Test Bank for Business A Changing World 10th Edition by Ferrell, Hirt, Ferrell by ACADEMIAMILL

Chapter 01 - The Dynamics of Business and Economics

Chapter 01 The Dynamics of Business and Economics

True / False Questions 1. Businesses have the right to keep and use their profits as they choose, without limitations. FALSE Within legal limitations, businesses have the right to keep and use their profits as they choose.

AACSB: Analytic Accessibility: Keyboard Navigation Bloom's: Remember Difficulty: 1 Easy Learning Objective: 01-01 Define basic concepts such as business, product, and profit. Topic: Definition of Business

2. Finance refers to all activities concerned with obtaining money and using it effectively. TRUE Finance refers to all activities concerned with obtaining money and using it effectively. Financial resources must be managed effectively if the business aims to succeed.

AACSB: Analytic Accessibility: Keyboard Navigation Bloom's: Remember Difficulty: 1 Easy Learning Objective: 01-02 Identify the main participants and activities of business and explain why studying business is important. Topic: Definition of Business

Chapter 01 - The Dynamics of Business and Economics

3. Owners have little responsibility to provide funds for the operation of the business. FALSE The primary responsibility of the owners is to provide financial resources for the business.

4. A central issue of economics is how to fulfill an unlimited demand for goods and services in a world with limited resources. TRUE Economics is the study of how resources are distributed for the production of goods and services.

AACSB: Analytic Accessibility: Keyboard Navigation Bloom's: Remember Difficulty: 1 Easy Learning Objective: 01-03 Define economics and compare the four types of economic systems. Topic: Economics and the Types of Economic Systems

Chapter 01 - The Dynamics of Business and Economics

5. The equilibrium price is represented by the point where a product's supply and demand curves intersect. TRUE The price at which the number of products that businesses are willing to supply is equal to the amount of products that consumers are willing to buy at a specific point in time is the equilibrium price.

AACSB: Analytic Accessibility: Keyboard Navigation Bloom's: Remember Difficulty: 2 Medium Learning Objective: 01-04 Describe the role of supply, demand, and competition in a free-enterprise system. Topic: Key Economic Indicators and How they Affect Business

Multiple Choice Questions 6. _____ is the primary goal of business. A. Charity B. Profit C. Bureaucracy D. Quality E. Strategy The primary goal of all businesses is to earn a profit, the difference between what it costs to make and sell a product and what a customer pays for it.

Chapter 01 - The Dynamics of Business and Economics

7. The difference between what it costs to make and sell a product and what a customer pays for it is referred to as _____. A. net value B. gross price C. profit D. retail price E. stake The primary goal of all businesses is to earn a profit, the difference between what it costs to make and sell a product and what a customer pays for it.

8. Businesses differ from nonprofit organizations in that a business's focus is on: A. profit. B. goods. C. price. D. charity. E. fund raising. Businesses strive to earn profits; nonprofit organizations do not. Nonprofit organizations do not have the fundamental purpose of earning profits, although they may provide goods or services and engage in fundraising. AACSB: Analytic Accessibility: Keyboard Navigation Bloom's: Remember Difficulty: 1 Easy Learning Objective: 01-01 Define basic concepts such as business, product, and profit. Topic: Definition of Business

Chapter 01 - The Dynamics of Business and Economics

9. Which of the following is an example of an intangible product? A. A movie DVD B. A sandwich C. A sports car D. A music concert E. Jewelry A product can be a tangible good, a service of value to a customer, or even an idea. However, a product can also be intangible and in the form of a service. Dry cleaning, a checkup by a doctor, a performance by a basketball player—these are examples of services.

AACSB: Analytic Accessibility: Keyboard Navigation Bloom's: Understand Difficulty: 1 Easy Learning Objective: 01-01 Define basic concepts such as business, product, and profit. Topic: Definition of Business

10. Which of the following is an example of a tangible product? A. An automobile B. A movie C. A theatre play D. A music concert E. A business conference A product can be a tangible good, a service of value to a customer, or even an idea. Most people associate the word product with tangible goods—an automobile, computer, phone, coat, or some other tangible item.

Chapter 01 - The Dynamics of Business and Economics

11. Which of the following statements is true about businesses and profits? A. Profit making is a business activity that seldom requires risk taking. B. Businesses do not have the right to use their profits the way they choose. C. Profit-making businesses often weaken the economy of a country. D. Earning profits contributes to society by providing employment. E. Ignoring the interests of stakeholders is the best way for a business to be profitable. Earning profits contributes to society by providing employment, which in turn provides money that is reinvested in the economy.

AACSB: Analytic Accessibility: Keyboard Navigation Bloom's: Understand Difficulty: 2 Medium Learning Objective: 01-01 Define basic concepts such as business, product, and profit. Topic: Definition of Business

12. Which of the following is a similarity between businesses and nonprofit organizations? A. Both do not have to abide by government regulations. B. Both are unaffected by political or social change. C. Both of them engage in management and finance activities. D. Both of them do not need to adapt to technological changes. E. Both aim to maximize financial returns for their owners. Nonprofit organizations engage in management, marketing, and finance activities to help reach their goals.

Chapter 01 - The Dynamics of Business and Economics

13. All the groups that have an interest in an organization's success and outcomes are known as the organization's _____. A. agencies B. stakeholders C. owners D. investors E. shareholders Groups that have a stake in the success and outcomes of a business are called stakeholders.

14. Which of the following is a force within an organization's control that has an impact on the business's daily operations? A. Employees B. Regulatory environment C. Competition D. Political environment E. Technology People and forces beyond an organization's control—such as legal and regulatory forces, the economy, competition, technology, the political environment and ethical and social concerns—all have an impact on the daily operations of businesses.

AACSB: Analytic Accessibility: Keyboard Navigation Bloom's: Understand Difficulty: 2 Medium Learning Objective: 01-02 Identify the main participants and activities of business and explain why studying business is important. Topic: Definition of Business

Chapter 01 - The Dynamics of Business and Economics

15. Among the major activities of business, which of the following is an element of management? A. Marketing activities B. Product research C. Personal selling D. Promoting sales E. Acquiring resources Management is concerned with acquiring, developing, and using resources (including people) effectively and efficiently. It also involves coordinating employees' actions to achieve the firm's goals, organizing people to work efficiently, and motivating them to achieve the business's goals.

16. Which of the following is true of the responsibilities of the people involved in a business? A. The finance department is concerned with acquiring, developing, and using human resources effectively and efficiently. B. The marketing team handles all activities concerned with obtaining money for the firm and using it effectively. C. The managers of nonprofit organizations conduct all kinds of business operations except collecting funds. D. The senior management is not involved in the day-to-day functions of production and manufacturing. E. The primary responsibility of providing financial resources for the operation of the business lies with the business owners. Although management and marketing have to deal with financial considerations, it is the primary responsibility of the owners to provide financial resources for the operation of the business.

Chapter 01 - The Dynamics of Business and Economics

17. _____ is an element of the management activity in a business. A. Production B. Advertising C. Sales promotion D. Personal selling E. Publicity Production and manufacturing is another element of management. Management involves coordinating employees' actions to achieve the firm's goals, organizing people to work efficiently, and motivating them to achieve the business's goals.

18. The functions of organizing, staffing, planning, and controlling are most closely associated with: A. managers. B. assembly line workers. C. investment advisors. D. stockbrokers. E. direct sales executives. Managers plan, organize, staff, and control the tasks required to carry out the work of the company or nonprofit organization.

Chapter 01 - The Dynamics of Business and Economics

19. _____ gather information and conduct research to determine what customers want. They also plan and develop products and make decisions about how much to charge for their products and when and where to make them available. A. Accountants B. Engineers C. Marketers D. Supervisors E. Stockbrokers Marketing includes all the activities designed to provide goods and services that satisfy customers' needs and wants. Marketers gather information and conduct research to determine what customers want. They also plan and develop products and make decisions about how much to charge for their products and when and where to make them available.

AACSB: Analytic Accessibility: Keyboard Navigation Bloom's: Remember Difficulty: 2 Medium Learning Objective: 01-02 Identify the main participants and activities of business and explain why studying business is important. Topic: Definition of Business

20. Which of the following can be grouped under a single segment among the various elements of business activity? A. Marketing and finance B. Management and end-users C. Organization and customers D. Marketing and consumers E. Management and regulatory forces Marketing and consumers are in the same segment because the focus of all marketing activities is to satisfy customers. Marketing includes all the activities designed to provide goods and services that satisfy consumers' needs and wants.

Chapter 01 - The Dynamics of Business and Economics

21. Advertising, personal selling, coupons, and sweepstakes are forms of the _____ aspect of marketing activities. A. finance B. promotion C. production D. fundraising E. social responsibility Marketing includes all the activities designed to provide goods and services that satisfy customers' needs and wants.

22. Coupons, games, sweepstakes, movie tie-ins are all forms of _____. A. sales promotion B. publicity C. advertising D. personal selling E. direct retail Marketers use promotion—advertising, personal selling, sales promotion (coupons, games, sweepstakes, movie tie-ins), and publicity—to communicate the benefits and advantages of their products to consumers and increase sales. Nonprofit organizations also use promotion.

Chapter 01 - The Dynamics of Business and Economics

23. Which of the following is true of marketers? A. Marketers are involved primarily in production and management of infrastructure. B. Marketers gather information and conduct research to determine what customers want. C. Marketers in nonprofit organizations do not use promotion. D. Marketers are concerned with acquiring, developing, and using resources. E. Marketers plan, organize, staff, and control the tasks required to carry out the work of a company. Marketers gather information and conduct research to determine what customers want. Using information gathered from marketing research, marketers plan and develop products and make decisions about how much to charge for their products and when and where to make them available.

24. When a business fails or does not make a profit, _____ have the most to lose in terms of finances. A. consumers B. media agencies C. government bodies D. owners E. market experts It is the primary responsibility of the owners to provide financial resources for the operation of the business. Moreover, the owners have the most to lose if the business fails to make a profit.

Chapter 01 - The Dynamics of Business and Economics

25. _____ refers to all activities concerned with obtaining and managing money and using it effectively. A. Public relations B. Marketing C. Production D. Advertising E. Finance Finance refers to all activities concerned with obtaining money and using it effectively.

26. People who work as accountants, stockbrokers, investment advisors, or bankers are all part of the _____ world. A. management B. financial C. operations D. marketing E. advertising Finance refers to all activities concerned with obtaining money and using it effectively. People who work as accountants, stockbrokers, investment advisors, or bankers are all part of the financial world.

Chapter 01 - The Dynamics of Business and Economics

27. _____ is the study of how resources are distributed for the production of goods and services within a social system. A. Public relations B. Sociology C. Demographics D. Psychographics E. Economics Economics is the study of how resources are distributed for the production of goods and services within a social system.

28. A firm's _____ resources are also known as labor. A. economic B. human C. intangible D. financial E. natural Human resources, or labor, refer to the physical and mental abilities that people use to produce goods and services.

Chapter 01 - The Dynamics of Business and Economics

29. _____ refers to the physical and mental abilities that people use to produce goods and services. A. Labor B. Economics C. Finance D. Capital E. Natural resources Human resources, or labor, refers to the physical and mental abilities that people use to produce goods and services.

30. Financial resources are also known as _____. A. capital B. labor C. barter D. natural resources E. exchange Financial resources, also known as capital, are used to acquire the natural and human resources needed to provide products.

Chapter 01 - The Dynamics of Business and Economics

31. _____ are the funds used to acquire the natural and human resources needed to provide products. A. Skills B. Exchanges C. Capital resources D. Labor charges E. Barter charges Financial resources, or capital, are the funds used to acquire the natural and human resources needed to provide products. Because natural, human, and financial resources are used to produce goods and services, they are sometimes called factors of production.

AACSB: Analytic Accessibility: Keyboard Navigation Bloom's: Understand Difficulty: 1 Easy Learning Objective: 01-03 Define economics and compare the four types of economic systems. Topic: Key Economic Indicators and How they Affect Business

32. Which of the following is a factor of production for a firm? A. Advertising media B. Legal consultants C. Customers D. Natural resources E. Company reputation Factors of production are natural, human, and financial resources.

Chapter 01 - The Dynamics of Business and Economics

33. Which of the following is a natural resource? A. Minerals B. People C. Capital D. Money E. Labor Land, forests, minerals, water, and other things that are not made by people are natural resources.

34. Which of the following is a human resource? A. Physical and mental abilities of people B. Forests and minerals C. Economic capital D. Financial assets E. Company reputation Human resources, or labor, refers to the physical and mental abilities that people use to produce goods and services.

Chapter 01 - The Dynamics of Business and Economics

35. A(n) _____ describes how a particular society distributes its resources to produce goods and services. A. labor system B. economic system C. political ideology D. legal framework E. judicial scheme An economic system describes how a particular society distributes its resources to produce goods and services. A central issue of economics is how to fulfill an unlimited demand for goods and services in a world with a limited supply of resources.

36. Which of the following statements is true about communism? A. It is characterized by the government owning and operating most businesses. B. It relies on supply and demand to make decisions about pricing and production of goods. C. It encourages private ownership of the means of production. D. It encourages free market and competition. E. It provides scope for the production of a large variety of goods and services. In a communist economy, the people (through the government) own and operate all businesses and factors of production.

AACSB: Analytic Accessibility: Keyboard Navigation Bloom's: Understand Difficulty: 2 Medium Learning Objective: 01-03 Define economics and compare the four types of economic systems. Topic: Economics and the Types of Economic Systems

Chapter 01 - The Dynamics of Business and Economics

37. Which of the following is considered a command economy? A. Capitalism B. Libertinism C. Private enterprise D. Communism E. Laissez-faire market In many cases, the government owns or controls the production of goods and services. Communism and socialism are, therefore, considered command economies.

38. Which of the following is a characteristic of communist economies in reality? A. Critical shortages of consumer goods B. High standards of living C. Low prices D. Excessive freedom E. Absence of corruption On paper, communism appears to be efficient and equitable, producing less of a gap between rich and poor. In practice, however, communist economies have been marked by low standards of living, critical shortages of consumer goods, high prices, corruption, and little freedom.

Chapter 01 - The Dynamics of Business and Economics

39. Which of the following has become the first communist country to make strong economic gains by adopting capitalist approaches to business? A. Singapore B. India C. Thailand D. China E. Japan China has become the first communist country to make strong economic gains by adopting capitalist approaches to business. The Chinese state is the largest shareholder among China's 150 largest companies and influences thousands of other businesses.

40. Identify the form of business ownership in communist systems. A. Individuals own and operate all businesses. B. The government owns and operates major industries; individuals own small businesses. C. Religious groups own businesses and dictate norms of business. D. Government owns most businesses and operates them single-handedly. E. Market forces and private enterprise stakeholders own businesses. In communist systems, most businesses are owned and operated by the government.

Chapter 01 - The Dynamics of Business and Economics

41. Which of the following is true of product availability in a communist system? A. Consumers have a wide choice of goods but not services. B. Consumers have a wide choice of services but not goods. C. Consumers have a limited choice of goods and services. D. Consumers have a limited choice of services but not goods. E. Consumers have a wide choice of services and goods. In a communist system, consumers have a limited choice of goods and services; prices are usually high.

42. In which of the following economic systems do most people work for government-owned industries or farms? A. Capitalist B. Communist C. Socialist D. Libertarian E. Neo-realist In a communist system, consumers have a limited choice of goods and services; prices are usually high. Most people work for government-owned industries or farms.

Chapter 01 - The Dynamics of Business and Economics

43. In a socialist economic system, _____. A. individuals own and operate all businesses B. very few people work for government organizations C. competition is restricted in major industries D. there is no concept of small businesses owned by individuals E. demand and supply have no role to play in the pricing of products and services In socialist systems, competition is restricted in major industries; encouraged in small business.

44. _____ is an economic system in which the government owns and operates basic industries. A. Collectivism B. Capitalism C. Socialism D. Egalitarianism E. Utilitarianism In socialist systems, competition is restricted in major industries; encouraged in small business.

Chapter 01 - The Dynamics of Business and Economics

45. Identify a true statement about a socialist system of economy. A. Individuals own and operate the majority of businesses that provide goods and services. B. Central planning determines what basic goods and services are produced. C. Competition, supply, and demand determine which goods and services are produced and how they are produced. D. All economic decisions are made without government intervention. E. Consumers have a wide choice of goods and services. In socialist systems, competition is restricted in major industries; encouraged in small business. Central planning determines what basic goods and services are produced, how they are produced, and how they are distributed. Individuals and small businesses provide other goods and services based on consumer demand and the availability of resources.

46. Which of the following is true of a free market system? A. It is different from laissez fair capitalism. B. In a free market, a government regulates business. C. It is also called modified capitalism. D. In a free market system, all economic decisions are made without government intervention. E. In a free market system, central government planning determines what goods and services satisfy citizens' needs. In pure capitalism, also called a free-market system, all economic decisions are made without government intervention.

Chapter 01 - The Dynamics of Business and Economics

47. In a capitalist economic system, _____. A. the government owns and operates all businesses B. there is little scope for competition C. consumers have a limited choice of goods and services D. majority of people possesses government jobs E. prices of goods and services are determined by demand and supply Consumers have a wide choice of goods and services; prices are determined by supply and demand.

48. ____ is often called the father of capitalism. A. Karl Marx B. George Washington C. Benjamin Franklin D. Alan Greenspan E. Adam Smith The modern free market system was first described by Adam Smith in The Wealth of Nations in 1776.

Chapter 01 - The Dynamics of Business and Economics

49. In which of the following systems are all economic decisions made without government intervention? A. Socialism B. Communism C. Capitalism D. Marxism E. Collectivism In pure capitalism, also called a free-market system, all economic decisions are made without government intervention. This economic system was first described by Adam Smith in The Wealth of Nations (1776).

50. Egalitarianism refers to the: A. exemption of taxes for successful businesses. B. restrictions on taking up non-government jobs. C. equal distribution of income and social services. D. concept of the rich getting richer and the poor getting poorer. E. restriction of competition in small businesses by government regulations. Socialist economies profess egalitarianism—equal distribution of income and social services.

AACSB: Analytic Accessibility: Keyboard Navigation Bloom's: Remember Difficulty: 2 Medium Learning Objective: 01-03 Define economics and compare the four types of economic systems. Topic: Economics and the Types of Economic Systems

Chapter 01 - The Dynamics of Business and Economics

51. Which of the following countries is an example of an economic system based on capitalism? A. Russia B. Sweden C. Japan D. India E. Israel The United States, Canada, Japan, and Australia are examples of economic systems based on capitalism.

52. _____ relates to the number of goods and services that consumers are willing to buy at different prices at a specific time. A. Demand B. Supply C. Elasticity D. Balance of payments E. Deficit Demand is defined as the number of goods and services that consumers are willing to buy at different prices at a specific time.

AACSB: Analytic Accessibility: Keyboard Navigation Bloom's: Remember Difficulty: 1 Easy Learning Objective: 01-04 Describe the role of supply, demand, and competition in a free-enterprise system. Topic: Key Economic Indicators and How they Affect Business

Chapter 01 - The Dynamics of Business and Economics

53. _____ is the price at which the number of products that businesses are willing to supply equals the number of products consumers are willing to purchase at a point in time. A. Bundled price B. Equilibrium price C. Discount price D. Competitive price E. Maximum retail price Equilibrium price is defined as the price at which the number of products that businesses are willing to supply equals the number of products consumers are willing to purchase at a point in time.

54. _____ is the number of products that businesses are willing to sell at different prices at a specific time. A. Equilibrium B. Distribution C. Cost pricing D. Demand E. Supply Supply is the number of products that businesses are willing to sell at different prices at a specific time. In general, because the potential for profits is higher, businesses are willing to supply more of a good or service at higher prices.

Chapter 01 - The Dynamics of Business and Economics

55. Generally, when a retailer announces a discount sale on all its products: A. consumers will not demand more than usual. B. the store will not supply more products than it normally does. C. consumers will demand more products. D. the manufacturer will halt production. E. consumers will demand fewer products than usual. Generally, when prices decrease consumers will increase demand.

AACSB: Analytic Accessibility: Keyboard Navigation Bloom's: Understand Difficulty: 2 Medium Learning Objective: 01-04 Describe the role of supply, demand, and competition in a free-enterprise system. Topic: Key Economic Indicators and How they Affect Business

56. Which of the following statements describes the force that drives the distribution of resources (goods and services, labor, and money) in a free-enterprise economy? A. Prices for goods and services vary according to the changes in supply and demand. B. Supply and demand curves intersect at the point where supply and demand are not equal. C. Changing the price of a product does not alter the supply curve. D. The price at which the number of products that businesses are willing to supply is inversely proportional to the amount of products that consumers are willing to buy at a specific point in time. E. Businesses are willing to supply more of a good or service at higher prices because the potential for profits is higher. Prices for goods and services vary according to these changes in supply and demand. This concept is the force that drives the distribution of resources (goods and services, labor, and money) in a free-enterprise economy.

Chapter 01 - The Dynamics of Business and Economics

57. Which of the following markets is most likely to be a monopoly? A. Agricultural commodities B. Lifestyle gadgets C. Airlines D. Electricity supply E. Sports utility vehicles When there is one business providing a product in a given market, a monopoly exists. Utility companies that supply electricity, natural gas, and water are monopolies.

58. Using the supply and demand curves shown in the graph that follows, what is the equilibrium price for soft drinks?

A. 35 cents B. 45 cents C. 50 cents D. 55 cents E. 75 cents The equilibrium price is where the supply and demand curves intersect.

AACSB: Analytic Bloom's: Apply Difficulty: 2 Medium Learning Objective: 01-04 Describe the role of supply, demand, and competition in a free-enterprise system. Topic: Key Economic Indicators and How they Affect Business

Chapter 01 - The Dynamics of Business and Economics

59. According to Adam Smith, competition: A. mitigates growth. B. fosters efficiency. C. prevents low prices. D. increases demand. E. increases prices. According to Adam Smith, competition fosters efficiency and low prices by forcing producers to offer the best products at the most reasonable price; those who fail to do so are not able to stay in business. Thus, competition should improve the quality of the goods and services available or reduce prices.

60. When different businesses promote similar products that differ in some characteristics but satisfy the same consumer need, the competitive environment is most likely to be: A. monopolistic competition. B. pure competition. C. an oligopoly. D. a monopoly. E. socialist. Monopolistic competition exists when there are fewer businesses than in a pure-competition environment and the differences among the goods they sell are small. Aspirin, soft drinks, and vacuum cleaners are examples of such goods. These products differ slightly in packaging, warranty, name, and other characteristics, but all satisfy the same consumer need.

Chapter 01 - The Dynamics of Business and Economics

61. Monopolistic competition exists when: A. there are very few businesses selling a product B. many small businesses selling one standardized product are present in the market. C. there is only one producer of a product in a given market. D. individual businesses have control over their products' price. E. there is slowdown of the economy characterized by a decline in spending. Monopolistic competition exists when there are fewer businesses than in a pure competition environment and the differences among the goods they sell is small.

62. Which of the following exists when there are many small businesses selling one standardized product, such as agricultural commodities like wheat, corn, and cotton? A. Pure competition B. Monopolistic rivalry C. Imperfect competition D. Oligopoly E. Monopsony Pure competition exists when there are many small businesses selling one standardized product, such as agricultural commodities like wheat, corn, and cotton.

Chapter 01 - The Dynamics of Business and Economics

63. The market for corn in Brazil has a large number of sellers and there is no difference in the products sold by each seller. As there are also a large number of buyers for corn, the actions of a single seller or buyer cannot affect the price. The market for corn in Brazil can be described as ____. A. a monopoly B. monopolistic competition C. pure competition D. an oligopoly E. modified competition Because no one business sells enough agricultural commodities to influence the price and there are no differences among the commodities, prices are determined solely by supply and demand.

AACSB: Reflective Thinking Accessibility: Keyboard Navigation Bloom's: Apply Difficulty: 2 Medium Learning Objective: 01-04 Describe the role of supply, demand, and competition in a free-enterprise system. Topic: Key Economic Indicators and How they Affect Business

64. _____ exists when there are many small businesses selling one standardized product. A. Monopolistic competition B. Oligopoly C. Pure competition D. Monopoly E. Monopsony Pure competition is the market structure that exists when there are many businesses selling one standardized product.

Chapter 01 - The Dynamics of Business and Economics

65. When there is only one business providing a product in a given market, there exists: A. an oligopoly. B. modified competition. C. pure competition. D. monopolistic competition. E. a monopoly. A monopoly exists where there is just one business providing a product in a given market.

66. In which of the following market structures do individual businesses have control over their products' price because each business supplies a large portion of the products sold in the marketplace? A. Monopsony B. Monopoly C. Oligopoly D. Government-granted monopoly E. Coercive gambling An oligopoly exists when there are very few businesses selling a product. In an oligopoly, individual businesses have control over their products' price because each business supplies a large portion of the products sold in the marketplace.

Chapter 01 - The Dynamics of Business and Economics

67. An oligopoly exists when: A. there are very few businesses selling a product B. there are many small businesses selling one standardized product. C. only one producer of a product is present in a given market. D. individual businesses have control over their products' price. E. there is a slowdown of the economy characterized by a decline in spending. An oligopoly exists when there are very few businesses selling a product. In an oligopoly, individual businesses have control over their products' price because each business supplies a large portion of the products sold in the marketplace.

68. Following a bad harvest, the prices of agricultural commodities in Urbania have increased dramatically, as have the prices of products manufactured from agricultural commodities. Government intervention has failed to arrest the rising prices. Based on this information, Urbania is undergoing _____. A. deflation B. stagflation C. contraction D. depression E. inflation Inflation is a condition characterized by a continuing rise in prices. Inflation can be harmful if individuals' incomes do not increase at the same pace as rising prices, thus reducing their buying power.

Chapter 01 - The Dynamics of Business and Economics

69. Economic expansion occurs when: A. fewer goods and services are produced than consumer demand. B. an economy is growing and people are spending more money. C. a nation's standard of living drops dramatically. D. employment levels decline over time. E. prices begin to rise and incomes begin to fall. When people spend more money, it stimulates the production of goods and services which in turn stimulates employment.

70. A condition characterized by continuing rise in prices over a period of time refers to: A. inflation. B. depression. C. a recession. D. economic contraction. E. deflation. Inflation is a condition characterized by continuing rise in prices over a period of time.

Chapter 01 - The Dynamics of Business and Economics

71. Which of the following is true of economic expansion? A. There is a decline in production, employment, and income. B. The standard of living rises because more people are employed and have money to spend. C. There is a decline in spending. D. Consumer spending is low and business output is sharply reduced. E. The prices stagnate during this period. Economic expansion occurs when an economy is growing and people are spending more money. Their purchases stimulate the production of goods and services, which in turn stimulates employment. The standard of living rises because more people are employed and have money to spend.

72. Which of the following is a characteristic of economic depression? A. Unemployment levels are almost low or absent. B. Consumer spending is high. C. Individuals' incomes increase at the same pace as rising prices. D. Buying power of consumers is quadrupled. E. Business output is sharply reduced. Severe recession may turn into a depression, in which unemployment is very high, consumer spending is low, and business output is sharply reduced, such as what occurred in the United States in the early 1930s.

Chapter 01 - The Dynamics of Business and Economics

73. Which of the following is associated with a decline in spending? A. Inflation B. Economic contraction C. Economic expansion D. Employment boom E. Job expansion Economic contraction occurs when spending declines. Businesses cut back on production and lay off workers, and the economy as a whole slows down.

74. Economic contraction is said to have occurred when: A. GDP increases. B. spending declines. C. jobs increase. D. inflation decreases. E. unemployment falls. In an economic contraction, businesses cut back on production and lay off workers, raising unemployment. Rising unemployment tends to stifle spending.

Chapter 01 - The Dynamics of Business and Economics

75. Increased unemployment can reduce consumer demand for goods and services, leading to: A. economic expansion. B. inflation. C. deflation. D. budget surplus. E. recovery. In an economic contraction people spend less money which can lead to deflation or decrease in market prices.

76. Which of the following statements is true about GDP as a measure of a country's economic health? A. It does not include the services produced in a country. B. It measures only those goods and services made within a country. C. It includes profits from companies' overseas operations. D. It does not include profits earned by foreign companies within the country being measured. E. It essentially takes into account the concept of GDP in relation to population. GDP measures only those goods and services made within a country and therefore does not include profits from companies' overseas operations.

AACSB: Analytic Accessibility: Keyboard Navigation Bloom's: Understand Difficulty: 2 Medium Learning Objective: 01-05 Specify why and how the health of the economy is measured. Topic: Key Economic Indicators and How they Affect Business

Chapter 01 - The Dynamics of Business and Economics

77. A budget deficit occurs when a nation: A. reduces its expenditures. B. receives excess taxes. C. has no national debts. D. spends more than it takes in from taxes. E. balances taxes and expenditures. An important indicator of a nation's economic health is the relationship between its spending and income (from taxes). When a nation spends more than it takes in from taxes, it has a budget deficit.

AACSB: Analytic Accessibility: Keyboard Navigation Bloom's: Remember Difficulty: 2 Medium Learning Objective: 01-05 Specify why and how the health of the economy is measured. Topic: Key Economic Indicators and How they Affect Business

78. _____ measures changes in the prices of goods and services purchased for consumption by typical urban households. A. GDP B. Per capita income C. Worker productivity D. Trade balance E. Consumer price index Consumer price index measures changes in prices of goods and services purchased for consumption by typical urban households.

AACSB: Analytic Accessibility: Keyboard Navigation Bloom's: Remember Difficulty: 1 Easy Learning Objective: 01-05 Specify why and how the health of the economy is measured. Topic: Key Economic Indicators and How they Affect Business

Chapter 01 - The Dynamics of Business and Economics

79. _____ indicates the income level of "average" Americans. It is useful in determining how much "average" consumers spend and how much money Americans are earning. A. Per capita income B. GDP C. Budget deficit D. Consumer price index E. Worker productivity Per capita income indicates the income level of "average" Americans. It is useful in determining how much "average" consumers spend and how much money Americans are earning.

80. When a nation takes in more from taxes than it spends, it has a _____. A. fiscal deposit B. small cap C. Kondratieff wave D. budget deficit E. balance of trade When a nation spends more than it takes in from taxes, it has a budget deficit. In the 1990s, the U.S. government eliminated its long-standing budget deficit by balancing the money spent for social, defense, and other programs with the amount of money taken in from taxes.

Chapter 01 - The Dynamics of Business and Economics

81. Before the Industrial Revolution, the economy of North America under the colonists was characterized by: A. hunting and gathering instead of agriculture. B. the export of manufactured goods to England. C. a scarcity of natural resources. D. dependence on England for everyday goods. E. the domestic system of manufacturing goods. The colonists operated primarily as an agricultural economy. People were self-sufficient and produced everything they needed at home. Some families spent time turning raw materials into clothes and household goods. Because these goods were produced at home, this system was called the domestic system.

AACSB: Technology Accessibility: Keyboard Navigation Bloom's: Understand Difficulty: 2 Medium Learning Objective: 01-06 Trace the evolution of the American economy and discuss the role of the entrepreneur in the economy. Topic: Evolution of Business

82. Which of the following is a change that occurred in the U.S. during the Industrial Revolution? A. Farm production decreased as industrial production increased. B. As work became more localized, productivity decreased. C. Trade within the country decreased as regions became self-sufficient. D. Farmers began to move to cities to find jobs in factories. E. Fewer goods were available, and prices of goods increased. During the Industrial Revolution, John Deere's farm equipment increased farm production and reduced the number of farmers required to feed the young nation. Farmers began to move to cities to find jobs in factories and a higher standard of living.

AACSB: Analytic Accessibility: Keyboard Navigation Bloom's: Understand Difficulty: 2 Medium Learning Objective: 01-06 Trace the evolution of the American economy and discuss the role of the entrepreneur in the economy. Topic: Evolution of Business

Chapter 01 - The Dynamics of Business and Economics

83. Who set up the first American textile factory after he memorized the plans for an English factory and emigrated to the United States? A. Eli Whitney B. Francis Cabot Lowell C. Henry Ford D. Nick Woodman E. Samuel Slater Samuel Slater set up the first American textile factory after he memorized the plans for an English factory and emigrated to the United States.

AACSB: Analytic Accessibility: Keyboard Navigation Bloom's: Remember Difficulty: 1 Easy Learning Objective: 01-06 Trace the evolution of the American economy and discuss the role of the entrepreneur in the economy. Topic: Evolution of Business

84. In the history of the American economy, the period following the Industrial Revolution was known for an increasing emphasis on: A. services. B. artisanship. C. manufacturing. D. agriculture. E. information. The Industrial Revolution brought factories and therefore the American economy gradually became a manufacturing economy.

AACSB: Technology Accessibility: Keyboard Navigation Bloom's: Remember Difficulty: 2 Medium Learning Objective: 01-06 Trace the evolution of the American economy and discuss the role of the entrepreneur in the economy. Topic: Evolution of Business

Chapter 01 - The Dynamics of Business and Economics

85. When the assembly line was applied to more industries, America entered the: A. marketing economy. B. agrarian economy. C. indigenous manufacturing economy. D. production economy. E. service economy. The assembly line was applied to more industries, increasing the variety of goods available to the consumer. Businesses became more concerned with the needs of the consumer and entered the marketing economy.

86. Which of the following is a characteristic of the marketing economy phase of the American economy? A. People were self-sufficient and produced everything they needed at home, including food, clothing, and furniture. B. People found natural resources such as coal and iron ore and used them to produce goods such as horseshoes. C. Farm families who produced surplus goods sold or traded them for things they could not produce themselves. D. Expensive goods such as cars and appliances could be purchased on a time-payment plan. E. Factories began to spring up along the railways to manufacture farm equipment and a variety of other goods to be shipped by rail. During the marketing economy phase, the assembly line was applied to more industries, increasing the variety of goods available to the consumer. Businesses became more concerned with the needs of the consumer and entered the marketing economy. Expensive goods such as cars and appliances could be purchased.

Chapter 01 - The Dynamics of Business and Economics

87. Which of the following is a characteristic of a manufacturing economy? A. It is concerned with the indigenous production of food, clothing, and furniture. B. It is devoted to producing goods and services rather than producing agricultural products. C. It is characterized by the development of the road and railways. D. It is significant for the development of factories along the railways to manufacture farm equipment. E. It is particularly important for enabling farmers to send their surplus crops and goods all over the nation for barter or for sale. Industrialization brought increased prosperity, and the United States gradually became a manufacturing economy—one devoted to manufacturing goods and providing services rather than producing agricultural products.

88. An entrepreneur has been primarily associated with the willingness to: A. change employers frequently. B. work under authority. C. be conservative. D. possess a government job. E. take risks. An entrepreneur an individual who risks his or her wealth, time, and effort to develop for profit an innovative product or way of doing something.

Chapter 01 - The Dynamics of Business and Economics

89. The American economic system is best described as _____ because the government regulates business to preserve competition and protect consumers and employees. A. socialism B. laissez-faire capitalism C. modified capitalism D. communism E. Marxism Because of its use of laws to regulate business and protect consumers, the American economic system can best be described as modified capitalism.

90. As U.S. consumers get busier and earn more money, they hire others to do tasks such as housecleaning, laundry, and landscaping, resulting in the development of a(n) _____ economy focused on making life easier for busy consumers. A. manufacturing B. service C. agricultural D. technology-based E. marketing As consumers get busier and earn more money, they hire others to do tasks such as housecleaning, laundry, and landscaping.

Chapter 01 - The Dynamics of Business and Economics

91. Which of the following emerged in the United States as a result of industrialization? A. Government ownership of business B. Price regulation by planning commissions C. Low standard of living D. Increase in number of farmers E. Increase in the variety of goods available Industrialization brought increased prosperity, and the United States gradually became a manufacturing economy—one devoted to manufacturing goods and providing services rather than producing agricultural products. The assembly line was applied to more industries, increasing the variety of goods available to the consumer.

92. What is the following is true of ethics and social responsibility in business? A. Ethical conduct and corporate social responsibility are linked to increased profits. B. Businesses do not need to consider social values in the contemporary scenario. C. Investors and retired employees remain unaffected in case of scandals. D. Businesses' reputations depend solely on their profits. E. Business misconduct is likely to be widely excused if it enhances firms' profits. Research has shown that ethical behavior can not only enhance a company's reputation but can also drive profits.

Chapter 01 - The Dynamics of Business and Economics

93. After World War II, the United States became a(n): A. agricultural economy B. service economy C. indigenous economy D. market economy E. manufacturing economy After World War II, with the increased standard of living, Americans had more money and more time. They began to pay others to perform services that made their lives easier.

94. The American economic system is best described as _____ because the government regulates business to preserve competition and protect consumers and employees. A. scientific socialism B. pure communism C. mixed Marxism D. modified capitalism E. pure capitalism The American economic system is best described as modified capitalism because the government regulates business to preserve competition and protect consumers and employees.

Chapter 01 - The Dynamics of Business and Economics

95. Which of the following is done by the American government to counteract economic contraction? A. It may reduce interest rates. B. It decreases its own spending for goods and services. C. It raises reserve rate of banks. D. It decreases money supply. E. It sells securities through the Fed. When the economy is contracting and unemployment is rising, the federal government through the Federal Reserve Board tries to spur growth so that consumers will spend more money and businesses will hire more employees. To accomplish this, it may reduce interest rates or increase its own spending for goods and services.

96. Which of the following is useful in fighting inflation? A. Raising interest rates B. Lowering reserve rate of funds banks must hold in reserve C. Increasing money supply D. Decreasing interest rate on loans to member banks E. Buying security When the economy expands so fast that inflation results, the government may intervene to reduce inflation by slowing down economic growth. This can be accomplished by raising interest rates to discourage spending by businesses and consumers.

Chapter 02 - Business Ethics and Social Responsibility

Chapter 02 Business Ethics and Social Responsibility

True / False Questions 1. All business decisions cannot be judged as right or wrong, ethical or unethical. FALSE Whether made in science, politics, sports, or business, any organizational decision can be judged as right or wrong, ethical or unethical.

AACSB: Ethics Accessibility: Keyboard Navigation Bloom's: Understand Difficulty: 2 Medium Learning Objective: 02-01 Define business ethics and social responsibility and examine their importance. Topic: The Ethical Concerns that Affect Business

2. An ethical issue is an identifiable problem, situation, or opportunity that requires a person or organization to choose from among several actions that may be evaluated as ethical or unethical. TRUE An ethical issue is an identifiable problem, situation, or opportunity that requires a person to choose from among several actions that may be evaluated as right or wrong, ethical or unethical. In business, this choice usually involves weighing monetary gain against what a person considers appropriate conduct.

AACSB: Ethics Accessibility: Keyboard Navigation Bloom's: Remember Difficulty: 1 Easy Learning Objective: 02-02 Detect some of the ethical issues that may arise in business. Topic: The Ethical Concerns that Affect Business

Chapter 02 - Business Ethics and Social Responsibility

3. Ethical decisions in an organization are influenced by individual moral standards. TRUE

Ethical decisions in an organization are influenced by three key factors: individual moral standards, the influence of managers and coworkers, and the opportunity to engage in misconduct

AACSB: Ethics Accessibility: Keyboard Navigation Bloom's: Remember Difficulty: 1 Easy Learning Objective: 02-03 Specify how businesses can promote ethical behavior. Topic: The Ethical Concerns that Affect Business

4. The concept of social responsibility is universally accepted. FALSE Although the concept of social responsibility is receiving more and more attention, it is still not universally accepted.

AACSB: Ethics Accessibility: Keyboard Navigation Bloom's: Understand Difficulty: 1 Easy Learning Objective: 02-04 Explain the four dimensions of social responsibility. Topic: Corporate Social Responsibility

Chapter 02 - Business Ethics and Social Responsibility

5. A major social responsibility for business is providing equal opportunities for all employees. TRUE A major legal and social responsibility for business is providing equal opportunities for all employees regardless of their sex, age, race, religion, or nationality.

AACSB: Ethics Accessibility: Keyboard Navigation Bloom's: Remember Difficulty: 1 Easy Learning Objective: 02-05 Debate an organization's social responsibilities to owners, employees, consumers, the environment, and the community. Topic: Corporate Social Responsibility

Multiple Choice Questions 6. The principles and standards that determine acceptable conduct in business organizations are referred to as: A. social responsibility. B. business strategies. C. business ethics. D. business stances. E. corporate citizenship. Business ethics is defined as the principles and standards that determine acceptable conduct in business organizations.

AACSB: Ethics Accessibility: Keyboard Navigation Bloom's: Remember Difficulty: 1 Easy Learning Objective: 02-01 Define business ethics and social responsibility and examine their importance. Topic: The Ethical Concerns that Affect Business

Chapter 02 - Business Ethics and Social Responsibility

7. Which of the following statements is true? A. All actions deemed unethical by society are also illegal. B. The concerns of what is legal and ethical do not change over time. C. The terms social responsibility and ethics should be used interchangeably. D. Companies can be both profitable and socially responsible. E. Businesses whose sole objective is to earn profit may not consider their social responsibility. Many consumers and social advocates believe that businesses should not only make a profit but also consider the social implications of their activities. Socially responsible businesses win the trust and respect of their employees, customers, and society and, in the long run, increase profits.

8. The term _____ refers to a business's obligation to maximize its positive impact and minimize its negative impact on society. A. social citizenship B. social strategy C. social ethics D. social responsibility E. social rule Social responsibility refers to a business's obligation to maximize its positive impact and minimize its negative impact on society.

Chapter 02 - Business Ethics and Social Responsibility

9. Which of the following statements is true? A. Business ethics relates to an individual's values, principles, and standards of conduct. B. The acceptability of behavior in business is determined only by the organization in question. C. Social responsibility and social ethics do not mean the same thing. D. Businesses should only make a profit rather than consider the social implications of their activities. E. Most unethical activities within organizations are not supported by an organizational culture that encourages employees to bend the rules. Although many people use the terms social responsibility and ethics interchangeably, they do not mean the same thing. Business ethics relates to an individual's or a work group's decisions that society evaluates as right or wrong.

AACSB: Ethics Accessibility: Keyboard Navigation Bloom's: Remember Difficulty: 2 Medium Learning Objective: 02-01 Define business ethics and social responsibility and examine their importance. Topic: The Ethical Concerns that Affect Business

10. The _____ Act criminalized securities fraud and toughened penalties for corporate fraud. A. Dodd-Frank B. Federal Trade Commission C. Foreign Corrupt Practices D. Sarbanes-Oxley E. Sherman Antitrust Congress passed the Sarbanes-Oxley Act in response to several prominent accounting scandals. The law criminalized securities fraud and stiffened penalties for corporate fraud.

Chapter 02 - Business Ethics and Social Responsibility

11. Which of the following laws criminalized securities fraud and stiffened penalties for corporate fraud? A. The Glass-Steagall Legislation B. The Sherman Act C. The Sarbanes-Oxley Act D. The Clayton Act E. The Celler-Kefauver Act The Sarbanes-Oxley Act was passed in 2002 by Congress to criminalize securities fraud as well as stiffen penalties for corporate fraud. This was a response to public outcry regarding accounting scandals in the early 2000s and to restore confidence in corporate America.

12. The Sarbanes-Oxley Act was passed to: A. punish those who committed accounting fraud in the late 1990s. B. improve corporate profits. C. help laid-off employees get their jobs back. D. help investors recoup their losses. E. help restore confidence in corporate America. The Sarbanes-Oxley Act was passed in 2002 by Congress to criminalize securities fraud as well as stiffen penalties for corporate fraud. This was a response to public outcry regarding accounting scandals in the early 2000s and to restore confidence in corporate America.

Chapter 02 - Business Ethics and Social Responsibility

13. One of the most difficult things for a business to restore after an ethics scandal is: A. regulations. B. ethics training programs. C. trust. D. codes of conduct. E. morale. Ethical conduct builds trust and credibility. Establishing trust and confidence is much more difficult in organizations that have reputations for acting unethically.

14. Which of the following does ethical conduct build among individuals and in business relationships, which validates and promotes confidence in business relationships? A. Pride B. Trust C. Self-reliance D. Creativity E. Rigor Ethical conduct builds trust among individuals and in business relationships, which validates and promotes confidence in business relationships.

Chapter 02 - Business Ethics and Social Responsibility

15. Which of the following statements is true of ethics? A. Ethical issues are not limited to for-profit organizations. B. Business ethics do not go beyond legal issues. C. Ethical conduct does not have any impact on business relationships. D. Ethical conflicts do not evolve into legal disputes. E. Ethical issues are not affected by social perceptions. Ethical issues are not limited to for-profit corporations but also affect government, non-profits such as universities, sports, and individuals.

16. Which of the following is a key step in evaluating ethical decisions in business? A. Assuming that ethical issues do not include all areas of organizational activities B. Recognizing that social responsibility and ethics are inversely related to each other C. Understanding that business ethics does not go beyond legal issues D. Identifying that ethics is not culture-specific E. Learning how to recognize and resolve ethical issues Learning how to recognize and resolve ethical issues is a key step in evaluating ethical decisions in business.

Chapter 02 - Business Ethics and Social Responsibility

17. _____ are payments, gifts, or special favors intended to influence the outcome of a decision. A. Bribes B. Emoluments C. Stipends D. Grants E. Recompenses Bribes are payments, gifts, or special favors intended to influence the outcome of a decision. A bribe benefits an individual or a company at the expense of other stakeholders.

18. Which of the following is the most common ethical problem for employees? A. Theft of time B. Misuse of company resources C. Intimidating behavior D. Insider trading E. Conflict of interest Abusive or intimidating behavior is the most common ethical problem for employees. These concepts can mean anything from physical threats, false accusations, profanity, insults, yelling, harshness, and unreasonableness to ignoring someone or simply being annoying; and the meaning of these words can differ by person.

Chapter 02 - Business Ethics and Social Responsibility

19. Abusive behavior is difficult to assess and manage because of: A. the debate surrounding the acceptability. B. ethical issues that often emerge from conflict. C. different rating companies. D. diversity in culture and lifestyle. E. the fact that they lead to higher levels of unemployment. Abusive behavior is difficult to assess and manage because of diversity in culture and lifestyle.

20. Which of the following acts amounts to bullying? A. Trading within insiders B. Discrediting others' ideas and opinions C. Lobbying for or against someone D. Mediating as a third party E. Buying or selling of stocks by insiders Actions associated with bullies include spreading rumors to damage others and discrediting others' ideas and opinions.

Chapter 02 - Business Ethics and Social Responsibility

21. Within the concept of abusive behavior, _____ should be a consideration. A. intent B. context C. natural environment D. cultural norms E. business ethics Within the concept of abusive behavior, intent should be a consideration.

22. _____ is the buying or selling of stocks by insiders who possess material that is still not public. A. Gatekeeping B. Whistleblowing C. Downcycling D. Insider trading E. Plagiarizing Insider trading is an example of a conflict of interest. Insider trading is the buying or selling of stocks by insiders who possess material that is still not public. The Justice Department has taken an aggressive stance toward insider trading.

Chapter 02 - Business Ethics and Social Responsibility

23. According to the National Business Ethics Survey, _____ is the number one area of misconduct observed in the workplace. A. plagiarism B. discrimination C. abusive behavior D. misuse of company time E. stealing According to the National Business Ethics Survey, abusive behavior is the number one area of misconduct observed in the workplace.

24. Identify a true statement about ethics and code of conduct. A. One of the principal causes of unethical behavior in organizations is less aggressive financial or business objectives. B. Among the several ethical issues of today, time theft costs can be easy to measure. C. Within the concept of abusive behavior, intent should not be a consideration. D. Ethics is related to the culture in which a business operates. E. Bullying has more legal recourse than sexual harassment. Ethics is also related to the culture in which a business operates. In the United States, for example, it would be inappropriate for a businessperson to bring an elaborately wrapped gift to a prospective client on their first meeting—the gift could be viewed as a bribe.

Chapter 02 - Business Ethics and Social Responsibility

25. Which of the following has developed a Corruption Perceptions Index? A. Financial Executives International B. Texas Instruments C. National Business Ethics International D. ORC International E. Transparency International Transparency International has developed a Corruption Perceptions Index.

26. Which of the following is true of bullying? A. Bullying is not a widespread problem in the United States. B. Bullying can occur between companies that are intense competitors. C. 21 percent of workplace bullies are supervisors. D. Bullying cannot occur in all types of businesses. E. To avoid bullying, employees must be able to consider their personal financial interests and their business dealings as one unit. Bullying can also occur between companies that are intense competitors. For example, European antitrust regulators alleged that some of the world's biggest banks—including Goldman Sachs, Morgan Stanley, and J.P. Morgan— collaborated with an industry association to prevent exchanges from offering and trading in credit derivatives.

Chapter 02 - Business Ethics and Social Responsibility

27. _____ in particular have the opportunity to influence employees' actions. A. Managers B. Subordinates C. Junior level employees D. Financiers E. Customers Managers in particular, because of the authority of their position, have the opportunity to influence employees' actions. For example, a manager might influence employees to use pirated computer software to save costs.

28. Open discussion of ethical issues: A. does not promote trust in an organization. B. does not eliminate ethical problems. C. leads to more unethical practices. D. eliminates the process of resolving an issue. E. leads to a gridlock of a situation. Open discussion of ethical issues does not eliminate ethical problems, but it does promote both trust and learning in an organization. When people feel that they cannot discuss what they are doing with their coworkers or superiors, there is a good chance that an ethical issue exists.

AACSB: Ethics Accessibility: Keyboard Navigation Bloom's: Understand Difficulty: 2 Medium Learning Objective: 02-02 Detect some of the ethical issues that may arise in business. Topic: The Ethical Concerns that Affect Business

Chapter 02 - Business Ethics and Social Responsibility

29. Laura, a manager, makes decisions that benefit her financially at the expense of her firm. Which of the following ethical issues in business is addressed in this example? A. Bullying B. Bribery C. Conflict of interest D. Intimidating behavior E. Misuse of company time A conflict of interest occurs when an employee must choose whether to advance his or her own interests or those of the firm. If managers make decisions that give them more power or money but do not help the company, then they have a conflict of interest.

AACSB: Ethics Accessibility: Keyboard Navigation Bloom's: Apply Difficulty: 2 Medium Learning Objective: 02-02 Detect some of the ethical issues that may arise in business. Topic: The Ethical Concerns that Affect Business

30. Which of the following is associated with a hostile workplace when a person or group is targeted and is threatened, harassed, belittled, verbally abused, or overly criticized? A. Conflict of interest B. Bribery C. Treachery D. Treason E. Bullying Bullying is associated with a hostile workplace when a person or group is targeted and is threatened, harassed, belittled, verbally abused, or overly criticized. Bullying may create what some consider a hostile environment, a term generally associated with sexual harassment.

Chapter 02 - Business Ethics and Social Responsibility

31. Which of the following is true of bullying? A. Surveys reveal that bullying in the workplace is on the decline. B. Bullying cannot occur in all types of businesses. C. Flaunting status or authority to take advantage of others does not amount to the act of bullying. D. Although sexual harassment has legal recourse, bullying has little legal recourse at this time. E. Insider trading is an example of bullying. Although sexual harassment has legal recourse, bullying has little legal recourse at this time. Bullying is a widespread problem in the United States, and can cause psychological damage that can result in health-endangering consequences to the target.

32. Which of the following exists when a person must choose whether to advance his or her own personal interests or those of others? A. An act of impeachment B. A conflict of interest C. A fiduciary D. An escrow E. A recusal A conflict of interest, one of the most common ethical issues identified by employees, exists when a person must choose whether to advance his or her own personal interests or those of others.

Chapter 02 - Business Ethics and Social Responsibility

33. Which of the following is an example of a conflict of interest? A. Third-party transaction B. Insider trading C. Mediation D. Arbitration E. Renegotiated buyout Insider trading is an example of a conflict of interest. Insider trading is the buying or selling of stocks by insiders who possess material that is still not public.

34. The fact that businesspersons are expected not to harm customers, clients, and competitors knowingly through deception, misrepresentation, coercion, or discrimination is part of the practice of: A. business relationships. B. communications. C. conflict of interest. D. fairness and honesty. E. consumerism. Fairness and honesty are at the heart of business ethics and relate to values of decision makers. Businesspersons obeying the law are expected not to harm customers, employees, clients, or competitors knowingly through deception, misrepresentation, coercion, or discrimination.

Chapter 02 - Business Ethics and Social Responsibility

35. A video gaming company was investigated for allegedly raising prices of its video game consoles during the Christmas shopping season and manipulating the supply of games available at that time. This ethical issue is primarily concerned with: A. conflict of interest. B. communications. C. fairness and honesty. D. cost control. E. rules of games. One aspect of fairness relates to competition. Companies sometimes attempt to gain control over markets by using questionable practices, such as manipulating the supply of products that harm competition.

36. Which of the following is an Internet service that allows teachers to determine if their students have plagiarized content? A. Kioskea B. Turnitin C. Savee D. G-NetLog E. Mobgo Secure TurnItIn is an Internet service that allows teachers to determine if their students have plagiarized content.

Chapter 02 - Business Ethics and Social Responsibility

37. In the realm of business ethics, making claims about dietary supplements or the health benefits of certain unproven ingredients is an issue related to: A. conflict of interest. B. communications. C. product design. D. business relationships. E. financing. Truthfulness about product quality and effectiveness is important to consumers. Many marketers of dietary supplements make unproven or even false claims that their products will help the consumer lose weight, gain muscle, or improve their overall health.

38. Alcoholic beverage and cigarette manufacturers have argued that a total ban on cigarette and alcohol advertisements violates the: A. Sixth Amendment B. Thirteenth Amendment C. Tenth Amendment D. First Amendment E. Second Amendment Alcoholic beverage and cigarette manufacturers have argued that a total ban on cigarette and alcohol advertisements violates the First Amendment. Internet regulation, particularly that designed to protect children and the elderly, is at the forefront in consumer protection legislation.

Chapter 02 - Business Ethics and Social Responsibility

39. The National Business Ethics Survey found that employees who feel pressured to compromise ethical standards view _____ as the greatest source of such pressure. A. CEOs B. shareholders and stakeholders C. clients D. top and middle managers E. coworkers Managers, because of the inherent authority of their position, have the opportunity to influence employees' actions. The National Business Ethics Survey found that employees who feel pressured to compromise ethical standards view top and middle managers as the greatest source of such pressure.

40. _____ involves taking someone else's work and presenting it as your own. A. Conflict of interest B. Bullying C. Inspiration D. Bribery E. Plagiarism In business, the ethical issue of plagiarism arises when an employee copies reports or takes the work or ideas of others and presents it as his or her own without mentioning the source.

Chapter 02 - Business Ethics and Social Responsibility

41. The warning on cigarette packages about the health implications of smoking is an example of: A. conflict of interest. B. fairness and honesty. C. communications. D. relationships within a business. E. environmental issues. An important aspect of communications regarding an ethical issue is product labeling such as the Surgeon General's warning on cigarette packages.

42. Which of the following behavior is an example of ethical consideration within the purview of business relationships? A. Keeping company secrets B. Communicating with customers C. Whistleblowing D. Obeying environmental laws E. Donating to local charities Ethical behavior within a business involves keeping company secrets, meeting obligations and responsibilities, and avoiding undue pressure that may force others to act unethically.

Chapter 02 - Business Ethics and Social Responsibility

43. If a manager pressures a subordinate to engage in activities that he or she may otherwise view as unethical, such as engaging in accounting fraud or stealing a competitor's secrets, this would be an ethical issue related to: A. plagiarism. B. business relationships. C. communications. D. fairness and honesty. E. conflicts of interest. Ethical behavior within a business involves keeping company secrets, meeting obligations and responsibilities, and avoiding undue pressure that may force others to act unethically.

AACSB: Ethics Accessibility: Keyboard Navigation Bloom's: Understand Difficulty: 1 Easy Learning Objective: 02-02 Detect some of the ethical issues that may arise in business. Topic: The Ethical Concerns that Affect Business

44. If an employee learned of a significant cost-saving idea from a coworker and then informed management of the idea without revealing its true source, the employee would be involved in: A. keeping a secret. B. misuse of resources. C. plagiarism. D. bullying. E. bribery. Plagiarism is taking someone else's work or idea and presenting it as one's own without giving credit to its source.

Chapter 02 - Business Ethics and Social Responsibility

45. A manager attempting to take credit for a subordinate's ideas is engaging in a type of_____. A. conflict of interest B. plagiarism C. whistleblowing D. misplaced loyalty E. capture bonding A manager attempting to take credit for a subordinate's ideas is engaging in a type of plagiarism. Plagiarism refers to taking someone else's work and presenting it as one's own without mentioning the source, which is an ethical issue.

46. Ethical decisions in an organization are influenced by individual moral standards, the influence of managers and coworkers, and _____. A. individual religious values B. informal ethical policies or rules C. the opportunity to engage in misconduct D. family influence E. ethical values of clients Ethical decisions in an organization are influenced by three key factors: individual moral standards, the influence of managers and coworkers, and the opportunity to engage in misconduct.

Chapter 02 - Business Ethics and Social Responsibility

47. Which of the following is true of professional codes of ethics? A. They are informal rules of ethics followed by employees. B. They do not have to provide any guidelines and principles. C. They do not have to be too detailed. D. They should only be developed by the board of directors of a firm. E. They should take into account every ethical situation possible. Professional codes of ethics do not have to be so detailed that they take into account every situation, but they should provide guidelines and principles that can help employees achieve organizational objectives and address risks in an acceptable and ethical way. The development of a code of ethics should include not only a firm's executives and board of directors, but also legal staff and employees from all areas of a firm.

AACSB: Ethics Accessibility: Keyboard Navigation Bloom's: Understand Difficulty: 2 Medium Learning Objective: 02-03 Specify how businesses can promote ethical behavior. Topic: The Ethical Concerns that Affect Business

48. Which of the following is true of ethics? A. Ethical conflict increases when employees feel that their company is exerting pressure on them to engage in unethical conduct. B. Professional codes of ethics are informal rules and standards that describe what the company expects of its employees. C. Codes of ethics need to be very detailed so that they take into account every situation. D. The development of a code of ethics should include only a firm's executives and board of directors. E. Employees always utilize the same ethical standards at work as they do at home. Business managers and employees often experience some tension between their own ethical beliefs and their obligations to the organizations in which they work. Many employees utilize different ethical standards at work than they do at home. This conflict increases when employees feel that their company is encouraging unethical conduct or exerting pressure on them to engage in it.

AACSB: Ethics Accessibility: Keyboard Navigation Bloom's: Understand Difficulty: 1 Easy Learning Objective: 02-03 Specify how businesses can promote ethical behavior. Topic: The Ethical Concerns that Affect Business

Chapter 02 - Business Ethics and Social Responsibility

49. A set of formalized rules and standards that describes what a company expects of its employees is called a(n) ____. A. contractual capacity B. consumerist code C. moral philosophy D. social responsibility E. code of ethics Codes of ethics are formalized rules and standards that describe what the company expects of its employees.

50. Codes of ethics, policies on ethics, and ethics training programs advance ethical behavior because they: A. do not limit the opportunity for misconduct. B. result in expensive litigation. C. infringe on consumers' rights to be informed. D. prescribe which activities are acceptable and which are not. E. are strictly voluntary in nature. Codes of ethics, policies on ethics, and ethics training programs advance ethical behavior because they prescribe which activities are acceptable and which are not, and they limit the opportunity for misconduct by providing punishments for violations of the rules and standards.

Chapter 02 - Business Ethics and Social Responsibility

51. A professional code of ethics represents the _____. A. unofficial rules of ethics followed by the employees B. employee perceptions of various ethical issues faced by an organization C. detailed ethical responses for every possible scenario D. formalized rules and standards that help employees to act in an ethical way E. ethical behaviors that an organization expects its customers to follow A code of ethics establishes which types of behavior are acceptable and which are not. It limits the opportunity for misconduct by clearly defining violations and establishing punishment.

52. Codes of ethics foster ethical behavior by: A. highlighting the religious implications of behaving in an unethical manner. B. limiting the opportunity to behave unethically by providing punishments for violations of the rules and standards. C. making the employees understand that they should use their own judgment to determine if an action is ethical. D. pointing out to the employees that ethical behaviors are subjective and are dependent on social perceptions. E. encouraging employees to be more competitive and profit-oriented. Codes of ethics, policies on ethics, and ethics training programs advance ethical behavior because they prescribe which activities are acceptable and which are not, and they limit the opportunity for misconduct by providing punishments for violations of the rules and standards.

Chapter 02 - Business Ethics and Social Responsibility

53. A large number of _____ cases result in retaliation against the employee, even though the government has tried to take steps to protect workers and to encourage reporting of misconduct. A. executive B. civil C. whistleblowing D. petty theft E. federal The government seeks to reward firms that report misconduct; however, many whistleblowers still suffer retaliation. Congress has taken steps to close a legislative loophole that resulted in the dismissal of many whistleblowers.

54. Identify a key aspect to consider in developing a code of ethics. A. Solicit input from employees from different departments, functions, and regions. B. Ensure that specific U.S. laws and regulations or those of specific countries are referenced, particularly for codes that will be distributed to employees in multiple regions. C. Ensure that employee group meetings are not carried out on a complete draft version. D. Make certain that the headings of the code sections are broad and not easily understood by all sections. E. Inform employees that the code of ethics has to be very generic and should not take into account every situation. One of the key aspects to consider while developing a code of ethics is to solicit input from employees from different departments, functions, and regions to compile a list of common questions and answers to include in the code document.

Chapter 02 - Business Ethics and Social Responsibility

55. According to the National Business Ethics Survey (NBES), _____ is the greatest determinant of future misconduct. A. a company's workforce B. the external environment C. the universal business overview D. a company's ethical culture E. a company's stakeholders According to the National Business Ethics Survey (NBES), employees in organizations that have written codes of conduct and ethics training, ethics offices or hotlines, and systems for reporting are more likely to report misconduct when they observe it. The survey found that a company's ethical culture is the greatest determinant of future misconduct.

56. _____ is the act of an employee exposing an employer's wrongdoing to outsiders. A. Fraud B. Whistleblowing C. Plagiarism D. Bullying E. Gatekeeping Whistleblowing occurs when there is a lack of anonymous reporting mechanisms in a company and an employee therefore finds it necessary to expose the firm's wrongdoing to the government or media.

Chapter 02 - Business Ethics and Social Responsibility

57. Which of the following is true of the Dodd-Frank Act passed by the U.S. Congress in 2010? A. It is an act that rewards organizations that follow high standards of business ethics. B. It punishes business organizations that are found to be involved in unethical practices. C. It protects the rights of foreign businesses operating in the United States. D. It provides monetary rewards to those organizations that take action against employees involved in professional misconduct. E. It encourages whistleblowers to provide information about corporate misconduct through monetary rewards. In 2010, Congress passed the Dodd-Frank Act, which includes a "whistleblower bounty program." The Securities and Exchange Commission can now award whistleblowers between 10 and 30 percent of monetary sanctions over $1 million.

58. Which of the following acts includes a whistleblower bounty program? A. The Clayton Act B. The Sherman Antitrust Legislation C. The Celler-Kefauver Act D. The Hobbs Act E. The Dodd-Frank Act In 2010, Congress passed the Dodd-Frank Act, which includes a "whistleblower bounty program." The Securities and Exchange Commission can now award whistleblowers between 10 and 30 percent of monetary sanctions over $1 million.

Chapter 02 - Business Ethics and Social Responsibility

59. Which of the following is one of the most common factors that executives give for why turnover increases? A. A lack of transparency among company leaders B. An absence of unfair employee treatment C. A decrease in attrition rate in a company D. An increase in employee engagement E. An absence of employee dissatisfaction Three of the most common factors that executives give for why turnover increases are: employee loss of trust in the company, a lack of transparency among company leaders, and unfair employee treatment.

60. Being profitable relates to the _____ dimension of social responsibility. A. corporate citizenship B. voluntary C. ethical D. legal E. economic There are four dimensions of social responsibility: economic, legal, ethical, and voluntary. Economic responsibility refers to earning a profit, which is the foundation of the social responsibility pyramid.

AACSB: Ethics Accessibility: Keyboard Navigation Bloom's: Remember Difficulty: 1 Easy Learning Objective: 02-04 Explain the four dimensions of social responsibility. Topic: Corporate Social Responsibility

Chapter 02 - Business Ethics and Social Responsibility

61. Obeying the law is a business's _____. A. right B. choice C. economic responsibility D. legal responsibility E. ethical responsibility Businesses, like all organizations, have a legal responsibility to obey the law.

AACSB: Analytic Accessibility: Keyboard Navigation Bloom's: Understand Difficulty: 1 Easy Learning Objective: 02-04 Explain the four dimensions of social responsibility. Topic: Corporate Social Responsibility

62. _____ is the extent to which businesses meet the legal, ethical, economic, and voluntary responsibilities placed on them by their various stakeholders. A. Ethical well-being B. Economic status quo C. Virtual sustainability D. Unaccountable consumerism E. Corporate citizenship Corporate citizenship is the extent to which businesses meet the legal, ethical, economic, and voluntary responsibilities placed on them by their various stakeholders.

Chapter 02 - Business Ethics and Social Responsibility

63. Which of the following involves the activities and organizational processes adopted by businesses to meet their social responsibilities? A. Carbon neutrality B. Corporate citizenship C. Hierarchical clustering D. Social dominance E. Multilevel regression Corporate citizenship involves the activities and organizational processes adopted by businesses to meet their social responsibilities.

64. Avoiding misconduct and doing what is right, just, and fair relates to a business's: A. economic responsibility. B. corporate citizenship. C. legal responsibility. D. ethical responsibility. E. responsibility toward the government. Ethical responsibilities, the third dimension of social responsibility, require that a firm acts ethically and does what is right, just, and fair.

AACSB: Analytic Accessibility: Keyboard Navigation Bloom's: Remember Difficulty: 1 Easy Learning Objective: 02-04 Explain the four dimensions of social responsibility. Topic: Corporate Social Responsibility

Chapter 02 - Business Ethics and Social Responsibility

65. Which of the following is an example of corporate citizenship? A. Engaging in deforestation B. Engaging in desertification C. Engaging in soil retrogression D. Engaging in moisture recycling E. Engaging in organic farming One of the major corporate citizenship issues is the focus on preserving the environment. The majority of people agree that climate change is a global emergency, but there is no agreement on how to solve the problem. Another example of a corporate citizenship issue might be animal rights—an issue that is important to many stakeholders.

AACSB: Analytic Accessibility: Keyboard Navigation Bloom's: Apply Difficulty: 2 Medium Learning Objective: 02-04 Explain the four dimensions of social responsibility. Topic: Corporate Social Responsibility

66. Which of the following is a dimension of social responsibility? A. Political B. Philosophical C. Mechanical D. Rational E. Ethical The four dimensions of social responsibility are legal, economic, voluntary, and ethical.

Chapter 02 - Business Ethics and Social Responsibility

67. Being a "good corporate citizen" is an example of the _____ dimension of social responsibility. A. puritanical B. economic C. legal D. ethical E. voluntary Being a "good corporate citizen" is an example of the voluntary dimension of social responsibility.

68. Philanthropic contributions made by a business to a charitable organization represent the _____ dimension of social responsibility. A. corporate citizenship B. economic C. legal D. ethical E. voluntary Voluntary responsibilities include philanthropic donations.

Chapter 02 - Business Ethics and Social Responsibility

69. _____ is the extent to which businesses meet the legal, ethical, economic, and voluntary responsibilities placed on them by their stakeholders. A. A code of conduct B. A code of ethics C. Business ethics D. Corporate citizenship E. Whistleblowing Corporate citizenship is the extent to which businesses meet the legal, ethical, economic, and voluntary responsibilities placed on them by their stakeholders.

70. Identify an argument that supports social responsibility. A. Some people question whether business has the expertise needed to assess and make decisions about social problems. B. Instances of whistleblowing causes significant damage to employees. C. As members of society, businesses should do their fair share to help others. D. Participation in social programs gives businesses greater power, perhaps at the expense of particular segments of society. E. Social responsibility sidetracks managers from earning profits. As members of society, businesses should do their fair share to help others.

Chapter 02 - Business Ethics and Social Responsibility

71. Studies have found a direct link between social responsibility and _____ in business. A. profitability B. ethics C. declining stock prices D. happiness of stakeholders E. global warming Studies have found a direct link between social responsibility and profitability in business as well as employee commitment and consumer loyalty.

72. Businesses must first be responsible to their_____, who are primarily concerned with earning a profit. A. clients B. vendors C. top managers D. owners E. employees Businesses must first be responsible to their owners, who are primarily concerned with earning a profit or a return on their investment in a company.

Chapter 02 - Business Ethics and Social Responsibility

73. _____ is defined as the activities that individuals, groups, and organizations undertake to protect their rights as customers. A. Consumerism B. Civil rights C. Protectionism D. Conspicuous consumption E. Shopping Consumerism is defined as the activities that individuals, groups, and organizations undertake to protect their rights as consumers.

74. Which of the following is a major concern of any firm trying to increase profits? A. Lack of employee commitment B. Low attrition rate C. Low turnover rate D. High return on investment E. High employee retention A number of studies have found a direct relationship between social responsibility and profitability, as well as a link that exists between employee commitment and customer loyalty—two major concerns of any firm trying to increase profits.

Chapter 02 - Business Ethics and Social Responsibility

75. Laws regarding workplace safety are enforced by the _____. A. Federal Trade Commission B. Occupational Safety and Health Administration C. Environmental Protection Agency D. Consumer Bill of Rights E. Corrupt Practices Act Many laws regarding safety in the workplace are enforced by the Occupational Safety and Health Administration (OSHA).

AACSB: Analytic Accessibility: Keyboard Navigation Bloom's: Remember Difficulty: 1 Easy Learning Objective: 02-05 Debate an organization's social responsibilities to owners, employees, consumers, the environment, and the community. Topic: Corporate Social Responsibility

76. The _____ means that a business must not knowingly sell anything that could result in personal injury or harm to consumers. A. right to assert B. right to information C. right to safety D. right to selection E. right to be heard The right to safety means that a business must not knowingly sell anything that could result in personal injury or harm to consumers.

Chapter 02 - Business Ethics and Social Responsibility

77. The right to choose ensures that: A. consumers' interests will receive full and sympathetic consideration when the government formulates policy. B. consumers do not have to pay service taxes. C. consumers enjoy fair treatment if they voice complaints about a purchased product. D. consumers enjoy freedom to review complete information about a product before they buy it. E. consumers have access to a variety of goods and services at competitive prices. The right to choose ensures that consumers have access to a variety of goods and services at competitive prices. The assurance of both satisfactory quality and service at a fair price is also a part of the consumer's right to choose.

78. The assurance of both satisfactory quality and service at a fair price is a part of the consumer's right to _____. A. choose B. be heard C. be informed D. safety E. consider The right to choose ensures that consumers have access to a variety of goods and services at competitive prices. The assurance of both satisfactory quality and service at a fair price is also a part of the consumer's right to choose.

Chapter 02 - Business Ethics and Social Responsibility

79. The right to _____ assures consumers that their interests will receive full and sympathetic consideration when the government formulates policy. A. choose B. be informed C. consider D. safety E. be heard The right to be heard assures consumers that their interests will receive full and sympathetic consideration when the government formulates policy.

80. A major social responsibility for businesses is providing _____ for all employees. A. higher wages B. equal opportunities C. more free time D. better health care E. equal holiday pay A major social responsibility for all business is providing equal opportunities to all employees regardless of sex, age, race, religion, or nationality.

Chapter 02 - Business Ethics and Social Responsibility

81. John F. Kennedy's consumer bill of rights outlined four rights: the right to be informed, the right to choose, the right to be heard, and the right to: A. regulations. B. service. C. easy credit. D. fix prices. E. safety. John F. Kennedy's 1962 consumer bill included the right to be informed, the right to choose, the right to be heard, and the right to safety.

82. The _____ gives consumers the freedom to review all details about the products they wish to buy. A. right to be informed B. right to be heard C. right to purchase D. right to choose E. right to speak out The right to be informed provides consumers access to information about the products they wish to buy and ensures vital information is contained on product packages and labels.

Chapter 02 - Business Ethics and Social Responsibility

83. Which of the following is true about the right to choose? A. It ensures that consumers have access to a variety of products and services at competitive prices. B. It provides the assurance of only satisfactory quality and not service at a fair price. C. It provides the assurance of only service at a fair price and not satisfactory quality. D. It ensures the fair treatment of consumers who voice complaints about a purchased product. E. It ensures that detailed information about ingredients, risks, and instructions for use are printed on labels and packages. The right to choose ensures that consumers have access to a variety of products and services at competitive prices. The assurance of both satisfactory quality and service at a fair price is also a part of the consumer's right to choose.

84. Which of the following rights assures consumers that their interests will receive full and sympathetic consideration when the government formulates policy? A. Right to choose B. Right to safety C. Right to be informed D. Right to be heard E. Right to privacy The right to be heard assures consumers that their interests will receive full and sympathetic consideration when the government formulates policy. It also ensures the fair treatment of consumers who voice complaints about a purchased product.

Chapter 02 - Business Ethics and Social Responsibility

85. One role of the Federal Trade Commission's Bureau of Consumer Protection is to protect consumers from _____. A. price rise B. fraudulent practices C. competition D. misuse of resources E. whistleblowing The Federal Trade Commission's Bureau of Consumer Protection enforces a variety of laws designed to protect consumers against unfair, deceptive, or fraudulent practices.

AACSB: Analytic Accessibility: Keyboard Navigation Bloom's: Understand Difficulty: 1 Easy Learning Objective: 02-05 Debate an organization's social responsibilities to owners, employees, consumers, the environment, and the community. Topic: Corporate Social Responsibility

86. _____ involves the interaction among nature and individuals, organizations, and business strategies and includes the assessment and improvement of business strategies, economic sectors, work practices, technologies, and lifestyles, so that they maintain the health of the natural environment. A. Philanthropy B. Consumerism C. Sustainability D. Biodiversity E. Dualism Sustainability refers to the process of conducting activities in such a way as to provide for the long-term well-being of the natural environment, including all biological entities. Hence, it involves the interaction among nature and individuals, organizations, and business strategies and includes the assessment and improvement of business strategies, economic sectors, work practices, technologies, and lifestyles, so that they maintain the health of the natural environment.

Chapter 02 - Business Ethics and Social Responsibility

87. Pollution of water and soil from activities such as oil and gas drilling is primarily related to _____. A. consumer relations B. sustainability issues C. community relations D. employee relations E. relations with stockholders One area of environmental concern is pollution of water and soil from business activities. Sustainability refers to conducting activities in such a way as to provide for the long-term well-being of the natural environment, including all biological entities.

88. The fact that environmental responsibility requires trade-offs means that it: A. instigates trade relations. B. facilitates international competition. C. helps in generating profits. D. imposes costs on both business and the public. E. promotes the practice of fair trade. With current technology, environmental responsibility requires trade-offs. Society must weigh the huge costs of limiting or eliminating pollution against the health threat posed by the pollution. Environmental responsibility imposes costs on both business and the public.

Chapter 02 - Business Ethics and Social Responsibility

89. The most common way that businesses exercise community responsibility is through: A. establishing codes of ethics. B. submission of environmental reports. C. obeying the law. D. recycling. E. donations to charitable organizations. The most common way that businesses demonstrate their community responsibility is through donations to local and national charitable organizations and causes.

90. _____ refers to attaching a positive environmental association on an unsuitable product, service, or practice. A. Greenwashing B. Whitewashing C. Green marketing D. Astroturfing E. Conspicuous conservation Environmentalists are concerned that some companies are merely greenwashing, or "creating a positive association with environmental issues for an unsuitable product, service, or practice."

Chapter 02 - Business Ethics and Social Responsibility

91. Many businesses, recognizing that employees lack basic work skills, are becoming more concerned about the quality of _____ in the United States. A. job opportunities B. education C. personal ethics D. management E. community relations After realizing that the current pool of prospective employees lacks many basic skills necessary to work, many companies have become concerned about the quality of education in the United States.

92. _____ emerged as a major issue in the 20th century in the face of increasing evidence that pollution, uncontrolled use of natural resources, and population growth were putting increasing pressure on the long-term sustainability of these resources. A. Ethnic cleansing B. Environmental protection C. Genocide D. Homicide E. Whistleblowing Environmental protection emerged as a major issue in the 20th century in the face of increasing evidence that pollution, uncontrolled use of natural resources, and population growth were putting increasing pressure on the long-term sustainability of these resources.

Chapter 02 - Business Ethics and Social Responsibility

93. _____ has become a significant problem since the onset of the financial crisis in 2008. A. Corruption B. Unemployment C. Whistleblowing D. Insider trading E. Lobbying Unemployment has become a significant problem since the onset of the financial crisis in 2008.

94. Studies appear to show that while there are plenty of people unemployed, approximately _____ percent of companies cite employees' lack of experience as to why there are so many unfilled positions. A. 3 B. 11 C. 66 D. 51 E. 35 Studies appear to show that while there are plenty of people unemployed, approximately 35 percent of companies cite employees' lack of experience as to why there are so many unfilled positions. Yet only about 28 percent are investing in more training and development for new hires.

Chapter 02 - Business Ethics and Social Responsibility

95. Which of the following organizations funds programs to train the hard-core unemployed so that they can find jobs and support themselves? A. Transparency International B. Boston Consulting Group C. National Alliance of Businessmen D. National Business Ethics Organization E. British Financial Services Organizations such as the National Alliance of Businessmen fund programs to train the hardcore unemployed so that they can find jobs and support themselves. Also, while numerous businesses laid off employees during the last recession, others were praised for their refusal to lay off workers.

Chapter 03 - Business in a Borderless World

Chapter 03 Business in a Borderless World

True / False Questions 1. International business involves the buying, selling, and trading of goods and services across national boundaries. TRUE International business refers to the buying, selling, and trading of goods and services across national boundaries.

AACSB: Analytic Accessibility: Keyboard Navigation Bloom's: Remember Difficulty: 1 Easy Learning Objective: 03-01 Explore some of the factors within the international trade environment that influence business. Topic: Definition of Business

2. Nations trade with other nations to obtain resources that would otherwise be unavailable to them. TRUE Nations and businesses engage in international trade to obtain raw materials and goods that are otherwise unavailable to them or are available elsewhere at a lower price than that at which they themselves can produce.

Chapter 03 - Business in a Borderless World

3. Absolute advantage exists when a country is the only source of an item. TRUE Some nations have a monopoly on the production of a particular resource or product. Such a monopoly, or absolute advantage, exists when a country is the only source of an item, the only producer of an item, or the most efficient producer of an item.

4. Exporting is the purchase of products from another nation. FALSE Exporting is the sale of goods and services to foreign markets.

5. When a nation imports more than it exports, it has a positive balance of trade. FALSE When a nation imports more than it exports, it has a trade deficit.

Chapter 03 - Business in a Borderless World

6. A consistent increase in a country's imports has a favorable impact on its production and employment. FALSE A consistent increase in a country's imports adversely affects its production and employment. When a country has a trade deficit, more money flows out of the country than into it. If more money flows out of the country than into it from tourism and other sources, the country may experience declining production and higher unemployment, because there is less money available for spending.

AACSB: Analytic Accessibility: Keyboard Navigation Bloom's: Understand Difficulty: 3 Hard Learning Objective: 03-01 Explore some of the factors within the international trade environment that influence business. Topic: Trade Strategies Used in Reaching Global Markets

7. The Webb-Pomerene Export Trade Act allows selected U.S. firms willing to enter international trade to form monopolies to compete with foreign monopolistic organizations and also to operate as monopolies within the United States. FALSE The Webb-Pomerene Export Trade Act of 1918 allows selected U.S. firms to form monopolies to compete with foreign monopolistic organizations but they are not allowed to limit free trade and competition within the United States or to use unfair methods of competition in international trade.

AACSB: Analytic Accessibility: Keyboard Navigation Bloom's: Remember Difficulty: 2 Medium Learning Objective: 03-02 Investigate some of the economic, legal-political, social, cultural, and technological barriers to international business. Topic: Barriers to International Trade

Chapter 03 - Business in a Borderless World

8. Protective tariffs raise the price of foreign goods to allow expensive domestic goods to compete with foreign ones. TRUE Import tariffs are more commonly imposed to protect domestic products by raising the price of imported ones. Protective tariffs allow more expensive domestic goods to compete with foreign ones.

AACSB: Analytic Accessibility: Keyboard Navigation Bloom's: Understand Difficulty: 2 Medium Learning Objective: 03-02 Investigate some of the economic, legal-political, social, cultural, and technological barriers to international business. Topic: Barriers to International Trade

9. A common reason for establishing quotas or tariffs is to encourage dumping. FALSE One common reason for setting quotas or tariffs is to prohibit dumping, which occurs when a country or business sells products at less than what it costs to produce them.

AACSB: Analytic Accessibility: Keyboard Navigation Bloom's: Remember Difficulty: 1 Easy Learning Objective: 03-02 Investigate some of the economic, legal-political, social, cultural, and technological barriers to international business. Topic: Barriers to International Trade

Chapter 03 - Business in a Borderless World

10. Political unrest in countries often creates a hostile environment for foreign businesses and can act as a barrier to international trade. TRUE Businesses engaged in international trade must consider the relative stability of countries. Political unrest in countries may create a hostile or even dangerous environment for foreign businesses.

11. Sociocultural differences, such as variations in body language and personal space, usually have almost negligible impact on international business. FALSE Sociocultural differences, such as variations in body language and personal space, have an impact on international business. These cultural differences may generate uncomfortable feelings or misunderstandings when business people of different countries negotiate with each other.

Chapter 03 - Business in a Borderless World

12. The General Agreement on Tariffs and Trade was a precursor to the World Trade Organization and provided a forum for tariff negotiations. TRUE The General Agreement on Tariffs and Trade was a precursor to the World Trade Organization and provided a forum for tariff negotiations.

AACSB: Analytic Accessibility: Keyboard Navigation Bloom's: Remember Difficulty: 1 Easy Learning Objective: 03-03 Specify some of the agreements, alliances, and organizations that may encourage trade across international boundaries. Topic: International Trade Agreements and the Organizations that Facilitate Trade

13. The World Trade Organization agreements are the optional ground rules for international commerce. FALSE Key to the World Trade Organization are the WTO agreements, which are the legal ground rules for international commerce.

Chapter 03 - Business in a Borderless World

14. The U.S. set up maquiladoras in China. FALSE The North American Free Trade Agreement (NAFTA) facilitated the growth of maquiladoras, which are U.S. production facilities in Mexico.

15. The Association of Southeast Asian Nations (ASEAN) effectively united Singapore, Britain, and Japan into one market. FALSE The Association of Southeast Asian Nations (ASEAN), established in 1967, promotes trade and economic integration among member nations in Southeast Asia, including Malaysia, the Philippines, Singapore, Thailand, Brunei Darussalam, Vietnam, Laos, Indonesia, Myanmar, and Cambodia.

AACSB: Analytic Accessibility: Keyboard Navigation Bloom's: Remember Difficulty: 2 Medium Learning Objective: 03-03 Specify some of the agreements, alliances, and organizations that may encourage trade across international boundaries. Topic: International Trade Agreements and the Organizations that Facilitate Trade

Chapter 03 - Business in a Borderless World

16. The International Monetary Fund promotes trade among member nations by eliminating trade barriers and fostering financial cooperation. TRUE The International Monetary Fund (IMF) was established in 1947 to promote trade among member nations by eliminating trade barriers and fostering financial cooperation.

17. In most countries, participation in international business is restricted to large corporations. FALSE A business may get involved in exporting when it is called upon to supply a foreign company with a particular product. Such exporting enables enterprises of all sizes to participate in international business.

