Solution6Manual
Foundations6of6Business67th6Edition6
by6William6M.6Pride,6All6chapter616-6476
,Chapter61
End6of6Chapter6Questions
Quiz6Yourself
1. Scarcity6implies6that6the6allocation6decision6chosen6by6society6can
a) not6make6more6of6any6one6good.
b) always6make6more6of6any6good.
c) typically6make6more6of6one6good6but6at6the6expense6of6making
6less6of6another.
d) always6make6more6of6all6goods6simultaneously.6
Explanation:6Scarcity6implies6that6choices6involve6trade-
offs.
AACSB:6Reflective6Thinking6Acces
sibility:6Keyboard6Navigation6Bloom
s:6Understand
Difficulty:6026Medium6Gra
deable:6automatic6Learning6
Objective:601-01
Topic:6Economics6and6Opportunity6Cost
2. A6production6possibilities6frontier6is6a6simple6model6of
a) allocating6scarce6inputs6to6the6production6of6alternative6outputs.
a) price6and6production/consumption6in6a6market.
b) the6cost6of6producing6goods.
c) the6number6of6inputs6required6to6produce6varying6levels6of6output.6 Expl
anation:6The6production6possibilities6frontier6shows6the6quantity6of6two6goods6th
at6can6be6produced.6It6implies6that6scarcity6requires6that6choices6be6made6as6to
6how6to6use6resources.
AACSB:6Reflective6Thinking6Acces
sibility:6Keyboard6Navigation6Bloom
s:6Understand
Difficulty:6026Medium6Gra
deable:6automatic6Learning6
Objective:601-01
Topic:6Modeling6Opportunity6Cost6Using6the6Production6Possibilities6Frontier
,3. The6underlying6reason6that6there6are6unattainable6points6on6a6production6possi
bilities6frontier6is6that6there
a. is6government.
b. are6always6choices6that6must6be6made.
c. are6scarce6resources6within6a6fixed6level6of6technology.
d. is6unemployment6of6resources.
Explanation:6The6points6outside6the6production6possibilities6frontier6are6unattainable
.6This6means6that6currently6available6resources6and6technology6are6insufficient6to6
produce6amounts6greater6than6those6illustrated6on6the6frontier.6On6a6graph,6everyth
ing6beyond6the6frontier6is6unattainable.
AACSB:6Reflective6Thinking6Acces
sibility:6Keyboard6Navigation6Bloom
s:6Remember
Difficulty:6016Easy6Gradea
ble:6automatic6Learning6Ob
jective:601-01
Topic:6Modeling6Opportunity6Cost6Using6the6Production6Possibilities6Frontier
4. The6underlying6reason6production6possibilities6frontiers6are6likely6to6be6bow
ed6out6(rather6than6linear)6is6because
a. choices6have6consequences.
b. there6are6always6opportunity6costs.
c. some6resources6and6people6can6be6better6used6producing6one6good6
rather6than6another.
d. there6is6always6some6level6of6unemployment.
Explanation:6If6the6production6possibilities6frontier6is6not6a6line6but6is6bowed6out6
away6from6the6origin,6then6opportunity6cost6is6increasing.6The6reason6for6this6is6t
hat6as6we6add6more6resources6to6the6production6of,6for6example,6pizza,6we6are6us
ing6fewer6resources6to6produce6soda.6Compounding6that6problem,6at6each6stage6as
6we6take6the6resources6away6from6soda6and6put6them6into6pizza,6we6are6moving6
workers6who6are6worse6at6pizza6production6and6better6at6soda6production6than6tho
se6moved6in6the6previous6stage.6This6means6that6the6increase6in6pizza6production6
is6diminishing6and6the6loss6in6soda6production6is6increasing.6An6economist6would6
call6this6an6example6of6increasing6opportunity6cost.6If6the6production6possibilities6
frontier6is6a6straight6line6that6is6not6bowed6out6away6from6the6origin,6then6opport
unity6cost6is6constant.
