TESTBANK n n n
n
Foundations of Business by WilliamM. Pride
n n n
7th Edition
n
TESTBANK n
,FoundationsofBusiness7eWilliamM.Pride; n n n n n n
nChapter 1 n
EndofChapterQuestions
n n n
QuizYourself
n
1. Scarcityimplies that theallocationdecision chosen bysocietycan
n n n n n n n n n
a) not makemoreof anyone good. n n n n n n
b) Alwaysmakemore of anygood. n n n n n
c) Typicallymakemoreofonegood butattheexpenseofmakingless n n n n n n n n n n n n
ofanother. n
d) Always make more of all goods simultaneously. n n n n n n
nExplanation:Scarcityimpliesthatchoicesinvolvetrade-offs. n n n n n n
AACSB: Reflective Thinking n n
Accessibility:KeyboardNavigation
n n n
Blooms: Understand
n n
Difficulty: 02 Medium n n
Gradeable: automatic
n n
LearningObjective:01-01
n n n
Topic: Economicsand OpportunityCost
n n n n
2. Aproduction possibilities frontieris asimplemodel of
n n n n n n n n
a) Allocatingscarceinputstotheproduction of alternativeoutputs. n n n n n n n n
a) Priceand production/consumption inamarket. n n n n n
b) Thecost ofproducing goods. n n n n
c) The number of inputs required to produce varying levels of output. Explanation: The
n n n n n n n n n n n n
productionpossibilitiesfrontiershowsthequantityoftwo goodsthat canbeproduced. It
n n n n n n n n n n n n n n
impliesthatscarcityrequires thatchoicesbemadeas to howtouse resources.
n n n n n n n n n n n n n n
AACSB: Reflective Thinking n n
Accessibility:KeyboardNavigation
n n n
Blooms: Understand
n n
Difficulty: 02 Medium n n
Gradeable: automatic
n n
LearningObjective:01-01
n n n
Topic:ModelingOpportunityCost UsingtheProduction Possibilities Frontier
n n n n n n n n
,3. Theunderlyingreasonthatthereareunattainablepointsonaproductionpossibilities
n n n n n n n n n n n
frontier is that there
n n n n
a. Is government. n
b. Arealways choices thatmust bemade. n n n n n n
c. Arescarce resources within a fixedlevel oftechnology. n n n n n n n n
d. Isunemploymentofresources. n n n
Explanation:Thepointsoutsidetheproductionpossibilitiesfrontierareunattainable.This n n n n n n n n n n
means that currently available resources and technology are insufficient to produce amounts
n n n n n n n n n n n n
greater than those illustrated on the frontier. On a graph, everything beyond the frontier is
n n n n n n n n n n n n n n n
unattainable.
n
AACSB: Reflective Thinking n n
Accessibility:KeyboardNavigation
n n n
Blooms: Remember
n n
Difficulty: 01 Easy n n
Gradeable: automatic
n n
LearningObjective:01-01
n n n
Topic:ModelingOpportunityCost UsingtheProduction Possibilities Frontier
n n n n n n n n
4. Theunderlyingreasonproductionpossibilities frontiersarelikelyto bebowedout
n n n n n n n n n n n
(rather than linear) is because
n n n n n
a. Choiceshaveconsequences. n n
b. Therearealways opportunitycosts. n n n n
c. Someresourcesandpeoplecan bebetterusedproducingonegood n n n n n n n n n n
ratherthan another. n n
d. Thereis always somelevel ofunemployment. n n n n n n
Explanation: If the production possibilities frontier is not a line but is bowed out away from the
n n n n n n n n n n n n n n n n
origin, then opportunity cost is increasing. The reason for this is that as we add more resources to
n n n n n n n n n n n n n n n n n n
the production of, for example, pizza, we are using fewer resources to produce soda.
n n n n n n n n n n n n n n
Compounding that problem, at each stage as we take the resources away from soda and put them
n n n n n n n n n n n n n n n n n
into pizza, we are moving workers who are worse at pizza production and better at soda
n n n n n n n n n n n n n n n n
production than those moved in the previous stage. This meansthattheincreasein pizza
n n n n n n n n n n n n n n n
production isdiminishingandtheloss insodaproduction is increasing. An economist would call
n n n n n n n n n n n n n n n
this an example of increasing opportunitycost. If the production possibilities frontier is a
n n n n n n n n n n n n n n
straight line that is not bowed out away from the origin, then opportunity cost is constant.