AACSB: Analytic Accessibility: Keyboard Navigation Bloom's: Understand Difficulty: 2 Medium Learning Objective: 03-04 Summarize the different levels of organizational involvement in international trade. Topic: Trade Strategies Used in Reaching Global Markets

Chapter 03 - Business in a Borderless World

18. Licensing allows a company to enter the international marketplace without spending large amounts of money abroad. TRUE Licensing and franchising enable a firm to enter the international marketplace without spending large sums of money abroad or hiring or transferring personnel to handle overseas affairs.

AACSB: Analytic Accessibility: Keyboard Navigation Bloom's: Remember Difficulty: 1 Easy Learning Objective: 03-04 Summarize the different levels of organizational involvement in international trade. Topic: Trade Strategies Used in Reaching Global Markets

19. A strategic alliance is a partnership formed to create competitive advantage on a worldwide basis. TRUE A strategic alliance is a partnership formed to create competitive advantage on a worldwide basis.

AACSB: Analytic Accessibility: Keyboard Navigation Bloom's: Understand Difficulty: 1 Easy Learning Objective: 03-04 Summarize the different levels of organizational involvement in international trade. Topic: Trade Strategies Used in Reaching Global Markets

Chapter 03 - Business in a Borderless World

20. Direct investment gives lesser power and is the least expensive way to participate in foreign trade. FALSE Companies that want more control and are willing to invest considerable resources in international business may consider direct investment, the ownership of overseas facilities.

21. Multinational corporations (MNCs) are often criticized on the grounds that they adversely affect production in the host countries and also contribute to higher unemployment. FALSE Multinational corporations (MNCs) are criticized on the grounds that they increase the gap between rich and poor nations, misuse and misallocate scarce resources, exploit the labor markets in less-developed countries (LDCs), and harm their natural environments.

Chapter 03 - Business in a Borderless World

22. Companies doing business internationally have traditionally used a globalization strategy. FALSE Companies doing business internationally have traditionally used a multinational strategy, customizing their marketing mixes according to cultural, technological, regional, and national differences.

AACSB: Analytic Accessibility: Keyboard Navigation Bloom's: Remember Difficulty: 2 Medium Learning Objective: 03-05 Contrast two basic strategies used in international business. Topic: Trade Strategies Used in Reaching Global Markets

23. A multinational strategy involves customizing products, promotion, and distribution according to cultural, technological, regional, and national differences. TRUE A multinational strategy involves customizing products, promotion, and distribution according to cultural, technological, regional, and national differences.

AACSB: Analytic Accessibility: Keyboard Navigation Bloom's: Remember Difficulty: 1 Easy Learning Objective: 03-05 Contrast two basic strategies used in international business. Topic: Trade Strategies Used in Reaching Global Markets

Chapter 03 - Business in a Borderless World

24. Even when products are standardized, advertising often has to be modified to adapt to local cultures. TRUE Even when products are standardized, advertising often has to be modified to adapt to language and cultural differences.

AACSB: Analytic Accessibility: Keyboard Navigation Bloom's: Understand Difficulty: 2 Medium Learning Objective: 03-05 Contrast two basic strategies used in international business. Topic: Trade Strategies Used in Reaching Global Markets

25. Globalization involves standardizing products for the whole world as if it were a single entity. TRUE A global strategy or globalization involves standardizing products (and, as much as possible their promotion, and distribution) for the whole world as if it were a single entity.

Multiple Choice Questions

Chapter 03 - Business in a Borderless World

26. A(n) _____ exists when a country is the only source or producer of an item. A. comparative advantage B. comparative disadvantage C. absolute advantage D. absolute disadvantage E. domestic advantage Some nations have a monopoly on the production of a particular resource or product. Such a monopoly, or absolute advantage, exists when a country is the only source of an item, the only producer of an item, or the most efficient producer of an item.

27. The country of Southernberg is the only producer of oil. This gives Southernberg a(n) _____. A. absolute advantage B. absolute disadvantage C. comparative advantage D. comparative disadvantage E. domestic advantage The given situation lets Southernberg have an absolute advantage. Some nations have a monopoly on the production of a particular resource or product. Such a monopoly, or absolute advantage, exists when a country is the only source of an item, the only producer of an item, or the most efficient producer of an item.

AACSB: Analytic Accessibility: Keyboard Navigation Bloom's: Apply Difficulty: 2 Medium Learning Objective: 03-01 Explore some of the factors within the international trade environment that influence business. Topic: Competition

Chapter 03 - Business in a Borderless World

28. A(n) _____ exists when a country is the most efficient producer of an item. A. comparative advantage B. comparative disadvantage C. absolute advantage D. absolute disadvantage E. domestic advantage Some nations have a monopoly on the production of a particular resource or product. Such a monopoly, or absolute advantage, exists when a country is the only source of an item, the only producer of an item, or the most efficient producer of an item.

29. When compared to all other countries, the country called Theoria can produce wheat in the most efficient manner. This gives Theoria a(n) _____. A. comparative advantage B. comparative disadvantage C. absolute advantage D. absolute disadvantage E. domestic advantage The given situation lets Theoria have an absolute advantage. Some nations have a monopoly on the production of a particular resource or product. Such a monopoly, or absolute advantage, exists when a country is the only source of an item, the only producer of an item, or the most efficient producer of an item.

Chapter 03 - Business in a Borderless World

30. Colombia can produce coffee much more efficiently than it can produce other items; this gives Colombia a(n) _____ advantage. A. absolute B. competitive C. domestic D. marginal E. comparative The given situation lets Colombia have a comparative advantage. Most international trade is based on comparative advantage, which occurs when a country specializes in products that it can supply more efficiently or at a lower cost than it can produce other items.

31. _____ is the transferring of manufacturing or other tasks—such as data processing—to countries where labor and supplies are less expensive. A. Importing B. Exporting C. Outsourcing D. Dumping E. Insourcing Outsourcing is the transferring of manufacturing or other tasks—such as data processing—to countries where labor and supplies are less expensive.

Chapter 03 - Business in a Borderless World

32. Why has outsourcing become a controversial practice in the United States? A. Many jobs have moved overseas where those tasks can be accomplished for lower costs. B. Outsourcing empowers the outsourcing company with more managerial control. C. The losses incurred out of the hidden costs of outsourcing are making companies go bankrupt. D. Delegation of several processes leaves the outsourcing company with much lesser time to concentrate on to its core business process. E. The outsourced products end up having sub-standard quality because their producers lack expertise. Outsourcing has become a controversial practice in the United States because many jobs have moved overseas where those tasks can be accomplished for lower costs.

33. _____ is best described as the sale of goods and services to foreign markets. A. Franchising B. Offshoring C. Outsourcing D. Exporting E. Importing To obtain needed goods and services and the funds to pay for them, nations trade by exporting and importing. Exporting is the sale of goods and services to foreign markets.

Chapter 03 - Business in a Borderless World

34. Which of the following terms can be best defined as the purchase of goods and services from foreign sources? A. Licensing B. Franchising C. Dumping D. Exporting E. Importing To obtain needed goods and services and the funds to pay for them, nations trade by exporting and importing. Importing is the purchase of goods and services from foreign sources.

35. A nation's _____ can be best defined as the difference in value between its exports and imports. A. balance of import B. balance of export C. balance of trade D. positive trade surplus E. negative trade deficit A nation's balance of trade is the difference in value between its exports and imports.

Chapter 03 - Business in a Borderless World

36. A negative balance of trade exists when a country: A. imports more than it exports. B. exports more than it imports. C. has more assets than debt liabilities. D. spends more than it saves. E. saves more than it spends. A nation's balance of trade is the difference in value between its exports and imports. A trade deficit is defined as a nation's negative balance of trade, which exists when that country imports more products than it exports.

37. Snowland and Pledza are neighboring countries. Pledza imports more products than it exports. Over the last decade, Pledza imports from Snowland have been rapidly increasing but not fast enough to offset the exports to Snowland. As a result, Pledza has a(n) _____. A. domestic gain B. trade surplus C. trade deficit D. absolute advantage E. comparative advantage A nation's balance of trade is the difference in value between its exports and imports. A trade deficit is defined as a nation's negative balance of trade, which exists when that country imports more products than it exports.

AACSB: Analytic Accessibility: Keyboard Navigation Bloom's: Understand Difficulty: 2 Medium Learning Objective: 03-01 Explore some of the factors within the international trade environment that influence business. Topic: Trade Strategies Used in Reaching Global Markets

Chapter 03 - Business in a Borderless World

38. Which is one of the implications of trade deficits? A. The success of businesses B. The import of more products C. The loss of jobs D. The export of more services E. A higher standard of living A trade deficit is defined as a nation's negative balance of trade, which exists when that country imports more products than it exports. Trade deficits are harmful because they can mean the failure of businesses, the loss of jobs, and a lowered standard of living.

AACSB: Analytical Thinking Accessibility: Keyboard Navigation Bloom's: Remember Difficulty: 1 Easy Learning Objective: 03-01 Explore some of the factors within the international trade environment that influence business. Topic: Trade Strategies Used in Reaching Global Markets

39. A favorable balance of trade exists when a country: A. imports more than it exports. B. exports more than it imports. C. has more debt liabilities than assets. D. spends more than it saves. E. saves more than it spends. When a nation exports more goods than it imports, it has a favorable balance of trade, or trade surplus.

Chapter 03 - Business in a Borderless World

40. Which of the following is most likely to cause a trade deficit? A. When a country invests more on producing domestic goods than services B. When a country focuses on increasing the domestic output of one sector over another C. When a country focuses on long-term benefits than short-term gains D. When a country reduces taxes on imports E. When a country increases export of products and services A trade deficit exists when a country imports more goods and services than it exports. Therefore, when a country reduces taxes on imports it is most likely to cause a trade deficit because it will lead to more imports.

41. The difference between the flow of money into and out of a country is called its _____. A. balance of trade B. domestic gain C. balance of payments D. credit balance E. exchange rate The difference between the flow of money into and out of a country is called its balance of payments. A country's balance of trade, foreign investment, foreign aid, loans, military expenditures, and money spent by tourists comprise its balance of payments.

Chapter 03 - Business in a Borderless World

42. Identify the industrialized nation from among the following. A. Iraq B. Myanmar C. Pakistan D. North Korea E. Japan Industrialized nations—economically advanced countries such as the United States, Japan, Great Britain, and Canada. Many countries in Africa, Asia, and South America, for example, are in general poorer and less economically advanced than those in North America and Europe; they are often called less-developed countries (LDCs).

43. Identify the less-developed country from among the following. A. The United States B. New Zealand C. Great Britain D. Somalia E. Canada Industrialized nations—economically advanced countries such as the United States, Japan, Great Britain, and Canada. Many countries in Africa, Asia, and South America, for example, are in general poorer and less economically advanced than those in North America and Europe; they are often called less-developed countries (LDCs).

AACSB: Analytic Accessibility: Keyboard Navigation Bloom's: Understand Difficulty: 1 Easy Learning Objective: 03-02 Investigate some of the economic, legal-political, social, cultural, and technological barriers to international business. Topic: Barriers to International Trade

Chapter 03 - Business in a Borderless World

44. Find out the correct statement about less-developed countries (LDCs). A. Their consumers are more likely to purchase nonessential products. B. They are characterized by low per-capita income. C. Although they are called less developed, they are economically advanced. D. The rising middle class has caused many consumers in India to opt for public transport. E. Countries like Japan, Great Britain, and Canada fall into this category. Many countries in Africa, Asia, and South America, for example, are in general poorer and less economically advanced than those in North America and Europe; they are often called less-developed countries (LDCs). LDCs are characterized by low per-capita income (income generated by the nation's production of goods and services divided by the population), which means that consumers are less likely to purchase nonessential products.

45. _____ can be best defined as the ratio at which one nation's currency can be exchanged for another nation's currency. A. Exchange rate B. National rate C. Exchange ratio D. Value ratio E. Currency ratio The ratio at which one nation's currency can be exchanged for another nation's currency is the exchange rate.

Chapter 03 - Business in a Borderless World

46. When a country devalues its currency, it causes an increase in: A. its imports. B. its exports. C. the sale of international goods in the domestic market. D. the sale of international services in the domestic market. E. the cost of American goods abroad. Devaluation decreases the value of currency in relation to other currencies. Devaluation encourages the sale of domestic goods and tourism, causing an increase in exports

47. Which of the following is likely to be an impact of a decrease in the value of yen in relation to the U.S. dollar? A. The Japanese imports of U.S. goods would increase. B. The number of Japanese tourists in the U.S. would increase. C. Trips to Japan would become more expensive for foreign tourists. D. Imports would become relatively expensive for Japanese consumers. E. The cost of Japanese goods abroad would become higher. When the value of the Japanese yen declines relative to other currencies, such as the U.S. dollar, the price of imports becomes relatively expensive for Japanese consumers. On the other hand, Japanese exports become relatively cheap for international markets—in this example, the U.S. Occasionally, a government may intentionally alter the value of its currency through fiscal policy. Devaluation decreases the value of currency in relation to other currencies. If the Japanese yen is were to be devalued, it would lower the cost of Japanese goods abroad and make trips to Japan less expensive for foreign tourists. Thus, devaluation encourages the sale of domestic goods and tourism.

AACSB: Reflective Thinking Accessibility: Keyboard Navigation Bloom's: Apply Difficulty: 3 Hard Learning Objective: 03-02 Investigate some of the economic, legal-political, social, cultural, and technological barriers to international business. Topic: Barriers to International Trade

Chapter 03 - Business in a Borderless World

48. Which of the following is a true statement about barriers to international business? A. Devaluation discourages the sale of domestic goods and tourism. B. Revaluations occur daily because of the daily changes in exchange rates. C. Legal and ethical requirements for successful business are decreasing globally. D. Many of the legal rights that Americans take for granted do not exist in other countries. E. The Webb-Pomerene Export Trade Act of 1918 allows selected U.S. firms to limit free trade within the United States. Many of the legal rights that Americans take for granted do not exist in other countries, and a firm doing business abroad must understand and obey the laws of the host country.

49. A specific amount of money levied on each unit of a product brought into a country is termed as a(n) _____. A. ad valorem tariff B. value-added tariff C. fixed tariff D. prohibitive tariff E. zero tariff A fixed tariff is a specific amount of money levied on each unit of a product brought into a country, while an ad valorem tariff is based on the value of the item. Most countries allow citizens traveling abroad to bring home a certain amount of merchandise without paying an import tariff.

Chapter 03 - Business in a Borderless World

50. A fixed tariff differs from an ad valorem tariff because an ad valorem tariff: A. is a specific amount of money levied on each unit of a product sold by a country. B. is a specific amount of money levied on each unit of a product brought into a country. C. is based on the value of an item. D. prohibits trade in a particular product. E. limits the number of units of a particular product that can be imported into a country. A fixed tariff is a specific amount of money levied on each unit of a product brought into a country, while an ad valorem tariff is based on the value of an item.

51. The country of Thelisia pays a 12 percent duty on imported TV sets which is calculated as a fixed percentage of the value of the imported TV sets. Thelisia is paying a(n) _____. A. sales tax B. transactional tax C. ad valorem tariff D. fixed tariff E. export tariff Thelisia is paying an ad valored tax. An ad valorem tariff is based on the value of an item.

AACSB: Analytic Accessibility: Keyboard Navigation Bloom's: Apply Difficulty: 3 Hard Learning Objective: 03-02 Investigate some of the economic, legal-political, social, cultural, and technological barriers to international business. Topic: Barriers to International Trade

Chapter 03 - Business in a Borderless World

52. Identify the true statement about tariffs and trade restrictions. A. Countries are not allowed to levy tariffs for political reasons. B. Protective tariffs allow more expensive domestic goods to compete with foreign ones. C. Critics of protective tariffs argue that their use inhibits free trade and competition. D. Countries cannot allow citizens traveling abroad to bring home merchandise without paying an import tariff. E. Quotas cannot be established by voluntary agreements. Protective tariffs allow more expensive domestic goods to compete with foreign ones. For example, the United States has lost a significant number of steelworks over the past few decades to foreign competition in places such as China. Other markets can produce steel more cheaply than the United States. Many people and special interest groups in the United States, such as unions, would like to see tariffs placed on Chinese steel, which is significantly less expensive, in order to protect remaining U.S. steel production.

Chapter 03 - Business in a Borderless World

53. Which is the correct statement regarding tariffs and trade restrictions? A. Supporters of protective tariffs say they insulate new domestic industries against wellestablished foreign competitors. B. Tariffs are part of a country's legal structure, and thus, cannot established or removed for political reasons. C. Countries cannot control their foreign trade by forcing businesspeople to buy and sell foreign products through central banks. D. Embargoes are created to encourage the trade of particular products. E. Items purchased in different countries cannot have different tariffs if the items are identical. Supporters of protective tariffs say they insulate domestic industries, particularly new ones, against well-established foreign competitors. Once an industry matures, however, its advocates may be reluctant to let go of the tariff that protected it.

54. Which of the following is a measure that does not yield revenue for the government of the United States, but can effectively limit the quantity of a particular good being imported from Japan? A. Quota B. Value-added tax C. Tariff D. Embargo E. Subsidy A quota limits the number of units of a particular product that can be imported into a country.

Chapter 03 - Business in a Borderless World

55. A(n) _____ is best defined as a prohibition on trade in a particular product. A. ad valorem B. excise C. cartel D. quota E. embargo An embargo is a prohibition on trade in a particular product.

56. Because of an unfavorable political situation between the countries, the country of Thetasia has placed a government order to prohibit the trade of private vehicles with the country of Calibria. Thetasia has maintained a(n) _____ with Calibria. A. trade tariff B. trade embargo C. quota limit D. fixed tariff E. ad valorem tariff An embargo prohibits trade in a particular product. Embargoes are generally directed at specific goods or countries and may be established for political, economic, health, or religious reasons.

Chapter 03 - Business in a Borderless World

57. _____ can be best defined as the act of a country or business selling products at less than what it costs to produce them. A. Dumping B. Offshoring C. Outsourcing D. Exporting E. Importing Dumping is the act of a country or business selling products at less than what it costs to produce them.

58. Muslim generally nations forbid the importation of alcoholic beverages on _____ grounds. A. religious B. political C. economic D. geographical E. technological An embargo prohibits trade in a particular product. Embargoes are generally directed at specific goods or countries and may be established for political, economic, health, or religious reasons. Muslim nations forbid the importation of alcoholic beverages on religious grounds.

Chapter 03 - Business in a Borderless World

59. _____ can be best defined as the act of a country or business selling products at less than what it costs to produce them. A. Franchising B. Monopolizing C. Outsourcing D. Offshoring E. Dumping Dumping is the act of a country or business selling products at less than what it costs to produce them.

60. Which of the following is one of the most common reasons for setting quotas or tariffs? A. To increase licensing B. To increase sales C. To relax embargoes D. To prohibit dumping E. To encourage franchising One common reason for setting quotas or tariffs is to prohibit dumping, which occurs when a country or business sells products at less than what it costs to produce them.

Chapter 03 - Business in a Borderless World

61. Identify the correct statement about dumping. A. Dumping occurs when the country of origin has products with the latest technologically that are in high demand in overseas markets. B. Dumping occurs when a business sells products at much more than what it costs to produce them. C. Dumping occurs when the domestic market for a firm's product is too big for match the level of production. D. Quotas cannot be imposed based on suspicion of dumping unless proven. E. Dumping permits quick entry into a market. Dumping is the act of a country or business selling products at less than what it costs to produce them. Dumping permits quick entry into a market.

62. Agro Corp., based in the country of Arahonia, is a company that produces agricultural products. The domestic market of Arahonia is not sufficient to support Agro Corp.'s largescale level of production because Arahonia is a small but highly industrialized country. Thus, Agro Corp. decides to sell its products to the agriculture-based country of Petinberg at less than their production cost. This process is termed as _____. A. dumping B. offshoring C. outsourcing D. monopolizing E. franchising The given scenario is an example of the process of dumping. Dumping is the act of a country or business selling products at less than what it costs to produce them. Sometimes dumping occurs when the domestic market for a firm's product is too small to support an efficient level of production.

Chapter 03 - Business in a Borderless World

63. A(n) _____ can be best defined as a group of nations or companies that agrees to act together as a monopoly and not compete with each other in order to generate a competitive advantage in world market . A. conglomerate B. licensor C. cartel D. embargo E. licensee A group of nations or companies that agrees to act together as a monopoly and not compete with each other, in order to generate a competitive advantage in world markets is a cartel. Probably the most famous cartel is OPEC, the Organization of Petroleum Exporting Countries, founded in the 1960s to increase the price of petroleum throughout the world and to maintain high prices.

64. A sudden change in power can result in a regime that is hostile to foreign investment. This is a primary example of a(n) _____. A. political barrier B. cultural barrier C. exchange barrier D. language barrier E. geographic barrier A sudden change in power can result in a regime that is hostile to foreign investment. This is a primary example of a political barrier.

Chapter 03 - Business in a Borderless World

65. Tiffany & Co. learned that more attentive customer service was necessary in order to succeed in Japan. This is an example of a(n) _____ barrier. A. technological B. political C. legal D. social E. economic The given scenario is an example of how Tiffany & Co. overcame a social barrier. Most businesspeople engaged in international trade underestimate the importance of social and cultural differences; but these differences can derail an important transaction.

66. Understanding that Arab businessmen tend to stand face-to-face when holding a conversation reveals the importance of understanding another culture's use of: A. language. B. dialect. C. religious practices. D. ethics. E. body language. Differences in body language and personal space affect international trade. Body language is nonverbal, usually unconscious communication through gestures, posture, and facial expression. Personal space is the distance at which one person feels comfortable talking to another. Americans tend to stand a moderate distance away from the person with whom they are speaking. Arab businessmen tend to stand face-to-face with the object of their conversation.

Chapter 03 - Business in a Borderless World

67. In which of the following regions is forming a circle with one's fingers to signify the "O.K." sign considered rude or unacceptable? A. India B. Mexico C. Germany D. Great Britain E. The United States Forming a circle with one's fingers to signify the "O.K." sign considered rude or unacceptable in Brazil and Germany.

68. The effective translation of product names can be crucial to the success in foreign markets because of: A. political barriers. B. cultural barriers. C. legal barriers. D. the presence of export quotas. E. the differences in body language. Cultural differences include differences in spoken and written language. Although it is certainly possible to translate words from one language to another, the true meaning is sometimes misinterpreted or lost.

Chapter 03 - Business in a Borderless World

69. Many countries do not allow children to be used in advertising. This is an example of a(n) _____ barrier. A. political B. cultural C. economic D. political E. religious Cultural differences include differences in spoken and written language, body language, personal space, family roles, perceptions of time, national and religious holidays, local customs, and measurement systems. Family roles also influence marketing activities. Many countries do not allow children to be used in advertising, for example.

70. A forum to discuss trade problems and negotiate a reduction of trade barriers was first provided by the: A. General Agreement on Tariffs and Trade (GATT). B. North American Free Trade Agreement (NAFTA). C. World Bank. D. Exim bank. E. International Monetary Fund (IMF). The General Agreement on Tariffs and Trade (GATT), originally signed by 23 nations in 1947, provided a forum for tariff negotiations and a place where international trade problems could be discussed and resolved. More than 100 nations abided by its rules.

Chapter 03 - Business in a Borderless World

71. Choose the international organization based in Geneva, Switzerland, that was created in 1995 by the Uruguay Round of the General Agreement on Tariffs and Trade (GATT), which deals with the rules of trade between nations. A. The European Union B. The World Trade Organization C. The World Bank D. The Association of Southeast Asian Nations E. The Asia-Pacific Economic Cooperation The World Trade Organization (WTO), an international organization dealing with the rules of trade between nations, was created in 1995 by the Uruguay Round of the General Agreement on Tariffs and Trade (GATT). Based in Geneva, Switzerland, the WTO has also adopted a leadership role in negotiating trade disputes among nations.

72. Which of the following were merged into one market by the North American Free Trade Agreement (NAFTA)? A. Canada and Alaska B. Brazil, Mexico, and the United States C. Chile, Brazil, and the United States D. Canada, Mexico, and the United States E. Canada and Chile The North American Free Trade Agreement (NAFTA) merged Canada, the United States, and Mexico into one market. NAFTA virtually eliminated all tariffs on goods produced and traded among Canada, Mexico, and the United States to create a free trade area.

Chapter 03 - Business in a Borderless World

73. _____ is the single largest trading partner of the United States. A. Mexico B. India C. China D. Japan E. Canada Canada's nearly 35 million consumers are relatively affluent, with a per capita GDP of $43,100.43 Trade between the United States and Canada totals approximately $680 billion. About 79 percent of Canada's exports go to the United States, including mineral fuel and oil, vehicles, machinery, and plastic. In fact, Canada is the single largest trading partner of the United States.

74. Which of the following is a true statement about the European Union? A. It is trying to create opportunities to trade with South America. B. It is working toward the creation of a standardized currency. C. It is striving to impose customs checks within Europe. D. It is working toward the abolition of import duties. E. It is trying to increase value-added taxes. The European Union (EU) is an economic and political union of 28 member nations located primarily in Europe. To facilitate free trade among members, the EU is working toward standardization of business regulations and requirements, import duties, and value-added taxes; the elimination of customs checks; and the creation of a standardized currency for use by all members.

AACSB: Analytic Accessibility: Keyboard Navigation Bloom's: Understand Difficulty: 2 Medium Learning Objective: 03-03 Specify some of the agreements, alliances, and organizations that may encourage trade across international boundaries. Topic: International Trade Agreements and the Organizations that Facilitate Trade

Chapter 03 - Business in a Borderless World

75. Which of the following is an international trade alliance between 21 nations that promotes open trade and economic and technical cooperation among its member nations? A. General Agreement on Tariffs and Trade (GATT) B. Asia-Pacific Economic Cooperation (APEC) C. North American Free Trade Agreement (NAFTA) D. European Union (EU) E. Association of Southeast Asian Nations (ASEAN) The Asia-Pacific Economic Cooperation (APEC), established in 1989, promotes open trade and economic and technical cooperation among member nations. The 21-member alliance represents approximately 40 percent of the world's population, 44 percent of world trade, and 55 percent of world GDP.

76. Which of the following countries was a member nation of Asia-Pacific Economic Cooperation (APEC) when it was established in 1989? A. Vietnam B. Japan C. China D. Hong Kong E. Chile The initial member nations of APEC included Japan, Korea, Malaysia, New Zealand, Singapore, the Philippines, Indonesia, Canada, Australia, Brunei Darussalam, Thailand, and the United States. Since then, the alliance has grown to include China, Hong Kong, Chinese Taipei, Mexico, Papua New Guinea, Chile, Peru, Russia, and Vietnam.

Chapter 03 - Business in a Borderless World

77. Identify the statement that is true about the Association of Southeast Asian Nations (ASEAN). A. It will not have fully free labor flows between member-nations. B. In 1993, it began to increase tariffs among countries. C. It will have a common currency. D. It has a 21-member alliance. E. It was established in 1989. The Association of Southeast Asian Nations (ASEAN) plans to increase economic integration by 2015, but unlike the European Union, it will not have a common currency or fully free labor flows between member-nations. In this way, ASEAN plans to avoid some of the pitfalls that occurred among nations in the EU during the latest worldwide recession.

78. Which of the following makes short-term loans to member countries with trade deficits and provides foreign currencies to member nations? A. Foreign Credit Insurance Association B. Exim Bank C. World Bank D. World Trade Organization E. International Monetary Fund The International Monetary Fund (IMF) was established in 1947 to promote trade among member nations by eliminating trade barriers and fostering financial cooperation. The IMF makes short-term loans to member countries that have balance-of-payment deficits and provides foreign currencies to member nations.

Chapter 03 - Business in a Borderless World

79. The _____ is the closest thing the world has to an international central bank. A. International Monetary Fund B. World Bank C. Citicorp Bank D. Organization for Economic Cooperation and Development E. World Trade Organization The International Monetary Fund (IMF) is the closest thing the world has to an international central bank. It makes short-term loans to member countries that have balance-of- payment deficits and provides foreign currencies to member nations.

80. Which of the following is formally called the International Bank for Reconstruction and Development? A. World Bank B. International Monetary Fund C. International Trade Bank D. Organization for Economic Cooperation and Development E. World Trade Organization The World Bank, more formally known as the International Bank for Reconstruction and Development, was established by the industrialized nations, including the United States, in 1946 to loan money to underdeveloped and developing countries.

Chapter 03 - Business in a Borderless World

81. Which of the following is the primary reason for establishing the World Bank? A. To fund the member nations of the NAFTA and EU B. To aid developed economies during financial crisis C. To act as a global policing service D. To loan money to underdeveloped and developing countries E. To help developed nations obtain money to start businesses The World Bank, more formally known as the International Bank for Reconstruction and Development, was established by the industrialized nations, including the United States, in 1946 to loan money to underdeveloped and developing countries.

82. The usefulness of the International Monetary Fund (IMF) for developed countries is limited because: A. these countries rely extensively on the public market. B. the IMF does not provide short-term loans. C. the IMF does not aid countries with balance-of-payment deficits. D. the IMF was forced to decrease its funds to emerging economies. E. these countries use private markets as a major source of capital. The usefulness of the International Monetary Fund (IMF) for developed countries is limited because these countries use private markets as a major source of capital. The global economic crisis created many challenges for the IMF as it was forced to significantly increase its loans to both emerging economies and more developed nations.

Chapter 03 - Business in a Borderless World

83. An intermediary who handles international transactions for other firms is acting as a(n): A. licensing agent. B. franchising agent. C. export agent. D. contract manufacturer. E. direct investor. Export agents seldom produce goods themselves; instead, they usually handle international transactions for other firms. Export agents either purchase products outright or take them on consignment.

AACSB: Analytic Accessibility: Keyboard Navigation Bloom's: Remember Difficulty: 2 Medium Learning Objective: 03-04 Summarize the different levels of organizational involvement in international trade. Topic: Trade Strategies Used in Reaching Global Markets

84. Which of the following is an advantage of using an export agent? A. The firm does not have to deal with a middleman. B. The firm is not responsible for the procurement and storage of raw materials. C. The firm does not have to deal with the red tape of international business. D. The firm does not need to worry about product pricing. E. The firm does not need to invest in research and development. An advantage of trading through an agent instead of directly is that the company does not have to deal with foreign currencies or the red tape (paying tariffs and handling paperwork) of international business.

Chapter 03 - Business in a Borderless World

85. Exporting may occur through _____, which involve bartering products for other products rather than currency. A. export agencies B. free-trade agreements C. direct selling contracts D. countertrade agreements E. outsourcing agreements Exporting sometimes takes place through countertrade agreements, which involve bartering products for other products instead of for currency.

86. Identify the correct statement regarding trading companies. A. They handle manufacturing activities. B. They handle marketing research for other companies. C. They rarely offer warehousing facilities. D. Their activities do not encompass advertising for other companies. E. They refrain from handling consulting activities. A trading company buys goods in one country and sells them to buyers in another country. Trading companies handle all activities required to move products from one country to another, including consulting, marketing research, advertising, insurance, product research and design, warehousing, and foreign exchange services to companies interested in selling their products in foreign markets.

Chapter 03 - Business in a Borderless World

87. Which of the following can be best defined as a trade agreement in which one company allows another company to use its company name, products, patents, brands, trademarks, raw materials, and/or production processes in exchange for a fee or royalty? A. Direct investment B. Strategic alliance C. Joint venture D. Outsourcing E. Licensing Licensing is a trade agreement in which one company—the licensor—allows another company—the licensee—to use its company name, products, patents, brands, trademarks, raw materials, and/or production processes in exchange for a fee or royalty.

88. If the Coca-Cola Company allows a Mexican firm to use its name, formula, and brands in return for a royalty, then this arrangement would be known as: A. exporting. B. licensing. C. direct investment. D. contract manufacturing. E. a joint venture. Licensing is a trade arrangement in which one company—the licensor—allows another company—the licensee—to use its company name, products, patents, brands, trademarks, raw materials, and/or production processes in exchange for a fee or royalty. The Coca-Cola Company and PepsiCo frequently use licensing as a means to market their soft drinks, apparel, and other merchandise in other countries.

Chapter 03 - Business in a Borderless World

89. Which of the following can be best defined as a form of licensing in which a company agrees to provide another company a name, logo, methods of operation, advertising, products, and other elements associated with a business in return for a financial commitment and the agreement to conduct business in accordance with their standard of operations? A. Franchising B. Outsourcing C. Joint venture D. Strategic alliance E. Direct investment Franchising is a form of licensing in which a company—the franchiser—agrees to provide a franchisee a name, logo, methods of operation, advertising, products, and other elements associated with a franchiser's business in return for a financial commitment and the agreement to conduct business in accordance with the franchiser's standard of operations.

90. Apple Inc., an American company, hires Taiwan's Foxconn Technology Group to produce its products, whose subsidiary assembles Apple devices in factories in China. Which of the following refers to the business arrangement between Apple and Foxconn? A. Exporting B. Licensing C. Direct investment D. Contract manufacturing E. Joint venture Contract manufacturing occurs when a company hires a foreign company to produce a specified volume of the firm's product to specification; the final product carries the domestic firm's name. Therefore, the business arrangement between Apple Inc. and Foxconn is an example of contract manufacturing.

AACSB: Reflective Thinking Accessibility: Keyboard Navigation Bloom's: Apply Difficulty: 2 Medium Learning Objective: 03-04 Summarize the different levels of organizational involvement in international trade. Topic: Trade Strategies Used in Reaching Global Markets

Chapter 03 - Business in a Borderless World

91. Spalding hires an Asian company to produce a specified volume of sports equipment that still carries Spalding's name. This is an example of _____. A. contract manufacturing B. licensing C. direct investment D. exporting E. importing Contract manufacturing occurs when a company hires a foreign company to produce a specified volume of the firm's product to specification; the final product carries the domestic firm's name. Spalding, for example, relies on contract manufacturing for its sports equipment.

92. Offshoring is different from outsourcing because: A. in offshoring, the company subcontracts to a different company. B. in offshoring, the company retains control of the process. C. in offshoring, a subsidiary cannot relocate a business process to another country. D. in outsourcing, tasks cannot be transferred to countries where supplies are less expensive. E. outsourced jobs cannot be brought back for concerns like foreign workers not adding enough value. Offshoring is the relocation of a business process by a company, or a subsidiary, to another country. Offshoring is different than outsourcing: the company retains control of the process because it is not subcontracting to a different company.

Chapter 03 - Business in a Borderless World

93. The relocation of business processes by a company or subsidiary to another country, in which the company retains control of the process, is called _____. A. contract manufacturing B. licensing C. direct investment D. offshoring E. outsourcing The relocation of business processes by a company or subsidiary to another country is called offshoring. Offshoring is different than outsourcing: the company retains control of the process because it is not subcontracting to a different company.

94. Highlanders Co., based in Chicago, USA, is a manufacturer of sports equipment. Highlanders Co. relocates its data processing service to a company based in Mexico, while retaining control over the process. This process is known as _____. A. offshoring B. outsourcing C. insourcing D. dumping E. franchising Offshoring is the relocation of a business process by a company, or a subsidiary, to another country. Offshoring is different than outsourcing: the company retains control of the process because it is not subcontracting to a different company.

AACSB: Analytic Accessibility: Keyboard Navigation Bloom's: Apply Difficulty: 2 Medium Learning Objective: 03-04 Summarize the different levels of organizational involvement in international trade. Topic: Trade Strategies Used in Reaching Global Markets

Chapter 03 - Business in a Borderless World

95. DMC Inc., headquartered in California, USA, was looking for a cost-effective company that could perform its tax services. It has completely transferred its tax services to Apex Corp. in India because the there are many well-educated workers and lower labor costs. This process is known as _____. A. joint venture B. alliance C. offshoring D. insourcing E. outsourcing The given process is known as outsourcing. Outsourcing is the transfer of manufacturing or other tasks (such as information technology operations) to companies in countries where labor and supplies are less expensive. Many U.S. firms have outsourced tasks to India, Ireland, Mexico, and the Philippines, where there are many well-educated workers and significantly lower labor costs. Services, such as taxes or customer service, can also be outsourced.

96. Which of the following is likely to be a reason for some U.S. companies to bring their outsourced production processes back to the United States? A. Increasing labor unionization in the United States B. Increased government regulation of business in the United States C. Increasingly strict enforcement of intellectual property rights in Asian countries D. High cost of transporting products to the home country E. Increase in labor turnover rates in the United States Companies such as General Electric and Caterpillar are bringing outsourced processes back to the United States due to increasing labor costs in places such as China, the expense of shipping products across the ocean, and fears of fraud or intellectual property theft.

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97. _____ can be best defined as the sharing of the costs and operations of a business between a foreign company and a local partner. A. Exporting B. Licensing C. A direct investment D. Contract manufacturing E. A joint venture The sharing of the costs and operation of a business between a foreign company and a local partner is called a joint venture.

98. Many countries do not permit foreign companies to purchase and operate facilities in their country. A company that wants to do business in such a country may share the business costs with a firm from the host country by forming a: A. direct investment. B. greenfield venture. C. corporation. D. joint venture. E. sole proprietorship. Many countries do not permit direct investment by foreign companies or individuals. A company may also lack sufficient resources or expertise to operate in another country. In such cases, a company that wants to do business in another country may set up a joint venture by finding a local partner (occasionally, the host nation itself) to share the costs and operation of the business.

Chapter 03 - Business in a Borderless World

99. _____ can be best defined as a partnership formed to create competitive advantage on a worldwide basis. A. A joint venture B. Licensing C. A direct investment D. Contract manufacturing E. A strategic alliance A strategic alliance is a partnership formed to create competitive advantage on a worldwide basis. In such industries, international competition is so fierce and the costs of competing on a global basis are so high that few firms have the resources to go it alone, so they collaborate with other companies.

100. In industries where international competition is so fierce and the costs of competing on a global basis are so high that only a few firms have the resources to do it alone, they collaborate with other companies to form a _____. A. direct investment B. greenfield venture C. franchise D. joint venture E. strategic alliance In industries where international competition is so fierce and the costs of competing on a global basis are so high that only a few firms have the resources to do it alone, they collaborate with other companies to form a strategic alliance. A strategic alliance is a partnership formed to create a competitive advantage based on a worldwide basis.

Chapter 03 - Business in a Borderless World

101. The purchase of overseas production and marketing facilities is an example of _____. A. licensing B. contract manufacturing C. using an export agent D. direct investment E. exporting Companies that want more control and are willing to invest considerable resources in international business may consider direct investment, the ownership of overseas facilities. Direct investment may involve the development and operation of new facilities.

102. A U.S. company, 3M Inc., owns a film-manufacturing facility in Italy. This is an example of: A. strategic alliance. B. a direct investment. C. a joint venture. D. licensing. E. exporting. Companies that want more control and are willing to invest considerable resources in international business may consider direct investment, the ownership of overseas facilities. Direct investment may involve the development and operation of new facilities.

Chapter 03 - Business in a Borderless World

103. Which of the following can be best defined as a corporation that operates in several countries but without significant ties to any of them? A. A licensor B. An exporter C. A monopolist corporation D. A multinational corporation E. A contract manufacturing corporation A multinational corporation (MNC) is a corporation that operates on a worldwide scale and has no direct ties to any one country or region. MNCs are more than simple corporations.

104. Which of the following is an example of foreign direct investment? A. A software development company in the United States investing in shares of an American computer manufacturing firm B. A U.S. investor buying stocks of a German automobile manufacturing company C. A Canadian firm purchasing a majority stake in a Japanese company D. A U.S. cell phone manufacturer hiring an Indian firm to provide customer support services and troubleshooting E. A Chinese steel manufacturing firm exporting 60 percent of its output to European nations A Canadian firm purchasing a majority stake in a company in Japan is an example of foreign direct investment.

Chapter 03 - Business in a Borderless World

105. Which of the following is true of franchising? A. Franchising is a form of foreign direct investment. B. The franchisee uses its own logo in the business. C. A firm has to spend a huge sum of money to enter the international marketplace through franchising. D. Franchising is especially advantageous for large manufacturers. E. Franchising minimizes problems associated with shipping costs, tariffs, and trade restrictions. Licensing and franchising enable a company to enter the international marketplace without spending large sums of money abroad or hiring or transferring personnel to handle overseas affairs. They also minimize problems associated with shipping costs, tariffs, and trade restrictions, and they allow the firm to establish goodwill for its products in a foreign market, which will help the company if it decides to produce or market its products directly in the foreign country at some future date.

106. Which of the following is true of multinational corporations (MNCs)? A. They are the highest level of international business involvement. B. They decrease the gap between rich and poor nations. C. They have significant ties to specific nations or regions. D. They usually have lesser assets than the countries in which they operate. E. They are less complicated than corporations. The highest level of international business involvement is the multinational corporation (MNC), which operates on a worldwide scale, without significant ties to any one nation or region. MNCs are more than simple corporations.

Chapter 03 - Business in a Borderless World

107. On which of the following grounds are multinational corporations (MNCs) often criticized by antiglobalization activists? A. They increase unemployment in the host country. B. They bring in technology that is unknown to the host country. C. They use capital-intensive mode of production. D. They are liable to pay the taxes levied by the government of the host country. E. They increase the gap between rich and poor nations. Many multinational corporations (MNCs) have been targeted by antiglobalization activists at global business forums, and some protests have turned violent. The activists contend that MNCs increase the gap between rich and poor nations, misuse and misallocate scarce resources, exploit the labor markets in LDCs, and harm their natural environments.

108. A _____ strategy can be best defined as a plan, used by international companies, that involves customizing products, promotion, and distribution according to cultural, technological, regional, and national differences. A. global B. standardization C. normalization D. multinational E. domestic A multinational strategy is defined as a plan, used by international companies, that involves customizing products, promotion, and distribution according to cultural, technological, regional, and national differences.

Chapter 03 - Business in a Borderless World

109. While offering its usual menu, McDonald's in Vietnam is specifically adapting its menu because: A. Vietnamese people do not like hamburgers. B. all Vietnamese people are vegetarians. C. Vietnamese people prefer a low-fat diet. D. it recognizes that Vietnamese consumers have their own preferences. E. McDonald's had a bad reputation before opening franchises in Vietnam. McDonald's recently opened its first restaurant in Vietnam. While it will offer its usual menu, McDonald's also recognizes that Vietnamese consumers have their own preferences. In addition to its usual offerings, McDonald's Vietnam is also offering McPork sandwiches specifically targeted toward Vietnam consumers.

110. With respect to multinational strategies, companies are beginning to move away from the _____ strategy. A. globalization B. customization C. standardization D. normalization E. generalization More and more companies are moving from this customization strategy to a global strategy (globalization), which involves standardizing products (and, as much as possible, their promotion and distribution) for the whole world, as if it were a single entity. Examples of globalized products are American clothing, movies, music, and cosmetics.

Chapter 03 - Business in a Borderless World

111. Lever Brothers changed the formula of its bar soap to match different countries' water conditions and washing habits. This exemplifies a(n): A. globalization strategy. B. outsourcing strategy. C. strategic alliance. D. multinational strategy. E. joint venture. A multinational strategy customizes products, promotion, and distribution according to cultural, technological and national differences.

AACSB: Analytic Accessibility: Keyboard Navigation Bloom's: Apply Difficulty: 2 Medium Learning Objective: 03-05 Contrast two basic strategies used in international business. Topic: Trade Strategies Used in Reaching Global Markets

112. When a firm's products are standardized in all countries, _____. A. advertising cannot be used B. only publicity can be used for promotion C. using different advertisement content is illegal D. distribution is more expensive E. advertising may still need modification Even when products are standardized, advertising may have to be modified to adapt to language and cultural differences.

Chapter 03 - Business in a Borderless World

113. Standardizing products for the whole world as if it were a single entity is a characteristic of a(n) _____. A. global strategy B. individualized strategy C. domestic strategy D. customization strategy E. national strategy A global strategy or globalization involves standardizing products, promotion, and distribution for the whole world as if it were a single entity. Examples of globalized products are American clothing, movies, music, and cosmetics.

114. Commercial Service is the global business solutions unit of the U.S. Department of _____. A. Business B. Trade C. Commerce D. Justice E. Security Commercial Service is the global business solutions unit of the U.S. Department of Commerce that offers U.S. firms wide and deep practical knowledge of international markets and industries, a unique global network, inventive use of information technology, and a focus on small and mid-sized businesses.

Chapter 03 - Business in a Borderless World

115. Which is the true statement about managing the challenges of global business? A. The network of CIBERs consist of a wide variety of US firms, especially for small and medium-sized firms. B. The network of CIBERs can provide small-sized firms knowledge of the internationalization process. C. The Commercial Service conducts its work through leading business schools in the United States. D. More and more companies are moving from this global strategy to a multinational strategy. E. Companies doing business internationally have traditionally used a standardized strategy. The network of CIBERs (Centers for International Business Education and Research) conducts the benchmarking the best international practices that benefits U.S. firms, which is conducted at leading business schools in the United States. These CIBERs are funded by the U.S. government to help U.S. firms become more competitive globally. A major element of the assistance that these governmental organizations can provide firms (especially for small and medium-sized firms) is knowledge of the internationalization process.

Chapter 04 - Options for Organizing Business

Chapter 04 Options for Organizing Business

True / False Questions 1. A sole proprietor has limited liability in meeting the debts of his or her business. FALSE

The sole proprietor has unlimited liability in meeting the debts of the business. In other words, if the business cannot pay its creditors, the owner may be forced to use personal, non-business holdings such as a car or a home to pay off the debts.

AACSB: Analytic Accessibility: Keyboard Navigation Bloom's: Remember Difficulty: 2 Medium Learning Objective: 04-01 Define and examine the advantages and disadvantages of the sole proprietorship form of organization. Topic: Sole Proprietorships

2. Limited partners have no voice in the management of the partnership. TRUE Limited partners have no voice in the management of the partnership, and they may bear most of the risk of the business while the general partner reaps a larger share of the benefits.

AACSB: Analytic Accessibility: Keyboard Navigation Bloom's: Remember Difficulty: 1 Easy Learning Objective: 04-02 Identify two types of partnership and evaluate the advantages and disadvantages of the partnership form of organization. Topic: Partnerships

Chapter 04 - Options for Organizing Business

3. The assets and liabilities of a corporation are separate from its owners. TRUE A corporation is a legal entity, created by the state, whose assets and liabilities are separate from its owners.

AACSB: Analytic Accessibility: Keyboard Navigation Bloom's: Remember Difficulty: 1 Easy Learning Objective: 04-03 Describe the corporate form of organization and cite the advantages and disadvantages of corporations. Topic: Corporations

4. An acquisition occurs when one company purchases another company by buying most of its stock. TRUE An acquisition occurs when one company purchases another, generally by buying most of its stock. The acquired company may become a subsidiary of the buyer, or its operations and assets may be merged with those of the buyer.

AACSB: Analytic Accessibility: Keyboard Navigation Bloom's: Remember Difficulty: 1 Easy Learning Objective: 04-04 Define and debate the advantages and disadvantages of mergers, acquisitions, and leveraged buyouts. Topic: Mergers and Acquisitions

Chapter 04 - Options for Organizing Business

5. Most tender offers of corporate raiders are hostile. FALSE

Most tender offers of corporate raiders are "friendly," with both groups agreeing to the proposed deal, but some are "hostile," when the second company does not want to be taken over.

Multiple Choice Questions 6. Which of the following forms of business ownership is the easiest to establish? A. Partnerships B. Sole proprietorships C. S Corporations D. Joint ventures E. C Corporations Forming a sole proprietorship is relatively easy and inexpensive. In some states, creating a sole proprietorship involves merely announcing the new business in the local newspaper.

AACSB: Analytic Accessibility: Keyboard Navigation Bloom's: Remember Difficulty: 1 Easy Learning Objective: 04-01 Define and examine the advantages and disadvantages of the sole proprietorship form of organization. Topic: Sole Proprietorships

Chapter 04 - Options for Organizing Business

7. Which of the following forms of business is owned by a single individual and is the easiest way to conduct business? A. Partnerships B. Sole proprietorships C. S Corporations D. Joint ventures E. C Corporations A sole proprietorship is owned by a single individual and is the easiest way to conduct business. It is the most common form of business organization in the United States.

8. Which of the following is an advantage of a sole proprietorship? A. It is heavily regulated by the government. B. It has limited liability for the debts incurred by the business. C. It is hard to dissolve. D. It is unaffected by the death or withdrawal of its owner. E. It is easy and inexpensive to form. A sole proprietorship is easy and inexpensive to form; it has the greatest degree of secrecy; all profits belong to the owner; it has complete control over the business; it has the most freedom from government regulation; the owner pays one income tax; and the business can be easily dissolved.

AACSB: Analytic Accessibility: Keyboard Navigation Bloom's: Understand Difficulty: 2 Medium Learning Objective: 04-01 Define and examine the advantages and disadvantages of the sole proprietorship form of organization. Topic: Sole Proprietorships

Chapter 04 - Options for Organizing Business

9. Identify a true statement about sole proprietorships. A. Most sole proprietorships have limited liability for their debts. B. Sole proprietorships are the least common form of business organization in the United States. C. Most sole proprietorships focus on services rather than on the manufacture of goods. D. Sole proprietorships net far more sales and income than corporations. E. Sole proprietorships are typically small businesses employing fewer than 100 people. Common examples of sole proprietorships include many restaurants, hair salons, flower shops, dog kennels, and independent grocery stores. Many sole proprietors focus on services—small retail stores, financial counseling, appliance repair, child care, and the like— rather than on the manufacture of goods.

10. Which of the following forms of business is associated with unlimited liability to the owners? A. Cooperatives B. Quasi-public corporations C. S Corporations D. Sole proprietorships E. C Corporations The sole proprietor has unlimited liability in meeting the debts of the business. In other words, if the business cannot pay its creditors, the owner may be forced to use personal, no business holdings such as a car or a home to pay off the debts.

Chapter 04 - Options for Organizing Business

11. Which of the following is an advantage of a sole proprietorship? A. Ease of dissolving the business B. Equally shared profits among owners C. Limited liability D. Varied sources of funds E. Increased life expectancy A sole proprietorship can be dissolved easily. No approval of co-owners or partners is necessary. The only legal condition is that all financial obligations must be paid or resolved.

12. Judy has realized that she does not like working for others. She wants to open a business in which she will have maximum control and the least interference from government regulations. Which of the following forms of business is best suited for Judy's needs? A. A joint venture B. An S corporation C. A sole proprietorship D. A partnership E. A C corporation A sole proprietorship is best suited for Judy's needs. A sole proprietorship is easy and inexpensive to form; it has the greatest degree of secrecy; all profits belong to the owner; it has complete control; it has the most freedom from government regulation; the owner pays income tax; and the business can be easily dissolved.

AACSB: Reflective Thinking Accessibility: Keyboard Navigation Bloom's: Apply Difficulty: 2 Medium Learning Objective: 04-01 Define and examine the advantages and disadvantages of the sole proprietorship form of organization. Topic: Sole Proprietorships

Chapter 04 - Options for Organizing Business

13. Catalina owns a small restaurant and is solely responsible for its debts and liabilities. She is also entitled to all the profits the restaurant makes after paying off taxes and other expenses. Her business is an example of a(n): A. joint venture. B. S corporation. C. sole proprietorship. D. partnership. E. C corporation. Catalina's business is an example of a sole proprietorship. Sole proprietorships are typically small businesses employing fewer than 50 people. The sole proprietor has unlimited liability in meeting the debts of the business.

14. Sole proprietorships are typically small businesses that: A. are formed by two or more partners. B. provide their owners the advantage of limited liability. C. are managed by incorporators. D. employ fewer than 50 people. E. focus on providing a service rather than earning a profit. Sole proprietorships are typically small businesses employing fewer than 50 people. The sole proprietor has unlimited liability in meeting the debts of the business.

Chapter 04 - Options for Organizing Business

15. Which of the following forms of business allows for the greatest degree of secrecy? A. Partnerships B. Joint ventures C. S Corporations D. Sole proprietorships E. C Corporations Sole proprietorships make possible the greatest degree of secrecy. The proprietor, unlike the owners of a partnership or corporation, does not have to discuss publicly his or her operating plans, minimizing the possibility that competitors can obtain trade secrets.

16. In a(n) _____, the owner has complete control over the business and can make crucial decisions without anyone else's approval. A. S corporation B. joint venture C. sole proprietorship D. C corporation E. cooperative The sole proprietor has complete control over the business and can make decisions on the spot without anyone else's approval. This control allows the owner to respond quickly to competitive business conditions or to changes in the economy.

Chapter 04 - Options for Organizing Business

17. The income earned in sole proprietorships is: A. taxed twice. B. exempted from tax. C. taxed as personal income. D. quasi-taxable. E. taxed as business income. Profits from the sole proprietorship are considered personal income to the sole proprietor and are taxed at individual tax rates.

18. Raj has a business idea and is willing to invest his savings in it. He wants to operate the business on his own and also be the only person entitled to receive the profits generated from the business. Which of the following forms of business is best suited for Raj? A. A joint venture B. An S corporation C. A sole proprietorship D. A partnership E. A C corporation A sole proprietorship is best suited for Raj. A sole proprietorship is easy and inexpensive to form and it offers the greatest degree of secrecy. All profits belong to the owner, who has complete control over the business.

Chapter 04 - Options for Organizing Business

19. Brenda runs a bookstore in her locality. She started the business with her own money and solely manages the day-to-day operations of the business. Which of the following is true in this scenario? A. Brenda's business will be constantly regulated by federal and state laws. B. Brenda must file articles of incorporation to start her business. C. Brenda can easily dissolve the business whenever she wants. D. Brenda will have to share her profits with stockholders. E. Brenda's business will be subjected to double taxation. In this scenario, Brenda can easily dissolve the business whenever she wants. A sole proprietorship can be dissolved easily. No approval of co-owners or partners is necessary. The only legal condition is that all financial obligations must be paid or resolved.

20. Which of the following statements is true of sole proprietorships? A. They are very difficult to start and maintain. B. They are exempted from paying any taxes. C. They give their owners limited liability. D. They cannot be dissolved easily. E. They have the most freedom from government regulations. Sole proprietorships have the most freedom from government regulation. Many government regulations—federal, state, and local—apply only to businesses that have a certain number of employees, and securities laws apply only to corporations that issue stock.

Chapter 04 - Options for Organizing Business

21. In sole proprietorships, owners: A. have access to employees with a variety of skills. B. have access to limited sources of funds. C. do not have to pay any income tax. D. have to share their profits. E. cannot easily dissolve the business. Among the relatively few sources of money available to the sole proprietorship are banks, friends, family, the Small Business Administration, or his or her own funds. Additionally, sole proprietorships may have to pay higher interest rates on funds borrowed from banks than do large corporations because they are considered greater risks.

22. Which of the following is a disadvantage of sole proprietorships? A. Sharing of profits with major stockholders B. Lack of continuity C. Lack of business control D. Stringent government regulations E. Absence of a tax-exempt retirement account The life expectancy of a sole proprietorship is directly linked to that of the owner and his or her ability to work. The serious illness of the owner could result in failure of the business if competent help cannot be found.

Chapter 04 - Options for Organizing Business

23. Which of the following forms of business ownership is directly linked to the life of its owner? A. A sole proprietorship B. An S corporation C. A C corporation D. A cooperative E. A franchise The life expectancy of a sole proprietorship is directly linked to that of the owner and his or her ability to work.

24. Which of the following forms of business ownership requires owners to perform many functions and possess diverse skills to make decisions? A. An S corporation B. A C corporation C. A joint venture D. A cooperative E. A sole proprietorship A sole proprietor must be able to perform many functions and possess skills in diverse fields such as management, marketing, accounting, finance, bookkeeping, and personnel management.

Chapter 04 - Options for Organizing Business

25. Salma owns a pharmacy near a hospital. She started the business with a personal loan and is wholly responsible for repaying it. Salma also needs to pay personal income tax on the profits generated from the business. Her business is an example of a(n): A. joint venture. B. S corporation. C. sole proprietorship. D. cooperative. E. C corporation. Salma's business is an example of a sole proprietorship. Sole proprietorships are typically small businesses employing fewer than 50 people. The sole proprietor has unlimited liability in meeting the debts of the business. Profits from sole proprietorships are considered personal income and are taxed at individual tax rates.

26. _____ can be considered as both an advantage and a disadvantage of a sole proprietorship. A. Taxation B. Transparency C. Secrecy D. Continuity E. Liability Profits from sole proprietorships are considered personal income and are taxed at individual tax rates. Another tax benefit is that a sole proprietor is allowed to establish a tax-exempt retirement account or a tax-exempt profit-sharing account. Taxation can also be a disadvantage, depending on the proprietor's income. Under current tax rates, sole proprietors pay a higher marginal tax rate than do small corporations on income of less than $75,000.

Chapter 04 - Options for Organizing Business

27. In a sole proprietorship, the owner has complete control over the business. This allows the owner to: A. have limited liability in meeting the debts of the business. B. have access to multiple sources of funds. C. respond quickly to competitive business conditions or to changes in the economy. D. match the wages and benefits offered to employees by a large competing corporation. E. utilize all profits without paying any taxes. The sole proprietor has complete control over the business and can make decisions on the spot without anyone else's approval. This control allows the owner to respond quickly to competitive business conditions or to changes in the economy.

28. According to the U.S. Bureau of the Census (2012), which form of business ownership is least used in the United States? A. S-corporations B. Joint ventures C. Sole proprietorships D. C-corporations E. Partnerships According to the U.S. Bureau of the Census (2012), partnerships are the least used form of business. Partnerships are a form of business organization defined by the Uniform Partnership Act as "an association of two or more persons who carry on as co-owners of a business for profit."

Chapter 04 - Options for Organizing Business

29. A _____ has been defined as "an association of two or more persons who carry on as coowners of a business for profit." A. partnership B. sole proprietorship C. C corporation D. cooperative E. quasi-public corporation Most states have a model law governing partnerships based on the Uniform Partnership Act. This law defines a partnership as "an association of two or more persons who carry on as coowners of a business for profit."

30. When are limited partnerships generally used? A. When a firm sells its stock to the public B. When a project is risky and the chance of loss is great C. When articles of incorporation are mandatory D. When all partners wish to share equal liability E. When all partners want to participate in the management of a business Limited partnerships exist for risky investment projects where the chance of loss is great. The general partners accept the risk of loss; the limited partners' losses are limited to their initial investment.

AACSB: Analytic Accessibility: Keyboard Navigation Bloom's: Understand Difficulty: 2 Medium Learning Objective: 04-02 Identify two types of partnership and evaluate the advantages and disadvantages of the partnership form of organization. Topic: Partnerships

Chapter 04 - Options for Organizing Business

31. Josh has been asked to be a part of a new business venture that develops wind energy technologies. Since the business involves high risk, he does not want to be held completely liable for the firm's debts if the project fails. In this case, Josh is most likely to prefer to participate as a(n): A. member of a cooperative. B. limited partner. C. general partner. D. owner of an S corporation. E. sole proprietor. In this case, Josh is most likely to prefer to participate as a limited partner. A limited partner's liability is limited to his or her initial investment in the business. Limited partnerships are most often used for risky investments where the chance for loss is great.

AACSB: Reflective Thinking Accessibility: Keyboard Navigation Bloom's: Apply Difficulty: 3 Hard Learning Objective: 04-02 Identify two types of partnership and evaluate the advantages and disadvantages of the partnership form of organization. Topic: Partnerships

32. The legal documents that identify the basic agreements between partners are called: A. articles of proprietorship. B. partnership charters. C. articles of incorporation. D. articles of partnership. E. partnership bonds. Articles of partnership are legal documents that set forth the basic agreement between partners. They usually specify the money or assets that each partner has contributed, each partner's role, how the profits and losses will be divided, and how a partner may leave the partnership.

Chapter 04 - Options for Organizing Business

33. Articles of partnership are legal documents that set forth the basic agreement between partners. The issues covered usually include: A. criteria for recruiting and hiring employees. B. demographic prerequisites for selecting a partner. C. salaries of contract employees. D. provisions for leaving the partnership. E. classes of public stock to be issued. Articles of partnership are legal documents that usually specify the money or assets that each partner has contributed, each partner's role, how the profits and losses will be divided, and how a partner may leave the partnership.

34. It is easier to raise funds in partnerships than in sole proprietorships because: A. several partners mean greater earning power and credit. B. some of the partners will have unlimited liability. C. partnerships have less regulatory controls than sole proprietorship. D. all partners will have limited liability. E. partnerships can issue public stock with much less difficulty than sole proprietorships. When a business has several partners, it has the benefit of pooled financial resources. Partnerships tend to be larger than sole proprietorships and therefore have greater earning power and better credit ratings.

Chapter 04 - Options for Organizing Business

35. The decision-making process in a partnership tends to be faster when: A. there are numerous partners, who all want to solely control the management of the business. B. there are two partners and both of them are involved in the day-to-day activities of the business. C. the partnership is a foreign corporation that conducts its business outside the state in which it was incorporated. D. the partnership is a domestic corporation with numerous partners. E. there are numerous partners and the firm has issued public stock. Small partnerships can react more quickly to changes in the business environment than can large partnerships and corporations. Such fast reactions are possible because the partners are involved in day-to-day operations and can make decisions quickly after consultation.

36. Which of the following statements is true of a partnership? A. The partners will not be held responsible for the actions of each other. B. All the partners will have limited liability. C. The business will face fewer regulatory controls than a corporation. D. All partners need to submit quarterly financial statements to stockholders. E. The owners will tend to have lower earning power than sole proprietors. A partnership has fewer regulatory controls affecting its activities than does a corporation. It does not have to file public financial statements with government agencies or send out quarterly financial statements to several thousand owners, as do corporations.

Chapter 04 - Options for Organizing Business

37. Michael Wong and Sanjay Patel, both lawyers, start a law firm together. Both of them have unlimited liability for the debts of the business, and the management of the firm is equally shared between them. This law firm is an example of a(n) _____. A. general partnership B. S corporation C. sole proprietorship D. limited partnership E. C corporation The law firm owned by Michael Wong and Sanjay Patel is an example of a general partnership. A general partnership involves a complete sharing in the management of a business. In a general partnership, each partner has unlimited liability for the debts of the business.

AACSB: Reflective Thinking Accessibility: Keyboard Navigation Bloom's: Apply Difficulty: 2 Medium Learning Objective: 04-02 Identify two types of partnership and evaluate the advantages and disadvantages of the partnership form of organization. Topic: Partnerships

38. Which of the following is an advantage of a partnership? A. Unlimited liability B. Unrestricted access to funds C. Distribution of profits D. Few regulatory controls E. Lack of business responsibility Like a sole proprietorship, a partnership has fewer regulatory controls affecting its activities than does a corporation.

Chapter 04 - Options for Organizing Business

39. Which of the following is a disadvantage of a partnership? A. Difficulty of selling the partnership interest B. Difficulty of forming the business C. Limited liability faced by the partners D. Insufficient capital and credit E. Stringent government regulations Because it is difficult to place a value on a partnership, difficulty of selling a partnership interest is a distinct disadvantage of the partnership form of business.

40. Which of the following statements is true of taxation in partnerships? A. They pay taxes before distributing profits. B. They report their share of profits as partnership incomes. C. They are exempted from tax. D. They pay taxes at the income tax rate for individuals. E. They are taxed based on the number of shareholders. In partnerships, the partners must report their share of profits on their individual tax returns and pay taxes at the income tax rate for individuals.

Chapter 04 - Options for Organizing Business

41. In a limited partnership: A. the partners can operate the business only for limited time period. B. the profits earned by the owners are limited by government regulations. C. all the partners have limited liability. D. at least one partner has unlimited liability. E. the partners are free from any liability for the debts of the business. In a general partnership, each partner has unlimited liability for the debts of the business. A limited partnership has at least one general partner, who assumes unlimited liability, and at least one limited partner, whose liability is limited to his or her investment in the business.

42. Partnerships are quasi-taxable organizations. This means that they: A. do not pay taxes when submitting the partnership tax return to the Internal Revenue Service. B. are completely exempted from paying taxes. C. are subjected to double taxation. D. need to pay a high rate of tax irrespective of whether or not a profit is made. E. have to pay taxes only if they decide to adopt initial public offering. Partnerships are quasi-taxable organizations. This means that they do not pay taxes when submitting the partnership tax return to the Internal Revenue Service. Partners must report their share of profits on their individual tax returns and pay taxes at the income tax rate for individuals.

Chapter 04 - Options for Organizing Business

43. Which of the following is true of the distribution of profits earned by a partnership? A. They are distributed equally irrespective of the capital provided by each partner. B. They are distributed based on the work each partner puts into the business. C. They are distributed based on the credit rating of each partner. D. They are distributed in the proportions specified in the articles of partnership. E. They are distributed as per the guidelines in articles of incorporation. Profits earned by the partnership are distributed to the partners in the proportions specified in the articles of partnership. This may be a disadvantage if the division of the profits does not reflect the work each partner puts into the business.

44. Which of the following is an advantage of partnerships over sole proprietorships? A. Partnerships are easy to form, whereas sole proprietorships are not. B. In partnerships, all owners have limited liability, whereas in sole proprietorships they have unlimited liability. C. Partnerships make possible the greatest degree of secrecy, whereas sole proprietorships do not. D. In partnerships, the owners have access to more funds than in sole proprietorships. E. In partnerships, the owners have complete control of the business, whereas in sole proprietorships they do not. When a business has several partners, it has the benefit of a combination of talents and skills and pooled financial resources. Sole proprietorships have limited access to funds. Partnerships tend to be larger than sole proprietorships and therefore have greater earning power and better credit ratings.

Chapter 04 - Options for Organizing Business

45. Which of the following is a difference between partnerships and sole proprietorships? A. Partnerships have better access to diverse skills when compared to sole proprietorships. B. Partnerships are subjected to fewer government regulations than sole proprietorships. C. Partnerships make possible the greatest degree of secrecy, whereas sole proprietorships do not. D. In sole proprietorships, the owners have access to more funds and resources than in partnerships. E. In partnerships, the owners have complete control of the business, whereas in sole proprietorships they do not. The diversity of skills in a partnership makes it possible for the business to be run by a management team of specialists instead of by a generalist sole proprietor.

46. Which of the following is a disadvantage of partnerships over sole proprietorships? A. Unlike sole proprietorships, partnerships do not face any regulatory controls that affect their activities. B. In partnerships, all owners have unlimited liability, whereas in sole proprietorships they have limited liability. C. In partnerships, profits have to be shared, whereas in sole proprietorships all profits belong exclusively to the owner. D. In sole proprietorships, the owners have access to more funds than in partnerships. E. Unlike a sole proprietorship, a partnership is terminated when a partner dies or withdraws. Profits earned by a partnership are distributed to the partners in the proportions specified in the articles of partnership. This may be a disadvantage if the division of the profits does not reflect the work each partner puts into the business. However, all profits from a sole proprietorship belong exclusively to the owner.

Chapter 04 - Options for Organizing Business

47. Maria wants to start a new business in collaboration with her husband and brother-in-law. The features she is looking for in the business are as follows: least possible regulatory controls, faster decision making, and ease of organization. She also wants a business in which she will not be forced to pay off any business debts from her personal assets. Which type of business ownership will be best suited to her needs? A. General partnership B. S corporation C. Sole proprietorship D. Limited partnership E. C corporation A limited partnership will be best suited to Maria's needs. A limited partnership has at least one general partner, who assumes unlimited liability, and at least one limited partner, whose liability is limited to his or her investment in the business. The benefits of a partnership include fewer regulatory controls, faster decision making, and ease of organization.

48. Xavier starts an investment management firm along with his friend Abdul. They decide to equally share the profits and have unlimited liability for the debts of their business. This firm is an example of a(n) _____. A. general partnership B. S corporation C. sole proprietorship D. limited partnership E. C corporation This is an example of a general partnership. A general partnership involves a complete sharing in the management of a business. In a general partnership, each partner has unlimited liability for the debts of the business.

Chapter 04 - Options for Organizing Business

49. _____ are profits of a corporation that are distributed in the form of cash payments to stockholders. A. Common stocks B. Bonds C. Retained earnings D. Dividends E. Preferred stocks Dividends are profits of a corporation that are distributed in the form of cash payments to stockholders.

50. A(n)_____ is a legal entity, created by the state, whose assets and liabilities are separate from its owners. A. general partnership B. unlimited partnership C. corporation D. proprietorship E. strategic group A corporation is a legal entity, created by the state, whose assets and liabilities are separate from its owners. As a legal entity, a corporation has many of the rights, duties, and powers of a person, such as the right to receive, own, and transfer property.

Chapter 04 - Options for Organizing Business

51. _____ are typically owned by many individuals and organizations who own shares of the business, called stock. A. General partnerships B. Limited partnerships C. Sole proprietorships D. Corporations E. Franchises Corporations are typically owned by many individuals and organizations who own shares of the business, called stock (thus, corporate owners are often called shareholders or stockholders).

52. Which of the following is an accurate description of dividends? A. They indicate the money invested by sole proprietors in their business. B. They refer to profits in a general partnership. C. They indicate the capital invested by each partner in a limited partnership. D. They are cash payments received through distribution of profits in a corporation. E. They indicate the amount of tax the incorporators of a business need to pay annually. As owners, the stockholders are entitled to all profits that are left after all the corporation's other obligations have been paid. These profits may be distributed in the form of cash payments called dividends.

Chapter 04 - Options for Organizing Business

53. Which of the following items is found in the Model Business Corporation Act issued by the American Bar Association? A. Information about salaries of employees in a corporation B. Guidelines for hiring new employees in a corporation C. Information about the personal assets of a corporation's stockholders D. Provisions for promoting an employee within a corporation E. Provisions for the regulation of internal corporate affairs The Model Business Corporation Act, issued by the American Bar Association, contains 10 items that includes provisions for the regulation of internal corporate affairs.

54. _____ are legal documents that the state issues to companies based on information the company provides in the articles of incorporation. A. State bonds B. Corporation contracts C. Corporate charters D. Articles of proprietorship E. Articles of partnership A corporate charter is a legal document that the state issues to a company based on information the company provides in the articles of incorporation. After securing this charter, the owners hold an organizational meeting at which they establish the corporation's bylaws and elect a board of directors.

Chapter 04 - Options for Organizing Business

55. A corporation doing business outside the state in which it is chartered is known as a(n) _____. A. vertical corporation B. horizontal corporation C. domestic corporation D. alien corporation E. foreign corporation If a corporation does business in the state in which it is chartered, it is known as a domestic corporation. In other states where the corporation does business, it is known as a foreign corporation.

56. A corporation doing business in the state in which it is chartered is known as a(n) _____. A. vertical corporation B. horizontal corporation C. domestic corporation D. quasi corporation E. alien corporation If a corporation does business in the state in which it is chartered, it is known as a domestic corporation.

Chapter 04 - Options for Organizing Business

57. Which of the following statements is true of private corporations? A. Their stock can be bought or sold by anyone. B. They do not pay taxes on their income. C. Their workforce usually consists of fewer than 50 employees. D. They are owned and managed by just one or a few people. E. They are required to disclose financial information publicly. A private corporation is owned by just one or a few people who are closely involved in managing the business. These people, often a family, own all the corporation's stock, and no stock is sold to the public.

58. A private corporation is one: A. that can be bought, sold, or traded by anyone. B. that does not pay taxes on its income. C. whose stock is not traded in public markets. D. whose stock can be purchased on the New York Stock Exchange. E. that discloses proprietary information to the public. A private corporation is owned by one person or a few people who are closely involved in managing the business and own all of the corporation's stock; none of the firm's stock is traded in public markets.

Chapter 04 - Options for Organizing Business

59. Which of the following is a defining characteristic of public corporations? A. Their stock can be bought, sold, or traded by anyone. B. They do not pay taxes on their income. C. Their stockholders do not receive any dividends. D. They are owned and managed by just one or a few people. E. They are not required to disclose any financial information to their stockholders. A public corporation is one whose stock anyone may buy, sell, or trade. Publicly owned corporations must disclose financial information to the public under specific laws that regulate the trade of stocks and other securities.

60. Organizations such as the National Aeronautics and Space Administration and the U.S. Postal Service that are owned by the federal, state, or local governments are known as _____. A. S corporations B. sole proprietorships C. private corporations D. quasi-public corporations E. limited liability companies Quasi-public corporations are owned by the federal, state, or local government and focus on providing a public service rather than earning a profit. Examples include the National Aeronautics and Space Administration and the U.S. Postal Service.

Chapter 04 - Options for Organizing Business

61. Assure Pharma Corp., a private corporation, sold its stock to raise the money it required for global expansion. As a result, anyone could buy, sell, or trade the stocks of the company. The process adopted by Assure Pharma Corp. to raise money is referred to as _____. A. factoring B. bartering C. franchising D. initial public offering E. angel investment The process adopted by Assure Pharma Corp. to raise money is referred to as initial public offering. A private corporation that needs more money to expand or to take advantage of opportunities may have to obtain financing by"going public" through an initial public offering, that is, becoming a public corporation by selling stock so that it can be traded in public markets.

AACSB: Reflective Thinking Accessibility: Keyboard Navigation Bloom's: Apply Difficulty: 3 Hard Learning Objective: 04-03 Describe the corporate form of organization and cite the advantages and disadvantages of corporations. Topic: Corporations

62. Which of the following is a corporation that provides a service, but is neither owned by the government nor focuses on earning profits? A. An S corporation B. A government subsidiary C. A nonprofit corporation D. A quasi-public corporation E. A C corporation Nonprofit corporations focus on providing a service rather than earning a profit but are not owned by a government entity. To fund their operations and services, nonprofit organizations solicit donations from individuals and companies and grants from the government and other charitable foundations.

Chapter 04 - Options for Organizing Business

63. SunRay Foundation, a corporation owned and managed by volunteers, supplies medicines and vaccines to impoverished people in Asia and Africa. Its focus is not on earning a surplus but on serving the community. SunRay Foundation is an example of a(n)_____. A. S corporation B. domestic corporation C. nonprofit corporation D. quasi-public corporation E. C corporation SunRay Foundation is an example of a nonprofit corporation. Nonprofit corporations focus on providing a service rather than earning a profit but are not owned by a government entity.

AACSB: Reflective Thinking Accessibility: Keyboard Navigation Bloom's: Apply Difficulty: 2 Medium Learning Objective: 04-03 Describe the corporate form of organization and cite the advantages and disadvantages of corporations. Topic: Corporations

64. A(n) _____ is elected by the stockholders of a corporation to oversee its general operation. A. board of stockholders B. preferred stockholder C. board of directors D. chief executive E. silent partner A board of directors, elected by the stockholders to oversee the general operation of a corporation, sets the long-range objectives of the corporation. It is the board's responsibility to ensure that the objectives are achieved on schedule.

Chapter 04 - Options for Organizing Business

65. Who is responsible for setting the long-range objectives of a corporation? A. Sole proprietors B. Preferred stockholders C. Board of directors D. Customers E. External auditors A board of directors, elected by the stockholders to oversee the general operation of a corporation, sets the long-range objectives of the corporation. It is the board's responsibility to ensure that the objectives are achieved on schedule.

66. Common stockholders within a corporation: A. act as the board of directors. B. are completely isolated from its operations. C. have the right to make a cumulative claim to dividends. D. are restricted from exercising preemptive rights. E. receive dividends after preferred stockholders. Common stockholders do not receive dividends before preferred stockholders. Although owners of common stock do not get any preferential treatment with regard to dividends, they do get some say in the operation of the corporation.

AACSB: Analytic Accessibility: Keyboard Navigation Bloom's: Understand Difficulty: 2 Medium Learning Objective: 04-03 Describe the corporate form of organization and cite the advantages and disadvantages of corporations. Topic: Corporations

Chapter 04 - Options for Organizing Business

67. Which of the following statements is true of preferred stockholders? A. They are eligible to vote by proxy. B. They are the voting owners of a corporation. C. They have the right to exercise preemptive rights. D. They have a claim to profits before other stockholders do. E. They are generally the decision-makers in the day-to-day running of an organization. Owners of preferred stock are a special class of owners because, although they generally do not have any say in running the company, they have a claim to profits before any other stockholders do.

68. Which type of stockholders usually has the right to vote and elect the board of directors? A. A preferred stockholder B. A common stockholder C. A capital stockholder D. A perpetual stockholder E. A proxy stockholder Common stockholders are the voting owners of a corporation because they are usually entitled to one vote per share of common stock and they elect the board of directors.

Chapter 04 - Options for Organizing Business

69. A written authorization that assigns a stockholder's voting privilege to another is called: A. profit deed. B. stock certificate. C. preemptive right. D. leveraged buyout. E. proxy. Common stockholders may vote by proxy, which is a written authorization by which stockholders assign their voting privilege to someone else, who then votes for his or her choice at the stockholders' meeting.

70. The right of common stockholders to have the opportunity to purchase new shares of stock is called a: A. first offer right. B. preemptive right. C. stock-split right. D. profit-sharing right. E. cooperative right. In most states, when a corporation decides to sell new shares of common stock in the marketplace, common stockholders have the first right, called a preemptive right, to purchase new shares of the stock from the corporation.

Chapter 04 - Options for Organizing Business

71. The form of business ownership that has the ability to raise capital most easily is a: A. public corporation. B. private corporation. C. sole proprietorship. D. joint venture. E. limited partnership. A public corporation finds it easiest to raise money because it can issue stocks or bonds when it needs to raise capital.

72. Which of the following is an advantage that corporations provide as a form of business ownership? A. The owners of corporations do not have to share their profits with stockholders. B. The income earned by corporations is taxed only once. C. Corporations have the most freedom from government regulations. D. The process involved in forming corporations is very easy and inexpensive. E. Corporations have access to external funding sources. When a corporation needs to raise more money, it can sell more stock shares or issue bonds (corporate "IOUs," which pledge to repay debt), attracting funds from anywhere in the United States and even overseas. The larger a corporation becomes, the more sources of financing are available to it.

Chapter 04 - Options for Organizing Business

73. Which of the following is a disadvantage of corporations? A. The owners will have limited access to external funds in a corporation. B. The owners will have unlimited liability for the debts of a corporation. C. The formation of a corporation can be costly and it faces double taxation. D. The transfer of ownership in a corporation is very difficult. E. The life expectancy of a corporation is very short and it lacks continuity. The formation of a corporation can be costly. A charter must be obtained, and this usually requires the services of an attorney and payment of legal fees. The business's founders may fail to take into account disadvantages, such as double taxation with corporations.

74. Which of the following is an advantage of corporations over sole proprietorships? A. Unlike sole proprietorships, existence of corporations is unaffected by the death or withdrawal of any of the stockholders. B. In corporations, all the owners have unlimited liability, whereas in sole proprietorships they have limited liability. C. Corporations offer the greatest degree of secrecy, whereas sole proprietorships do not. D. Corporations are easier and less costly to form than sole proprietorships. E. Unlike sole proprietorships, corporations are not subjected to double taxation. The existence of a corporation is unaffected by the death or withdrawal of any of its stockholders. On the other hand, the life expectancy of a sole proprietorship is directly linked to that of the owner and his or her ability to work.

Chapter 04 - Options for Organizing Business

75. Which of the following organizational forms is the most expensive to set up? A. A sole proprietorship B. A general partnership C. A limited liability company D. A limited partnership E. A corporation The formation of a corporation can be costly due to the need of an attorney's services and annual fees paid to maintain the charter.

76. Which of the following is a disadvantage of a corporation? A. Lack of regulatory controls B. Unlimited liability C. Absence of perpetual life D. Employee-owner separation E. Lack of expansion potential Corporations may be subject to double taxation, have limited liability, are usually chartered to last forever, can easily expand into international markets, and may suffer from employeeowner separation.

Chapter 04 - Options for Organizing Business

77. A(n) _____ is a partnership established for a specific project or for a limited time. A. joint venture B. cooperative C. C corporation D. sole proprietorship E. conglomerate A joint venture is a partnership established for a specific project or for a limited time and it is popular in situations that call for large investments.

78. Which of the following statements is true of joint ventures? A. They enjoy reduced government regulations when compared to general partnerships. B. They are mostly formed to last forever. C. They are set up not to make profits but to provide service to the community. D. They are popular in situations that call for large investments. E. They restrict the number and types of shareholders in the organization. A joint venture is a partnership established for a specific project or for a limited time and it is popular in situations that call for large investments.

Chapter 04 - Options for Organizing Business

79. A(n) _____ is a form of business ownership that is difficult to form and operate and it also restricts the number and types of shareholders. A. worker cooperative B. S corporation C. C corporation D. consumer cooperative E. general partnership S corporations have restrictions on the number (75) and types (individuals, estates, and certain trusts) of shareholders and are also difficult to form and operate.

80. Which of the following is true of S corporations? A. They are taxed twice. B. They are very easy to form and operate. C. They do not have any restrictions on the number of shareholders. D. Their shareholders have unlimited liability. E. Their shareholders can shift income and appreciation to others. The owners of an S corporation have the ability to shift income and appreciation to others. Net profits or losses of the corporation pass to the owners, thus eliminating double taxation.

Chapter 04 - Options for Organizing Business

81. Which of the following forms of business ownership provides limited liability but is taxed like a partnership? A. A sole proprietorship B. A cooperative C. A C corporation D. A general partnership E. A limited liability company A limited liability company is a form of business ownership that provides limited liability, as in a corporation, but is taxed like a partnership.

82. Which of the following is true of limited liability companies? A. They are taxed like a C corporation. B. They are very complex and difficult to run. C. They require members to regularly hold meetings. D. They are established for a specific project or for a limited time. E. They protect the members' personal assets in case of lawsuits. One of the major reasons for the limited liability company form of ownership is to protect the members' personal assets in case of lawsuits.

Chapter 04 - Options for Organizing Business

83. Which of the following is a difference between limited liability companies (LLCs) and S corporations? A. LLCs are taxed as partnerships, whereas S corporations are taxed as corporations. B. LLCs are found only in the United States, whereas S corporations are present worldwide. C. LLCs are very simple to run, whereas S corporations are not. D. LLCs provide limited liability to owners, whereas S corporations do not. E. LLCs require the members to hold meetings, whereas S corporations do not. Limited liability companies are flexible, simple to run, and do not require the members to hold meetings keep minutes, or make resolutions, all of which are necessary in corporations. On the other hand, S corporations are difficult to form and operate.

84. A similarity between limited liability companies and S corporations is that both: A. offer limited liability to owners. B. are taxed as corporations. C. are established for a limited time. D. require their members to hold regular meetings. E. are very simple to form and operate. A limited liability company is a form of business ownership that provides limited liability, as in a corporation, but is taxed like a partnership. The benefit of limited liability is also retained in an S corporation.

Chapter 04 - Options for Organizing Business

85. An organization composed of individuals or small businesses that have banded together to reap the benefits of belonging to a larger organization is known as a(n) _____. A. cooperative B. S corporation C. sole proprietorship D. multinational firm E. general partnership A form of organization in business is the cooperative or co-op, an organization composed of individuals or small businesses that have banded together to reap the benefits of belonging to a larger organization.

86. North Farm Society is an association of farmers from rural communities. Its agenda is not to make profits but to help its members market their produce and purchase large quantities of fertilizer, seeds, and other supplies at discounted prices. Thus, North Farm Society is an example of a(n) _____. A. cooperative B. S corporation C. sole proprietorship D. limited liability company E. general partnership North Farm Society is an example of a cooperative. Many cooperatives exist in small farming communities. The co-op stores and markets grain; orders large quantities of fertilizer, seed, and other supplies at discounted prices; and reduces costs and increases efficiency with good management. A co-op can purchase supplies in large quantities and pass the savings on to its members.

