to a democracy. The only correct options are
(b) and (c).
12 1 The free-market economy functions on the following assumptions:
members of the community may possess assets and earn profits on
such assets; the allocation of resources is affected by the free
market; members of the community have the free choice of
Products, services and careers and the state has minimum
interference in the system.
13
4 Business involves production, in other words the transformation of
certain resources (such as water and ingredients used by SAB) into
products and services (such as beer and other alcoholic beverages).
14
Socialism can be seen as a compromise between a pure market
1 economy and a pure command economy
15 1 The economic principle refers to a business’s endeavour to keep its
input costs as low as possible. Option (b) is incorrect.
The highest possible amount of profit is what is sought after when
businesses apply the economic principle. Option (c) is incorrect.
Economic systems are tried and tested means of communities to
apply the economic principle. Option (d) is incorrect.
Self-realisation is a higher order need. Option (d) is incorrect.
16 1 Lower order needs need to be met first before self-esteem needs
will be satisfied. Option (a) is correct. Social needs such as love
and recognition need to be satisfied first before self-realisation
needs will be satisfied. Option (b) is correct.
Survival needs have to be met before security needs will be
satisfied. Option (c) is incorrect.
17
3 Statement a is linked to option (iii). The role of business with regards
to social responsibility includes, among other things, the provision of
a responsible and safe workplace, the provision of housing, concern
about health issues, involvement with community issues and
environmental awareness. FNB being involved in numerous
3
, community-based projects is therefore indicative of the businesses
social responsibility efforts.
Statement b is linked to option (v). Affirmative action is a way of
making the workplace more representative and fair.
Statement c is linked to option (i). Society has become more
concerned about environmental sustainability and puts pressure on
businesses to take the environment into consideration. For example,
because of pressure from the birding community, a study was
commissioned on the impact of the new King Shaka International
Airport on the nearby Mount Moreland barn swallow roosting site.
Statement d is linked to option (ii). Consumerism is a social force that
protects consumers against unsafe products and malpractice by
exerting moral and economic pressure on business. In South Africa,
the South African National Consumer Union acts as a watchdog for
consumers.
18 1 Concept (a) is paired with option (ii). Within a free-market profit and
reward is a driving force based on individual ability.
Concept (b) is paired with option (i). Within a command economy
there is generally very low productivity. Planning within this
economy is virtually impossible to achieve due to low productivity
levels.
Concept (c) is paired with option (iv). Employees are free to choose
their own employment and they have a limited right to strike within
government institutions.
19 3 Concept (a) is paired with option (iii). The marketing function of a
business includes assessment of the market and the needs of the
customers, as well as the development of a strategy to satisfy those
needs profitably.
Concept (b) is paired with option (v). The financial function within a
business includes activities that will ensure maximum profitability
without the danger of insolvency or liquidation.
Concept (c) is paired with option (i). The purchasing function within a
business is responsible for the acquisition of all products and
materials required by the business to function profitably.
These products and materials could include tools, equipment, raw
materials, inventory, etc.
Concept (d) is paired with option (iv). The production and operations
function deals with the establishment and layout of the production
unit, the conversion of raw materials and semi-finished products into
finished products, as well as the scheduling of services that are
produced for the market.
4
