TEST BANK FOR
Better Business, 7th edition Michael R. Solomon Mary Anne Poatsy Kendall Martin
Chapters 1-16
Chapter 1 Business Basics
1) When a company's revenue is greater than its expenses, it means that ________.
A) the company earns a profit
B) the company spends more than it earns
C) the company's income is decreasing
D) the company needs to increase its spending
Answer: A
Explanation: A) A company earns a profit when it takes in more revenue (earnings) than it
spends. If a company spends more than it earns, it does not make a profit. A company can make
a profit even if its income is decreasing, as long as its earnings continue to exceed its expenses.
A profitable company may or may not need to increase its spending, depending on its business
goals.
Diff: 1 Page Ref: 3
AACSB: Reflective Thinking
Objective: 1-1 What are profits, and how do businesses and nonprofit organizations compare?
Skill: Conceptual
2) The physical products that a business offers are called ________.
A) goods
B) services
C) assets
D) devices
Answer: A
Explanation: A) By definition, physical products that a business offers are called goods.
Services are nontangible products, for example, hair styling or bookkeeping. A physical product
may be an asset to the business or the purchaser, but it is a more general term that could include
any valuable product or aspect of the business. A device is a physical product, but not all
physical products are devices. For instance, pizza would be considered a physical product, but a
pizza is not a device.
Diff: 1 Page Ref: 4
AACSB: Reflective Thinking
Objective: 1-2 What is the difference between a good and a service, and what are the factors of
production?
Skill: Conceptual
,3) Emma bought an MP3 player and a portable DVD player. These products are called goods
because ________.
A) they do a good job of satisfying a customer's needs
B) they are physical or tangible products
C) they are produced in an economical offshore factory
D) they can be sold either in a store or online
Answer: B
Explanation: B) Goods are physical or tangible products offered by a business. They may or
may not do a good job of satisfying a customer's needs, although they must do so if a business is
to be successful. Goods are typically produced in a factory, but not in any particular location. It
is true that goods can be sold either in a store or online, or by other means, such as direct
marketing; however, other business offerings, such as services, can also be sold in a store or
online.
Diff: 1 Page Ref: 3
AACSB: Reflective Thinking
Objective: 1-2 What is the difference between a good and a service, and what are the factors of
production?
Skill: Conceptual
4) Jose called an electrician to repair some appliances in his home. Which of the following terms
BEST describes the electrician's repairs?
A) a service
B) a good
C) a benefit
D) an appointment
Answer: A
Explanation: A) An electrical repair is an example of a nontangible business product called a
service. An electrical repair is not a good, which is a tangible physical product. Although the
repair might involve the installation of a physical product, or good, the primary offering of the
electrician is the service he provides by coming to a location, identifying the problem, and if
necessary, making a repair. Such a service may be a benefit to the customer, but any business
offering, physical or nontangible, could be a benefit. Although electricians typically provide
services by appointment, "appointment" does not define the type of product the electrician
provides.
Diff: 1 Page Ref: 3
AACSB: Reflective Thinking
Objective: 1-2 What is the difference between a good and a service, and what are the factors of
production?
Skill: Conceptual
,5) Chris orders a salad at a restaurant. What is the BEST definition of what he is buying?
A) Chris is buying a good.
B) Chris is buying a service.
C) Chris is buying both a good and a service.
D) Chris is buying neither a good nor a service.
Answer: C
Explanation: C) Chris is buying a combination of products offered by the restaurant. He is
buying a good (the salad) as well as the services of preparing and serving the salad.
Diff: 1 Page Ref: 3
AACSB: Reflective Thinking
Objective: 1-2 What is the difference between a good and a service, and what are the factors of
production?
Skill: Application
6) Profits allow a company to ________.
A) increase productivity
B) lower employee wages
C) reduce its span of operations
D) disregard concern about expenses
Answer: A
Explanation: A) Profits allow a company to reward employees, increase productivity, and
expand into new areas. To maintain productivity, a company would need to remain concerned
about controlling expenses, and maintain or increase employee wages. Profits would be likely to
allow for growth in its operations, not a reduction.
Diff: 2 Page Ref: 3
AACSB: Reflective Thinking, Analytic Skills
Objective: 1-1 What are profits, and how do businesses and nonprofit organizations compare?