Chapter 04 - Options for Organizing Business

87. Big Lite Inc. purchases Canton Bulbs, its direct competitor, by buying most of its stock. In this scenario, Big Lite Inc. is involved in a(n) _____. A. conglomerate merger B. acquisition C. vertical merger D. leveraged buyout E. franchise In this scenario, Big Lite Inc. is involved in an acquisition. An acquisition is the purchase of one company by another, usually by buying its stock. It sometimes involves the purchase of a division or some other part of a company rather than the entire company.

AACSB: Reflective Thinking Accessibility: Keyboard Navigation Bloom's: Apply Difficulty: 3 Hard Learning Objective: 04-04 Define and debate the advantages and disadvantages of mergers, acquisitions, and leveraged buyouts. Topic: Mergers and Acquisitions

88. Big Sandwiches merges with its supplier, FC Ingredients, in an effort to have a constant supply of sauce for its sandwiches. This is an example of a:

A. shark repellant. B. vertical merger. C. conglomerate merger. D. white knight. E. horizontal merger. AACSB: Reflective Thinking Accessibility: Keyboard Navigation Bloom's: Apply Difficulty: 3 Hard Learning Objective: 04-04 Define and debate the advantages and disadvantages of mergers, acquisitions, and leveraged buyouts. Topic: Mergers and Acquisitions

Chapter 04 - Options for Organizing Business

89. Razor Inc., an automobile company, merges with Tyros Inc., a firm that manufactures tires, in order to limit the uncertainty in the supply of automobile tires and reduce the production cost of its cars. This merger is an example of a: A. vertical merger. B. leveraged buyout. C. horizontal merger. D. shark repellant merger. E. conglomerate merger. This is an example of a vertical merger. When companies operating at different but related levels of an industry merge, it is known as a vertical merger. In many instances, a vertical merger results when one corporation merges with one of its customers or suppliers.

90. United Movies Inc., a movie production company, and Fox Apparel, a premium clothing brand, joined their businesses together. This is an example of a _____. A. vertical merger B. limited partnership C. sole proprietorship D. horizontal merger E. conglomerate merger This is an example of a conglomerate merger. A conglomerate merger results when two firms in unrelated industries merge.

AACSB: Reflective Thinking Accessibility: Keyboard Navigation Bloom's: Apply Difficulty: 2 Medium Learning Objective: 04-04 Define and debate the advantages and disadvantages of mergers, acquisitions, and leveraged buyouts. Topic: Mergers and Acquisitions

Chapter 04 - Options for Organizing Business

91. When a corporate raider wants to acquire or take over another company, it first offers to buy some or all of the other company's stock at a premium over its current price in a(n) _____. A. leveraged buyout B. preemptive merger C. initial public offer D. vote by proxy E. tender offer When a company (or an individual), sometimes called a corporate raider, wants to acquire or take over another company, it first offers to buy some or all of the other company's stock at a premium over its current price in a tender offer.

92. If a firm issues a poison pill when facing a hostile takeover attempt, it: A. fires its board of directors for incompetence. B. allows stockholders to buy shares of stock at prices lower than the market value. C. involves the firing of the entire executive committee before a takeover. D. requires a majority of stockholders to approve the takeover. E. files a lawsuit to avoid the takeover. A poison pill occurs when a firm allows stockholders to buy more shares of stock at prices lower than the current market value in an attempt to make a takeover less attractive to a potential acquirer.

Chapter 04 - Options for Organizing Business

93. Big City Financial is allowing stockholders to purchase more shares of stock at prices below the existing market value. This is an attempt to avoid a hostile takeover by a corporate raider. Which of the following methods is being used by Big City Financial to evade the takeover? A. A compliance buyout B. A tender offer C. A class action D. A poison pill E. A shark repellant Big City Financial is using a poison pill to evade the takeover. A poison pill allows stockholders to buy more shares of stock at prices lower than the current market value to deter a hostile takeover.

94. In the context of corporations, what is a white knight? A. A more acceptable firm that is willing to acquire the firm threatened by a hostile takeover B. An attempt to fend off a hostile takeover by selling stock at prices below the market value C. An attempt to fend off a hostile takeover by requiring the deal to be approved by a majority of shareholders D. An attempt to fend off a hostile takeover by raising capital through an initial public offering E. A group of investors who have borrowed money to acquire a firm In the context of corporations, a white knight is a more acceptable firm that is willing to acquire the threatened company.

Chapter 04 - Options for Organizing Business

95. Tim and Andy, wealthy industrialists, borrow money from True Global Bank to acquire Univo Corp. They promise to repay the bank using the assets of Univo Corp. as collateral. In this scenario, Tim and Andy are involved in a: A. horizontal merger. B. vertical merger. C. leveraged buyout. D. conglomerate merger. E. poison pill. In this scenario, Tim and Andy are involved in a leveraged buyout. In a leveraged buyout, a group of investors borrows money from banks and other institutions to acquire a company (or a division of one) using the assets of the purchased company to guarantee repayment of the loan.

Chapter 05 - Small Business, Entrepreneurship, and Franchising

Chapter 05 Small Business, Entrepreneurship, and Franchising

True / False Questions 1. Entrepreneurship is the process of creating and managing a business to achieve desired objectives. TRUE Entrepreneurship is the process of creating and managing a business to achieve desired objectives. Some entrepreneurs who start small businesses have the ability to see emerging trends; in response, they create a company to provide a product that serves customer needs.

AACSB: Analytic Accessibility: Keyboard Navigation Bloom's: Remember Difficulty: 1 Easy Learning Objective: 05-01 Define entrepreneurship and small business. Topic: Define Entrepreneurship

2. One of the most significant drawbacks of small businesses is their inability to innovate and to bring significant benefits to customers. FALSE One of the most significant strengths of small businesses is their ability to innovate and to bring significant benefits to customers. Small firms produce more than half of all innovations.

AACSB: Analytic Accessibility: Keyboard Navigation Bloom's: Understand Difficulty: 2 Medium Learning Objective: 05-01 Define entrepreneurship and small business. Topic: The Importance of Small Business Ownership to the U.S. Economy

Chapter 05 - Small Business, Entrepreneurship, and Franchising

3. Retailing attracts entrepreneurs because gaining experience and exposure in retailing is relatively easy. TRUE Retailing attracts entrepreneurs because gaining experience and exposure in retailing is relatively easy. Additionally, an entrepreneur opening a new retail store does not have to spend the large sums of money for the equipment and distribution systems that a manufacturing business requires.

AACSB: Analytic Accessibility: Keyboard Navigation Bloom's: Remember Difficulty: 1 Easy Learning Objective: 05-02 Investigate the importance of small business in the U.S. economy and why certain fields attract small business. Topic: The Importance of Small Business Ownership to the U.S. Economy

4. Industries such as wholesaling, services, and manufacturing are unattractive to entrepreneurs because these fields tend to be relatively difficult to enter and require high initial financing. FALSE Retailing, wholesaling, services, manufacturing, and high technology are attractive to entrepreneurs because these fields tend to be easy to enter, require low initial financing, and suffer less from heavy competition, at least in the early stages.

Chapter 05 - Small Business, Entrepreneurship, and Franchising

5. A drawback of franchising is the need for franchisees to strictly adhere to standardized operations. TRUE In franchising, a shortcoming experienced by franchisees include strict adherence to standardized operations. Entrepreneurs who want to be their own bosses are often frustrated with the restrictions of a franchise.

AACSB: Analytic Accessibility: Keyboard Navigation Bloom's: Remember Difficulty: 1 Easy Learning Objective: 05-05 Describe how you go about starting a small business and what resources are needed. Topic: Franchising

Multiple Choice Questions 6. _____ is the process of creating and managing a business to achieve desired objectives. A. Entrepreneurship B. Bootstrapping C. Bootlegging D. Innovation E. Brainstorming Entrepreneurship is the process of creating and managing a business to achieve desired objectives. An entrepreneur is a person who risks his or her wealth, time, and effort to develop for profit an innovative product or way of doing something.

Accessibility: Keyboard Navigation Bloom's: Remember Difficulty: 1 Easy Learning Objective: 05-01 Define entrepreneurship and small business. Topic: Define Entrepreneurship

Chapter 05 - Small Business, Entrepreneurship, and Franchising

7. Megha is a taekwondo expert who starts her own martial arts training academy. She conducts taekwondo classes for women and teaches them the art of self-defense. Megha can be regarded as a(n): A. shareholder. B. entrepreneur. C. investor. D. intrapreneur. E. inventor. Megha can be regarded as an entrepreneur. Entrepreneurs are people involved in entrepreneurship, which is the process of creating and managing a business to achieve desired objectives.

AACSB: Reflective Thinking Accessibility: Keyboard Navigation Bloom's: Apply Difficulty: 2 Medium Learning Objective: 05-01 Define entrepreneurship and small business. Topic: Define Entrepreneurship

8. A _____ is best described as any independently owned and operated business that is not dominant in its competitive area and does not employ more than 500 people. A. publicly owned business B. limited liability company C. small business D. publicly traded company E. conglomerate A small business is defined as any independently owned and operated business that is not dominant in its competitive area and does not employ more than 500 people. A local Mexican restaurant may be the most patronized Mexican restaurant in your community, but because it does not dominate the restaurant industry as a whole, the restaurant can be considered a small business.

AACSB: Analytic Accessibility: Keyboard Navigation Bloom's: Remember Difficulty: 1 Easy Learning Objective: 05-01 Define entrepreneurship and small business. Topic: The Importance of Small Business Ownership to the U.S. Economy

Chapter 05 - Small Business, Entrepreneurship, and Franchising

9. A small business is any independently owned business that employs not more than _____ people. A. 100 B. 500 C. 300 D. 200 E. 20 A small business is independently owned and operated, is not dominant in its competitive area, and does not employ more than 500 employees. A local Mexican restaurant may be the most patronized Mexican restaurant in your community, but because it does not dominate the restaurant industry as a whole, the restaurant can be considered a small business.

10. Vernon runs Buzz, his own event management company, which frequently organizes large corporate events. He has built a good reputation for organizing corporate events with a fair degree of professionalism at reasonable costs. He works out of his old house with a staff of about 55 employees. Vernon's company can be categorized as a: A. multinational corporation. B. limited liability company. C. franchise. D. public sector holding. E. small business. Vernon's company can be categorized as a small business. A small business is independently owned and operated, is not dominant in its competitive area, and does not employ more than 500 employees.

AACSB: Reflective Thinking Accessibility: Keyboard Navigation Bloom's: Apply Difficulty: 3 Hard Learning Objective: 05-01 Define entrepreneurship and small business. Topic: The Importance of Small Business Ownership to the U.S. Economy

Chapter 05 - Small Business, Entrepreneurship, and Franchising

11. The Small Business Administration is a(n): A. body established by the U.S. Chamber of Commerce to encourage the intrapreneurial spirit in small businesses. B. independent agency of the federal government that offers managerial and financial assistance to small businesses. C. independent agency created under the General Agreement on Tariffs and Trade to protect small businesses against competition from larger companies. D. division of the federal government that is responsible for ensuring that newly formed businesses adhere to the law. E. U.S. Congressional agency that regulates the issue of stocks by small businesses. The Small Business Administration is an independent agency of the federal government that offers managerial and financial assistance to small businesses. On its website, the SBA outlines the first steps in starting a small business and offers a wealth of information to current and potential small-business owners.

12. Salma owns a Lebanese restaurant that employs around 25 people. She is solely responsible for the management of the restaurant. Her business has to compete with a larger chain of restaurants that offer the same cuisine. Salma's restaurant can be classified as a: A. multinational corporation. B. conglomerate. C. franchise. D. public sector holding. E. small business. Salma's restaurant can be classified as a small business. A small business is independently owned and operated, is not dominant in its competitive area, and does not employ more than 500 employees.

Chapter 05 - Small Business, Entrepreneurship, and Franchising

13. Which of the following is true about the role of small businesses in the American economy? A. They employ about 20 percent of private workers. B. They represent only 20 percent of U.S. exporters. C. They provide opportunities for women to succeed in business. D. They are always operated as subsidies of large companies. E. There has been a decline in the number of small businesses owned by minorities. Small businesses provide opportunities for minorities and women to succeed in business. Women-owned businesses are responsible for employing 7.7 million workers and contribute $1.3 trillion in sales.

AACSB: Analytic Accessibility: Keyboard Navigation Bloom's: Understand Difficulty: 1 Easy Learning Objective: 05-02 Investigate the importance of small business in the U.S. economy and why certain fields attract small business. Topic: The Importance of Small Business Ownership to the U.S. Economy

14. Which of the following businesses has created a majority of net new jobs annually? A. Multinational corporations B. Publicly traded companies C. Small businesses D. Conglomerates E. Public sector holdings More than 99 percent of all U.S. firms are classified as small businesses, and they employ about half of private workers. About 63 percent of net new jobs annually were created by small businesses.

Chapter 05 - Small Business, Entrepreneurship, and Franchising

15. Which of the following is an advantage for small businesses that choose to enter the retailing industry? A. Retailing is a relatively difficult field to gain entry. B. Retailing requires a large capital investment in the initial stages. C. Retailing allows small business to focus on specific groups of consumers. D. Retailing requires sophisticated machinery and technical expertise. E. Retailing suffers from heavy competition and losses only in the initial stages. Retailing and wholesaling, services, manufacturing, and high technology are especially attractive to entrepreneurs. These fields are relatively easy to enter and require low initial financing. Small-business owners in these industries also find it easier to focus on specific groups of consumers; new firms in these industries initially suffer less from heavy competition than do established firms.

AACSB: Analytic Accessibility: Keyboard Navigation Bloom's: Understand Difficulty: 2 Medium Learning Objective: 05-02 Investigate the importance of small business in the U.S. economy and why certain fields attract small business. Topic: The Importance of Small Business Ownership to the U.S. Economy

16. Which of the following reasons makes retailing an attractive industry for small businesses? A. Retailing eliminates the need for any entrepreneurial skills. B. Retailing offers high barriers to entry. C. Retailing eliminates the need to engage in active interactions with the final customers. D. Retailing requires low initial financing. E. Retailing limits a firm's need to focus on specific groups of consumers. Retailing attracts entrepreneurs because gaining experience and exposure in retailing is relatively easy. Additionally, an entrepreneur opening a new retail store does not have to spend large sums of money for the equipment and distribution systems that a manufacturing business requires.

Chapter 05 - Small Business, Entrepreneurship, and Franchising

17. Which of the following best illustrates a small business operating in a retail industry as opposed to wholesaling its products? A. Janet bakes cakes and sells them to other restaurants and cafes in malls. B. BC Inc. manufactures stationery and sells it in bulk to book shops and supermarkets. C. Pink Cult, an apparel company, sells its merchandise through True deals.com. D. Neon Love Inc. imports candles and directly sells them to customers through kiosks. E. Auto Line Inc. manufactures component parts of cars and sells them to automobile companies. Neon Love Inc. illustrates a small business operating in a retail industry as opposed to wholesaling its products. Retailers acquire goods from producers or wholesalers and sell them to consumers. Wholesalers supply products to industrial, retail, and institutional users for resale or for use in making other products.

AACSB: Reflective Thinking Accessibility: Keyboard Navigation Bloom's: Apply Difficulty: 3 Hard Learning Objective: 05-02 Investigate the importance of small business in the U.S. economy and why certain fields attract small business. Topic: The Importance of Small Business Ownership to the U.S. Economy

18. Many service providers are considered retailers because they: A. require a high initial start-up cost. B. provide their services directly to ultimate consumers. C. sell their services from a single store location. D. focus on large market segments and institutional buyers. E. employ only a small number of people. The service sector includes businesses that do not actually produce tangible goods. Many of these service providers are retailers who provide their services to ultimate consumers.

Chapter 05 - Small Business, Entrepreneurship, and Franchising

19. In the manufacturing sector, small businesses sometimes have an advantage over large firms because small businesses: A. are exempted from paying taxes in most countries. B. can customize products to meet specific customer needs and wants. C. have a better access to highly skilled workers. D. can mass produce and supply goods in bulk. E. have better access to funds and can invest on sophisticated equipment. Small businesses sometimes have an advantage over large firms because they can customize products to meet specific customer needs and wants. Such products include custom artwork, jewelry, clothing, and furniture.

20. Which of the following traits will help entrepreneurs succeed? A. Risk aversion B. Intolerance C. Frugality D. Impulsive E. Neuroticism Entrepreneurs should be intuitive, persistent, creative, innovative, productive, frugal, patient, friendly, charismatic, and fearless, in order to succeed.

AACSB: Analytic Accessibility: Keyboard Navigation Bloom's: Remember Difficulty: 1 Easy Learning Objective: 05-03 Specify the advantages of small-business ownership. Topic: Attributes of Successful Entrepreneurs

Chapter 05 - Small Business, Entrepreneurship, and Franchising

21. One of the major reasons people want to own and operate their own business is to: A. avoid the risk of competition. B. be their own boss. C. avoid multitasking. D. reduce stress levels. E. avoid direct responsibility of the operations. Independence is probably one of the leading reasons that entrepreneurs choose to go into business for themselves. Being a small-business owner means being one's own boss.

22. Which of the following is an advantage of a small business? A. Greater adaptability to changing market demands B. Highly trained and competent staff C. Low levels of stress in managing the business D. Diverse and large workforce E. High success rates With small size comes the flexibility to adapt to changing market demands. Small businesses usually have only one layer of management—the owners. Decisions therefore can be made and executed quickly.

AACSB: Analytic Accessibility: Keyboard Navigation Bloom's: Understand Difficulty: 2 Medium Learning Objective: 05-03 Specify the advantages of small-business ownership. Topic: The Advantages and Disadvantages of Small Business Ownership

Chapter 05 - Small Business, Entrepreneurship, and Franchising

23. Which of the following statements is true of small businesses? A. They usually employ more than 500 people. B. They require less money to start and maintain than do large ones. C. They lack the flexibility to adapt to changing market demands. D. They offer a stress-free environment to their owners. E. They have a very low rate of failure. Small businesses often require less money to start and maintain than do large ones. Obviously, a firm with just 25 people in a small factory spends less money on wages and salaries, rent, utilities, and other expenses than does a firm employing tens of thousands of people in several large facilities.

24. Which of the following is an advantage of small businesses over larger firms? A. Unlike larger firms, small businesses can quickly make and execute business decisions. B. Unlike larger firms, small businesses have access to a diverse and large workforce. C. Unlike larger firms, small businesses are not required to pay any taxes. D. Small businesses are better equipped than larger businesses to cope with growth. E. Small businesses have better access to highly trained and competent staff than larger firms. Small businesses usually have only one layer of management—the owners. Decisions therefore can be made and executed quickly. In larger firms, decisions about even routine matters can take weeks because they must pass through multiple levels of management before action is authorized.

Chapter 05 - Small Business, Entrepreneurship, and Franchising

25. Red Carpet Inc. is a small apparel store started by an aspiring designer. The store needs to compete against larger, well-established multinational brands. Which of the following strategies will most help Red Carpet Inc. avoid competition from larger firms? A. Red Carpet Inc. should have multiple levels of management like the larger firms. B. Red Carpet Inc. should target large market segments that the competitors serve. C. Red Carpet Inc. should expand the scale of production to enjoy greater economies of scale. D. Red Carpet Inc. should start to work with customers only when the products are ready for sale. E. Red Carpet Inc. should focus on and target small market niches or product needs. Red Carpet Inc. should focus on and target small market niches or product needs to avoid competition from larger firms. By targeting small niches or product needs, small businesses can sometimes avoid competition from larger firms, helping them to grow into stronger companies. Small firms, because of their capacity to focus on narrow niches, can develop enviable reputations for quality and service.

AACSB: Reflective Thinking Accessibility: Keyboard Navigation Bloom's: Apply Difficulty: 3 Hard Learning Objective: 05-03 Specify the advantages of small-business ownership. Topic: The Advantages and Disadvantages of Small Business Ownership

26. Small businesses usually have only one layer of management. Which of the following is an implication of this fact? A. Small businesses face a low risk of failure. B. Small businesses have great flexibility to adapt to changing market conditions. C. The decision-making process is lengthy in small businesses. D. Small businesses have better access to managerial experience and skills than larger firms. E. Small business owners have a limited amount of direct authority. With small size comes the flexibility to adapt to changing market demands. Small businesses usually have only one layer of management—the owners. Decisions therefore can be made and executed quickly. In larger firms, decisions about even routine matters can take weeks because they must pass through multiple levels of management before action is authorized.

Chapter 05 - Small Business, Entrepreneurship, and Franchising

27. Which of the following is one of the difficulties faced by small business owners? A. High cost of formation B. Bureaucratic decision-making process C. Inability to focus on specific groups of customers D. Worries about employee problems or competition E. Limited scope for innovation Entrepreneurs experience a great deal of independence but also a great deal of stress. There are ongoing worries about competition, employee problems, new equipment, expanding inventory, rent increases, or changing market demand.

AACSB: Analytic Accessibility: Keyboard Navigation Bloom's: Remember Difficulty: 1 Easy Learning Objective: 05-04 Summarize the disadvantages of small-business ownership and analyze why many small businesses fail. Topic: The Advantages and Disadvantages of Small Business Ownership

28. Which of the following is a disadvantage of small businesses? A. They lack the capacity to focus on narrow niches. B. They require a lot of money to start and maintain than do large ones. C. They have a high rate of failure. D. They lack the ability to adapt to changing market demands. E. They cannot operate in high technology industries. Small businesses have a high rate of failure. Despite the importance of small businesses to a nation's economy, there is no guarantee of success. Half of all new employer firms fail within the first five years.

AACSB: Analytic Accessibility: Keyboard Navigation Bloom's: Understand Difficulty: 2 Medium Learning Objective: 05-04 Summarize the disadvantages of small-business ownership and analyze why many small businesses fail. Topic: The Advantages and Disadvantages of Small Business Ownership

Chapter 05 - Small Business, Entrepreneurship, and Franchising

29. If a small business has to cope with growth, it requires the owner to: A. give up a certain amount of direct authority. B. decrease the levels of management. C. disregard narrow niches. D. reduce the workforce. E. delay decision making. Sometimes, the very factors that are advantages for a small business turn into serious disadvantages when the time comes to grow. Growth often requires the owner to give up a certain amount of direct authority, and it is frequently hard for someone who has called all the shots to give up control.

30. Which of the following is a reason behind the failure of small businesses? A. Overcapitalization B. Reputation C. Managerial experience D. Poor business concept E. High costs of start-up A poor business concept will produce disaster for a small business nearly every time. Expanding a hobby into a business may work if a genuine market niche exists, but all too often people start such a business without identifying a real need for the goods or services.

Chapter 05 - Small Business, Entrepreneurship, and Franchising

31. Carol has decided to open a Vietnamese restaurant in her neighborhood. She will be solely responsible for the management of the restaurant. Which of the following problems is she likely to face while running the business? A. She will find it difficult to make quick decisions. B. Her business will not be able to quickly adapt to changing market demands. C. Her restaurant may not be able to focus on specific group of customers. D. She will not have the flexibility to take critical decisions independently. E. She may find it difficult to deal with the stress of rent increase. Carol may find it difficult to deal with the stress of rent increase. Small-business owners tend to be the victims of physical and psychological stress. There are ongoing worries about competition, employee problems, new equipment, expanding inventory, rent increases, or changing market demand.

AACSB: Reflective Thinking Accessibility: Keyboard Navigation Bloom's: Apply Difficulty: 2 Medium Learning Objective: 05-04 Summarize the disadvantages of small-business ownership and analyze why many small businesses fail. Topic: The Advantages and Disadvantages of Small Business Ownership

32. _____ is best described as the lack of funds to operate a business normally. A. Debt financing B. Trade credit C. Franchising D. Trade deficit E. Undercapitalization The shortest path to failure in business is undercapitalization, which is the lack of funds to operate a business normally.

Chapter 05 - Small Business, Entrepreneurship, and Franchising

33. Many small rural operations cannot obtain financing within their own communities because: A. small rural banks believe that small businesses lack the flexibility to adapt to changing market demands. B. small businesses require a huge sum of money as they often compete in the mass market. C. government regulations do not permit financing small rural businesses. D. small rural banks lack the necessary financial expertise to counter the risks involved with small-business loans. E. rural communities have various business guidelines that prohibit rural banks from financing small businesses. Many small rural operations cannot obtain financing within their own communities because small rural banks often lack the necessary financing expertise or assets sizable enough to counter the risks involved with small-business loans.

34. Which of the following is considered as one of the major causes of small-business failure? A. Inability to take quick decisions B. Lack of flexibility to adapt to changing market demands C. High initial financing involved D. Lack of funds to operate the business E. Inability to focus on narrow niches The three major causes of small-business failure are: undercapitalization, managerial inexperience or incompetence, and inability to cope with growth. The shortest path to failure in business is undercapitalization, the lack of funds to operate a business normally.

Chapter 05 - Small Business, Entrepreneurship, and Franchising

35. Gerald started a business using the savings from his previous job. He planned to run his business on the revenue generated from sales. However, a few months later, he found it difficult to pay his staff, rent, and other expenses. Seasonal sales and inability to secure sufficient credit from local banks made it difficult for Gerald to operate the business normally. Which of the following causes of small-business failure does this scenario best illustrate? A. Undercapitalization B. Trade credit C. Economies of scale D. Debt financing E. Debt factoring The scenario best illustrates undercapitalization. The shortest path to failure in business is undercapitalization, which is the lack of funds to operate a business normally. Too many entrepreneurs think that all they need is enough money to get started, that the business can survive on cash generated from sales soon thereafter. But almost all businesses suffer from seasonal variations in sales, which make cash tight, and few businesses make money from the start.

36. Which of the following is the shortest path to failure in business? A. Inflexibility B. Undercapitalization C. Rent increases D. Competition E. Changing market demand The shortest path to failure in business is undercapitalization, the lack of funds to operate a business normally and sustain it through slow initial sales and seasonal variations.

Chapter 05 - Small Business, Entrepreneurship, and Franchising

37. Penelope is a very talented software engineer who starts her own small software development firm. She finances the firm from her savings. Initially, she is able to get many projects from customers and completes them successfully. However, as her business grows, she fails to make good decisions in hiring new employees, billing the clients, and negotiating prices. She eventually ends up liquidating the business. Which of the following causes of small-business failure does this scenario best illustrate? A. Undercapitalization B. Managerial inexperience C. Economies of scale D. Debt financing E. Debt factoring The scenario best illustrates Penelope's managerial inexperience. Poor management is the cause of many business failures. Just because an entrepreneur has a brilliant vision for a small business does not mean he or she has the knowledge or experience to manage a growing business effectively. A person who is good at creating great product ideas and marketing them may lack the skills and experience to make good management decisions in hiring, negotiating, finance, and control.

AACSB: Reflective Thinking Accessibility: Keyboard Navigation Bloom's: Apply Difficulty: 3 Hard Learning Objective: 05-04 Summarize the disadvantages of small-business ownership and analyze why many small businesses fail. Topic: The Advantages and Disadvantages of Small Business Ownership

Chapter 05 - Small Business, Entrepreneurship, and Franchising

38. Catalina opens a fashion boutique with the money she inherited from her parents. She is successful in creating a strong brand image and a loyal customer base. In order to meet the increasing demands of her business, she hires a store manager. However, she finds it hard to let the manager take important decisions about the store. She often finds herself disagreeing with the manager's decisions and in the process loses a lot of existing customers. Which of the following causes of small-business failure does this scenario best illustrate? A. Undercapitalization B. Inability to cope with growth C. Diseconomies of scale D. Debt financing E. Debt factoring The scenario best illustrates Catalina's inability to cope with growth. Sometimes, the very factors that are advantages for a small business turn into serious disadvantages when the time comes to grow. Growth often requires the owner to give up a certain amount of direct authority, and it is frequently hard for someone who has called all the shots to give up control.

39. The principal immediate threats to small and mid-sized businesses include: A. rapidly advancing technology. B. rising entrepreneurial spirit. C. reducing imports. D. escalating costs. E. increasing exports. The principal immediate threats to small and mid-sized businesses include rising inflation, energy and other supply shortages or cost escalations, and excessive household and/or corporate debt.

Chapter 05 - Small Business, Entrepreneurship, and Franchising

40. Which of the following would most likely be the principal immediate threat to a recently started small firm that contract manufactures for leading fashion brands in the United States? A. Rapidly advancing technology B. Rising entrepreneurial spirit C. Reducing imports D. Rising inflation E. Increasing exports The principal immediate threats to small and mid-sized businesses include rising inflation, energy and other supply shortages or cost escalations, and excessive household and/or corporate debt.

41. A precise statement of the rationale for a business and a step-by-step explanation of how it will achieve its goals is known as a(n) _____. A. promissory note B. article of incorporation C. business plan D. business agreement E. article of partnership A key element of business success is a business plan—a precise statement of the rationale for a business and a step-by-step explanation of how it will achieve its goals.

Chapter 05 - Small Business, Entrepreneurship, and Franchising

42. Which of the following statements is true of a business plan? A. Small businesses do not need a business plan. B. It does not have to be revised periodically. C. Every business needs to mandatorily maintain a business plan as per government regulations. D. It should establish a strategy for acquiring sufficient funds to keep a business going. E. It is created to limit a business's flexibility and decision-making ability. A business plan should act as a guide and reference document, not a shackle to limit the business's flexibility and decision making ability. It should also establish a strategy for acquiring sufficient funds to keep the business going.

43. A good business plan should: A. limit a business's flexibility. B. act as a guide or a reference document. C. never be revised. D. avoid including estimates of income and expenses. E. limit a firm's decision making ability. A business plan should act as a guide and reference document, not a shackle to limit the business's flexibility and decision making ability.

Chapter 05 - Small Business, Entrepreneurship, and Franchising

44. Arnold approached a bank to get a loan for a business he planned to launch later that year. He explained his business idea and its capital requirements to the bank manager. The manager asked Arnold to provide a formal document that included a rationale for the business, an explanation of how it will achieve its goals, an analysis of the competition, and estimates of income and expenses, among other information. Which of the following documents does the bank expect from Arnold in this scenario? A. A business plan B. A cash flow statement C. A promissory note D. A balance sheet E. A marketing plan The bank expects Arnold to present a business plan. A key element of business success is a business plan—a precise statement of the rationale for the business and a step-by-step explanation of how it will achieve its goals. Many financial institutions decide whether to loan a small business money based on its business plan.

AACSB: Reflective Thinking Accessibility: Keyboard Navigation Bloom's: Apply Difficulty: 2 Medium Learning Objective: 05-05 Describe how you go about starting a small business and what resources are needed. Topic: The Business Plan

45. In the process of starting a business, the step that immediately succeeds the development of a business plan involves: A. organizing resources like labor and supplies. B. developing some general business ideas. C. deciding an appropriate legal form of business ownership. D. promoting the business to the customers. E. filing for tax returns for the business with the Internal Revenue Service. After developing a business plan, the entrepreneur next must decide on an appropriate legal form of business ownership—whether it is best to operate as a sole proprietorship, partnership, or corporation—and to examine the many factors that affect that decision.

Chapter 05 - Small Business, Entrepreneurship, and Franchising

46. To make profits from a small business, the owner must first provide or obtain _____ to start the business and keep it running smoothly. A. products B. employees C. profits D. supplies E. capital To make money from a small business, the owner must first provide or obtain money (capital) to get started and to keep it running smoothly. Often, the small-business owner has to put up a significant percentage of the necessary capital. Few new business owners have a large amount of their own capital and must look to other sources for additional financing.

47. The most important source of funds for any new business is: A. the owner. B. the government. C. a financial institution. D. the Small Business Administration. E. a venture capitalist. The most important source of funds for any new business is the owner. Many owners include among their personal resources ownership of a home, the accumulated value in a life insurance policy, or a savings account.

Chapter 05 - Small Business, Entrepreneurship, and Franchising

48. The act of financing one's business by using real personal assets is known as: A. debt financing. B. factoring. C. franchising. D. equity financing. E. bootlegging. A new business owner may sell or borrow against the value of such assets to obtain funds to operate a business. Additionally, the owner may bring useful personal assets—such as a computer, desks and other furniture, a car or truck—as part of his or her ownership interest in the firm. Such financing is referred to as equity financing because the owner uses real personal assets rather than borrowing funds from outside sources to get started in a new business.

49. Which of the following is a source of equity financing? A. Securing government loans B. Selling personal assets to raise funds C. Borrowing money from friends D. Securing short-term loans from a family member E. Receiving trade credit from suppliers A loan—from a family member or a financial institution—is a form of debt financing. In equity financing, the owner uses real personal assets rather than borrowing funds from outside sources to get started in a new business.

AACSB: Analytic Accessibility: Keyboard Navigation Bloom's: Understand Difficulty: 2 Medium Learning Objective: 05-05 Describe how you go about starting a small business and what resources are needed. Topic: Debt and Equity Financing

Chapter 05 - Small Business, Entrepreneurship, and Franchising

50. Walter sold a piece of land he inherited from his grandparents and started a business with the proceeds. Which of the following sources has Walter used to raise funds for his business? A. Equity financing B. Debt financing C. Venture capital D. Initial public offering E. Angel investment Walter has used equity financing to raise funds for his business. In equity financing, the owner uses real personal assets rather than borrowing funds from outside sources to get started in a new business.

51. Derek borrowed $50,000 from his mother for his new business venture. He promised that she would be a partner in the business and would be entitled to a significant percent of profits from the business at the end of the year. This is an example of _____. A. franchising. B. bartering. C. equity financing. D. initial public offering. E. bootlegging. This is an example of equity financing. Small businesses can obtain equity financing by finding investors for their operations. They may sell stock in the business to family members, friends, employees, or other investors.

Chapter 05 - Small Business, Entrepreneurship, and Franchising

52. Janice works in a factory that manufactures decorative accessories for office spaces, hotels, and designer homes. She wants to start her own business because she believes that the market for decorative products has a great growth potential. However, she does not want to depend on anyone else for procuring the initial capital and would like to raise the amount herself. In this scenario, which of the following methods could Janice adopt to raise funds through equity financing? A. Janice could secure a mortgage from a family member or friend. B. Janice could secure a loan from the Small Business Administration. C. Janice could ask for a line of credit from her bank. D. Janice could invest her savings in the new business. E. Janice could ask suppliers for a longer trade credit. Janice could invest her savings in the new business to raise funds through equity financing. Many owners include among their personal resources ownership of a home, the accumulated value in a life-insurance policy, or a savings account. A new business owner may sell or borrow against the value of such assets to obtain funds to operate a business. In equity financing, the owner uses real personal assets rather than borrowing funds from outside sources to get started in a new business.

AACSB: Reflective Thinking Accessibility: Keyboard Navigation Bloom's: Apply Difficulty: 3 Hard Learning Objective: 05-05 Describe how you go about starting a small business and what resources are needed. Topic: Debt and Equity Financing

Chapter 05 - Small Business, Entrepreneurship, and Franchising

53. Jacob and Harry are business partners, and their company manufactures portable solar panels. They initially started the business with their savings. However, now the company plans to expand its operations and the required amount of capital cannot be raised through savings or by reinvesting profits. Thus, the partners have decided to sell stock in their business to family members, friends, and employees. Which of the following sources of capital have Jacob and Harry planned to use for the expansion of their business? A. Debt financing B. Bootstrapping C. Equity financing D. Mortgaging E. Factoring Jacob and Harry have planned to use equity financing for their business's expansion. Small businesses can obtain equity financing by finding investors for their operations. They may sell stock in the business to family members, friends, employees, or other investors.

54. Persons or organizations that agree to provide some funds for a new business in exchange for ownership interest or stock are called _____. A. intrapreneurs B. category captains C. venture capitalists D. trade debtors E. franchisers Venture capitalists are persons or organizations that agree to provide some funds for a new business in exchange for an ownership interest or stock. Venture capitalists hope to purchase the stock of a small business at a low price and then sell the stock for a profit after the business has grown successful.

Chapter 05 - Small Business, Entrepreneurship, and Franchising

55. Ramon funds small businesses that he believes have the potential to grow large. When these companies are still in their initial stages and need investment, he buys their stocks at a low price and later sells them at higher prices when they are successful. Thus, Ramon is a(n) _____. A. intrapreneur B. trade creditor C. franchisee D. venture capitalist E. franchiser Ramon is a venture capitalist. Venture capitalists are persons or organizations that agree to provide some funds for a new business in exchange for an ownership interest or stock. Venture capitalists hope to purchase the stock of a small business at a low price and then sell the stock for a profit after the business has grown successful.

56. _____ are persons or organizations that hope to purchase the stock of a small business at a low price and then sell the stock for a profit after the business has grown successful. A. Intrapreneurs B. Category captains C. Venture capitalists D. Trade debtors E. Franchisers Venture capitalists are persons or organizations that agree to provide some funds for a new business in exchange for an ownership interest or stock. They hope to purchase the stock of a small business at a low price and then sell the stock for a profit after the business has grown successful.

Chapter 05 - Small Business, Entrepreneurship, and Franchising

57. Obtaining money from venture capitalists to start a new business venture is an example of _____. A. debt financing B. bootstrapping C. equity financing D. mortgaging E. factoring Venture capitalists hope to purchase the stock of a small business at a low price and then sell the stock for a profit after the business has grown successful. This form of equity financing requires that a small-business owner share the profits of the business—and sometimes control, as well—with the investors.

58. Which of the following is a drawback of obtaining money from venture capitalists to start a small business? A. They are not interested in managing or controlling the business. B. They require the small-business owner to share the profits of the business with them. C. They require that the small business owner mortgage his or her personal property to obtain funds. D. They prefer to sell the stock at a low price after the business has grown successful. E. They are not interested in claiming ownership of the business. Venture capitalists hope to purchase the stock of a small business at a low price and then sell the stock for a profit after the business has grown successful. This form of equity financing requires that a small-business owner share the profits of the business—and sometimes control, as well—with the investors.

Chapter 05 - Small Business, Entrepreneurship, and Franchising

59. Securing a mortgage from a bank for a new business venture is an example of: A. equity financing. B. venture capitalism. C. debt financing. D. trade credits. E. collaterals. Banks are the main suppliers of external financing or debt financing to small businesses. A small-business owner may have to provide personal property as collateral when borrowing money from a bank, in which case the loan is called a mortgage.

60. When an entrepreneur takes out a loan from a bank, the bank will require him or her to put up _____, a financial interest in the property or fixtures of the business, to guarantee payment of the loan. A. collateral B. venture capital C. trade credit D. business plan E. cash flow statement A lending bank will often require the entrepreneur to put up collateral, a financial interest in the property or fixtures of the business, to guarantee payment of the debt.

Chapter 05 - Small Business, Entrepreneurship, and Franchising

61. A loan is taken by a small business is referred to as a mortgage: A. when the small-business owner has to share profits and ownership with the investors. B. when the small business fails to repay the loan. C. when the small business has to sell its stock to outsiders. D. when the small-business owner has to provide personal property as collateral. E. when the small business borrows interest-free capital. A small-business owner may have to provide personal property as collateral, such as his or her home, in which case the loan is called a mortgage. If the small business fails to repay the loan, the lending institution may eventually claim and sell the collateral or mortgage to recover its loss.

62. Banks and other financial institutions can grant a small business a _____, which is an agreement by which a financial institution promises to lend a business a predetermined sum on demand. A. line of credit B. trade credit C. mutual fund D. non-recourse loan E. trust fund Banks and other financial institutions can grant a small business a line of credit—an agreement by which a financial institution promises to lend a business a predetermined sum on demand. A line of credit permits an entrepreneur to take quick advantage of opportunities that require external funding.

Chapter 05 - Small Business, Entrepreneurship, and Franchising

63. Small businesses may obtain funding from their suppliers in the form of a _____, which means that suppliers allow the business to take possession of the needed goods and services and pay for them at a later date or in installments. A. trust fund B. trade credit C. stock dividend D. non-recourse loan E. mutual fund Small businesses may obtain funding from their suppliers in the form of a trade credit—that is, suppliers allow the business to take possession of the needed goods and services and pay for them at a later date or in installments.

64. Anisha, an entrepreneur, starts a real estate firm with very limited funds. In order to conduct business, she purchases a few laptops, LED screens, and other office equipment from a local electronics wholesaler. The wholesaler understands her financial situation and allows her to pay for the goods in installments. In this scenario, the type of funding obtained by Anisha can be regarded as a _____. A. line of credit B. trade credit C. business subsidy D. non-recourse loan E. working capital loan In this scenario, the type of funding obtained by Anisha is referred to as a trade credit. Small businesses may obtain funding from their suppliers in the form of a trade credit—that is, suppliers allow the business to take possession of the needed goods and services and pay for them at a later date or in installments.

Chapter 05 - Small Business, Entrepreneurship, and Franchising

65. Neehara recently opened a premium bakery. She did not have enough savings and hence she applied for a loan to obtain the additional funds required to start the bakery. She had to provide her house as collateral to obtain the loan. The type of financing obtained by Neehara can be regarded as a _____. A. mortgage B. trade credit C. mutual fund D. non-recourse loan E. dividend The type of financing obtained by Neehara can be regarded as a mortgage. A small-business owner may have to provide personal property as collateral, such as his or her home, in which case the loan is called a mortgage. If the small business fails to repay the loan, the lending institution may eventually claim and sell the collateral or mortgage to recover its loss.

Chapter 05 - Small Business, Entrepreneurship, and Franchising

66. Which of the following statements best describes bartering? A. It is the practice of small businesses trading their own products for the goods and services offered by other businesses. B. It is an agreement by which a financial institution promises to lend a business a predetermined sum on demand. C. It is the process in which suppliers allow a business to acquire needed goods and pay for them at a later date. D. It is the process in which a small-business owner provides personal property as collateral for a loan. E. It is a process by which an individual acquires the license to sell another's products or to use another's name in business. Occasionally, small businesses engage in bartering—trading their own products for the goods and services offered by other businesses. For example, an accountant may offer accounting services to an office supply firm in exchange for office supplies and equipment.

Chapter 05 - Small Business, Entrepreneurship, and Franchising

67. Chang is an interior designer who starts his own consulting firm. His friend Rachel is the owner of a coffee shop. Chang decorates Rachel's new coffee shop in exchange for a supply of coffee whenever his clients visit his office. Which of the following sources of funding does this scenario best illustrate? A. Mortgaging B. Bartering C. Trade credit D. Line of credit E. Equity financing The scenario best illustrates bartering. Occasionally, small businesses engage in bartering— trading their own products for the goods and services offered by other businesses. For example, an accountant may offer accounting services to an office supply firm in exchange for office supplies and equipment.

68. Lara, a single mother, borrowed some capital for her business from Women Progress Council at an extremely low rate of interest. Which of the following forms of funding a new small business does this scenario best illustrate? A. Trade credit B. Equity financing C. Venture capital D. Debt financing E. Crowd sourcing The scenario best illustrates debt financing. In debt financing, some community groups sponsor loan funds to encourage the development of particular types of businesses. State and local agencies may guarantee loans, especially to minority business people or for development in certain areas.

Chapter 05 - Small Business, Entrepreneurship, and Franchising

69. Andrew, a pharmacist, realized that he should stock extra supplies of a particular medicine to respond to an outbreak of a particular infection in the city. Lacking sufficient capital to purchase the extra inventory, he borrowed a predetermined sum of money from his bank. Which of the following sources of funding does this scenario best illustrate? A. Trade credit B. Initial public offering C. Venture capital D. Equity financing E. Line of credit Andrew is using a line of credit to meet his capital requirement. Banks and other financial institutions can grant a small business a line of credit—an agreement by which a financial institution promises to lend a business a predetermined sum on demand. A line of credit permits an entrepreneur to take quick advantage of opportunities that require external funding.

70. A license to sell another's products or to use another's name in business, or both, is called a _____. A. franchise B. cartel C. collateral D. mortgage E. collusion A license to sell another's products or to use another's name in business, or both, is a franchise. The company that sells a franchise is the franchiser. The purchaser of a franchise is called a franchisee.

Chapter 05 - Small Business, Entrepreneurship, and Franchising

71. Since Eva has decided to use her savings to purchase the rights to own and operate a McDonald's outlet rather than starting her own restaurant, she is most likely to be a(n) _____. A. trade creditor B. franchisee C. category captain D. intrapreneur E. venture capitalist Eva is most likely to be a franchisee. A license to sell another's products or to use another's name in business, or both, is a franchise. A franchisee is a purchaser of a franchise.

72. Nathan started the first outlet of Dynamix Gym in New York City in 1995. The business expanded over time, and he became the owner of a chain of gyms in New York State. Though the business had potential to expand outside New York, Nathan did not want to take the risk or responsibility. Hence, he decided to sell the license to own and operate gyms under the brand name Dynamix Gym to independent owners. In return, he charged them an initial fee and a small share in the monthly profits. In this scenario, Nathan is a(n) _____. A. trade creditor B. intrapreneur C. angel investor D. franchiser E. venture capitalist In this scenario, Nathan is a franchiser. A license to sell another's products or to use another's name in business, or both, is a franchise. The company that sells a franchise is the franchiser.

Chapter 05 - Small Business, Entrepreneurship, and Franchising

73. Which of the following statements is true of franchising? A. An individual only acquires the rights to a name and not the rights to methods of operation. B. An individual experiences most freedom in this form of business ownership. C. A franchisee receives cash payments from the franchiser on a monthly basis. D. A franchisee does not receive accounting support from the franchiser. E. A franchisee often receives building specifications and designs from the franchiser. In franchising, the franchisee pays the franchiser a monthly or annual fee based on a percentage of sales or profits. In return, the franchisee often receives building specifications and designs, site recommendations, management and accounting support, and perhaps most importantly, immediate name recognition.

74. Which of the following statements accurately brings out the difference between franchising and building an independent business from scratch? A. The time required to set up an independent business is much lower than obtaining a franchise. B. A franchise outlet often reaches the break-even point faster than an independent business would. C. A franchisee would experience more flexibility in decision making than the owner of an independent business. D. The quality of goods and services needs to be more standardized and uniform in an independent business than in franchises. E. Access to managerial and financial assistance is more limited in franchises than in independent businesses. Franchising allows a franchisee the opportunity to set up a small business relatively quickly, and because of its association with an established brand, a franchise outlet often reaches the break-even point faster than an independent business would.

Chapter 05 - Small Business, Entrepreneurship, and Franchising

75. Which of the following is an advantage that purchasers of a popular franchise experience? A. They get access to the already established brand name or brand equity. B. They have great flexibility to make decisions for their individual franchise outlets. C. They can enjoy their total profits without having to share anything with the franchisers. D. They can easily add or delete a good or service from the existing product line. E. They are free to vary their operational processes based on their needs and constraints. In franchising, the franchisee acquires the rights to a name, logo, methods of operation, national advertising, products, and other elements associated with the franchiser's business in return for a financial commitment and the agreement to conduct business in accordance with the franchiser's standard of operations.

76. Which of the following is one of the commonly reported advantages of franchising? A. Flexibility in decision making B. No restrictions on purchasing C. Management training and support D. No standardized procedures of operations E. Decentralized buying power Franchisees commonly report that management training and support provided by franchisers is one of the advantages of franchising. In franchising, the franchisee acquires the rights to a name, logo, methods of operation, national advertising, products, and other elements associated with the franchiser's business in return for a financial commitment and the agreement to conduct business in accordance with the franchiser's standard of operations.

Chapter 05 - Small Business, Entrepreneurship, and Franchising

77. Which of the following is one of the commonly reported disadvantages of franchising? A. Lack of management training and assistance B. Decentralized buying power C. Low rate of success D. Restrictions on purchasing E. Lack of financial assistance Franchisees commonly report that restrictions imposed by franchisers on purchasing are one of the disadvantages of franchising. In franchising, the franchisee acquires the rights to a name, logo, methods of operation, national advertising, products, and other elements associated with the franchiser's business in return for a financial commitment and the agreement to conduct business in accordance with the franchiser's standard of operations.

78. One of the main drawbacks of franchising is that it requires a franchisee to: A. invest a lot of time and effort in setting up the business. B. take sole responsibility for all decisions in the business. C. share the profits of the business with the franchiser. D. build the brand appeal for the franchise outlet on his or her own. E. invest considerable capital in national and local advertising programs. Some shortcomings experienced by franchisees include franchise fees and profit sharing with the franchiser. The initial fee to join a franchise varies greatly. In addition, franchisees buy equipment, pay for training, and obtain a mortgage or lease. The franchisee also pays the franchiser a monthly or annual fee based on a percentage of sales or profits.

Chapter 05 - Small Business, Entrepreneurship, and Franchising

79. Which of the following statements is true of franchisees? A. They do not face any restrictions on purchasing. B. They receive a monthly or annual fee from the franchisers. C. They have unrestricted freedom in business decision. D. They have to establish their own brand-name appeal from scratch. E. They have access to standardized quality of goods and services. In franchising, franchisees get access to standardized quality of goods and services. In franchising, the franchisee acquires the rights to a name, logo, methods of operation, national advertising, products, and other elements associated with the franchiser's business in return for a financial commitment and the agreement to conduct business in accordance with the franchiser's standard of operations.

80. Paul has recently quit his job as an investment banker. He plans to open a restaurant. He has two options: he can either start his own new restaurant from scratch or purchase a franchise from an already established restaurant or fast food chain. His wife Lisa supports the former plan. Which of the following statements strengthens the argument in favor of Lisa's choice of opening a restaurant independently? A. It is easier and faster to build a business from scratch. B. It is easier to reach the break-even point through an independent business. C. It is more difficult to attract customers in a franchise business as the entrepreneur has to personally build the brand appeal. D. It is easier and more flexible to make and execute decisions in an independent business. E. It is easier to succeed in a business built from scratch as the products and the business format are already proven. In franchising, the franchisee must sacrifice some freedom to the franchiser. Franchisees experience less freedom in business decisions.

Chapter 05 - Small Business, Entrepreneurship, and Franchising

81. _____ are often the Small Business Administration's principal means of providing direct management assistance to small businesses and entrepreneurs. A. Local Chambers of Commerce B. Small Business Development Centers C. Service Corps of Retired Executives D. Small Business Institutes E. Active Corps of Executives The Small Business Administration (SBA) funds Small Business Development Centers (SBDCs). These are business clinics, usually located on college campuses that provide counseling at no charge and training at only a nominal charge. SBDCs are often the SBA's principal means of providing direct management assistance.

82. _____ is a volunteer agency funded by the Small Business Administration to provide advice for owners of small firms. A. Local Chambers of Commerce B. Small Business Development Centers C. Service Corps of Retired Executives D. Small Business Institutes E. Business Executive Council The Service Corps of Retired Executives and the Active Corps of Executives are volunteer agencies funded by the Small Business Administration to provide advice for owners of small firms.

Chapter 05 - Small Business, Entrepreneurship, and Franchising

83. Which of the following statements is true of baby boomers? A. They represent people born between 1930 and 1945. B. They are economically backward compared to other Americans. C. They are not actively pursued by small businesses. D. They represent 50 percent of Americans. E. They are an unprofitable market segment. The baby boomer generation represents 26 percent of Americans. This segment of the population is wealthy, but many small businesses do not actively pursue it.

AACSB: Analytic Accessibility: Keyboard Navigation Bloom's: Remember Difficulty: 1 Easy Learning Objective: 05-06 Evaluate the demographic, technological, and economic trends that are affecting the future of small business. Topic: The Importance of Small Business Ownership to the U.S. Economy

84. Millennials number around 75 million and represent a huge business opportunity in the United States. Which of the following is a defining feature of the millennials? A. Baby boomers above the age 50 B. First generation immigrants C. People born at the turn of the millennium between 1999 and 2001 D. People from immigrant communities who migrated to the U.S. between 1946 and 1964 E. People born between 1977 and 1994 Millennials, born between 1977 and 1994, are also known as echo boomers or Generation Y, and represent a large market for small businesses.

Chapter 05 - Small Business, Entrepreneurship, and Franchising

85. Which of the following is true of the demographic group Generation Y or millennials? A. They fail to perform when training sessions combine entertainment with learning. B. They mostly represent people born between 1946 and 1964. C. They are not solely concerned about money. D. They are not concerned about recognition. E. They consist of immigrant communities who migrated to the U.S. before 1964. Generation Y, born between 1977 and 1994, is not solely concerned about money. Those that fall into this group are also concerned with advancement, recognition, and improved capabilities. They need direct, timely feedback and frequent encouragement and recognition.

86. Sally is a human resource (HR) manager at a company. A survey of the company's employees reveals that more than 80 percent of the employees belong to the demographic segment Generation Y. In this scenario, which of the following HR strategies should Sally implement in order to best serve the needs of the employees? A. Sally should solely use financial rewards to motivate the employees to improve their productivity. B. Sally should keep the training sessions highly formal with no scope for entertainment. C. Sally should restrict the employees from using work from home or telecommuting options. D. Sally should avoid giving regular, direct feedback to the employees. E. Sally should use recognition and advancement as the driving forces to motivate employees. Generation Y, those born between 1977 and 1994, is not solely concerned about money. Those that fall into this group are also concerned with advancement, recognition, and improved capabilities. They need direct, timely feedback and frequent encouragement and recognition.

AACSB: Reflective Thinking Accessibility: Keyboard Navigation Bloom's: Apply Difficulty: 3 Hard Learning Objective: 05-06 Evaluate the demographic, technological, and economic trends that are affecting the future of small business. Topic: The Importance of Small Business Ownership to the U.S. Economy

Chapter 05 - Small Business, Entrepreneurship, and Franchising

87. Which of the following demographic segments should both small retailers and small-service providers specializing in ethnic products target?

A. Immigrants B. Echo boomers C. Baby boomers D. Generation X E. Drivers AACSB: Analytic Accessibility: Keyboard Navigation Bloom's: Remember Difficulty: 1 Easy Learning Objective: 05-06 Evaluate the demographic, technological, and economic trends that are affecting the future of small business. Topic: The Importance of Small Business Ownership to the U.S. Economy

88. Which of the following demographic trends has made health care and financial planning industries attractive for small businesses in the United States? A. Decreasing population of millennials B. Increasing income among Generation X C. Increasing aged baby boomers who are wealthy D. Reducing entrepreneurial spirit among young generations E. Increasing imports into the economy Many boomers are over 50, and in the next few years, millions more will pass that mark. Industries such as travel, financial planning, and health care will continue to grow as boomers age.

AACSB: Analytic Accessibility: Keyboard Navigation Bloom's: Understand Difficulty: 2 Medium Learning Objective: 05-06 Evaluate the demographic, technological, and economic trends that are affecting the future of small business. Topic: The Importance of Small Business Ownership to the U.S. Economy

Chapter 05 - Small Business, Entrepreneurship, and Franchising

89. Which of the following is an implication of technological advances to small businesses? A. It fails to make any significant changes as small businesses cannot afford to use sophisticated technology in their operations. B. It reduces a small business's ability to adapt to changing trends and market demands. C. It increases the ratio of baby boomers as employees in small businesses. D. It provides new opportunities for small businesses to expand their operations abroad. E. It reduces a small company's ability to customize their services and products. Technological advances and an increase in service exports have created new opportunities for small companies to expand their operations abroad. Changes in communications and technology can allow small companies to customize their services quickly for international customers.

90. Norton is a human resource manager at a large multinational company. After a drastic drop in revenue, his company thinks of ways to correct the situation. At a meeting with the top management, the CEO suggested that the company should reduce its workforce by 20 percent. This move would help the company cut costs and continue functioning on the current projects. In this scenario, which of the following strategies is Norton's company planning to use? A. Off shoring B. Outsourcing C. Crowd sourcing D. Franchising E. Downsizing Norton's company is planning to use downsizing. Downsizing is an effective way to gain the advantages of small businesses. Large firms downsize or right-size to reduce management layers, corporate staff, and work tasks in order to make the firm more flexible, resourceful, and innovative.

AACSB: Reflective Thinking Accessibility: Keyboard Navigation Bloom's: Apply Difficulty: 3 Hard Learning Objective: 05-07 Explain why many large businesses are trying to "think small." Topic: The Importance of Small Business Ownership to the U.S. Economy

Chapter 05 - Small Business, Entrepreneurship, and Franchising

91. Downsizing is an effective way to: A. gain the advantages of small businesses. B. increase organizational tasks. C. reduce entrepreneurial spirit among employees. D. increase the management layers. E. gain employee trust. Downsizing is an effective way to gain the advantages of small businesses. Large firms downsize or right-size to reduce management layers, corporate staff, and work tasks in order to make the firm more flexible, resourceful, and innovative.

AACSB: Analytic Accessibility: Keyboard Navigation Bloom's: Remember Difficulty: 1 Easy Learning Objective: 05-07 Explain why many large businesses are trying to "think small." Topic: The Advantages and Disadvantages of Small Business Ownership

92. Which of the following statements is true of downsizing? A. It is an effective method to increase the management layers in an organization. B. It is an effective strategy to adopt when a small business is growing. C. It reduces work tasks in order to make a firm more flexible. D. It reduces the innovativeness of a firm. E. It is a useful method to gain employee trust and loyalty. Downsizing is an effective way to gain the advantages of small businesses. Large firms downsize or right-size to reduce management layers, corporate staff, and work tasks in order to make the firm more flexible, resourceful, and innovative.

Chapter 05 - Small Business, Entrepreneurship, and Franchising

93. Which of the following statements accurately describes intrapreneurs? A. Employees who become a part of a company's board of directors through internal promotions are referred to as intrapreneurs. B. Entrepreneurs who sell the rights to use their products to independent owners are intrapreneurs. C. Entrepreneurs who are involved in international business are referred to as intrapreneurs. D. Independent investors who help a company raise capital through internal financing are intrapreneurs. E. Individuals in large firms who take responsibility for the development of innovations within the organizations are intrapreneurs. In major corporations, intrapreneurs take responsibility for, or "champion," the development of innovations of any kind within the larger organization.

AACSB: Analytic Accessibility: Keyboard Navigation Bloom's: Remember Difficulty: 1 Easy Learning Objective: 05-07 Explain why many large businesses are trying to "think small." Topic: The Importance of Small Business Ownership to the U.S. Economy

94. Which of the following is an ineffective practice in making big businesses act small? A. Encouraging a spirit of entrepreneurship within an organization B. Increasing the layers of management within an organization C. Downsizing to reduce work tasks D. Keeping the growth vision long term E. Focusing on current customers rather than looking for new customers Large firms downsize or right-size to reduce management layers, corporate staff, and work tasks in order to make the firm more flexible, resourceful, and innovative.

AACSB: Analytic Accessibility: Keyboard Navigation Bloom's: Understand Difficulty: 2 Medium Learning Objective: 05-07 Explain why many large businesses are trying to "think small." Topic: The Importance of Small Business Ownership to the U.S. Economy

Chapter 05 - Small Business, Entrepreneurship, and Franchising

95. George is an employee at a company that provides information technology solutions to other firms. Recognizing his potential to innovate, the top management of the company has given him the complete liberty to develop a new smart phone application using the resources of the company. In this scenario, George best illustrates a(n) ____. A. franchiser B. venture capitalist C. intrapreneur D. category captain E. trade creditor In this scenario, George best illustrates an intrapreneur. In major corporations, intrapreneurs, like entrepreneurs, take responsibility for, or "champion," the development of innovations of any kind within the larger organization. Often, they use company resources and time to develop a new product for the company.

Chapter 06 - The Nature of Management

Chapter 06 The Nature of Management

True / False Questions 1. Management takes place only in business settings. FALSE Management is universal. It takes place not only in business, but also in government, the military, labor unions, hospitals, schools, and religious groups—any organization requiring the coordination of resources.

AACSB: Analytic Accessibility: Keyboard Navigation Bloom's: Remember Difficulty: 1 Easy Learning Objective: 06-01 Define management and explain its role in the achievement of organizational objectives. Topic: Definition of Management

2. For any company, owners and shareholders are the only sources of primary funding. FALSE Primary funding for any company comes from owners and shareholders, as well as banks and other financial institutions. All these resources and activities must be coordinated and controlled if the company is to earn a profit.

Chapter 06 - The Nature of Management

3. Planning involves forecasting events and determining the best course of action from a set of options or choices. TRUE Planning is a crucial activity, for it designs the map that lays the groundwork for the other functions. It involves forecasting events and determining the best course of action from a set of options or choices.

AACSB: Analytic Accessibility: Keyboard Navigation Bloom's: Remember Difficulty: 1 Easy Learning Objective: 06-02 Describe the major functions of management. Topic: The Importance of Planning

4. Top-level managers make an organization's strategic decisions that focus on a key idea for using resources in order to take advantage of opportunities. TRUE Top-level managers make an organization's strategic decisions, decisions that focus on an overall scheme or key idea for using resources to take advantage of opportunities. They decide whether to add products, acquire companies, sell unprofitable business segments, and move into foreign markets.

AACSB: Analytic Accessibility: Keyboard Navigation Bloom's: Remember Difficulty: 1 Easy Learning Objective: 06-03 Distinguish among three levels of management and the concerns of managers at each level. Topic: Types of Managers and Leadership Styles

Chapter 06 - The Nature of Management

5. The first step in decision-making process is developing options directly. FALSE The six steps in the decision-making process are: (1) recognizing and defining the decision situation, (2) developing options to resolve the situation, (3) analyzing the options, (4) selecting the best option, (5) implementing the decision, and (6) monitoring the consequences of the decision.

AACSB: Analytic Accessibility: Keyboard Navigation Bloom's: Remember Difficulty: 1 Easy Learning Objective: 06-06 Summarize the systematic approach to decision making used by many business managers. Topic: Functions of Management

Multiple Choice Questions 6. _____ make decisions about the use of an organization's resources and are concerned with planning, organizing, staffing, directing, and controlling the organization's activities. A. Managers B. Shareholders C. Creditors D. Consumers E. Suppliers Managers make decisions about the use of an organization's resources and are concerned with planning, organizing, leading, and controlling the organization's activities. The decision to introduce new products in order to reach objectives is often a key management duty.

Chapter 06 - The Nature of Management

7. If a manager is concerned about doing the work in such a manner that it yields the desired result, then his or her primary managerial concern is: A. efficiency. B. effectiveness. C. standardization. D. innovation. E. expertise. Management is a process designed to achieve an organization's objectives by using its resources effectively and efficiently in a changing environment. Effectively means having the intended result; efficiently means accomplishing the objectives with a minimum of resources.

AACSB: Analytic Accessibility: Keyboard Navigation Bloom's: Understand Difficulty: 2 Medium Learning Objective: 06-01 Define management and explain its role in the achievement of organizational objectives. Topic: Definition of Management

8. If a manager is concerned about doing the work with the least cost and waste possible, then his or her primary managerial concern is: A. efficiency. B. effectiveness. C. delegation. D. hiring. E. expertise. Management is a process designed to achieve an organization's objectives by using its resources effectively and efficiently in a changing environment. Managing efficiently means accomplishing the objectives with a minimum of resources.

Chapter 06 - The Nature of Management

9. Lara was less educationally qualified and experienced than her colleagues when she joined Aurora Systems Inc. However, due to her ability to negotiate effectively with clients, convince her team members to work harder, and understand their needs, she is a senior-level manager today. Which of the following skills can be most attributed to Lara's success in this scenario? A. Technical skills B. Cognitive skills C. Human relations skills D. Critical thinking skills E. Psychomotor skills Human relations skills can be most attributed to Lara's success in this scenario. People skills, or human relations skills, are the ability to deal with people, both inside and outside an organization. Those who can relate to others, communicate well with others, understand the needs of others, and show a true appreciation for others are generally more successful than managers who lack such skills.

AACSB: Reflective Thinking Accessibility: Keyboard Navigation Bloom's: Apply Difficulty: 2 Medium Learning Objective: 06-04 Specify the skills managers must have to be successful. Topic: Functions of Management

10. Managers need adequate _____ to pay for essential activities. A. human resources B. intangible resources C. financial resources D. non-renewable resources E. biological resources Every organization must acquire resources (people, raw materials and equipment, money, and information) to effectively pursue its objectives and coordinate their use to turn out a final good or service. A manager needs adequate financial resources to pay for essential activities.

Chapter 06 - The Nature of Management

11. Jason is an operations manager in an automobile company. Which of the following is most likely to be his primary management function in the firm? A. Administering production activities B. Arranging finance C. Creating advertisements D. Recruiting employees E. Promoting products and services Jason's primary management function in the firm is most likely to be administering production activities. Production and operations managers develop and administer the activities involved in transforming resources into goods, services, and ideas ready for the marketplace. Acquiring suppliers is not an important part of managing resources in an organization.

AACSB: Reflective Thinking Accessibility: Keyboard Navigation Bloom's: Apply Difficulty: 2 Medium Learning Objective: 06-02 Describe the major functions of management. Topic: Functions of Management

12. If a manager is analyzing several methods for obtaining primary funding to expand operations, he or she is concerned about the _____ of the company. A. financial resources B. intangible resources C. human resources D. natural resources E. structural resources A manager needs adequate financial resources to pay for essential activities. Primary funding comes from owners and shareholders, as well as banks and other financial institutions.

Chapter 06 - The Nature of Management

13. Determining an organization's objectives and deciding how to accomplish them, a management function, is known as: A. planning. B. nearshoring. C. staffing. D. crowdsourcing. E. factoring. Planning, the process of determining the organization's objectives and deciding how to accomplish them, is the first function of management. Planning involves forecasting events and determining the best course of action from a set of options or choices in order to attain organizational objectives. The plan itself specifies what should be done, by whom, where, when, and how.

AACSB: Analytic Accessibility: Keyboard Navigation Bloom's: Remember Difficulty: 1 Easy Learning Objective: 06-02 Describe the major functions of management. Topic: The Importance of Planning

14. Melanie is one of the senior managers in the consumer electronics department of a large company. She is part of a team that determines the objectives of the department based on future trends in the industry and decides how to accomplish them. Melanie is involved in the management function of: A. staffing. B. recruiting. C. planning. D. crowdsourcing. E. factoring. Melanie is involved in the management function of planning. Planning involves forecasting events and determining the best course of action from a set of options or choices in order to attain organizational objectives.

AACSB: Reflective Thinking Accessibility: Keyboard Navigation Bloom's: Apply Difficulty: 2 Medium Learning Objective: 06-02 Describe the major functions of management. Topic: The Importance of Planning

Chapter 06 - The Nature of Management

15. Which of the following is the first function of management? A. Planning B. Crowdsourcing C. Staffing D. Factoring E. Directing Planning, the process of determining an organization's objectives and deciding how to accomplish them, is the first function of management. Planning is a crucial activity, for it designs the map that lays the groundwork for the other functions.

AACSB: Analytic Accessibility: Keyboard Navigation Bloom's: Remember Difficulty: 1 Easy Learning Objective: 06-02 Describe the major functions of management. Topic: The Importance of Planning

16. Planning is a crucial management activity because: A. it designs the map that lays the groundwork for the other functions. B. the process of managing an organization ends with planning. C. it eliminates other management functions like organizing and controlling. D. it can never go wrong or fail. E. what an organization wants to achieve is based on a planned course of action. Planning is a crucial activity, for it designs the map that lays the groundwork for the other functions. It involves forecasting events and determining the best course of action from a set of options or choices.

AACSB: Analytic Accessibility: Keyboard Navigation Bloom's: Understand Difficulty: 2 Medium Learning Objective: 06-02 Describe the major functions of management. Topic: The Importance of Planning

Chapter 06 - The Nature of Management

17. Forecasting is a part of the management function of: A. planning. B. crowdsourcing. C. nearshoring. D. factoring. E. retailing. Planning involves forecasting events and determining the best course of action from a set of options or choices. Planning, the process of determining the organization's objectives and deciding how to accomplish them, is the first function of management.

AACSB: Analytic Accessibility: Keyboard Navigation Bloom's: Remember Difficulty: 1 Easy Learning Objective: 06-02 Describe the major functions of management. Topic: The Importance of Planning

18. Before an organization can plan a course of action, it must first: A. take corrective action. B. develop a blueprint of the plan. C. decide on the people to be involved in the plan. D. determine what it wants to achieve. E. allocate and organize the required resources. All businesses—from the smallest restaurant to the largest multinational corporation—need to develop plans for achieving success. But before an organization can plan a course of action, it must first determine what it wants to achieve.

AACSB: Analytic Accessibility: Keyboard Navigation Bloom's: Remember Difficulty: 1 Easy Learning Objective: 06-02 Describe the major functions of management. Topic: The Importance of Planning

Chapter 06 - The Nature of Management

19. A declaration of an organization's fundamental purpose and basic philosophy is known as a(n): A. protocol. B. mission. C. referendum. D. agenda. E. target. A mission, or mission statement, is a declaration of an organization's fundamental purpose and basic philosophy. Good mission statements are clear and concise statements that explain the organization's reason for existence.

AACSB: Analytic Accessibility: Keyboard Navigation Bloom's: Remember Difficulty: 1 Easy Learning Objective: 06-02 Describe the major functions of management. Topic: The Importance of Planning

20. Carrie starts her own catering business. She creates a website for her business and mentions the fundamental purpose and basic philosophy of her business on the website. This declaration can be regarded as the _____ of her business. A. protocol B. mission C. referendum D. agenda E. target This declaration can be regarded as the mission of Carrie's business. A mission, or mission statement, is a declaration of an organization's fundamental purpose and basic philosophy.

Chapter 06 - The Nature of Management

21. Which of the following explains an organization's reason for existence? A. The organization's balance sheet B. The organization's code of conduct C. The organization's article of incorporation D. The organization's mission statement E. The organization's tactical plan Good mission statements are clear and concise statements that explain an organization's reason for existence. A mission, or mission statement, is a declaration of an organization's fundamental purpose and basic philosophy.

AACSB: Analytic Accessibility: Keyboard Navigation Bloom's: Remember Difficulty: 1 Easy Learning Objective: 06-02 Describe the major functions of management. Topic: The Importance of Planning

22. Which of the following questions does the mission statement of an organization seek to answer? A. What business are we in? B. How do we expand our business? C. What are our staffing requirements? D. Why are we not cost effective? E. How do we meet the annual sales target? A mission, or mission statement, is a declaration of an organization's fundamental purpose and basic philosophy. It seeks to answer the question: "What business are we in?"

AACSB: Analytic Accessibility: Keyboard Navigation Bloom's: Remember Difficulty: 1 Easy Learning Objective: 06-02 Describe the major functions of management. Topic: The Importance of Planning

Chapter 06 - The Nature of Management

23. Which of these basic questions will be answered by a well-developed mission statement? A. Who are our customers? B. How do we expand our business? C. How do we acquire customers? D. Who are our competitors? E. What products do we sell? A well-developed mission statement, no matter what the industry or size of business, will answer five basic questions: a. Who are we? b. Who are our customers? c. What is our operating philosophy (basic beliefs, values, ethics, etc.)? d. What are our core competencies and competitive advantages? e. What are our responsibilities with respect to being a good steward of environmental, financial, and human resources?

AACSB: Analytic Accessibility: Keyboard Navigation Bloom's: Remember Difficulty: 1 Easy Learning Objective: 06-02 Describe the major functions of management. Topic: The Importance of Planning

Chapter 06 - The Nature of Management

24. Nathan's business has grown from a small startup in his room to a chain of outlets all over the country. His business has the potential to expand further, provided he has the resources. To attract investors and other resources, he is required to create a mission statement for his company. Which of the following basic questions should the mission statement answer? A. What is our operating philosophy? B. When do we plan to go international? C. Who are our stockholders? D. Who are our competitors? E. What is our sales target? A well-developed mission statement, no matter what the industry or size of business, will answer five basic questions: a. Who are we? b. Who are our customers? c. What is our operating philosophy (basic beliefs, values, ethics, etc.)? d. What are our core competencies and competitive advantages? e. What are our responsibilities with respect to being a good steward of environmental, financial, and human resources?

Chapter 06 - The Nature of Management

25. A(n) _____ is best described as the result that a firm wishes to achieve. A. protocol B. statute C. referendum D. agenda E. goal A goal is best described as the result that a firm wishes to achieve. A company almost always has multiple goals, which illustrates the complex nature of business.

AACSB: Analytic Accessibility: Keyboard Navigation Bloom's: Remember Difficulty: 1 Easy Learning Objective: 06-02 Describe the major functions of management. Topic: The Importance of Planning

26. In the context of company goals, which of the following is an effective practice? A. A company should pursue only one goal at a time. B. A company should use its goal as a substitute for its mission. C. Company goals should be specific. D. Company goals should not be defined in terms of a target to be achieved. E. Company goals should not be limited by a time frame. To be successful, company goals should be specific. This allows for better decision making in organizations.

AACSB: Analytic Accessibility: Keyboard Navigation Bloom's: Remember Difficulty: 1 Easy Learning Objective: 06-02 Describe the major functions of management. Topic: The Importance of Planning

Chapter 06 - The Nature of Management

27. Which of the following statements is true of the goals of a company? A. A company can have only one goal that combines all elements of its mission statement. B. A goal is defined as a declaration of a company's fundamental purpose and basic philosophy. C. Once a goal is set, companies typically do not need to review the goal or monitor progress against the goal set. D. A goal merely states what a company seeks to achieve without stipulating any standards of quality or amount of time needed to reach the goal. E. An attribute, a target, and a time frame are the three elements of a goal set by a company to achieve its mission. A goal has three key components: an attribute sought, such as profits, customer satisfaction, or product quality; a target to be achieved, such as the volume of sales or extent of management training to be achieved; and a time frame, which is the time period in which the goal is to be achieved.

AACSB: Analytic Accessibility: Keyboard Navigation Bloom's: Understand Difficulty: 2 Medium Learning Objective: 06-02 Describe the major functions of management. Topic: The Importance of Planning

28. In the context of a business's objectives, which of the following is an ineffective practice? A. Isolating them from the business's mission B. Stating them in such a way that they are measurable C. Using them to make tactical plans for the business D. Keeping them elaborate or simple E. Using them to establish criteria to evaluate performance Objectives, the ends or results desired by an organization, derive from the organization's mission. A business's objectives may be elaborate or simple. Common objectives relate to profit, competitive advantage, efficiency, and growth.

AACSB: Analytic Accessibility: Keyboard Navigation Bloom's: Remember Difficulty: 1 Easy Learning Objective: 06-02 Describe the major functions of management. Topic: The Importance of Planning

Chapter 06 - The Nature of Management

29. _____ are the ends or results desired by an organization that are derived from the organization's mission. A. Protocols B. Statutes C. Objectives D. Agendas E. Referendums Objectives, the ends or results desired by an organization, derive from the organization's mission. A business's objectives may be elaborate or simple. Common objectives relate to profit, competitive advantage, efficiency, and growth.

AACSB: Analytic Accessibility: Keyboard Navigation Bloom's: Remember Difficulty: 1 Easy Learning Objective: 06-02 Describe the major functions of management. Topic: The Importance of Planning

30. The principal difference between objectives and goals is that: A. objectives are broad, while goals are narrow. B. objectives can be multiple, while a company can have only one goal. C. objectives are measurable, while goals need not be measurable. D. objectives are long term, while goals are short term. E. objectives cannot lead to a competitive advantage, while goals can lead to a competitive advantage. The principal difference between objectives and goals is that objectives are generally are measurable, while goals need not be measurable. Organizations with profit as an objective want to have money and assets left over after paying off business expenses.

AACSB: Analytic Accessibility: Keyboard Navigation Bloom's: Understand Difficulty: 2 Medium Learning Objective: 06-02 Describe the major functions of management. Topic: The Importance of Planning

Chapter 06 - The Nature of Management

31. An organization's objectives regarding profits are generally stated in terms of: A. the unlimited liability it has. B. the money and assets left over after paying off business expenses. C. its ability to promote diversity. D. the time taken to release new products in the marketplace. E. its ability to evaluate opportunity costs. Organizations with profit as an objective want to have money and assets left over after paying off business expenses. The principal difference between goals and objectives is that objectives are generally stated in such a way that they are measurable.

AACSB: Analytic Accessibility: Keyboard Navigation Bloom's: Remember Difficulty: 1 Easy Learning Objective: 06-02 Describe the major functions of management. Topic: The Importance of Planning

32. Which of the following objectives are generally stated in terms of percentage of sales increase and market share, with the goal of increasing those figures? A. Objectives regarding opportunity costs B. Objectives regarding efficiency C. Objectives regarding competitive advantage D. Objectives regarding employee turnover E. Objectives regarding raising capital Objectives regarding competitive advantage are generally stated in terms of percentage of sales increase and market share, with the goal of increasing those figures. The principal difference between goals and objectives is that objectives are generally stated in such a way that they are measurable.

AACSB: Analytic Accessibility: Keyboard Navigation Bloom's: Remember Difficulty: 1 Easy Learning Objective: 06-02 Describe the major functions of management. Topic: The Importance of Planning

Chapter 06 - The Nature of Management

33. Growth objectives essentially relate to: A. making the best use of an organization's resources. B. coordinating an organization's resources smoothly. C. focusing on profit as the sole indicator of growth. D. adapting and releasing new products in the market. E. building an organization's ability to promote diversity. Growth objectives relate to an organization's ability to adapt and to get new products to the marketplace in a timely fashion. The principal difference between goals and objectives is that objectives are generally stated in such a way that they are measurable.

AACSB: Analytic Accessibility: Keyboard Navigation Bloom's: Remember Difficulty: 1 Easy Learning Objective: 06-02 Describe the major functions of management. Topic: The Importance of Planning

34. When efficiency is an objective, organizations primarily focus on: A. making the best use of their resources. B. sales as the sole criterion for evaluating employees' performance. C. profit as the sole indicator of growth. D. ensuring that their business expenses are equal to their assets. E. limiting workplace diversity. Efficiency objectives involve making the best use of an organization's resources. Objectives, the ends or results desired by an organization, derive from the organization's mission.

AACSB: Analytic Accessibility: Keyboard Navigation Bloom's: Remember Difficulty: 1 Easy Learning Objective: 06-02 Describe the major functions of management. Topic: The Importance of Planning

Chapter 06 - The Nature of Management

35. Which of the following provides direction for all managerial decisions and establishes criteria for evaluating performance within organizations? A. Protocols B. Minutes C. Objectives D. Statutes E. Referendums Objectives provide direction for all managerial decisions; additionally, they establish criteria by which performance can be evaluated. Objectives, the ends or results desired by an organization, derive from the organization's mission.

AACSB: Analytic Accessibility: Keyboard Navigation Bloom's: Remember Difficulty: 1 Easy Learning Objective: 06-02 Describe the major functions of management. Topic: The Importance of Planning

36. The top management of Dusk Automobiles Inc. has decided that the company's objective for the next two years will be to expand the overall business internationally. This is an example of _____. A. functional planning B. static planning C. strategic planning D. tactical planning E. operational planning This is an example of strategic planning. A firm's highest managers develop its strategic plans, which establish the long-range objectives and overall strategy or course of action by which the firm fulfills its mission. Strategic plans generally cover periods ranging from one year or longer.

Chapter 06 - The Nature of Management

37. _____, a type of plan for meeting objectives, include plans to move into international markets. A. Incremental plans B. Tactical plans C. Strategic plans D. Operational plans E. Static plans Strategic plans, a type of plan for meeting objectives, include plans to add products, purchase companies, sell unprofitable segments of the business, issue stock, and move into international markets. Strategic plans must take into account an organization's capabilities and resources, the changing business environment, and organizational objectives.

AACSB: Analytic Accessibility: Keyboard Navigation Bloom's: Remember Difficulty: 1 Easy Learning Objective: 06-02 Describe the major functions of management. Topic: The Importance of Planning

38. _____, a type of plan for meeting objectives, establish the long-range objectives and the overall course of action by which a firm fulfills its mission. A. Functional plans B. Tactical plans C. Strategic plans D. Operational plans E. Static plans A firm's highest managers develop its strategic plans, which establish the long-range objectives and overall strategy or course of action by which the firm fulfills its mission.

AACSB: Analytic Accessibility: Keyboard Navigation Bloom's: Remember Difficulty: 1 Easy Learning Objective: 06-02 Describe the major functions of management. Topic: The Importance of Planning

Chapter 06 - The Nature of Management

39. _____, a type of plan for meeting objectives, generally cover periods ranging from one year or longer. A. Functional plans B. Tactical plans C. Static plans D. Operational plans E. Strategic plans A firm's highest managers develop its strategic plans, which establish the long-range objectives and overall strategy or course of action by which the firm fulfills its mission. Strategic plans generally cover periods ranging from one year or longer.

AACSB: Analytic Accessibility: Keyboard Navigation Bloom's: Remember Difficulty: 1 Easy Learning Objective: 06-02 Describe the major functions of management. Topic: The Importance of Planning

40. The top management of New 18 Apparels Inc. has decided to set up an online store to cater to the changing business environment and reach out to the Asian market. The management has also identified that the success of the company will depend on its ability to create and develop new products and processes in the next two years. This is an example of _____. A. functional planning B. strategic planning C. static planning D. operational planning E. tactical planning This is an example of strategic planning. Strategic plans generally cover periods ranging from one year or longer. They include plans to add products, purchase companies, sell unprofitable segments of the business, issue stock, and move into international markets.

AACSB: Reflective Thinking Accessibility: Keyboard Navigation Bloom's: Apply Difficulty: 3 Hard Learning Objective: 06-02 Describe the major functions of management. Topic: The Importance of Planning

Chapter 06 - The Nature of Management

41. Tactical plans usually cover a period of: A. five years or more. B. one year or less. C. three years. D. one week or less. E. ten years. Tactical plans are short range and designed to implement the activities and objectives specified in the strategic plan. These plans usually cover a period of one year or less.

AACSB: Analytic Accessibility: Keyboard Navigation Bloom's: Remember Difficulty: 1 Easy Learning Objective: 06-02 Describe the major functions of management. Topic: The Importance of Planning

42. Strategic plans: A. establish the short-range objectives of an organization. B. must take into account an organization's capabilities and resources. C. are designed to implement the activities and objectives specified in the tactical plans. D. generally cover periods ranging from two to six months. E. must be developed by an organization's lower management. Strategic plans must take into account an organization's capabilities and resources, the changing business environment, and organizational objectives.

AACSB: Analytic Accessibility: Keyboard Navigation Bloom's: Remember Difficulty: 1 Easy Learning Objective: 06-02 Describe the major functions of management. Topic: The Importance of Planning

Chapter 06 - The Nature of Management

43. Short-range plans covering a period of one year or less that are designed to implement the activities and objectives specified in an organization's strategic plan are referred to as _____. A. referendums B. protocols C. static plans D. operational plans E. tactical plans Tactical plans are short range and designed to implement the activities and objectives specified in the strategic plan.

AACSB: Analytic Accessibility: Keyboard Navigation Bloom's: Remember Difficulty: 1 Easy Learning Objective: 06-02 Describe the major functions of management. Topic: The Importance of Planning

44. Which of the following statements is true of tactical plans? A. They are developed by the highest managers of a firm. B. They establish the long-range objectives of a firm. C. They allow a firm to react to changes in the environment. D. They specify what actions each individual needs to accomplish in a firm. E. They help establish strategic plans. Tactical plans allow an organization to react to changes in the environment while continuing to focus on the company's overall strategy.

AACSB: Analytic Accessibility: Keyboard Navigation Bloom's: Remember Difficulty: 1 Easy Learning Objective: 06-02 Describe the major functions of management. Topic: The Importance of Planning

Chapter 06 - The Nature of Management

45. Which of the following is an effective practice with regard to tactical plans? A. They should cover a period of three years or more. B. They should protect an organization from reacting to changes in the environment. C. They should disregard a company's overall strategy. D. They should be periodically reviewed and updated by an organization's management. E. They should be established by an organization's first-line managers. Because tactical plans allow an organization to react to changes in the environment while continuing to focus on the company's overall strategy, management must periodically review and update them.