n n n n n n n n n n n n n n n n
AACSB: Knowledge Application n n
Accessibility:KeyboardNavigation
n n n
Blooms: Remember
n n
Difficulty: 01 Easy n n
Gradeable: automatic
n n
LearningObjective:01-02
n n n
Topic: Attributes ofthe Production Possibilities Frontier
n n n n n n
, 5. Supposeyouweremodelingtheimpactoftheintroductionofcomputerautomation into
n n n n n n n n n n n n
manufacturing on a production possibilities frontier (PPF) with two manufactured goods on
n n n n n n n n n n n n
their respective axes. It would be more likely that the result would be
n n n . n n n n n n n n n n
a) Generalized growth with thePPF moving both up and totheright. n n n n n n n n n n n
b) Specializedgrowth with thePPF moving both up and to the right. n n n n n n n n n n n
c) Generalized growth with the PPF just movingup and not to the right. n n n n n n n n n n n n
d) Specialized growth with the PPF just moving up and not to the right. Explanation: n n n n n n n n n n n n n
Computerautomationisageneralimprovementintechnologysoitwould improveall
n n n n n n n n n n n n n
manufacturing. As aresult, itwould resultingeneralizedgrowth and move the PPF both up
n n n n n n n n n n n n n n n n
and to the right.
n n n n
AACSB: Knowledge Application n n
Accessibility:KeyboardNavigation
n n n
Blooms: Remember
n n
Difficulty: 01 Easy n n
Gradeable: automatic
n n
LearningObjective:01-03
n n n
Topic: Economic Growth
n n n
6. Theoptimization assumption suggests that people make
n n n n n n
a. Irrationaldecisions. n
b. Unpredictabledecisions. n
c. Decisions to make themselves as well off as possible. n n n n n n n n
d. Decisionswithout thinkingveryhard. n n n n
Explanation: Theoptimizationassumptionsuggeststhatthepersoninquestionistrying to
n n n n n n n n n n n n
maximize some objective. Consumers are assumed to be making decisions that maximize
n n n n n n n n n n n n
their happiness subject to a scarce amount of money.
n n n n n n n n n
AACSB: Reflective Thinking n n
Accessibility:KeyboardNavigation
n n n
Blooms: Remember
n n
Difficulty: 01 Easy n n
Gradeable: automatic
n n
LearningObjective:01-01
n n n
Topic: ThinkingEconomically
n n
n
Foundations of Business by WilliamM. Pride
n n n
7th Edition
n
TESTBANK n
,FoundationsofBusiness7eWilliamM.Pride; n n n n n n
nChapter 1 n
EndofChapterQuestions
n n n
QuizYourself
n
1. Scarcityimplies that theallocationdecision chosen bysocietycan
n n n n n n n n n
a) not makemoreof anyone good. n n n n n n
b) Alwaysmakemore of anygood. n n n n n
c) Typicallymakemoreofonegood butattheexpenseofmakingless n n n n n n n n n n n n
ofanother. n
d) Always make more of all goods simultaneously. n n n n n n
nExplanation:Scarcityimpliesthatchoicesinvolvetrade-offs. n n n n n n
AACSB: Reflective Thinking n n
Accessibility:KeyboardNavigation
n n n
Blooms: Understand
n n
Difficulty: 02 Medium n n
Gradeable: automatic
n n
LearningObjective:01-01
n n n
Topic: Economicsand OpportunityCost
n n n n
2. Aproduction possibilities frontieris asimplemodel of
n n n n n n n n
a) Allocatingscarceinputstotheproduction of alternativeoutputs. n n n n n n n n
a) Priceand production/consumption inamarket. n n n n n
b) Thecost ofproducing goods. n n n n
c) The number of inputs required to produce varying levels of output. Explanation: The
n n n n n n n n n n n n
productionpossibilitiesfrontiershowsthequantityoftwo goodsthat canbeproduced. It
n n n n n n n n n n n n n n
impliesthatscarcityrequires thatchoicesbemadeas to howtouse resources.
n n n n n n n n n n n n n n
AACSB: Reflective Thinking n n
Accessibility:KeyboardNavigation
n n n
Blooms: Understand
n n
Difficulty: 02 Medium n n
Gradeable: automatic
n n
LearningObjective:01-01
n n n
Topic:ModelingOpportunityCost UsingtheProduction Possibilities Frontier
n n n n n n n n
,3. Theunderlyingreasonthatthereareunattainablepointsonaproductionpossibilities
n n n n n n n n n n n
frontier is that there
n n n n
a. Is government. n
b. Arealways choices thatmust bemade. n n n n n n
c. Arescarce resources within a fixedlevel oftechnology. n n n n n n n n
d. Isunemploymentofresources. n n n
Explanation:Thepointsoutsidetheproductionpossibilitiesfrontierareunattainable.This n n n n n n n n n n
means that currently available resources and technology are insufficient to produce amounts
n n n n n n n n n n n n
greater than those illustrated on the frontier. On a graph, everything beyond the frontier is
n n n n n n n n n n n n n n n
unattainable.