Skill: Application
7) Nina's furniture store has had a successful year and made a significant profit. Which of the
following actions using Nina’s store profits would BEST increase productivity?
A) Pay for utilities and inventory in advance.
B) Develop a Web site that would enable customers to place orders online.
C) Hire more staff.
D) Create an emergency fund.
Answer: B
Explanation: B) A Web site with an online shopping function would increase productivity by
generating sales without requiring additional staff time. It might also provide more options for
customers, since the online store could carry more items than could be viewed in the store.
Hiring more staff could reduce productivity by increasing the labor costs associated with selling
items. Paying for expenses in advance or creating an emergency fund would have neither a
positive nor negative impact on productivity.
Diff: 2 Page Ref: 3
AACSB: Reflective Thinking
Objective: 1-1 What are profits, and how do businesses and nonprofit organizations compare?
Skill: Application
, 8) A ________ seeks primarily to service its community through social, educational, or political
means.
A) limited liability company
B) mutual fund
C) nonprofit organization
D) competitive organization
Answer: C
Explanation: C) By definition, an organization whose primary goal is to serve its community is
called a nonprofit organization. A limited liability company, like other commercial businesses,
has a primary goal of earning profits, although it may also lend some support to community
needs. A mutual fund is a type of financial investment whose goal is to increase its financial
value. A competitive organization is one focused primarily on earning profits by outperforming
its business competitors, not through community service.
Diff: 2 Page Ref: 4
AACSB: Reflective Thinking
Objective: 1-1 What are profits, and how do businesses and nonprofit organizations compare?
Skill: Conceptual
9) Which of the following statements is true of a nonprofit organization?
A) It makes profits.
B) It does not pay expenses.
C) It can earn excess revenue.
D) It cannot operate like a business.
Answer: C
Explanation: C) A nonprofit organization does not make profits. However it does pay expenses,
and it may operate like a business in most respects. A nonprofit that takes in more earnings than
it needs to spend on expenses will use that excess revenue to further its stated mission.
Diff: 2 Page Ref: 4
AACSB: Reflective Thinking
Objective: 1-1 What are profits, and how do businesses and nonprofit organizations compare?
Skill: Conceptual
Better Business, 7th edition Michael R. Solomon Mary Anne Poatsy Kendall Martin
Chapters 1-16
Chapter 1 Business Basics
1) When a company's revenue is greater than its expenses, it means that ________.
A) the company earns a profit
B) the company spends more than it earns
C) the company's income is decreasing
D) the company needs to increase its spending
Answer: A
Explanation: A) A company earns a profit when it takes in more revenue (earnings) than it
spends. If a company spends more than it earns, it does not make a profit. A company can make
a profit even if its income is decreasing, as long as its earnings continue to exceed its expenses.
A profitable company may or may not need to increase its spending, depending on its business
goals.
Diff: 1 Page Ref: 3
AACSB: Reflective Thinking
Objective: 1-1 What are profits, and how do businesses and nonprofit organizations compare?
Skill: Conceptual
2) The physical products that a business offers are called ________.
A) goods
B) services
C) assets
D) devices
Answer: A
Explanation: A) By definition, physical products that a business offers are called goods.
Services are nontangible products, for example, hair styling or bookkeeping. A physical product
may be an asset to the business or the purchaser, but it is a more general term that could include
any valuable product or aspect of the business. A device is a physical product, but not all
physical products are devices. For instance, pizza would be considered a physical product, but a
pizza is not a device.
Diff: 1 Page Ref: 4
AACSB: Reflective Thinking
Objective: 1-2 What is the difference between a good and a service, and what are the factors of
production?
Skill: Conceptual
,3) Emma bought an MP3 player and a portable DVD player. These products are called goods
because ________.
A) they do a good job of satisfying a customer's needs
B) they are physical or tangible products
C) they are produced in an economical offshore factory
D) they can be sold either in a store or online
Answer: B
Explanation: B) Goods are physical or tangible products offered by a business. They may or
may not do a good job of satisfying a customer's needs, although they must do so if a business is
to be successful. Goods are typically produced in a factory, but not in any particular location. It
is true that goods can be sold either in a store or online, or by other means, such as direct
marketing; however, other business offerings, such as services, can also be sold in a store or
online.