AACSB: Analytic Accessibility: Keyboard Navigation Bloom's: Understand Difficulty: 2 Medium Learning Objective: 06-02 Describe the major functions of management. Topic: The Importance of Planning

46. _____ are very short-term plans that specify what actions individuals, work groups, or departments need to accomplish in order to achieve an organization's tactical plan and ultimately the strategic plan. A. Operational plans B. Protocols C. Static plans D. Referendums E. Executive-level plans Operational plans are very short term and specify what actions specific individuals, work groups, or departments need to accomplish in order to achieve the tactical plan and ultimately the strategic plan.

AACSB: Analytic Accessibility: Keyboard Navigation Bloom's: Remember Difficulty: 1 Easy Learning Objective: 06-02 Describe the major functions of management. Topic: The Importance of Planning

Chapter 06 - The Nature of Management

47. Xtreme Toys, a company that manufactures toys inspired by popular video games, creates a strategic plan to be the leader in the product category within a period of three years. The company's middle management also creates a half-yearly plan to ensure that the objectives of the strategic plan are properly implemented. The half-yearly plan created by Xtreme Toys can be regarded as a(n): A. operational plan. B. contingency plan. C. static plan. D. tactical plan. E. executive-level plan. The half-yearly plan created by Xtreme Toys can be regarded as a tactical plan. Tactical plans are short range and designed to implement the activities and objectives specified in the strategic plan. These plans, which usually cover a period of one year or less, help keep the organization on the course established in the strategic plan.

AACSB: Reflective Thinking Accessibility: Keyboard Navigation Bloom's: Apply Difficulty: 3 Hard Learning Objective: 06-02 Describe the major functions of management. Topic: The Importance of Planning

Chapter 06 - The Nature of Management

48. The top management of XSports Autos Inc. creates a strategic plan to enter new product markets within a period of five years. The company's middle management creates half-yearly plans to ensure that the objectives of the strategic plan are properly implemented. Along with these plans, each department creates short-term plans that specify the actions to be taken by specific employees and teams to meet the objectives of the strategic plan and the half-yearly plans. These short-term plans established at the departmental level are referred to as _____. A. operational plans B. contingency plans C. static plans D. tactical plans E. executive-level plans These short-term plans established at the departmental level are referred to as operational plans. Operational plans are very short term and specify what actions specific individuals, work groups, or departments need to accomplish in order to achieve the tactical plan and ultimately the strategic plan.

AACSB: Reflective Thinking Accessibility: Keyboard Navigation Bloom's: Apply Difficulty: 3 Hard Learning Objective: 06-02 Describe the major functions of management. Topic: The Importance of Planning

49. Crisis management plans generally cover maintaining business operations during a crisis and: A. holding first-line employees solely responsible for the crisis. B. avoiding responsibility for the crisis in the media. C. communicating with others about the situation and the company's response to the crisis. D. ensuring that the employees do not know about details of the crisis. E. isolating top managers from the process of dealing with the crisis. Crisis management plans generally cover maintaining business operations throughout a crisis and communicating with the public, employees, and officials about the nature of and the company's response to the problem.

AACSB: Analytic Accessibility: Keyboard Navigation Bloom's: Remember Difficulty: 1 Easy Learning Objective: 06-02 Describe the major functions of management. Topic: The Importance of Planning

Chapter 06 - The Nature of Management

50. _____ is an element in planning that deals with potential disasters such as product tampering, oil spills, fire, earthquake, computer viruses, or airplane crash. A. Supply chain management B. Crisis management C. Value chain management D. Enterprise resource planning E. Material requirements planning An element of planning is crisis management or contingency planning, which deals with potential disasters such as product tampering, oil spills, fire, earthquake, computer viruses, or even a reputation crisis due to unethical or illegal conduct by one or more employees.

AACSB: Analytic Accessibility: Keyboard Navigation Bloom's: Remember Difficulty: 1 Easy Learning Objective: 06-02 Describe the major functions of management. Topic: The Importance of Planning

51. Bigbag.com, a leading online retailer, uses the services of Data Safe Inc., a small startup that helps companies manage and keep their electronic data safe. This helps Bigbag.com keep a backup of its proprietary information in case of virus attacks or any sort of damage to property. This is an example of _____. A. supply chain management B. contingency planning C. materials requirement planning D. enterprise resource planning E. value chain management An element of planning is crisis management or contingency planning, which deals with potential disasters such as product tampering, oil spills, fire, earthquake, computer viruses, or even a reputation crisis due to unethical or illegal conduct by one or more employees.

Chapter 06 - The Nature of Management

52. Dividing work into small units and assigning it to specific individuals is a task related to the management function of _____. A. evaluating B. organizing C. staffing D. controlling E. recruiting Managers organize by reviewing plans and determining what activities are necessary to implement them; then, they divide the work into small units and assign it to specific individuals, groups, or departments.

AACSB: Analytic Accessibility: Keyboard Navigation Bloom's: Remember Difficulty: 1 Easy Learning Objective: 06-02 Describe the major functions of management. Topic: Functions of Management

53. _____ is the structuring of resources and activities to accomplish objectives in an efficient and effective manner. A. Evaluating B. Organizing C. Crowdsourcing D. Controlling E. Factoring Organizing is the structuring of resources and activities to accomplish objectives in an efficient and effective manner. Managers organize by reviewing plans and determining what activities are necessary to implement them; then, they divide the work into small units and assign it to specific individuals, groups, or departments.

AACSB: Analytic Accessibility: Keyboard Navigation Bloom's: Remember Difficulty: 1 Easy Learning Objective: 06-02 Describe the major functions of management. Topic: Functions of Management

Chapter 06 - The Nature of Management

54. Which of the following statements is true of the management function of organizing? A. Organizing is the process of evaluating and correcting activities to keep a business on course. B. Organizing involves determining and administering appropriate rewards and recognition for employees in an organization. C. Organizing is a management function that leads to the duplication of resources. D. Organizing is the last step in the process of managing a business. E. Organizing helps create synergy, whereby the effect of a whole system equals more than that of its parts. Organizing is important for several reasons. Organizing helps create synergy, whereby the effect of a whole system equals more than that of its parts.

AACSB: Analytic Accessibility: Keyboard Navigation Bloom's: Understand Difficulty: 2 Medium Learning Objective: 06-02 Describe the major functions of management. Topic: Functions of Management

55. Hiring people to carry out the work of an organization is known as _____. A. factoring B. bartering C. staffing D. controlling E. directing Management functions include staffing an organization with qualified people. Hiring people to carry out the work of the organization is known as staffing.

AACSB: Analytic Accessibility: Keyboard Navigation Bloom's: Remember Difficulty: 1 Easy Learning Objective: 06-02 Describe the major functions of management. Topic: Functions of Management

Chapter 06 - The Nature of Management

56. Maria and Harold have just finished interviewing four candidates for a job position in Jackson Office Supplies Inc., a large company based in Houston. In which of the following management functions are Maria and Harold involved? A. Downsizing B. Benchmarking C. Staffing D. Controlling E. Directing Maria and Harold are involved in staffing. Staffing involves hiring people to carry out the work of an organization.

AACSB: Reflective Thinking Accessibility: Keyboard Navigation Bloom's: Apply Difficulty: 2 Medium Learning Objective: 06-02 Describe the major functions of management. Topic: Functions of Management

57. Downsizing is an aspect most closely associated with the management function of: A. staffing. B. crowdsourcing. C. motivating. D. bartering. E. directing. Downsizing, the elimination of significant numbers of employees from an organization, has been a pervasive and much-talked-about trend in staffing.

AACSB: Analytic Accessibility: Keyboard Navigation Bloom's: Remember Difficulty: 1 Easy Learning Objective: 06-02 Describe the major functions of management. Topic: Functions of Management

Chapter 06 - The Nature of Management

58. Due to a drop in the sales of its products, a few production employees and sales personnel of Red Fin Products Inc. were laid off. Which aspect of staffing does this scenario illustrate? A. Downsizing B. Bartering C. Outsourcing D. Benchmarking E. Directing The scenario best illustrates downsizing. Downsizing is the elimination of significant numbers of employees from an organization and has been a pervasive and much-talked-about trend in staffing.

AACSB: Reflective Thinking Accessibility: Keyboard Navigation Bloom's: Apply Difficulty: 2 Medium Learning Objective: 06-02 Describe the major functions of management. Topic: Functions of Management

59. Providing incentives to employees to motivate them toward achieving organizational objectives relates to the management function of: A. factoring. B. benchmarking. C. evaluating. D. controlling. E. directing. Directing is motivating and leading employees to achieve organizational objectives; managers may motivate employees by providing incentives—such as the promise of a raise or promotion—for them to do a good job.

AACSB: Analytic Accessibility: Keyboard Navigation Bloom's: Remember Difficulty: 1 Easy Learning Objective: 06-02 Describe the major functions of management. Topic: Functions of Management

Chapter 06 - The Nature of Management

60. Which of the following is true of the management function of directing? A. All managers are involved in directing, but it is most important for top-level managers. B. Directing designs the map that lays the groundwork for the other managerial functions. C. Good directing does not require the implementation of deadlines. D. Directing involves determining and administering appropriate rewards and recognition. E. Telling employees what to do and when to do it is against the principles of directing. Directing is motivating and leading employees to achieve organizational objectives. It also involves determining and administering appropriate rewards and recognition.

AACSB: Analytic Accessibility: Keyboard Navigation Bloom's: Remember Difficulty: 1 Easy Learning Objective: 06-02 Describe the major functions of management. Topic: Functions of Management

61. _____ is the process of evaluating and correcting activities to keep an organization on course. A. Planning B. Benchmarking C. Staffing D. Controlling E. Recruiting Controlling is the process of evaluating and correcting activities to keep an organization on course. This requires managers to monitor performance and compare it to standards.

AACSB: Analytic Accessibility: Keyboard Navigation Bloom's: Remember Difficulty: 1 Easy Learning Objective: 06-02 Describe the major functions of management. Topic: Functions of Management

Chapter 06 - The Nature of Management

62. When Betsy informed her supervisor that the furniture assemblers at their manufacturing plant were using 20 percent more raw materials in the current month when compared to the preceding months, she was involved in the management function of: A. planning. B. structuring. C. staffing. D. controlling. E. benchmarking. Betsy was involved in the management function of controlling. Controlling is the process of evaluating and correcting activities to keep an organization on course. This requires managers to monitor performance and compare it to standards.

AACSB: Reflective Thinking Accessibility: Keyboard Navigation Bloom's: Apply Difficulty: 2 Medium Learning Objective: 06-02 Describe the major functions of management. Topic: Functions of Management

63. For an organization, the first step in the management function of controlling is to: A. compare present performance with standards. B. take corrective actions when necessary. C. investigate the causes of any deviations. D. measure the actual performance. E. identify deviations from the standard. Control involves five activities: (1) measuring performance, (2) comparing present performance with standards or objectives, (3) identifying deviations from the standards, (4) investigating the causes of deviations, and (5) taking corrective action when necessary.

AACSB: Analytic Accessibility: Keyboard Navigation Bloom's: Understand Difficulty: 2 Medium Learning Objective: 06-02 Describe the major functions of management. Topic: Functions of Management

Chapter 06 - The Nature of Management

64. In businesses, _____ include the president and other top executives, such as the chief executive officer, chief financial officer, and chief operations officer, who have overall responsibility for an organization. A. first-line managers B. top managers C. trade creditors D. external auditors E. middle managers In businesses, top managers include the president and other top executives, such as the chief executive officer, chief financial officer, and chief operations officer, who have overall responsibility for an organization.

65. In an organization, decisions regarding adding new products, acquiring companies, and moving into foreign markets would most typically be made by: A. the first-line management. B. a sales manager. C. the middle management. D. a production manager. E. the top management. Top managers decide whether to add products, acquire companies, sell unprofitable business segments, and move into foreign markets.

AACSB: Analytic Accessibility: Keyboard Navigation Bloom's: Understand Difficulty: 2 Medium Learning Objective: 06-03 Distinguish among three levels of management and the concerns of managers at each level. Topic: Types of Managers and Leadership Styles

Chapter 06 - The Nature of Management

66. Identify the management function in which top managers in an organization spend most of their time. A. Benchmarking B. Controlling C. Organizing D. Staffing E. Planning Top-level managers spend most of their time planning. They make an organization's strategic decisions, decisions that focus on an overall scheme or key idea for using resources to take advantage of opportunities.

67. _____ are responsible for tactical planning that will implement the general guidelines established by top management. A. Chief executive officers B. Middle managers C. Top-level managers D. Trade creditors E. External auditors Middle managers are those responsible for tactical planning that will implement the general guidelines established by top management.

Chapter 06 - The Nature of Management

68. The specific operations of an organization, plant, division, or department would most typically involve the _____ of the company. A. top management B. middle management C. executive officers D. board of directors E. stockholders In business, plant managers, division managers, and department managers make up middle management. Middle managers are involved in the specific operations of an organization and spend more time organizing than other managers.

69. Which of the following has been a recent trend with regard to the different levels of management within an organization? A. With technological advances accelerating, the role of privacy officers has declined within organizations. B. The top management of most organizations spends most of its time directing and controlling workers' daily performance on the job. C. Effective managers at enlightened corporations have found that diversity is detrimental for workers and for the bottom line. D. The ranks of middle managers have been shrinking as more and more companies downsize to be more productive. E. Most stakeholders support the perks and special treatment the top management of an organization gets. The ranks of middle managers have been shrinking as more and more companies downsize to be more productive.

Chapter 06 - The Nature of Management

70. Positions such as foremen, supervisors, and office service managers are a part of the _____ of a company. A. top management B. first-line management C. middle management D. executive levels E. strategic planning division Common titles for first-line managers are foremen, supervisors, and office service managers. Most people get their first managerial experience as first-line managers, those who supervise workers and the daily operations of an organization.

71. Most people get their initial managerial experience as _____, those who supervise workers and the daily operations of an organization. A. top managers B. middle managers C. first-line managers D. chief operations officers E. chief financial officers Most people get their first managerial experience as first-line managers, those who supervise workers and the daily operations of an organization.

Chapter 06 - The Nature of Management

72. _____ spend most of their time directing and controlling the daily operations of an organization. A. Board of directors B. Middle managers C. Top-level managers D. First-line managers E. Chief executive officers First-line managers spend most of their time directing and controlling. They are responsible for implementing the plans established by middle management and directing workers' daily performance on the job.

73. Janet works as a manager at Unicorn Infra Inc. Janet and her team members are primarily responsible for procuring the funds needed for the successful operation of the organization and investing that money to pursue organizational goals. Thus, Janet is a _____. A. financial manager B. production manager C. sales manager D. human resource manager E. marketing manager Janet is a financial manager. Financial managers focus on obtaining the money needed for the successful operation of an organization and using that money in accordance with organizational goals.

AACSB: Reflective Thinking Accessibility: Keyboard Navigation Bloom's: Apply Difficulty: 2 Medium Learning Objective: 06-03 Distinguish among three levels of management and the concerns of managers at each level. Topic: Types of Managers and Leadership Styles

Chapter 06 - The Nature of Management

74. George is a bank manager. He manages the activities of an entire branch without specializing in any one particular function. Thus, George is a(n) _____. A. human resource manager B. production manager C. sales manager D. administrative manager E. marketing manager George is an administrative manager. Administrative managers manage an entire business or a major segment of a business and do not specialize in a particular function.

75. Production and operations managers are concerned with: A. identifying and efficiently using sources of financing. B. managing an entire market segment of a business. C. planning, pricing, and promoting products. D. transforming resources into good and services. E. recruiting new employees and developing employee programs. Production and operations managers develop and administer the activities involved in transforming resources into goods, services, and ideas ready for the marketplace.

Chapter 06 - The Nature of Management

76. A marketing manager is primarily responsible for: A. identifying and efficiently using sources of financing. B. hiring employees and dealing with them in a formalized manner. C. planning, pricing, and promoting products and overseeing their distribution. D. managing an entire business of a major segment of the business. E. implementing, maintaining, and controlling technology applications required by a company. Marketing managers are responsible for planning, pricing, and promoting products and making them available to customers through distribution.

77. When a manager works with suppliers, distributors, and labor unions to reach agreements about the quality and price of input, technical, and human resources, he or she is fulfilling the managerial role of a _____. A. disseminator B. negotiator C. resource allocator D. leader E. figurehead As a negotiator, a manager works with suppliers, distributors, and labor unions to reach agreements about the quality and price of input, technical, and human resources; he or she also works with other organizations to establish agreements to pool resources to work on joint projects.

AACSB: Analytic Accessibility: Keyboard Navigation Bloom's: Remember Difficulty: 1 Easy Learning Objective: 06-04 Specify the skills managers must have to be successful. Topic: Types of Managers and Leadership Styles

Chapter 06 - The Nature of Management

78. When a manager informs employees about the changes taking place in the external and internal environment that will affect them and their organization, he or she is acting as a _____. A. negotiator B. monitor C. resource allocator D. liaison E. disseminator As a disseminator, a manager informs employees about the changes taking place in the external and internal environment that will affect them and their organization.

79. _____ refer to the ability of an individual to think in abstract terms and to see how parts fit together to form the whole. A. Technical skills B. Perceptual skills C. Conceptual skills D. Social skills E. Human relations skills Conceptual skills, the ability to think in abstract terms, and to see how parts fit together to form the whole, are needed by all managers, but particularly top-level managers.

Chapter 06 - The Nature of Management

80. _____ refer to the ability to identify relevant issues and recognize their importance, understand the relationships between them, and perceive the underlying causes of a situation. A. Technical skills B. Analytical skills C. Cognitive skills D. Social skills E. Human relations skills Analytical skills refer to the ability to identify relevant issues and recognize their importance, understand the relationships between them, and perceive the underlying causes of a situation.

81. Which of the following is a feature of democratic leadership? A. Encouraging employees to discuss concerns and provide inputs B. Using economic rewards as sole means to motivate employees C. Allowing employees complete autonomy to work on their own D. Monitoring employee actions very closely and in great detail E. Making decisions and telling employees what must be done and in what manner Democratic leaders involve their employees in decisions. The manager presents a situation and encourages his or her subordinates to express opinions and contribute ideas.

AACSB: Analytic Accessibility: Keyboard Navigation Bloom's: Remember Difficulty: 1 Easy Learning Objective: 06-05 Describe the different types of leaders and how leadership can be used to empower employees. Topic: Types of Managers and Leadership Styles

Chapter 06 - The Nature of Management

82. The _____ style of leadership can be a powerful motivator because it demonstrates a great deal of trust and confidence in an employee and allows employees to meet their work demands with little or no interference. A. free-rein B. autocratic C. authoritarian D. repressive E. totalitarian The free-rein style of leadership can be a powerful motivator because it demonstrates a great deal of trust and confidence in an employee and allows employees to meet their work demands with little or no interference.

83. A(n) _____ is best for stimulating unskilled or unmotivated employees. A. authentic leadership style B. democratic leadership style C. free-rein leadership style D. autocratic leadership style E. participative leadership style An autocratic leadership style is best for stimulating unskilled or unmotivated employees. Autocratic leaders make all the decisions and then tell employees what must be done and how to do it.

Chapter 06 - The Nature of Management

84. Which of the following statements is true of authentic leaders? A. Authentic leaders display all the characteristics of autocratic leaders. B. Authentic leaders make all the relevant decisions and inform employees what they have to do and how. C. Authentic leaders are an exclusive group of leaders whose leadership behaviors are distinctive from democratic and free-rein leaders. D. Authentic leaders are identified by the way in which they conduct themselves with stakeholders. E. Authentic leaders are concerned about the task at hand rather than establishing lasting relationships with stakeholders. Both democratic and free-rein leaders could qualify as authentic leaders depending upon how they conduct themselves among stakeholders. Authentic leaders are passionate about the goals and mission of a company, display corporate values in the workplace, and form long-term relationships with stakeholders.

AACSB: Analytic Accessibility: Keyboard Navigation Bloom's: Understand Difficulty: 2 Medium Learning Objective: 06-05 Describe the different types of leaders and how leadership can be used to empower employees. Topic: Types of Managers and Leadership Styles

85. Which of the following statements is true of employee empowerment? A. Employee empowerment is most assured in autocratic style of leadership. B. Employee empowerment has been reducing in organizations. C. Employee empowerment is not possible in companies that have a participative corporate culture. D. Employee empowerment allows employees to provide input but not feedback on company decisions. E. Employee empowerment does not mean that managers are not needed. Employee empowerment does not mean that managers are not needed. Managers are important for guiding employees, setting goals, making major decisions, and other responsibilities.

Chapter 06 - The Nature of Management

86. _____ occurs when employees are provided with the ability to take on responsibilities and make decisions about their jobs. A. Employee outplacement B. Crowdsourcing C. Micromanagement D. Benchmarking E. Employee empowerment Employee empowerment occurs when employees are provided with the ability to take on responsibilities and make decisions about their jobs.

87. Which of the following is the first step in decision making? A. Recognizing and defining the decision situation B. Developing options to resolve a complicated situation C. Analyzing the options available to resolve a situation D. Monitoring the consequences of a decision E. Implementing a decision A systematic approach using the following six steps usually leads to effective decision making: (a) recognizing and defining the decision situation, (b) developing options to resolve the situation, (c) analyzing the options, (d) selecting the best option, (e) implementing the decision, and (f) monitoring the consequences of the decision.

Chapter 06 - The Nature of Management

88. Managers at Sprocket Inc. have recognized declining sales on their water purifier and must decide upon what has to be done to improve it. Which of the following would be their next step? A. Defining the situation B. Developing options C. Analyzing options D. Selecting the best option E. Implementing the decision The next step for managers at Sprocket Inc. would be to define the decision situation that they have already identified. As part of the first step in decision making, the manager must first recognize the situation and then define it before developing options.

AACSB: Reflective Thinking Accessibility: Keyboard Navigation Bloom's: Apply Difficulty: 2 Medium Learning Objective: 06-06 Summarize the systematic approach to decision making used by many business managers. Topic: Functions of Management

89. When selecting the best option among a series of possible decisions, _____. A. it is always advisable to choose just one. B. quantitative and qualitative analyses are foolproof at all times. C. all options must be tried and tested simultaneously. D. it is always possible to use an objective procedure. E. it may be possible to use a combination of several options. Selecting the best option is often a subjective procedure because many situations do not lend themselves to quantitative analysis. Of course, it is not always necessary to select only one option and reject all others; it may be possible to select and use a combination of several options.

Chapter 06 - The Nature of Management

90. When assessing the appropriateness of a decision option, managers should: A. consider its impact on the organization as a whole. B. think narrowly about the one department most affected by the decision. C. disregard the practicality of the options available. D. choose the option that partially addresses the problem. E. limit the evaluation to objective procedures. When assessing appropriateness, a decision maker should consider whether the proposed option adequately addresses the situation. When analyzing the consequences of an option, managers should consider its impact on the situation and on the organization as a whole.

AACSB: Analytic Accessibility: Keyboard Navigation Bloom's: Understand Difficulty: 2 Medium Learning Objective: 06-06 Summarize the systematic approach to decision making used by many business managers. Topic: Functions of Management

91. When analyzing options in the decision-making process, managers must consider the appropriateness and _____ of each option. A. novelty B. practicality C. creativity D. universality E. reversibility Once the options for a decision situation have been developed, management should then analyze the practicality and appropriateness of each option. An option may be deemed impractical because of a lack of financial resources to implement it.

Chapter 06 - The Nature of Management

92. Which of the following best describes the importance of monitoring the consequences of decisions? A. The consequences of decisions may not be apparent quickly enough without monitoring. B. Monitoring the consequences of decisions is the immediate logical step after selecting the best option. C. Monitoring the consequences always leads to redefining the decision situation from the beginning. D. The consequences of decisions have to be monitored only when desired results are achieved. E. Monitoring the consequences of decisions is not important and it is expensive. Without proper monitoring, the consequences of decisions may not be known quickly enough to make efficient changes. If the desired result is achieved, management can reasonably conclude that it made a good choice. If the desired result is not achieved, further analysis is warranted.

93. A(n) _____ is like a calendar, containing both specific and vague items, that helps a manager figure out what must be done and how to get it done to meet the objectives set by an organization. A. balance sheet B. executive summary C. proforma invoice D. referendum E. agenda An agenda contains both specific and vague items, covering short-term goals and long-term objectives. Like a calendar, an agenda helps a manager figure out what must be done and how to get it done to meet the objectives set by an organization.

Chapter 06 - The Nature of Management

94. Which of the following refers to the process of building relationships and sharing information with colleagues who can help a manager achieve the items on his or her agenda? A. Controlling B. Directing C. Benchmarking D. Networking E. Monitoring Managers spend a lot of time networking—building relationships and sharing information with colleagues who can help them achieve the items on their agendas.

95. _____ is used for job networking and is gaining in popularity among the younger generation as an alternative to traditional job hunting. A. eBay B. Twitter C. LinkedIn D. Orkut E. Amazon LinkedIn has been used for job networking and is gaining in popularity among the younger generation as an alternative to traditional job hunting. Some speculate that social networks might eventually replace traditional résumés and job boards.

Chapter 07 - Organization, Teamwork, and Communication

Chapter 07 Organization, Teamwork, and Communication

True / False Questions 1. The more complex organizations become, the less they need to develop formal structures to function efficiently. FALSE With more people and greater specialization, an organization needs to develop a formal structure to function efficiently. Growth requires organizing—the structuring of human, physical, and financial resources to achieve objectives in an effective and efficient manner.

AACSB: Analytic Accessibility: Keyboard Navigation Bloom's: Remember Difficulty: 1 Easy Learning Objective: 07-01 Define organizational structure and relate how organizational structures develop. Topic: Organizational Structure

2. Disadvantages of product departmentalization are that it duplicates functions and does not focus on an organization's overall objectives. TRUE Organizing by products duplicates functions and resources and emphasizes the product rather than achievement of an organization's overall objectives. Each division develops and implements its own product plans, monitors the results, and takes corrective action as necessary.

AACSB: Analytic Accessibility: Keyboard Navigation Bloom's: Remember Difficulty: 1 Easy Learning Objective: 07-02 Describe how specialization and departmentalization help an organization achieve its goals. Topic: Organizational Structure

Chapter 07 - Organization, Teamwork, and Communication

3. A wide span of management works best when a manager and subordinates are not in close proximity. FALSE A narrow span of management is appropriate when superiors and subordinates are not in close proximity, the manager has many responsibilities in addition to the supervision, the interaction between superiors and subordinates is frequent, and problems are common.

AACSB: Analytic Accessibility: Keyboard Navigation Bloom's: Understand Difficulty: 2 Medium Learning Objective: 07-03 Determine how organizations assign responsibility for tasks and delegate authority. Topic: Delegation and Authority

4. Multidivisional structure is the simplest organizational structure that is based on direct lines of authority extending from the top executive to the lowest level employees of an organization. FALSE Line structure, with its direct lines of authority that extend from the top manager to employees at the lowest level of an organization, is the simplest organizational structure. A multidivisional structure organizes departments into larger groups called divisions.

AACSB: Analytic Accessibility: Keyboard Navigation Bloom's: Remember Difficulty: 1 Easy Learning Objective: 07-04 Compare and contrast some common forms of organizational structure. Topic: Organizational Structure

Chapter 07 - Organization, Teamwork, and Communication

5. Horizontal communication involves the traditional flow of information from upper organizational levels downward. FALSE Horizontal communication involves the exchange of information among colleagues and peers on the same organizational level, such as across or within departments. Horizontal information informs, supports, and coordinates activities both within the department and with other departments.

AACSB: Communication Accessibility: Keyboard Navigation Bloom's: Remember Difficulty: 1 Easy Learning Objective: 07-06 Describe how communication occurs in organizations. Topic: Communication in Organizations

Multiple Choice Questions 6. _____ refers to a firm's shared values, beliefs, traditions, philosophies, rules, and role models for behavior. A. Organizational chart B. Centralization C. Organizational culture D. Organizational structure E. Business record Organizational culture is a firm's shared values, beliefs, traditions, philosophies, rules, and role models for behavior. An organizational culture exists in every organization, regardless of size, organizational type, product, or profit objective.

Chapter 07 - Organization, Teamwork, and Communication

7. Which of the following is true of organizational culture? A. Organizational culture exists only in large organizations that have more than 500 employees. B. Organizational culture is different from corporate culture. C. Organizational culture is more commonly expressed informally. D. Organizational culture cannot be expressed formally through mission statements, memos, or manuals. E. Organizational culture is a visual display of an organizational structure, lines of authority, and staff relationships. A firm's culture may be expressed formally through its mission statement, codes of ethics, memos, manuals, and ceremonies, but it is more commonly expressed informally.

8. Which of the following is a means of informally expressing an organization's culture? A. Ceremonies B. Code of ethics C. Mission statement D. Manuals E. Employee dress codes Informal expressions of culture include dress codes (or the lack thereof), work habits, extracurricular activities, and stories. A firm's culture may be expressed formally through its mission statement, codes of ethics, memos, manuals, and ceremonies, but it is more commonly expressed informally.

Chapter 07 - Organization, Teamwork, and Communication

9. Which of the following is a formal expression of an organization's culture? A. Dress codes B. Extracurricular activities C. Codes of ethics D. Grapevine E. Work habits A firm's culture may be expressed formally through its mission statement, codes of ethics, memos, manuals, and ceremonies, but it is more commonly expressed informally. Examples of informal expressions of culture include dress codes (or the lack thereof), work habits, extracurricular activities, and stories.

10. Identify a true statement about organizational culture? A. It is absent in small organizations. B. It can only be communicated formally. C. It can only be seen in nonprofit organizations. D. It is reflected in an organization's relationships with stakeholders. E. It does not encompass employee behavior and ways of dealing with problems. Organizational culture can be reflected in an organization's relationships with stakeholders. When positive values and philosophies are shared by all members of an organization, they will be expressed in its relationships with stakeholders.

AACSB: Analytic Accessibility: Keyboard Navigation Bloom's: Understand Difficulty: 2 Medium Learning Objective: 07-01 Define organizational structure and relate how organizational structures develop. Topic: Culture in Organizations

Chapter 07 - Organization, Teamwork, and Communication

11. Which of the following statements is true about organizational structure? A. It is only applicable to formal organizations. B. It is the arrangement or relationship of positions within an organization. C. It is usually not seen in government and nonprofit organizations. D. It does not require any planning in small organizations. E. It remains the same even as a company grows in size. Structure is the arrangement or relationship of positions within an organization. Rarely is an organization, or any group of individuals working together, able to achieve common objectives without some form of structure, whether that structure is explicitly defined or only implied.

12. Which of the following does an organizational chart display? A. Shared values B. Shared beliefs C. Plant layouts D. Assembly lines E. Staff relationships An organizational chart is a visual display of the organizational structure, lines of authority (chain of command), staff relationships, permanent committee arrangements, and lines of communication.

Chapter 07 - Organization, Teamwork, and Communication

13. Which of the following statements is true about an organizational chart in the context of organizational structure? A. It only lists the financial assets of an organization. B. It is essentially designed for the customers of an organization. C. It can only be accessed by the owners of an organization. D. It gives information about an organization's chain of command. E. It cannot represent the evolution or growth of an organization. An organizational chart is a visual display of organizational structure, lines of authority (chain of command), staff relationships, permanent committee arrangements, and lines of communication.

14. Which of the following is a primary function of an organizational chart? A. It lists the financial assets of an organization. B. It depicts the processes involved in the assembly line of an organization. C. It is a visual display of the organizational structure. D. It is essentially designed to help customers track their products. E. It is a visual display of a firm's shared values and philosophies. Organizational chart is a visual display of the organizational structure, lines of authority (chain of command), staff relationships, permanent committee arrangements, and lines of communication.

Chapter 07 - Organization, Teamwork, and Communication

15. _____ is the division of labor into small, specific tasks and the assignment of employees to do a single task. A. Specialization B. Job rotation C. Crowdsourcing D. Outsourcing E. Centralization Specialization is the division of labor into small, specific tasks and the assignment of employees to do a single task. The rationale for specialization is efficiency.

16. What is the rationale for specialization? A. Duplication B. Centralization C. Accountability D. Efficiency E. Transparency Specialization is the division of labor into small, specific tasks and the assignment of employees to do a single task. The rationale for specialization is efficiency.

Chapter 07 - Organization, Teamwork, and Communication

17. Which of the following is an advantage of job specialization? A. It allows workers to specialize in a variety of skills. B. It enables workers to perform their work more quickly and efficiently. C. It can never lead to dissatisfaction and boredom among employees. D. It completely eliminates the need for departmentalization within an organization. E. It requires employees to perform more than one task within a firm. Specialization means workers do not waste time shifting from one job to another, and training is easier. By dividing work into smaller specialized tasks, employees can perform their work more quickly and efficiently.

AACSB: Analytic Accessibility: Keyboard Navigation Bloom's: Understand Difficulty: 2 Medium Learning Objective: 07-02 Describe how specialization and departmentalization help an organization achieve its goals. Topic: Delegation and Authority

18. Which of the following is a disadvantage of job specialization? A. It makes the process of training employees complex. B. It causes waste of time as employees keep shifting roles. C. It can lead to dissatisfaction and boredom among employees if overly done. D. It adversely affects the efficiency of employees in a particular job. E. It restricts an organization from outsourcing employees. Overspecialization can have negative consequences. Employees may become bored and dissatisfied with their jobs, and the result of their unhappiness is likely to be poor quality work, more injuries, and high employee turnover.

Chapter 07 - Organization, Teamwork, and Communication

19. 18th-century economist Adam Smith illustrated improvements in efficiency in manufacturing units through the application of: A. standardization. B. specialization. C. crowdsourcing. D. decentralization. E. downsizing. The rationale for specialization is efficiency. Adam Smith used the concept of specialization to illustrate improvements in efficiency.

20. _____ is the grouping of jobs into working units usually called units, groups, or divisions. A. Downsizing B. Specialization C. Nearshoring D. Departmentalization E. Centralization Departmentalization is the grouping of jobs into working units usually called departments, units, groups, or divisions. Departments are commonly organized by function, product, geographic region, or customer.

Chapter 07 - Organization, Teamwork, and Communication

21. Small businesses commonly employ: A. line departmentalization. B. customer departmentalization. C. functional departmentalization. D. product departmentalization. E. geographical departmentalization. Functional departmentalization is common in small organizations. Functional departmentalization groups jobs that perform similar functional activities, such as finance, manufacturing, marketing, and human resources.

22. A company that has departments for marketing, finance, personnel, and production is organized by: A. product. B. function. C. territory. D. customer. E. geographic region. Functional departmentalization groups jobs that perform similar functional activities, such as finance, manufacturing, marketing, and human resources. This approach is common in small organizations.

Chapter 07 - Organization, Teamwork, and Communication

23. If the type of departmentalization used by an organization tends to emphasize departmental units rather than the organization as a whole and decision making is slow, then these would be weaknesses indicative of _____ departmentalization. A. geographical B. functional C. product D. customer E. process A weakness of functional departmentalization is that because it tends to emphasize departmental units rather than the organization as a whole, decision making that involves more than one department may be slow, and it requires greater coordination.

24. An airlines company having different departments for frequent travelers and occasional travelers illustrates _____ departmentalization. A. product B. functional C. geographical D. seniority E. customer Customer departmentalization arranges jobs around the needs of various types of customers. Airlines provide prices and services customized for either business/frequent travelers or infrequent/vacationing customers.

AACSB: Analytic Accessibility: Keyboard Navigation Bloom's: Understand Difficulty: 1 Easy Learning Objective: 07-02 Describe how specialization and departmentalization help an organization achieve its goals. Topic: Delegation and Authority

Chapter 07 - Organization, Teamwork, and Communication

25. Which of the following is a similarity between customer departmentalization and geographical departmentalization? A. They both prohibit specialization. B. They both group jobs according to a customer's geographic location. C. They both do not focus on an organization as a whole. D. They both require minimal administrative staff to coordinate operations. E. They both cannot be used in large organizations. Customer departmentalization, like geographical departmentalization, does not focus on the organization as a whole and therefore requires a large administrative staff to coordinate the operations of the various groups.

26. An electronic company has a computer electronics division, telecommunications equipment division, and kitchen appliances division. Which of the following methods of departmentalization does the company use to structure its organization? A. Product departmentalization B. Geographical departmentalization C. Functional departmentalization D. Customer departmentalization E. Process departmentalization Product departmentalization is the organization of jobs in relation to the products of a firm. Each division develops and implements its own product plans, monitors the results, and takes corrective action as necessary.

AACSB: Reflective Thinking Accessibility: Keyboard Navigation Bloom's: Apply Difficulty: 2 Medium Learning Objective: 07-02 Describe how specialization and departmentalization help an organization achieve its goals. Topic: Delegation and Authority

Chapter 07 - Organization, Teamwork, and Communication

27. Which of the following is an advantage of product departmentalization? A. It avoids duplication of functions. B. It emphasizes the achievement of an organization's overall objectives rather than a product itself. C. It eliminates functional activities within a department. D. It simplifies decision making and helps coordinate all activities related to a product. E. It allows an organization to effectively share resources between two or more product departments. Product departmentalization organizes jobs around the products of a firm. It simplifies decision making and helps coordinate all activities related to a product or product group.

28. Multinational corporations often use a geographical approach to departmentalization because: A. they lack resources. B. of vast differences between different regions. C. they want to avoid duplication of tasks. D. they require a small administrative staff. E. of their ability to standardize products and services. Multinational corporations often use a geographical approach to departmentalization because of vast differences between different regions. Geographical departmentalization groups jobs according to geographic location, such as a state, region, country, or continent.

Chapter 07 - Organization, Teamwork, and Communication

29. Red Finch Products Inc. groups employees based on whether they are going to handle the sales account of a wholesale customer, regular consumer, first-time buyer, or a one-time buyer. Which of the following methods of departmentalization is the company using? A. Product departmentalization B. Geographical departmentalization C. Functional departmentalization D. Customer departmentalization E. Process departmentalization Red Finch Products Inc. is using customer departmentalization. Customer departmentalization arranges jobs around the needs of various types of customers. This allows a company to address the unique requirements of each group.

30. Razor Automobiles Inc. has slightly different versions of the same car for the American, European, and Asian markets. Its employees are grouped into divisions based on the market they have been assigned. This is an example of _____. A. demographic departmentalization B. geographical departmentalization C. functional departmentalization D. customer departmentalization E. process departmentalization This is an example of geographical departmentalization. Geographical departmentalization groups jobs according to geographic location, such as a state, region, country, or continent.

Chapter 07 - Organization, Teamwork, and Communication

31. A software company that has different representatives to assist business clients and individual clients is organized by _____. A. processes B. products C. geographical regions D. functions E. customers Customer departmentalization arranges jobs around the needs of various types of customers. This allows the company to address the unique requirements of each group.

32. Which of the following is a disadvantage of geographical departmentalization? A. It focuses on an organization as a whole rather than emphasizing on departmental units. B. It prohibits specialization among employees. C. It results in duplication of tasks. D. It is limited to small organizations. E. It is inefficient when businesses want to quickly respond to regional customers. Organizing by geographic region requires a large administrative staff and control system to coordinate operations, and tasks are duplicated among the different regions.

Chapter 07 - Organization, Teamwork, and Communication

33. Which of the following concepts deals with giving employees the power to make commitments and use resources to accomplish the assigned tasks? A. Delegation of authority B. Accountability C. Downsizing D. Centralization E. Specialization of tasks Delegation of authority means not only giving tasks to employees but also empowering them to make commitments, use resources, and take whatever actions are necessary to carry out those tasks.

AACSB: Analytic Accessibility: Keyboard Navigation Bloom's: Remember Difficulty: 1 Easy Learning Objective: 07-03 Determine how organizations assign responsibility for tasks and delegate authority. Topic: Delegation and Authority

34. _____ is the obligation placed on employees through delegation to perform assigned tasks satisfactorily. A. Hierarchy B. Specialization C. Transparency D. Responsibility E. Bureaucracy Responsibility is the obligation placed on employees through delegation to perform assigned tasks satisfactorily.

Chapter 07 - Organization, Teamwork, and Communication

35. _____ is the principle that employees who accept an assignment and the authority to carry it out are answerable to a superior for the outcome. A. Accountability B. Specialization C. Decentralization D. Bureaucracy E. Enforceability The principle of accountability means that employees who accept an assignment and the authority to carry it out are answerable to a superior for the outcome.

36. Which of the following statements is true about delegation of authority in the context of an organization? A. It does not relieve a superior of accountability for a delegated job. B. It does not give employees the power to make decisions about using resources to accomplish assigned tasks. C. It does not hold an employee to whom the authority was delegated accountable for the results of a task. D. It is meant to put additional pressure and burden on managers who are delegating tasks to subordinates. E. It is a concept popular only in small businesses and sole proprietorships. The act of delegating authority to a subordinate does not relieve a superior of accountability for a delegated job. Even though the vice president of marketing delegates work to subordinates, he or she is still ultimately accountable to the president for all marketing activities.

Chapter 07 - Organization, Teamwork, and Communication

37. The extent to which authority is delegated throughout an organization determines its: A. unity of command. B. degree of centralization. C. locus of control. D. economies of scale. E. level of standardization. The extent to which authority is delegated throughout an organization determines its degree of centralization.

38. Which of the following is a drawback of centralization? A. It fails to delegate responsibility for carrying out daily and routine procedure to lower level employees. B. It is ineffective when the decisions to be made are risky. C. It results in a flat organizational structure. D. It requires lower-level managers to have strong decision-making skills. E. It may take long for an organization as a whole to implement decisions and respond to changes on a regional scale. Overcentralization can cause serious problems for a company, in part because it may take longer for the organization as a whole to implement decisions and to respond to changes and problems on a regional scale.

Chapter 07 - Organization, Teamwork, and Communication

39. _____ is usually preferred when the decisions of a company are very risky and low-level managers lack decision-making skills. A. Liberalization B. Delegation of authority C. Centralization D. Employee empowerment E. Specialization Businesses tend to be more centralized when the decisions to be made are risky and when low-level managers are not highly skilled in decision making. In a centralized organization, authority is concentrated at the top, and very little decision-making authority is delegated to lower levels.

40. Which of the following is true of decentralization? A. It concentrates the decision-making authority at the top. B. It is highly effective for businesses where risky decisions are to be made. C. It reduces an organization's ability to react to changes quickly. D. It isolates lower-level managers from decision making. E. It is characteristic of organizations that operate in complex environments. Decentralization is characteristic of organizations that operate in complex, unpredictable environments. Businesses that face intense competition often decentralize to improve responsiveness and enhance creativity.

Chapter 07 - Organization, Teamwork, and Communication

41. Which of the following is an advantage of decentralization? A. It does not require low-level managers to be highly skilled in decision making. B. It is highly effective when risky decisions have to be made. C. It allows businesses to improve their responsiveness and enhance creativity. D. It increases the levels of management within an organization. E. It results in a tall organizational structure. Decentralization is characteristic of organizations that operate in complex, unpredictable environments. Businesses that face intense competition often decentralize to improve responsiveness and enhance creativity.

42. When an organization has a structure in which decision-making authority is delegated as far down the chain of command as possible, it is said to be exercising: A. bureaucracy. B. hierarchy. C. downsizing. D. overspecialization. E. decentralization. A decentralized organization is one in which decision-making authority is delegated as far down the chain of command as possible. Decentralization is characteristic of organizations that operate in complex, unpredictable environments.

Chapter 07 - Organization, Teamwork, and Communication

43. Span of management refers to the: A. number of subordinates reporting to a manager. B. experience, in terms of years, of managers in a company. C. duration of time required for an employee to get promoted to a manager's position. D. number of roles that the management of an organization performs. E. number of managers working at the top management of an organization. Span of management refers to the number of subordinates who report to a particular manager. A wide span of management exists when a manager directly supervises a very large number of employees. A narrow span of management exists when a manager directly supervises only a few subordinates.

44. A wide span of management is appropriate when: A. superiors and subordinates are not in close proximity. B. managers have many responsibilities in addition to supervision. C. interactions between superiors and subordinates are frequent. D. subordinates are highly competent. E. problems are common. When superiors and subordinates are located close to one another, a manager has few responsibilities other than supervision, the level of interaction between superiors and subordinates is low, few problems arise, subordinates are highly competent, and a set of specific operating procedures governs the activities of managers and their subordinates, a wide span of management will be more appropriate.

Chapter 07 - Organization, Teamwork, and Communication

45. A narrow span of management is appropriate when: A. superiors and subordinates are not in close proximity. B. managers have few responsibilities other than supervision. C. interactions between superiors and subordinates are not frequent. D. subordinates are highly competent. E. managers face few problems. A narrow span of management is appropriate when superiors and subordinates are not in close proximity, a manager has many responsibilities in addition to the supervision, the interaction between superiors and subordinates is frequent, and problems are common.

46. Which of the following statements is true about span of management? A. According to experts, top managers should directly supervise more than 10 to 20 people. B. A narrow span of management exists when a manager directly supervises a large number of subordinates. C. Wide spans of management work well when a manager has many responsibilities in addition to the supervision and faces many problems. D. Wide spans of management are more common in decentralized firms, whereas narrow spans of management are typical in centralized organizations. E. In narrow spans of management, the level of interaction between superiors and subordinates is usually low. Narrow spans of management are typical in centralized organizations, while wide spans of management are more common in decentralized firms.

Chapter 07 - Organization, Teamwork, and Communication

47. Organizational layers, in the context of assigning responsibility in an organization, refer to the levels of: A. management in the organization. B. stakeholders present outside the organization. C. tests that a job applicant has to go through to be hired. D. stakeholders present within the organization itself. E. communication that an employee has to go through on a normal work day. Complementing the concept of span of management is organizational layers, the levels of management in an organization.

48. Which of the following statements accurately describes the difference between tall and flat organizations? A. Tall organizations have lower administrative costs when compared to flat organizations. B. Tall organizations have a narrow span of management, whereas in flat organizations the span of management is wide. C. Communication is faster in tall organizations when compared to flat organizations. D. Flat organizations employ more number of managers compared to tall organizations. E. Managers in tall organizations spend more time supervising and working with subordinates when compared to managers in flat organizations. A company with many layers of managers is considered tall; in a tall organization, the span of management is narrow. Organizations with few layers are flat and have wide spans of management.

Chapter 07 - Organization, Teamwork, and Communication

49. Which of the following statements is true about organizational layers? A. The more layers in an organization, the lower its administrative costs. B. The more layers in an organization, the flatter its organizational structure. C. The more layers in an organization, the wider its span of management. D. The more layers in an organization, the slower the communication. E. The more layers in an organization, the lesser the number of managers. A company with many layers of managers is considered a tall organization. Because there are more managers in tall organizations than in flat organizations, administrative costs are usually higher. Communication is slower because information must pass through many layers.

50. In the context of different forms of organizational structure, which of the following is true of line structure? A. It has an ambiguous chain of command. B. It slows down decision making. C. It is the simplest organizational structure. D. It requires managers to specialize in any one particular skill. E. It is common in large, multinational organizations. The simplest organizational structure, line structure, has direct lines of authority that extend from the top manager to employees at the lowest level of an organization.

Chapter 07 - Organization, Teamwork, and Communication

51. An organizational form that is based on direct lines of authority from the top executive to the lowest level of employees is called a: A. line structure. B. web structure. C. line-and-staff structure. D. matrix structure. E. multidivisional structure. A line structure has direct lines of authority that extend from the top manager to employees at the lowest level of an organization.

52. Gerald is the owner of a popular restaurant. He has appointed a manager who takes care of the day-to-day operations of the restaurant and reports to Gerald at the end of a week. The manager is assisted by a junior manager, who supervises the rest of the staff in the restaurant. Thus, Gerald's restaurant is using a _____. A. matrix structure. B. line structure. C. line-and-staff structure. D. multidivisional structure. E. web structure. Gerald's restaurant is using a line structure. The simplest organizational structure, line structure, has direct lines of authority that extend from the top manager to employees at the lowest level of an organization.

AACSB: Reflective Thinking Accessibility: Keyboard Navigation Bloom's: Apply Difficulty: 3 Hard Learning Objective: 07-04 Compare and contrast some common forms of organizational structure. Topic: Organizational Structure

Chapter 07 - Organization, Teamwork, and Communication

53. An advantage of line structure in organizations is that it: A. has a clear chain of command. B. gives all employees the power to veto a decision, irrespective of hierarchy. C. allows managers facing a decision to consult any and as many superiors as they wish. D. does not require managers to possess a wide range of knowledge and skills. E. works best in large organizations with many different departments. A line structure has direct lines of authority that extend from the top manager to employees at the lowest level of an organization. This structure has a clear chain of command, which enables managers to make decisions quickly.

AACSB: Analytic Accessibility: Keyboard Navigation Bloom's: Understand Difficulty: 2 Medium Learning Objective: 07-04 Compare and contrast some common forms of organizational structure. Topic: Organizational Structure

54. A disadvantage of line structures is that they: A. lack a clear chain of command. B. make decision making excessively complicated for managers. C. provide no direct lines of authority. D. create work duplication and confusion. E. require managers to possess a wide range of knowledge and skills. Line structure requires that managers possess a wide range of knowledge and skills. They are responsible for a variety of activities and must be knowledgeable about them all.

Chapter 07 - Organization, Teamwork, and Communication

55. Which of the following statements is true about the line-and-staff structure? A. It allows line managers to focus on their expertise in the business operation. B. It creates work duplication. C. It eliminates the problem of overstaffing. D. It provides clear and unambiguous lines of communication. E. It gives staff managers direct authority over line managers. In a line-and-staff structure, line managers can focus on their area of expertise in the operation of the business, while staff managers provide advice and support to line departments on specialized matters such as finance, engineering, human resources, and the law.

56. Which of the following is a disadvantage of line-and-staff structures? A. They result in both line and staff managers performing the same functions or tasks. B. They are limited to small organizations. C. They allow staff managers to have direct authority over line managers. D. They create ambiguous lines of communication. E. They fail to allow managers to have direct authority over subordinates in their own departments. Line-and-staff organizations may experience problems with overstaffing and ambiguous lines of communication. Additionally, employees may become frustrated because they lack the authority to carry out certain decisions.

Chapter 07 - Organization, Teamwork, and Communication

57. Multidivisional structures: A. are less likely to provide products that meet the needs of customers. B. organize departments into larger groups called divisions. C. bring together specialists from various divisions to work on a single project. D. make decision making slower. E. are traditional and less innovative. A multidivisional structure organizes departments into larger groups called divisions. Just as departments might be formed on the basis of geography, customer, product, or a combination of these, so too divisions can be formed based on any of these methods of organizing.

58. Which of the following is an advantage of multidivisional structures? A. They make it easy to realize economies of scale that result from grouping functions together. B. They completely eliminate work duplication among different divisions. C. They are the simplest form of organizational structure. D. They are highly effective when standardized products are required. E. They allow divisional and department managers to specialize. Multidivisional structures permit delegation of decision-making authority, allowing divisional and department managers to specialize. They allow those closest to the action to make the decisions that will affect them.

Chapter 07 - Organization, Teamwork, and Communication

59. Which of the following is a disadvantage of a multidivisional structure? A. It does not permit delegation of decision-making authority. B. It slows down decision making. C. It inevitably creates work duplication. D. It does not allow divisional and department managers to specialize. E. It fails to create products that meet the needs of particular customers. A multidivisional structure inevitably creates work duplication, which makes it more difficult to realize the economies of scale that result from grouping functions together.

60. In Red Bridge Infrastructure, specialists from different departments are deployed together to form a project team and work on a single project, such as building a bridge or restoring a road. As a result, employees have to report to their functional managers as well the concerned project managers. Thus, Red Bridge Infrastructure is using a _____. A. multidivisional structure B. line structure C. line-and-staff structure D. matrix structure E. web structure Red Bridge Infrastructure is using a matrix structure. In matrix structures, project teams bring together specialists from a variety of areas to work together on a single project, such as developing a new fighter jet. In this arrangement, employees are responsible to two managers—functional managers and project managers.

AACSB: Reflective Thinking Accessibility: Keyboard Navigation Bloom's: Apply Difficulty: 2 Medium Learning Objective: 07-04 Compare and contrast some common forms of organizational structure. Topic: Organizational Structure

Chapter 07 - Organization, Teamwork, and Communication

61. Which of the following is a basis for using a matrix structure within an organization? A. Geographic region B. Projects C. Products D. Customers E. Revenue A matrix structure superimposes project-based departments on the more traditional, functionbased departments. Project teams bring together specialists from a variety of areas to work together on a single project.

62. Which of the following organizational structures is also called a project management structure? A. Web structure B. Line structure C. Matrix structure D. Multidivisional structure E. Line-and-staff structure A matrix structure, also called a project management structure, sets up teams from different departments, thereby creating two or more intersecting lines of authority. It superimposes the project structure on functional structures.

Chapter 07 - Organization, Teamwork, and Communication

63. Which of the following is true of matrix structures? A. In matrix structures, employees are responsible to two managers. B. Matrix structures are rarely temporary. C. Matrix structures are generally inexpensive and simple. D. In matrix structures, the problem of intersecting lines of authority is eliminated. E. Matrix structures reduce flexibility and creativity with an organization. In matrix structures, employees are responsible to two managers—functional managers and project managers. As a result, employees may be confused as to whose authority has priority—the project manager's or the immediate supervisor's.

64. Which of the following is an advantage of a matrix structure? A. It provides a clear chain of command to employees. B. It eliminates the problem of intersecting lines of authority. C. It is the least expensive method to organize a business. D. It is the simplest form of organizational structure. E. It provides flexibility, enhanced cooperation, and creativity. Matrix structures provide flexibility, enhanced cooperation, and creativity, and they enable a company to respond quickly to changes in the environment by giving special attention to specific projects or problems.

Chapter 07 - Organization, Teamwork, and Communication

65. Which of the following is a disadvantage of matrix structures? A. They do not permit intersecting lines of authority. B. They provide no scope for flexibility and creativity. C. They require employees to report to only one manager. D. They are generally expensive and quite complex. E. They bring together specialists from the same department. Matrix structures are generally expensive and quite complex, and employees may be confused as to whose authority has priority—the project manager's or the immediate supervisor's.

66. A _____ sets up teams from different departments, thereby creating two or more intersecting lines of authority. A. line structure B. multidivisional structure C. matrix structure D. line-and-staff structure E. traditional structure A matrix structure, also called a project management structure, sets up teams from different departments, thereby creating two or more intersecting lines of authority. The matrix structure superimposes project-based departments on the more traditional, function-based departments.

Chapter 07 - Organization, Teamwork, and Communication

67. Compared to work teams, work groups: A. have shared leadership roles. B. have a specific purpose that is different from the broader organizational mission. C. create collective work products. D. have individual accountability. E. measure performance directly by assessing collective work. Work groups emphasize individual work products, individual accountability, and even individual leadership. In contrast, work teams share leadership roles, have both individual and mutual accountability, and create collective work products.

AACSB: Analytic Accessibility: Keyboard Navigation Bloom's: Understand Difficulty: 2 Medium Learning Objective: 07-05 Distinguish between groups and teams and identify the types of groups that exist in organizations. Topic: The Types and Functions of Teams

68. In comparison to work groups, work teams: A. have a strong, clearly focused leader. B. have individual accountability. C. share leadership and create collective work products. D. discourage open-ended discussions and active problem-solving meetings. E. measure effectiveness indirectly. Work teams share leadership roles, have both individual and mutual accountability, and create collective work products. In contrast, work groups emphasize individual work products, individual accountability, and even individual leadership.

Chapter 07 - Organization, Teamwork, and Communication

69. Which of the following statements is true of work teams? A. They do not share leadership roles. B. They do not allow open-ended discussions or problem-solving meetings. C. They create individual work products. D. They measure performance directly by assessing collective work products. E. They have individual accountability. Work teams measure performance directly by assessing collective work products. A work group's performance depends on what its members do as individuals, while a team's performance is based on creating a knowledge center and a competency to work together to accomplish a goal.

AACSB: Analytic Accessibility: Keyboard Navigation Bloom's: Remember Difficulty: 1 Easy Learning Objective: 07-05 Distinguish between groups and teams and identify the types of groups that exist in organizations. Topic: The Types and Functions of Teams

70. Which of the following statements is true of work groups? A. They measure performance directly by assessing collective work products. B. They share leadership roles. C. They create individual work products. D. They pursue objectives that are different from the broader organizational mission. E. They have both individual and mutual accountability. Work groups emphasize individual work products, individual accountability, and even individual leadership. Salespeople working independently for the same company could be a work group.

Chapter 07 - Organization, Teamwork, and Communication

71. A permanent, formal group that performs a specific task is a: A. task force. B. committee. C. project team. D. cooperative. E. focus group. A committee is usually a permanent, formal group that does some specific task. For example, many firms have a compensation or finance committee to examine the effectiveness of these areas of operation as well as the need for possible changes.

72. MB Inc. has an independent, permanent work group that develops and revises codes of ethics, suggests ways the organization can contribute toward the environment, and regularly reviews other specific issues and concerns within the organization. This is an example of a _____. A. cooperative B. labor union C. committee D. task force E. project team This is an example of a committee. A committee is usually a permanent, formal group that does some specific task. For example, many firms have a compensation or finance committee to examine the effectiveness of these areas of operation as well as the need for possible changes.

AACSB: Reflective Thinking Accessibility: Keyboard Navigation Bloom's: Apply Difficulty: 2 Medium Learning Objective: 07-05 Distinguish between groups and teams and identify the types of groups that exist in organizations. Topic: The Types and Functions of Teams

Chapter 07 - Organization, Teamwork, and Communication

73. Which of the following is a temporary group of employees, usually chosen for their expertise, responsible for bringing out a particular change? A. Interest group B. Committee C. Union D. Cooperative E. Task force A task force is a temporary group of employees responsible for bringing about a particular change. Task force membership is usually based on expertise rather than organizational position.

74. Which of the following statements is true about task forces? A. They are usually permanent. B. They comprise members from a single functional department. C. Their membership is usually based on organizational position rather than expertise. D. They are responsible for routine quality checks. E. They may occasionally comprise of individuals from outside an organization. Task force membership is usually based on expertise rather than organizational position. Occasionally, a task force may be formed from individuals outside a company.

Chapter 07 - Organization, Teamwork, and Communication

75. Task force memberships are usually based on: A. organizational position. B. expertise. C. seniority. D. economic status. E. hierarchy. A task force is a temporary group of employees responsible for bringing about a particular change. Task force membership is usually based on expertise rather than organizational position.

76. Project teams: A. are permanent, informal groups that work on multiple projects. B. are composed of individuals from one functional area. C. recruit employees based on organizational position and hierarchy. D. run their operation and have total control of a specific work project. E. only solve specific quality problems. Project teams are similar to task forces, but they normally run their operation and have total control of a specific work project. Like task forces, their membership is likely to cut across a firm's hierarchy and be composed of people from different functional areas.

Chapter 07 - Organization, Teamwork, and Communication

77. A special type of project team that focuses on devising, designing, and implementing a new product is a: A. product-development team. B. committee. C. cooperative. D. focus group. E. quality-assurance team. A product-development team is a special type of project team formed to devise, design, and implement a new product. Sometimes product-development teams exist within a functional area—research and development—but now they more frequently include people from numerous functional areas and may even include customers to help ensure that an end product meets customers' needs.

78. To meet the competition in the mobile phone industry, Vibgyor Electronics Inc. has created a new project team to conceive, design, and implement a smart phone that will have some breakthrough features. The team includes specialists from various divisions, such as the computer division, software division, and television division. This project team is an example of a _____. A. committee B. focus group C. quality circle D. functional team E. product-development team This project team is an example of a product development team. Product-development teams are a special type of project team formed to devise, design, and implement a new product.

Chapter 07 - Organization, Teamwork, and Communication

79. Which of the following teams consists of fairly small groups of workers brought together to address specific quality, service, or productivity problems within an organization? A. Project teams B. Product-development teams C. Focus groups D. Quality-assurance teams E. Service providers Quality-assurance teams, sometimes called quality circles, are fairly small groups of workers brought together from throughout an organization to solve specific quality, productivity, or service problems.

80. A _____ is a group of employees responsible for an entire work process or segment that delivers a product to an internal or external customer. A. labor union B. focus group C. functional group D. committee E. self-directed work team A self-directed work team (SDWT) is a group of employees responsible for an entire work process or segment that delivers a product to an internal or external customer. SDWTs permit the flexibility to change rapidly to meet the competition or respond to customer needs.

Chapter 07 - Organization, Teamwork, and Communication

81. Which of the following is true of self-directed work teams? A. They are designed to give employees a feeling of ownership of a whole job. B. They reduce an organization's ability to respond to customer needs. C. They offer limited job assignments to their members. D. They are designed to allow members to report to both functional and project managers. E. They limit an employee's ability to cross-train to master other jobs. The defining characteristic of a self-directed work team (SDWT) is the extent to which it is empowered or given authority to make and implement work decisions. Thus, SDWTs are designed to give employees a feeling of ownership of a whole job.

82. What is upward communication? A. Communication about organizational goals to employees B. Communication between different units and departments within an organization C. Communication that flows from lower to higher levels of an organization D. Communication between peers and colleagues E. Communication between customers and employees Upward communication flows from lower to higher levels of an organization and includes information such as progress reports, suggestions for improvement inquiries, and grievances.

AACSB: Communication Accessibility: Keyboard Navigation Bloom's: Understand Difficulty: 2 Medium Learning Objective: 07-06 Describe how communication occurs in organizations. Topic: Communication in Organizations

Chapter 07 - Organization, Teamwork, and Communication

83. Which of the following is part of upward communication? A. Performance feedback B. Progress reports C. Assignment of tasks D. Procedure manuals E. Job descriptions Upward communication flows from lower to higher levels of an organization and includes information such as progress reports, suggestions for improvement, inquiries, and grievances.

84. Which of the following is an example of downward communication? A. Progress reports B. Information exchange between team members C. Grievances D. Employee suggestions to top management E. Directions Downward communication refers to the traditional flow of information from upper organizational levels to lower levels. This type of communication typically involves directions, the assignment of tasks and responsibilities, performance feedback, and certain details about an organization's strategies and goals.

Chapter 07 - Organization, Teamwork, and Communication

85. Upward communication conveys: A. orders. B. Feedback of decisions. C. mission statements. D. inquiries and complaints. E. details about an organization's strategies. Upward communication flows from lower to higher levels of an organization. This type of communication typically involves information such as progress reports, suggestions for improvement, inquiries, and grievances.

86. Downward communication typically conveys: A. organizational rumors. B. performance feedback. C. complaints. D. improvement suggestions. E. grievances. Downward communication typically involves directions, the assignment of tasks and responsibilities, performance feedback, and certain details about an organization's strategies and goals. Speeches, policy and procedures manuals, employee handbooks, company leaflets, telecommunications, and job descriptions are examples of downward communication.

Chapter 07 - Organization, Teamwork, and Communication

87. In an automobile company, the vice president of research and development wants to plan and coordinate the launch of a new car with the vice president of marketing. Any related communication between them will be referred to as _____. A. upward communication B. informal communication C. horizontal communication D. asynchronous communication E. downward communication Any related communication between the vice president of research and development and the vice president of marketing is referred to as horizontal communication. Horizontal communication involves the exchange of information among colleagues and peers on the same organizational level, such as across or within departments.

AACSB: Reflective Thinking Accessibility: Keyboard Navigation Bloom's: Apply Difficulty: 2 Medium Learning Objective: 07-06 Describe how communication occurs in organizations. Topic: Communication in Organizations

88. Which of the following is a part of informal communication channels? A. Performance feedback B. Assignment of tasks C. Details on organizational strategy D. Gossip E. Directions The most significant informal communication occurs through the grapevine, an informal channel of communication, separate from management's formal, official communication channels. Information passed along the grapevine may relate to a job or organization, or it may be gossip and rumors unrelated to either.

Chapter 07 - Organization, Teamwork, and Communication

89. Which of the following refers to the exchange of information among colleagues and peers on the same organizational level? A. Upward communication B. Asynchronous communication C. Horizontal communication D. Diagonal communication E. Downward communication Horizontal communication involves the exchange of information among colleagues and peers on the same organizational level, such as across or within departments. Horizontal information informs, supports, and coordinates activities both within the department and with other departments.

90. A project manager informing his or her subordinates of the organization's new policies and code of conduct would be an example of _____. A. upward communication B. informal communication C. horizontal communication D. diagonal communication E. downward communication This would be an example of downward communication. Downward communication refers to the traditional flow of information from upper organizational levels to lower levels.

Chapter 07 - Organization, Teamwork, and Communication

91. Diagonal communication: A. is the traditional flow of communication between employees and customers. B. occurs when individuals from different units and departments within an organization communicate. C. flows from lower organizational levels to higher ones. D. occurs with communication between peers and colleagues within a department. E. is an informal method of communication that can improve decision making within an organization. Diagonal communication occurs when individuals from different units and departments within an organization communicate. With more and more companies downsizing and increasing the use of self-managed work teams, many workers are being required to communicate with others in different departments and on different levels to solve problems and coordinate work.

92. To ensure that its products best suit the needs of its customers, the head of marketing department at Venus Electronics Inc. holds a meeting with the managers of production department. This illustrates _____. A. upward communication B. asynchronous communication C. horizontal communication D. grapevine communication E. diagonal communication This scenario illustrates diagonal communication. When individuals from different units and organizational levels communicate to coordinate work, it is diagonal communication.

Chapter 07 - Organization, Teamwork, and Communication

93. Which of the following is an informal communication channel? A. Company leaflets B. Progress reports C. Job descriptions D. Grievances E. Grapevine The most significant informal communication occurs through the grapevine, an informal channel of communication, separate from management's formal, official communication channels.

94. Over a coffee table discussion, two coworkers were casually discussing how the new performance incentive policy would affect the quality of their work. This is an example of _____. A. upward communication B. downward communication C. informal communication D. diagonal communication E. asynchronous communication This is an example of informal communication. The most significant informal communication occurs through the grapevine, an informal channel of communication, separate from management's formal, official communication channels. Information passed along the grapevine may relate to the job or organization, or it may be gossip and rumors unrelated to either.

Chapter 07 - Organization, Teamwork, and Communication

95. Which of the following statements is true about grapevine? A. It seldom carries incorrect information. B. It is absent in large organizations. C. It carries formal and official information. D. It sometimes carries information that could help in decision making. E. It never carries information related to a job or organization. Managers can turn the grapevine to their advantage. Using it as a "sounding device" for possible new policies is one example. Managers can obtain valuable information from the grapevine that could improve decision making.

Chapter 08 - Managing Service and Manufacturing Operations

Chapter 08 Managing Service and Manufacturing Operations

True / False Questions 1. Production refers to all the activities and processes used in making both tangible and intangible products. FALSE Production refers to the activities and processes used in making tangible products, while operations is a broader term that refers to the activities and processes used in making both tangible and intangible products.

AACSB: Analytic Accessibility: Keyboard Navigation Bloom's: Remember Difficulty: 1 Easy Learning Objective: 08-01 Define operations management and differentiate between operations and manufacturing. Topic: Operations Management

2. Service providers are generally more labor-intensive than manufacturers because of the high level of customization. TRUE Service providers are generally more labor-intensive than manufacturers because of the high level of customer contact, perishability of the output (must be consumed immediately), and high degree of variation of inputs and outputs (customization).

AACSB: Analytic Accessibility: Keyboard Navigation Bloom's: Understand Difficulty: 2 Medium Learning Objective: 08-02 Explain how operations management differs in manufacturing and service firms. Topic: Operations Management

Chapter 08 - Managing Service and Manufacturing Operations

3. Modular design, an operations process for manufacturing products, does not allow products to be repaired quickly, thus increasing the cost of labor. FALSE Modular design allows products to be repaired quickly, thus reducing the cost of labor, but the component itself is expensive, raising the cost of repair materials.

AACSB: Analytic Accessibility: Keyboard Navigation Bloom's: Remember Difficulty: 1 Easy Learning Objective: 08-03 Describe the elements involved in planning and designing an operations system. Topic: Operations Management

4. Material-requirements planning can be, and often is, used in conjunction with just-in-time inventory management. TRUE An increasingly popular inventory management technique is just-in-time (JIT) inventory management, which eliminates waste by using smaller quantities of materials that arrive "just in time" for use in the transformation process. Another inventory management technique is material-requirements planning (MRP), a planning system that schedules the precise quantity of materials needed to make the product. MRP can be, and often is, used in conjunction with just-in-time inventory management.

AACSB: Analytic Accessibility: Keyboard Navigation Bloom's: Remember Difficulty: 1 Easy Learning Objective: 08-04 Specify some techniques managers may use to manage the logistics of transforming inputs into finished products. Topic: Supply Chain Management

Chapter 08 - Managing Service and Manufacturing Operations

5. Service businesses cannot incorporate quality standards. FALSE Quality standards can be incorporated into service businesses as well as manufacturing businesses, although measuring quality in the services industry is especially difficult.

AACSB: Analytic Accessibility: Keyboard Navigation Bloom's: Remember Difficulty: 1 Easy Learning Objective: 08-05 Assess the importance of quality in operations management. Topic: Total Quality Management

Multiple Choice Questions 6. If an employee's primary function in an organization is transforming resources into goods and services, then he or she is involved in: A. staffing. B. financing. C. customer relationship management. D. operations management. E. crowdsourcing. Operations management (OM) is the development and administration of the activities involved in transforming resources into goods and services. Operations managers oversee the transformation process and the planning and designing of operations systems, managing logistics, quality, and productivity.

Chapter 08 - Managing Service and Manufacturing Operations

7. Irene is an employee involved in administering activities associated with making both tangible and intangible products that satisfy the needs of customers. Thus, Irene is a(n) _____. A. finance manager B. sales manager C. marketing manager D. human resource manager E. operations manager Irene is an operations manager. Operations include activities and processes used in making both tangible and intangible products. Operations managers oversee the transformation process and the planning and designing of operations systems, managing logistics, quality, and productivity.

AACSB: Reflective Thinking Accessibility: Keyboard Navigation Bloom's: Apply Difficulty: 2 Medium Learning Objective: 08-01 Define operations management and differentiate between operations and manufacturing. Topic: Operations Management

8. Operations management has the primary responsibility of: A. securing funds for the activities of an organization. B. conducting research on consumer behavior. C. creating goods and services that satisfy customers. D. developing only intangible products. E. replacing quality with productivity in the manufacturing of goods. Operations management is the core of most organizations because it is primarily responsible for the creation of their goods and services which have the quality desired by consumers.

Chapter 08 - Managing Service and Manufacturing Operations

9. Which of the following accurately describes the difference between the terms operations and production? A. Operations is the first step in manufacturing, whereas production is the last step. B. Operations is simply an analysis of inputs and outputs, whereas production includes a wide range of organizational activities and situations. C. Operations includes processes used in the making of both tangible and intangible products, whereas production is related only to tangible products. D. Operations focuses solely on quality, whereas the primary focus of production is productivity. E. Operations is restricted to small businesses, whereas production occurs in both small and large businesses. The terms manufacturing and production are used interchangeably to represent the activities and processes used in making tangible products, whereas the broader term operations is used to describe those processes used in the making of both tangible and intangible products.

AACSB: Analytic Accessibility: Keyboard Navigation Bloom's: Understand Difficulty: 2 Medium Learning Objective: 08-01 Define operations management and differentiate between operations and manufacturing. Topic: Operations Management

10. Which of the following can be described as production? A. The services provided by a financial advisor B. The manufacturing of cars in an automobile company C. The surgeries conducted by a doctor D. The legal advice provided by a lawyer for a fee E. The process involved in providing services at a spa The manufacturing of cars in an automobile company can be described as production. The terms manufacturing and production can be used interchangeably to represent the activities and processes used in making tangible products.

Chapter 08 - Managing Service and Manufacturing Operations

11. Which of the following is true of the transformation process in operations management? A. It is a process of replacing quality with productivity when manufacturing products. B. It is the conversion of resources such as labor, money, materials, and energy into goods, services, and ideas. C. It is efficient only when inputs are used in large quantities to produce small quantities of output. D. It is associated with the marketing and selling of both inputs and outputs to customers. E. It is a process of initiating corrective action when the actual output is more than the desired output. At the heart of operations management is the transformation process through which inputs (resources such as labor, money, materials, and energy) are converted into outputs (goods, services, and ideas).The transformation process combines inputs in predetermined ways using different equipment, administrative procedures, and technology to create a product.

12. From the perspective of operations, the money used to purchase a carpenter's tools and the electricity used to run his power saw are: A. processes. B. outputs. C. stocks. D. inputs. E. inventories. At the heart of operations management is the transformation process through which inputs (resources such as labor, money, materials, and energy) are converted into outputs (goods, services, and ideas).

Chapter 08 - Managing Service and Manufacturing Operations

13. From the perspective of operations, shoe racks, beds, and tables made by a carpenter are: A. intangible resources. B. inputs. C. equipment. D. outputs. E. processes. Shoe racks, beds, and tables made by a carpenter are outputs. Outputs are the goods, services, and ideas that result from the conversion of inputs.

14. From the perspective of operations, foods sold at a restaurant and services provided by an insurance company are: A. component parts. B. inputs. C. outputs. D. stocks. E. inventories. Foods sold at a restaurant and services provided by an insurance company are outputs. Outputs are the goods, services, and ideas that result from the conversion of inputs.

Chapter 08 - Managing Service and Manufacturing Operations

15. How do operations managers ensure quality and efficiency during the transformation process of inputs into outputs? A. They ensure that their products never use the modular design of transforming because this process increases the cost of labor. B. They always employ computer-assisted manufacturing (CAM) technologies to guide and control the transformation processes. C. They shift from material-requirements planning (MRP) to just-in-time (JIT) inventory management. D. They keep the work cycling between two different batches of labor in order to track any loopholes. E. They take feedback at various points in the transformation process and compare them to established standards. Operations managers control the transformation process by taking measurements (feedback) at various points in the process and comparing them to previously established standards. If there is any deviation between the actual and desired outputs, the manager may take some sort of corrective action.

16. Money, employees, time, and equipment are examples of an airline's _____ in the transformation process. A. outputs B. stocks C. products D. services E. inputs An airline transforms inputs such as employees, time, money, and equipment through processes such as booking flights, flying airplanes, maintaining equipment, and training crews.

AACSB: Analytic Accessibility: Keyboard Navigation Bloom's: Remember Difficulty: 1 Easy Learning Objective: 08-02 Explain how operations management differs in manufacturing and service firms. Topic: Operations Management

Chapter 08 - Managing Service and Manufacturing Operations

17. In the context of operations management, which of the following is true of the transformation process? A. It focuses on producing outputs that are less worth than the combined costs of the inputs. B. It occurs in all organizations, regardless of what they produce or their objectives. C. It occurs only in manufacturing companies because they use tangible inputs. D. It involves replacing quality with productivity when manufacturing goods. E. It includes the same methods and number of steps in all organizations. Transformation processes occur in all organizations, regardless of what they produce or their objectives. For most organizations, the ultimate objective is for the produced outputs to be worth more than the combined costs of the inputs.

18. Identify a similarity between goods and services. A. Both are equally labor-intensive. B. Both produce uniform outputs. C. Both undergo a transformation process. D. Both are equally tangible. E. Both have equal control over the variability of their inputs. A similarity between goods and services is that both undergo a transformation process. Transformation processes occur in all organizations, regardless of what they produce or their objectives.

Chapter 08 - Managing Service and Manufacturing Operations

19. For most organizations, the ultimate objective is: A. to replace quality with productivity in the transformation process. B. to create intangible outputs using tangible inputs. C. for operations to be replaced by production and manufacturing. D. for the produced outputs to be worth more than the cost of inputs. E. to completely eliminate the transformation process in operations management. For most organizations, the ultimate objective is for the produced outputs to be worth more than the combined costs of the inputs.

20. Which of the following is a characteristic feature of service businesses? A. They are not labor-intensive. B. The service experience remains constant each time. C. They cannot incorporate quality standards. D. The resultant output is mostly tangible. E. The degree of variation of inputs and outputs is high. Service providers are generally more labor-intensive (require more labor) because of the high level of customer contact, perishability of the output (must be consumed immediately), and high degree of variation of inputs and outputs (customization).

Chapter 08 - Managing Service and Manufacturing Operations

21. Actual performance of a service provider's product typically occurs: A. several days after the purchase. B. outside the service provider's facility. C. at the point of consumption. D. in the buyer's home. E. before the point of consumption. The actual performance of a service typically occurs at the point of consumption. A challenge related to service operations is that the output is generally intangible and even perishable. Few services can be saved, stored, resold, or returned.

22. Service experience tends to vary each time because: A. services are not labor-intensive. B. of the tangible element inherent in delivering services. C. services can be easily separated from the point of consumption. D. services are less customized than tangible products. E. of the human element inherent in providing services. Human and technological elements associated with a service can result in a different day-today or even hour-to-hour performance of that service. Because of the human element inherent in providing services, each service tends to be performed differently.

Chapter 08 - Managing Service and Manufacturing Operations

23. The products of service providers tend to be more customized than those of manufacturers because: A. different customers have different needs. B. the requirements of all customers are more or less the same. C. technological innovations have reduced variability. D. there is more capital required in service provision. E. service providers have limited contact with customers. Services are more likely to incorporate the specific needs of individual customers into the service provision, resulting in more "customized" products.

24. The fact that a haircut given to a customer cannot be exactly the same as a haircut given to another customer relates to the difference between service providers and manufacturers in terms of: A. consumption of output. B. tangibility of inputs. C. labor required. D. measurement of productivity. E. uniformity of output. Manufacturers and service providers differ in the uniformity of their output, the final product. Because of the human element inherent in providing services, each service tends to be performed differently. If a barber or stylist performs 15 haircuts in a day, it is unlikely that any two of them will be exactly the same.

Chapter 08 - Managing Service and Manufacturing Operations

25. When compared to service providers, the products of manufacturers are typically: A. more labor-intensive. B. less standardized. C. more difficult to store. D. more uniform. E. less tangible. When compared to service providers, the products of manufacturers are typically more uniform. In manufacturing, the high degree of automation available allows manufacturers to generate uniform outputs and, thus, the operations are more effective and efficient.

26. Compared to service providers, manufacturers are generally more: A. labor-intensive. B. capital-intensive. C. capable of customizing their products. D. variable in their inputs and outputs. E. vulnerable to the perishability of their output. A manufacturer is likely to be more capital-intensive than a service provider because of the machinery and technology used in the mass production of highly similar goods. However, service providers are generally more labor-intensive.

Chapter 08 - Managing Service and Manufacturing Operations

27. Tree Moon Hospitality Inc. has a chain of reputed hotels and resorts across the globe. First Care Inc. is a pharmaceutical company known for its breakthrough life-saving drugs. How will the two businesses differ from each other? A. Tree Moon Hospitality Inc. will be more capable of customizing its products when compared to First Care Inc. B. Tree Moon Hospitality Inc. will be able to keep its output standardized, whereas First Care Inc. will not. C. Tree Moon Hospitality Inc. will have lesser contact with its customers when compared to First Care Inc. D. Tree Moon Hospitality Inc. will be able to incorporate quality standards, whereas First Care Inc. will not. E. Tree Moon Hospitality Inc., unlike First Care Inc., will not produce its output at the point of consumption. Tree Moon Hospitality Inc. will be more capable of customizing its products when compared to First Care Inc. The products of service organizations tend to be more "customized" than those of their manufacturing counterparts.

AACSB: Reflective Thinking Accessibility: Keyboard Navigation Bloom's: Apply Difficulty: 3 Hard Learning Objective: 08-02 Explain how operations management differs in manufacturing and service firms. Topic: Operations Management

28. It can be extremely difficult for service providers to accurately estimate the demand for a service in order to match the right supply of the service because: A. services cannot be customized. B. services are not produced at the point of consumption. C. of the perishability of services. D. of the tangibility of services. E. services are highly standardized. Few services can be saved, stored, resold, or returned. Because of the perishability of services, it can be extremely difficult for service providers to accurately estimate the demand in order to match the right supply of a service.

Chapter 08 - Managing Service and Manufacturing Operations

29. Service providers are often more limited than manufacturers in selecting work methods, assigning jobs, scheduling work, and exercising control over operations because: A. services are not labor-intensive. B. services are highly standardized. C. services cannot be customized. D. of their tangibility. E. of their need for customer contact. Manufacturers and service providers differ in the nature and consumption of their output. Service providers, because of their need for customer contact, are often more limited than manufacturers in selecting work methods, assigning jobs, scheduling work, and exercising control over operations.

30. Which of the following is an accurate description of the difference between manufacturers and service providers? A. Service providers have more control over the amount of variability of the resources they use than manufacturers do. B. For service providers, measuring productivity is fairly straightforward, whereas for manufacturers measuring productivity is more complicated.

C. Manufacturers can separate the production of a product from its actual use, whereas the actual performance of a service typically occurs at the point of consumption. D. The products of manufacturers tend to be more customized than those of service providers. E. Manufacturers make more contact with their customers when compared to service providers. AACSB: Analytic Accessibility: Keyboard Navigation Bloom's: Understand Difficulty: 2 Medium Learning Objective: 08-02 Explain how operations management differs in manufacturing and service firms. Topic: Operations Management

Chapter 08 - Managing Service and Manufacturing Operations

31. Which of the following is true of services and their providers? A. Service providers are more capital-intensive than labor-intensive. B. The quality of the service experience is controlled by a service contact employee. C. Service experience is usually constant irrespective of the person delivering or receiving it. D. Services can be provided in an isolated environment, away from customers. E. The degree of variation of inputs and outputs is negligible for services. The quality of the service experience is often controlled by a service contact employee. Because of the human element inherent in providing services, each service tends to be performed differently.

32. In comparison to manufacturers, service providers require more labor because: A. of the tangibility of their output. B. their output cannot be delivered at the point of consumption. C. their output is highly standardized. D. of the high degree of uniformity of their inputs. E. of the high level of customer contact. Service providers are generally more labor-intensive than manufacturers because of the high level of customer contact, perishability of the output (must be consumed immediately), and high degree of variation of inputs and outputs (customization).

Chapter 08 - Managing Service and Manufacturing Operations

33. The output of service providers must be consumed immediately, and only a few services can be saved, stored, resold, or returned. Which characteristic feature of services does this best illustrate? A. Low degree of customer contact B. High degree of standardization of outputs C. Tangibility of outputs D. Perishability of outputs E. Uniformity of inputs A challenge related to service operations is that the output is generally intangible and even perishable. Few services can be saved, stored, resold, or returned. Service providers are generally more labor-intensive (require more labor) because of the high level of customer contact, perishability of the output (must be consumed immediately), and high degree of variation of inputs and outputs (customization).

Chapter 08 - Managing Service and Manufacturing Operations

34. ProCar Inc. is a reputed automobile company, and Coral Holidays Inc. is an established chain of travel agencies. How will the two businesses differ from each other?

A. While Coral Holidays Inc. will be able to incorporate quality standards in its business, ProCar Inc. will not. B. Measuring productivity will be fairly straightforward for ProCar Inc. when compared to Coral Holidays Inc. C. Standardizing output will be easier for Coral Holidays Inc. when compared to ProCar Inc. D. ProCar Inc. will face a higher degree of variation of inputs and outputs when compared to Coral Holidays Inc. E. ProCar Inc. will make more customer contact than Coral Holidays Inc. Measuring productivity will be fairly straightforward for ProCar Inc. when compared to Coral Holidays Inc. For manufacturers, measuring productivity is fairly straightforward because of the tangibility of the output and its high degree of uniformity. For the service provider, variations in demand, variations in service requirements from job to job, and the intangibility of the product make productivity measurement more difficult.

Chapter 08 - Managing Service and Manufacturing Operations

35. For manufacturers, measuring productivity is fairly straightforward because: A. of the tangibility of their output. B. they are labor-intensive. C. their output lacks uniformity. D. of the variability of their inputs. E. of their high-contact with customers. For manufacturers, measuring productivity is fairly straightforward because of the tangibility of the output and its high degree of uniformity.