AACSB:6Knowledge6Application6Ac
cessibility:6Keyboard6Navigation6Blo
oms:6Remember
Difficulty:6016Easy6Gradea
ble:6automatic6Learning6Ob
jective:601-02
Topic:6Attributes6of6the6Production6Possibilities6Frontier
, 5. Suppose6you6were6modeling6the6impact6of6the6introduction6of6computer6auto
mation6into6manufacturing6on6a6production6possibilities6frontier6(PPF)6with6two6
manufactured6goods6on6their6respective6axes.6It6would6be6more6likely6that6the6r
esult6would6be6 .
a) generalized6growth6with6the6PPF6moving6both6up6and6to6the6right.
b) specialized6growth6with6the6PPF6moving6both6up6and6to6the6right.
c) generalized6growth6with6the6PPF6just6moving6up6and6not6to6the6right.
d) specialized6growth6with6the6PPF6just6moving6up6and6not6to6the6right.6E
xplanation:6Computer6automation6is6a6general6improvement6in6technology6so6it6
would6improve6all6manufacturing.6As6a6result,6it6would6result6in6generalized6gro
wth6and6move6the6PPF6both6up6and6to6the6right.
AACSB:6Knowledge6Application6Ac
cessibility:6Keyboard6Navigation6Blo
oms:6Remember
Difficulty:6016Easy6Gradea
ble:6automatic6Learning6Ob
jective:601-
036Topic:6Economic6Growt
h
6. The6optimization6assumption6suggests6that6people6make
a. irrational6decisions.
b. unpredictable6decisions.
c. decisions6to6make6themselves6as6well6off6as6possible.
d. decisions6without6thinking6very6hard.
Explanation:6The6optimization6assumption6suggests6that6the6person6in6question6is6
trying6to6maximize6some6objective.6Consumers6are6assumed6to6be6making6decisio
ns6that6maximize6their6happiness6subject6to6a6scarce6amount6of6money.
AACSB:6Reflective6Thinking6Acces
sibility:6Keyboard6Navigation6Bloom
s:6Remember
Difficulty:6016Easy6Gradea
ble:6automatic6Learning6Ob
jective:601-01
Topic:6Thinking6Economically
Foundations6of6Business67th6Edition6
by6William6M.6Pride,6All6chapter616-6476
,Chapter61
End6of6Chapter6Questions
Quiz6Yourself
1. Scarcity6implies6that6the6allocation6decision6chosen6by6society6can
a) not6make6more6of6any6one6good.
b) always6make6more6of6any6good.
c) typically6make6more6of6one6good6but6at6the6expense6of6making
6less6of6another.
d) always6make6more6of6all6goods6simultaneously.6
Explanation:6Scarcity6implies6that6choices6involve6trade-
offs.
AACSB:6Reflective6Thinking6Acces
sibility:6Keyboard6Navigation6Bloom
s:6Understand
Difficulty:6026Medium6Gra
deable:6automatic6Learning6
Objective:601-01
Topic:6Economics6and6Opportunity6Cost
2. A6production6possibilities6frontier6is6a6simple6model6of
a) allocating6scarce6inputs6to6the6production6of6alternative6outputs.
a) price6and6production/consumption6in6a6market.
b) the6cost6of6producing6goods.
c) the6number6of6inputs6required6to6produce6varying6levels6of6output.6 Expl
anation:6The6production6possibilities6frontier6shows6the6quantity6of6two6goods6th
at6can6be6produced.6It6implies6that6scarcity6requires6that6choices6be6made6as6to
6how6to6use6resources.
AACSB:6Reflective6Thinking6Acces
sibility:6Keyboard6Navigation6Bloom
s:6Understand
Difficulty:6026Medium6Gra
deable:6automatic6Learning6
Objective:601-01
Topic:6Modeling6Opportunity6Cost6Using6the6Production6Possibilities6Frontier
,3. The6underlying6reason6that6there6are6unattainable6points6on6a6production6possi
bilities6frontier6is6that6there
a. is6government.
b. are6always6choices6that6must6be6made.
c. are6scarce6resources6within6a6fixed6level6of6technology.
d. is6unemployment6of6resources.