Diff: 1 Page Ref: 3
AACSB: Reflective Thinking
Objective: 1-2 What is the difference between a good and a service, and what are the factors of
production?
Skill: Conceptual
4) Jose called an electrician to repair some appliances in his home. Which of the following terms
BEST describes the electrician's repairs?
A) a service
B) a good
C) a benefit
D) an appointment
Answer: A
Explanation: A) An electrical repair is an example of a nontangible business product called a
service. An electrical repair is not a good, which is a tangible physical product. Although the
repair might involve the installation of a physical product, or good, the primary offering of the
electrician is the service he provides by coming to a location, identifying the problem, and if
necessary, making a repair. Such a service may be a benefit to the customer, but any business
offering, physical or nontangible, could be a benefit. Although electricians typically provide
services by appointment, "appointment" does not define the type of product the electrician
provides.
Diff: 1 Page Ref: 3
AACSB: Reflective Thinking
Objective: 1-2 What is the difference between a good and a service, and what are the factors of
production?
Skill: Conceptual
,5) Chris orders a salad at a restaurant. What is the BEST definition of what he is buying?
A) Chris is buying a good.
B) Chris is buying a service.
C) Chris is buying both a good and a service.
D) Chris is buying neither a good nor a service.
Answer: C
Explanation: C) Chris is buying a combination of products offered by the restaurant. He is
buying a good (the salad) as well as the services of preparing and serving the salad.
Diff: 1 Page Ref: 3
AACSB: Reflective Thinking
Objective: 1-2 What is the difference between a good and a service, and what are the factors of
production?
Skill: Application
6) Profits allow a company to ________.
A) increase productivity
B) lower employee wages
C) reduce its span of operations
D) disregard concern about expenses
Answer: A
Explanation: A) Profits allow a company to reward employees, increase productivity, and
expand into new areas. To maintain productivity, a company would need to remain concerned
about controlling expenses, and maintain or increase employee wages. Profits would be likely to
allow for growth in its operations, not a reduction.
Diff: 2 Page Ref: 3
AACSB: Reflective Thinking, Analytic Skills
Objective: 1-1 What are profits, and how do businesses and nonprofit organizations compare?
Skill: Application
7) Nina's furniture store has had a successful year and made a significant profit. Which of the
following actions using Nina’s store profits would BEST increase productivity?
A) Pay for utilities and inventory in advance.
B) Develop a Web site that would enable customers to place orders online.
C) Hire more staff.
D) Create an emergency fund.
Answer: B
Explanation: B) A Web site with an online shopping function would increase productivity by
generating sales without requiring additional staff time. It might also provide more options for
customers, since the online store could carry more items than could be viewed in the store.
Hiring more staff could reduce productivity by increasing the labor costs associated with selling
items. Paying for expenses in advance or creating an emergency fund would have neither a
positive nor negative impact on productivity.
Diff: 2 Page Ref: 3
AACSB: Reflective Thinking
Objective: 1-1 What are profits, and how do businesses and nonprofit organizations compare?
Skill: Application
, 8) A ________ seeks primarily to service its community through social, educational, or political
means.
A) limited liability company
B) mutual fund
C) nonprofit organization
D) competitive organization
Answer: C
Explanation: C) By definition, an organization whose primary goal is to serve its community is
called a nonprofit organization. A limited liability company, like other commercial businesses,
has a primary goal of earning profits, although it may also lend some support to community
needs. A mutual fund is a type of financial investment whose goal is to increase its financial
value. A competitive organization is one focused primarily on earning profits by outperforming
its business competitors, not through community service.
Diff: 2 Page Ref: 4
AACSB: Reflective Thinking
Objective: 1-1 What are profits, and how do businesses and nonprofit organizations compare?
Skill: Conceptual
9) Which of the following statements is true of a nonprofit organization?
A) It makes profits.
B) It does not pay expenses.
C) It can earn excess revenue.
D) It cannot operate like a business.
Answer: C
Explanation: C) A nonprofit organization does not make profits. However it does pay expenses,
and it may operate like a business in most respects. A nonprofit that takes in more earnings than
it needs to spend on expenses will use that excess revenue to further its stated mission.
Diff: 2 Page Ref: 4
AACSB: Reflective Thinking
Objective: 1-1 What are profits, and how do businesses and nonprofit organizations compare?
Skill: Conceptual