36. Maple Health Care, a chain of private hospitals and laboratories, finds it difficult to measure the productivity of its staff. Which of the following reasons can be attributed to this problem of service providers? A. Services cannot be delivered at the point of consumption. B. Services have a high degree of uniformity. C. Service requirements vary from job to job. D. Service experience remains constant each time. E. Services require minimal customer contact. The reason that can be attributed to this problem of service providers is that service requirements vary from job to job. For a service provider, variations in demand (for example, higher demand for air travel in some seasons than in others), variations in service requirements from job to job, and the intangibility of the product make productivity measurement more difficult than manufacturers.

AACSB: Reflective Thinking Accessibility: Keyboard Navigation Bloom's: Apply Difficulty: 2 Medium Learning Objective: 08-02 Explain how operations management differs in manufacturing and service firms. Topic: Operations Management

Chapter 08 - Managing Service and Manufacturing Operations

37. A consumer electronics company is involved in the process of deciding what new products to manufacture and for what group of customers. Once this has been decided, it will need to determine what processes it will use to make these products as well as the facilities it needs to produce them. These decisions comprise _____. A. enterprise resource planning B. human resource planning C. succession planning D. material-requirements planning E. operations planning Before a company can produce any product, it must first decide what it will produce and for what group of customers. It must then determine what processes it will use to make these products as well as the facilities it needs to produce them. These decisions comprise operations planning.

AACSB: Reflective Thinking Accessibility: Keyboard Navigation Bloom's: Apply Difficulty: 2 Medium Learning Objective: 08-03 Describe the elements involved in planning and designing an operations system. Topic: Operations Management

38. Zedpro Computer Company is determining the demand for a new product and how much consumers are willing to pay for it. For this, Zedpro should best rely on: A. case studies. B. marketing research. C. trial and error. D. successful past experiences. E. intuition. Zedpro should best rely on marketing research. Marketing research can help gauge the demand for a product and how much consumers are willing to pay for it. Most companies use marketing research to determine the kinds of goods and services to provide and the features they must possess.

Chapter 08 - Managing Service and Manufacturing Operations

39. From the perspective of manufacturers, the term standardization means: A. ensuring that each product is sold at the same price. B. ensuring that one's product has the exact same features as that of a competitor. C. making identical, interchangeable components or complete products. D. making the exact product a particular customer needs or wants. E. meeting the benchmark set by a market leader. Standardization is making identical, interchangeable components or even complete products. With standardization, a customer may not get exactly what he or she wants, but the product generally costs less than a custom-designed product.

40. Carbon Devices Inc. is a contract manufacturer of 32GB USB flash drives. All USB devices sold under the brand name Carbon are identical to each other and are of the same quality. This is an example of _____. A. flexible manufacturing B. customization C. standardization D. benchmarking E. lean manufacturing This is an example of standardization. Standardization is making identical, interchangeable components or even complete products. With standardization, a customer may not get exactly what he or she wants, but the product generally costs less than a custom-designed product.

Chapter 08 - Managing Service and Manufacturing Operations

41. A primary reason for using standardization is to: A. reduce production costs. B. increase the choices available for customers. C. reduce product quality. D. support variability of the resources used. E. foster creativity. Most firms that manufacture products in large quantities for many customers have found that they can make them cheaper and faster by standardizing designs. Standardization speeds up production and quality control and reduces production costs.

42. Which of the following is an advantage of standardization? A. It helps a customer get exactly what he or she wants. B. It slows down quality control. C. It speeds up production. D. It increases the choices available to customers. E. It allows customers to mix and match components for customized design. Standardization speeds up production and quality control and reduces production costs. Most firms that manufacture products in large quantities for many customers have found that they can make them cheaper and faster by standardizing designs.

AACSB: Analytic Accessibility: Keyboard Navigation Bloom's: Understand Difficulty: 2 Medium Learning Objective: 08-03 Describe the elements involved in planning and designing an operations system. Topic: Operations Management

Chapter 08 - Managing Service and Manufacturing Operations

43. Standardization becomes complex on a global scale because: A. different countries have different standards for quality. B. customer needs are same across the globe. C. standardization slows down production. D. standardization does not support mass manufacturing. E. standardization increases production costs. Standardization becomes complex on a global scale because different countries have different standards for quality. To help solve this problem, the International Organization for Standardization (ISO) has developed a list of global standards that companies can adopt to assure stakeholders that they are complying with the highest quality, environmental, and managerial guidelines.

44. Building a computer so that the components can be installed in different configurations to meet certain needs of a customer is a result of: A. flexible manufacturing. B. modular design. C. lean manufacturing. D. standardization. E. reverse engineering. Modular design involves building an item in self-contained units, or modules, which can be combined or interchanged to create different products. This allows for customers to mix and match components for customized design.

Chapter 08 - Managing Service and Manufacturing Operations

45. Which of the following is true of modular design as an operations process? A. The failure of any portion of a modular component does not require replacing the entire component. B. Automobile manufacturers avoid the use modular design in the production process. C. It increases the time take to repair products, thus raising the cost of labor. D. It allows for customers to mix and match components for customized design. E. It is the highest form of customization that can be provided to customers. Modular design involves building an item in self-contained units, or modules, that can be combined or interchanged to create different products. This allows for customers to mix and match components for customized design.

46. _____ is making products to meet a particular end user's needs or wants. A. Customization B. Standardization C. Mass production D. Crowdsourcing E. Benchmarking Customization is making products to meet a particular customer's needs or wants. Products produced in this way are generally unique.

Chapter 08 - Managing Service and Manufacturing Operations

47. Dera Diamonds Inc. is a premium jeweler. Its clientele includes movie stars, politicians, businessmen, and popular socialites. It has a team of jewelry experts that designs jewelry for each of its client from scratch. Everything is made to meet the specific requirements of the clients, and no two jewelry pieces produced by this company has ever been identical. This is an example of _____. A. customization B. standardization C. mass production D. crowdsourcing E. benchmarking This is an example of customization. Customization is making products to meet a particular customer's needs or wants. Products produced in this way are generally unique.

AACSB: Reflective Thinking Accessibility: Keyboard Navigation Bloom's: Apply Difficulty: 3 Hard Learning Objective: 08-03 Describe the elements involved in planning and designing an operations system. Topic: Operations Management

48. An automobile company allows buyers to select the color, interiors, and features of their cars based on their individual requirements. Though most parts of the cars can be altered to meet the buyers' specifications, their outer body remains the same. This is an example of _____. A. lean manufacturing B. standardization C. mass customization D. crowdsourcing E. benchmarking This is an example of mass customization. Mass customization relates to making products that meet the needs or wants of a large number of individual customers. The customer can select the model, size, color, style, or design of the product.

Chapter 08 - Managing Service and Manufacturing Operations

49. A manufacturing unit of a commercial brewery can produce a maximum of 20,000 cans of beer per day. This refers to the _____ of the manufacturing unit. A. agility B. variability C. utility D. perishability E. capacity This refers to the capacity of the manufacturing unit. The term capacity basically refers to the maximum load that an organizational unit can carry or operate. The unit of measurement may be a worker or machine, a department, a branch, or even an entire plant.

50. A hospital can effectively handle a maximum number of 300 patients at any one particular time. This is referred to as its _____. A. agility B. variability C. capacity D. perishability E. utility The hospital's capacity is 300 patients. The term capacity basically refers to the maximum load that an organizational unit can carry or operate. The unit of measurement may be a worker or machine, a department, a branch, or even an entire plant.

Chapter 08 - Managing Service and Manufacturing Operations

51. The capacity of a restaurant would be the: A. average number of customers that visit the restaurant on weekends. B. total number of customers who have visited the restaurant since its establishment. C. average number of employees who work in the restaurant on a normal day. D. maximum number of customers who can be effectively served at any one particular time. E. minimum operating cost of the restaurant during a workweek The term capacity basically refers to the maximum load that an organizational unit can carry or operate. For a restaurant, capacity might be stated in terms of the maximum number of customers who can be effectively—comfortably and courteously—served at any one particular time.

52. Facility location decisions are significant for an organization because: A. of the customers' preference to have production facilities located nearby. B. most customer contacts occur in manufacturing facilities. C. speed of delivery is not very important. D. proximity to market or community characteristics are not important factors. E. of the high costs involved with the decisions. Where to locate a firm's facilities is a significant question because, once the decision has been made and implemented, the firm must live with it due to the high costs involved.

Chapter 08 - Managing Service and Manufacturing Operations

53. A company that manufactures large products, such as houses or bridges, may require that all resources be brought to a central location during production. This type of a facility layout is called a(n): A. fixed-position layout. B. product layout. C. line layout. D. web layout. E. assembly line layout. A company using a fixed-position layout brings all resources required to create the product to a central location. The product—perhaps an office building, house, hydroelectric plant, or bridge—does not move.

54. A company involved in large, complex tasks such as construction or exploration and which uses a fixed-position layout is called a(n): A. continuous manufacturing organization. B. intermittent organization. C. project organization. D. contract manufacturer. E. lean manufacturer. A company using a fixed-position layout may be called a project organization because it is typically involved in large, complex projects such as construction or exploration.

Chapter 08 - Managing Service and Manufacturing Operations

55. Which of the following is true of project organizations? A. They produce a standardized product. B. They produce a large number of units. C. They have low production costs per unit. D. They rely on highly skilled labor. E. They generally use product layouts. A company using a fixed-position layout may be called a project organization because it is typically involved in large, complex projects such as construction or exploration. Project organizations generally make a unique product, rely on highly skilled labor, produce very few units, and have high production costs per unit.

56. A metal fabrication plant with a cutting department, a drilling department, and a polishing department is using a _____ to organize its facility. A. fixed-position layout B. project layout C. process layout D. geographical layout E. customer-based layout Firms that use a process layout organize the transformation process into departments that group related processes. A metal fabrication plant, for example, may have a cutting department, a drilling department, and a polishing department.

Chapter 08 - Managing Service and Manufacturing Operations

57. A hospital having an X-ray unit, an obstetrics unit,a few emergency rooms, and other units would best be classified as a(n): A. intermittent organization. B. project organization. C. continuous manufacturing organization. D. fixed organization. E. assembly line organization. A hospital may have an X-ray unit, an obstetrics unit, and so on. These types of organizations are sometimes called intermittent organizations, which deal with products of a lesser magnitude than do project organizations, and their products are not necessarily unique but possess a significant number of differences.

58. How are project organizations different from intermittent organizations? A. Project organizations deal with products of a lesser magnitude than do intermittent organizations. B. Project organizations use product layouts, whereas intermittent organizations use fixedposition layouts. C. Project organizations are mainly found in service industries, whereas intermittent organizations focus on manufacturing. D. Project organizations are effective for mass production, whereas intermittent organizations produce very few units of a product. E. Project organizations generally make a unique product, but the products of intermittent organizations are not necessarily unique. Project organizations generally make a unique product, rely on highly skilled labor, produce very few units, and have high production costs per unit. Intermittent organizations deal with products of a lesser magnitude than do project organizations, and their products are not necessarily unique but possess a significant number of differences.

Chapter 08 - Managing Service and Manufacturing Operations

59. An organization that creates many products with similar characteristics, using assembly lines would most likely be categorized as a(n): A. continuous manufacturing organization. B. intermittent organization. C. project organization. D. contract manufacturing organization. E. fixed-position organization. Companies that use assembly lines are usually known as continuous manufacturing organizations, so named because once they are set up, they run continuously, creating products with many similar characteristics. Examples of products produced on assembly lines are automobiles, television sets, vacuum cleaners, toothpaste, and meals from a cafeteria.

60. NF Goods Inc. is a contract manufacturer of laptops for a reputed consumer electronics company. It uses a facility layout in which the workers remain in one location, and the laptops move from one worker to another. Each person in turn performs his or her required tasks. Thus, NF Goods Inc. is using a _____. A. product layout B. process layout C. project layout D. web layout E. fixed-position layout NF Goods Inc. is using a product layout. In a product layout, workers remain in one location, and the product moves from one worker to another. Each person in turn performs his or her required tasks or activities.

Chapter 08 - Managing Service and Manufacturing Operations

61. Which of the following is a defining characteristic of continuous manufacturing organizations using a product layout? A. They make a unique product. B. They have an extremely high unit cost of production. C. They deploy all resources in a central location. D. They produce a large number of units. E. They do not use assembly lines. Continuous manufacturing organizations using a product layout are characterized by the standardized product they produce, the large number of units produced, and the relatively low unit cost of production.

62. _____ employs specialized computer systems to actually guide and control the transformation process of inputs into outputs. A. Computer-assisted design (CAD) B. A transaction processing system C. Computer-assisted manufacturing (CAM) D. The in-basket technique E. A turnkey project Computer-assisted manufacturing (CAM) employs specialized computer systems to actually guide and control the transformation processes. Such systems can monitor the transformation process, gathering information about the equipment used to produce the products and about the product itself as it goes from one stage of the transformation process to the next.

Chapter 08 - Managing Service and Manufacturing Operations

63. _____ is a complete system that designs products, manages machines and materials, and controls the operations function in the transformation process. A. Computer-assisted design (CAD) B. Computer-integrated manufacturing (CIM) C. Computer-assisted manufacturing (CAM) D. Flexible manufacturing E. Crowdsourcing Computer-integrated manufacturing (CIM) is a complete system that designs products, manages machines and materials, and controls the operations function. Companies adopt CIM to boost productivity and quality and reduce costs.

64. Which of the following best illustrates an organization's efforts toward sustainability through its manufacturing and operations systems? A. Creating genetically modified foods B. The adoption of 100 percent wind-powered electricity C. Increasing the use of fossil fuels for manufacturing processes D. Clearing forests to set up a manufacturing unit E. The discharge of industrial effluents directly into water bodies Adopting 100 percent wind-powered electricity, reducing carbon emissions are a few examples of initiatives in operations and manufacturing systems toward sustainability. Sustainability deals with conducting activities in such a way as to provide for the long-term well-being of the natural environment, including all biological entities.

Chapter 08 - Managing Service and Manufacturing Operations

65. All activities involved in obtaining and managing raw materials and component parts, managing finished products, packaging them, and getting them to customers are part of: A. value chain management. B. supply chain management. C. reverse engineering. D. crowdsourcing. E. benchmarking. Supply chain management includes all the activities involved in obtaining and managing raw materials and component parts, managing finished products, packaging them, and getting them to customers.

66. Purchasing of all materials in organizations is also referred to as: A. consumption. B. leveraged buyout. C. acquisition. D. procurement. E. crowdsourcing. Purchasing, also known as procurement, is the buying of all the materials needed by an organization. The purchasing department aims to obtain items of the desired quality in the right quantities at the lowest possible cost.

Chapter 08 - Managing Service and Manufacturing Operations

67. The buying of all materials needed by an organization is called: A. benchmarking. B. capital expenditure. C. purchasing. D. a leveraged buyout. E. a hostile takeover. Purchasing, also known as procurement, is the buying of all the materials needed by an organization. The purchasing department aims to obtain items of the desired quality in the right quantities at the lowest possible cost.

68. The term _____ refers to all raw materials, components, completed or partially completed products, and pieces of equipment a firm uses. A. inventory B. capital reserve C. input D. share E. intangible The term inventory refers to all raw materials, components, completed or partially completed products, and pieces of equipment a firm uses. There are three basic types of inventory: finished-goods inventory, work-in-process inventory, and raw materials inventory.

Chapter 08 - Managing Service and Manufacturing Operations

69. Materials that have been purchased to be used as inputs in making other products are included in: A. finished products inventory. B. partial inventory. C. raw materials inventory. D. supplier inventory. E. work-in-process inventory. Raw materials inventory includes all the materials that have been purchased to be used as inputs for making other products. Nuts and bolts are raw materials for an automobile manufacturer, while hamburger patties, vegetables, and buns are raw materials for a fast-food restaurant.

70. Marson Structures Inc. purchases cement, steel rods, and wooden panels to use in the construction of buildings, houses, and bridges. These inputs are considered as _____ for a construction business. A. finished inventory B. partial inventory C. work-in-process inventory D. supplier inventory E. raw materials inventory Cement, steel rods, and wooden panels are considered as raw materials inventory for a construction business. Raw materials inventory includes all the materials that have been purchased to be used as inputs for making other products.

AACSB: Reflective Thinking Accessibility: Keyboard Navigation Bloom's: Apply Difficulty: 2 Medium Learning Objective: 08-04 Specify some techniques managers may use to manage the logistics of transforming inputs into finished products. Topic: Supply Chain Management

Chapter 08 - Managing Service and Manufacturing Operations

71. Which of the following is an example of finished-goods inventory for an apparel company? A. The clothes for sale in the company's retail store B. The buttons to be used on pants C. A batch of pants that are in the stitching process D. A bottle of fabric dye in the company's factory E. The thread used for stitching The clothes for sale in the company's retail store is an example of finished-goods inventory for an apparel company. Finished-goods inventory includes those products that are ready for sale, such as a fully assembled automobile ready to ship to a dealer.

72. Which of the following is an example of work-in-process inventory for an automobile company? A. Cars for sale in one of the company's outlets B. Cars that are in the initial stages of the assembly line C. Tires in the company's warehouse D. Nuts and bolts used in the cars E. Windshields used in the cars A car that is in the initial stages of the assembly line is an example of work-in-process inventory for an automobile company. Work-in-process inventory consists of those products that are partly completed or are in some stage of the transformation process.

Chapter 08 - Managing Service and Manufacturing Operations

73. The process of determining how many supplies and goods are needed, keeping track of quantities on hand, each item's location, and who is responsible for it within an organization is called: A. facility planning. B. benchmarking. C. succession planning. D. inventory control. E. affirmative action. Inventory control is the process of determining how many supplies and goods are needed and keeping track of quantities on hand, where each item is, and who is responsible for it within an organization. Operations management must be closely coordinated with inventory control.

74. A model of inventory management that identifies the optimum number of items to order to minimize the costs of managing them is called the: A. just-in-time management model. B. flexible scheduling model. C. cost-plus model. D. economic order quantity model. E. value chain model. One popular approach to inventory management is the economic order quantity model which identifies the optimum number of items to order to minimize the costs of managing (ordering, storing, and using) them.

Chapter 08 - Managing Service and Manufacturing Operations

75. Minimizing inventory by providing an almost continuous flow of items from suppliers to the production facility is referred to as: A. just-in-time inventory management. B. flexible scheduling. C. continuous manufacturing system. D. contract manufacturing. E. crowdsourcing. Just-in-time (JIT) inventory management minimizes inventory by providing an almost continuous flow of items from suppliers to the production facility. Just-in-time (JIT) inventory management eliminates waste by using smaller quantities of materials that arrive "just in time" for use in the transformation process and therefore require less storage space and other inventory management expense.

76. Zoro Inc., a consumer electronics company, does not store any of its materials in the warehouse. Instead, the company's procurement department orders small quantities of materials as and when they are required. The vendors supply the ordered material directly to the company's manufacturing unit a day or two before the production starts. This arrangement helps Zoro Inc. to reduce costs and boost efficiency. This scenario best illustrates _____. A. continuous manufacturing systems B. contract manufacturing C. just-in-time inventory management D. crowdsourcing E. mass customization This scenario best illustrates just-in-time inventory management. Just-in-time (JIT) inventory management eliminates waste by using smaller quantities of materials that arrive "just in time" for use in the transformation process and therefore require less storage space and other inventory management expense.

AACSB: Reflective Thinking Accessibility: Keyboard Navigation Bloom's: Apply Difficulty: 3 Hard Learning Objective: 08-04 Specify some techniques managers may use to manage the logistics of transforming inputs into finished products. Topic: Supply Chain Management

Chapter 08 - Managing Service and Manufacturing Operations

77. An inventory planning system that schedules the precise quantity of materials needed to make a product is called: A. succession planning. B. material-requirements planning. C. benchmarking. D. flexible scheduling. E. capacity-requirements planning. Materials-requirement planning (MRP) is a planning system that schedules the precise quantity of materials needed to make a product. The basic components of MRP are a master production schedule, a bill of materials, and an inventory status file.

78. Which of the following is a basic component of material-requirements planning (MRP)? A. An executive summary B. A master production schedule C. A promissory bill D. A balance sheet E. A balanced scorecard Materials-requirement planning (MRP) is a planning system that schedules the precise quantity of materials needed to make a product. The basic components of MRP are a master production schedule, a bill of materials, and an inventory status file.

Chapter 08 - Managing Service and Manufacturing Operations

79. True Diva Inc., a reputed brand for women's apparel and accessories, uses contract manufacturers in different countries. The company benefits because of the lower cost of labor and minimal government regulations in other countries than its home country. This is an example of _____. A. bartering B. benchmarking C. outsourcing D. reverse engineering E. franchising This is an example of outsourcing. Outsourcing refers to the contracting of manufacturing or other tasks to independent companies, often overseas. Many companies elect to outsource some aspects of their operations to companies that can provide these products more efficiently, at a lower cost, and with greater customer satisfaction.

80. Which of the following is a popular method of scheduling materials that identifies all the major activities or events required to complete a project, arranges them in a sequence or path, determines the critical path, and estimates the time required for each event? A. The Ansoff matrix B. The Program Evaluation and Review Technique (PERT) C. The continuous manufacturing system D. The economic order quantity (EOQ) model E. The in-basket technique Many approaches to scheduling have been developed, ranging from simple trial and error to highly sophisticated computer programs. One popular method is the Program Evaluation and Review Technique (PERT), which identifies all the major activities or events required to complete a project, arranges them in a sequence or path, determines the critical path, and estimates the time required for each event.

Chapter 08 - Managing Service and Manufacturing Operations

81. Which of the following is true about quality? A. It is extremely easy to measure quality characteristics when the product is a service. B. It is a concern only for service providers. C. It primarily indicates the price charged for a product. D. It depends on customers' perceptions. E. Its definition should vary from employee to employee when a firm adopts total quality management. Quality reflects the degree to which a good or service meets the demands and requirements of customers. Determining quality can be difficult because it depends on customers' perceptions of how well the product meets or exceeds their expectations.

82. _____ reflects the degree to which a good or service meets the demands and requirements of customers. A. Inseparability B. Productivity C. Quality D. Capacity E. Agility Quality reflects the degree to which a good or service meets the demands and requirements of customers. Quality, like cost and efficiency, is a critical element of operations management, for defective products can quickly ruin a firm.

Chapter 08 - Managing Service and Manufacturing Operations

83. It is especially difficult to measure quality characteristics when: A. a firm uses ISO 9000. B. a firm has a total quality management program. C. the output is highly tangible. D. the product is a service. E. a firm applies quality control. It is especially difficult to measure quality characteristics when the product is a service. A company has to decide exactly which quality characteristics it considers important and then define those characteristics in terms that can be measured.

84. Quality control refers to the: A. processes an organization uses to maintain its established quality standards. B. efforts of an organization to replace quality with productivity. C. efforts of an organization to reduce the quality standards set by the best-performing companies. D. inspections conducted by the government when a product's quality is above the required standard. E. techniques an organization uses to minimize the quality of its products and services. Quality control refers to the processes an organization uses to maintain its established quality standards. Quality has become a major concern in many organizations, particularly in light of intense foreign competition and increasingly demanding customers.

AACSB: Analytic Accessibility: Keyboard Navigation Bloom's: Understand Difficulty: 2 Medium Learning Objective: 08-05 Assess the importance of quality in operations management. Topic: Total Quality Management

Chapter 08 - Managing Service and Manufacturing Operations

85. _____ is a philosophy that uniform commitment to quality in all areas of an organization will promote a culture that meets customers' perceptions of quality. A. The just-in-time (JIT) inventory concept B. The service quality model C. Economies of scale D. The economic order quantity (EOQ) model E. Total quality management (TQM) Total quality management (TQM) is a philosophy that uniform commitment to quality in all areas of an organization will promote a culture that meets customers' perceptions of quality. It involves coordinating efforts to improve customer satisfaction, increasing employee participation, forming and strengthening supplier partnerships, and facilitating an organizational culture of continuous quality improvement.

Chapter 08 - Managing Service and Manufacturing Operations

86. Which of the following is true of companies employing total quality management (TQM) programs? A. They know that quality control should be incorporated only in the final stage of the transformation process. B. They believe that TQM prohibits benchmarking quality standards as it reduces their competitive advantage. C. They agree that reworking on defective products is the best way to ensure high standards of quality. D. They know that TQM requires constant improvements in all areas of the company as well as employee empowerment. E. They view quality control as a function of the operations process and not as an element of the product itself. Companies employing total quality management (TQM) programs know that TQM requires constant improvements in all areas of the company as well as employee empowerment. TQM involves coordinating efforts to improve customer satisfaction, increasing employee participation, forming and strengthening supplier partnerships, and facilitating an organizational culture of continuous quality improvement.

87. Which of the following does total quality management (TQM) involve? A. Coordinating efforts in all areas of a company to improve customer satisfaction B. Limiting employee participation in the continuous improvement process C. Isolating suppliers and vendors from the continuous improvement process D. Treating quality simply as a function of the operations process E. Reworking on defective products to ensure better quality Total quality management (TQM) involves coordinating efforts to improve customer satisfaction, increasing employee participation, forming and strengthening supplier partnerships, and facilitating an organizational culture of continuous quality improvement.

Chapter 08 - Managing Service and Manufacturing Operations

88. Continuous improvement of an organization's goods and services is built around the notion that: A. quality is simply a function of the operations process. B. quality is free. C. quality is extremely easy to determine. D. quality is a concern of the production department only. E. quality is expensive. Continuous improvement of an organization's goods and services is built around the notion that quality is free; by contrast, not having high-quality goods and services can be very expensive, especially in terms of dissatisfied customers.

89. Marino Autos Inc. measures and evaluates the quality of its cars and services against the market leaders in the automobile industry. Wherever there is a gap, Marino Autos Inc. tries to cover that gap by imitating the best practices of these market leaders. This is known as _____. A. crowdsourcing B. benchmarking C. sampling D. nearshoring E. licensing This is known as benchmarking. A primary tool of the continuous improvement process is benchmarking, the measuring and evaluating of the quality of an organization's goods, services, or processes as compared with the quality produced by the best-performing companies in the industry.

AACSB: Reflective Thinking Accessibility: Keyboard Navigation Bloom's: Apply Difficulty: 2 Medium Learning Objective: 08-05 Assess the importance of quality in operations management. Topic: Total Quality Management

Chapter 08 - Managing Service and Manufacturing Operations

90. Benchmarking lets an organization: A. replace quality with productivity. B. know where it stands competitively in its industry. C. protect its processes and trade secrets from rival firms. D. eliminate quality control. E. limit employee participation in total quality management. Benchmarking lets an organization know where it stands competitively in its industry, thus giving it a goal to aim for over time. A primary tool of the continuous improvement process is benchmarking, the measuring and evaluating of the quality of an organization's goods, services, or processes as compared with the quality produced by the best performing companies in the industry.

91. The first step in quality control for any organization is: A. undertaking quality inspections. B. establishing quality standards. C. sampling products. D. measuring productivity levels. E. initiating corrections. Regardless of whether a company has a total quality management (TQM) program for quality control, it must first determine what standard of quality it desires and then assess whether its products meet that standard. Product specifications and quality standards must be set so the company can create a product that will compete in the marketplace.

Chapter 08 - Managing Service and Manufacturing Operations

92. The system in which an organization's management collects and analyzes information about the production process to pinpoint quality problems in the production system is called: A. total quality management. B. statistical process control. C. the Program Evaluation and Review Technique (PERT). D. the in-basket exercise. E. just-in-time inventory management. One method through which many companies have tried to improve quality is statistical process control, which is a system in which management collects and analyzes information about the production process.

93. Sampling as a method to determine whether a product meets quality standards is most likely to be used when: A. inspection tests are destructive. B. every product must be tested because of human life and safety. C. each product is highly customized. D. an elaborate testing technique is required. E. a firm has allotted a significant amount of time and money for testing. Sampling is likely to be used when inspection tests are destructive. Some inspection procedures are quite expensive, use elaborate testing equipment, destroy products, and/or require a significant number of hours to complete.

Chapter 08 - Managing Service and Manufacturing Operations

94. In determining whether a product meets quality standards, inspection processes are most likely to be used when: A. an inexpensive technique is required. B. elaborate testing equipment is available. C. a firm's products are highly standardized. D. a firm has limited resources to test its products. E. the potential cost of flawed systems is insignificant. Some inspection procedures are quite expensive, use elaborate testing equipment, destroy products, and/or require a significant number of hours to complete. Often human life and safety depend on the proper functioning of specific items. In such cases, even though the inspection process is costly, the potential cost of flawed systems—in human lives and safety—is too great not to inspect 100 percent of the output.

95. The goal of the ISO 14000 standards is to: A. penalize companies that do not adopt total quality management programs. B. limit benchmarking within companies. C. prevent companies from outsourcing to other countries. D. promote a uniform approach to environmental management among companies. E. help companies focus on productivity as opposed to quality. The goal of the ISO 14000 standards is to promote a more uniform approach to environmental management and to help companies attain and measure improvements in their environmental performance.

Chapter 09 - Motivating the Workforce

Chapter 09 Motivating the Workforce

True / False Questions 1. Human relations is the study of the behavior of individuals and groups in organizational settings. TRUE What motivates employees to perform on the job is the focus of human relations, the study of the behavior of individuals and groups in organizational settings.

AACSB: Analytic Accessibility: Keyboard Navigation Bloom's: Remember Difficulty: 1 Easy Learning Objective: 09-01 Define human relations and determine why its study is important. Topic: Motivating Employees

2. The Hawthorne Studies found that money was the primary motivator for employees. FALSE

According to the classical theory of motivation, money is the sole motivator for workers. The Hawthorne Studies, on the other hand, identified the impact of human relations on motivation.

AACSB: Analytic Accessibility: Keyboard Navigation Bloom's: Remember Difficulty: 1 Easy Learning Objective: 09-02 Summarize early studies that laid the groundwork for understanding employee motivation. Topic: Motivating Employees

Chapter 09 - Motivating the Workforce

3. Maslow's hierarchy lists the most basic needs people strive to satisfy first at the top of the pyramid. FALSE Maslow's hierarchy arranges needs in the order in which people strive to satisfy them, with the most basic needs at the bottom.

AACSB: Analytic Accessibility: Keyboard Navigation Bloom's: Remember Difficulty: 1 Easy Learning Objective: 09-03 Compare and contrast the human-relations theories of Abraham Maslow and Frederick Herzberg. Topic: Motivating Employees

4. Theory Z is more participative and encourages lifelong employee commitment more than traditional management approaches. TRUE Theory Z is a management philosophy that stresses employee participation in all aspects of company decision making. In a Theory Z organization, managers and workers share responsibilities; the management style is participative; and employment is long term and often lifelong.

AACSB: Analytic Accessibility: Keyboard Navigation Bloom's: Remember Difficulty: 1 Easy Learning Objective: 09-04 Investigate various theories of motivation, including Theories X, Y, and Z; equity theory; and expectancy theory. Topic: Motivation Theories

Chapter 09 - Motivating the Workforce

5. Rewarding appropriate behavior tends to be more effective in the long run than punishments for unacceptable behavior. TRUE Punishing unacceptable behavior may provide quick results but lead to undesirable long-term side effects, such as employee dissatisfaction and increased turnover. In general, rewarding appropriate behavior is a more effective way to modify behavior.

AACSB: Analytic Accessibility: Keyboard Navigation Bloom's: Understand Difficulty: 2 Medium Learning Objective: 09-05 Describe some of the strategies that managers use to motivate employees. Topic: Motivation Strategies

Multiple Choice Questions 6. What motivates employees to perform on the job is the focus of _____, which is the study of the behavior of individuals and groups in organizational settings. A. work ethics B. human resources C. business strategies D. human relations E. organizational structure What motivates employees to perform on the job is the focus of human relations, the study of the behavior of individuals and groups in organizational settings. In business, human relations involves motivating employees to achieve organizational objectives efficiently and effectively.

AACSB: Analytic Accessibility: Keyboard Navigation Bloom's: Understand Difficulty: 2 Medium Learning Objective: 09-01 Define human relations and determine why its study is important. Topic: Motivating Employees

Chapter 09 - Motivating the Workforce

7. An inner drive that directs a person's behavior toward goals is called _____. A. a reward B. a need C. motivation D. morale E. an incentive Motivation is an inner drive that directs a person's behavior toward goals.

8. Which of the following statements is true of motivation? A. It is an external force that influences people. B. A motivating goal is the difference between a desired state and an actual state. C. Needs can be motivating. D. Goals need to be set by an external agent to be motivating. E. A motivating need is the satisfaction of some goal. Motivation is an inner drive that directs a person's behavior toward goals. Both needs of an individual and goals can be motivating.

Chapter 09 - Motivating the Workforce

9. _____ is the difference between a desired state and an actual state. A. A problem B. Motivation C. A need D. Morale E. A goal A need is the difference between a desired state and an actual state, while a goal is the satisfaction of some need.

10. _____ is the satisfaction of some need. A. A problem B. Motivation C. A desire D. Morale E. A goal A goal is the satisfaction of some need, and a need is the difference between a desired state and an actual state.

Chapter 09 - Motivating the Workforce

11. Which of the following is the first step in a typical motivation process? A. Need B. Motivation C. Objective D. Action E. Satisfaction Need is the first step in the motivation process. A person who recognizes or feels a need is motivated to take action to satisfy the need and achieve a goal.

12. Graham, an employee at an architectural firm, is frustrated with his job as he is mostly involved in reproducing stock designs. He realizes the need for starting his own firm to exercise his creative streak. In the context of the motivation process, which step will immediately follow the need recognition step? A. Need establishment B. Goal directed behavior C. Intrinsic reward D. Morale boost E. Satisfaction Need is the first step in the motivation process. A person who recognizes or feels a need is motivated to take action to satisfy the need and achieve a goal. To satisfy that need and achieve success, the person may try to acquire new insights from successful salespeople or obtain additional training to improve sales skills.

Chapter 09 - Motivating the Workforce

13. Which of the following is the last step in a typical motivation process? A. Need B. Motivation C. Objective D. Action E. Satisfaction Satisfaction is the last step in the motivation process. A person who recognizes or feels a need is motivated to take action to satisfy the need and achieve a goal.

14. Low morale is likely to result in _____. A. high productivity B. low turnover C. absenteeism D. high motivation E. loyalty Morale is an employee's attitude toward his or her job, employer, and colleagues. Low morale may cause high rates of employee absenteeism and turnover.

Chapter 09 - Motivating the Workforce

15. High morale contributes to: A. high levels of absenteeism. B. high levels of turnover. C. high costs of operation. D. high occurrences of groupthink. E. high returns to stakeholders. Morale is an employee's attitude toward his or her job, employer, and colleagues. High morale contributes to high levels of productivity, high returns to stakeholders, and employee loyalty.

16. A(n) _____ is the personal satisfaction and enjoyment that a person feels from attaining a goal. A. intrinsic need B. extrinsic need C. intrinsic reward D. extrinsic reward E. extrinsic motivation An intrinsic reward is the personal satisfaction and enjoyment that a person feels

Chapter 09 - Motivating the Workforce

17. _____ are benefits and/or recognition that a person receives from someone else. A. Intrinsic needs B. Extrinsic needs C. Intrinsic rewards D. Extrinsic rewards E. Intrinsic motivational requirements Extrinsic rewards are benefits and/or recognition that a person receives from someone else.

18. The birth of the study of human relations within business organizations can be traced to: A. research conducted by Mayo and Hawthorne. B. Maslow's hierarchy of needs.

C. Herzberg's study of hygiene and motivation factors. D. McGregor's Theory X and Theory Y. E. time and motion studies by Frederick W. Taylor and Frank and Lillian Gilbreth. AACSB: Analytic Accessibility: Keyboard Navigation Bloom's: Remember Difficulty: 1 Easy Learning Objective: 09-02 Summarize early studies that laid the groundwork for understanding employee motivation. Topic: Motivating Employees

Chapter 09 - Motivating the Workforce

19. According to the classical theory of motivation, which of the following would motivate employees to work hard? A. A long lunch break B. Adequate tools and long hours C. Financial incentives D. Long vacations E. Safe working conditions According to the classical theory of motivation, money is the sole motivator for workers.

AACSB: Analytic Accessibility: Keyboard Navigation Bloom's: Understand Difficulty: 2 Medium Learning Objective: 09-02 Summarize early studies that laid the groundwork for understanding employee motivation. Topic: Motivating Employees

20. Which of the following theories is associated with the piece-rate system? A. The two-factor theory B. The theory of the hierarchy of needs C. The theory of the Hawthorne effect D. Theory X and Theory Y E. The classical theory of motivation According to the classical theory of motivation, money is the sole motivator for workers. Frederick Taylor suggested that managers link workers' pay directly to their output. He developed the piece-rate system, under which employees were paid a certain amount for each unit they produced; those who exceeded their quota were paid a higher rate per unit for all the units they produced.

Chapter 09 - Motivating the Workforce

21. Vixen works in a soap manufacturing company. He is paid a fixed amount for every unit he manufactures at the factory. He is paid higher rates for exceeding his set target. The payment system in this scenario is an example of the: A. barter system. B. piece-rate system. C. bonus system. D. over-time system. E. hourly-payment system. The payment system in this scenario is an example of the piece-rate system. According to the classical theory of motivation, money is the sole motivator for workers. Frederick Taylor suggested that managers link workers' pay directly to their output. He developed the piecerate system, under which employees were paid a certain amount for each unit they produced; those who exceeded their quota were paid a higher rate per unit for all the units they produced.

AACSB: Analytic Accessibility: Keyboard Navigation Bloom's: Apply Difficulty: 2 Medium Learning Objective: 09-02 Summarize early studies that laid the groundwork for understanding employee motivation. Topic: Motivating Employees

22. The person primarily associated with the Hawthorne Studies is _____. A. Abraham Maslow B. Douglas McGregor C. B. F. Skinner D. Nathaniel Hawthorne E. Elton Mayo Elton Mayo and a team of researchers from Harvard University wanted to determine what physical conditions in the workplace. They studied a group of workers at the Hawthorne Works Plant of the Western Electric Company and measured their productivity under various physical conditions.

Chapter 09 - Motivating the Workforce

23. Which of the following is labeled the Hawthorne effect? A. Decrease in productivity as work hours increased B. Increase in productivity regardless of physical conditions C. Decrease in productivity regardless of supervision D. Increase in productivity as pay increased E. Productivity remaining the same despite increase in efficiency What the researchers discovered in the Hawthorne studies was quite unexpected and very puzzling: Productivity increased regardless of the physical conditions. This phenomenon has been labeled the Hawthorne effect.

24. The Hawthorne Studies were important because they: A. revealed the significance of social and psychological factors. B. confirmed that financial incentives were key to motivation. C. showed that workers should control the workplace. D. used fear as a motivator. E. dealt with self-actualization needs.

Chapter 09 - Motivating the Workforce

25. What did the Hawthorne Studies reveal?

A. That money is the only motivator for productivity B. That better physical conditions will improve employee productivity C. That supervisors should view employees as unmotivated individuals D. That social and psychological factors influence workers' behavior E. That nothing will motivate an employee who is not motivated to work AACSB: Analytic Accessibility: Keyboard Navigation Bloom's: Remember Difficulty: 1 Easy Learning Objective: 09-02 Summarize early studies that laid the groundwork for understanding employee motivation. Topic: Motivating Employees

26. Which of the following is one of the important discoveries of the Hawthorne studies? A. Money is the only motivator for high productivity. B. Better physical conditions will improve employee productivity. C. Supervisors who micromanage their employees stand a higher chance of motivating workforces. D. Employees who are not motivated to work are unlikely to be motivated by any incentives related to work. E. Managers who understand the needs, beliefs, and expectations of people have the greatest success in motivating their workers. The Hawthorne experiments marked the beginning of a concern for human relations in the workplace. They revealed that human factors do influence workers' behavior and that managers who understand the needs, beliefs, and expectations of people have the greatest success in motivating their workers.

Chapter 09 - Motivating the Workforce

27. According to Maslow's hierarchy of needs, which of the following needs do people strive to satisfy first? A. Security needs B. Physiological needs C. Social needs D. Esteem needs E. Self-actualization needs Maslow's hierarchy of needs is a theory that arranges the five basic needs of people— physiological, security, social, esteem, and self-actualization—into the order in which people strive to satisfy them. Physiological needs, the most basic and first needs to be satisfied, are the essentials for living—water, food, shelter, and clothing.

28. According to Maslow's hierarchy of needs, the need for love, companionship, and friendship—the desire for acceptance by others is a part of the _____. A. security needs B. social needs C. physiological needs D. esteem needs E. self-actualization needs Social needs are the need for love, companionship, and friendship—the desire for acceptance by others. To fulfill social needs, a person may try many things: making friends with a coworker, joining a group, volunteering at a hospital, throwing a party.

Chapter 09 - Motivating the Workforce

29. Which of the following needs is at the top of Maslow's hierarchy of needs? A. Security needs B. Social needs C. Physiological needs D. Esteem needs E. Self-actualization needs Maslow's hierarchy of needs is a theory that arranges the five basic needs of people— physiological, security, social, esteem, and self-actualization—into the order in which people strive to satisfy them. Self-actualization needs, at the top of Maslow's hierarchy, mean being the best you can be. Self-actualization involves maximizing your potential. A self-actualized person feels that she or he is living life to its fullest in every way.

30. Blujay Pharmaceutical features the salesperson who has been the most successful during the previous quarter in the company newsletter. According to Maslow's hierarchy of needs, which of the following needs of employee is Blujay Pharmaceutical trying to meet?

A. Security needs B. Social needs C. Physiological needs D. Esteem needs E. Self-actualization needs AACSB: Reflective Thinking Accessibility: Keyboard Navigation Bloom's: Apply Difficulty: 3 Hard Learning Objective: 09-03 Compare and contrast the human-relations theories of Abraham Maslow and Frederick Herzberg. Topic: Motivation Theories

Chapter 09 - Motivating the Workforce

31. According to Maslow, living life to the fullest is most closely associated with fulfilling the _____. A. biological needs B. self-actualization needs C. security needs D. social needs E. physiological needs Self-actualization needs, at the top of Maslow's hierarchy, mean being the best you can be. Self-actualization involves maximizing your potential or living life to the fullest.

32. Maslow's theory maintains that: A. hygiene factors, which relate to the work setting and not to the content of the work, include adequate wages. B. the more basic needs at the bottom of the hierarchy must be satisfied before higher-level goals can be pursued. C. security needs must be fulfilled before physiological needs. D. social needs must be fulfilled before security needs. E. needs that are fulfilled cannot be triggered under any circumstance. Maslow's theory maintains that the more basic needs at the bottom of the hierarchy must be satisfied before higher-level goals can be pursued. Thus, people who are hungry and homeless are not concerned with obtaining respect from their colleagues.

AACSB: Analytic Accessibility: Keyboard Navigation Bloom's: Understand Difficulty: 2 Medium Learning Objective: 09-03 Compare and contrast the human-relations theories of Abraham Maslow and Frederick Herzberg. Topic: Motivating Employees

Chapter 09 - Motivating the Workforce

33. Frederick Herzberg proposed _____. A. the classical theory of motivation B. the theory of the hierarchy of needs C. the theory of the Hawthorne effect D. the two-factor theory E. Theory X and Theory Y In the 1950s, psychologist Frederick Herzberg proposed the two-factor theory of motivation that focuses on the job and on the environment where work is done. Herzberg studied various factors relating to the job and their relation to employee motivation and concluded that they can be divided into hygiene factors and motivational factors.

34. According to Herzberg's two-factor theory, which of the following is a hygiene factor? A. Achievement B. Recognition C. Involvement D. Salary E. Responsibility Hygiene factors, which relate to the work setting and not to the integral content of work in an office, include adequate wages, comfortable and safe working conditions, fair company policies, and job security. These factors do not necessarily motivate employees to excel, but their absence may be a potential source of dissatisfaction and high turnover.

Chapter 09 - Motivating the Workforce

35. According to Herzberg's two-factor theory, which of the following is a motivational factor? A. Supervision B. Working conditions C. Salary D. Security E. Responsibility Motivational factors, which relate to the integral content of the work in an office, include achievement, recognition, involvement, responsibility, and advancement. The absence of motivational factors may not result in dissatisfaction, but their presence is likely to motivate employees to excel.

36. According to Herzberg's two-factor theory, the absence of which of the following factors may be a potential source of dissatisfaction and high turnover? A. Achievement B. Recognition C. Involvement D. Security E. Responsibility Hygiene factors, which relate to the work setting and not to the integral content work in an office, include adequate wages, comfortable and safe working conditions, fair company policies, and job security. These factors do not necessarily motivate employees to excel, but their absence may be a potential source of dissatisfaction and high turnover.

Chapter 09 - Motivating the Workforce

37. According to Herzberg's two factor theory, the presence of which of the following factors is likely to motivate employees though their absence may not result in dissatisfaction? A. Supervision B. Achievement C. Working condition D. Security E. Salary Motivational factors, which relate to the integral content of work in an office, include achievement, recognition, involvement, responsibility, and advancement. The absence of motivational factors may not result in dissatisfaction, but their presence is likely to motivate employees to excel.

38. In the context of Herzberg's two-factor theory, which of the following statements is true? A. They include achievement, recognition, involvement, responsibility, and advancement. B. They do not necessarily motivate employees to excel. C. They relate to the content of the work itself. D. Their presence causes high turnover. E. Their absence does not lead to dissatisfaction. Hygiene factors, which relate to the work setting and not to the content of the work, include adequate wages, comfortable and safe working conditions, fair company policies, and job security. These factors do not necessarily motivate employees to excel, but their absence may be a potential source of dissatisfaction and high turnover.

Chapter 09 - Motivating the Workforce

39. In the context of the Herzberg's two-factor theory, which of the following factors relate directly to the content of the work itself? A. Creativity B. Social needs C. Security needs D. Responsibility E. Self-respect Motivational factors, which relate to the integral content of work in an office, include achievement, recognition, involvement, responsibility, and advancement.

40. Which of the following relates to the work setting and not to the content of the work according to Herzberg's two-factor theory? A. Wage B. Achievement C. Recognition D. Responsibility E. Advancement Hygiene factors, which relate to the work setting and not to the content of the work, include adequate wages, comfortable and safe working conditions, fair company policies, and job security.

Chapter 09 - Motivating the Workforce

41. Herzberg's motivational factors are similar to Maslow's: A. physiological and security needs. B. security and social needs. C. social and esteem needs. D. esteem and self-actualization needs. E. physiological and esteem needs. Herzberg's motivational factors and Maslow's esteem and self-actualization needs are similar. Workers' low-level needs (physiological and security) have largely been satisfied by minimum-wage laws and occupational-safety standards set by various government agencies and are therefore not motivators.

42. In the United States, workers' _____, as defined by Maslow, have largely been met by minimum-wage laws and federal occupational safety standards. A. physiological and security needs B. security and social needs C. social and esteem needs D. esteem and self-actualization needs E. physiological and esteem needs Workers' low-level needs (physiological and security) have largely been satisfied by minimum-wage laws and occupational-safety standards set by various government agencies and are therefore not motivators.

Chapter 09 - Motivating the Workforce

43. Theory X and Theory Y are most closely associated with: A. Frederick Taylor. B. Frederick Herzberg. C. Douglas McGregor. D. Elton Mayo. E. William Ouchi. McGregor contrasted two views of management—the traditional view, which he called Theory X, and a humanistic view, which he called Theory Y.

AACSB: Analytic Accessibility: Keyboard Navigation Bloom's: Understand Difficulty: 2 Medium Learning Objective: 09-04 Investigate various theories of motivation, including Theories X, Y, and Z; equity theory; and expectancy theory. Topic: Motivation Theories

44. Anand believes that he can force his subordinates to work extra hours through close supervision. He instills fear among employees by threatening to cancel bonuses if deadlines are not met. Anand could be described as: A. a Theory X manager according to McGregor. B. a Theory Y manager according to McGregor. C. a Theory Z manager according to Ouchi. D. a manager who meets Maslow's esteem needs of employees. E. a manager who focuses on the hygiene factors proposed by Herzberg. According to McGregor, Anand is a Theory X manager because subscribers to the Theory X view maintain tight control over workers, provide almost constant supervision, try to motivate through fear, and make decisions in an autocratic fashion, eliciting little or no input from their subordinates.

AACSB: Reflective Thinking Accessibility: Keyboard Navigation Bloom's: Apply Difficulty: 3 Hard Learning Objective: 09-04 Investigate various theories of motivation, including Theories X, Y, and Z; equity theory; and expectancy theory. Topic: Motivation Theories

Chapter 09 - Motivating the Workforce

45. According to managers who adopt McGregor's Theory X: A. people enjoy work. B. work is as natural as play or rest. C. people will seek and accept responsibility. D. workers must be forced to do their jobs. E. the average worker does not like to be directed. According to McGregor, managers adopting Theory X assume that workers generally dislike work and must be forced to do their jobs.

46. McGregor's Theory X corresponds to: A. the traditional view of management. B. the humanistic view of management. C. Herzberg's hygiene factors. D. Herzberg's motivational factors. E. the equity theory. Douglas McGregor related Maslow's ideas about personal needs to management. McGregor contrasted two views of management—the traditional view, which he called Theory X, and a humanistic view, which he called Theory Y.

Chapter 09 - Motivating the Workforce

47. McGregor's Theory Y corresponds to: A. the traditional view of management. B. the humanistic view of management. C. Herzberg's hygiene factors. D. Herzberg's motivational factors. E. the equity theory. Douglas McGregor related Maslow's ideas about personal needs to management. McGregor contrasted two views of management—the traditional view, which he called Theory X, and a humanistic view, which he called Theory Y.

48. When compared to Maslow's hierarchy of needs, the Theory X style of management focuses on: A. security and esteem needs. B. self-actualization and esteem needs. C. physiological and security needs. D. social and security needs. E. physiological and social needs. The Theory X style of management focuses on physiological and security needs and virtually ignores the higher needs discussed by Maslow.

Chapter 09 - Motivating the Workforce

49. A Theory X manager is most likely to: A. trust his/her employees. B. avoid micro managing his/her employees. C. ignore physiological needs of employees. D. ignore security needs of employees. E. ignore self-actualization needs of employees. The Theory X style of management focuses on physiological and security needs and virtually ignores the higher needs discussed by Maslow.

50. The approach which suggests that imagination, ingenuity, and creativity can help solve organizational problems is: A. Theory X. B. Theory Y. C. the equity theory. D. the behavior modification theory. E. the expectancy theory. Managers that adhere to McGregor's Theory Y assume that imagination, ingenuity, and creativity can help solve organizational problems, but most organizations do not make adequate use of these characteristics in their employees.

Chapter 09 - Motivating the Workforce

51. Mary follows McGregor's Theory Y approach to management. She is likely to assume that: A. her subordinates avoid responsibilities. B. the average worker prefers to be directed. C. the average worker has little ambition. D. workers are not capable of self-control. E. workers can contribute through imagination and ingenuity. Managers adopting Theory Y maintain less control and supervision, do not use fear as the primary motivator, and are more democratic in decision making, allowing subordinates to participate in the process. They believe that imagination, ingenuity, and creativity can help solve organizational problems.

AACSB: Analytic Accessibility: Keyboard Navigation Bloom's: Apply Difficulty: 2 Medium Learning Objective: 09-04 Investigate various theories of motivation, including Theories X, Y, and Z; equity theory; and expectancy theory. Topic: Motivation Theories

52. Jill follows McGregor's Theory Y approach to management. She is likely to assume that: A. her workers are not responsible. B. her subordinates are not capable of self-control and self-motivation. C. the average worker has little ambition. D. the organization has to ensure strict supervision of employees. E. the organization is not making full use of each of its worker's intellectual potential. Managers adhering to McGregor's Theory Y maintain less control and supervision and believe that people will exercise self-direction and self-control to achieve objectives to which they are committed. They also believe that organizations today do not make full use of workers' intellectual potential.

Chapter 09 - Motivating the Workforce

53. Kim, the sales manager at a retail store, is a supporter of micro-management tactics. She keeps a close watch on the members of her team to ensure that they do not slack work. Kim is most likely a manager who: A. supports the Theory Y approach. B. supports the Theory Z approach. C. supports the Theory X approach. D. supports the low power-distance environment. E. ignores lower-order needs as suggested by Maslow and focuses on higher-order needs. Kim is a manager who supports the Theory X approach. The Theory X style of management focuses on physiological and security needs and virtually ignores the higher needs discussed by Maslow.

AACSB: Reflective Thinking Accessibility: Keyboard Navigation Bloom's: Apply Difficulty: 2 Medium Learning Objective: 09-04 Investigate various theories of motivation, including Theories X, Y, and Z; equity theory; and expectancy theory. Topic: Motivation Theories

54. Which of the following is a view that a Theory X manager is likely to have but not a Theory Y manager? A. The average person does not prioritize physiological needs. B. The average person naturally dislikes work. C. The average worker is more productive when given a certain amount of flexibility. D. The expenditure of physical and mental effort in work is as natural as play or rest. E. People will exercise self-direction and self-control to achieve objectives to which they are committed. According to McGregor, managers adopting Theory X assume that workers

Chapter 09 - Motivating the Workforce

55. A Theory Y manager is different from a Theory Y manager in that the former: A. does not realize self-actualization needs. B. assumes that the average worker prefers to be directed. C. promotes the high power-distance culture. D. assumes that workers need to be monitored. E. assumes that workers like to work. According to McGregor, managers adopting Theory X assume that workers generally dislike work and must be forced to do their jobs. Managers subscribing to the Theory Y view assume that workers like to work and that under proper conditions employees will seek out responsibility in an attempt to satisfy their social, esteem, and self-actualization needs.

56. Theory Z was first described by _____. A. Frederick Taylor B. Lillian Gilbreth C. Abraham Maslow D. William Ouchi E. Douglas McGregor Theory Z was first described by William Ouchi in his book Theory Z—How American Business Can Meet the Japanese Challenge. Theory Z incorporates many elements associated with the Japanese approach to management, such as trust and intimacy, but Japanese ideas have been adapted for use in the United States.

Chapter 09 - Motivating the Workforce

57. In the context of employee motivation theories, Theory Z includes many elements associated with the _____ approach to management. A. Chinese B. American C. European D. Japanese E. Hawthorne Theory Z is a management philosophy that stresses employee participation in all aspects of company decision making. Theory Z incorporates many elements associated with the Japanese approach to management, such as trust and intimacy.

58. According to _____, how much people are willing to contribute to an organization depends on their assessment of the fairness, or equity, of the rewards they will receive in exchange. A. Theory X B. Theory Y C. Theory Z D. the equity theory E. the expectancy theory According to equity theory, how much people are willing to contribute to an organization depends on their assessment of the fairness, or equity, of the rewards they will receive in exchange.

Chapter 09 - Motivating the Workforce

59. Employees of Stork Industries are encouraged to participate in all aspects of the company. This action of Stork Industries is based on _____. A. Theory Y B. Theory Z C. Theory X D. Skinner's behavior modification theory E. expectancy theory Stork Industries' action is based on Theory Z. Theory Z is a management philosophy that stresses employee participation in all aspects of company decision making.

60. How can managers avoid equity problems? A. By offering flextime to employees B. By adding more tasks to a job instead of treating each task as separate C. By ensuring that rewards are distributed on the basis of performance D. By incorporating motivational factors such as opportunity for achievement E. By creating a competitive environment at the workplace Managers should try to avoid equity problems by ensuring that rewards are distributed on the basis of performance and that all employees clearly understand the basis for their pay and benefits.

Chapter 09 - Motivating the Workforce

61. Jane learned that although she and June were both hired as part-time sales clerks at the same time and have similar backgrounds, June is paid $1 more per hour. Jane decided to stop cleaning dressing rooms on her shift because she thinks the pay is unfair. This is an example of _____. A. equity theory B. Theory X C. expectancy theory D. Theory Y E. Theory Z F. equity theory G. expectancy theory According to equity theory, how much people are willing to contribute to an organization depends on their assessment of the fairness, or equity, of the rewards they will receive in exchange. The worker compares his or her ratio to the input-output ratio of some other person—a "comparison other," who may be a coworker, a friend working in another organization, or an "average" of several people working in the organization.

Chapter 09 - Motivating the Workforce

62. _____ states that motivation depends not only on how much a person wants something but also on the person's perception of how likely he or she is to get it. A. Expectancy theory B. Theory Y C. Theory Z D. Equity theory E. Theory X Psychologist Victor Vroom described expectancy theory, which states that motivation depends not only on how much a person wants something but also on the person's perception of how likely he or she is to get it.

Chapter 09 - Motivating the Workforce

63. Rahul works as an assistant manager in a car manufacturing firm. He wishes to be promoted to the position of manager but feels that it is unlikely to happen. As a result, Rahul is not motivated to achieve the desired end. Which of the following theories best explains Rahul's situation? A. Theory X B. Theory Y C. Expectancy theory D. Equity theory E. Theory Z The expectancy theory best explains Rahul's situation. Psychologist Victor Vroom described expectancy theory, which states that motivation depends not only on how much a person wants something but also on the person's perception of how likely he or she is to get it.

AACSB: Analytic Accessibility: Keyboard Navigation Bloom's: Apply Difficulty: 3 Hard Learning Objective: 09-04 Investigate various theories of motivation, including Theories X, Y, and Z; equity theory; and expectancy theory. Topic: Motivation Theories

Chapter 09 - Motivating the Workforce

64. Which of the following is stated by the expectancy theory? A. A person who does not believe that he/she is likely to get something is likely to go against all odds. B. A person who wants something and has reasons to be optimistic is likely to be highly motivated. C. How much people are willing to contribute to an organization depends on their assessment of the fairness, or equity, of the rewards they will receive in exchange. D. Employees need to be involved in all aspects of company decision making to keep them motivated. E. In a fair situation, a person receives rewards proportional to the contribution he or she makes to the organization. Psychologist Victor Vroom described expectancy theory, which states that motivation depends not only on how much a person wants something butalso on the person's perception of how likely he or she is to get it. A person who wants something and has reason to be optimistic will be strongly motivated.

Chapter 09 - Motivating the Workforce

65. Elias, the manager of Eat Big chain of restaurants, gives awards on a monthly basis to employees with highest productivity. This action of Elias is based on _____. A. the expectancy theory B. Theory Z C. Theory X D. Skinner's behavior modification theory E. hygiene factors of the two-factor theory Elias's action is based on the behavior modification theory proposed by B. F. Skinner. The concept of behavior modification suggests that there are two types of consequences that can modify behavior—reward and punishment. Skinner found that behavior that is rewarded will tend to be repeated, while behavior that is punished will tend to be eliminated.

AACSB: Reflective Thinking Accessibility: Keyboard Navigation Bloom's: Apply Difficulty: 3 Hard Learning Objective: 09-05 Describe some of the strategies that managers use to motivate employees. Topic: Motivation Strategies

66. Stag Industries, annually rewards the top ten employees in terms of goal achievement with a trip to the Caribbean. This action of Stag Industries is based on _____. A. Theory Y B. Theory Z C. Theory X D. behavior modification strategy E. hygiene factors of the Two-Factor Theory Stag Industries is using the behavior modification strategy to motivate its employees. The concept of behavior modification was developed by psychologist B. F. Skinner, Skinner found that behavior that is rewarded will tend to be repeated, while behavior that is punished will tend to be eliminated.

AACSB: Analytic Accessibility: Keyboard Navigation Bloom's: Apply Difficulty: 2 Medium Learning Objective: 09-05 Describe some of the strategies that managers use to motivate employees. Topic: Motivation Theories

Chapter 09 - Motivating the Workforce

67. Jennifer, the store manager at a supermarket, penalizes employees for reporting late at work. This measure has gone a long way in ensuring that employees arrive on time. The step taken by Jennifer best reflects _____. A. the expectancy theory B. Skinner's behavior modification theory C. Theory X D. Theory Z E. hygiene factors of the two-factor theory The step taken by Jennifer best reflects the behavior modification theory proposed by B. F. Skinner. The concept of behavior modification suggests that there are two types of consequences that can modify behavior—reward and punishment. Skinner found that behavior that is rewarded will tend to be repeated, while behavior that is punished will tend to be eliminated.

Chapter 09 - Motivating the Workforce

68. Which of the following ideas is most likely to be supported by the followers of Skinner's theory? A. Job rotation relieves boredom among employees by allowing them to access a variety of jobs. B. A person who wants something and has reasons to be optimistic is likely to be highly motivated. C. How much people are willing to contribute to an organization depends on their assessment of the fairness, or equity, of the rewards they will receive in exchange. D. Behavior that is rewarded will tend to be repeated, while behavior that is punished will tend to be eliminated. E. In a fair situation, a person receives rewards proportional to the contribution he or she makes to the organization. The concept of behavior modification suggests that there are two types of consequences that can modify behavior—reward and punishment. Skinner found that behavior that is rewarded will tend to be repeated, while behavior that is punished will tend to be eliminated.

AACSB: Analytic Accessibility: Keyboard Navigation Bloom's: Remember Difficulty: 1 Easy Learning Objective: 09-05 Describe some of the strategies that managers use to motivate employees. Topic: Motivation Strategies

Chapter 09 - Motivating the Workforce

69. Which of the following ideas is a criticism against Skinner's theory? A. In general, punishing inappropriate behavior is a more effective way to modify behavior than rewarding appropriate behavior. B. A person who wants something and has reasons to be optimistic is not always motivated. C. How much people are willing to contribute to an organization does not always depend on their assessment of the fairness, or equity, of the rewards they will receive in exchange. D. Punishing unacceptable behavior may provide quick results but may lead to increased turnover. E. The concept of behavior modification fails to explain the existence of company politics. Skinner found that behavior that is rewarded will tend to be repeated, while behavior that is punished will tend to be eliminated. However, punishing unacceptable behavior may provide quick results but may lead to undesirable long-term side effects, such as employee dissatisfaction and increased turnover.

70. What is an advantage associated with job rotation? A. It increases job turnover. B. It reduces the boredom created by specialization of tasks. C. It allows employees to choose their preferred work hours. D. It enables employers to add more tasks to a job instead of treating each task as separate. E. It allows two people to work on one job. Job rotation allows employees to move from one job to another in an effort to relieve the boredom that is often associated with job specialization. With job rotation, an employee spends a specified amount of time performing one job and then moves on to another, different job. The worker eventually returns to the initial job and begins the cycle again.

Chapter 09 - Motivating the Workforce

71. What is a drawback of job rotation? A. It increases job turnover. B. It results in increased physical activity. C. It increases fixed costs for companies. D. It is unable to totally eliminate the problem of boredom. E. It discourages job enlargement initiatives. Job rotation allows employees to move from one job to another in an effort to relieve the boredom that is often associated with job specialization. Job rotation is a good idea, but it has one major drawback. Because employees may eventually become bored with all the jobs in the cycle, job rotation does not totally eliminate the problem of boredom.

72. Mazer Inc., a publication house, allows its employees to try out a variety of profiles, ranging from editing to designing cover pages. The practice at Mazer best exemplifies: A. job sharing. B. job rotation. C. flextime. D. diversity. E. specialization. The practice at Mazer best exemplifies job rotation. Job rotation allows employees to move from one job to another in an effort to relieve the boredom that is often associated with job specialization.

AACSB: Reflective Thinking Accessibility: Keyboard Navigation Bloom's: Apply Difficulty: 2 Medium Learning Objective: 09-05 Describe some of the strategies that managers use to motivate employees. Topic: Motivation Strategies

Chapter 09 - Motivating the Workforce

73. Job rotation attempts to reduce the boredom created by specialization of tasks by: A. restricting work week to 40 hours for each employee. B. giving people longer breaks and more paid vacations. C. giving workers a variety of tasks to do on a regular basis. D. adding new specialized tasks to a job. E. having employees perform the same task over and over again. Job rotation allows employees to move from one job to another in an effort to relieve the boredom that is often associated with job specialization. With job rotation, an employee spends a specified amount of time performing one job and then moves on to another, different job. The worker eventually returns to the initial job and begins the cycle again.

74. Which of the following adds tasks to a job instead of treating each task as a separate job? A. Job rotation B. Job enlargement C. Job enrichment D. Job design E. Job reduction Job enlargement adds more tasks to a job instead of treating each task as separate. The rationale behind this strategy is that jobs are more satisfying as the number of tasks performed by an individual increases.

Chapter 09 - Motivating the Workforce

75. What is the rationale behind job enlargement strategies? A. Jobs are more satisfying when employees are provided greater perks. B. Jobs are more satisfying when employees are offered flextime. C. Jobs are more satisfying as the number of tasks performed by an individual increases. D. Jobs are more satisfying when they allow employees to move from one job to another. E. Jobs are more satisfying as the opportunity for job sharing increases. Job enlargement adds more tasks to a job instead of treating each task as separate. The rationale behind this strategy is that jobs are more satisfying as the number of tasks performed by an individual increases.

76. Which of the following options would prove most effective in overcoming the boredom associated with specialization? A. Flextime B. Job enlargement C. Job enrichment D. Telecommuting E. Job sharing Job enlargement adds more tasks to a job instead of treating each task as separate. The rationale behind this strategy is that jobs are more satisfying as the number of tasks performed by an individual increases.

Chapter 09 - Motivating the Workforce

77. _____ is the incorporation of motivational factors, such as opportunity for achievement, recognition, responsibility, and advancement, into a job. A. Job rotation B. Job enrichment C. Job enlargement D. Job specification E. Job specialization Job enrichment is the incorporation of motivational factors, such as opportunity for achievement, recognition, responsibility, and advancement, into a job. It gives workers not only more tasks within the job but more control and authority over the job.

78. Which of the following is likely to be a result of job enrichment? A. Employees will have to share jobs. B. Employees will be allowed to choose their starting and ending times. C. Employees will have more control and authority over their job. D. Employees will have to be micromanaged. E. Employee turnover of employees will increase. Job enrichment incorporates motivational factors such as opportunity for achievement, recognition, responsibility, and advancement into a job. It gives workers not only more tasks within the job, but more control and authority over the job. Job enrichment programs enhance a worker's feeling of responsibility and provide opportunities for growth and advancement when the worker is able to take on the more challenging tasks.

Chapter 09 - Motivating the Workforce

79. What is an advantage of job enrichment? A. It creates opportunities for specialized jobs. B. It allows employees to choose their starting and ending times. C. It treats each task performed by an employee as separate. D. It enhances a worker's feeling of responsibility. E. It enables employees to share jobs. Job enrichment incorporates motivational factors such as opportunity for achievement, recognition, responsibility, and advancement into a job. It gives workers not only more tasks within the job, but more control and authority over the job. Job enrichment programs enhance a worker's feeling of responsibility and provide opportunities for growth and advancement when the worker is able to take on the more challenging tasks.

80. A work program that allows employees to choose their starting and ending hour as long as they are at work during a specified core period is called: A. flextime. B. compressed workweek. C. job sharing. D. work sharing. E. job enrichment. Flextime is a program that allows employees to choose their starting and ending times, as long as they are at work during a specified core period.

Chapter 09 - Motivating the Workforce

81. Kart Inc., a publishing house, allows employees to log in at their preferred time and log off after completing eight hours. It does not have any fixed office timings. Kart Inc. offers _____ to its employees. A. flextime B. compressed work week C. job sharing D. job enrichment E. run time Kart Inc. offers flextime to its employees. Flextime is a program that allows employees to choose their starting and ending times, as long as they are at work during a specified core period.

82. What is an advantage of using a flextime schedules? A. It increases communication between managers and employees. B. It reduces the working hours of employees and thus reduces pressure. C. It allows two people to do one job. D. It reduces security risks. E. It improves ability to recruit and retain workers who wish to balance work and home life. Flextime provides many benefits, including improved ability to recruit and retain workers who wish to balance work and home life.

Chapter 09 - Motivating the Workforce

83. Which of the following is likely to be a result of flextime schedules? A. Increased communication between managers and employees B. More commuter traffic and congestion C. Increased physical activity and healthier sleep habits seen in employees D. Greater supervision of individual tasks of employees E. Increased turnover of employees who look for work-life balance Flexible schedules have been associated with an increase in healthy behaviors on the part of employees. More flexible schedules are associated with healthier lifestyle choices such as increased physical activity and healthier sleep habits.

84. A compressed workweek is: A. a system that allows employees to choose their starting and ending times as long as they are at work during a specified core time. B. when two people do one job. C. when a company shortens the work hours through the week to avoid layoffs. D. a system that allows employees to choose to work part of a week from home. E. a four-day or shorter period in which employees work 40 hours. The compressed workweek is a four-day (or shorter) period in which an employee works 40 hours. Under such a plan, employees typically work 10 hours per day for four days and have a three-day weekend.

Chapter 09 - Motivating the Workforce

85. A compressed workweek is most likely to: A. add more tasks to a job instead of treating each task as separate. B. reduce a company's operating expenses. C. shorten working hours. D. increase instances of virtual teams. E. allow employees to move from one job to another. The compressed workweek reduces the company's operating expenses because its actual hours of operation are reduced.

86. Simon works as a medical transcriptionist. She is required to log in 40 hours in four days and take three days off. Simon's work schedule is an example of: A. flextime. B. compressed work week. C. job sharing. D. job enrichment. E. job enlargement. Simon's work schedule is an example of compressed work week. The compressed workweek is a four-day (or shorter) period in which an employee works 40 hours. Under such a plan, employees typically work 10 hours per day for four days and have a three-day weekend.

Chapter 09 - Motivating the Workforce

87. The difference between flextime and a compressed work week is that in the case of the former: A. the number of working days remains unaffected. B. the office timings are fixed. C. employees are given the option of working from home. D. employees typically work 10 hours per day. E. employees typically work for four days. Flextime is a program that allows employees to choose their starting and ending times, as long as they are at work during a specified core period. The compressed workweek is a four-day (or shorter) period in which an employee works 40 hours.

88. _____ occurs when two people do one job. A. Job enrichment B. Job enlargement C. Job sharing D. Job rotation E. Job specification Job sharing occurs when two people do one job. For example, one person may work from 8:00 a.m. to 12:30 p.m., and the second person comes in at 12:30 p.m. and works until 5:00 p.m.

Chapter 09 - Motivating the Workforce

89. Little Corp., a toy manufacturing company, allocates one task to an employee working from 8:00 a.m. to 12:30 p.m. and allocates the same to be completed by another employee working from 12:30 p.m. to 5:00 p.m. This is an example of _____.

A. job enrichment B. job enlargement C. job sharing D. job rotation E. job specification Job sharing occurs when two people do one job. For example, one person may work from 8:00 a.m. to 12:30 p.m., and the second person comes in at 12:30 p.m. and works until 5:00 p.m.

90. Which of the following is a flexible scheduling strategy? A. Job enhancement B. Job sharing C. Job enrichment D. Job rotation E. Job hopping Job sharing, flextime, telecommuting, and a compressed work week are examples of flexible scheduling strategies. Job enrichment is not a flexible scheduling strategy.

Chapter 09 - Motivating the Workforce

91. Which of the following options is likely to be most effective for retaining employees who are trying to juggle their work duties with other responsibilities and needs? A. Job enhancement B. Job sharing C. Job enrichment D. Job rotation E. Job hopping Job sharing, flextime, telecommuting, and a compressed work week are examples of flexible scheduling strategies. Job sharing is likely to be most effective for retaining employees who are trying to juggle their work duties with other responsibilities and needs.

92. Allowing some employees to work at home part time is: A. a type of job enrichment. B. an example of job enlargement. C. a flexible scheduling strategy. D. likely to increase overhead costs for businesses. E. ideal for all companies. Flexible scheduling strategies attaining wider use include allowing full-time workers to work part time for a certain period and allowing workers to work at home either full or part time. Work-at-home programs can help reduce overhead costs for businesses.

Chapter 09 - Motivating the Workforce

93. Camden Inc., a pharmaceutical company, allows woman to work from home on a parttime basis in cases where they needed to take care of kids. This arrangement is: A. a type of job rotation. B. an example of job enlargement. C. a flexible scheduling strategy. D. likely to increase production costs for businesses. E. likely to increase turnover rates. The arrangement at Camden Inc. is a flexible scheduling strategy. Flexible scheduling strategies attaining wider use include allowing full-time workers to work part time for a certain period and allowing workers to work at home either full or part time. Work-at-home programs can help reduce overhead costs for businesses.

94. What is an advantage of allowing employees to telecommute? A. It allows employees to work extra hours and enjoy a three-day weekend. B. It helps companies to add more tasks to a job instead of treating each task as separate. C. It helps reduce overhead costs for businesses. D. It reduces security risks. E. It helps in the initiation of job enlargement programs. Flexible scheduling strategies attaining wider use include allowing full-time workers to work part time for a certain period and allowing workers to work at home either full or part time. Work-at-home programs can help reduce overhead costs for businesses.

Chapter 09 - Motivating the Workforce

95. Why are managers reluctant to offer telecommuting options to their employees? A. It increases overhead costs for companies. B. It increases fixed costs for companies. C. It increases the work load for employees who take the option. D. It increases security concerns. E. It increases employee turnover. Some recent research has indicated there are potential problems with telecommuting. Some managers are reluctant to adopt the practice because the pace of change in today's workplace is faster than ever, and telecommuters may be left behind or actually cause managers more work in helping them stay abreast of changes. Some employers also worry that telecommuting workers create a security risk by creating more opportunities for computer hackers or equipment thieves.

Chapter 10 - Managing Human Resources

Chapter 10 Managing Human Resources

True / False Questions 1. Planning as a function of human resources management includes determining the status of current personnel when planning human resource needs for the future. TRUE Human resources department ascertains how many employees a company currently has and how many will be retiring or otherwise leaving the organization during the planning period. With this information, the human resources manager can then forecast how many more employees the company will need to hire and what qualifications they must have.

AACSB: Analytic Accessibility: Keyboard Navigation Bloom's: Understand Difficulty: 2 Medium Learning Objective: 10-01 Define human resources management and explain its significance. Topic: The Importance of Human Resource Management

Chapter 10 - Managing Human Resources

2. It is not necessary for a company to verify an applicant's references because most applicants tell the truth on applications or résumés. FALSE Before making a job offer, a company should always check an applicant's references. Background checking is important because applicants may misrepresent themselves on their applications or résumés.

AACSB: Analytic Accessibility: Keyboard Navigation Bloom's: Remember Difficulty: 1 Easy Learning Objective: 10-02 Summarize the processes of recruiting and selecting human resources for a company. Topic: Recruitment and Hiring

Chapter 10 - Managing Human Resources

3. Classroom training allows employees to learn by actually performing the tasks involved in their jobs. FALSE Classroom training teaches employees with lectures, conferences, videotapes, case studies, and web-based training. For instance, McDonald's trains those interested in company operations and leadership development at the Fred L. Turner Training Center, otherwise known as Hamburger University.

AACSB: Analytic Accessibility: Keyboard Navigation Bloom's: Remember Difficulty: 1 Easy Learning Objective: 10-03 Discuss how workers are trained and their performance appraised. Topic: Training and Evaluation

4. Compensation for individuals within a specific job category depends on the compensation for that job and not on the individual's productivity. FALSE Compensation for individuals within a specific job category depends on both the compensation for that job and the individual's productivity.

AACSB: Analytic Accessibility: Keyboard Navigation Bloom's: Remember Difficulty: 1 Easy Learning Objective: 10-05 Specify the various ways a worker may be compensated. Topic: How Employees Move Through a Company

Chapter 10 - Managing Human Resources

5. Threats against employers made on social media sites are protected speech. FALSE Under the National Labor Relations Act of 1935, certain private-sector employees are allowed to complain about working conditions and pay—which seems to apply to social media sites as well. Threats, on the other hand, are not protected.

AACSB: Analytic Accessibility: Keyboard Navigation Bloom's: Understand Difficulty: 2 Medium Learning Objective: 10-07 Describe the importance of diversity in the workforce. Topic: Cultural Diversity in the Workplace

Multiple Choice Questions 6. A human resources manager deciding how many new employees a company will need to fill vacant positions in the near future is engaging in the activity of _____. A. recruiting B. planning C. training D. selling E. compensating A human resources manager deciding how many new employees a company will need to fill vacant positions in the near future is engaging in the activity of planning. Part of the planning function for a human resources manager involves determining how many employees a company currently has and how many will be retiring or otherwise leaving the organization during the planning period.

Chapter 10 - Managing Human Resources

7. _____ involves determining, through observation and study, the specific tasks that comprise a job and the knowledge, skills, and abilities necessary to perform the job. A. Job description B. Job specification C. Job design D. Job analysis E. Job appraisal Job analysis determines, through observation and study, pertinent information about a job— the specific tasks that constitute it; the knowledge, skills, and abilities necessary to perform it; and the environment in which it will be performed. Managers use the information obtained through a job analysis to develop job descriptions and job specifications.

AACSB: Analytic Accessibility: Keyboard Navigation Bloom's: Remember Difficulty: 1 Easy Learning Objective: 10-01 Define human resources management and explain its significance. Topic: The Importance of Human Resource Management

8. An overview of a job's title, tasks, relationships with other jobs, the physical and mental skills required, duties, responsibilities, and working conditions is referred to as: A. job appraisal. B. the job portfolio. C. the job description. D. the job analysis. E. job specification. A job description is a formal, written explanation of a specific job that usually includes job title, tasks to be performed relationship with other jobs, physical and mental skills required, duties, responsibilities, and working conditions. Job seekers might turn to online websites or databases to help find job descriptions for specific occupations.

Chapter 10 - Managing Human Resources

9. Zen W Inc., a publication house, has posted an advertisement inviting applicants for the post of a graphic designer. They have specified that the job would involve illustration of content by designing aesthetically tasteful layouts. This specification is an example of: A. job appraisal. B. a job description. C. job enquiry. D. job analysis. E. a job specification. This specification given in the scenario is an example of a job description. A job description is a formal, written explanation of a specific job that usually includes job title, tasks to be performed relationship with other jobs, physical and mental skills required, duties, responsibilities, and working conditions.

AACSB: Reflective Thinking Accessibility: Keyboard Navigation Bloom's: Apply Difficulty: 2 Medium Learning Objective: 10-01 Define human resources management and explain its significance. Topic: The Importance of Human Resource Management

10. Which of the following information is most likely to be included in a job specification rather than a job description? A. Mental skills required for a job B. Working conditions C. Responsibilities associated with a job D. Tasks to be performed E. Education qualification required for a job A job description is a formal, written explanation of a specific job that usually includes job title, tasks to be performed relationship with other jobs, physical and mental skills required, duties, responsibilities, and working conditions, whereas a job specification describes the qualifications necessary for a specific job, in terms of education (some jobs require a college degree), experience, personal characteristics (ads frequently request outgoing, hardworking persons), and physical characteristics.

Chapter 10 - Managing Human Resources

11. Which of the following statements is true of a job specification as well as a job description? A. Both the job description and job specification are used exclusively for internal job postings. B. Both the job description and job specification determine, through observation and study, pertinent information about a job. C. Both the job description and job specification are used to develop recruiting materials. D. Both the job description and job specification specify the cost of hiring current employees to fill job openings. E. Both the job description and job specification specify the educational qualification required for a job. Both the job description and job specification are used to develop recruiting materials such as newspapers, trade publications, and online advertisements. A job description is a formal, written explanation of a specific job that usually includes job title, tasks to be performed, relationship with other jobs, physical and mental skills required, duties, responsibilities, and working conditions, whereas a job specification describes the qualifications necessary for a specific job, in terms of education (some jobs require a college degree), experience, personal characteristics (ads frequently request outgoing, hardworking persons), and physical characteristics.

Chapter 10 - Managing Human Resources

12. The qualifications necessary for a specific job, in terms of education, experience, and personal and physical characteristics are spelled out in the _____. A. job evaluation details B. job specification C. job analysis D. job description E. job assessment details A job specification describes the qualifications necessary for a specific job in terms of education, experience, personal characteristics, and physical characteristics. Job specification is used to develop recruiting materials such as newspapers, trade publications, and online advertisements.

13. Which of the following functions of human resources management includes testing? A. Planning B. Assessing C. Selection D. Training E. Compensating Testing is one of the steps in the selection process. Ability and performance tests are used to determine whether an applicant has the skills necessary for a job.

Chapter 10 - Managing Human Resources

14. _____ refers to forming a pool of qualified applicants from which management can select new employees. A. Planning B. Training C. Compensating D. Appraising E. Recruiting Recruiting means forming a pool of qualified applicants from which management can select employees. There are two sources from which to develop this pool of applicants—internal and external.

15. When compared to the external sources of recruitment, recruiting from internal sources: A. results in higher turnover. B. incurs higher costs. C. increases the possibility of lockouts. D. decreases picketing. E. improves employee morale. When compared to the external sources of recruitment, recruiting from internal sources improves employee morale. The cost of hiring current employees to fill job openings is inexpensive when compared with the cost of hiring from external sources.

AACSB: Analytic Accessibility: Keyboard Navigation Bloom's: Understand Difficulty: 2 Medium Learning Objective: 10-02 Summarize the processes of recruiting and selecting human resources for a company. Topic: Recruitment and Hiring

Chapter 10 - Managing Human Resources

16. Which of the following is an internal source of recruitment for an organization? A. Vocational schools B. Current employees C. Social networking sites D. Competing firms E. Colleges Internal sources of applicants include the organization's current employees. Many firms have a policy of giving first consideration to their own employees—or promoting from within.

17. Why do many firms have a policy of giving first consideration to their own employees? A. Current employees contribute to the increase in diversity of ideas. B. Current employees do not require pay hikes. C. The process of hiring current employees reduces instances of jealousy among the rest of the workforce. D. The practice of hiring current employees promotes diversity in the workforce. E. The process of hiring current employees involves head hunting. F. The cost of hiring current employees to fill job openings is inexpensive. The cost of hiring current employees to fill job openings is inexpensive when compared with the cost of hiring from external sources, and it is good for employee morale. Internal sources of applicants include the organization's current employees. Many firms have a policy of giving first consideration to their own employees—or promoting from within.

Chapter 10 - Managing Human Resources

18. Lazar Inc., a software firm, has taken to recruiting potential employees from engineering colleges to fill its entry-level vacancies. On the basis of the given information, which of the following observations holds true? A. The management at Lazar is engaging in the process of head hunting. B. The management at Lazar is hiring its employees from external sources. C. The management at Lazar is putting up internal job listings. D. The management at Lazar is engaged in the process of employee orientation. E. The management at Lazar is offering internships. The management at Lazar is hiring its employees from external sources. External sources of applicants consist of advertisements in newspapers and professional journals, employment agencies, colleges, vocational schools, recommendations from current employees, competing firms, unsolicited applications, online websites, and social networking sites such as LinkedIn.

AACSB: Reflective Thinking Accessibility: Keyboard Navigation Bloom's: Apply Difficulty: 2 Medium Learning Objective: 10-02 Summarize the processes of recruiting and selecting human resources for a company. Topic: Recruiting and Selecting New Employees

19. A characteristic of search firms known as headhunters is that they: A. focus on internal rather than external sources of recruitment. B. specialize in recruiting employees for entry-level jobs. C. look for qualified candidates who are working for other companies. D. undertake training for unusual job requirements or skill sets. E. operate as career planners for employees within organizations. A characteristic of search firms known as headhunters is that they look for qualified candidates who are working for other companies. For managerial or professional positions above the entry level, companies sometimes depend on employment agencies or executive search firms, sometimes called headhunters, which specialize in luring qualified people away from other companies.

Chapter 10 - Managing Human Resources

20. Solutions Inc., an HR consultancy firm, specializes in luring qualified people away from other companies. Many companies hire Solutions Inc. to fill vacancies. On the basis of the given information, we can conclude that Solutions Inc. is included in the category of: A. headhunters. B. arbitrators. C. limited liability companies. D. partnerships. E. public limited companies. On the basis of the given information, we can conclude that Solutions Inc. is included in the category of headhunters. For managerial or professional positions above the entry level, companies sometimes depend on employment agencies or executive search firms, sometimes called headhunters, which specialize in luring qualified people away from other companies.

