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