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