21. An employer beginning the selection process for new employees would begin with the _____. A. training process B. reference checking process C. testing step D. the application form E. orientation process In the first stage of the selection process, an individual fills out an application form and perhaps has a brief interview. The application form asks for the applicant's name, address, telephone number, education, and previous work experience.

Chapter 10 - Managing Human Resources

22. Which stage of the employee selection process allows management to obtain detailed information about an applicant's experience and skills, reasons for changing jobs, and an idea of whether the person would fit in with the company? A. Orientation B. Training C. Testing D. Reference checking E. Interviewing Interviews allow management to obtain detailed information about an applicant's experience and skills, reasons for changing jobs, attitudes toward the job, and an idea of whether the person would fit in with the company. Furthermore, in this phase, an interviewer can answer the applicant's questions about the requirements for the job, compensation, working conditions, company policies, organizational culture, and so on.

23. Which stage of the selection process requires a candidate to undergo physical examinations to determine his or her suitability for a specific job? A. Orientation B. Reference checking C. Interviewing D. Filling out the application form E. Testing During the testing stage of the selection process, applicants may undergo physical examinations to determine their suitability for some jobs, and many companies require applicants to be screened for illegal drug use.

Chapter 10 - Managing Human Resources

24. At which stage in the selection process is an employer likely to make use of the MyersBriggs Type Indicator? A. Interviewing B. Reference checking C. Orientation D. Training E. Testing Myers-Briggs Type Indicator Test is used at the testing stage. Ability and performance tests are used to determine whether an applicant has the skills necessary for the job.

25. Reference checking usually involves: A. monitoring the working conditions in a firm. B. checking a company's compliance with its policies. C. assessing an applicant's potential for a job. D. checking the previous work experience of a candidate. E. identifying possible sources for recruitment. Reference checking usually involves verifying educational background and previous work experience. Before making a job offer, a company should always check an applicant's references.

Chapter 10 - Managing Human Resources

26. The human resources department of a publication house is engaged in the process of verifying the educational qualifications of newly-recruited employees. Which of the following stages of the selection process is the human resources department involved in at present? A. Interviewing B. Reference checking C. Orientation D. Training E. Testing The HR department is involved in the process of reference checking. Reference checking usually involves verifying educational background and previous work experience.

27. The _____ is a federal agency established by the Civil Rights Act of 1964 and dedicated to increasing job opportunities for women and minorities and eliminating job discrimination based on race, religion, color, sex, national origin, or disability. A. National Center for Civil and Human Rights B. United States Commission on Civil Rights C. Equal Employment Opportunity Commission D. Pension Benefit Guaranty Corporation E. National Association for the Advancement of Colored People Title VII of the Civil Rights Act of 1964 prohibits discrimination in employment. It also created the Equal Employment Opportunity Commission (EEOC), a federal agency dedicated to increasing job opportunities for women and minorities and eliminating job discrimination based on race, religion, color, sex, national origin, or disability. In 2013, workplace discrimination charges filed with the Equal Employment Opportunity Commission were 93,727.

Chapter 10 - Managing Human Resources

28. The Americans with Disabilities Act: A. states that people with AIDS are not disabled. B. prohibits using a positive AIDS test as reason to deny an applicant employment. C. mandates that men and women who do equal work must receive the same wage. D. specifically outlaws discrimination based on age. E. prohibits discrimination on the basis of race. The Americans with Disabilities Act (ADA) classifies people with AIDS as handicapped and, consequently, prohibits using a positive AIDS test as reason to deny an applicant employment. This act prevents discrimination against disabled persons.

29. In the United States, wage differences are acceptable only if: A. they are attributed to age. B. they are based on racial considerations. C. they are based on religious considerations. D. they are attributed to seniority. E. they are attributed to national origin. Wage differences are acceptable only if they are attributed to seniority, performance, or qualifications. The Equal Pay Act mandates that men and women who do equal work must receive the same wage.

Chapter 10 - Managing Human Resources

30. Which of the following practices is considered to be illegal in the United States? A. Considering people with AIDS as disabled B. Paying men and women unequal pays based on seniority C. Forcing employees to retire on the basis of age D. Firing employees due to excessive absenteeism E. Using the Myers-Briggs Type Indicator Test in the recruitment process Forced retirement based on age, is generally considered to be illegal in the United States, although claims of forced retirement still abound. However, when companies need employees, recruiters often head to college campuses, and when downsizing is necessary, many older workers are offered early retirement.

31. Orientation is the human resources function that: A. includes building tours, introductions, and socialization. B. provides on-the-job training to employees. C. appraises employees subjectively. D. teaches employees to do specific job tasks. E. occurs after the employee is on the job for several months. Orientation familiarizes the newly hired employees with fellow workers, company procedures, and the physical properties of the company and generally includes a tour of the building, introductions, and socialization.

AACSB: Analytic Accessibility: Keyboard Navigation Bloom's: Understand Difficulty: 2 Medium Learning Objective: 10-03 Discuss how workers are trained and their performance appraised. Topic: Training and Evaluation

Chapter 10 - Managing Human Resources

32. _____ familiarizes newly hired employees with fellow workers, company procedures, and the physical properties of the company. A. Development B. Reference checking C. Orientation D. Training E. Testing Orientation familiarizes the newly hired employees with fellow workers, company procedures, and the physical properties of the company. It generally includes a tour of the building; introductions to supervisors, co-workers, and subordinates; and the distribution of organizational manuals describing the organization's policy on vacations, absenteeism, lunch breaks, company benefits, and so on.

33. Which of the following is an advantage of the orientation process? A. It allows firms to teach new employees specific job tasks. B. It allows firms to provide on-the-job training to employees. C. It allows firms to conduct employee appraisals subjectively. D. It allows firms to familiarize new employees with prevalent office culture. E. It allows firms to recruit current employees for vacant positions. Orientation familiarizes the newly hired employees with fellow workers, company procedures, and the physical properties of the company. It generally includes a tour of the building; introductions to supervisors, coworkers, and subordinates; and the distribution of organizational manuals describing the organization's policy on vacations, absenteeism, lunch breaks, company benefits, and so on.

Chapter 10 - Managing Human Resources

34. Fluffy Bakes, a popular bakery, allows its newly recruited employees to learn the processes involved at its premises by actually working on live assignments. The training process at Fluffy Bakes best exemplifies: A. classroom training. B. on-the-job training. C. simulation training. D. game learning. E. virtual learning. The training process at Fluffy Bakes best exemplifies on-the-job training. On-the-job training allows workers to learn by actually performing the tasks of the job.

AACSB: Reflective Thinking Accessibility: Keyboard Navigation Bloom's: Apply Difficulty: 2 Medium Learning Objective: 10-03 Discuss how workers are trained and their performance appraised. Topic: Training and Evaluation

35. Life Line, a chain of healthcare providers, sends its employees who are interested in learning about hospital management to some of the leading institutes in the nation. The training process at Life Line best exemplifies: A. classroom training. B. on-the-job training. C. simulation training. D. game learning. E. virtual learning. The training process at Life Line best exemplifies classroom training. Classroom training teaches employees with lectures, conferences, videotapes, case studies, and web-based training.

Chapter 10 - Managing Human Resources

36. What is the primary reason that training is considered a vital function of human resources management? A. It is used to improve the skills of employees in their present positions and to prepare them for increased responsibility. B. It familiarizes newly hired employees in a company with senior colleagues and the overall company procedures of the company. C. It involves verifying educational background and previous work experience of employees. D. It is used to assess an applicant's potential for a certain kind of work and his or her ability to fit into an organization's culture. E. It allows management to obtain detailed information about a job applicant's experience and skills, reasons for changing jobs, attitudes toward the job, and an idea of whether the person would fit in with the company. Training and development used to improve the skills of employees in their present positions and to prepare them for increased responsibility and job promotions. Training is therefore a vital function of human resources management. Companies are engaging in more experiential and involvement oriented-training exercises for employees.

Chapter 10 - Managing Human Resources

37. Which of the following is a part of the training function of human resources management? A. Development B. A tour of the building C. Introductions to supervisors D. Description of company benefits E. Distribution of organizational manuals Development is training that augments the skills and knowledge of managers and professionals. Training and development are used to improve the skills of employees in their present positions and to prepare them for increased responsibility and job promotions.

Chapter 10 - Managing Human Resources

38. Vikram is an employee at Monsanto research lab. In an effort to improve his managerial skills and prepare him for a promotion, his company sends him on a series of experiential management training exercises at the company's expense. By helping him increase his knowledge, Vikram's company is focusing on: A. development. B. orientation. C. testing. D. grade assignment. E. performance appraisal. By helping him increase his knowledge, Vikram's company is focusing on development. Development is training that augments the skills and knowledge of managers and professionals. Training and development are also used to improve the skills of employees in their present positions and prepare them for increased responsibility and job promotions.

AACSB: Reflective Thinking Accessibility: Keyboard Navigation Bloom's: Apply Difficulty: 3 Hard Learning Objective: 10-03 Discuss how workers are trained and their performance appraised. Topic: Training and Evaluation

39. A _____ is a performance appraisal method that provides feedback from a panel that typically includes superiors, peers, and subordinates. A. ranking procedure B. grade assignment C. polygraph test D. 360-degree feedback system E. behavioral checklist The 360-degree feedback system provides feedback from a panel that typically includes superiors, peers, and subordinates. Because of the tensions it may cause, peer appraisal appears to be difficult for many.

Chapter 10 - Managing Human Resources

40. At the manufacturing unit of a tire company, the appraisal process primarily focuses on rewarding employees on the basis of the rate at which work is regularly produced by them. The appraisal process is focusing on the _____ aspect. A. quality B. knowledge C. initiative D. productivity E. adaptability The appraisal process of the company is focusing on the productivity aspect. Productivity refers to the rate at which work is regularly produced.

41. In the context of a performance review, _____ refers to an employee's willingness to identify and address opportunities for improvement. A. quality B. knowledge C. initiative D. productivity E. adaptability Initiative refers to an employee's willingness to identify and address opportunities for improvement. Performance appraisal is crucial because it gives employees feedback on how they are doing and what they need to do to improve.

Chapter 10 - Managing Human Resources

42. In the context of a performance review, _____ refers to the extent to which resourceful ideas, solutions, and methods for task completion are proposed. A. quality B. knowledge C. initiative D. productivity E. creativity In the context of a performance review, creativity refers to the extent to which resourceful ideas, solutions, and methods for task completion are proposed. Performance appraisal is crucial because it gives employees feedback on how they are doing and what they need to do to improve.

43. In the context of a performance review, _____ refers to responsiveness, reliability, and conscientiousness demonstrated by an employee on the job. A. dependability B. knowledge C. initiative D. productivity E. creativity Dependability refers to responsiveness, reliability, and conscientiousness demonstrated by an employee on the job. Performance appraisal is crucial because it gives employees feedback on how they are doing and what they need to do to improve.

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44. Sophia, a software engineer, moves to a new job that involves more responsibility and an increase in compensation. This transition would typically be considered a(n): A. transfer. B. conciliation. C. separation. D. arbitration. E. promotion. Sophia's transition will be considered a promotion. A promotion involves advancement to a higher-level job with increased authority, responsibility, and pay.

AACSB: Analytic Accessibility: Keyboard Navigation Bloom's: Understand Difficulty: 1 Easy Learning Objective: 10-04 Identify the types of turnover companies may experience and explain why turnover is an important issue. Topic: How Employees Move Through a Company

45. Joe was recently moved to a new position in his company that involved learning new skills and undertaking work assignments. However, he received no salary raise. Joe's change in position can best be described as a(n): A. promotion. B. lockout. C. separation. D. arbitration. E. transfer. Joe's change in position can best be described as a transfer. A transfer is a move to another job within the company at essentially the same level and wage. Transfers allow workers to obtain new skills or to find a new position within an organization.

Chapter 10 - Managing Human Resources

46. Which of the following statements is true of a separation? A. It is an employee's departure from an organization. B. It is an employment change that involves demotion. C. It is an advancement to a higher-level job. D. It is a temporary suspension of employment due to violation of work rules. E. It is a horizontal move from one job to another within the same company. Separations occur when employees resign, retire, are terminated, or are laid off. Employees may also be terminated, or fired, for poor performance, violation of work rules, absenteeism, and so on.

AACSB: Analytic Accessibility: Keyboard Navigation Bloom's: Understand Difficulty: 2 Medium Learning Objective: 10-04 Identify the types of turnover companies may experience and explain why turnover is an important issue. Topic: How Employees Move Through a Company

47. Socorro was terminated from her job by her employer because she was repeatedly late to work. She contributes to her company's turnover through: A. conciliation. B. demotion. C. transfer. D. separation. E. arbitration. Socorro contributes to her company's turnover through separation. Separations occur when employees resign, retire, are terminated, or are laid off. Employees may be terminated, or fired, for poor performance, violation of work rules, absenteeism, and so on.

AACSB: Reflective Thinking Accessibility: Keyboard Navigation Bloom's: Apply Difficulty: 3 Hard Learning Objective: 10-04 Identify the types of turnover companies may experience and explain why turnover is an important issue. Topic: How Employees Move Through a Company

Chapter 10 - Managing Human Resources

48. Which of the following is likely to be an unacceptable reason for firing an employee? A. Violation of company rules B. Excessive absenteeism C. Frequent tardiness D. Being a union organizer E. Poor performance Firing an employee for being a union organizer is not legal. Employees may be terminated, or fired, for poor performance, violation of work rules, absenteeism, and so on. Businesses have traditionally been able to fire employees at will, that is, for any reason other than for race, religion, sex, or age, or because an employee is a union organizer. However, recent legislation and court decisions now require that companies fire employees fairly, for just cause only.

49. Which of the following is a valid reason for firing an employee? A. Religious differences B. Excessive absenteeism C. Racial consideration D. Age concerns E. Ties to union bodies Employees may be terminated, or fired, for poor performance, violation of work rules, absenteeism, and so on. Businesses have traditionally been able to fire employees at will, that is, for any reason other than for race, religion, sex, or age, or because an employee is a union organizer. However, recent legislation and court decisions now require that companies fire employees fairly, for just cause only.

Chapter 10 - Managing Human Resources

50. A well-organized human resources department strives to: A. increase lockouts. B. avoid arbitration to resolve third party issues. C. minimize losses due to separations and transfers. D. discourage strikebreaking. E. fire employees because of their race, religion, gender, or age. A well-organized human resources department strives to minimize losses due to separations and transfers because recruiting and training new employees is very expensive.

51. Financial compensation falls into two general categories, which are: A. time wages and piece wages. B. wages and salaries. C. wages and benefits. D. commissions and incentives. E. salaries and benefits. Financial compensation falls into two general categories—wages and salaries.

Chapter 10 - Managing Human Resources

52. A wage/salary survey indicates: A. how much employees in a company need to earn in order to meet their financial needs. B. how much compensation similar firms are paying for jobs that the firms have in common. C. the proportion of compensation that can be paid through non-financial methods. D. how satisfied employees are with the compensation they receive from their employers. E. the differences between the salaries of men and women performing the same jobs. Compensation for a specific job is typically determined through a wage/salary survey, which tells the company how much compensation comparable firms are paying for specific jobs that the firms have in common.

AACSB: Analytic Accessibility: Keyboard Navigation Bloom's: Understand Difficulty: 2 Medium Learning Objective: 10-05 Specify the various ways a worker may be compensated. Topic: How Employees Move Through a Company

53. Which of the following statements is true of payment using time wages? A. It encourages employees to be more productive. B. It provides incentives to increase productivity. C. It is primarily used for skilled workers. D. It is appropriate when employees are continually interrupted. E. It is used when quantity is more important than quality. Time wages are appropriate when employees are continually interrupted and when quality is more important than quantity. The advantage of time wages is the ease of computation. The disadvantage is that time wages provide no incentive to increase productivity. In fact, time wages may encourage employees to be less productive.

Chapter 10 - Managing Human Resources

54. What is an advantage of time wages? A. It provides incentives to improve productivity. B. It can be computed easily. C. It is associated with an employee's self-actualization needs. D. It is accurate as it is based on the level of output achieved. E. It encourages employees to supervise their own activities. The advantage of time wages is the ease of computation. The disadvantage is that time wages provide no incentive to increase productivity.

55. What is a disadvantage of time wages? A. Time wages stress on quantity of products rather than quality. B. Time wages are subjective in nature. C. Time wages provide no incentive to increase productivity. D. Time wages are fixed and do not depend on the performance of an employee. E. Time wages are not very transparent and can lead to disputes. The disadvantage is that time wages provide no incentive to increase productivity. The advantage of time wages is the ease of computation.

Chapter 10 - Managing Human Resources

56. Which of the following is a major advantage of piece wages? A. It provides incentives to improve productivity. B. It stresses on improving quality of products at the expense of quantity. C. It is directly associated with an employee's self-actualization needs. D. It is easy to compute as it remains fixed for every employee. E. It requires a manager to supervise the work of subordinates. Piece wages are based on the level of output achieved. A major advantage of piece wages is that they motivate employees to supervise their own activities and to increase output.

57. In a sales company, employees are paid a percentage of their sales in order to motivate them to sell as much as they can. The company incorporates _____ as an incentive system. A. commissions B. time wages C. profit sharing D. salaries E. bonuses The payment method of commissions motivates employees to sell as much as they can. Through a commission, an employer pays a fixed amount or a percentage of the employee's sales.

AACSB: Reflective Thinking Accessibility: Keyboard Navigation Bloom's: Apply Difficulty: 2 Medium Learning Objective: 10-05 Specify the various ways a worker may be compensated. Topic: How Employees Move Through a Company

Chapter 10 - Managing Human Resources

58. Which of the following statements is true of using salary as employee compensation? A. It involves distributing a percentage of company profits. B. It is a nonfinancial reward. C. It is associated with white-collar workers. D. It involves paying a percentage of an employee's sales. E. It a monetary reward for exceptional performance. A salary is a financial reward calculated on a weekly, monthly, or annual basis. Salaries are associated with white-collar workers such as office personnel, executives, and professional employees.

59. If a company pays its workers additional compensation at the end of a year as a "thank you" for good work, this monetary reward would most likely be categorized as: A. a wage. B. a commission. C. a salary. D. a benefit. E. a bonus. In addition to the basic wages or salaries paid to employees, a company may offer bonuses for exceptional performance as an incentive to increase productivity further. Many workers receive a bonus as a "thank you" for good work and an incentive to continue working hard.

Chapter 10 - Managing Human Resources

60. Which of the following forms of compensation includes an employee stock ownership plan? A. Wages B. Bonuses C. Profit sharing D. Salaries E. Commissions Profit sharing is a form of compensation whereby a percentage of company profits or employee stock ownership plan is distributed to the employees whose work helped to generate them.

AACSB: Analytic Accessibility: Keyboard Navigation Bloom's: Understand Difficulty: 1 Easy Learning Objective: 10-05 Specify the various ways a worker may be compensated. Topic: How Employees Move Through a Company

61. Which of the following statements is true of employee stock ownership plans? A. They encourage employees to become involved in strikebreaking. B. They create a sense of partnership between a firm and its employees. C. They reduce employee morale and productivity. D. They increase the possibility of lockouts. E. They are applicable only to senior employees of a firm. Usually referred to as ESOPs, employee stock ownership plans have been gaining popularity in recent years. One reason for the popularity of ESOPs is the sense of partnership that they create between the organization and employees. Many businesses have found employee stock options a great way to boost productivity and increase morale.

Chapter 10 - Managing Human Resources

62. _____ are nonfinancial forms of compensation provided to employees. A. Commissions B. Benefits C. Time wages D. Piece wages E. Bonuses Benefits are nonfinancial forms of compensation provided to employees, such as pension plans for retirement; health, disability, and life insurance; holidays and paid days off for vacation or illness; credit union membership; health programs; child care; elder care; assistance with adoption; and more.

63. _____ include sick leave, vacation pay, pension plans, health plans, and any other extra compensation. A. Soft benefits B. Bonuses C. Commissions D. Fringe benefits E. Diversity plans Fringe benefits include sick leave, vacation pay, pension plans, health plans, and any other extra compensation. Soft benefits include perks that help balance life and work.

Chapter 10 - Managing Human Resources

64. Which of the following is a form of financial compensation? A. Paid vacation B. Health insurance C. Pension plans D. Commissions E. Child care Commission is an incentive system that pays a fixed amount or a percentage of the employee's sales. Benefits are nonfinancial forms of compensation provided to employees, such as pension plans for retirement, health, disability and so on.

65. _____ is the negotiation process through which management and unions reach an agreement about compensation, working hours, and working conditions for concerned employees. A. Bracketed arbitration B. Mediation C. Collective bargaining D. Conciliation E. Picketing Collective bargaining is the negotiation process through which management and unions reach an agreement about compensation, working hours, and working conditions for the bargaining unit

AACSB: Analytic Accessibility: Keyboard Navigation Bloom's: Remember Difficulty: 1 Easy Learning Objective: 10-06 Discuss some of the issues associated with unionized employees, including collective bargaining and dispute resolution. Topic: The Elements of Collective Bargaining

Chapter 10 - Managing Human Resources

66. What is the significance of the "cost-of-living adjustment" clause in labor contracts? A. It calls for automatic wage increases during periods of inflation. B. It calls for an increase in turnover rates during periods of recession. C. It calls for automatic wage decreases during periods of recession. D. It calls for employers to provide safe working conditions for employees. E. It calls for employers to fulfill the self-actualization needs of employees. Many labor contracts contain a cost-of-living escalator (or adjustment) (COLA) clause, which calls for automatic wage increases during periods of inflation to protect the "real" income of the employees. During tough economic times, unions may be forced to accept givebacks— wage and benefit concessions made to employers to allow them to remain competitive or, in some cases, to survive and continue to provide jobs for union workers.

67. Employee organizations formed to deal with employers for achieving better pay, hours, and working conditions are known as: A. workforce groups. B. cooperatives. C. working groups. D. labor unions. E. quality circles. Labor unions are employee organizations formed to deal with employers for achieving better pay, hours, and working conditions.

Chapter 10 - Managing Human Resources

68. Which of the following objectives do labor unions strive to achieve? A. To reduce leaves B. To increase overtime rates C. To increase boycotts D. To increase work hours E. To increase lockouts Unions strive to achieve better pay rates for overtime, holidays, and undesirable shifts; scheduling of pay increases; and benefits.

69. Union growth has slowed in recent years because: A. there has been a shift from the service economy to a manufacturing economy. B. there has been a shift from a service to a manufacturing economy. C. unions are no longer backed by the power of a large group. D. the number of blue-collar jobs has increased. E. factories have become more automated. Union growth has slowed in recent years because most blue-collar workers have already been organized, factories have become automated, and there has been a shift from the manufacturing economy to the service economy.

AACSB: Analytic Accessibility: Keyboard Navigation Bloom's: Understand Difficulty: 2 Medium Learning Objective: 10-06 Discuss some of the issues associated with unionized employees, including collective bargaining and dispute resolution. Topic: The Elements of Collective Bargaining

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70. The formal, written document that spells out the relationship between the union and management for a specified period of time is called a(n): A. mission statement. B. labor contract. C. turnover file. D. arbitration report. E. job specification. A labor contract is the formal, written document that spells out the relationship between the union and management for a specified period of time, usually two or three years.

71. In a labor contract, the _____ clause calls for automatic wage increases during periods of inflation to protect the "real" income of employees. A. non-compete B. giveback C. arbitration D. cost-of-living escalator E. wage-salary Many labor contracts contain a cost-of-living escalator (COLA) clause, which calls for automatic wage increases during periods of inflation to protect the "real" income of the employees.

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72. _____ is a public protest against management practices and involves union members marching at an employer's plant or work site. A. Bracketed arbitration B. Mediation C. Promoting D. Conciliation E. Picketing Picketing is a public protest against management practices and involves union members marching (often waving anti management signs and placards) at the employer's plant or work site. Picketing workers hope that their signs will arouse sympathy for their demands from the public and from other unions.

73. Which of the following statements is true of a strike? A. It prevents people from purchasing a company's products. B. It is initiated by the management. C. It halts or disrupts the normal working of a firm. D. It is one of the least effective labor weapons. E. It seldom disrupts normal working conditions. By striking, a union makes carrying out the normal operations of a business difficult at best and impossible at worst. Strikes receive widespread publicity, but they remain a weapon of last resort.

Chapter 10 - Managing Human Resources

74. Which of the following statements is true of a boycott? A. It attempts to keep people from purchasing a company's products. B. It is initiated by the management. C. It restricts labor unions from arranging strikes. D. It is the management's version of strike. E. It has proven to be the most effective weapon of labor unions. A boycott is an attempt to keep people from purchasing the products of a company. In a boycott, union members are asked not to do business with the boycotted organization.

75. Which of the following is a management's version of a strike? A. An arbitration B. A boycott C. A lockout D. A mediation E. A conciliation Management's version of a strike is a lockout. Lockouts are used, as a general rule, only when a union strike has partially shut down a plant and it seems less expensive for the plant to close completely.

Chapter 10 - Managing Human Resources

76. The management at a firm shuts down its plant completely, restricting all its employees from coming to work. The management's decision was followed by a partial strike called by the union members. This situation best represents a(n): A. injunction. B. embargo. C. boycott. D. lockout. E. picket. The situation in the given scenario best represents a lockout. Management's version of a strike is the lockout where the management actually closes a work site so that employees cannot go to work.

77. When is a firm most likely to vote for a lockout? A. When a neutral third party is brought in to keep labor and management talking B. When a union strike has partially shut down a plant and it seems less expensive for the plant to close completely C. When mediation involves bringing in a neutral third party, but the mediator's role is to suggest or propose a solution to the problem and not to forge a binding contract D. When the cost of hiring new employees to replace striking employees is minimal E. When it wants to keep people from purchasing the products of a company Lockouts are used, as a general rule, only when a union strike has partially shut down a plant and it seems less expensive for the plant to close completely. Management's version of a strike is the lockout where the management actually closes a work site so that employees cannot go to work.

Chapter 10 - Managing Human Resources

78. Why is strikebreaking generally considered to be a last-resort measure for management? A. It leads to lockouts that affect the normal operations of a business. B. It violates labor laws stated by the U.S. government. C. It requires management to agree to the terms stated by a labor union. D. It does great damage to the relationship between management and labor. E. It requires the involvement of a mediator. Strikebreaking is generally a last-resort measure for management because it does great damage to the relationship between management and labor. Managers hire strikebreakers to continue operations and reduce the losses associated with strikes—and to show the unions that they will not bow to their demands.

79. If the negotiations between a union and the management representatives of a firm come to a standstill and a third party is brought in to make suggestions or propose solutions to help resolve the impasse, though the solutions are not binding on the parties, then the third party would most likely be a(n): A. arbitrator. B. mediator. C. scab. D. picketing agent. E. conciliator. Mediation involves bringing in a neutral third party to keep labor and management talking. The mediator's role is to suggest or propose a solution to the problem.

Chapter 10 - Managing Human Resources

80. If a neutral party is brought in to settle a labor/management dispute and if his or her solution is legally binding and enforceable, the neutral party is most likely to be involved in the process of _____. A. conciliation B. picketing C. mediation D. arbitration E. strikebreaking Arbitration is the settlement of a labor/management dispute by a third party whose solution is legally binding and enforceable.

81. Which of the following aspects of the mediation process distinguishes it from conciliation? A. A mediator's role is to provide a binding and enforceable solution to the problems affecting the management and labor unions. B. A mediator's role is to suggest or propose a solution to the problems affecting the management and labor unions. C. A mediator has no formal power over union representatives or over management. D. The mediation process involves hiring new employees to replace striking employees. E. The mediation process involves bringing in a neutral third party to keep labor and management talking. Conciliation brings in a neutral third party to keep labor and management talking. A conciliator has no formal power over union representatives or over management. Like conciliation, mediation involves bringing in a neutral third party, but the mediator's role is to suggest or propose a solution to the problem.

Chapter 10 - Managing Human Resources

82. The management at Gomars Inc., a firm manufacturing toys, is involved in a dispute with the union members representing its employees. The union members want a pay hike, but the management is not ready to approve the hike. Failing to arrive at a compromise, the disputing parties involve a third party to resolve the issue and offer a solution that is legally binding. The third party in the given scenario best represents a(n): A. mediator. B. arbitrator. C. conciliator. D. strikebreaker. E. scab. The third party in the given scenario best represents an arbitrator. Arbitration is the settlement of a labor/management dispute by a third party whose solution is legally binding and enforceable.

AACSB: Reflective Thinking Accessibility: Keyboard Navigation Bloom's: Apply Difficulty: 2 Medium Learning Objective: 10-06 Discuss some of the issues associated with unionized employees, including collective bargaining and dispute resolution. Topic: The Elements of Collective Bargaining

Chapter 10 - Managing Human Resources

83. Management of a firm and labor submit to compulsory arbitration when: A. the federal government requests arbitration as a means of eliminating a prolonged strike that threatens to disrupt the economy. B. the federal government appoints a member of the management as an arbitrator to resolve disputes that threatens to disrupt the economy. C. the federal government appoints a member of the union as an arbitrator to resolve disputes that threatens to disrupt the economy. D. the federal government appoints a third party as a mediator to resolve disputes that threaten to disrupt the economy. E. the federal government requests mediation as a means of eliminating a prolonged strike that threatens to disrupt the economy. Occasionally, management and labor submit to compulsory arbitration, in which an outside party (usually the federal government) requests arbitration as a means of eliminating a prolonged strike that threatens to disrupt the economy. Arbitration is the settlement of a labor/management dispute by a third party whose solution is legally binding and enforceable.

Chapter 10 - Managing Human Resources

84. The management at LKS Inc., a firm manufacturing hard disks, is involved in a dispute with the union members representing its employees. The management and the labor union do not seem to agree on the amount of compensations that needed to be paid to employees. Failing to arrive at a compromise, the disputing parties involve a third party to resolve the issue and offer a solution to the problems. The solution provided by the third party is open to the approval of both parties involved and is not likely to be binding. The third party in the given scenario best represents a(n): A. mediator. B. arbitrator. C. whistleblower. D. strikebreaker. E. scab. The third party in the given scenario best represents a mediator. Mediation involves bringing in a neutral third party to keep labor and management talking. The mediator's role is to suggest or propose a solution to the problem.

Chapter 10 - Managing Human Resources

85. The management at Links Inc. is faced with a strike threat from union members over a dispute concerning working hours for employees. The disputing parties approach a neutral third party to ensure that the discussions between them are carried forward. The third party, however, has no formal power over union representatives or over management. Which of the following processes is best exemplified in the scenario? A. Picketing B. Arbitration C. Whistle blowing D. Conciliation E. Mediation The process of conciliation is best exemplified in the scenario. Conciliation brings in a neutral third party to keep labor and management talking. The conciliator has no formal power over union representatives or over management.

Chapter 10 - Managing Human Resources

86. The difference between an arbitrator and a mediator is that: A. a mediator is a neutral third party, while an arbitrator is a member of the union. B. a mediator's solution to a labor dispute is enforceable, while the arbitrator's solution is nonenforceable. C. an arbitrator's solution to a labor dispute is binding on the participants, while a mediator's solution is not binding. D. an arbitrator is a neutral third party, while a mediator is a representative of management. E. an arbitrator is a representative of management, while a mediator is a representative of the union. Arbitration is the settlement of a labor/management dispute by a third party whose solution is legally binding and enforceable. Mediation, on the other hand involves bringing in a neutral third party, but the mediator's role is to suggest or propose a solution to the problem. Management and union members normally reach mutually agreeable decisions without outside assistance.

87. Which of the following is a primary characteristic of diversity? A. Age B. Income C. Marital status D. Religion E. Military experience Age is a primary characteristic of diversity. Age, gender, race, ethnicity, abilities, and sexual orientation are the other primary characteristics of diversity that are inborn and cannot be changed.

AACSB: Analytic Accessibility: Keyboard Navigation Bloom's: Remember Difficulty: 1 Easy Learning Objective: 10-07 Describe the importance of diversity in the workforce. Topic: Cultural Diversity in the Workplace

Chapter 10 - Managing Human Resources

88. Which of the following is a secondary characteristic of diversity? A. Income B. Age C. Race D. Gender E. Abilities Income is a secondary characteristic of diversity. Secondary characteristics of diversity also include work background, marital status, military experience, religious beliefs, geographic location, parental status, and education?

89. _____ is a primary characteristic of diversity. A. Age B. Work background C. Religious belief D. Geographic location E. Income Age is a primary characteristic of diversity. Age, gender, race, ethnicity, abilities, and sexual orientation represent primary characteristics of diversity that are inborn and cannot be changed.

AACSB: Analytic Accessibility: Keyboard Navigation Bloom's: Remember Difficulty: 2 Medium Learning Objective: 10-07 Describe the importance of diversity in the workforce. Topic: Cultural Diversity in the Workplace

Chapter 10 - Managing Human Resources

90. If an organization fosters and values workforce diversity, it is most likely to: A. make less productive use of the organization's resources. B. reduce conflict among employees of different cultural groups. C. increase instances of ethnocentrism. D. reduce creativity among the employees. E. decrease its ability to serve the needs of a diverse customer base. Fostering and valuing workforce diversity reduces conflict among employees of different cultural groups. It also increases commitment to and sharing of organizational goals among diverse employees.

91. Companies that do not value their diverse employees are most likely to: A. experience lesser conflict. B. face reverse discrimination. C. experience greater prejudice. D. have increased productivity. E. have lesser instances of ethnocentrism. Companies that do not value their diverse employees are likely to experience greater conflict, as well as prejudice and discrimination. Fostering and valuing workforce diversity reduces conflict among employees of different cultural groups.

Chapter 10 - Managing Human Resources

92. _____ are legally mandated plans that try to increase job opportunities for minority groups. A. Compulsory arbitration programs B. Affirmative action programs C. Diversity training programs D. Employee assistance programs E. Employee welfare programs Affirmative action programs are legally mandated plans that try to increase job opportunities for minority groups by analyzing the current pool of workers, identifying areas where women and minorities are underrepresented, and establishing specific hiring and promotion goals along with target dates for meeting those goals to resolve the discrepancy.

93. Which of the following is a concern that companies have raised against affirmative action plans? A. Companies argue that affirmative action plans stifle their ability to hire the best employees. B. Companies argue that affirmative action plans reduce diversity at the workplace. C. Companies argue that affirmative action plans are not monitored regularly. D. Companies argue that affirmative action plans are not backed by government approval. E. Companies argue that affirmative action plans are arbitrary in nature and are different for different companies. Companies are arguing that affirmative action stifles their ability to hire the best employees, regardless of their minority status. Because of these problems, affirmative action became politically questionable.

Chapter 10 - Managing Human Resources

94. Which of the following factors contributed to the controversies surrounding affirmative action plans? A. Increased reverse discrimination B. High planned obsolescence C. High level of lockout D. Increased picketing E. Frequent boycotts Increased reverse discrimination contributed to the controversies surrounding affirmative action plans. Reverse discrimination occurs when a company's policies force it to consider only minorities or women instead of concentrating on hiring the person who is best qualified.

95. Which of the following is a benefit associated with workforce diversity? A. It leads to increased turnover. B. It contributes to an increasingly homogenous customer base. C. It contributes to decrease in fixed costs. D. It leads to increased innovation. E. It leads to a decreased dependency on automated services. Fostering and valuing workforce diversity leads to increased innovation and creativity as diverse employees bring new, unique perspectives to decision-making and problem-solving tasks.

Chapter 11 - Customer-Driven Marketing

Chapter 11 Customer-Driven Marketing

True / False Questions 1. Creating an innovative product that meets many users' needs is sufficient in today's volatile global marketplace. FALSE Just creating an innovative product that meets many users' needs isn't sufficient in today's volatile global marketplace. Products must be conveniently available, competitively priced, and uniquely promoted.

AACSB: Analytic Accessibility: Keyboard Navigation Bloom's: Remember Difficulty: 1 Easy Learning Objective: 11-01 Define marketing and describe the exchange process. Topic: The Evolution of Marketing

2. The customer value of a product refers to anything a buyer must give up to obtain the benefits the product provides. FALSE Customer cost refers to anything a buyer must give up to obtain the benefits the product provides.

AACSB: Analytic Accessibility: Keyboard Navigation Bloom's: Remember Difficulty: 1 Easy Learning Objective: 11-02 Specify the functions of marketing. Topic: The Evolution of Marketing

Chapter 11 - Customer-Driven Marketing

3. Trying to determine customers' true needs is difficult because no one fully understands what motivates people to buy things. TRUE Trying to determine customers' true needs is increasingly difficult because no one fully understands what motivates people to buy things. However, a business must be prepared to add to or adapt their product lines to keep pace with changing consumer needs and wants.

AACSB: Analytic Accessibility: Keyboard Navigation Bloom's: Remember Difficulty: 1 Easy Learning Objective: 11-03 Explain the marketing concept and its implications for developing marketing strategies. Topic: The Evolution of Marketing

4. Buying behavior includes the behavior of both consumers purchasing products for personal or household use as well as organizations buying products for business use. TRUE Buying behavior refers to the decision processes and actions of people who purchase and use products. It includes the behavior of both consumers purchasing products for personal or household use as well as organizations buying products for business use.

AACSB: Analytic Accessibility: Keyboard Navigation Bloom's: Remember Difficulty: 1 Easy Learning Objective: 11-05 Investigate how marketers conduct marketing research and study buying behavior. Topic: Marketing Research

Chapter 11 - Customer-Driven Marketing

5. It is necessary for nonprofits, government institutions, and even people to market themselves to spread awareness and achieve desired outcomes. TRUE It is not just for-profit businesses that engage in marketing activities. Nonprofits, government institutions, and even people must market themselves to spread awareness and achieve desired outcomes.

AACSB: Analytic Accessibility: Keyboard Navigation Bloom's: Remember Difficulty: 1 Easy Learning Objective: 11-06 Summarize the environmental forces that influence marketing decisions. Topic: Integrated Marketing Communications

Multiple Choice Questions 6. _____ is best described as a group of activities designed to expedite transactions by creating, distributing, pricing, and promoting goods, services, and ideas. A. Auditing B. Marketing C. Recruiting D. Bootstrapping E. Brainstorming A vital part of any business undertaking, marketing is a group of activities designed to expedite transactions by creating, distributing, pricing, and promoting goods, services, and ideas. These activities create value by allowing individuals and organizations to obtain what they need and want.

AACSB: Analytic Accessibility: Keyboard Navigation Bloom's: Remember Difficulty: 1 Easy Learning Objective: 11-01 Define marketing and describe the exchange process. Topic: The Evolution of Marketing

Chapter 11 - Customer-Driven Marketing

7. Marketing activities best create value by: A. focusing exclusively on selling and advertising. B. using unsystematic approaches to satisfying consumers. C. manipulating consumers to get them to buy products they do not want. D. allowing individuals and organizations to obtain what they need and want. E. working independently of other functional areas of business—such as operations. Marketing activities create value by allowing individuals and organizations to obtain what they need and want. Marketing is not manipulating consumers to get them to buy products they do not want. It is not just selling and advertising; it is a systematic approach to satisfying consumers.

AACSB: Analytic Accessibility: Keyboard Navigation Bloom's: Understand Difficulty: 1 Easy Learning Objective: 11-01 Define marketing and describe the exchange process. Topic: The Evolution of Marketing

8. For the success of products launched by companies, it is important that: A. marketing is aggressive and alienated from other functional areas. B. marketing endeavors are directed solely at manipulating consumers. C. all areas of management are coordinated with marketing decisions. D. marketing environment changes constantly. E. one environmental force is not interconnected with another environmental force. Marketing is an important part of a firm's overall strategy. Other functional areas of the business—such as operations, finance, and all areas of management—must be coordinated with marketing decisions.

Chapter 11 - Customer-Driven Marketing

9. _____ has the important function of providing revenue to sustain a firm. A. Accounting B. Recruitment C. Operations D. Marketing E. Finance Marketing has the important function of providing revenue to sustain a firm. It is an important part of a firm's overall strategy. Other functional areas of the business—such as operations, finance, and all areas of management—must be coordinated with marketing decisions.

AACSB: Analytic Accessibility: Keyboard Navigation Bloom's: Remember Difficulty: 1 Easy Learning Objective: 11-01 Define marketing and describe the exchange process. Topic: The Evolution of Marketing

10. Which of the following has most likely taken place when a customer at a bakery hands a cashier $5 for a loaf of bread? A. Collusion B. Monopoly C. Donation D. Exchange E. Coercion An exchange has most likely occurred when a customer at a bakery hands a cashier $5 for a loaf of bread. An exchange is the act of giving up one thing (money, credit, labor, goods) in return for something else (goods, services, or ideas). Businesses exchange their goods, services, or ideas for money or credit supplied by customers in a voluntary exchange relationship.

Chapter 11 - Customer-Driven Marketing

11. By paying the cashier at a spa for services, a customer engages in the process of: A. barter. B. monopoly. C. price fixing. D. marketing. E. exchange. By paying the cashier at a spa for services, a customer engages in the process of exchange. An exchange is the act of giving up one thing (money, credit, labor, goods) in return for something else (goods, services, or ideas). Businesses exchange their goods, services, or ideas for money or credit supplied by customers in a voluntary exchange relationship.

12. At the heart of all business is the_____, the act of giving up one thing in return for something else. A. collusion B. marketing strategy C. manipulation D. exchange E. risk management An exchange is the act of giving up one thing (money, credit, labor, goods) in return for something else (goods, services, or ideas). Businesses exchange their goods, services, or ideas for money or credit supplied by customers in a voluntary exchange relationship.

Chapter 11 - Customer-Driven Marketing

13. Which of the following is a condition required for an exchange to take place? A. Each participant must hold on to his or her respective "something of value."

B. Buyers and sellers must be able to communicate about the "something of value" available to each. C. The items of value offered by the buyers and sellers must be tangible in nature, such as money and cars. D. Products on offer should be standardized by sellers. E. Marketers should conduct research to ascertain the need for new goods and services. AACSB: Analytic Accessibility: Keyboard Navigation Bloom's: Understand Difficulty: 1 Easy Learning Objective: 11-01 Define marketing and describe the exchange process. Topic: The Evolution of Marketing

14. Ryan has produced 1,000 jars of pickled oranges, using the oranges in his orchard. By concentrating his efforts on advertising and publicity, he is trying to encourage people to notice and buy his product. Through his promotional activities, Ryan is primarily engaging in the marketing function of _____. A. financing B. grading C. warehousing D. buying E. selling Through his promotional activities, Ryan is primarily engaging in the marketing function of selling. Marketers usually view selling as a persuasive activity that is accomplished through promotion (advertising, personal selling, sales promotion, publicity, and packaging).

AACSB: Reflective Thinking Accessibility: Keyboard Navigation Bloom's: Apply Difficulty: 2 Medium Learning Objective: 11-02 Specify the functions of marketing. Topic: The Evolution of Marketing

Chapter 11 - Customer-Driven Marketing

15. Burgerama Inc., a popular fast-food chain, is famous for its French fries and hash browns. It is one of the few fast-food chains to exclusively use the potatoes from its own farms. However, its potatoes can be harvested for only three months of the year. Which of the following marketing functions can Burgerama employ to achieve time utility and satisfy yearround demand for its exclusive French fries and hash browns? A. Grading B. Selling C. Storing D. Buying E. Financing Storing in warehouses holds some products for lengthy periods to create a steady supply and thus time utility. Time utility allows marketers to satisfy demand in a timely manner and especially pertains to seasonal products like potatoes.

AACSB: Reflective Thinking Accessibility: Keyboard Navigation Bloom's: Apply Difficulty: 3 Hard Learning Objective: 11-02 Specify the functions of marketing. Topic: The Evolution of Marketing

16. When a packer in the frozen foods section of a grocery store labels a meat steak with little or no fat as "AA" and another meat steak with more fat as "AB," the packer is primarily engaging in the marketing function of _____. A. buying B. grading C. scoring D. storing E. financing The packer is primarily engaging in the marketing function of grading, which refers to standardizing products by dividing them into subgroups and displaying and labeling them so that consumers clearly understand their nature and quality.

AACSB: Analytic Accessibility: Keyboard Navigation Bloom's: Understand Difficulty: 2 Medium Learning Objective: 11-02 Specify the functions of marketing. Topic: The Evolution of Marketing

Chapter 11 - Customer-Driven Marketing

17. _____ is the chance of loss associated with marketing decisions. A. Value B. Utility C. Liability D. Risk E. Cost Risk is the chance of loss associated with marketing decisions. Developing a new product creates a chance of loss if consumers do not like it enough to buy it. Spending money to hire a sales force or to conduct marketing research also involves risk. The implication of risk is that most marketing decisions result in either success or failure.

AACSB: Analytic Accessibility: Keyboard Navigation Bloom's: Remember Difficulty: 1 Easy Learning Objective: 11-02 Specify the functions of marketing. Topic: The Evolution of Marketing

18. The exchange process is expedited through: A. branding. B. storing. C. grading. D. buying. E. selling. The exchange process is expedited through selling. Marketers usually view selling as a persuasive activity that is accomplished through promotion (advertising, personal selling, sales promotion, publicity, and packaging).

AACSB: Analytic Accessibility: Keyboard Navigation Bloom's: Remember Difficulty: 1 Easy Learning Objective: 11-02 Specify the functions of marketing. Topic: The Evolution of Marketing

Chapter 11 - Customer-Driven Marketing

19. _____ is the process of moving products from the seller to the buyer. A. Selling B. Transporting C. Grading D. Storing E. Buying Transporting is the process of moving products from the seller to the buyer. Marketers focus on transportation costs and services.

AACSB: Analytic Accessibility: Keyboard Navigation Bloom's: Remember Difficulty: 1 Easy Learning Objective: 11-02 Specify the functions of marketing. Topic: The Evolution of Marketing

20. Warehouses hold some products for lengthy periods in order to: A. standardize products. B. facilitate smooth transportation. C. create time utility. D. lower fixed costs. E. expedite a purchase. Like transporting, storing is part of the physical distribution of products and includes warehousing goods. Warehouses hold some products for lengthy periods in order to create time utility.

AACSB: Analytic Accessibility: Keyboard Navigation Bloom's: Understand Difficulty: 2 Medium Learning Objective: 11-02 Specify the functions of marketing. Topic: The Evolution of Marketing

Chapter 11 - Customer-Driven Marketing

21. _____ refers to standardizing products by dividing them into subgroups and displaying and labeling them so that consumers clearly understand their nature and quality. A. Transporting B. Grading C. Selling D. Storing E. Financing Grading refers to standardizing products by dividing them into subgroups and displaying and labeling them so that consumers clearly understand their nature and quality.

AACSB: Analytic Accessibility: Keyboard Navigation Bloom's: Remember Difficulty: 1 Easy Learning Objective: 11-02 Specify the functions of marketing. Topic: The Evolution of Marketing

22. Which of the following activities is associated with the process of grading? A. Labeling B. Storing C. Advertising D. Selling E. Researching Grading refers to standardizing products by dividing them into subgroups and displaying and labeling them so that consumers clearly understand their nature and quality.

AACSB: Analytic Accessibility: Keyboard Navigation Bloom's: Remember Difficulty: 1 Easy Learning Objective: 11-02 Specify the functions of marketing. Topic: The Evolution of Marketing

Chapter 11 - Customer-Driven Marketing

23. Through _____, marketers ascertain the need for new goods and services. A. selling activities B. grading activities C. research programs D. promotions E. campaigns Through research, marketers ascertain the need for new goods and services. By gathering information regularly, marketers can detect new trends and changes in consumer tastes.

AACSB: Analytic Accessibility: Keyboard Navigation Bloom's: Remember Difficulty: 1 Easy Learning Objective: 11-02 Specify the functions of marketing. Topic: The Evolution of Marketing

24. A customer's subjective assessment of benefits relative to costs in determining the worth of a product is known as _____. A. risk B. value C. cost D. price E. profit A customer's subjective assessment of benefits relative to costs in determining the worth of a product is referred to as value. It is an important element of managing long-term customer relationships and implementing the marking concept.

AACSB: Analytic Accessibility: Keyboard Navigation Bloom's: Remember Difficulty: 1 Easy Learning Objective: 11-02 Specify the functions of marketing. Topic: The Evolution of Marketing

Chapter 11 - Customer-Driven Marketing

25. Which of the following is a nonmonetary cost associated with purchasing a car? A. The interest rates on the car loan B. The registration of the car C. The excise taxes paid on the car D. The monthly installments of the car loan E. The time taken to test drive various car models The time taken to test drive various car models is a nonmonetary cost associated with purchasing a car. The most obvious cost is the monetary price of the product, but nonmonetary costs can be equally important in a customer's determination of value. Two nonmonetary costs are the time and effort customers expend to find and purchase desired products.

AACSB: Analytic Accessibility: Keyboard Navigation Bloom's: Understand Difficulty: 2 Medium Learning Objective: 11-02 Specify the functions of marketing. Topic: The Evolution of Marketing

26. For greater accessibility, Hakin Inc. has placed its products at every popular superstore. The convenience provided by the company is an example of: A. nonmonetary costs. B. tangible costs. C. variable costs. D. fixed costs. E. overhead costs. Customer costs include anything a buyer must give up to obtain the benefits the product provides. The most obvious cost is the monetary price of the product, but nonmonetary costs can be equally important in a customer's determination of value. Two nonmonetary costs are the time and effort customers expend to find and purchase desired products.

AACSB: Reflective Thinking Accessibility: Keyboard Navigation Bloom's: Apply Difficulty: 2 Medium Learning Objective: 11-02 Specify the functions of marketing. Topic: The Evolution of Marketing

Chapter 11 - Customer-Driven Marketing

27. _____ include anything a buyer must give up to obtain the benefits the product provides. A. Overhead costs B. Customer costs C. Manufacturing costs D. Variable costs E. Promotional costs Customer costs include anything a buyer must give up to obtain the benefits the product provides. The most obvious cost is the monetary price of the product, but nonmonetary costs can be equally important in a customer’s determination of value.

AACSB: Analytic Accessibility: Keyboard Navigation Bloom's: Remember Difficulty: 1 Easy Learning Objective: 11-02 Specify the functions of marketing. Topic: The Evolution of Marketing

28. In the context of the marketing concept, which is the first step that a business must take? A. Develop durable goods. B. Find out what consumers desire. C. Produce innovative products. D. Promote new products. E. Build a brand name. According to the marketing concept, a business must find out what consumers desire and then develop the good, service, or idea that fulfills their needs or wants.

Chapter 11 - Customer-Driven Marketing

29. To gain an edge, businesses must: A. refrain from making changes to their existing range of products. B. launch products into the market directly instead of wasting time in determining what the customers desire. C. continually alter, adapt, and develop products to keep pace with changing consumer needs. D. engage in activities of price fixing with competitors. E. view customer's perception of value as the sole measure of work performance. A basic philosophy that guides all marketing activities is the marketing concept, the idea that an organization should try to satisfy customers' needs through coordinated activities that also allow it to achieve its own goals. In addition, the business must continually alter, adapt, and develop products to keep pace with changing consumer needs and wants.

AACSB: Analytic Accessibility: Keyboard Navigation Bloom's: Understand Difficulty: 2 Medium Learning Objective: 11-03 Explain the marketing concept and its implications for developing marketing strategies. Topic: The Evolution of Marketing

30. In which of the following scenarios is a business least likely to survive? A. When a business continually alters, adapts, and develops products to keep pace with changing customer needs and wants B. When a business finds out what consumers desire and then develops goods, services, or ideas accordingly C. When a business views customer's perception of value as the ultimate measure of work performance and improving value D. When a business focuses only on customer satisfaction and not on its own objectives such as boosting productivity E. When a business sells ideas, benefits, philosophies, and experiences—not just goods and services Although customer satisfaction is the goal of the marketing concept, a business must also achieve its own objectives, such as boosting productivity, reducing costs, or achieving a percentage of a specific market. If it does not, it will not survive.

Chapter 11 - Customer-Driven Marketing

31. _____ is the goal of the marketing concept. A. Product orientation B. Productivity boosting C. Customer satisfaction D. Asset turnover E. Sales orientation Although customer satisfaction is the goal of the marketing concept, a business must also achieve its own objectives, such as boosting productivity, reducing costs, or achieving a percentage of a specific market.

32. Which of the following is an ineffective practice to follow while implementing the marketing concept? A. Using the customer's perception of value as the ultimate measure of work performance B. Striking a balance between achieving organizational objectives and satisfying customers C. Adopting a product orientation instead of a consumer orientation to deliver the right good or service D. Involving the entire organization instead of only the marketing department in achieving customer satisfaction E. Adapting products and services according to the changing consumer needs and wants To implement the marketing concept, a firm must have good information about what consumers want, adopt a consumer orientation, and coordinate its efforts throughout the entire organization; otherwise, it may be awash with goods, services, and ideas that consumers do not want or need.

Chapter 11 - Customer-Driven Marketing

33. In the context of the evolution of the marketing concept, the era of production orientation was characterized by _____. A. the development of new technologies that made it possible to manufacture goods with ever increasing efficiency B. a belief that sales were the primary means of increasing profits C. the view adopted by businesspeople that advertising and personal selling were the primary means of increasing profits D. the realization of entrepreneurs that they must first determine what customers want and then produce it E. a belief that it was more effective to retain existing customers than it was to find new ones The era of production orientation was characterized by new technologies and mass-production techniques that made it possible to manufacture goods with ever increasing efficiency. Together with new management ideas and ways of using labor, products poured into the marketplace, where demand for manufactured goods was strong.

Chapter 11 - Customer-Driven Marketing

34. During the period of _____ orientation, the supply of manufactured goods caught up with and then exceeded demand, which made businesspeople believe that extensive promotion was the only way to persuade customers to buy their products. A. production B. trade C. sales D. market E. demand During the period of sales orientation, the supply of manufactured goods caught up with and then exceeded demand, which made businesspeople believe that extensive promotion was the only way to persuade customers to buy their products. Those who adopted the sales orientation perspective believed the most important marketing activities were personal selling and advertising.

35. During the first half of the 20th century, businesspeople viewed _____ as the primary means of increasing profits. A. production B. promotion C. sales D. marketing E. value creation During the first half of the 20th century, businesspeople viewed sales as the primary means of increasing profits in what has become known as a sales orientation. Those who adopted the sales orientation perspective believed the most important marketing activities were personal selling and advertising.

Chapter 11 - Customer-Driven Marketing

36. During the first half of the 20th century, the marketing activities were primarily concentrated around: A. personal selling. B. product customization. C. efficient production. D. mass production. E. predatory pricing. During the first half of the 20th century, businesspeople viewed sales as the primary means of increasing profits in what has become known as a sales orientation. Those who adopted the sales orientation perspective believed the most important marketing activities were personal selling and advertising.

37. The market orientation approach emphasizes: A. extensive promotional activities. B. determining what customers want first and then producing it. C. efficient production of goods. D. making the products first and then trying to persuade customers that they need them. E. profits at the expense of customer satisfaction. By the 1950s, some businesspeople began to recognize that even efficient production and extensive promotion did not guarantee sales. These businesses, and many others since, found that they must first determine what customers want and then produce it, rather than making the products first and then trying to persuade customers that they need them.

Chapter 11 - Customer-Driven Marketing

38. A market orientation requires organizations to: A. make the products first and then try to persuade customers that they need them. B. focus exclusively on sales to increase profits. C. engage in price fixing activities with competitors. D. gather and use customer information to help build long-term relationships with customers. E. employ the product cannibalization strategy. A market orientation requires organizations to gather information about customer needs, share that information throughout the entire firm, and use it to help build long-term relationships with customers.

39. Why is customer relationship management important in a market orientation? A. It can result in loyal and profitable customers. B. It controls the rate at which trends, fashions, and tastes can change. C. It reduces fixed costs for businesses. D. It overlooks efficient production. E. It shifts the focus from existing to new customer bases. Customer relationship management is important in a market orientation because it can result in loyal and profitable customers.

Chapter 11 - Customer-Driven Marketing

40. Which of the following factors should be the driver of marketing strategy? A. Medium of communication B. Customers C. Sellers D. Medium of transportation E. Promoters Customers should ultimately be the drivers of marketing strategy because they understand what they want. Customer relationship management systems should ensure that marketers listen to customers in order to respond to their needs and concerns and build long-term relationships.

41. Which of the following requires organizations to gather information about customer needs, share that information throughout the firm, and use it to help build long-term relationships with customers? A. Quality orientation B. Production orientation C. Sales orientation D. Market orientation E. Competitor orientation A market orientation requires organizations to gather information about customer needs, share that information throughout the firm, and use it to help build long-term relationships with customers.

Chapter 11 - Customer-Driven Marketing

42. During the _____ phase of the marketing concept, businesses found that they must first determine what customers want and then produce it, rather than making the products first and then trying to persuade customers that they need them. A. trade orientation B. production orientation C. sales orientation D. market orientation E. demand orientation A market orientation requires organizations to gather information about customer needs, share that information throughout the entire firm, and use it to help build long-term relationships with customers. By the 1950s, businesses realized that they must first determine what customers want and then produce it, rather than making the products first and then trying to persuade customers that they need them.

43. Which of the following is most likely the primary focus of a business that adopts a market orientation? A. Limiting marketing activities to the marketing department B. Using advertising and personal selling to persuade customers C. Mass producing goods and services to increase profits D. Attracting new customers rather than retaining the current ones E. Building long-term relationships with customers A market orientation requires organizations to gather information about customer needs, share that information throughout the entire firm, and use it to help build long-term relationships with customers.

AACSB: Analytic Accessibility: Keyboard Navigation Bloom's: Understand Difficulty: 1 Easy Learning Objective: 11-03 Explain the marketing concept and its implications for developing marketing strategies. Topic: The Evolution of Marketing

Chapter 11 - Customer-Driven Marketing

44. A _____ is a plan of action for developing, pricing, distributing, and promoting products that meet the needs of specific customers. A. marketing strategy B. contingency plan C. market evaluation D. mission statement E. SWOT analysis To implement the marketing concept and customer relationship management, a business needs to develop and maintain a marketing strategy, a plan of action for developing, pricing, distributing, and promoting products that meet the needs of specific customers.

AACSB: Analytic Accessibility: Keyboard Navigation Bloom's: Remember Difficulty: 1 Easy Learning Objective: 11-04 Examine the development of a marketing strategy, including market segmentation and marketing mix. Topic: Market Segmentation

45. The first step in developing a marketing strategy is: A. cultivating effective customer relationships. B. attracting new customers. C. selecting a target market. D. developing an appropriate marketing mix. E. conducting a SWOT analysis. A marketing strategy has two major components: selecting a target market and developing an appropriate marketing mix to satisfy that target market. While selecting a target market is the first step, the second step will be creating and maintaining an appropriate marketing mix.

Chapter 11 - Customer-Driven Marketing

46. A _____ is best described as a group of people who have a need, purchasing power, and the desire and authority to spend money on goods, services, and ideas. A. market B. focus group C. command group D. target market E. market segment A market is a group of people who have a need, purchasing power, and the desire and authority to spend money on goods, services, and ideas.

47. A _____ refers to a specific group of consumers on whose needs and wants a company focuses its marketing efforts. A. market B. focus group C. target market D. mass market E. stable market A market is a group of people who have a need, purchasing power, and the desire and authority to spend money on goods, services, and ideas. A target market is a more specific group of consumers on whose needs and wants a company focuses its marketing efforts.

Chapter 11 - Customer-Driven Marketing

48. Ferava Inc. is a company that markets its products—luxury wristwatches—exclusively to high-income individuals and celebrities. Thus, high-income individuals and celebrities are most likely Ferava Inc.'s _____. A. total market B. control group C. reference group D. target market E. secondary market High-income individuals and celebrities are most likely Ferava Inc.'s target market.

AACSB: Reflective Thinking Accessibility: Keyboard Navigation Bloom's: Apply Difficulty: 3 Hard Learning Objective: 11-04 Examine the development of a marketing strategy, including market segmentation and marketing mix. Topic: Market Segmentation

49. Red Unicorn Inc. is a company that manufactures wooden planks for construction. It has categorized its customers on the bases of their product requirements into construction companies, wholesalers, and government institutions. Which of the following marketing strategies is best illustrated in this scenario? A. Mass production B. Market segmentation C. Market positioning D. Product differentiation E. Product diversification Market segmentation is best illustrated in this scenario. Market segmentation is a strategy whereby a firm divides the total market into groups of people who have relatively similar product needs.

AACSB: Reflective Thinking Accessibility: Keyboard Navigation Bloom's: Apply Difficulty: 2 Medium Learning Objective: 11-04 Examine the development of a marketing strategy, including market segmentation and marketing mix. Topic: Market Segmentation

Chapter 11 - Customer-Driven Marketing

50. True Pharmaceuticals manufactures and sells a variety of drugs for a large market consisting of people of different genders, ages, educational backgrounds, lifestyles, geographic locations, and income levels. It assumes that all buyers have similar medical needs and wants. In this scenario, True Pharmaceuticals is most likely demonstrating a _____ to marketing. A. niche-market approach B. total-market approach C. concentration approach D. differentiated-market approach E. multi-segment approach In this scenario, True Pharmaceuticals is most likely demonstrating a total-market approach to marketing. Some firms use a total-market approach in which they try to appeal to everyone and assume that all buyers have similar needs and wants. Sellers of salt, sugar, and many agricultural products use a total-market approach because everyone is a potential consumer of these products.

51. Which of the following products is most suitable for selling through a total-market approach? A. Luxury cars B. Anti-aging creams C. Salt and sugar D. Jewelry items E. Consumer electronics Sellers of salt, sugar, and many agricultural products use a total-market approach because everyone is a potential consumer of these products. In the total-market approach a firm tries to appeal to everyone and assumes that all buyers have similar needs.

AACSB: Analytic Accessibility: Keyboard Navigation Bloom's: Understand Difficulty: 2 Medium Learning Objective: 11-04 Examine the development of a marketing strategy, including market segmentation and marketing mix. Topic: Market Segmentation

Chapter 11 - Customer-Driven Marketing

52. Why does the total-market approach work best for sellers of salt and sugar? A. Prices of these products keep fluctuating. B. These products are catered mostly to women. C. Customer bases for these products are concentrated around specific areas. D. These items offer more value. E. Everyone is a potential consumer of these products. Sellers of salt, sugar, and many agricultural products use a total-market approach because everyone is a potential consumer of these products. In the total-market approach a firm tries to appeal to everyone and assumes that all buyers have similar needs.

53. Firms which use a total-market approach are most likely to: A. target specific groups of customers. B. manufacture custom-made products. C. assume that all buyers have similar needs and wants. D. sell premium products. E. refrain from appealing to everyone in the market. Some firms use a total-market approach, in which they try to appeal to everyone and assume that all buyers have similar needs and wants. Sellers of salt, sugar, and many agricultural products use a total-market approach because everyone is a potential consumer of these products.

Chapter 11 - Customer-Driven Marketing

54. In the _____ to market segmentation, a company develops one marketing strategy for a single market segment. A. mass market approach B. total-market approach C. differentiated approach D. multi-segment approach E. concentration approach In the concentration approach, a company develops one marketing strategy for a single market segment. The concentration approach allows a firm to specialize, focusing all its efforts on the one market segment.

55. Electronica Inc. is a mobile phone retailer who sells smartphones to high school students at easily affordable prices. The company has one marketing strategy for the entire market of high school students and focuses all its efforts on this one segment. In this scenario, Electronica Inc. is most likely using the _____ for marketing its smartphones. A. total-market approach B. differentiated approach C. multi-segment approach D. concentration approach E. mass market approach In this scenario, Electronica Inc. is using the concentration approach for marketing its smartphones. In the concentration approach, a company develops one marketing strategy for a single market segment. The concentration approach allows a firm to specialize, focusing all its efforts on the one market segment.

Chapter 11 - Customer-Driven Marketing

56. In the _____, the marketer aims its marketing efforts at two or more segments, developing a marketing strategy for each. A. niche approach B. concentration approach C. total-market approach D. multi-segment approach E. mass-marketing approach In the multi-segment approach, the marketer aims its marketing efforts at two or more segments, developing a marketing strategy for each. Many firms use a multi-segment approach that includes different advertising messages for different segments.

57. Kemmen Foods, a company that manufactures and sells breakfast cereals, has customized its cereal flavors to suit different lifestyles, personal tastes, and age groups. For example, it makes organic cereals for its health-conscious customers and colorful cereals with cartoon characters for children. Which of the following market segment approaches is Kemmen Foods using in this scenario? A. Niche market approach B. Mass market approach C. Total-market approach D. Concentration approach E. Multi-segment approach In this scenario, Kemmen Foods is using the multi-segment approach. In the multi-segment approach to market segmentation, the marketer aims its marketing efforts at two or more segments, developing a marketing strategy for each. Many firms use a multi-segment approach that includes different advertising messages for different segments.

Chapter 11 - Customer-Driven Marketing

58. In _____, all marketing efforts are on one small, well-defined market segment that has a unique, specific set of needs. A. niche marketing B. mass marketing C. differentiated marketing D. total marketing E. multi-segment marketing Niche marketing is a narrow market segment focus when efforts are on one small, welldefined group that has a unique, specific set of needs. Niche segments are usually very small compared to the total market for the products.

59. Highland Green is a group of luxury hotels that caters exclusively to high-end customers who form a small part of the market. The hotel has incorporated all possible luxuries to satisfy these customers. The marketing approach employed by Highland Green best exemplifies: A. niche marketing. B. multi-segment marketing. C. mass marketing. D. the total-marketing approach. E. the contingency approach. The marketing approach employed by Highland Green best exemplifies niche marketing. Niche marketing is a narrow market segment focus when efforts are on one small, welldefined group that has a unique, specific set of needs. Niche segments are usually very small compared to the total market for the products.

Chapter 11 - Customer-Driven Marketing

60. If a company develops an advertising campaign exclusively for a segment of consumers with a certain income and education, which of the following segmentation variables is the company using? A. Behavioristic B. Demographic C. Psychographic D. Geographic E. Ethnographic Demographic segmentation of market is based on age, sex, race, ethnicity, income, education, occupation, family size, religion, social class. These characteristics are often closely related to customers' product needs and purchasing behavior, and they can be readily measured.

61. _____ segmentation is done on the basis of age, sex, race, ethnicity, income, education, occupation, family size, religion, social class. A. Psychographic B. Demographic C. Behavioristic D. Geographic E. Class Demographic segmentation of market is based on age, sex, race, ethnicity, income, education, occupation, family size, religion, social class. These characteristics are often closely related to customers' product needs and purchasing behavior, and they can be readily measured.

Chapter 11 - Customer-Driven Marketing

62. Which of the following is a basis for the psychographic segmentation of markets? A. Religion B. Income C. Education D. Lifestyle E. Gender Psychographic segmentation of markets is based on personality characteristics, motives, and lifestyles.

63. Gear Power Inc., an automobile company, manufactures different cars for different market segments. It markets its SUVs for customers who live in the mountains, sedans for customers in the coastal plains, and smaller hatchback cars for those in big cities. In this scenario, Gear Power Inc. is primarily using _____ variables of market segmentation. A. demographic B. psychographic C. geographic D. behavioristic E. ethnographic In this scenario, Gear Power Inc. is primarily using geographic variables of market segmentation. Geographic segmentation is on the basis of climate, terrain, natural resources, population density, and subcultural values. These influence consumers' needs and product usage.

Chapter 11 - Customer-Driven Marketing

64. Coral Soul Inc. manufactures a range of body care products. It has separate product lines dedicated to men and women, and each product line has its own range of shower gels, shampoos, and cosmetics. Which of the following bases of market segmentation has Coral Soul Inc. adopted? A. Demographic B. Ethnographic C. Geographic D. Behavioristic E. Psychographic Coral Soul Inc. has adopted the demographic basis of market segmentation. Bases for demographic segmentation of market includes age, sex, race, ethnicity, income, education, occupation, family size, religion, social class.

65. Which of the following bases for market segmentation pertains to some characteristic of the consumer's actions toward the product—a characteristic that commonly involves some aspect of product use? A. Demographic B. Psychographic C. Geographic D. Behavioristic E. Ethnographic Behavioristic bases for market segmentation pertain to some characteristic of the consumer's actions toward the product—a characteristic that commonly involves some aspect of product use.

Chapter 11 - Customer-Driven Marketing

66. Thirst Tip, a beverage manufacturing company, has placed its products strategically in areas where the population density is high. The segmentation done by Thirst Tip is an example of _____ segmentation. A. demographic B. psychographic C. geographic D. behavioristic E. ethnographic The segmentation done by Thirst Tip is an example of geographic segmentation. Geographic segmentation is done on the basis of climate, terrain, natural resources, population density, subcultural values. These influence consumers' needs and product usage.

67. In businesses, the _____ is an important variable—often the central focus—of the marketing mix, based on which the other variables are adjusted. A. price B. distribution C. promotion D. product E. process The product is an important variable—often the central focus—of the marketing mix; the other variables (price, promotion, and distribution) must be coordinated with product decisions.

Chapter 11 - Customer-Driven Marketing

68. Gift Nation Inc. is deciding whether to sell its products through vending machines outside subway stations or in stores at popular malls. To which of the following elements in the marketing mix does this decision most closely relate? A. Price B. Place C. Promotion D. Product E. Process The decision relates to place. Distribution (sometimes referred to as "place") is making products available to customers in the quantities desired.

69. Den Inc., a firm dealing with fashion clothing, is contemplating whether to sell its products in brick and mortar stores or to sell them at its online store. To which of the following elements in the marketing mix does this decision most closely relate? A. Price B. Process C. Promotion D. Product E. Place The decision relates to place. Distribution (sometimes referred to as "place") is making products available to customers in the quantities desired.

Chapter 11 - Customer-Driven Marketing

70. Prism Phones wants to target college students and young professionals. The company has therefore decided to advertise its cell phones over social networking and other popular websites. Relative to television advertising, this strategy will help Prism Phones save costs and thus allow the firm to sell its phones at more competitive prices. Prism Phones' decision to advertise through different media than the ones adopted by other firms illustrates the _____ activities of the marketing mix. A. price B. distribution C. promotion D. product E. profit Prism Phones' decision to advertise differently best illustrates the promotion activities of the marketing mix. Promotion is a persuasive form of communication that attempts to expedite a marketing exchange by influencing individuals, groups, and organizations to accept goods, services, and ideas.

71. Which of the following is a social variable of buying behavior? A. Perception B. Motivation C. Attitude D. Personality E. Culture Social factors include social roles, reference groups, social classes, and culture. Culture is the integrated, accepted pattern of human behavior, including thought, speech, beliefs, actions, and artifacts. Culture determines what people wear and eat and where they live and travel.

Chapter 11 - Customer-Driven Marketing

72. Global Mart Inc., a multinational chain of supermarkets, wants to open a new store in a country called Alheroni. Before launching itself in the new market, the management of Global Mart Inc. wants to collect primary data about Alheroni's market. Which of the following sources of information will it most likely use? A. The information collected by the census bureau of Alheroni B. The data collected by government agencies in Alheroni C. The data collected from anonymous surveys conducted in malls in Alheroni D. Its own internal records and reports on operations in Alheroni E. Information about Alheroni from the databases of marketing research firms Global Mart Inc. will most likely use the data collected from anonymous surveys in malls in Alheroni. Primary data are observed, recorded, or collected directly from respondents. Primary data must be gathered by researchers who develop a method to observe phenomena or research respondents.

AACSB: Reflective Thinking Accessibility: Keyboard Navigation Bloom's: Apply Difficulty: 3 Hard Learning Objective: 11-05 Investigate how marketers conduct marketing research and study buying behavior. Topic: Marketing Research

73. _____ refers to the decision processes and actions of people who purchase and use products. A. Buying behavior B. Distributing C. Franchising D. Entrepreneurship E. Market orientation Buying behavior refers to the decision processes and actions of people who purchase and use products. It includes the behavior of both consumers purchasing products for personal or household use as well as organizations buying products for business use.

Chapter 11 - Customer-Driven Marketing

74. In the context of the psychological variables of buying behavior, _____ is the process by which a person selects, organizes, and interprets information received from his or her senses. A. conditioning B. perception C. self-actualization D. motivation E. mediation Perception is the process by which a person selects, organizes, and interprets information received from his or her senses, as when experiencing an advertisement or touching a product to better understand it.

75. Which of the following is a psychological variable of buying behavior? A. Social roles B. Attitude C. Reference groups D. Social classes E. Culture Attitude, a psychological variable of buying behavior, refers to the organization of an individual's distinguishing character traits, attitudes, or habits.

Chapter 11 - Customer-Driven Marketing

76. Anna is an environmental activist who avoids buying paper-based products unless they are made from recycled paper. Which of the following psychological factors is primarily responsible for Anna's buying behavior in this scenario? A. Attitude B. Social role C. Social class D. Culture E. Self-efficacy Attitude is the psychological factor that is primarily responsible for Anna's buying behavior in this scenario. Attitude is one of the psychological factors affecting buying behavior. It is the knowledge and positive or negative feelings about something.

77. Derek dislikes buying branded clothes because he claims that they are a waste of money. In this scenario, Derek's buying behavior is most likely related to his: A. attitude. B. social role. C. social class. D. political orientation. E. ethical dissonance. In this scenario, Derek's change in buying behavior is most likely related to his attitude. Attitude is one of the psychological factors affecting buying behavior. It is the knowledge and positive or negative feelings about something.

AACSB: Reflective Thinking Accessibility: Keyboard Navigation Bloom's: Apply Difficulty: 2 Medium Learning Objective: 11-05 Investigate how marketers conduct marketing research and study buying behavior. Topic: Marketing Research

Chapter 11 - Customer-Driven Marketing

78. _____ are a set of expectations for individuals based on some position they occupy. A. Social classes B. Social roles C. Reference groups D. Market segments E. Functional teams Social factors include social roles, which are a set of expectations for individuals based on some position they occupy.

79. _____ are commonly determined by ranking people into higher or lower positions of respect. A. Social classes B. Social roles C. Reference groups D. Market segments E. Functional teams Social classes are determined by ranking people into higher or lower positions of respect. Criteria vary from one society to another. People within a particular social class may develop common patterns of behavior.

Chapter 11 - Customer-Driven Marketing

80. The groups with whom buyers identify and whose values or attitudes they adopt are referred to as: A. ethnic groups. B. reference groups. C. social classes. D. secondary groups. E. outgroups. Reference groups include families, professional groups, civic organizations, and other groups with whom buyers identify and whose values or attitudes they adopt.

81. Which of the following is an example of a reference group? A. People within a particular social class who develop common patterns of behavior B. A group of people who buy products in keeping with their social status C. Teenagers who do not agree with the buying options offered to them by their parents D. Close family members who influence the buying behavior of the other members of the family E. People in the society who rank people into higher or lower positions of respect Reference groups include families, professional groups, civic organizations, and other groups with whom buyers identify and whose values or attitudes they adopt.

Chapter 11 - Customer-Driven Marketing

82. Jennifer is highly influenced by celebrities in movies and advertisements. She wishes to dress like them and adopt their lifestyle. When she goes shopping, these celebrities are her point of comparison. In this scenario, the celebrities are Jennifer's _____. A. social class B. focus group C. reference group D. social model E. market segment In this scenario, actresses in movies and advertisements are Jennifer's reference group. Reference groups include families, professional groups, civic organizations, and other groups with whom buyers identify and whose values or attitudes they adopt. A person may use a reference group as a point of comparison or a source of information.

83. Every time David wants to change his cell phone, he takes the opinions of his colleagues and friends to decide which phone to buy. Thus, David's colleagues and friends are his _____. A. social class B. social role C. target market D. reference group E. resource pool Reference groups include families, professional groups, civic organizations, and other groups with whom buyers identify and whose values or attitudes they adopt. A person may use a reference group as a point of comparison or a source of information.

AACSB: Analytic Accessibility: Keyboard Navigation Bloom's: Apply Difficulty: 2 Medium Learning Objective: 11-05 Investigate how marketers conduct marketing research and study buying behavior. Topic: Marketing Research

Chapter 11 - Customer-Driven Marketing

84. _____ is the integrated, accepted pattern of human behavior, including thought, speech, beliefs, actions, and artifacts. A. Attitude B. Social role C. Social class D. Culture E. Self-efficacy Culture is the integrated, accepted pattern of human behavior, including thought, speech, beliefs, actions, and artifacts. Culture determines what people wear and eat and where they live and travel.

85. People who are higher up in the social ladder buy Rolls-Royce cars as a status symbol. Which of the following social variables of buying behavior is demonstrated in the given scenario? A. Social force B. Social role C. Social class D. Cultural group E. Ethnic group Social classes are determined by ranking people into higher or lower positions of respect. In the given scenario, the variable influencing buying behavior is social class. Criteria vary from one society to another. People within a particular social class may develop common patterns of behavior.

Chapter 11 - Customer-Driven Marketing

86. Which of the following is a social factor that influences buying behavior? A. Regulatory forces B. Reference groups C. Competitive forces D. Interest groups E. Economic forces Reference groups, one of the social factors influencing buying behavior, include families, professional groups, civic organizations, and other groups with whom buyers identify and whose values or attitudes they adopt.

87. Which of the following is least likely to be a competitive or economic force in the marketing environment? A. The purchasing power of people in a geographic market B. The rate of unemployment in a country C. The laws related to employment in a country D. The level of inflation in a country E. The per capita income in a less developed nation The laws related to hiring local employees in a country are a part of the political, legal, and regulatory forces. Competitive and economic forces that affect the marketing environment include competitive relationships, unemployment, purchasing power, and general economic conditions (prosperity, recession, depression, recovery, product shortages, and inflation).

AACSB: Analytic Accessibility: Keyboard Navigation Bloom's: Understand Difficulty: 1 Easy Learning Objective: 11-06 Summarize the environmental forces that influence marketing decisions. Topic: Integrated Marketing Communications

Chapter 11 - Customer-Driven Marketing

88. Due to the increasing purchasing power and per capita income of the population of United Nombavia, True Couture Inc. decided to launch its premium line of clothing and bags in the country. Which of the following environmental forces primarily influenced True Couture Inc.'s decision? A. Technological forces B. Legal forces C. Religious forces D. Political forces E. Economic forces Economic forces primarily helped True Couture Inc. determine its target market. General economic conditions cover unemployment, purchasing power, prosperity, recession, depression, recovery, product shortages, and inflation.

AACSB: Reflective Thinking Accessibility: Keyboard Navigation Bloom's: Apply Difficulty: 2 Medium Learning Objective: 11-06 Summarize the environmental forces that influence marketing decisions. Topic: Integrated Marketing Communications

89. Which of the following best exemplifies regulatory forces in a marketing environment? A. Computers and technological advances in a country B. Opinions and attitudes of the public C. Economic conditions in a country D. Purchasing power of people E. Political actions of interest groups Political, legal, and regulatory forces include laws and regulators' interpretation of laws, law enforcement and regulatory activities, regulatory bodies, legislators and legislation, and political actions of interest groups.

Chapter 11 - Customer-Driven Marketing

90. According to the foreign trade policy of the Republic of Cambria, multinational companies can enter its market only by merging with a local business partner. Which of the following environmental forces does this best reflect? A. Technological B. Social C. Civil D. Political E. Ethical Political, legal, and regulatory forces relate to the laws and regulators' interpretation of laws, law enforcement and regulatory activities, regulatory bodies, legislators and legislation, and political actions of interest groups.

AACSB: Analytic Accessibility: Keyboard Navigation Bloom's: Apply Difficulty: 2 Medium Learning Objective: 11-06 Summarize the environmental forces that influence marketing decisions. Topic: Integrated Marketing Communications

91. Which of the following is an economic force that influences the marketing environment? A. Computers and technological advances in a country B. Quality of life C. Purchasing power D. Public's opinions and attitudes E. Political actions of interest groups Competitive and economic forces refer to competitive relationships such as those in the technology industry, unemployment, purchasing power, and general economic conditions (prosperity, recession, depression, recovery, product shortages, and inflation).

Chapter 11 - Customer-Driven Marketing

92. Daily Stop, a supermarket in California, was criticized by the community for the use of plastic bags. In view of the concerns raised by the members of the community, the management took the decision of using biodegradable bags. The decision taken by the management at Daily Stop has been influenced by: A. political forces. B. social forces. C. technological forces. D. economic forces. E. competitive forces. The decision taken by the management at Daily Stop has been influenced by social forces. Social forces refer to the public's opinions and attitudes toward issues such as living standards, ethics, the environment, lifestyles, and quality of life.

93. Which of the following best exemplifies social forces in a marketing environment? A. Technological advances in a country B. Opinions and attitudes of the public C. Economic conditions in a country D. General economic conditions of people E. Laws and regulators' interpretation of laws Social forces refer to the public's opinions and attitudes toward issues such as living standards, ethics, the environment, lifestyles, and quality of life.

Chapter 11 - Customer-Driven Marketing

94. Specific laws require that advertisements be truthful and that all health claims be documented. This is an example of: A. legal forces. B. social forces. C. technological forces. D. economic forces. E. competitive forces. Political, legal, and regulatory forces relate to the laws and regulators' interpretation of laws, law enforcement and regulatory activities, regulatory bodies, legislators and legislation, and political actions of interest groups.

95. Which of the following statements is true of the marketing environment? A. The forces in the marketing environment cannot be controlled under any circumstance. B. Unemployment problems are a part of regulatory forces affecting the marketing environment. C. The public's opinions belong to the competitive forces influencing the marketing environment. D. A marketing manager can influence some environmental variables. E. Environmental forces remain static. Although the forces in the marketing environment are sometimes called uncontrollables, they are not totally so. A marketing manager can influence some environmental variables.

AACSB: Analytic Accessibility: Keyboard Navigation Bloom's: Understand Difficulty: 2 Medium Learning Objective: 11-06 Summarize the environmental forces that influence marketing decisions. Topic: Integrated Marketing Communications

Chapter 11 - Customer-Driven Marketing

96. Why does marketing require creativity and consumer focus? A. Because change in environmental forces is a slow process B. Because environmental forces cannot be controlled under any circumstance C. Because environmental forces can change dramatically D. Because marketing managers can influence some environmental variables E. Because environmental forces remain constant Marketing requires creativity and consumer focus because environmental forces can change quickly and dramatically. Changes can arise from social concerns and economic forces such as price increases, product shortages, and altering levels of demand for commodities.

Chapter 12 - Dimensions of Marketing Strategy

Chapter 12 Dimensions of Marketing Strategy

True / False Questions 1. Profits are negative in the growth stage of the product life cycle. FALSE In the growth stage, sales increase rapidly and profits peak, then start to decline. One reason profits start to decline during the growth stage is that new companies enter the market, driving prices down and increasing marketing expenses.

AACSB: Analytic Accessibility: Keyboard Navigation Bloom's: Understand Difficulty: 2 Medium Learning Objective: 12-01 Describe the role of product in the marketing mix, including how products are developed, classified, and identified. Topic: The Product Life Cycle and the Product Development Process

2. The perceived value of a product by consumers is an important consideration when pricing that product. TRUE The perceived value of a product by consumers is an important consideration when pricing that product. In setting prices, marketers must consider not just a company's cost to produce a product or service, but the perceived value of that item in the marketplace.

AACSB: Analytic Accessibility: Keyboard Navigation Bloom's: Remember Difficulty: 1 Easy Learning Objective: 12-02 Define price and discuss its importance in the marketing mix, including various pricing strategies a firm might employ. Topic: Pricing Objectives and Strategies

Chapter 12 - Dimensions of Marketing Strategy

3. Penetration pricing is less flexible than price skimming. TRUE Penetration pricing is less flexible than price skimming. This is because it is more difficult to raise a penetration price than to lower a skimming price.

