Test Bank for Foundations of Business, 7th Edition by William M. Pride

TESTBANK k k k
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Foundations of Business by William M. Pride
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7th Edition
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TESTBANK k

,Foundations of Business 7eWilliam M. Pride; k k k k k k




k Chapter 1 k




End ofChapter Questions
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Quiz Yourselfk




1. Scarcity implies that the allocation decision chosen by society can
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a) not make more of any one good. k k k k k k




b) Always make more of any good. k k k k k




c) Typically make more of one good but at the expense of making less k k k k k k k k k k k k




ofanother. k




d) Always make more of all goods simultaneously. k k k k k k




k Explanation: Scarcity implies thatchoices involve trade-offs.
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AACSB: Reflective Thinking k k




Accessibility:KeyboardNavigation
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Blooms: Understand
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Difficulty: 02 Medium k k




Gradeable: automatic
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LearningObjective: 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. k k k k k k k k




a) Price and production/consumption in a market. k k k k k




b) The cost of producing goods. k k k k




c) The number of inputs required to produce varying levels of output. Explanation:
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The production possibilities frontier shows the quantity of two goods that can be produced.
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It implies that scarcity requires that choices be made as to how to use resources.
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AACSB: Reflective Thinking k k




Accessibility:KeyboardNavigation
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Blooms: Understand
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Difficulty: 02 Medium k k




Gradeable: automatic
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LearningObjective: 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. k




b. Are always choices that must be made. k k k k k k




c. Are scarce resources within a fixed level of technology. k k k k k k k k




d. Is unemployment of resources. k k k




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 amounts
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greater than those illustrated on the frontier. On a graph, everything beyond the frontier is
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unattainable.
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AACSB: Reflective Thinking k k




Accessibility:KeyboardNavigation
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Blooms: Remember
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Difficulty: 01 Easy k k




Gradeable: automatic
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LearningObjective: 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
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a. Choices have consequences. k k




b. There are always opportunity costs. k k k k




c. Some resources and people can be better used producing one good k k k k k k k k k k




ratherthan another. k k




d. There is always some level of unemployment. k k k k k k




Explanation: If the production possibilities frontier is not a line but is bowed out away from
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the origin, then opportunity cost is increasing. The reason for this is that as we add more
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resources to the production of, for example, pizza, we are using fewer resources to produce
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soda. Compounding that problem, at each stage as we take the resources away from soda and
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put them into pizza, we are moving workers who are worse at pizza production and better at
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soda production than those moved in the previous stage. This means that the increase in pizza
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production is diminishing and the loss in soda production is increasing. An economist would
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call this an example of increasing opportunity cost. If the production possibilities frontier is a
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straight line that is not bowed out away from the origin, then opportunity cost is constant.
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AACSB: Knowledge Application k k




Accessibility:KeyboardNavigation
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Blooms: Remember
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Difficulty: 01 Easy k k




Gradeable: automatic
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LearningObjective: 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 into
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manufacturing on a production possibilities frontier (PPF) with two manufactured goods
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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. k k k k k k k k k k k




b) Specialized growth with the PPF moving both up and to the right. k k k k k k k k k k k




c) Generalized growth with the PPF just moving up and not to the right. k k k k k k k k k k k k




d) Specialized growth with the PPF just moving up and not to the right. Explanation: k k k k k k k k k k k k k




Computer automation is a general improvement in technology so it would improve all
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manufacturing. As a result, it would result in generalized growth and move the PPF both up
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and to the right.
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AACSB: Knowledge Application k k




Accessibility:KeyboardNavigation
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Blooms: Remember
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Difficulty: 01 Easy k k




Gradeable: automatic
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LearningObjective: 01-03
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Topic: Economic Growth
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6. The optimization assumption suggests that people make
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a. Irrational decisions. k




b. Unpredictable decisions. k




c. Decisions to make themselves as well off as possible. k k k k k k k k




d. Decisions without thinking very hard. k k k k




Explanation: The optimization assumption suggests that the person in question is trying to
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maximize some objective. Consumers are assumed to be making decisions that maximize
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their happiness subject to a scarce amount of money.
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AACSB: Reflective Thinking k k




Accessibility:KeyboardNavigation
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Blooms: Remember
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Difficulty: 01 Easy k k




Gradeable: automatic
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LearningObjective: 01-01
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Topic: Thinking Economically
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