Explanation:6The6points6outside6the6production6possibilities6frontier6are6unattainable
.6This6means6that6currently6available6resources6and6technology6are6insufficient6to6
produce6amounts6greater6than6those6illustrated6on6the6frontier.6On6a6graph,6everyth
ing6beyond6the6frontier6is6unattainable.
AACSB:6Reflective6Thinking6Acces
sibility:6Keyboard6Navigation6Bloom
s:6Remember
Difficulty:6016Easy6Gradea
ble:6automatic6Learning6Ob
jective:601-01
Topic:6Modeling6Opportunity6Cost6Using6the6Production6Possibilities6Frontier
4. The6underlying6reason6production6possibilities6frontiers6are6likely6to6be6bow
ed6out6(rather6than6linear)6is6because
a. choices6have6consequences.
b. there6are6always6opportunity6costs.
c. some6resources6and6people6can6be6better6used6producing6one6good6
rather6than6another.
d. there6is6always6some6level6of6unemployment.
Explanation:6If6the6production6possibilities6frontier6is6not6a6line6but6is6bowed6out6
away6from6the6origin,6then6opportunity6cost6is6increasing.6The6reason6for6this6is6t
hat6as6we6add6more6resources6to6the6production6of,6for6example,6pizza,6we6are6us
ing6fewer6resources6to6produce6soda.6Compounding6that6problem,6at6each6stage6as
6we6take6the6resources6away6from6soda6and6put6them6into6pizza,6we6are6moving6
workers6who6are6worse6at6pizza6production6and6better6at6soda6production6than6tho
se6moved6in6the6previous6stage.6This6means6that6the6increase6in6pizza6production6
is6diminishing6and6the6loss6in6soda6production6is6increasing.6An6economist6would6
call6this6an6example6of6increasing6opportunity6cost.6If6the6production6possibilities6
frontier6is6a6straight6line6that6is6not6bowed6out6away6from6the6origin,6then6opport
unity6cost6is6constant.
AACSB:6Knowledge6Application6Ac
cessibility:6Keyboard6Navigation6Blo
oms:6Remember
Difficulty:6016Easy6Gradea
ble:6automatic6Learning6Ob
jective:601-02
Topic:6Attributes6of6the6Production6Possibilities6Frontier
, 5. Suppose6you6were6modeling6the6impact6of6the6introduction6of6computer6auto
mation6into6manufacturing6on6a6production6possibilities6frontier6(PPF)6with6two6
manufactured6goods6on6their6respective6axes.6It6would6be6more6likely6that6the6r
esult6would6be6 .
a) generalized6growth6with6the6PPF6moving6both6up6and6to6the6right.
b) specialized6growth6with6the6PPF6moving6both6up6and6to6the6right.
c) generalized6growth6with6the6PPF6just6moving6up6and6not6to6the6right.
d) specialized6growth6with6the6PPF6just6moving6up6and6not6to6the6right.6E
xplanation:6Computer6automation6is6a6general6improvement6in6technology6so6it6
would6improve6all6manufacturing.6As6a6result,6it6would6result6in6generalized6gro
wth6and6move6the6PPF6both6up6and6to6the6right.
AACSB:6Knowledge6Application6Ac
cessibility:6Keyboard6Navigation6Blo
oms:6Remember
Difficulty:6016Easy6Gradea
ble:6automatic6Learning6Ob
jective:601-
036Topic:6Economic6Growt
h
6. The6optimization6assumption6suggests6that6people6make
a. irrational6decisions.
b. unpredictable6decisions.
c. decisions6to6make6themselves6as6well6off6as6possible.
d. decisions6without6thinking6very6hard.
Explanation:6The6optimization6assumption6suggests6that6the6person6in6question6is6
trying6to6maximize6some6objective.6Consumers6are6assumed6to6be6making6decisio
ns6that6maximize6their6happiness6subject6to6a6scarce6amount6of6money.
AACSB:6Reflective6Thinking6Acces
sibility:6Keyboard6Navigation6Bloom
s:6Remember
Difficulty:6016Easy6Gradea
ble:6automatic6Learning6Ob
jective:601-01
Topic:6Thinking6Economically
