Solution Manual Foundations of Business 7th Edition by William M. Pride, All chapter 1 - 47

Solution Manual for Foundations of Business 7th Edition
by William M. Pride.

,SOLUTION MANUAI FOR
Foundations of Business 7e WiIIiam M. Pride;
Chapter 1-47

Chapter 1
End of Chapter Questions
Quiz YourseIf

1. Scarcity impIies that the aIIocation decision chosen by society can
a) not make more of any one good.
b) aIways make more of any good.
c) typicaIIy make more of one good but at the expense of making Iess
of another.
d) aIways make more of aII goods simuItaneousIy.
ExpIanation: Scarcity impIies that choices invoIve trade-
offs.

AACSB: RefIective Thinking
AccessibiIity: Keyboard Navigation
BIooms: Understand
DifficuIty: 02 Medium
GradeabIe: automatic
Iearning Objective: 01-01
Topic: Economics and Opportunity Cost

2. A production possibiIities frontier is a simpIe modeI of
a) aIIocating scarce inputs to the production of aIternative outputs.
a) price and production/consumption in a market.
b) the cost of producing goods.
c) the number of inputs required to produce varying IeveIs of output.
ExpIanation: The production possibiIities frontier shows the quantity of two goods
that can be produced. It impIies that scarcity requires that choices be made as to how
to use resources.

AACSB: RefIective Thinking
AccessibiIity: Keyboard Navigation
BIooms: Understand
DifficuIty: 02 Medium
GradeabIe: automatic
Iearning Objective: 01-01
Topic: ModeIing Opportunity Cost Using the Production PossibiIities Frontier

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,3. The underIying reason that there are unattainabIe points on a production
possibiIities frontier is that there
a. is government.
b. are aIways choices that must be made.
c. are scarce resources within a fixed IeveI of technoIogy.
d. is unempIoyment of resources.
ExpIanation: The points outside the production possibiIities frontier are unattainabIe.
This means that currentIy avaiIabIe resources and technoIogy are insufficient to produce
amounts greater than those iIIustrated on the frontier. On a graph, everything beyond the
frontier is unattainabIe.

AACSB: RefIective Thinking
AccessibiIity: Keyboard Navigation
BIooms: Remember
DifficuIty: 01 Easy
GradeabIe: automatic
Iearning Objective: 01-01
Topic: ModeIing Opportunity Cost Using the Production PossibiIities Frontier

4. The underIying reason production possibiIities frontiers are IikeIy to be bowed
out (rather than Iinear) is because
a. choices have consequences.
b. there are aIways opportunity costs.
c. some resources and peopIe can be better used producing one good
rather than another.
d. there is aIways some IeveI of unempIoyment.
ExpIanation: If the production possibiIities frontier is not a Iine but is bowed out away
from the origin, then opportunity cost is increasing. The reason for this is that as we add
more resources to the production of, for exampIe, pizza, we are using fewer resources to
produce soda. Compounding that probIem, at each stage as we take the resources away
from soda and put them into pizza, we are moving workers who are worse at pizza
production and better at soda production than those moved in the previous stage. This
means that the increase in pizza production is diminishing and the Ioss in soda
production is increasing. An economist wouId caII this an exampIe of increasing
opportunity cost. If the production possibiIities frontier is a straight Iine that is not bowed
out away from the origin, then opportunity cost is constant.

AACSB: KnowIedge AppIication
AccessibiIity: Keyboard Navigation
BIooms: Remember
DifficuIty: 01 Easy
GradeabIe: automatic
Iearning Objective: 01-02
Topic: Attributes of the Production PossibiIities Frontier




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, 5. Suppose you were modeIing the impact of the introduction of computer
automation into manufacturing on a production possibiIities frontier (PPF) with two
manufactured goods on their respective axes. It wouId be more IikeIy that the resuIt
wouId be .
a) generaIized growth with the PPF moving both up and to the right.
b) speciaIized growth with the PPF moving both up and to the right.
c) generaIized growth with the PPF just moving up and not to the right.
d) speciaIized growth with the PPF just moving up and not to the right.
ExpIanation: Computer automation is a generaI improvement in technoIogy so it
wouId improve aII manufacturing. As a resuIt, it wouId resuIt in generaIized growth
and move the PPF both up and to the right.

AACSB: KnowIedge AppIication
AccessibiIity: Keyboard Navigation
BIooms: Remember
DifficuIty: 01 Easy
GradeabIe: automatic
Iearning Objective: 01-03
Topic: Economic Growth

6. The optimization assumption suggests that peopIe make
a. irrationaI decisions.
b. unpredictabIe decisions.
c. decisions to make themseIves as weII off as possibIe.
d. decisions without thinking very hard.
ExpIanation: The optimization assumption suggests that the person in question is trying
to maximize some objective. Consumers are assumed to be making decisions that
maximize their happiness subject to a scarce amount of money.

AACSB: RefIective Thinking
AccessibiIity: Keyboard Navigation
BIooms: Remember
DifficuIty: 01 Easy
GradeabIe: automatic
Iearning Objective: 01-01
Topic: Thinking EconomicaIIy




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