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