4. Distribution channels for consumer products and business products are the same. FALSE More business products go through direct marketing channels than do consumer products. Business products may go through wholesaling intermediaries, industrial distributors, and manufacturers' agents—channels which are not used for consumer products.

AACSB: Analytic Accessibility: Keyboard Navigation Bloom's: Remember Difficulty: 1 Easy Learning Objective: 12-03 Identify factors affecting distribution decisions, such as marketing channels and intensity of market coverage. Topic: The Role of Marketing Intermediaries

Chapter 12 - Dimensions of Marketing Strategy

5. Advertising is direct, two-way communication with buyers and potential buyers. FALSE Advertising is a paid form of nonpersonal communication transmitted through a mass medium, such as television commercials, magazine advertisements, and online ads.

AACSB: Analytic Accessibility: Keyboard Navigation Bloom's: Remember Difficulty: 1 Easy Learning Objective: 12-04 Specify the activities involved in promotion as well as promotional strategies and promotional positioning. Topic: Advantages and Disadvantages of Various Promotion Techniques

Multiple Choice Questions 6. Which is the stage in the product development process where most new product ideas are rejected because they seem inappropriate for an organization? A. Idea development B. Business analysis C. Test marketing D. Product development E. Idea screening Most new product ideas are rejected during idea screening because they seem inappropriate or impractical for the organization. Important aspects to be considered at this stage are consumer desires, the competition, technological changes, social trends, and political, economic, and environmental considerations.

AACSB: Analytic Accessibility: Keyboard Navigation Bloom's: Remember Difficulty: 2 Medium Learning Objective: 12-01 Describe the role of product in the marketing mix, including how products are developed, classified, and identified. Topic: The Product Life Cycle and the Product Development Process

Chapter 12 - Dimensions of Marketing Strategy

7. Which of the following stages of the product development process assesses a product's compatibility in the market? A. Idea development B. Business analysis C. Test marketing D. Commercialization E. Idea screening Business analysis is a basic assessment of a product's compatibility in the marketplace and its potential profitability. Both the size of the market and competing products are often studied at this point.

AACSB: Analytic Accessibility: Keyboard Navigation Bloom's: Remember Difficulty: 1 Easy Learning Objective: 12-01 Describe the role of product in the marketing mix, including how products are developed, classified, and identified. Topic: The Product Life Cycle and the Product Development Process

8. Sun Dane Inc., a tire manufacturing company, is in the process of developing a new product. Its R&D team has shortlisted the idea of a tire fitted with a sheet to keep off dirt. It is in the process of transforming the idea into an actual model. Sun Dane is currently in the _____ stage. A. idea development B. business analysis C. test marketing D. commercialization E. product development Sun Dane Inc. is currently in the product development stage. If a product survives the first three steps of the product development process, it is developed into a prototype that should reveal the intangible attributes it possesses as perceived by the consumer.

AACSB: Reflective Thinking Accessibility: Keyboard Navigation Bloom's: Apply Difficulty: 2 Medium Learning Objective: 12-01 Describe the role of product in the marketing mix, including how products are developed, classified, and identified. Topic: The Product Life Cycle and the Product Development Process

Chapter 12 - Dimensions of Marketing Strategy

9. Before introducing a new product, a prototype is created at the _____ stage. A. idea development B. product commercialization C. test marketing D. product development E. idea generation Before introducing a new product, a prototype is created at the product development stage. If a product survives the first three steps of the product development process, it is developed into a prototype that should reveal the intangible attributes it possesses as perceived by the consumer.

10. _____ is a trial mini-launch of a product in limited areas that represent the potential market. A. Idea screening B. Test marketing C. Concept testing D. Business analysis E. Commercialization Test marketing is a trial mini-launch of a product in limited areas that represent the potential market. It allows a complete test of the marketing strategy in a natural environment, giving the organization an opportunity to discover weaknesses and eliminate them before the product is fully launched.

Chapter 12 - Dimensions of Marketing Strategy

11. If a nationwide sandwich shop chain introduces a new sandwich in the Midwest to try out its marketing strategy before offering the product across the country, it is in the _____ stage of the product development process. A. idea screening B. commercialization C. concept testing D. business analysis E. test marketing If a nationwide sandwich shop chain introduces a new sandwich in the Midwest to try out its marketing strategy before offering the product across the country, it is in the test marketing stage of the product development process. Test marketing is a trial mini-launch of a product in limited areas that represent the potential market.

12. _____ is the full introduction of a complete marketing strategy and the launch of a product. A. Idea development B. Product development C. Commercialization D. Test marketing E. Idea screening Commercialization is the full introduction of a complete marketing strategy and the launch of the product for commercial success. It is the last stage in new product development,

Chapter 12 - Dimensions of Marketing Strategy

13. During the _____ stage of the product development process, a firm gears up for full-scale production, distribution, and promotion of its products. A. idea development B. commercialization C. product development D. test marketing E. idea screening During the commercialization stage of the product development process, a firm gears up for full-scale production, distribution, and promotion of its products. Commercialization, the last stage in new product development, is the full introduction of a complete marketing strategy and the launch of the product for commercial success.

14. A gallon of milk is an example of a: A. convenience product. B. shopping product. C. specialty product. D. generic product. E. difficult-to-obtain product. A gallon of milk is an example of a convenience product. Convenience products involve many food items, such as milk, eggs, and bread. They are bought without a lengthy search. Consumers spend virtually no time planning where to purchase these products.

Chapter 12 - Dimensions of Marketing Strategy

15. Magazines located next to the checkout counter at a grocery store would probably be classified as: A. shopping products. B. convenience products. C. processed materials. D. specialty products. E. accessory equipment. Magazines located next to the checkout counter at a grocery store would probably be classified as convenience products. Convenience products are products like milk, eggs, bread, and newspapers that are purchased frequently and without a lengthy search.

16. Products such as furniture, audio equipment, bicycles, and clothing are generally classified as: A. convenience products. B. specialty products. C. capital products. D. luxury products. E. shopping products. Products such as furniture, audio equipment, bicycles, and clothing are generally classified as shopping products. Shopping products such as furniture and audio equipment are purchased after the consumer has compared competitive products.

Chapter 12 - Dimensions of Marketing Strategy

17. Sporting goods are an example of: A. convenience products. B. shopping products. C. specialty products. D. generic products. E. difficult-to-obtain products. Sporting goods are an example of shopping products. Shopping products such as furniture, audio equipment, clothing, and sporting goods are purchased after the consumer has compared competitive products and "shopped around."

18. Ethnic foods are an example of: A. convenience products. B. shopping products. C. specialty products. D. generic products. E. difficult-to-obtain products. Ethnic foods are an example of specialty products. Specialty products such as ethnic foods, designer clothing and shoes, art, and antiques require even greater research and shopping effort.

Chapter 12 - Dimensions of Marketing Strategy

19. A light bulb used to provide light for workers on an assembly line would be classified as a _____. A. specialty product B. technical product C. business product D. convenience product E. consumer product A light bulb used to provide light for workers on an assembly line would be classified as a business product. Business products are used directly or indirectly in the operation or manufacturing processes of businesses.

AACSB: Analytic Accessibility: Keyboard Navigation Bloom's: Understand Difficulty: 1 Easy Learning Objective: 12-01 Describe the role of product in the marketing mix, including how products are developed, classified, and identified. Topic: Classification of Products

20. Industrial products such as lumber, cotton, and iron ore are classified as: A. major equipment. B. supplies. C. accessory equipment. D. raw materials. E. component parts. Industrial products such as lumber, cotton, and iron ore are classified as raw materials. Raw materials are natural products taken from the earth, oceans, and recycled solid waste. Iron ore, bauxite, lumber, cotton, and fruits and vegetables are examples.

Chapter 12 - Dimensions of Marketing Strategy

21. Earth-moving equipment, stamping machines, and robotic equipment used on auto assembly lines are examples of: A. major equipment. B. supplies. C. accessory equipment. D. industrial services. E. component parts. Earth-moving equipment, stamping machines, and robotic equipment used on auto assembly lines are examples of major equipment. Major equipment covers large, expensive items used in production.

22. Tires are an example of: A. major equipment. B. component parts. C. accessory equipment. D. processed materials. E. raw materials. Tires are an example of component parts. Component parts are finished items, ready to be assembled into the company's final products. Tires, window glass, batteries, and spark plugs are component parts of automobiles.

Chapter 12 - Dimensions of Marketing Strategy

23. Varnish is an example of: A. major equipment. B. office supplies. C. accessory equipment. D. processed material. E. raw material. Varnish is an example of processed material. Processed materials are things used directly in production or management operations but are not readily identifiable as component parts.

24. 7-UP, Cherry 7-UP Antioxidant, and Diet 7-UP are products in Dr. Pepper Snapple Group's: A. 7-UP product line. B. 7-UP marketing mix. C. 7-UP product position. D. 7-UP product width. E. 7-UP product innovation. 7-UP, Cherry 7-UP Antioxidant, and Diet 7-UP are products in Dr. Pepper Snapple Group's 7UP product line. A product line is a group of closely related products that are treated as a unit because of similar marketing strategy.

Chapter 12 - Dimensions of Marketing Strategy

25. A _____ is all the products offered by an organization. A. product line B. product group C. product mix D. product width E. product list A product mix is all the products offered by an organization. A product line is a group of closely related products that are treated as a unit because of a similar marketing strategy.

26. If a product is experiencing negative profits and the company is spending a great deal of money on advertising to make consumers aware of the product, the product is most likely in the _____ stage of the product life cycle. A. growth B. decline C. introductory D. maturity E. intermediate If a product is experiencing negative profits and the company is spending a great deal of money on advertising to make consumers aware of the product, the product is most likely in the introductory stage of the product life cycle. In the introductory stage, consumer awareness and acceptance of a product are limited, sales are zero, and profits are negative.

Chapter 12 - Dimensions of Marketing Strategy

27. During the _____ stage of the product cycle, a firm tries to strengthen its position in the market by emphasizing the product's benefits and identifying market segments that want these benefits. A. growth B. decline C. introductory D. maturity E. intermediate During the growth stage of the product cycle, a firm tries to strengthen its position in the market by emphasizing the product's benefits and identifying market segments that want these benefits. One reason profits start to decline during the growth stage is that new companies enter the market, driving prices down and increasing marketing expenses.

28. During the _____ stage of the product life cycle, a product's profits peak and then start to decline. A. death B. decline C. maturity D. growth E. introductory In the growth stage, sales increase rapidly and profits peak, then start to decline. One reason profits start to decline during the growth stage is that new companies enter the market, driving prices down and increasing marketing expenses.

Chapter 12 - Dimensions of Marketing Strategy

29. Which stage of the product cycle is characterized by severe competition and heavy expenditures? A. Growth B. Intermediate C. Introductory D. Decline E. Maturity The maturity stage is characterized by severe competition and heavy expenditures. Sales continue to increase at the beginning of the maturity stage, but then the sales curve peaks and starts to decline while profits continue to decline.

30. If a company is eliminating certain models of a product and cutting back on expenditures, the product is most likely in the _____ stage of the product life cycle. A. growth B. intermediate C. introductory D. decline E. maturity If a company is eliminating certain models of a product and cutting back on expenditures, the product is most likely in the decline stage of the product life cycle. During the decline stage, sales and profits continue to fall rapidly and firms may eliminate certain models or items.

Chapter 12 - Dimensions of Marketing Strategy

31. Which of the following is an appropriate strategy for products at the decline stage of the product cycle? A. Phasing out products B. Manufacturing more products C. Increasing marketing budget D. Spending money on research E. Emphasizing products' benefits Phasing out products is an appropriate strategy for the decline stage. During the decline stage, sales continue to fall rapidly. Profits also decline and may even become losses as prices are cut and necessary marketing expenditures are made. As profits drop, firms may eliminate certain models or items. To reduce expenses and squeeze out any remaining profits, marketing expenditures may be cut back, even though such cutbacks accelerate the sales decline. Finally, plans must be made for phasing out the product and introducing new ones to take its place.

32. Which of the following activities is associated with identifying products? A. Marketing B. Producing C. Branding D. Distributing E. Pricing Branding is the process of naming and identifying products. A brand is a name, term, symbol, design, or combination that identifies a product and distinguishes it from other products.

Chapter 12 - Dimensions of Marketing Strategy

33. A _____ is a brand that is legally protected from use by any other firm. A. brand mark B. trademark C. manufacturer's brand D. generic brand E. private-label brand A trademark is a brand that is registered with the U.S. Patent and Trademark Office and is thus legally protected from use by any other firm. A brand is a name, term, symbol, design, or combination that identifies a product and distinguishes it from other products.

34. Diet Coke is a: A. generic brand. B. private distributor brand. C. shopping product. D. brand name. E. specialty product. Diet Coke is a brand name. A brand is a name, term, symbol, design, or combination that identifies a product and distinguishes it from other products. The brand name is the part of the brand that can be spoken and consists of letters, words, and numbers—such as WD-40 lubricant.

Chapter 12 - Dimensions of Marketing Strategy

35. Peanut butter is an example of a: A. generic product. B. private distributor brand. C. shopping product. D. brand name. E. specialty product. Peanut butter is an example of a generic product. Generic products refer to products with no brand name at all. They often come in plain simple packages that carry only the generic name of the product—peanut butter, tomato juice, aspirin, dog food, and so on.

36. Private distributor brands: A. are identified by a manufacturer from the point of production to the point of purchase. B. are used to reduce the efficiency of production. C. are owned and controlled by a wholesaler or retailer. D. are owned and controlled by a manufacturer. E. are characterized by the absence of a brand name. Private distributor brands, which may be less expensive than manufacturer brands, are owned and controlled by a wholesaler or retailer, such as Kenmore appliances (Sears) and Sam's grocery products (Wal-Mart and Sam's Wholesale Club).

Chapter 12 - Dimensions of Marketing Strategy

37. The _____ reflects the degree to which a good, service, or idea meets the demands and requirements of customers. A. brand name B. product packaging C. product labeling D. product quality E. brand mark The product quality reflects the degree to which a good, service, or idea meets the demands and requirements of customers. Quality products are often referred to as reliable, durable, easily maintained, easily used, a good value, or a trusted brand name.

38. The financial value placed on an object involved in an exchange between a buyer and a seller is known as its: A. price. B. discount. C. comparable value. D. negotiated value. E. nominal value. The price is the value placed on an object exchanged between a buyer and seller. Buyers' interest in price stems from their expectations about the usefulness of a product or the satisfaction they may derive from it.

Chapter 12 - Dimensions of Marketing Strategy

39. Which key element of the marketing mix directly relates to the generation of revenue and profits? A. Product B. Distribution C. Place D. Promotion E. Price Price is a key element in the marketing mix because it relates directly to the generation of revenue and profits. The price is the value placed on an object exchanged between a buyer and seller.

AACSB: Analytic Accessibility: Keyboard Navigation Bloom's: Understand Difficulty: 2 Medium Learning Objective: 12-02 Define price and discuss its importance in the marketing mix, including various pricing strategies a firm might employ. Topic: Pricing Objectives and Strategies

40. Which of the following elements is the most flexible variable in the marketing mix? A. Product B. Production C. Distribution D. Promotion E. Price Price is the most flexible variable in the marketing mix. Although it may take years to develop a product, establish channels of distribution, and design and implement promotion, a product's price may be set and changed in a few minutes.

Chapter 12 - Dimensions of Marketing Strategy

41. LCG Inc., a mobile manufacturing company, is launching its new product in the market. The managers at LCG want to price the product in a way that would enable the company to recover the investments made toward developing the product. Which pricing strategy would be most effective for LCG Inc. ? A. Price skimming B. Price comparing C. Odd pricing D. Reference pricing E. Price discounting The price skimming strategy would be most effective for LCG Inc. In general, there are two basic strategies to setting the base price for a new product: price skimming and penetration pricing. Price skimming is often used to allow a company to generate much-needed revenue to help offset the costs of research and development.

AACSB: Reflective Thinking Accessibility: Keyboard Navigation Bloom's: Apply Difficulty: 2 Medium Learning Objective: 12-02 Define price and discuss its importance in the marketing mix, including various pricing strategies a firm might employ. Topic: Pricing Objectives and Strategies

42. Which of the following is typically related to pricing new products? A. Reference pricing B. Price comparing C. Odd pricing D. Penetration pricing E. Price discounting Penetration pricing is typically associated to pricing new products. In general, there are two basic strategies to setting the base price for a new product: price skimming and penetration pricing. A penetration price is a low price designed to help a product enter the market and gain market share rapidly.

Chapter 12 - Dimensions of Marketing Strategy

43. The pricing policy that allows a company to generate much-needed revenue to help offset the costs of research and development is known as: A. penetration pricing. B. price discounting. C. psychological pricing. D. price skimming. E. emotional pricing. The pricing policy that allows a company to generate much-needed revenue to help offset the costs of research and development is known as price skimming. Price skimming charges the highest possible price that buyers who want the product will pay, which offsets the costs of research and development.

44. Dynamix Computers initially charged a low price for its new computer and then raised the price after gaining a large market share. Which of the following pricing strategies did Dynamix Computers use in this scenario? A. Prestige pricing B. Symbolic pricing C. Psychological pricing D. Price skimming E. Penetration pricing Dynamix Computers is using penetration pricing. A penetration price is a low price designed to help a new product enter the market and gain market share rapidly (it is implied that the price will rise once the product successfully penetrated the market).

Chapter 12 - Dimensions of Marketing Strategy

45. Mocha Café initially charged a low price for its cuisine and then raised the price after gaining a large market share. Which of the following pricing strategies did Mocha Café use in this scenario? A. Prestige pricing B. Penetration pricing C. Odd pricing D. Price skimming E. Even pricing In this scenario, Mocha Café used penetration pricing. A penetration price is a low price designed to help a new product enter the market and gain market share rapidly (it is implied that the price will rise once the product successfully penetrated the market).

46. When a company sets a low price for a new product to discourage competition from entering the market, it is using the _____ strategy. A. even/odd pricing B. price skimming C. psychological pricing D. penetration pricing E. symbolic pricing When a company sets a low price for a new product to discourage competition from entering the market, it is using the penetration pricing strategy. Penetration pricing is used most often when marketers suspect that competitors will enter the market shortly after a product has been introduced.

Chapter 12 - Dimensions of Marketing Strategy

47. _____ encourages consumers to make purchases based on emotion rather than rational considerations about the price. A. Price skimming B. Discount Pricing C. Penetration pricing D. Seasonal discount pricing E. Psychological pricing Psychological pricing encourages consumers to make purchases based on emotion rather than rational considerations about the price. For example, the assumption behind even/odd pricing is that people will buy more of a product for $9.99 than $10 because it seems to be a bargain at the odd price.

48. If a cosmetics company is selling an eye shadow priced at $11.99 rather than $12, it is using: A. price skimming. B. penetration pricing. C. psychological pricing. D. rational pricing. E. discount pricing. If a cosmetics company is selling an eye shadow priced at $11.99 rather than $12, it is using psychological pricing. Even/odd pricing is a type of psychological pricing that assumes that people will buy more of a product for $9.99 than for $10 because it seems to be a bargain at the odd price.

Chapter 12 - Dimensions of Marketing Strategy

49. If a company sells one of its products for $9.99 rather than $10, it is using: A. price skimming. B. penetration pricing. C. odd pricing. D. rational pricing. E. discount pricing. If a company sells one of its products for $9.99 rather than $10, it is using odd pricing. Even/odd pricing is a type of psychological pricing that assumes that people will buy more of a product for $9.99 rather than $10 because it seems to be a bargain at the odd price.

50. If a company's goal is to develop an image of having high-quality luxury products, it should employ a(n): A. penetration pricing strategy. B. price discounting strategy. C. even/odd pricing strategy. D. prestige pricing strategy. E. inclusive pricing strategy. If a company's goal is to develop an image of having high-quality luxury products, it should employ a prestige pricing strategy. The assumption behind prestige pricing is that high prices signal high quality.

Chapter 12 - Dimensions of Marketing Strategy

51. Because consumers associate a drug's price with potency, some pharmaceutical companies use the _____ strategy to price their over-the-counter drugs. A. penetration pricing B. even/odd pricing C. symbolic/prestige pricing D. discounting E. price dipping Because consumers associate a drug's price with potency, some pharmaceutical companies use the symbolic/prestige pricing strategy to price their over-the-counter drugs. Symbolic/prestige pricing assumes high prices connote high quality.

52. Many consumers associate high prices with high quality. In view of this assumption, some of the cosmetics companies use the _____ strategy to price their products. A. penetration pricing B. even/odd pricing C. price dipping D. discounting E. symbolic/prestige pricing Many consumers associate high prices with high quality. In view of this assumption, some of the cosmetics companies use the symbolic/prestige pricing strategy to price their products. The assumption behind symbolic/prestige pricing is that high prices connote high quality.

Chapter 12 - Dimensions of Marketing Strategy

53. Gucci bags often run into thousands of dollars. What kind of a pricing strategy is used by the company? A. Penetration pricing B. Reference pricing C. Price skimming D. Price discounting E. Price dipping Gucci bags often use the price skimming strategy. Price skimming is charging the highest possible price that buyers who want the product will pay. Price skimming is used with luxury goods items.

AACSB: Analytic Accessibility: Keyboard Navigation Bloom's: Understand Difficulty: 1 Easy Learning Objective: 12-02 Define price and discuss its importance in the marketing mix, including various pricing strategies a firm might employ. Topic: Pricing Objectives and Strategies

54. 47 Avenue buys shoes for men, women, and children from a large producer and sells them directly to end users. In this scenario, 47 Avenue is a _____. A. manufacturer B. retailer C. financier D. wholesaler E. customer In this scenario, 47 Avenue is a retailer. Retailers buy products from manufacturers (or other intermediaries) and sell them to consumers for home and household use rather than for resale or for use in producing other products.

AACSB: Reflective Thinking Accessibility: Keyboard Navigation Bloom's: Apply Difficulty: 2 Medium Learning Objective: 12-03 Identify factors affecting distribution decisions, such as marketing channels and intensity of market coverage. Topic: The Role of Marketing Intermediaries

Chapter 12 - Dimensions of Marketing Strategy

55. If a company buys televisions from a manufacturer and then sells them to department stores, it is most probably a _____. A. retailer B. producer C. consumer D. wholesaler E. marketer If a company buys televisions from a manufacturer and then sells them to department stores, it is most probably a wholesaler. Wholesalers are intermediaries who buy from producers or from other wholesalers and sell to retailers.

56. Farmers who sell their fruit and vegetables to consumers at roadside stands or farmer's markets use a _____ consumer marketing channel. A. Channel A B. Channel B C. Channel C D. Channel D E. Channel E Farmers who sell their fruit and vegetables to consumers at roadside stands or farmer's markets use a channel A consumer marketing channel. In Channel A, a product moves from the producer directly to a consumer.

Chapter 12 - Dimensions of Marketing Strategy

57. Which of the following types of consumer marketing channel is used for products such as college textbooks, automobiles, and appliances? A. Channel A B. Channel B C. Channel C D. Channel D E. Channel E In Channel B, a product goes from producer to retailer to consumer. This type of channel is used for products such as college textbooks, automobiles, and appliances.

58. Which of the following types of consumer marketing channel is used for the distribution of products like refrigerators, televisions, soft drinks, cigarettes, clocks, watches, and office products? A. Channel A B. Channel D C. Channel C D. Channel B E. Channel E In Channel C, the product is handled by a wholesaler and a retailer before it reaches the consumer. Channel C which involves producer-to-wholesaler-to-retailer-to-consumer marketing channels distribute a wide range of products including refrigerators, televisions, soft drinks, cigarettes, clocks, watches, and office products. In Channel C, the product is handled by a wholesaler and a retailer before it reaches the consumer.

Chapter 12 - Dimensions of Marketing Strategy

59. Services are usually distributed through _____ marketing channels. A. Channel B B. Channel E C. Channel D D. Channel C E. Channel A Services are usually distributed through Channel A (direct) marketing channels because they are generally produced and consumed simultaneously.

60. An example of a product distributed from the producer to the consumers through the retailer is: A. a chair from a company. B. an automobile. C. office supplies for use at a business. D. soft drinks. E. candy. An example of a product distributed from the producer to the consumers through the retailer is an automobile. The distribution channel where the product goes from producer to retailer to consumer is used for products such as college textbooks, automobiles, and appliances.

AACSB: Reflective Thinking Accessibility: Keyboard Navigation Bloom's: Apply Difficulty: 3 Hard Learning Objective: 12-03 Identify factors affecting distribution decisions, such as marketing channels and intensity of market coverage. Topic: The Role of Marketing Intermediaries

Chapter 12 - Dimensions of Marketing Strategy

61. Which of the following distribution channels would most likely be used for fruits and vegetables sold at a roadside stand or farmer's markets? A. Agent to wholesaler to retailer B. Producer to consumer C. Retailer to consumer D. Merchant to wholesaler E. Middleman to producer Farmers who sell their fruit and vegetables to consumers at roadside stands or farmer's markets use a direct-from-producer-to-consumer marketing channel. In direct marketing channels, a product moves from the producer directly to a consumer.

62. As services are generally produced and consumed simultaneously, they are usually distributed through: A. direct marketing channels. B. indirect channels. C. a wholesaler. D. an agent. E. a retailer and a wholesaler. Services are usually distributed through direct marketing channels because they are generally produced and consumed simultaneously. Many services require a customer's presence and participation.

AACSB: Analytic Accessibility: Keyboard Navigation Bloom's: Remember Difficulty: 2 Medium Learning Objective: 12-03 Identify factors affecting distribution decisions, such as marketing channels and intensity of market coverage. Topic: The Role of Marketing Intermediaries

Chapter 12 - Dimensions of Marketing Strategy

63. The intensity of market coverage depends on the: A. product. B. place. C. price. D. buyer behavior. E. marketing intermediaries. The intensity of market coverage depends on buyer behavior, as well as the nature of the target market and the competition.

AACSB: Analytic Accessibility: Keyboard Navigation Bloom's: Understand Difficulty: 2 Medium Learning Objective: 12-03 Identify factors affecting distribution decisions, such as marketing channels and intensity of market coverage. Topic: The Role of Marketing Intermediaries

64. _____ makes a product available in as many outlets as possible. A. Selective distribution B. Intensive distribution C. Relaxed distribution D. Exclusive distribution E. Sporadic distribution Intensive distribution makes a product available in as many outlets as possible because availability is important to purchasers of convenience products.

Chapter 12 - Dimensions of Marketing Strategy

65. Convenience products such as bread, milk, and chewing gum would probably be distributed: A. selectively. B. intensively. C. weakly. D. exclusively. E. sporadically. Convenience products such as bread, milk, and chewing gum would probably be distributed intensively. Intensive distribution makes a product (convenience products such as bread, milk, gasoline, soft drinks, and chewing gum) available in as many outlets as possible.

66. Selective distribution: A. combines planned distribution systems under one management. B. makes a product available in as many outlets as possible. C. gives a middleman the sole right to sell a product in a defined geographic territory. D. uses only a small proportion of all available outlets to expose products. E. works best for the distribution of convenience products. Selective distribution uses only a small proportion of all available outlets to expose products because it is usually used for products that consumers buy after comparative shopping.

Chapter 12 - Dimensions of Marketing Strategy

67. _____ is used most often for products that consumers buy only after shopping and comparing price, quality, and style. A. Selective distribution B. Intensive distribution C. Relaxed distribution D. Exclusive distribution E. Sporadic distribution Selective distribution is used most often for products that consumers buy only after shopping and comparing price, quality, and style. Many products sold on a selective basis require salesperson assistance, technical advice, warranties, or repair service to maintain consumer satisfaction.

68. _____ exists when a manufacturer gives an intermediary the sole right to sell a product in a defined geographic territory. A. Exclusive distribution B. Intensive distribution C. Relaxed distribution D. Selective distribution E. Sporadic distribution Exclusive distribution exists when a manufacturer gives an intermediary the sole right to sell a product in a defined geographic territory. Products distributed on an exclusive basis include high-quality musical instruments, yachts, airplanes, and high-fashion leather goods.

Chapter 12 - Dimensions of Marketing Strategy

69. High-quality items such as musical instruments, sailboats, and airplanes will most likely use _____. A. selective distribution B. intensive distribution C. relaxed distribution D. exclusive distribution E. sporadic distribution Products distributed on an exclusive basis include high-quality musical instruments, yachts, airplanes, and high-fashion leather goods. Exclusive distribution exists when a manufacturer gives an intermediary the sole right to sell a product in a defined geographic territory.

70. Inventory control, transportation, and warehousing are all examples of activities of: A. commercialization. B. operationalization. C. physical distribution. D. Channel D marketing. E. departmentalization. Physical distribution includes all the activities necessary to move products from producers to customers—inventory control, transportation, warehousing, and materials handling. Physical distribution creates time and place utility by making products available when they are wanted, with adequate service and at minimum cost.

Chapter 12 - Dimensions of Marketing Strategy

71. _____ creates time and place utility by making products available when they are wanted, with adequate service and at minimum cost. A. Commercialization B. Operationalization C. Physical distribution D. Selective distribution E. Departmentalization Physical distribution creates time and place utility by making products available when they are wanted, with adequate service and at minimum cost. Physical distribution includes all the activities necessary to move products from producers to customers—inventory control, transportation, warehousing, and materials handling.

72. Which of the following modes of transportation offers speed and a high degree of dependability but is the most expensive? A. Railroads B. Trucking C. Air transport D. Shipping E. Pipelines Air transport offers speed and a high degree of dependability but is the most expensive means of transportation. Shipping is the least expensive and slowest form.

Chapter 12 - Dimensions of Marketing Strategy

73. _____ are specifically noted for their flexibility in terms of reachability and packaging requirements for transporting products. A. Pipelines B. Airplanes C. Trucks D. Railroads E. Ships Trucks have greater flexibility than railroads because they can reach more locations. Trucks handle freight quickly and economically, offer door-to-door service, and are more flexible in their packaging requirements than are ships or airplanes.

74. Which of the following activities is most closely associated with warehousing? A. Marketing B. Producing C. Branding D. Distributing E. Pricing Physical distribution includes all the activities necessary to move products from producers to customers—inventory control, transportation, warehousing, and materials handling. Warehousing is the design and operation of facilities to receive, store, and ship products.

Chapter 12 - Dimensions of Marketing Strategy

75. The role of _____ is to communicate with individuals, groups, and organizations to facilitate an exchange directly or indirectly. A. branding B. promotion C. pricing D. distribution E. merchandising The role of promotion is to communicate with individuals, groups, and organizations to facilitate an exchange directly or indirectly. It encourages marketing exchanges by attempting to persuade individuals, groups, and organizations to accept goods, services, and ideas.

76. Which of the following is an element of the promotion mix? A. Product B. Distribution C. Place D. Publicity E. Price Publicity is an element of the promotion mix. Advertising, personal selling, publicity, and sales promotion are collectively known as the promotion mix.

Chapter 12 - Dimensions of Marketing Strategy

77. The process of coordinating the promotion mix elements and synchronizing promotion as a unified effort is known as _____. A. integrated marketing communications B. assimilated promotion C. unified advertising campaign D. cohesive marketing strategy E. test marketing campaign The process of coordinating the promotion mix elements and synchronizing promotion as a unified effort is called integrated marketing communications. When planning promotional activities, an integrated marketing communications approach results in the desired message for customers.

78. When Viera, an automobile company, pays a television network to air its commercial, it is using: A. publicity. B. advertising. C. personal selling. D. sales promotion. E. packaging. When Viera, an automobile company, pays a television network to air its commercial, it is using advertising. Advertising is a paid form of nonpersonal communication transmitted through a mass medium, such as television commercials, magazine advertisements, and online ads.

AACSB: Reflective Thinking Accessibility: Keyboard Navigation Bloom's: Apply Difficulty: 2 Medium Learning Objective: 12-04 Specify the activities involved in promotion as well as promotional strategies and promotional positioning. Topic: Advantages and Disadvantages of Various Promotion Techniques

Chapter 12 - Dimensions of Marketing Strategy

79. _____ is a variation of traditional advertising in which marketers attempt to create a trend or acceptance of a product. A. Publicity B. Buzz marketing C. Personal selling D. Sales promotion E. Packaging Buzz marketing is a variation of traditional advertising in which marketers attempt to create a trend or acceptance of a product. Companies seek out trendsetters in communities and get them to "talk up" a brand to their friends, family, coworkers, and others.

80. Which of the following promotion mix variables is best for promoting expensive products with specialized uses, such as houses? A. Publicity B. Advertising C. Personal selling D. Sales promotion E. Packaging Personal selling is best for promoting expensive products with specialized uses, such as houses. Personal selling is direct, two-way communication with buyers and potential buyers. For many products—especially large, expensive ones with specialized uses, such as cars, appliances, and houses—interaction between a salesperson and the customer is probably the most important promotional tool.

AACSB: Analytic Accessibility: Keyboard Navigation Bloom's: Understand Difficulty: 2 Medium Learning Objective: 12-04 Specify the activities involved in promotion as well as promotional strategies and promotional positioning. Topic: Advantages and Disadvantages of Various Promotion Techniques

Chapter 12 - Dimensions of Marketing Strategy

81. _____ is the most flexible of the promotional methods. A. Publicity B. Advertising C. Packaging D. Sales promotion E. Personal selling Personal selling is the most flexible of the promotional methods because it gives marketers the greatest opportunity to communicate specific information that might trigger a purchase.

AACSB: Analytic Accessibility: Keyboard Navigation Bloom's: Understand Difficulty: 1 Easy Learning Objective: 12-04 Specify the activities involved in promotion as well as promotional strategies and promotional positioning. Topic: Advantages and Disadvantages of Various Promotion Techniques

82. Which of the following steps of personal selling is associated with identifying potential buyers of a product? A. Approaching B. Prospecting C. Presenting D. Handling objections E. Following up Prospecting is associated with identifying potential buyers of a product. It is the first step of personal selling process.

AACSB: Analytic Accessibility: Keyboard Navigation Bloom's: Remember Difficulty: 2 Medium Learning Objective: 12-04 Specify the activities involved in promotion as well as promotional strategies and promotional positioning. Topic: Advantages and Disadvantages of Various Promotion Techniques

Chapter 12 - Dimensions of Marketing Strategy

83. Which of the following steps of personal selling is associated with asking a prospect to buy a product? A. Approaching B. Prospecting C. Presenting D. Closing E. Following up Closing is associated with asking a prospect to buy a product. It is the fifth step of personal selling process.

84. Venn Networks recently unveiled its new smartphone at a press conference. There was a news release about the new smartphone and all the members of the company's top management interacted with the media during this conference. Venn Networks is using the promotional strategy of _____ in this scenario. A. test marketing B. publicity C. personal selling D. advertising E. distribution Venn Networks is using the promotional strategy of publicity in this scenario. Publicity is nonpersonal communication transmitted through the mass media but not paid for directly by a firm.

Chapter 12 - Dimensions of Marketing Strategy

85. Which of the following elements of the promotion mix involves direct inducements offering added value or some other incentive for buyers to enter into an exchange? A. Sales promotion B. Advertising C. Personal selling D. Publicity E. Public relations Sales promotion involves direct inducements offering added value or some other incentive for buyers to enter into an exchange. Sales promotions are generally easier to measure and less expensive than advertising.

86. When a _____ is used, a company attempts to motivate wholesalers and retailers to make the product available to their customers. A. test-marketing strategy B. push strategy C. pull strategy D. skimming strategy E. pricing strategy A push strategy attempts to motivate intermediaries to push the product down to their customers. When a push strategy is used, a company attempts to motivate wholesalers and retailers to make the product available to their customers. Sales personnel may be used to persuade intermediaries to offer the product, distribute promotional materials, and offer special promotional incentives for those who agree to carry the product.

Chapter 12 - Dimensions of Marketing Strategy

87. A _____ uses promotion to create consumer demand for a product. A. test-marketing strategy B. push strategy C. pull strategy D. positioning strategy E. pricing strategy A pull strategy uses promotion to create consumer demand for a product. A push strategy attempts to motivate intermediaries to push the product down to their customers.

88. When GK, a company producing razors and shaving accessories for men, asks supermarkets to give its new razors shelf space and special displays, it is using a: A. push strategy. B. pull strategy. C. publicity campaign. D. pricefixing approach. E. positioning strategy. When GK, a company producing razors and shaving accessories for men, asks supermarkets to give its new razors shelf space and special displays, it is using a push strategy. A push strategy attempts to motivate intermediaries to push the product down to their customers. A pull strategy uses promotion to create consumer demand for a product.

Chapter 12 - Dimensions of Marketing Strategy

89. The exclusive use of advertising indicates a _____. A. test-marketing strategy B. push strategy C. pull strategy D. positioning strategy E. pricing strategy The exclusive use of advertising indicates a pull strategy. A pull strategy uses promotion to create consumer demand for a product.

90. Personal selling to marketing channel members indicates a _____. A. test-marketing strategy B. push strategy C. pull strategy D. positioning strategy E. pricing strategy Personal selling to marketing channel members indicates a push strategy. A push strategy attempts to motivate intermediaries to push the product down to their customers.

Chapter 12 - Dimensions of Marketing Strategy

91. Colors, a company manufacturing cosmetics and body care products, offers retailers a special incentive to carry its new line of shower gels and body lotions. Which of the following promotion strategies is being used by Colors in this scenario? A. Pull strategy B. Advertising C. Publicity D. Integrated marketing communications E. Push strategy In this scenario, Colors is using a push strategy. A push strategy attempts to motivate intermediaries to push the product down to their customers.

92. When Energia, a soft drink manufacturer, seeks to use viral ads on the Internet to introduce its new beverage to the consumers even before introducing it to supermarkets, it uses a: A. push strategy. B. pull strategy. C. publicity campaign. D. point-of-purchase promotion. E. skimming strategy. When Energia, a soft drink manufacturer, seeks to use viral ads on the Internet to introduce its new beverage to the consumers even before introducing it to supermarkets, it uses a pull strategy. A pull strategy uses promotion to create consumer demand for a product so that consumers exert pressure on marketing channel members to make it available.

Chapter 12 - Dimensions of Marketing Strategy

93. When a company uses advertising and sales promotion to inform consumers about a product so that the consumers will ask retailers to stock it, which of the following promotion strategies is being used? A. Test-marketing strategy B. Push strategy C. Pull strategy D. Skimming strategy E. Pricing strategy A pull strategy is being used in the given scenario. A pull strategy uses promotion to create consumer demand for a product so that consumers exert pressure on marketing channel members to make it available.

94. Effective promotional positioning uses promotion to: A. create and maintain an image of a product in buyers' minds. B. create an image of a product that appeals to multiple market segments. C. expedite product delivery. D. avoid focusing on small market segments. E. stabilize sales. Promotional positioning uses promotion to create and maintain an image of a product in buyers' minds. It is a natural result of market segmentation. In both promotional positioning and market segmentation, the firm targets a given product or brand at a portion of the total market.

Chapter 12 - Dimensions of Marketing Strategy

95. Bart's Beer targets its 1964 Beer toward those who want to drink beer without consuming many calories. This best exemplifies: A. institutional advertising. B. promotional positioning. C. a push strategy. D. a pull strategy. E. publicity. The given scenario best exemplifies promotional positioning. A promotional positioning strategy helps to differentiate a product and make it appeal to a particular market segment.

Chapter 13 - Digital Marketing and Social Networking

Chapter 13 Digital Marketing and Social Networking

True / False Questions 1. The Internet impedes business transactions. FALSE The Internet facilitates business transactions, allowing companies to network with manufacturers, wholesalers, retailers, suppliers, and outsource firms to serve customers more quickly and efficiently.

AACSB: Analytic Accessibility: Keyboard Navigation Bloom's: Understand Difficulty: 1 Easy Learning Objective: 13-01 Define digital media and digital marketing and recognize their increasing value in strategic planning. Topic: The Impact of Information Technology on Business

2. Digital technology has had greater impact in certain industries where the cost of business and customer transactions has been very high. TRUE Digital technology has had greater impact in certain industries where the cost of business and customer transactions has been very high. For example, investment trading is less expensive online because customers can buy and sell investments, such as stocks and mutual funds, on their own.

AACSB: Analytic Accessibility: Keyboard Navigation Bloom's: Remember Difficulty: 1 Easy Learning Objective: 13-02 Demonstrate the role of digital marketing and social networking in today's business environment. Topic: The Impact of Information Technology on Business

Chapter 13 - Digital Marketing and Social Networking

3. One of the greatest drawbacks of digital marketing is the inability of marketers and customers to share information with ease. FALSE One of the most important benefits of digital marketing is the ability of marketers and customers to easily share information. Through websites, social networks, and other digital media, consumers can learn about everything they consume and use in their lives, ask questions, voice complaints, indicate preferences, and otherwise communicate about their needs and desires.

AACSB: Analytic Accessibility: Keyboard Navigation Bloom's: Remember Difficulty: 1 Easy Learning Objective: 13-03 Show how digital media affect the marketing mix. Topic: The Impact of Information Technology on Business

4. Online social networks are a valuable part of marketing because they change the way consumers communicate with each other and with firms.

TRUE

Online social networks are a valuable part of marketing because they change the way consumers communicate with each other and with firms. Sites such as Facebook and Twitter have emerged as opportunities for marketers to build communities, provide product information, and learn about consumer needs.

AACSB: Analytic Accessibility: Keyboard Navigation Bloom's: Remember Difficulty: 1 Easy Learning Objective: 13-04 Define social networking and illustrate how businesses can use different types of social networking media. Topic: The Impact of Information Technology on Business

Chapter 13 - Digital Marketing and Social Networking

5. Since intellectual property is protected by patents and copyrights, there are no losses related to intellectual property theft. FALSE Although intellectual property is generally protected by patents and copyrights, companies still suffer billions of dollars in losses each year. YouTube has often faced lawsuits on intellectual property infringement.

AACSB: Analytic Accessibility: Keyboard Navigation Bloom's: Remember Difficulty: 1 Easy Learning Objective: 13-05 Identify legal and ethical considerations in digital media. Topic: The Risks Associated with Information Technology

Multiple Choice Questions 6. E-business differs from traditional business in that: A. the latter caters to business-to-business deals which do not include direct selling. B. the former carries out the goals of business through the use of the Internet. C. the former permits guerilla marketing. D. the latter uses the pull strategy. E. the latter uses the push strategy. E-business differs from traditional business in that the former carries out the goals of business through the use of the Internet. Digital marketing uses all digital media, including the Internet and mobile and interactive channels, to develop communication and exchanges with customers.

AACSB: Analytic Accessibility: Keyboard Navigation Bloom's: Understand Difficulty: 2 Medium Learning Objective: 13-01 Define digital media and digital marketing and recognize their increasing value in strategic planning. Topic: The Impact of Information Technology on Business

Chapter 13 - Digital Marketing and Social Networking

7. Which of the following scenarios makes a reference to e-business? A. Alexis purchases a tablet PC through an online retail store. B. Keisha purchases tickets for a football match from the stadium. C. Malik buys a laptop from an electronics store located a few blocks away from his home. D. Laila buys her favorite brand of cereal from a nearby supermarket. E. Joshua purchases fruit and vegetables from a farmer's market. E-business means carrying out the goals of business through the use of the Internet. Digital media are electronic media that function using digital codes—when we refer to digital media, we mean media available via computers and other digital devices, including mobile and wireless ones like smartphones.

AACSB: Reflective Thinking Accessibility: Keyboard Navigation Bloom's: Apply Difficulty: 3 Hard Learning Objective: 13-01 Define digital media and digital marketing and recognize their increasing value in strategic planning. Topic: The Impact of Information Technology on Business

8. In the context of digital communication, _____ is the ability of a marketer to identify customers before they make a purchase. A. control B. interactivity C. connectivity D. addressability E. accessibility In the context of digital communication, addressability is the ability of the marketer to identify customers before they make a purchase. Some of the characteristics that distinguish digital from traditional communication are addressability, interactivity, accessibility, connectivity, and control.

AACSB: Analytic Accessibility: Keyboard Navigation Bloom's: Remember Difficulty: 1 Easy Learning Objective: 13-01 Define digital media and digital marketing and recognize their increasing value in strategic planning. Topic: The Impact of Information Technology on Business

Chapter 13 - Digital Marketing and Social Networking

9. Which of the following characteristics distinguishes digital marketing from traditional marketing? A. Addressability B. Accountability C. Adaptability D. Creativity E. Receptivity Addressability is the ability of the marketer to identify customers before they make a purchase. Some of the characteristics that distinguish digital from traditional communication are addressability, interactivity, accessibility, connectivity, and control.

10. _____, in the context of digital communication, refers to the ability of customers to express their needs and wants directly to the firm in response to its marketing communications. A. Addressability B. Accessibility C. Connectivity D. Interactivity E. Control Interactivity, in the context of digital communication, refers to the ability of customers to express their needs and wants directly to the firm in response to its marketing communications. Texas Instruments interacts with its customers on its Facebook page by answering concerns and posting updates.

Chapter 13 - Digital Marketing and Social Networking

11. In the context of digital communication, _____ refers to the ability of marketers to obtain digital information. A. control B. accessibility C. connectivity D. addressability E. interactivity In the context of digital communication, accessibility is the ability of marketers to obtain digital information. Google can use web searches done through its search engine to learn about customer interests.

12. Google can use web searches done through its search engine to learn about customer interests. This underlies the _____ aspect of digital communication. A. control B. addressability C. connectivity D. accessibility E. interactivity Google's ability to use its search engine to learn about customer interests relates to the accessibility aspect of digital communication. Accessibility is the ability of marketers to obtain digital information.

Chapter 13 - Digital Marketing and Social Networking

13. In the context of digital communication, _____ refers to consumers' ability to get in touch with marketers along with other consumers. A. connectivity B. control C. addressability D. accessibility E. interactivity In the context of digital communication, connectivity refers to the ability of consumers to be connected with marketers along with other consumers. The Avon Voices website encouraged singers to upload their singing videos, which can then be voted on by other users for the chance to be discovered.

14. In the context of digital communication, _____ refers to the customer's ability to regulate the information they view as well as the rate and exposure to that information. A. addressability B. accessibility C. interactivity D. connectivity E. control In the context of digital communication, control refers to the customer's ability to regulate the information they view as well as the rate and exposure to that information. Consumers use Kayak to discover the best travel deals.

Chapter 13 - Digital Marketing and Social Networking

15. _____ typically uses the Internet and mobile and interactive channels to develop communication and exchanges with customers. A. Cloud marketing B. Database marketing C. Content marketing D. Digital marketing E. Diversity marketing Digital marketing typically uses all digital media, including the Internet and mobile and interactive channels, to develop communication and exchanges with customers. Digital marketing goes beyond the Internet and includes mobile phones, banner ads, digital outdoor marketing, and social networks.

16. Which of the following media is used by digital marketing? A. Newspaper B. Magazine C. Yellow Pages D. Social networks E. Radio Social networks is used by digital marketing. Digital marketing goes beyond the Internet and includes mobile phones, banner ads, digital outdoor marketing, and social networks.

Chapter 13 - Digital Marketing and Social Networking

17. Which of the following statements is true of the Internet? A. It has significantly reduced the connectivity between businesses and customers. B. It has made it possible for businesses to reach previously inaccessible markets. C. It has adversely affected the network of businesses and manufacturers. D. It does not include banner ads. E. It denies customers control over information they access. The Internet has created tremendous opportunities for businesses to forge relationships with consumers and business customers, target markets more precisely, and even reach previously inaccessible markets at home and around the world.

18. A successful digital marketing strategy focuses: A. on creating products that customers need. B. on creating products that marketers want. C. exclusively on developing a brand name or label. D. on reducing costs of online transaction. E. exclusively on giving discounts for products. Successful digital marketing strategies, like traditional business strategies, focus on creating products that customers need or want, not merely developing a brand name or reducing the costs associated with online transactions.

AACSB: Analytic Accessibility: Keyboard Navigation Bloom's: Understand Difficulty: 2 Medium Learning Objective: 13-02 Demonstrate the role of digital marketing and social networking in today's business environment. Topic: The Impact of Information Technology on Business

Chapter 13 - Digital Marketing and Social Networking

19. Which of the following statements is true of digital media in the context of business? A. They have significantly increased the costs of businesses. B. They make the quality of products less important. C. They can improve communication within and between businesses. D. They lack potential to have a long-term impact on economic growth. E. They greatly help private organizations but are ineffective for government organizations. Digital media can improve communication within and between businesses. In the future, most significant gains will come from productivity improvements within businesses.

20. One challenge that digital media has created for businesses is: A. employees wasting time surfing the Internet. B. increase in the cost of communication. C. reduced access to information. D. difficulty in conducting market research. E. hampered communication within businesses. One challenge that digital media has created for businesses is employees wasting time surfing the Internet. Firms need to control access to their digital communication systems to ensure worker productivity. This can be a challenge. For example, in companies across the United States, employees are surfing the Internet for as much as an hour during each workday.

Chapter 13 - Digital Marketing and Social Networking

21. Which of the following statements is true of digital media? A. They make customer communications interactive. B. They limit a company's reach to new target markets. C. They limit marketers from utilizing new resources. D. They make communication complex and expensive. E. They limit consumers' access to information. Digital media make customer communications faster and interactive. Digital media help companies reach new target markets more easily, affordably, and quickly than ever before.

AACSB: Analytic Accessibility: Keyboard Navigation Bloom's: Understand Difficulty: 2 Medium Learning Objective: 13-03 Show how digital media affect the marketing mix. Topic: The Impact of Information Technology on Business

22. Which aspect of marketing has not changed with digital media? A. A customer's ability to regulate the information they view B. The focus on what the manufacturers want C. The importance of achieving the right marketing mix D. The possibility of real-time exchanges between manufacturers and end users E. The dependency on technology One aspect of marketing that has not changed with digital media is the importance of achieving the right marketing mix. Product, distribution, promotion, and pricing are as important as ever for successful online marketing strategies.

Chapter 13 - Digital Marketing and Social Networking

23. Which of the following statements is true of digital media? A. They hold little relevance to brick-and-mortar companies. B. They do not relieve businesses of the task of achieving the right marketing mix. C. They do not help businesses enhance the benefits of their products. D. They do not give businesses the scope to offer more products than traditional stores. E. They make it more difficult to anticipate customer needs. One aspect of marketing that has not changed with digital media is the importance of achieving the right marketing mix. Product, distribution, promotion, and pricing are as important as ever for successful online marketing strategies.

24. What of the following statements is true of both conventional marketing and digital marketing? A. Both make customer communications faster. B. Both make customer communications interactive. C. Both help companies reach new target markets easily. D. Both have to achieve the right marketing mix. E. Both offer unlimited items for customer needs. One aspect of marketing that has not changed with digital media is the importance of achieving the right marketing mix. Product, distribution, promotion, and pricing are as important as ever for successful online marketing strategies.

Chapter 13 - Digital Marketing and Social Networking

25. The _____ created by digital media provides the opportunity for adding services and can enhance product benefits. A. receptivity B. accountability C. adaptability D. creativity E. connectivity The connectivity created by digital media provides the opportunity for adding services and can enhance product benefits. Some products, such as online games, applications, and virtual worlds, are only available via digital media.

26. Which of the following statements is true of the impact of digital media in the marketing mix? A. Digital media has increased the opportunities for word-of-mouth marketing. B. For a business that wants to compete on price, digital marketing provides no opportunities. C. The concept of online shopping created by the digital media can be found only in the Western world. D. Consumer consumption patterns have undergone little change with the advent of digital media. E. Social networking sites are the least useful when it comes to increasing the brand exposure of a firm. If marketers find it difficult to adapt their promotional strategies to online marketing, many social networks offer tools to help. Burberry's and Ben & Jerry's have used the Sponsored Stories feature on Facebook to capitalize on this opportunity for word-of-mouth marketing.

Chapter 13 - Digital Marketing and Social Networking

27. Supernova Inc. is a gadgets and accessories retailer that has recently introduced a new concept. A customer can order products not usually available in its stores from Supernova's website; the products are then shipped to the Supernova store nearest to the customer. The customer can pick up the products from the store at his or her convenience without having to pay any shipping charges. This concept is called _____. A. digital shipping B. viral marketing C. brick and mortar D. traditional retail E. "site to store" system Shipping times and costs have become an important consideration in attracting customers. Walmart is attempting to take market share away from e-marketers like Amazon.com by reducing delivery time and creating a "site to store" system that eliminates shipping costs for consumers who pick up their deliveries in the store. The "site to store" system is used by Supernova in the given scenario.

AACSB: Reflective Thinking Accessibility: Keyboard Navigation Bloom's: Apply Difficulty: 2 Medium Learning Objective: 13-03 Show how digital media affect the marketing mix. Topic: The Impact of Information Technology on Business

Chapter 13 - Digital Marketing and Social Networking

28. Marketers' ability to process orders electronically and increase the speed of communications, thereby reducing costs, inefficiencies, and redundancies most likely relates to the _____ element of the marketing mix. A. pricing B. promotion C. distribution D. communication E. advertising Marketers' ability to process orders electronically and increase the speed of communications reduces costs, inefficiencies, and redundancies while increasing speed throughout the distribution channel. Shipping times and costs have become an important consideration in attracting customers, prompting many companies to offer consumers low shipping costs or next-day delivery.

AACSB: Analytic Accessibility: Keyboard Navigation Bloom's: Understand Difficulty: 1 Easy Learning Objective: 13-03 Show how digital media affect the marketing mix. Topic: The Impact of Information Technology on Business

29. _____ is the most flexible element of the marketing mix. A. Promotion B. Distribution C. Product D. Price E. Placement Price is the most flexible element of the marketing mix. Digital marketing can enhance the value of products by providing extra benefits such as service, information, and convenience.

Chapter 13 - Digital Marketing and Social Networking

30. A _____ is a web-based meeting place for friends, family, coworkers, and peers that lets users create a profile and connect with other users for a wide range of purposes. A. peer-to-peer sharing platform B. webcast C. podcast D. wiki E. social network A social network is a website where users can create a profile and interact with other users, post information, and engage in other forms of web-based communication. Social networks are a valued part of marketing because they are changing the way consumers communicate with each other and with firms.

31. Which of the following statements is true of social networking? A. Social networks have existed in some form or other for 40 years. B. As the number of social network users increases, interactive marketers are finding it difficult to access new target markets. C. Professionals such as professors, doctors, and engineers are yet to start using social networks. D. Social networks do not encompass certain demographic segments such as mothers. E. Social networks are personal spaces of users and marketers who refrain from using them to advertise products. Social networks have existed in some form or other for 40 years. The precursors of today's social networks began in the 1970s as online bulletin boards that allowed users with common interests to interact with one another.

AACSB: Analytic Accessibility: Keyboard Navigation Bloom's: Understand Difficulty: 2 Medium Learning Objective: 13-04 Define social networking and illustrate how businesses can use different types of social networking media. Topic: The Impact of Information Technology on Business

Chapter 13 - Digital Marketing and Social Networking

32. Which of the following was the first modern social network site? A. Facebook B. Orkut C. MySpace D. Six Degrees E. Friendster The first modern social network was Six Degrees.com, launched in 1997. This system permitted users to create a profile and connect with friends, the core attributes of today's networks.

33. Many social networking sites today provide users with the ability to: A. download applications. B. access information in the absence of the Internet. C. manipulate content on other websites. D. develop software. E. restrict others from accessing any kind of online information. Today's sites offer a multitude of consumer benefits, including the ability to download music, games, and applications; upload photos and videos; join groups; find and chat with friends; comment on friends' posts; and post and update status messages.

Chapter 13 - Digital Marketing and Social Networking

34. Which service allows users to "like" a company's profile and thereby interact and build a relationship with the firm? A. Facebook B. Wikipedia C. Twitter D. Second Life E. CafeMom Facebook allows users to "like" a company's profile and thereby interact and build a relationship with the firm. Facebook is partnering with businesses to offer unique incentives to customers.

35. A factor that has sparked the rise of consumer-generated information is: A. the increasing dominance of traditional media over digital media. B. the reluctance of consumers to publish their thoughts and opinions on digital platforms. C. the dwindling number of consumers using social networking sites. D. the consumers' tendency to trust other consumers over corporations. E. the digital media which is gradually becoming less consumer-driven. A factor that has sparked the rise of consumer-generated information is the consumers' tendency to trust other consumers over corporations. Consumers often rely on the recommendations of friends, family, and fellow consumers over corporations when making purchasing decisions.

Chapter 13 - Digital Marketing and Social Networking

36. Which of the following factors has sparked the rise of consumer-generated information? A. The increasing dominance of traditional media over digital media B. The tendency of consumers to publish their opinions through digital media C. The dwindling number of consumers using social networking sites D. The tendency of consumers to trust corporations over fellow consumers E. The digital media which is gradually becoming less consumer-driven The increased tendency of consumers to publish their own thoughts, opinions, reviews, and product discussions through blogs or digital media is one of the factors that has sparked the rise of consumer-generated information. Consumers often rely on the recommendations of friends, family, and fellow consumers over corporations when making purchasing decisions.

37. Which of the following statements is true of Facebook? A. It is essentially a micro-blogging site than a social network. B. It allows users to write posts consisting of not more than 140 characters. C. It appeals to a wide demographic that includes parents and grandparents. D. It is still overshadowed by the popularity of MySpace.

E. It does not allow users to create public profiles. AACSB: Analytic Accessibility: Keyboard Navigation Bloom's: Understand Difficulty: 2 Medium Learning Objective: 13-04 Define social networking and illustrate how businesses can use different types of social networking media. Topic: The Impact of Information Technology on Business

Chapter 13 - Digital Marketing and Social Networking

38. Which of the following statements is true of Twitter? A. It allows users to create posts of any lengths. B. It is a hybrid of a social networking site and a micro-blogging site. C. It has had minimal impact on digital media. D. It cannot be used to build customer relationships. E. It lacks the potential to give companies a competitive advantage. Twitter is a hybrid of a social networking site and a micro-blogging site that asks users one simple question: "What's happening?" Members can post answers of up to 140 characters, which are then available for their registered "followers" to read.

39. _____ are web-based journals in which writers can editorialize and interact with other Internet users. A. Online newspapers B. Wikis C. Social networking sites D. Blogs E. Virtual realities Blogs are web-based journals in which writers can editorialize and interact with other Internet users. More than three-fourths of Internet users read blogs.

Chapter 13 - Digital Marketing and Social Networking

40. Which of the following statements is true of blogs? A. They allow users to post content consisting of only 140 characters. B. They allow users to post whatever they like about a company or its products. C. They lack the potential to increase sales even if they contain positive reviews about products. D. They cannot be spread across the Internet. E. They are not even read by half of the Internet users. Blogs give consumers power, sometimes more than companies would like. Bloggers can post whatever they like about a company or its products, whether their opinions are positive or negative, true or false.

41. Which of the following is a drawback associated with blogs? A. Blogs once written cannot be removed. B. Blogs are highly regulated and companies are not allowed to make any tall claims. C. Bloggers charge companies for writing reviews of products. D. Consumers can write bad reviews of products in their blogs, which leads to negative publicity. E. Companies are not allowed to write positive reviews of their products on their blogs. Blogs give consumers power, sometimes more than companies would like. Bloggers can post whatever they like about a company or its products, whether their opinions are positive or negative, true or false. Thus, blogs can represent a potent threat or opportunity to marketers.

Chapter 13 - Digital Marketing and Social Networking

42. Which of the following is least likely to be a reason for a company to maintain a blog? A. To answer consumer concerns and questions B. To defend corporate reputation C. To build enthusiasm for its products D. To highlight positive company news and information E. To document internal operational flaws Smart companies maintain blogs that allow them to interact with and respond to consumers, highlight positive news, defend corporate reputations, and if necessary, to counter the spread of negative information by others.

43. _____ are websites where users can add to or edit the content of posted articles. A. Online newspapers B. Blogs C. Wikis D. Social networking sites E. Virtual realities Wikis are websites where users can add to or edit the content of posted articles. One of the best known is Wikipedia, an online encyclopedia with more than 30 million entries in more than 285 languages on nearly every subject imaginable.

Chapter 13 - Digital Marketing and Social Networking

44. Which of the following statements is true of wikis? A. They do little to give companies an idea about what consumers feel about them. B. They are being used by some companies as internal tools for teams working on projects that require a great deal of documentation. C. They seldom carry negative information or publicity about businesses, and there is little at stake for businesses if they ignore wikis. D. They do not allow users to add or edit information that has already been posted. E. They are being used by almost all the Fortune 500 companies. Some companies have begun to use wikis as internal tools for teams working on projects that require a great deal of documentation. Wikis are websites where users can add to or edit the content of posted articles.

45. Which of the following statements is true of media sharing sites? A. They are more limited in scope in how companies interact with consumers. B. They have minimal popularity which provides no potential for firms to reach a global audience of consumers. C. They do not allow firms to post videos or photographs like other sites. D. They provide no visual ways through which businesses can share their corporate messages. E. They are more limited in scope when it comes to viral marketing. Media sharing sites are more limited in scope in how companies interact with consumers. They tend to be more promotional than reactive.

Chapter 13 - Digital Marketing and Social Networking

46. _____ tend to allow businesses to be more promotional than reactive because they do not permit companies to respond to or interact with customers. A. E-mails B. Social networking sites C. Media sharing sites D. Micro-blogging sites E. Mailers Media sharing sites tend to allow businesses to be more promotional than reactive because they do not permit companies to respond to or interact with customers. This means that while firms can promote their products through videos or photos, they usually do not interact with consumers through personal messages or responses.

47. _____ is a tool that uses the Internet, particularly social networking and video sharing sites, to spread a message and create brand awareness. A. Print media B. TV infomercial C. Viral marketing D. Community radio E. Firewall Viral marketing is a marketing tool that uses the Internet, particularly social networking and video sharing sites, to spread a message and create brand awareness. Viral marketing is the sharing of a message—often a video or photo—from person to person many times.

Chapter 13 - Digital Marketing and Social Networking

48. Which of the following statements is true of viral marketing? A. It significantly increases the advertising costs of a company. B. It does not use video and photo sharing sites. C. It occurs when a message gets sent from person to person to person. D. It involves the e-mailing of bulky video files that take a long time to load. E. It essentially uses newspaper and magazine ads. Viral marketing occurs when a message gets sent from person to person to person. It can be an extremely effective tool for marketers, particularly on the Internet, where one click can send a message to dozens or hundreds of people simultaneously.

49. Which of the following transformed GoPro from a small camera firm into a successful company? A. Search engine marketing B. Viral marketing C. Affiliate marketing D. Email marketing E. Article marketing GoPro transformed from a small camera firm into a successful company due to the videos consumers took of themselves using GoPro cameras. Viral marketing occurs when a message gets sent from person to person to person.

Chapter 13 - Digital Marketing and Social Networking

50. _____ is one of the most popular photo sharing sites on the Internet and enables users to upload images, edit them, classify the images, create photo albums, and share photos with friends. A. MySpace B. Gmail C. Six Degrees D. Flickr E. Final Cut Pro Flickr is owned by Yahoo! and is one of the most popular photo sharing sites on the Internet. A Flickr user can upload images, edit them, classify the images, create photo albums, and share photos with friends.

51. _____ is the most popular mobile photo sharing application which allows users to make their photos look dreamy or retrospective with different tints and then share them with their friends. A. Flickr B. Instagram C. MySpace D. Orkut E. Six Degrees Instagram is the most popular mobile photo sharing application. Instagram allows users to make their photos look dreamy or retrospective with different tints and then share them with their friends.

Chapter 13 - Digital Marketing and Social Networking

52. _____ is a photo sharing bulletin board site that combines photo sharing with elements of bookmarking and social networking. A. Pinterest B. Final Cut Pro C. Flickr D. Wikipedia E. MySpace Pinterest is a photo sharing bulletin board site that combines photo sharing with elements of bookmarking and social networking. Users can share photos and images among other Internet users, communicating mostly through images that they "pin" to their boards.

53. _____ are audio or video files that can be downloaded from the Internet via a subscription that automatically delivers new content to listening devices or personal computers. A. Podcasts B. Wikis C. Blogs D. Social networking sites E. Virtual realities Podcasts are audio or video files that can be downloaded from the Internet via a subscription that automatically delivers new content to listening devices or personal computers. Podcasting offers the benefit of convenience, giving users the ability to listen to or view content when and where they choose.

Chapter 13 - Digital Marketing and Social Networking

54. _____ allow users to develop avatars that live and play online, and sometimes even have their own currency. A. Podcasts B. Social networking sites C. Wikis D. Micro-blogs E. Virtual worlds Virtual worlds allow users to develop avatars that live online, and sometimes (as in the case of Second Life) even have their own currency. Virtual worlds include Second Life, Everquest, Sim City, and the role-playing game World of Warcraft.

55. Which of the following is a common mobile marketing tool? A. Podcasts B. Wikis C. Viral marketing D. Multimedia messages E. Bitcoins Multimedia messaging takes SMS messaging a step further by allowing companies to send video, audio, photos, and other types of media over mobile devices.

Chapter 13 - Digital Marketing and Social Networking

56. The little black and white squares that sometimes appear in magazines, posters, and store displays which let a consumer with a smart device view a website, video, or image with additional marketing information is known as a(n): A. tweet. B. FB code. C. QR code. D. podcast. E. widget. QR codes are little black and white squares that appear in magazines, posters, and store displays which let a consumer with a smart phone or tablet view a website, video, or image with additional marketing information. Marketers are finding the QR scanning app useful.

57. Google Wallet is: A. a virtual currency that can be used to make a payment via smartphone. B. a mobile app that stores credit card information on smartphones. C. a widget that provides stock quotes. D. a QR scanning app that stores hidden messages contained in the code. E. a software that stores virtual currency to make payments via smartphone easy. Google Wallet is a mobile app that stores credit card information on the smartphone. When the shopper is ready to check out, he or she can tap the phone at the point of sale for the transaction to be registered.

Chapter 13 - Digital Marketing and Social Networking

58. _____ is a virtual peer-to-peer currency that can be used to make a payment via smartphone. A. Google Wallet B. Square Cash C. Bitcoin D. Speedy cash E. Zynga coin Bitcoin is a virtual peer-to-peer currency that can be used to make a payment via smartphone. Bitcoin fluctuates in value, making it risky for companies to hold onto the virtual currency for long periods.

59. Widgets are: A. little black and white squares that appear in magazines, posters, and store displays. B. antivirus programs that help individuals avoid identity theft. C. characters in Second Life which is a virtual world. D. small bits of software on a website, desktop, or mobile device that perform a simple purpose, such as providing stock quotes. E. identifying string of text, on users' computers that permit website operators to track how often a user visits the site, what he or she looks at while there, and in what sequence. Widgets are small bits of software on a website, desktop, or mobile device that perform a simple purpose, such as providing stock quotes. Marketers might use widgets to display news headlines, clocks, or games on their web pages.

Chapter 13 - Digital Marketing and Social Networking

60. _____ are an innovative digital marketing tool to personalize web pages, alert users to the latest company information, and spread awareness of the company's products. A. Bitcoins B. Widgets C. Virtual worlds D. Podcasts E. Cookies Widgets are an innovative digital marketing tool to personalize web pages, alert users to the latest company information, and spread awareness of the company's products. Marketers might use widgets to display news headlines, clocks, or games on their web pages.

61. According to Forrester Research, which of the following is a characteristic of creators? A. Creating own media outlets, such as blogs, podcasts, videos, and wikis B. Updating Twitter feeds or status updates on social networking sites C. Commenting on blogs or post ratings and reviews D. Collecting and organizing content generated by critics E. Moderating online content According to Forrester Research, creators are consumers who create their own media outlets, such as blogs, podcasts, consumer-generated videos, and wikis. Consumer-generated media are increasingly important to online marketers as a conduit for addressing consumers directly.

Chapter 13 - Digital Marketing and Social Networking

62. Individuals who upload original videos, publish blogs and personal web pages, upload original music, and write and post articles and stories are most likely to fall under the _____ segment of consumers on the basis of their Internet activity. A. inactives B. spectators C. creators D. joiners E. collectors Individuals who upload original videos, publish blogs and personal web pages, upload original music, and write and post articles and stories are most likely to fall under the creators segment of consumers. Consumer-generated media are increasingly important to online marketers as a conduit for addressing consumers directly.

63. According to Forrester Research, which of the following is a characteristic of conversationalists? A. Creating own media outlets, such as blogs, podcasts, videos, and wikis B. Updating Twitter feeds or status updates on social networking sites C. Commenting on blogs or post ratings and reviews D. Collecting and organizing content generated by critics E. Moderating online content According to Forrester Research, conversationalists regularly update their Twitter feeds or status updates on social networking sites. Although they are less involved than creators, conversationalists spend time at least once a week (and often more) on digital media sites posting updates.

Chapter 13 - Digital Marketing and Social Networking

64. According to Forrester Research, which of the following is a characteristic of critics? A. Creating own media outlets, such as blogs, podcasts, videos, and wikis B. Updating Twitter feeds or status updates on social networking sites C. Commenting on blogs or post ratings and reviews D. Collecting and organizing content generated by other critics E. Moderating online content According to Forrester Research, critics are people who comment on blogs or post ratings and reviews. Because many online shoppers read ratings and reviews to aid their purchasing decisions, critics should be a primary component in a company's digital marketing strategy.

65. According to the social technographics of Forrester Research, _____ are consumers who regularly update their Twitter feeds or status updates on social networking sites. A. inactives B. creators C. joiners D. critics E. conversationalists According to the social technographics of Forrester Research, conversationalists regularly update their Twitter feeds or status updates on social networking sites. Although they are less involved than creators, conversationalists spend time at least once a week (and often more) on digital media sites posting updates.

Chapter 13 - Digital Marketing and Social Networking

66. According to the social technographics of Forrester Research, _____ are consumers who read online information but do not join groups or post anywhere. A. inactives B. creators C. joiners D. spectators E. conversationalist According to the social technographics of Forrester Research, spectators, who read online information but do not join groups or post anywhere, are the largest group in most countries. Marketers need to consider what proportion of online consumers are creating, conversing, rating, collecting, joining, or simply reading online materials.

67. Which of the following should be a primary component in a company's digital marketing strategy? A. Inactives B. Creators C. Joiners D. Critics E. Conversationalist Critics should be a primary component in a company's digital marketing strategy. According to Forrester Research, critics are people who comment on blogs or post ratings and reviews.

Chapter 13 - Digital Marketing and Social Networking

68. Jerome is not very fond of posting original content or reviews and ratings on websites but spends some time posting updates on social networking sites like Twitter and Facebook. He puts up statuses at least once in a week. Jerome is most likely to fall under the category of _____, according to the social technographics of Forrester Research. A. inactives B. creators C. joiners D. critics E. conversationalists Jerome is most likely to fall under the category of conversationalists, according to the social technographics of Forrester Research. Jerome belongs to the category of conversationalists. Conversationalists regularly update their Twitter feeds or status updates on social networking sites. Although they are less involved than creators, conversationalists spend time at least once a week (and often more) on digital media sites posting updates.

AACSB: Reflective Thinking Accessibility: Keyboard Navigation Bloom's: Apply Difficulty: 3 Hard Learning Objective: 13-04 Define social networking and illustrate how businesses can use different types of social networking media. Topic: The Impact of Information Technology on Business

69. Adriana is a photographer who travels widely. She has her own blog where she shares her experiences. According to the social technographics of Forrester Research, she belongs to the category of _____. A. inactives B. creators C. joiners D. critics E. conversationalist According to the social technographics of Forrester Research, Adriana belongs to the category of creators. Creators are consumers who create their own media outlets, such as blogs, podcasts, consumer-generated videos, and wikis.

Chapter 13 - Digital Marketing and Social Networking

70. Brian is a songwriter and a musician who regularly records his compositions and uploads them on YouTube. According to the social technographics of Forrester Research, Brian belongs to the category of: A. inactives. B. critics. C. joiners. D. creators. E. conversationalists. According to the social technographics of Forrester Research, Brian belongs to the category of creators. Creators are consumers who create their own media outlets, such as blogs, podcasts, consumer-generated videos, and wikis.

71. Aurelie writes short stories for children and posts them on her webpage, where children can read them for free. Aurelie is a(n) _____, according to the social technographics of Forrester Research. A. inactive B. critic C. joiner D. creator E. conversationalist Aurelie is a creator, according to the social technographics of Forrester Research. Creators are consumers who create their own media outlets, such as blogs, podcasts, consumer-generated videos, and wikis.

Chapter 13 - Digital Marketing and Social Networking

72. Alyson is a foodie who loves to try different cuisines at different restaurants. She also writes about her experiences at the restaurants and rates their services. In the context of social technographics of Forrester Research, Alyson falls under the category of _____. A. inactives B. creators C. joiners D. critics E. conversationalists In the context of social technographics of Forrester Research, Alyson falls under the category of critics. Critics are people who comment on blogs or post ratings and reviews.

73. According to the social technographics of Forrester Research, _____ are people who comment on blogs or post ratings and reviews. A. inactives B. creators C. joiners D. critics E. conversationalists According to the social technographics of Forrester Research, critics are people who comment on blogs or post ratings and reviews. Because many online shoppers read ratings and reviews to aid their purchasing decisions, critics should be a primary component in a company's digital marketing strategy.

Chapter 13 - Digital Marketing and Social Networking

74. Why should critics be a primary component in a company's digital marketing strategy? A. Because they create their own media outlets B. Because they are more involved than creators C. Because they spend more time on digital media D. Because many online shoppers read reviews to aid their purchasing decisions E. Because many online shoppers are incapable of making decisions on their own Critics should be a primary component in a company's digital marketing strategy because many online shoppers read ratings and reviews to aid their purchasing decisions. According to the social technographics of Forrester Research, critics are people who comment on blogs or post ratings and reviews.

75. According to the social technographics of Forrester Research, which of the following groups of Internet users is most likely to comment on blogs? A. Critics B. Conversationalists C. Collectors D. Joiners E. Inactives According to Forrester Research, critics are most likely to comment on blogs and post ratings and reviews on sites such as Yelp. Because many online shoppers read ratings and reviews to aid their purchasing decisions, critics should be a primary component in a company's digital marketing strategy.

Chapter 13 - Digital Marketing and Social Networking

76. Betty spends most of her online time reading blogs and watching videos uploaded by other users. She also reads customer ratings and reviews about different products. On online forums, she prefers more of reading than posting content. According to Forrester Research, Betty is most likely to fall under the _____ segment of consumers. A. inactives B. critics C. collectors D. creators E. spectators According to the social technographics of Forrester Research, Betty is most likely to fall under the spectators segment of consumers. Spectators are more likely to read blogs, watch video from other users, listen to podcasts, and read online forums and customer ratings/reviews.

77. According to the social technographics of Forrester Research, _____ are online users who do not participate in any digital online media. A. inactives B. creators C. joiners D. critics E. conversationalists According to the social technographics of Forrester Research, inactives are online users who do not participate in any digital online media. Marketers need to consider what proportion of online consumers are creating, conversing, rating, collecting, joining, or simply reading online materials.

Chapter 13 - Digital Marketing and Social Networking

78. According to Forrester Research, which consumer group is the largest in most countries? A. Inactives B. Spectators C. Joiners D. Creators E. Conversationalists According to Forrester Research, spectators are the largest group in most countries. They read online information but do not join groups or post anywhere.

79. A company wants to increase its influence on social media in a certain country. It engages another research company to evaluate the characteristics of the online population in the country. The results of the survey show that a majority of the population can be characterized as spectators. Which of the following strategies should the company implement in order to make a mark in this country? A. The company should post its corporate messages through blogs and websites. B. The company should post its corporate messages on gaming sites. C. The company should focus on door-to-door promotions. D. The company should send SMS/multimedia messages to people. E. The company should post its corporate messages on billboards. The company should post its corporate messages through blogs and websites in order to make a mark in this country. Since spectators make up the majority of the online population, companies should post their own corporate messages through blogs and websites promoting their organizations.

Chapter 13 - Digital Marketing and Social Networking

80. A company wants to increase its influence on social media in a certain country. It hires a firm to study the characteristics of the online population in the country. The results show that a majority of the population can be characterized as joiners. Which of the following strategies should the company implement in order to make inroads in this country? A. The company should post its corporate messages through blogs and websites. B. The company should post its corporate messages on social networking sites. C. The company should send personal emails to people. D. The company should send SMS/multimedia messages to social circles. E. The company should post its corporate messages on billboards. The company should post its corporate messages on social networking sites in order to make inroads in this country. Joiners include all who become users of Twitter, Facebook, or other social networking sites. It is not unusual for consumers to be members of several social networking sites at once. Joiners use these sites to connect and network with other users, but marketers too can take significant advantage of these sites to connect with consumers and form customer relationships.

Chapter 13 - Digital Marketing and Social Networking

81. Apex, Inc. wants to increase its influence on social media in the country of Plutonia. It engages a research company to evaluate the characteristics of the online population in Plutonia. The research company reports that a majority of the population can be characterized as collectors. Which of the following strategies should Apex Inc. implement in order to make a mark in Plutonia? A. Apex Inc. should post its ads on popular blogs and websites. B. Apex Inc. should make personal calls to people to advertise the company's products. C. Apex Inc. should send personal emails to people. D. Apex Inc. should send SMS/multimedia messages to people. E. Apex Inc. should post its corporate messages on billboards. Apex Inc. should post its ads on popular blogs and websites in order to make a mark in Plutonia. Because collectors are active members of the online community, a company story or site that catches the eye of a collector is likely to be posted, discussed on collector sites, and made available to other online users looking for information.

82. _____ describes how marketers use digital media to find out the opinions or needs of potential markets. A. Downsizing B. Identity theft C. Crowdsourcing D. Viral marketing E. Outsourcing

Chapter 13 - Digital Marketing and Social Networking

83. Which of the following statements is true of online shopping? A. It does not allow businesses to track purchasing habits of customers. B. It does not involve the use of cookies by identifying strings of text. C. It does not involve sharing of customer information without the customer's knowledge. D. It does not allow visitors to customize services. E. It does not allow customers to completely protect their personal information. Shopping on the Internet allows businesses to track consumers on a far more personal level, from the contents of their online purchases to the websites they favor. Technology has made it possible for marketers to amass vast quantities of personal information, often without consumers' knowledge.

AACSB: Analytic Accessibility: Keyboard Navigation Bloom's: Understand Difficulty: 2 Medium Learning Objective: 13-05 Identify legal and ethical considerations in digital media. Topic: The Risks Associated with Information Technology

84. _____ permit website operators to track how often a user visits the site, what he or she looks at while there, and in what sequence and also allow web users to customize services and content. A. QR codes B. Bar codes C. Apps D. Widgets E. Cookies Cookies permit website operators to track how often a user visits the site, what he or she looks at while there, and in what sequence and also allow web users to customize services and content. Users have the option of turning off cookies on their machines, but nevertheless the potential for misuse has left many consumers uncomfortable with this technology.

Chapter 13 - Digital Marketing and Social Networking

85. Due to consumer concerns over privacy, the _____ is considering developing regulations that would better protect consumer privacy by limiting the amount of consumer information that businesses can gather online. A. Consumer Financial Protection Bureau B. Federal Bureau of Investigation C. Federal Trade Commission D. U.S. Securities and Exchange Commission E. National Cyber Security Division Due to consumer concerns over privacy, the Federal Trade Commission is considering developing regulations that would better protect consumer privacy by limiting the amount of consumer information that businesses can gather online. The European Union passed a law requiring companies to get users' consent before using cookies to track their information.

86. The European Union passed a law that requires companies to: A. customize services for consumers. B. store cookies in consumers' computers. C. allow consumers to opt for credit card payments. D. get users' consent before using cookies to track their information. E. track and monitor the contents of consumers' online purchases. The European Union requires companies to get users' consent before using cookies to track them online. Due to consumer concerns over privacy, the Federal Trade Commission is considering developing regulations that would better protect consumer privacy by limiting the amount of consumer information that businesses can gather online.

Chapter 13 - Digital Marketing and Social Networking

87. _____ occurs when criminals obtain personal information that allows them to impersonate someone else in order to use the person's credit to obtain financial accounts and make purchases. A. Firewalling B. Phishing C. Identity theft D. Crowdsourcing E. Viral marketing Identity theft occurs when criminals obtain personal information that allows them to impersonate someone else in order to use the person's credit to obtain financial accounts and make purchases. This requires organizations to implement increased security measures to prevent database theft.

88. According to the Federal Trade Commission, which of the following is the most common complaint of identity theft? A. Credit card fraud B. Utility fraud C. Bank fraud D. Benefits fraud E. Loan fraud According to the Federal Trade Commission, the most common complaints of identity theft relate to government documents/benefits fraud, followed by credit card fraud, utility fraud, bank fraud, employment fraud, and loan fraud.

Chapter 13 - Digital Marketing and Social Networking

89. To deter identity theft, the National Fraud Center wants financial institutions to: A. use QR scanning applications. B. use virtual peer-to-peer currency that can be used to make a payment via smartphone. C. implement new technologies such as digital certificates, digital signatures, and biometrics. D. use cookies that permit website operators to track how often a user visits the site. E. keep the identity of online traders completely anonymous. To deter identity theft, the National Fraud Center wants financial institutions to implement new technologies such as digital certificates, digital signatures, and biometrics. Identity theft occurs when criminals obtain personal information that allows them to impersonate someone else in order to use the person's credit to obtain financial accounts and make purchases.

90. Which of the following situations illustrates online fraud? A. Forgetting login details for e-mail B. Reading content on other people's profiles on social networking sites C. Posting derogatory remarks about companies on blogs D. Posting negative reviews on online forums about companies and individuals E. Deceiving Internet users into revealing personal information Deceiving Internet users into revealing personal information is a situation that illustrates online fraud. Online fraud includes any attempt to conduct fraudulent activities online, such as by deceiving consumers into releasing personal information.

AACSB: Analytic Accessibility: Keyboard Navigation Bloom's: Understand Difficulty: 1 Easy Learning Objective: 13-05 Identify legal and ethical considerations in digital media. Topic: The Risks Associated with Information Technology

Chapter 13 - Digital Marketing and Social Networking

91. One growing scam used to initiate identity theft fraud is the practice of _____, whereby con artists counterfeit a well-known website and send out e-mails directing victims to it. A. Firewalling B. Phishing C. Cloud computing D. Scraping E. Viral marketing One growing scam used to initiate identity theft fraud is the practice of phishing, whereby con artists counterfeit a well-known website and send out e-mails directing victims to it. Phishing scams have faked websites for PayPal, AOL, and the Federal Deposit Insurance Corporation.

92. Which of the following practices is an online fraud? A. Viral marketing B. Debugging C. Phishing D. Tracking E. Spamming Online fraud includes any attempt to conduct fraudulent activities online, such as by deceiving consumers into releasing personal information. One growing scam used to initiate identity theft fraud is the practice of phishing, whereby con artists counterfeit a well-known website and send out e-mails directing victims to it.

Chapter 13 - Digital Marketing and Social Networking

93. What is the best way to be safe from online fraud or identity theft? A. Avoiding firewalls B. Refraining from divulging personal information C. Refraining from updating antivirus programs D. Replying to all the e-mails with personal details E. Storing credit card details in e-mail accounts Privacy advocates advise that the best way to stay out of trouble is to avoid giving out personal information, such as Social Security numbers or credit card information, unless the site is definitely legitimate.