n
AACSB: Reflective Thinking n n
Accessibility:KeyboardNavigation
n n n
Blooms: Remember
n n
Difficulty: 01 Easy n n
Gradeable: automatic
n n
LearningObjective:01-01
n n n
Topic:ModelingOpportunityCost UsingtheProduction Possibilities Frontier
n n n n n n n n
4. Theunderlyingreasonproductionpossibilities frontiersarelikelyto bebowedout
n n n n n n n n n n n
(rather than linear) is because
n n n n n
a. Choiceshaveconsequences. n n
b. Therearealways opportunitycosts. n n n n
c. Someresourcesandpeoplecan bebetterusedproducingonegood n n n n n n n n n n
ratherthan another. n n
d. Thereis always somelevel ofunemployment. n n n n n n
Explanation: If the production possibilities frontier is not a line but is bowed out away from the
n n n n n n n n n n n n n n n n
origin, then opportunity cost is increasing. The reason for this is that as we add more resources to
n n n n n n n n n n n n n n n n n n
the production of, for example, pizza, we are using fewer resources to produce soda.
n n n n n n n n n n n n n n
Compounding that problem, at each stage as we take the resources away from soda and put them
n n n n n n n n n n n n n n n n n
into pizza, we are moving workers who are worse at pizza production and better at soda
n n n n n n n n n n n n n n n n
production than those moved in the previous stage. This meansthattheincreasein pizza
n n n n n n n n n n n n n n n
production isdiminishingandtheloss insodaproduction is increasing. An economist would call
n n n n n n n n n n n n n n n
this an example of increasing opportunitycost. If the production possibilities frontier is a
n n n n n n n n n n n n n n
straight line that is not bowed out away from the origin, then opportunity cost is constant.
n n n n n n n n n n n n n n n n
AACSB: Knowledge Application n n
Accessibility:KeyboardNavigation
n n n
Blooms: Remember
n n
Difficulty: 01 Easy n n
Gradeable: automatic
n n
LearningObjective:01-02
n n n
Topic: Attributes ofthe Production Possibilities Frontier
n n n n n n
, 5. Supposeyouweremodelingtheimpactoftheintroductionofcomputerautomation into
n n n n n n n n n n n n
manufacturing on a production possibilities frontier (PPF) with two manufactured goods on
n n n n n n n n n n n n
their respective axes. It would be more likely that the result would be
n n n . n n n n n n n n n n
a) Generalized growth with thePPF moving both up and totheright. n n n n n n n n n n n
b) Specializedgrowth with thePPF moving both up and to the right. n n n n n n n n n n n
c) Generalized growth with the PPF just movingup and not to the right. n n n n n n n n n n n n
d) Specialized growth with the PPF just moving up and not to the right. Explanation: n n n n n n n n n n n n n
Computerautomationisageneralimprovementintechnologysoitwould improveall
n n n n n n n n n n n n n
manufacturing. As aresult, itwould resultingeneralizedgrowth and move the PPF both up
n n n n n n n n n n n n n n n n
and to the right.
n n n n
AACSB: Knowledge Application n n
Accessibility:KeyboardNavigation
n n n
Blooms: Remember
n n
Difficulty: 01 Easy n n
Gradeable: automatic
n n
LearningObjective:01-03
n n n
Topic: Economic Growth
n n n
6. Theoptimization assumption suggests that people make
n n n n n n
a. Irrationaldecisions. n
b. Unpredictabledecisions. n
c. Decisions to make themselves as well off as possible. n n n n n n n n
d. Decisionswithout thinkingveryhard. n n n n
Explanation: Theoptimizationassumptionsuggeststhatthepersoninquestionistrying to
n n n n n n n n n n n n
maximize some objective. Consumers are assumed to be making decisions that maximize
n n n n n n n n n n n n
their happiness subject to a scarce amount of money.
n n n n n n n n n
AACSB: Reflective Thinking n n
Accessibility:KeyboardNavigation
n n n
Blooms: Remember
n n
Difficulty: 01 Easy n n
Gradeable: automatic
n n
LearningObjective:01-01
n n n
Topic: ThinkingEconomically
n n