94. Which of the following is least likely to be a reason used by consumers to rationalize piracy and online fraud? A. The fact that even their friends engage in piracy and digital swapping B. The justification that they do not have enough money to pay for what they want C. The feeling that being tech-savvy allows them to exploit the opportunity to pirate D. The fear of getting caught and arrested in the cases of online fraud E. The prospect of obtaining thrills out of getting away with something that has limited consequences The fear of getting caught and arrested in the cases of online fraud is least likely to be a reason used by consumers to rationalize piracy and online fraud. Although intellectual property is generally protected by patents and copyrights, each year losses from the illegal copying of computer programs, music, movies, compact discs, and books reaches billions of dollars in the United States alone.

Chapter 13 - Digital Marketing and Social Networking

95. Which of the following protects intellectual property? A. Bitcoins B. Antiviruses C. Brand logo D. Patents E. Section 123 Intellectual property is generally protected by patents and copyrights. However, each year losses from the illegal copying of computer programs, music, movies, compact discs, and books reaches billions of dollars in the United States alone.

Chapter 14 - Accounting and Financial Statements

Chapter 14 Accounting and Financial Statements

True / False Questions 1. The terms accounting and bookkeeping are interchangeable. FALSE The terms accounting and bookkeeping are often mistakenly used interchangeably. Much narrower and far more mechanical than accounting, bookkeeping is typically limited to the routine, day-to-day recording of business transactions.

AACSB: Analytic Accessibility: Keyboard Navigation Bloom's: Understand Difficulty: 2 Medium Learning Objective: 14-01 Define accounting and describe the different uses of accounting Topic: Overview of the Different Types of Accounting

2. In accounting, a ledger is a time-ordered list of accounting transactions. FALSE A journal is a time-ordered list of account transactions. While most businesses keep a general journal in which all transactions are recorded, some classify transactions into specialized journals for specific types of transaction accounts.

AACSB: Analytic Accessibility: Keyboard Navigation Bloom's: Remember Difficulty: 1 Easy Learning Objective: 14-02 Demonstrate the accounting process. Topic: The Accounting Process

Chapter 14 - Accounting and Financial Statements

3. Non-business entities typically obtain revenues through the sale of their assets.

FALSE

Non-business entities typically obtain revenues through donations from individuals and/or grants from governments and private foundations. Revenue is the total amount of money received (or promised) from the sale of goods or services, as well as from other business activities such as the rental of property and investments.

AACSB: Analytic Accessibility: Keyboard Navigation Bloom's: Remember Difficulty: 2 Medium Learning Objective: 14-03 Examine the various components of an income statement to evaluate a firm's bottom line. Topic: Describe the Various Types of Financial Statements

4. The balance sheet indicates what an organization owns or controls. TRUE The balance sheet indicates what an organization owns or controls and the various sources of the funds used to pay for these assets, such as bank debt and owners' equity. It presents a "snapshot" of an organization's financial health at any given moment.

AACSB: Analytic Accessibility: Keyboard Navigation Bloom's: Remember Difficulty: 1 Easy Learning Objective: 14-04 Interpret a company's balance sheet to determine its current financial position. Topic: Describe the Various Types of Financial Statements

Chapter 14 - Accounting and Financial Statements

5. Cash from investing activities is calculated from changes in the long-term liability accounts and the contributed capital accounts in owners' equity. FALSE Cash from investing activities is calculated from changes in the long-term or fixed asset accounts. A positive figure usually indicates a business that is selling off existing long-term assets and reducing its capacity for the future.

AACSB: Analytic Accessibility: Keyboard Navigation Bloom's: Understand Difficulty: 2 Medium Learning Objective: 14-05 Analyze the statement of cash flows to evaluate the increase and decrease in a company's cash balance. Topic: Describe the Various Types of Financial Statements

Multiple Choice Questions 6. Accounting refers to the process of: A. recording, measuring, and interpreting financial information. B. producing goods and services. C. reporting to only those within the organization. D. reporting to only those outside the organization. E. developing promotional plans. Accounting is the recording, measurement, and interpretation of financial data. Large numbers of people and institutions, both within and outside businesses, use accounting tools to evaluate organizational operations.

AACSB: Analytic Accessibility: Keyboard Navigation Bloom's: Remember Difficulty: 1 Easy Learning Objective: 14-01 Define accounting and describe the different uses of accounting Topic: Overview of the Different Types of Accounting

Chapter 14 - Accounting and Financial Statements

7. Which of the following is a function of the Public Company Accounting Oversight Board? A. It provides relief to banks during financial crisis. B. It ensures that accounting firms do not separate their consulting and auditing businesses. C. It makes rules and policies for accounting firms and businesses. D. It overlooks the accounts department of the federal government. E. It certifies individuals to provide accounting services. The U.S. federal government has taken a greater role in making rules, requirements, and policies for accounting firms and businesses through the Securities and Exchange Commission's (SEC) Public Company Accounting Oversight Board. For example, the Public Company Accounting Oversight Board filed a disciplinary order against Deloitte & Touche for permitting a suspended auditor to participate in auditing activities.

8. Evelyn is a self-employed, state-certified accountant who provides the following accounting services – filing tax returns, preparing financial records, auditing corporate financial records. She is known as a: A. private accountant. B. certified management accountant. C. certified public accountant. D. noncertified accountant. E. forensic accountant. A certified public accountant is an individual who has been certified by the state in which he or she practices to provide accounting services. Certification gives a public accountant the right to express, officially, an unbiased opinion regarding the accuracy of the client's financial statements.

AACSB: Reflective Thinking Accessibility: Keyboard Navigation Bloom's: Apply Difficulty: 2 Medium Learning Objective: 14-01 Define accounting and describe the different uses of accounting Topic: Overview of the Different Types of Accounting

Chapter 14 - Accounting and Financial Statements

9. CPA stands for: A. Credentialed Public Accountant. B. Credentialed Private Accountant. C. Certified Private Accountant. D. Certified Public Accountant. E. Certified Professional Accountant. A Certified Public Accountant is an individual who has been certified by the state in which he or she practices to provide accounting services. Certification gives a public accountant the right to express, officially, an unbiased opinion regarding the accuracy of the client's financial statements.

10. Individuals and businesses can hire a _____ to, an individual, to provide accounting services ranging from the preparation of financial records and the filing of tax returns to complex audits of corporate financial records. A. Certified Fraud Examiner B. Certified Public Accountant C. Certified Private Accountant D. Certified Management Accountant E. Certified Forensic Accountant Individuals and businesses can hire a Certified Public Accountant, an individual who has been certified by the state in which he or she practices to provide accounting services ranging from the preparation of financial records and the filing of tax returns to complex audits of corporate financial records.

Chapter 14 - Accounting and Financial Statements

11. A Certified Public Accountant has the right to: A. express, officially, an unbiased opinion regarding the accuracy of a client's financial statements. B. publicly express a biased opinion about the accuracy of a firm's financial statements. C. express his or her personal opinion in all financial matters. D. handle every firm's reports by different rules. E. limit the types of assets commercial banks can buy. Certification gives a public accountant the right to express, officially, an unbiased opinion regarding the accuracy of a client's financial statements. Individuals and businesses can hire a Certified Public Accountant, an individual who has been certified by the state in which he or she practices to provide accounting services ranging from the preparation of financial records and the filing of tax returns to complex audits of corporate financial records.

12. The _____ required firms to be more rigorous in their accounting and reporting practices. A. Sarbanes-Oxley Act B. Celler-Kefauver Act C. Williams Act D. Glass-Steagall Act E. Gram-Leach-Bliley Act After the accounting scandals of Enron and Worldcom in the early 2000s, Congress passed the Sarbanes-Oxley Act, which required firms to be more rigorous in their accounting and reporting practices. Sarbanes-Oxley made accounting firms separate their consulting and auditing businesses and punished corporate executives with potential jail sentences for inaccurate, misleading, or illegal accounting statements.

Chapter 14 - Accounting and Financial Statements

13. Which of the following is a requirement stated by the Sarbanes-Oxley Act? A. This act requires that the Federal Reserve Board take up the task of certifying public accountants. B. This act requires firms to separate their consulting and auditing businesses. C. This act limits the types of assets commercial banks can buy. D. This act limits the use of derivative instruments. E. This act requires that firms employ their own private accountants. After the accounting scandals of Enron and Worldcom in the early 2000s, Congress passed the Sarbanes-Oxley Act, which required firms to be more rigorous in their accounting and reporting practices. Sarbanes-Oxley made accounting firms separate their consulting and auditing businesses and punished corporate executives with potential jail sentences for inaccurate, misleading, or illegal accounting statements.

14. The _____ limits the types of assets commercial banks can buy; the amount of capital they must maintain; and the use of derivative instruments such as options, futures, and structured investment products. A. Sarbanes-Oxley Act B. Dodd-Frank Act C. Glass-Steagall Act D. Gramm-Leach-Bliley Act E. Celler-Kefauver Act The Dodd-Frank Act limits the types of assets commercial banks can buy; the amount of capital they must maintain; and the use of derivative instruments such as options, futures, and structured investment products. Congress passed the Dodd-Frank Act in 2010 to strengthen the oversight of financial institutions.

Chapter 14 - Accounting and Financial Statements

15. _____ involves analyzing financial documents in search of fraudulent entries or financial misconduct. A. Financial accounting B. Management accounting C. Operational accounting D. Forensic accounting E. Tax accounting Forensic accounting involves analyzing financial documents in search of fraudulent entries or financial misconduct. Functioning as much like detectives as accountants, forensic accountants have been used since the 1930s. In the wake of the accounting scandals of the early 2000s, many auditing firms are rapidly adding or expanding forensic or fraud-detection services.

16. A forensic accountant: A. investigates crime scenes. B. works for a public corporation. C. analyzes financial documents in search of fraudulent entries or financial misconduct. D. analyzes annual reports to ensure that corporations have adequate corporate governance mechanisms. E. investigates workplace accidents to determine fault. Forensic accounting involves analyzing financial documents in search of fraudulent entries or financial misconduct. Functioning as much like detectives as accountants, forensic accountants have been used since the 1930s. In the wake of the accounting scandals of the early 2000s, many auditing firms are rapidly adding or expanding forensic or fraud-detection services.

Chapter 14 - Accounting and Financial Statements

17. Vikram is an accountant employed by a large corporation. He works for the billing and taxation department. He is most likely to be a: A. public accountant. B. private accountant. C. legal accountant. D. junior accountant. E. senior accountant. Vikram is most likely to be a private accountant. Private accountants are accountants employed by large corporations, government agencies, and other organizations to prepare and analyze their financial statements.

18. Which of the following statements is true of Certified Public Accountant? A. They are required to be self-employed and cannot be a part of private firms. B. They are required to be members of large public accounting firms and cannot be selfemployed. C. They have the right to express, officially, a biased opinion regarding the accuracy of a client's financial statements. D. They provide services ranging from the preparation of financial records to the filing of tax returns. E. They are appointed by the government and cannot be hired by private corporations. Individuals and businesses can hire a Certified Public Accountant, an individual who has been certified by the state in which he or she practices to provide accounting services ranging from the preparation of financial records and the filing of tax returns to complex audits of corporate financial records.

Chapter 14 - Accounting and Financial Statements

19. Which of the following statements is true of bookkeeping? A. Bookkeeping involves understanding and interpreting sophisticated accounting systems to classify financial information. B. Bookkeeping involves developing sophisticated accounting systems. C. Bookkeeping is a process that requires extensive training. D. Bookkeeping is a broader term than accounting. E. Bookkeeping involves day-to-day recording of business transactions. Bookkeeping is typically limited to the routine, day-to-day recording of business transactions. Bookkeepers are responsible for obtaining and recording the information that accountants require to analyze a firm's financial position.

20. _____ is the movement of money through an organization over a daily, weekly, monthly, or yearly basis. A. Expenses trajectory B. Income trajectory C. Assets flow D. Liabilities E. Cash flow Cash flow is the movement of money through an organization over a daily, weekly, monthly, or yearly basis. Obviously, for any business to succeed, it needs to generate enough cash to pay its bills as they fall due.

Chapter 14 - Accounting and Financial Statements

21. The principal value of a budget lies in its: A. breakdown of cash inflows and outflows. B. forecast of income and expenses over a period of time. C. purpose of control over expenditures. D. evaluation of the firm's performance. E. development of a strategic financial plan. Regardless of focus, the principal value of a budget lies in its breakdown of cash inflows and outflows. Expected operating expenses (cash outflows such as wages, materials costs, and taxes) and operating revenues (cash inflows in the form of payments from customers) over a set period of time are carefully forecast and subsequently compared with actual results.

22. Deviations between expected operating expenses and _____ serve as a "feedback loop" to launch more detailed financial analyses in an effort to pinpoint trouble spots and opportunities. A. fixed operating costs B. variable operating costs C. operating revenues D. basic operating costs E. overhead operating expenses Deviations between expected operating expenses and operating revenues serve as a "trip wire" or "feedback loop" to launch more detailed financial analyses in an effort to pinpoint trouble spots and opportunities. Expected operating expenses (cash outflows such as wages, materials costs, and taxes) and operating revenues (cash inflows in the form of payments from customers) over a set period of time are carefully forecast and subsequently compared with actual results.

Chapter 14 - Accounting and Financial Statements

23. The single most important component of an annual report is the: A. balance sheet. B. income statement. C. cash flow statement. D. signature of a Certified Public Accountant. E. signature of the firm's owners or stakeholders. The single most important component of an annual report is the signature of a Certified Public Accountant attesting that the required financial statements are an accurate reflection of the underlying financial condition of the firm. Financial statements meeting these conditions are termed audited.

24. Potential investors typically study the _____ in a firm's annual report to determine whether the company meets their investment requirements. A. product list B. growth plans C. mission statement D. corporate information E. financial statements Potential investors study the financial statements in a firm's annual report to determine whether the company meets their investment requirements and whether the returns from a given firm are likely to compare favorably with other similar companies.

Chapter 14 - Accounting and Financial Statements

25. A short-term lender examines a firm's _____ to assess its ability to repay a loan quickly with cash generated from sales. A. indebtedness B. profitability C. cash flow D. assets E. cash equity Banks and other lenders look at financial statements to determine a company's ability to meet current and future debt obligations if a loan or credit is granted. To determine this ability, a short-term lender examines a firm's cash flow to assess its ability to repay a loan quickly with cash generated from sales.

26. Thomson is a manager at a bank. He has to decide whether to lend an amount of $10,000 to Safe Toy. He should: A. approve the loan application without checking the company's credibility. B. review the company's financial statements. C. prepare an organizational budget. D. report the organization's financial performance to outsiders. E. turn down the loan application. Thomson should review the company's financial statements. Banks and other lenders look at financial statements to determine a company's ability to meet current and future debt obligations if a loan or credit is granted. To determine this ability, a short-term lender examines a firm's cash flow to assess its ability to repay a loan quickly with cash generated from sales.

Chapter 14 - Accounting and Financial Statements

27. A long-term lender, when lending money is more interested in a company's _____ and indebtedness to other lenders. A. operating revenues B. interest rates C. profitability D. mission statement E. vision statement Banks and other lenders look at financial statements to determine a company's ability to meet current and future debt obligations if a loan or credit is granted. To determine this ability, a short-term lender examines a firm's cash flow to assess its ability to repay a loan quickly with cash generated from sales. A long-term lender is more interested in a company's profitability and indebtedness to other lenders.

28. What is meant by owners' equity? A. It refers to a firm's economic resources. B. It refers to a firm's "goodwill" or reputation. C. It refers to debts a firm owes to others. D. It refers to outstanding loans and credit that a firm has to return. E. It refers to the money contributed to a firm that never has to be paid back. The owners' equity category contains all of the money that has ever been contributed to the company that never has to be paid back. The funds can come from investors who have given money or assets to the company, or it can come from past profitable operations.

AACSB: Analytic Accessibility: Keyboard Navigation Bloom's: Understand Difficulty: 2 Medium Learning Objective: 14-02 Demonstrate the accounting process. Topic: The Accounting Process

Chapter 14 - Accounting and Financial Statements

29. What are the fundamentals of the accounting process? A. Journals and ledgers B. The accounting equation and the double-entry bookkeeping system C. The accounting equation and the accounting cycle D. The double-entry bookkeeping system and the accounting cycle E. Ledgers and financial statements The fundamentals of the accounting process are the accounting equation and the double-entry bookkeeping system. These two concepts serve as the starting point for all currently accepted accounting principles.

AACSB: Analytic Accessibility: Keyboard Navigation Bloom's: Understand Difficulty: 1 Easy Learning Objective: 14-02 Demonstrate the accounting process. Topic: The Accounting Process

30. Which of the following represents a firm's liability? A. Cash B. Inventory C. Land D. Equipment E. Loan Liabilities are debts a firm owes to others. Accountants are concerned with reporting an organization's assets, liabilities, and owners' equity.

AACSB: Analytic Accessibility: Keyboard Navigation Bloom's: Remember Difficulty: 1 Easy Learning Objective: 14-02 Demonstrate the accounting process. Topic: The Accounting Process

Chapter 14 - Accounting and Financial Statements

31. Clara's Label owes certain debts to the Small Business Administration and her suppliers. In accounting, these debts are known as _____. A. owners' equity B. assets C. liabilities D. stock E. bonds In accounting, these debts are known as liabilities. Liabilities, in contrast to assets, are debts a firm owes to others. Accountants are concerned with reporting an organization's assets, liabilities, and owners' equity.

AACSB: Reflective Thinking Accessibility: Keyboard Navigation Bloom's: Apply Difficulty: 2 Medium Learning Objective: 14-02 Demonstrate the accounting process. Topic: The Accounting Process

32. Which of the following equations is equivalent to the accounting equation? A. Equity = liabilities - assets B. Owners' equity = assets - liabilities C. Revenues - expenses = net income D. Net income = expenses - revenues + taxes E. Profit = sales - revenues According to the accounting equation, assets = liabilities + owners' equity. Therefore, subtracting liabilities from the equation would present the equation as owners' equity = assets - liabilities.

AACSB: Analytic Accessibility: Keyboard Navigation Bloom's: Understand Difficulty: 2 Medium Learning Objective: 14-02 Demonstrate the accounting process. Topic: The Accounting Process

Chapter 14 - Accounting and Financial Statements

33. Double-entry bookkeeping is a system of recording and classifying business transactions: A. by the amount of the transaction. B. in separate accounts in order to balance the accounting equation. C. in all accounts including those that do not maintain the accounting equation. D. in general ledgers. E. in the same account. Double-entry bookkeeping is a system of recording and classifying business transactions in separate accounts in order to maintain the balance of the accounting equation.

AACSB: Analytic Accessibility: Keyboard Navigation Bloom's: Understand Difficulty: 2 Medium Learning Objective: 14-02 Demonstrate the accounting process. Topic: The Accounting Process

34. Which of the following is the first step in the accounting cycle? A. Record transactions B. Examine source documents C. Post transactions D. Prepare financial statements E. Generate annual reports In any accounting system, financial data typically pass through a four-step procedure sometimes called the accounting cycle. The steps include examining source documents, recording transactions in an accounting journal, posting recorded transactions, and preparing financial statements.

AACSB: Analytic Accessibility: Keyboard Navigation Bloom's: Understand Difficulty: 1 Easy Learning Objective: 14-02 Demonstrate the accounting process. Topic: The Accounting Process

Chapter 14 - Accounting and Financial Statements

35. What is the last step that must be taken before a firm's books can be closed for an accounting cycle? A. The annual reports must be prepared. B. The journal must be filled out. C. The information from the journal must be transferred to the ledger. D. A certified public accountant must attest that generally accepted accounting principles were used. E. The trial balance must be verified. The last step that must be taken before a firm's books can be closed for an accounting cycle is that a certified public accountant must attest that generally accepted accounting principles were followed before a firm's books can be "closed."

AACSB: Analytic Accessibility: Keyboard Navigation Bloom's: Understand Difficulty: 1 Easy Learning Objective: 14-02 Demonstrate the accounting process. Topic: The Accounting Process

36. In the accounting cycle, after examining source documents and recording transactions in an accounting journal, what is the next step taken by a financial manager? A. Closing the books B. Posting recorded transactions C. Gathering credit card receipts D. Preparing a trial balance E. Balancing the accounting equation In the accounting cycle, after examining source documents and recording transactions in an accounting journal, a financial manager will post recorded transactions. Transferring information from an accounting journal into a ledger is called posting.

AACSB: Analytic Accessibility: Keyboard Navigation Bloom's: Remember Difficulty: 1 Easy Learning Objective: 14-02 Demonstrate the accounting process. Topic: The Accounting Process

Chapter 14 - Accounting and Financial Statements

37. Nina, a manager at a small restaurant, is engaged in conducting the accounting cycle. She begins by examining checks, credit card receipts, sales slips, and other related evidence concerning specific transactions. Which of the following steps should she follow immediately after this step? A. The annual reports must be prepared. B. The financial transactions must be recorded in a journal. C. The information from the journal must be transferred to a ledger. D. The hired Certified Public Accountant must attest that generally accepted accounting principles were used. E. The information from the trial balance should be used to prepare the financial statements. Nina should record all the financial transactions in a journal. A journal is basically just a time-ordered list of account transactions. While most businesses keep a general journal in which all transactions are recorded, some classify transactions into specialized journals for specific types of transaction accounts.

AACSB: Analytic Accessibility: Keyboard Navigation Bloom's: Understand Difficulty: 2 Medium Learning Objective: 14-02 Demonstrate the accounting process. Topic: The Accounting Process

38. An accounting term that is interchangeable with revenue is: A. services. B. expenses. C. net income. D. sales. E. price. Sales and revenues are often interchanged, as are profits, income, and earnings. Revenue is the total amount of money received (or promised) from the sale of goods and services, as well as from other business activities such as the rental of property and investments.

AACSB: Analytic Accessibility: Keyboard Navigation Bloom's: Remember Difficulty: 1 Easy Learning Objective: 14-02 Demonstrate the accounting process. Topic: The Accounting Process

Chapter 14 - Accounting and Financial Statements

39. An income statement shows: A. assets, liabilities, and equity. B. an organization's profitability over a period of time. C. the company's variable costs at a particular point in time. D. how much income each employee earned. E. how much income the CEO earns per year. An income statement is a financial report that shows a company's profitability over a period of time—month, quarter, or year. By its very design, the income statement offers one of the clearest possible pictures of the company's overall revenues and the costs incurred in generating those revenues.

AACSB: Analytic Accessibility: Keyboard Navigation Bloom's: Remember Difficulty: 1 Easy Learning Objective: 14-03 Examine the various components of an income statement to evaluate a firm's bottom line. Topic: Describe the Various Types of Financial Statements

40. An equivalent term for net income in accounting terms is: A. gross income. B. gross profit. C. goods or services sold. D. profit after taxes. E. operating income. Net income (or net earnings) is the total profit (or loss) after all expenses including taxes have been deducted from revenue. According to Table 14.2, equivalent terms for net income are earnings after taxes and profit after taxes.

Chapter 14 - Accounting and Financial Statements

41. _____ is the total amount of money received from the sale of goods or services, as well as from other business activities such as the rental of property and investments. A. Profit B. Expense C. Net income D. Revenue E. Price Revenue is the total amount of money received (or promised) from the sale of goods and services, as well as from other business activities such as the rental of property and investments. Non business entities typically obtain revenues through donations from individuals and/or grants from governments and private foundations.

42. Non-business entities typically obtain revenue through: A. the sale of goods. B. the sale of services. C. the rental of property. D. investments. E. donations. Non-business entities typically obtain revenue through donations from individuals and/or grants from governments and private foundations. Revenue is the total amount of money received (or promised) from the sale of goods or services, as well as from other business activities such as the rental of property and investments.

Chapter 14 - Accounting and Financial Statements

43. Do-It-Yourself Home Repair Shop started the accounting period with $10,000 worth of shovels in inventory. During the accounting period, it purchased $5,000 worth of shovels and sold $7,500 worth. In this scenario, what is the cost of goods sold? A. $15,000 B. $2,500 C. $5,000 D. $7,500 E. $10,000 In this scenario, the cost of goods sold is $7,500. Cost of goods sold = beginning inventory (10,000) + interim purchases (5,000) - ending inventory (7,500) = 10,000 + 5,000 - 7,500 = $7,500.

AACSB: Reflective Thinking Accessibility: Keyboard Navigation Bloom's: Apply Difficulty: 2 Medium Learning Objective: 14-03 Examine the various components of an income statement to evaluate a firm's bottom line. Topic: Describe the Various Types of Financial Statements

44. In the context of expense accounts, salaries of executives and their staff are included under the category of: A. interest expenses. B. retained expenses. C. general and administrative expenses. D. research and development expenses. E. depreciation expenses. General and administrative expenses include salaries of executives and their staff and the costs of owning and maintaining the general office. Expenses are the costs incurred in the day-to-day operations of an organization.

AACSB: Analytic Accessibility: Keyboard Navigation Bloom's: Understand Difficulty: 2 Medium Learning Objective: 14-03 Examine the various components of an income statement to evaluate a firm's bottom line. Topic: Describe the Various Types of Financial Statements

Chapter 14 - Accounting and Financial Statements

45. _____, an expense account shown on income statements, include sales salaries. A. Interest expenses B. Selling expenses C. General and administrative expenses D. Research and development expenses E. Depreciation expenses Selling expenses include advertising and sales salaries. Expenses are the costs incurred in the day-to-day operations of an organization.

46. The process of spreading the costs of long-lived assets such as buildings and equipment over the total number of accounting periods in which they are expected to be used is called _____. A. depreciation B. gross profit C. budget D. net income E. revenue The process of spreading the costs of long-lived assets such as buildings and equipment over the total number of accounting periods in which they are expected to use is called depreciation.

Chapter 14 - Accounting and Financial Statements

47. Depreciation, a type of expense account, is included in the: A. interest category. B. selling category. C. general and administrative category. D. research and development category. E. retained category. The number and type of expense accounts vary from organization to organization. Included in the general and administrative category is a special type of expense known as depreciation, the process of spreading the costs of long-lived assets such as buildings and equipment over the total number of accounting periods in which they are expected to be used.

48. Derek, an accountant, allocates the cost of a piece of earth-moving equipment over a specific period of time. Based on the given information, it can be concluded that Derek is implementing the process of: A. cost plus pricing. B. appreciation. C. discounting. D. expense designation. E. depreciation. Based on the given information, it can be concluded that Derek is implementing the process of depreciation. Depreciation is the process of spreading the costs of long-lived assets such as buildings and equipment over the total number of accounting periods in which they are expected to be used.

Chapter 14 - Accounting and Financial Statements

49. When a company wants to place a value on a physical asset for its balance sheet, it must: A. reduce the value by the amount the asset has depreciated. B. auction the asset off. C. ask its competitors what the asset is worth. D. price a new one. E. increase the value by the amount the asset has appreciated. A physical asset must be depreciated over the expected life of the asset in which every year the value of the asset will decrease.

50. Net income is: A. earnings after all expenses have been deducted. B. valuation of assets after all taxes are paid. C. liabilities after taxes. D. expenses after taxes. E. cash disbursements after taxes. Net income or net earnings is the profit or loss after all expenses including taxes have been deducted from revenue. Generally, accountants divide profits into individual sections such as operating income and earnings before interest and taxes.

Chapter 14 - Accounting and Financial Statements

51. The net income of a company is equal to the total profit or loss minus: A. assets and liabilities. B. equity. C. sales. D. expenses, including taxes. E. income and profits. Net income or net earnings is the profit or loss after all expenses including taxes have been deducted from revenue. Generally, accountants divide profits into individual sections such as operating income and earnings before interest and taxes.

52. Which of the following equations describes the information presented in an income statement? A. Equity = liabilities - assets B. Equity = assets - liabilities C. Net income = expenses - revenues + taxes D. Revenues - expenses = net income E. Costs of goods sold = beginning inventory + interim purchases - ending inventory The income statement indicates the firm's profitability or income (the bottom line) which is derived by subtracting the firm's expenses from its revenues. The income statement is a financial report that shows an organization's profitability over a period of time, be that a month, quarter, or year.

Chapter 14 - Accounting and Financial Statements

53. Companies record their _____ in the revenue and expense accounts during an accounting period. A. operational activities B. managerial activities C. administrative activities D. research activities E. developmental activities Companies record their operational activities in the revenue and expense accounts during an accounting period. Gross profit, earnings before interest and taxes, and net income are the results of calculations made from the revenues and expenses accounts; they are not actual accounts.

54. At the end of each accounting period, the dollar amounts in all the revenue and expense accounts are moved into an account called _____. A. net earnings B. net expense C. interest expense D. retained expense E. retained earnings

Chapter 14 - Accounting and Financial Statements

55. The _____ presents a snapshot of an organization's financial position at a given moment. A. profit margin B. statement of cash flows C. net income D. per share data E. balance sheet The balance sheet presents a snapshot of an organization's financial position at a given moment.

56. Which of the following statements is true of the balance sheet? A. It represents the result of transactions completed over a specified accounting period. B. It represents all transactions conducted by an organization since its founding. C. It represents an organization's profitability over a period of time. D. It represents the overall revenues of an organization. E. It represents how the company's cash changed during an accounting period. A balance sheet is a "snapshot" of an organization's financial position at a given moment. Unlike the income statement, the balance sheet does not represent the result of transactions completed over a specified accounting period, but it is an accumulation of all the financial transactions conducted by an organization since its founding.

Chapter 14 - Accounting and Financial Statements

57. All asset accounts are listed in descending order of _____. A. investments B. inventory C. revenues D. liquidity E. accounts receivable All asset accounts are listed in descending order of liquidity—that is, how quickly each could be turned into cash.

58. _____ refers to money owed a company by its clients or customers who have promised to pay for the products at a later date. A. Accounts payable B. Accounts receivable C. Current assets D. Current liabilities E. Balance sheet Accounts receivable refers to money owed the company by its clients or customers who have promised to pay for the products at a later date. Accounts receivable usually includes an allowance for bad debts that management does not expect to collect.

Chapter 14 - Accounting and Financial Statements

59. The financial document that presents a "snapshot" of an organization's financial position at a given moment is called a(n): A. income statement. B. balance sheet. C. annual report. D. budget. E. statement of cash flow. A balance sheet presents a "snapshot" of an organization's financial position at a given moment. As such, the balance sheet indicates what the organization owns or controls and the various sources of the funds used to pay for these assets, such as bank debt or owners' equity.

60. The _____ is an accumulation of all financial transactions conducted by an organization since its founding. A. statement of retained earnings B. balance sheet C. profit and loss statement D. statement of cash flow E. income tax form Unlike the income statement, the balance sheet does not represent the result of transactions completed over a specified accounting period. Instead, the balance sheet is, by definition, an accumulation of all financial transactions conducted by an organization since its founding.

Chapter 14 - Accounting and Financial Statements

61. A company's assets that are used or converted into cash within the course of a calendar year are called: A. fixed assets. B. long-term assets. C. equity. D. current assets. E. current liabilities. Current assets or short-term assets are those that are used or converted into cash within the course of a calendar year. Cash is followed by temporary investments, accounts receivable, and inventory, in that order.

62. Which of the following is an asset in the balance sheet? A. Accrued expenses B. Accounts payable C. Accounts receivable D. Taxes payable E. Wages payable Accounts receivable is the money owed to a company by its clients or customers who have promised to pay for the products at a later date. Accounts receivable usually includes an allowance for bad debts that management does not expect to collect.

Chapter 14 - Accounting and Financial Statements

63. A company's financial obligations to short-term creditors, which must be repaid within one year, are called its: A. current assets. B. equity. C. net profit. D. current liabilities. E. accounts payable. Current liabilities include a firm's financial obligations to short-term creditors, which must be repaid within one year, while long-term liabilities have longer repayment terms.

64. Which of the following is a liability in a balance sheet? A. Accounts receivable B. Cash C. Inventory D. Current assets E. Accounts payable Accounts payable refers to the amount owed to suppliers for goods and services purchased with credit. For example, if you buy gas with a BP credit card, the purchase represents an account payable for you (and an account receivable for BP). Other liabilities include wages earned by employees but not yet paid and taxes owed to the government.

Chapter 14 - Accounting and Financial Statements

65. An account that represents all unpaid financial obligations incurred by an organization is called: A. current assets. B. accounts payable. C. cost of goods sold. D. accrued expenses. E. long-term liabilities. Accrued expenses is an account representing all unpaid financial obligations incurred by the organization.

66. _____ includes the owners' contributions to a company along with income earned by the company and retained to finance continued growth and product development. A. Owners' equity B. Owners' assets C. Owners' liabilities D. Revenue E. Profits Owners' equity includes contributions to the organization along with income earned by the organization and retained to finance continued growth and development. If the organization were to sell off all of its assets and pay off all of its liabilities, any remaining funds would belong to the owners.

Chapter 14 - Accounting and Financial Statements

67. Each type of stock issued by a company represents a different claim on the organization, thus each must be represented by a separate owners' equity account called _____. A. deferred revenue B. contributed capital C. insurance revenue D. accounts payable E. accrued taxes Corporations sell stock to investors who then become owners of the firm. These corporations issue two, three, or more different types of preferred stock each with different dividend payments and/or voting rights. Because each type of stock issued represents a different claim on the organization, each must be represented by a separate owners' equity account, called contributed capital.

68. The financial statement that explains how a firm's cash changed from the beginning of the accounting period to the end is called the: A. statement of cash flows. B. balance sheet. C. income statement. D. master budget. E. profit-loss statement. The statement of cash flows explains how the company's cash changed from the beginning of the accounting period to the end. The statement of cash flows provides more information about the cash flowing into and out of the firm than is provided on the balance sheet to better understand the company's financial health.

AACSB: Analytic Accessibility: Keyboard Navigation Bloom's: Remember Difficulty: 1 Easy Learning Objective: 14-05 Analyze the statement of cash flows to evaluate the increase and decrease in a company's cash balance. Topic: Describe the Various Types of Financial Statements

Chapter 14 - Accounting and Financial Statements

69. _____, a category of cash flow, is calculated by combining the changes in the revenue accounts, expense accounts, current asset accounts, and current liability accounts. A. Cash from profiteering activities B. Cash from bookkeeping activities C. Cash from financing activities D. Cash from operating activities E. Cash from marketing activities Cash from operating activities, a category of cash flow, is calculated by combining the changes in the revenue accounts, expense accounts, current asset accounts, and current liability accounts. This category of cash flows includes all the accounts on the balance sheet that relate to computing revenues and expenses for the accounting period.

70. Which of the following categories of cash flow includes all the accounts on the balance sheet that relate to computing revenues and expenses for the accounting period? A. Cash from investing activities B. Cash from operating activities C. Cash from marketing activities D. Cash from financing activities E. Cash from profiteering activities Cash from operating activities, a category of cash flow, includes all the accounts on the balance sheet that relate to computing revenues and expenses for the accounting period. Cash from operating activities is calculated by combining the changes in the revenue accounts, expense accounts, current asset accounts, and current liability accounts.

Chapter 14 - Accounting and Financial Statements

71. _____, a category of cash flow, is calculated from changes in the long-term or fixed asset accounts. A. Cash from profiteering activities B. Cash from investing activities C. Cash from financing activities D. Cash from operating activities E. Cash from marketing activities Cash from investing activities, a category of cash flow, is calculated from changes in the longterm or fixed asset accounts. A positive figure usually indicates a business that is selling off existing long-term assets and reducing its capacity for the future.

72. _____, a category of cash flow, is calculated from changes in the long-term liability accounts and the contributed capital accounts in owners' equity. A. Cash from profiteering activities B. Cash from investing activities C. Cash from financing activities D. Cash from operating activities E. Cash from marketing activities Cash from financing activities, a category of cash flow, is calculated from changes in the long-term liability accounts and the contributed capital accounts in owners' equity. If this amount is negative, the company is likely paying off long-term debt or returning contributed capital to investors.

Chapter 14 - Accounting and Financial Statements

73. _____ refer to calculations that measure an organization's financial health. A. General analysis B. Specific analysis C. Ratio analysis D. Feedback analysis E. Cash-flow analysis

74. Which of the following calculations helps managers compare an organization's productivity, profitability, and financing mix with other similar entities? A. Feedback analysis B. Ratio analysis C. Specific analysis D. General analysis E. Cash-flow analysis

Chapter 14 - Accounting and Financial Statements

75. _____ brings the complex information from a company's income statement and balance sheet into sharper focus. A. General analysis B. Specific analysis C. Cash-flow analysis D. Feedback analysis E. Ratio analysis Ratio analysis, calculations that measure an organization's financial health, brings the complex information from the income statement and balance sheet into sharper focus so that managers, lenders, owners, and other interested parties can measure and compare the organization's productivity, profitability, and financing mix with other similar entities.

76. One of the ways to analyze a company's financial performance is to compare its performance with those of: A. the foreign governments. B. the manufacturers producing their products. C. the companies in the same industry. D. the U.S. government. E. the suppliers of the raw materials.

Chapter 14 - Accounting and Financial Statements

77. Profitability ratios measure: A. how efficiently a firm uses its assets to generate sales. B. how much debt the firm is using relative to other sources of financing. C. how much operating income or net income a firm is able to generate relative to its assets, equity, and sales. D. the speed with which a company can turn its short-term assets into cash to pay off its shortterm debts. E. the performance of the firm relative to others on a per-share basis. Profitability ratios measure how much operating income or net income an organization is able to generate relative to its assets, owners' equity, and sales. The numerator (top number) used in these examples is always the net income after taxes.

78. Which of the following equations is correct? A. Profit margin = net income/sales B. Profit margin = assets + liabilities C. Profit margin = revenue - expenses D. Profit margin = net income/total assets E. Profit margin = net income/stockholder's equity Profit margin is calculated using the following equation: profit margin = net income/sales. The higher the profit margin, the better the cost controls within the company and the higher the return on every dollar of revenue.

Chapter 14 - Accounting and Financial Statements

79. A company with a low return on assets: A. is making profits. B. does not have debts. C. is not using its assets very productively. D. is lending its assets to other companies. E. does invest money in its assets. Return on assets, net income divided by assets, shows how much income the firm produces for every dollar invested in assets. A company with a low return on assets is probably not using its assets very productively—a key managerial failing.

80. Return on assets and return on equity are examples of _____. A. asset utilization ratios B. liquidity ratios C. debt ratios D. profitability ratios E. current ratios Common profitability ratios include profit margin, return on assets, and return on equity. Return on assets, net income divided by assets, shows how much income the firm produces for every dollar invested in assets. Return on equity (also called return on investment), calculated by dividing net income by owners' equity, shows how much income is generated by each $1 the owners have invested in the firm.

Chapter 14 - Accounting and Financial Statements

81. _____ shows how much income is generated by each $1 the owners have invested in a firm. A. Total asset turnover B. Profit margin C. Return on equity D. Return on assets E. Receivables turnover Return on equity shows how much income is generated by each $1 the owners have invested in the firm. Obviously, a low return on equity means low stockholder returns and may indicate a need for immediate managerial attention.

82. Which of the following equations is used to calculate return on equity? A. Return on equity = net income/sales B. Return on equity = revenue - expenses C. Return on equity = net income/owners' equity D. Return on equity = assets + liabilities E. Return on equity = net income/total assets Return on equity (also called return on investment), calculated by dividing net income by owners' equity, shows how much income is generated by each $1 the owners have invested in the firm. Obviously, a low return on equity means low stockholder returns and may indicate a need for immediate managerial attention.

Chapter 14 - Accounting and Financial Statements

83. Asset utilization ratios measure: A. the performance of the firm relative to others on a per-share basis. B. how much income a firm generates relative to its assets, equity, and sales. C. how much debt the firm is using relative to other sources of financing. D. the speed with which a company can turn its short-term assets into cash to pay off its shortterm debts. E. how well a firm uses its assets to generate each $1 of sales. Asset utilization ratios (receivables turnover, inventory turnover, and total asset turnover) measure how well a firm uses its assets to generate each $1 of sales. Obviously, companies using their assets more productively will have higher returns on assets than their less efficient competitors.

84. Maurice was asked to extend trade credit to a restaurant she hadn't serviced before. She asked to see its balance sheet to determine if it could pay its bills. She divided its current assets by current liabilities to get its: A. current ratio. B. receivable turnover. C. inventory turnover. D. earnings per share. E. book value per share. Maurice divided the current asset by current liabilities to get the current ratio. The current ratio is calculated by dividing current assets by current liabilities.

AACSB: Reflective Thinking Accessibility: Keyboard Navigation Bloom's: Apply Difficulty: 2 Medium Learning Objective: 14-05 Analyze the statement of cash flows to evaluate the increase and decrease in a company's cash balance. Topic: Financial Ratio Analysis

Chapter 14 - Accounting and Financial Statements

85. The _____, an asset utilization ratio, indicates how many times a firm collects its accounts receivable in one year. A. inventory turnover B. return on equity C. accounts payable D. receivables turnover E. asset turnover The receivables turnover, an asset utilization ratio, sales divided by accounts receivable, indicates how many times a firm collects its accounts receivable in one year. It also demonstrates how quickly a firm is able to collect payments on its credit sales.

86. Inventory turnover is calculated by: A. dividing sales by total inventory. B. subtracting sales from total inventory. C. dividing sales by accounts receivable. D. subtracting sales from accounts receivable. E. multiplying sales by total inventory. Inventory turnover, sales divided by total inventory, indicates how many times a firm sells and replaces its inventory over the course of a year.

Chapter 14 - Accounting and Financial Statements

87. Total asset turnover: A. determines the speed with which a company can turn its assets into cash to meet debts. B. compares current (short-term) assets to current liabilities. C. measures the most valuable asset of a company. D. measures the amount of inventory that is required by a company at any point of time. E. measures how well an organization uses all of its assets in creating sales. Total asset turnover, sales divided by total assets, measures how well an organization uses all of its assets in creating sales. It indicates whether a company is using its assets productively.

88. _____ compare current assets to current liabilities to indicate the speed with which a company can turn its assets into cash to meet debts as they fall due. A. Asset utilization ratios B. Liquidity ratios C. Debt ratios D. Profitability ratios E. Current ratios Liquidity ratios compare current (short-term) assets to current liabilities to indicate the speed with which a company can turn its assets into cash to meet debts as they fall due. High liquidity ratios may satisfy a creditor's need for safety, but ratios that are too high may indicate that the organization is not using its current assets efficiently.

Chapter 14 - Accounting and Financial Statements

89. The measure of liquidity that reflects a company's liquidity ratio after excluding its inventory is the _____. A. debt utilization ratio B. current ratio C. asset utilization ratio D. receivables turnover ratio E. quick ratio The quick ratio measures how well an organization can meet its current obligations without resorting to the sale of its inventory.

90. The _____ is a stringent measure of liquidity. A. liquidity ratio B. current ratio C. quick ratio D. receivables turnover ratio E. debt utilization ratio The quick ratio (also known as the acid test) is a stringent measure of liquidity because it eliminates inventory, the least liquid current asset.

Chapter 14 - Accounting and Financial Statements

91. The _____, an evaluation of liquidity, measures how well an organization can meet its current obligations without resorting to the sale of its inventory. A. debt utilization ratio B. quick ratio C. asset utilization ratio D. receivables turnover ratio E. current ratio The quick ratio, an evaluation of liquidity, measures how well an organization can meet its current obligations without resorting to the sale of its inventory. The quick ratio (also known as the acid test) is a far more stringent measure of liquidity because it eliminates inventory, the least liquid current asset.

92. _____ provide information about how much debt an organization is using relative to other sources of capital, such as owners' equity. A. Liquidity ratios B. Current ratios C. Current debt figures D. Percentages of debt repaid E. Debt utilization ratios Debt utilization ratios provide information about how much debt an organization is using relative to other sources of capital, such as owners' equity.

Chapter 14 - Accounting and Financial Statements

93. If a company is relying on borrowing and credit too extensively, this will probably be reflected in the _____. A. current usage ratio B. past utilization ratio C. debt utilization ratio D. liquid utilization ratio E. fixed asset usage ratio Debt utilization ratios provide information about how much debt an organization is using relative to other sources of capital, such as owners' equity. Because the use of debt carries an interest charge that must be paid regularly regardless of profitability, debt financing is much riskier than equity.

94. The _____, a debt utilization ratio, indicates how much of a firm is financed by debt and how much by owners' equity. A. debt to liquidity ratio B. debt to current ratio C. debt to quick ratio D. debt to receivables turnover ratio E. debt to total assets ratio The debt to total assets ratio, a debt utilization ratio, indicates how much of a firm is financed by debt and how much by owners' equity. Debt utilization ratios provide information about how much debt an organization is using relative to other sources of capital, such as owners' equity.

Chapter 14 - Accounting and Financial Statements

95. The _____, a debt utilization ratio, is a measure of the safety margin a company has with respect to the interest payments it must make to its creditors. A. liquidity ratio B. current ratio C. profitability ratio D. times interest earned ratio E. debt to total assets ratio The times interest earned ratio, operating income divided by interest expense, is a measure of the safety margin a company has with respect to the interest payments it must make to its creditors. Debt utilization ratios provide information about how much debt an organization is using relative to other sources of capital, such as owners' equity.

AACSB: Analytic Accessibility: Keyboard Navigation Bloom's: Remember Difficulty: 2 Medium Learning Objective: 14-05 Analyze the statement of cash flows to evaluate the increase and decrease in a company's cash balance. Topic: Financial Ratio Analysis

Chapter 15 - Money and the Financial System

Chapter 15 Money and the Financial System

True / False Questions 1. Money is a medium of exchange. TRUE Money serves three important functions: as a medium of exchange, a measure of value, and a store of value.

AACSB: Analytic Accessibility: Keyboard Navigation Bloom's: Remember Difficulty: 1 Easy Learning Objective: 15-01 Define money, its functions, and its characteristics. Topic: Understand the Functions of Money and the Role of Financial Markets

2. Certificates of deposit are accounts with funds that usually cannot be withdrawn without advance notice and/or have limits on the number of withdrawals per period. FALSE Savings accounts (also known as time deposits) are accounts with funds that usually cannot be withdrawn without advance notice and/or have limits on the number of withdrawals per period. Certificates of deposit are accounts that guarantee depositors a set interest rate as long as the funds are not withdrawn before the end of a set interval.

AACSB: Analytic Accessibility: Keyboard Navigation Bloom's: Remember Difficulty: 1 Easy Learning Objective: 15-02 Describe various types of money. Topic: Understand the Functions of Money and the Role of Financial Markets

Chapter 15 - Money and the Financial System

3. When the Federal Reserve Board (the Fed) buys securities, it decreases the money in circulation. FALSE When the Federal Reserve Board (the Fed) buys securities, it writes a check on its own account to the seller of the investments. When the seller of the investments (usually a large bank) deposits the check, the Fed transfers the balance from the Federal Reserve account into the seller's account, thus increasing the supply of money in the economy and, ideally, fueling economic growth.

AACSB: Analytic Accessibility: Keyboard Navigation Bloom's: Remember Difficulty: 1 Easy Learning Objective: 15-03 Specify how the Federal Reserve Board manages the money supply and regulates the American banking system. Topic: The Federal Reserve System

4. A credit union is owned and controlled by the government. FALSE A credit union is a financial institution owned and controlled by its depositors, who usually have a common employer, profession, trade group, or religion. A savings account at a credit union is commonly referred to as a share account, while a checking account is termed a share draft account.

AACSB: Analytic Accessibility: Keyboard Navigation Bloom's: Remember Difficulty: 1 Easy Learning Objective: 15-04 Compare and contrast commercial banks, savings and loan associations, credit unions, and mutual savings banks. Topic: Financial Institutions

Chapter 15 - Money and the Financial System

5. Finance companies buy and sell stocks and bonds for their customers. FALSE Brokerage firms buy and sell stocks, bonds, and other securities for their customers and provide other financial services. Larger brokerage firms like Merrill Lynch, Charles Schwab, and Edward Jones offer financial services unavailable at their smaller competitors. Merrill Lynch, for example, offers the Merrill Lynch Cash Management Account (CMA), which pays interest on deposits and allows clients to write checks, borrow money, and withdraw cash much like a commercial bank.

AACSB: Analytic Accessibility: Keyboard Navigation Bloom's: Remember Difficulty: 1 Easy Learning Objective: 15-05 Distinguish among nonbanking institutions such as insurance companies, pension funds, mutual funds, and finance companies. Topic: Financial Institutions

Multiple Choice Questions 6. Which of the following statements is true of money? A. It is not a gold-backed currency. B. It is not readily convertible to precious metal. C. It is anything accepted in exchange for goods and services. D. It is exclusively dispatched through automated teller machines. E. It needs to be accompanied by a government "note" or promise to be considered valid. Strictly defined, money is anything generally accepted in exchange for goods and services. Materials as diverse as salt, cattle, fish, rocks, shells, cloth, as well as precious metals such as gold, silver, and copper have long been used by various cultures as money.

Chapter 15 - Money and the Financial System

7. _____ is best described as a paper money that is not readily convertible to a precious metal such as gold. A. A bitcoin B. A credit card C. A debit card D. Plastic money E. Fiat money Fiat money is best described as a paper money that is not readily convertible to a precious metal such as gold. It did not gain full acceptance until the Great Depression in the 1930s.

8. A person swaps a bag of fruits for some meat. In this case, money functions as a: A. standard of value. B. store of value. C. measure of value. D. medium of exchange. E. counterfeit deterrent. In the given scenario, money is functioning as a medium of exchange. Before fiat money, the trade of goods and services was accomplished through bartering—trading one good or service for another of similar value, where money functioned as a medium of exchange.

AACSB: Analytic Accessibility: Keyboard Navigation Bloom's: Understand Difficulty: 2 Medium Learning Objective: 15-01 Define money, its functions, and its characteristics. Topic: Understand the Functions of Money and the Role of Financial Markets

Chapter 15 - Money and the Financial System

9. As a measure of value, money primarily serves as a(n): A. varying denominator that allows people to compare the different goods and services that can be consumed at various income levels. B. common standard or yardstick of the worth of goods and services. C. way to accumulate wealth. D. agent contributing to inflation. E. agent contributing to deflation. As a measure of value, money serves as a common standard or yardstick of the value of goods and services. For example, $2 will buy a dozen large eggs and $25,000 will buy a nice car in the United States.

10. When a person pays $23,000 to buy a car, money primarily functions as a: A. means of savings. B. store of value. C. measure of value. D. treasury bill. E. counterfeit deterrent. When a person pays $23,000 to buy a car, money functions as a measure of value. As a measure of value, money serves as a common standard or yardstick of the value of goods and services.

Chapter 15 - Money and the Financial System

11. When money serves as a way to accumulate wealth, money primarily functions as a: A. yardstick of value. B. store of value. C. measure of value. D. medium of exchange. E. counterfeit deterrent. As a store of value, money serves as a way to accumulate wealth (buying power) until it is needed. The value of stored money is directly dependent on the health of the economy.

12. To be used as a medium of exchange, money must be: A. non-portable. B. durable. C. imitable. D. indivisible. E. flexible. To be used as a medium of exchange, money must be acceptable, divisible, portable, stable in value, durable, and difficult to counterfeit.

Chapter 15 - Money and the Financial System

13. As a medium of exchange, money: A. makes it harder to trade. B. creates a complicated service structure. C. reduces the need for bartering. D. is indivisible. E. can easily be counterfeited. As a medium of exchange, money reduces the need for bartering. Bartering can be inefficient—particularly when transactions are complex. Money acts as an alternative that can be freely converted to any other good upon agreement between parties.

14. Ryan traded his tablet PC for a cellphone. Since both were of the same value, there was no exchange of money. Which of the following concepts does this scenario illustrate? A. Discounting B. Checking C. Bartering D. Accruing E. Devaluing The scenario illustrates bartering. Bartering involves trading one good or service for another of similar value.

AACSB: Reflective Thinking Accessibility: Keyboard Navigation Bloom's: Apply Difficulty: 2 Medium Learning Objective: 15-01 Define money, its functions, and its characteristics. Topic: Understand the Functions of Money and the Role of Financial Markets

Chapter 15 - Money and the Financial System

15. To be effective, money must be readily received for the purchase of goods and services and for the settlement of debts. Which of the following characteristics of money does this statement reflect? A. Divisibility B. Durability C. Acceptability D. Stability E. Portability To be effective, money must be readily acceptable for the purchase of goods and services and for the settlement of debts. Acceptability is probably the most important characteristic of money.

16. For money to serve effectively as a measure of value, all items must be valued in terms of comparable units. Which of the following characteristics of money does this statement reflect? A. Divisibility B. Durability C. Acceptability D. Stability E. Portability For money to serve effectively as a measure of value, all items must be valued in terms of comparable units—dimes for a piece of bubble gum, quarters for laundry machines, and dollars (or dollars and coins) for everything else. Given the widespread use of quarters, dimes, nickels, and pennies in the United States, it is no surprise that the principle of divisibility is an important one.

Chapter 15 - Money and the Financial System

17. For money to function as a medium of exchange, it must be easily moved from one location to the next. Which of the following characteristics of money does this statement reflect? A. Divisibility B. Durability C. Acceptability D. Stability E. Portability For money to function as a medium of exchange, it must be portable. Paper currency and metal coins are capable of transferring vast purchasing power into small, easily carried (and hidden) bundles.

18. Which of the following characteristics of money allows people to postpone purchases and save their money to do so? A. Divisibility B. Imitability C. Acceptability D. Stability E. Portability The principle of stability allows people who wish to postpone purchases and save their money to do so without fear that it will decline in value. Money must be stable and maintain its declared face value.

Chapter 15 - Money and the Financial System

19. The life expectancy of a $20 bill is estimated to be 7.7 years. Which of the following characteristics of money does this statement illustrate? A. Divisibility B. Durability C. Acceptability D. Stability E. Portability The given statement illustrates the durability of money. Money must be durable. Were the value of an old, faded bill to fall in line with the deterioration of its appearance, the principles of stability and universal acceptability would fail.

20. U.S. money includes subtle colors in addition to the traditional green, as well as enhanced security features, such as a watermark, security thread, and color-shifting ink. Which of the following characteristics of money is being protected by these measures? A. Acceptability B. Inimitability C. Divisibility D. Stability E. Portability To remain stable and enjoy universal acceptance, it almost goes without saying that money must be very difficult to counterfeit—that is, to duplicate illegally. Every country takes steps to make counterfeiting difficult. Most use multicolored money, and many use specially watermarked papers that are virtually impossible to duplicate.

Chapter 15 - Money and the Financial System

21. Coins are used primarily to provide: A. acceptability. B. inimitability. C. divisibility. D. stability. E. portability. Today, coins are used primarily to provide divisibility. Although metal coins, due to their much longer useful life, would appear to be an ideal form of money, paper currency is far more portable than metal because of its light weight.

22. Stan's sister tells Stan that the number of toffees she could buy for a dollar when she was his age was greater. Stan's sister is referring to the _____ of money. A. acceptability B. inimitability C. divisibility D. stability E. portability Stan's sister is referring to the stability characteristic of money. The principle of stability allows people who wish to postpone purchases and save their money to do so without fear that it will decline in value.

Chapter 15 - Money and the Financial System

23. When inflation is very high, money loses its _____. A. stability B. portability C. durability D. divisibility E. acceptability When inflation is very high, money loses its stability. Money declines in value during periods of inflation when economic conditions cause prices to rise.

24. In some countries with very high inflation rates, citizens tend to spend their money as fast as they receive it in order to keep it from losing any more of its value. Under these conditions, money is said to lack: A. portability. B. divisibility. C. durability. D. stability. E. inimitability. In some countries, people spend their money as fast as they can in order to keep it from losing any more of its value. Under these conditions, money is said to lack stability. Instability destroys confidence in a nation's money and its ability to store value and serve as an effective medium of exchange.

Chapter 15 - Money and the Financial System

25. Which of the following characteristics of money refers to the ability of a dollar bill to be handled a hundred times without significant wear and tear? A. Portability B. Divisibility C. Durability D. Stability E. Exchangeability Durability refers to the ability of a dollar bill to be handled a hundred times without significant wear and tear. Money must be durable.

26. According to the Federal Reserve Board, what is the estimated life span of $1 notes? A. 3.7 years B. 1.3 years C. 4.9 years D. 5.9 years E. 7.7 years According to the Federal Reserve Board, the estimated life span of $1 notes is 5.9 years. Life span varies by denomination. One factor that influences the life span of each denomination is how the denomination is used by the public. $1 notes are passed between users more frequently than $100 notes, so they will last fewer years than $100 notes.

Chapter 15 - Money and the Financial System

27. Why is the life span of a $1 note likely to be lesser than that of a $100 note? A. A $100 note rates higher on divisibility. B. A $100 note rates lower on portability. C. A $100 note is more stable. D. A $100 note is less frequently passed between users. E. A $100 note can easily be imitated. Life span varies by denomination. One factor that influences the life span of each denomination is how the denomination is used by the public. $100 notes pass between users less frequently than lower denominations that are more often used for transactions, such as $5 notes. Thus, $100 notes typically last longer than $5 notes.

28. Money must be very difficult to counterfeit; it means that it should be hard to: A. convert into another form of currency. B. divide into smaller units. C. store as assets. D. duplicate illegally. E. use for cumbersome bartering. Money must be very difficult to counterfeit—that is, to duplicate illegally. To remain stable and enjoy universal acceptance, it almost goes without saying that money must be very difficult to counterfeit.

Chapter 15 - Money and the Financial System

29. _____ are preferred over currency for many transactions due to their lower risk of loss. A. Bitcoins B. Coins C. Checks D. Gold bars E. Real assets Checks are preferred for many transactions due to their lower risk of loss. As legal instruments, checks serve as a substitute for currency and coins.

AACSB: Analytic Accessibility: Keyboard Navigation Bloom's: Understand Difficulty: 2 Medium Learning Objective: 15-02 Describe various types of money. Topic: Understand the Functions of Money and the Role of Financial Markets

30. A check: A. has a higher risk of loss than currency for transactions. B. has a time limit of 30 days. C. cannot be canceled by means of a stop payment once it is signed. D. is not a substitute for currency and coins. E. can be rendered worthless in case of suspected forgery. An account holder can render a check immediately worthless by means of a stop-payment order at the bank. A bank has a sample of an account holder's signature on file to compare with a suspected forged signature.

Chapter 15 - Money and the Financial System

31. The acronym NOW, when used by financial institutions, stands for _____ and is a type of interest-bearing checking account. A. Near Order Withdrawal B. Negotiable Order of Waiver C. Near Order of Waiver D. Negotiable Order of Withdrawal E. Negative Order of Withdrawal NOW stands for Negotiable Order of Withdrawal and is an account offered by most financial institutions. The interest rate paid on such accounts varies with the interest rates available in the economy but is typically quite low.

32. Savings accounts are also known as: A. interest deposits. B. term deposits. C. demand deposits. D. time deposits. E. certificates of deposit. Savings accounts are also known as time deposits. Savings accounts are accounts with funds that usually cannot be withdrawn without advance notice and/or have limits on the number of withdrawals per period.

Chapter 15 - Money and the Financial System

33. _____ or time deposits are accounts with funds that can be withdrawn only with advance notice. A. Current accounts B. Checking accounts C. Money market accounts D. Savings accounts E. Negotiable Order of Withdrawal accounts Savings accounts (also known as time deposits) are accounts with funds that usually cannot be withdrawn without advance notice and/or have limits on the number of withdrawals per period. Savings accounts are not generally used for transactions or as a medium of exchange, but their funds can be moved to a checking account or turned into cash.

34. _____ are similar to interest-bearing checking accounts, but with more restrictions. A. Current accounts B. Checking accounts C. Money market accounts D. Savings account E. Negotiable Order of Withdrawal accounts Money market accounts are similar to interest-bearing checking accounts, but with more restrictions. Generally, in exchange for slightly higher interest rates, the owner of a money market account can write only a limited number of checks each month, and there may be a restriction on the minimum amount of each check.

Chapter 15 - Money and the Financial System

35. _____ are savings accounts that guarantee a depositor a set interest rate over a specified interval of time as long as the funds are not withdrawn prematurely. A. Certificates of deposits B. Checking accounts C. Money market accounts D. Demand deposits E. Negotiable Order of Withdrawal accounts Certificates of deposit (CDs) are savings accounts that guarantee a depositor a set interest rate over a specified interval of time as long as the funds are not withdrawn before the end of the interval. In general, the longer the term of a CD, the higher is the interest rate it earns.

36. _____ charge a penalty for withdrawing money prematurely. A. Negotiable Order of Withdrawal accounts B. Checking accounts C. Money market accounts D. Demand deposits E. Certificates of deposit Money from certificates of deposits can be withdrawn prematurely only after paying a substantial penalty. They are savings accounts that guarantee a depositor a set interest rate over a specified interval of time as long as the funds are not withdrawn before the end of the interval.

Chapter 15 - Money and the Financial System

37. A money market account differs from an interest-bearing checking account in that the owners of a money market account: A. can write only a limited number of checks each month. B. can take out their funds whenever they want in specific denominations. C. can withdraw funds only at the time of their retirement. D. cannot convert the funds into cash. E. cannot withdraw the funds without an advance notice of six months. Money market accounts are similar to interest-bearing checking accounts, but with more restrictions. Generally, in exchange for slightly higher interest rates, the owner of a money market account can write only a limited number of checks each month, and there may be a restriction on the minimum amount of each check.

38. In general, the longer the term of a certificate of deposit, the: A. higher is its liquidity. B. higher is its interest rate. C. lower is its value. D. lower is its interest rate. E. higher is its inflation rate. In general, the longer the term of a certificate of deposit (CD), the higher is the interest rate it earns. As with all interest rates, the rate offered and fixed at the time the account is opened fluctuates according to economic conditions.

Chapter 15 - Money and the Financial System

39. Credit cards: A. work like checks. B. allow cardholders to pay for transactions at a later date. C. offer no purchase "grace period." D. do not charge any interest on a cardholder's unpaid balance. E. are the same as debit cards. Credit cards allow cardholders to promise to pay at a later date by using preapproved lines of credit granted by a bank or finance company. They are a popular substitute for cash payments because of their convenience, easy access to credit, and acceptance by merchants around the world.

40. If consumers do not pay off their entire credit card balance, they: A. have to pay interest on the total paid and unpaid amount. B. will receive interest on the paid amount. C. have to pay interest on the unpaid amount. D. will get a rebate from the card issuer. E. have their purchased goods repossessed by the creditors. Charges for unpaid balances can run 18 percent or higher at an annual rate, making credit card debt one of the most expensive ways to borrow money. Some cardholders always pay off their monthly charges, while others make monthly payments.

Chapter 15 - Money and the Financial System

41. Why are credit cards a popular substitute for cash payments? A. They provide tax benefits. B. They exempt users from paying transaction fees to merchants. C. They allow users to avail interest-free credit. D. They allow merchants to avail unlimited credit. E. They are accepted by merchants around the world. Credit cards are a popular substitute for cash payments because of their convenience, easy access to credit, and acceptance by merchants around the world. They allow users to promise to pay at a later date by using preapproved lines of credit granted by a bank or finance company.

42. A debit card: A. provides a hard "paper trail."

B. allows cardholders to pay for transactions at a later date. C. offers a purchase "grace period."

D. looks like a credit card but works like a check. E. has credit features. AACSB: Analytic Accessibility: Keyboard Navigation Bloom's: Understand Difficulty: 2 Medium Learning Objective: 15-02 Describe various types of money. Topic: Understand the Functions of Money and the Role of Financial Markets

Chapter 15 - Money and the Financial System

43. Which of the following acts limited the ability of credit card issuers to raise rates, limited credit to young adults, and gave people more time to pay bills? A. The Dodd-Frank Act B. The Gramm-Leach-Bliley Act C. The Troubled Asset Relief Program Act D. The Financial Services Modification Act E. The Credit CARD Act The Credit CARD (Card Accountability Responsibility and Disclosure) Act of

44. The _____ is the guardian of the American financial system. A. Federal Savings and Loan Insurance Corporation B. Federal Deposit Insurance Corporation C. New York Federal Reserve Bank D. Federal Reserve Board E. National Credit Union Administration

Chapter 15 - Money and the Financial System

45. The Federal Reserve Board was established by Congress in 1913 to: A. provide benefits to retirees and the unemployed. B. regulate corporate money laundering. C. collect taxes and enforce the Internal Revenue Code. D. regulate the banking industry. E. facilitate global monetary cooperation.

46. The Federal Reserve Board is primarily responsible for: A. providing short-term loans to businesses. B. creating a stable environment for economic growth. C. issuing savings accounts and certificates of deposit. D. regulating and chartering credit unions. E. imposing trade embargoes in appropriate situations. The Federal Reserve Board (the Fed) tries to create a positive economic environment capable of sustaining low inflation, high levels of employment, a balance in international payments, and long-term economic growth.

Chapter 15 - Money and the Financial System

47. The Federal Reserve Board controls the amount of money available in the economy: A. by issuing credit cards. B. through monetary policy. C. by printing new currency notes. D. by levying heavy taxes. E. through certificates of deposit. The Federal Reserve Board controls the amount of money available in the economy through monetary policy. Without this intervention, the supply of and demand for money might not balance.

48. Open market operations refer to decisions to: A. buy or sell U.S. Treasury bills and other investments in the open market. B. issue savings accounts and certificates of deposit in the open market. C. regulate and charter credit unions in the open market. D. set a credit limit for the credit cards. E. regulate income tax rates for the open market. Open market operations refer to decisions to buy or sell U.S. Treasury bills and other investments in the open market. The actual purchase or sale of the investments is performed by the New York Federal Reserve Bank.

Chapter 15 - Money and the Financial System

49. The actual purchase or sale of investments in the open market is performed by the: A. Federal Savings and Loan Insurance Corporation. B. Federal Deposit Insurance Corporation. C. National Credit Union Administration. D. Federal Reserve Board. E. New York Federal Reserve Bank. The actual purchase or sale of investments is performed by the New York Federal Reserve Bank. This monetary tool, the most commonly employed of all Fed operations, is performed almost daily in an effort to control the money supply.

50. Which of the following actions is the Federal Reserve Board most likely to take in an attempt to increase the money supply in the economy? A. Raise reserve requirements B. Buy government securities C. Print more money D. Raise discount rates E. Restrict credit controls The Federal Reserve Board can buy government securities to increase the supply of money, thereby increasing the economic activity. This monetary tool, the most commonly employed of all Fed operations, is performed almost daily in an effort to control the money supply.

AACSB: Analytic Accessibility: Keyboard Navigation Bloom's: Understand Difficulty: 2 Medium Learning Objective: 15-03 Specify how the Federal Reserve Board manages the money supply and regulates the American banking system. Topic: The Federal Reserve System

Chapter 15 - Money and the Financial System

51. When the Federal Reserve Board sells government securities, the: A. money supply in the economy decreases. B. money supply in the economy increases. C. property taxes increase. D. property taxes decrease. E. money supply in the market becomes stable. When the Fed sells securities, the money supply decreases in the economy. A buyer writes a check to the Federal Reserve, and when the funds are transferred out of the purchaser's account, the amount of money in circulation falls, slowing economic growth to a desired level.

52. Which of the following effects is seen on the money supply and the economy when the Federal Reserve Board raises the discount rate? A. Interest rates decrease; the money supply increases; economic activity increases. B. Interest rates increase; the money supply decreases; economic activity slows down. C. Banks make more loans; the money supply increases; economic activity increases. D. People are encouraged to make major purchases, increasing economic activity. E. The money supply increases; economic activity increases. When the Federal Reserve Board raises the discount rate, interest rates increase, the money supply decreases, and economic activity slows down. The discount rate is the rate of interest the Fed charges to loan money to any banking institution to meet reserve requirements.

Chapter 15 - Money and the Financial System

53. There is an increase in economic activity when the Federal Reserve Board: A. sells government securities. B. lowers the discount rate. C. increases reserve requirements. D. restricts credit controls. E. sells investments. When the Federal Reserve Board lowers the discount rate, interest rates decrease, the money supply increases, and economic activity increases. The discount rate is the rate of interest the Fed charges to loan money to any banking institution to meet reserve requirements.

54. When the Federal Reserve Board increases the reserve requirements, the: A. money supply declines. B. amount of money in circulation increases. C. amount of insurance for accounts increases. D. checks in the system are declared invalid. E. percentage of deposits that banks must hold in reserve declines. If the Federal Reserve Board increases the reserve requirement, then banks would make fewer loans, the money supply would decline, and economic activity would slow down. The reserve requirement is the percentage of deposits that banking institutions must hold in reserve.

Chapter 15 - Money and the Financial System

55. What is an outcome of the Federal Reserve Board decreasing the reserve requirements? A. Interest rates increase; the money supply decreases; economic activity increases. B. Banks make fewer loans; the money supply declines; economic activity slows down. C. Banks make more loans; the money supply increases; economic activity increases. D. Interest rates increase; the money supply decreases; economic activity slows down. E. The money supply decreases; economic activity slows down. If the Federal Reserve Board decreases the reserve requirement, then banks would make more loans, the money supply increases, and economic activity increases. The reserve requirement is the percentage of deposits that banking institutions must hold in reserve.

56. There is an increase in economic activity when the Federal Reserve Board: A. sells government securities. B. raises the discount rate. C. increases reserve requirements. D. relaxes credit controls. E. sells government securities. When the Federal Reserve Board relaxes credit controls, more people are encouraged to make major purchases, thereby increasing economic activity. The authority to establish and enforce credit rules for financial institutions and some private investors is referred to as credit controls.

Chapter 15 - Money and the Financial System

57. Which of the following effects is seen on the money supply and the economy when the Federal Reserve Board restricts credit controls? A. More people are encouraged to make major purchases, increasing economic activity. B. Banks make fewer loans; the money supply declines; economic activity slows down. C. Banks make more loans; the money supply increases; economic activity increases. D. Interest rates increase; the money supply decreases; economic activity slows down. E. People are discouraged from making major purchases, decreasing economic activity. When the Federal Reserve Board restricts credit controls, people are discouraged from making major purchases, decreasing economic activity. The authority to establish and enforce credit rules for financial institutions and some private investors is referred to as credit controls.

58. The oldest and largest of all financial institutions are: A. thrift institutions. B. credit unions. C. savings & loans associations. D. insurance companies. E. commercial banks. The largest and oldest of all financial institutions are commercial banks. They rely mainly on checking and savings accounts as their major source of funds and use only a portion of these deposits to make loans to businesses and individuals.

Chapter 15 - Money and the Financial System

59. Commercial banks: A. rely on checking and savings accounts for funds. B. invest exclusively in residential mortgages. C. use all their funds to make loans to businesses. D. are the most recently established of all financial institutions. E. do not provide loans for vacations. Commercial banks mainly rely on checking and savings accounts as their major sources of funds and use only a portion of these deposits to make loans to businesses and individuals.

60. The _____ prohibited commercial banks from being in the insurance and investment banking business. A. Celler-Kefauver Act B. Sarbanes-Oxley Act C. Gramm-Leach-Bliley Act D. Glass-Steagall Act E. Dodd-Frank Act The Glass-Steagall Act was enacted in 1929 after the stock market crash and prohibited commercial banks from being in the insurance and investment banking business. The GrammLeach-Bliley Bill repealed the Glass-Steagall Act.

Chapter 15 - Money and the Financial System

61. The _____ repealed the Glass-Stegall Act, putting U.S. commercial banks on the same competitive footing as European banks. A. Sarbanes-Oxley Act B. Celler-Kefauver Act C. Dodd-Frank Act D. Credit CARD Act E. Gramm-Leach-Bliley Act The Gramm-Leach-Bliley Act repealed the Glass-Steagall Act, which was enacted in 1929 after the stock market crash and prohibited commercial banks from being in the insurance and investment banking business. This puts U.S. commercial banks on the same competitive footing as European banks and provides a more level playing field for global banking competition.

62. Which of the following acts restricted commercial banks from engaging in certain highrisk trading activities and also raised the required capital that banks must hold on their balance sheets? A. The Federal Deposit Insurance Act B. The Financial Services Modernization Act C. The Gramm-Leach-Bliley Act D. The Glass-Steagall Act E. The Dodd-Frank Act The Dodd-Frank Act added new regulations for commercial banks, notably limiting them from engaging in certain high-risk trading activities and raising the required capital they must hold on their balance sheets.

Chapter 15 - Money and the Financial System

63. _____, often called "thrifts," are financial institutions that primarily offer savings accounts and make long-term loans for residential mortgages. A. Commercial banks B. Credit unions C. Savings and loan associations D. Mutual savings banks E. Insurance companies Savings and loan associations (S&Ls), often called "thrifts," are financial institutions that primarily offer savings accounts and make long-term loans for residential mortgages. A mortgage is a loan made so that a business or individual can purchase real estate, typically a home; the real estate itself is pledged as a guarantee (called collateral) that the buyer will repay the loan.

64. A(n) _____ is a loan made so that a business or individual can purchase real estate, typically a home. A. credit B. mortgage C. insurance D. thrift E. debit A mortgage is a loan made so that a business or individual can purchase real estate, typically a home; the real estate itself is pledged as a guarantee (called collateral) that the buyer will repay the loan. Savings and loan associations (S&Ls), often called "thrifts," are financial institutions that primarily offer savings accounts and make long-term loans for residential mortgages.

Chapter 15 - Money and the Financial System

65. The primary business of savings and loan associations (S&Ls) is to: A. offer short-term loans to large corporations. B. offer savings accounts. C. offer tax savings. D. insure deposits. E. sell life insurance. Savings and loan associations (S&Ls), often called "thrifts," are financial institutions that primarily offer savings accounts and make long-term loans for residential mortgages. A mortgage is a loan made so that a business or individual can purchase real estate, typically a home; the real estate itself is pledged as a guarantee (called collateral) that the buyer will repay the loan.

66. Employees of a local school conduct their financial transactions through a financial institution, which is also owned by them. This financial institution is most likely to be a(n): A. commercial bank. B. credit union. C. savings and loan association. D. insurance company. E. federal bank. The financial institution in the scenario is most likely to be a credit union. A credit union is a financial institution owned and controlled by its depositors, who usually have a common employer, profession, trade group, or religion. Members are allowed to vote for directors and share in the credit union's profits.

AACSB: Reflective Thinking Accessibility: Keyboard Navigation Bloom's: Apply Difficulty: 2 Medium Learning Objective: 15-04 Compare and contrast commercial banks, savings and loan associations, credit unions, and mutual savings banks. Topic: Financial Institutions

Chapter 15 - Money and the Financial System

67. The major difference between banks and credit unions is that: A. credit unions have higher default rates than banks. B. banks distribute their profits to depositors. C. credit unions have higher loan rates and lower interest rates than banks. D. bank depositors get to vote for the bank directors. E. credit unions are owned and controlled by their depositors. Banks and credit unions perform many similar functions, with the main difference being that credit unions are owned and controlled by their depositors. A credit union is a financial institution owned and controlled by its depositors, who usually have a common employer, profession, trade group, or religion.

AACSB: Analytic Accessibility: Keyboard Navigation Bloom's: Understand Difficulty: 2 Medium Learning Objective: 15-04 Compare and contrast commercial banks, savings and loan associations, credit unions, and mutual savings banks. Topic: Financial Institutions

68. A savings account at a credit union is commonly referred to as a(n) _____. A. current account B. checking account C. share account D. negotiable order of withdrawal account E. individual retirement account A savings account at a credit union is commonly referred to as a share account. A checking account is termed a share draft account.

Chapter 15 - Money and the Financial System

69. A checking account at a credit union is commonly referred to as a(n) _____. A. share draft account B. savings account C. share account D. negotiable order of withdrawal account E. individual retirement account A checking account at a credit union is commonly referred to as a share draft account. A savings account at a credit union is commonly referred to as a share account.

70. Which of the following institutions is similar to a savings and loan association but is owned by its depositors? A. Commercial bank B. Thrift institution C. Mutual savings bank D. Federal bank E. Investment bank Mutual savings banks are similar to savings and loan associations, but, like credit unions, they are owned by their depositors. Among the oldest financial institutions in the United States, they were originally established to provide a safe place for savings of particular groups of people, such as fishermen.

Chapter 15 - Money and the Financial System

71. The _____ insures individual bank accounts. A. Federal Savings and Loan Insurance Corporation B. Federal Deposit Insurance Corporation C. National Credit Union Administration D. Federal Reserve Board E. New York Federal Reserve Bank The Federal Deposit Insurance Corporation (FDIC), which insures individual bank accounts, was established in 1933 to help stop bank failures throughout the country during the Great Depression.

72. Nonbanking institutions differ from banking institutions in that they: A. offer long-term loans. B. offer investment products. C. include credit unions. D. do not accept deposits. E. do not offer short-term loans. Nonbank financial institutions offer some financial services, such as short-term loans or investment products, but do not accept deposits.

AACSB: Analytic Accessibility: Keyboard Navigation Bloom's: Understand Difficulty: 1 Easy Learning Objective: 15-05 Distinguish among nonbanking institutions such as insurance companies, pension funds, mutual funds, and finance companies. Topic: Financial Institutions

Chapter 15 - Money and the Financial System

73. _____ are businesses that protect their clients against financial losses from certain specified risks in exchange for a fee, called a premium. A. Insurance companies B. Investment banks C. Finance companies D. Mutual savings banks E. Commercial banks Insurance companies are businesses that protect their clients against financial losses from certain specified risks (death, injury, disability, accident, fire, theft, and natural disasters, for example) in exchange for a fee, called a premium. Because insurance premiums flow into the companies regularly, but major insurance losses cannot be timed with great accuracy (though expected risks can be assessed with considerable precision), insurance companies generally have large amounts of excess funds.

Chapter 15 - Money and the Financial System

74. Insurance companies protect their clients against financial losses from certain specified risks in exchange for a fee, called a(n) _____. A. interest B. dividend C. fiat D. contingency fee E. premium Insurance companies are businesses that protect their clients against financial losses from certain specified risks (death, injury, disability, accident, fire, theft, and natural disasters, for example) in exchange for a fee, called a premium. Because insurance premiums flow into the companies regularly, but major insurance losses cannot be timed with great accuracy (though expected risks can be assessed with considerable precision), insurance companies generally have large amounts of excess funds.

75. Which of the following is a type of mutual fund? A. Individual retirement account B. Corporate insurance plan C. Money market fund D. Social Security E. Roth individual retirement account A special type of mutual fund called a money market fund invests specifically in short-term debt securities issued by governments and large corporations. Although they offer services such as check-writing privileges and reinvestment of interest income, money market funds differ from the money market accounts offered by banks primarily in that the former represent a pool of funds, while the latter are basically specialized, individual checking accounts.

Chapter 15 - Money and the Financial System

76. Which of the following is the largest pension fund? A. Individual retirement account B. Corporate insurance plan C. Individual retirement account D. Social Security E. Roth individual retirement account Social Security is the largest pension fund. It is publicly financed.

77. A money market fund differs from the money market account offered by banks primarily in that the former: A. offers lower rates of interest than a bank money market account. B. represents a pool of funds, not a specialized, individual checking account. C. does not invest in government bonds, only securities issued by private companies. D. does not offer services such as check-writing privileges and reinvestment of interest income. E. invests exclusively in long-term debt securities issued by large corporations. A money market fund differs from the money market account offered by banks primarily in that the former represents a pool of funds, not a specialized, individual checking account. Money market funds usually offer slightly higher rates of interest than bank money market accounts.

AACSB: Analytic Accessibility: Keyboard Navigation Bloom's: Understand Difficulty: 2 Medium Learning Objective: 15-05 Distinguish among nonbanking institutions such as insurance companies, pension funds, mutual funds, and finance companies. Topic: Financial Institutions

Chapter 15 - Money and the Financial System

78. A money market fund differs from a bank money market account in that the former: A. offers slightly higher rates of interest than a bank money market account. B. represents a specialized, individual checking account. C. does not invest in government bonds, only securities issued by private companies. D. does not offer services such as check-writing privileges and reinvestment of interest income. E. invests exclusively in long-term debt securities issued by large corporations. A money market fund differs from a bank money market account in that the former usually offer slightly higher rates of interest than bank money market accounts. A money market fund represents a pool of funds, not a specialized, individual checking account.

79. If a person invests in a firm that pools funds from a large number of people and buys and professionally manages stock from a number of diversified companies, that person is investing in a(n): A. certificate of deposit. B. individual retirement account. C. mutual fund. D. banker's acceptance. E. time deposit. A mutual fund pools individual investor dollars and invests them in large numbers of securities, thereby creating a diversified investment portfolio. Individual investors buy shares in a mutual fund in the hope of earning a high rate of return and in much the same way as people buy shares of stock.

Chapter 15 - Money and the Financial System

80. A money market fund is a special type of mutual fund that: A. invests in short-term debt securities issued by large corporations. B. dispenses cash and allows balance inquiries. C. offers slightly lower rates of interest than bank money market accounts. D. is set aside by corporations to provide retirement income. E. represents specialized individual checking accounts. A special type of mutual fund called a money market fund invests specifically in short-term debt securities issued by governments and large corporations. Although they offer services such as check-writing privileges and reinvestment of interest income, money market funds differ from the money market accounts offered by banks primarily in that the former represent a pool of funds, while the latter are basically specialized, individual checking accounts.

81. A nonbanking financial institution that buys and sells stocks, bonds, and other securities for its customers is called a(n): A. finance company. B. credit union. C. mutual savings bank. D. brokerage firm. E. thrift bank. Brokerage firms are nonbanking institutions that buy and sell stocks, bonds, and other securities for their customers and provide other financial services. Larger brokerage firms like Merrill Lynch, Charles Schwab, and Edward Jones offer financial services unavailable at their smaller competitors. Merrill Lynch, for example, offers the Merrill Lynch Cash Management Account (CMA), which pays interest on deposits and allows clients to write checks, borrow money, and withdraw cash much like a commercial bank.

Chapter 15 - Money and the Financial System

82. A(n) _____ underwrites new issues of securities for corporations, states, and municipalities needed to raise money in the capital markets. A. private accountant B. cashier C. investment banker D. certified public accountant E. certified management accountant An investment banker underwrites new issues of securities for corporations, states, and municipalities needed to raise money in the capital markets. Merrill Lynch is an investment banker.

83. Finance companies: A. offer short-term loans. B. charge lower interest rates than banks. C. do not require collateral. D. do not make loans to individuals. E. are banking institutions. Finance companies are businesses that offer short-term loans at substantially higher rates of interest than banks. Commercial finance companies make loans to businesses, requiring their borrowers to pledge assets such as equipment, inventories, or unpaid accounts as collateral for the loans.

Chapter 15 - Money and the Financial System

84. _____ are businesses that offer short-term loans at substantially higher rates of interest than banks. A. Brokerage firms B. Investment firms C. Finance companies D. Mutual fund providers E. Insurance companies Finance companies are businesses that offer short-term loans at substantially higher rates of interest than banks. Commercial finance companies make loans to businesses, requiring their borrowers to pledge assets such as equipment, inventories, or unpaid accounts as collateral for the loans.

85. _____, a form of electronic banking, allow financial institutions to reduce costs by facilitating "paperless" transactions. A. Credit cards B. Automated teller machines C. Overnight deposit boxes D. Money orders E. Checks Automated teller machines (ATMs) allow financial institutions to reduce costs by facilitating "paperless" transactions. They are a form of electronic banking and provide 24-hour banking services.

Chapter 15 - Money and the Financial System

86. A movement of funds by means of a _____ is most likely to be referred to as electronic funds transfer. A. credit card B. mutual fund C. debit card D. checking account E. telephone Electronic funds transfer (EFT) is any movement of funds by means of an electronic terminal, telephone, computer, or magnetic tape. Such transactions order a particular financial institution to subtract money from one account and add it to another.

87. _____ permit payments such as deposits or withdrawals to be made to and from a bank account by magnetic computer tape. A. Brokerage firms B. Investment banks C. Bank vaults D. Automated teller machines E. Automated clearinghouses Automated clearinghouses (ACHs) permit payments such as deposits or withdrawals to be made to and from a bank account by magnetic computer tape. Most large U.S. employers, and many others worldwide, use ACHs to deposit their employees' paychecks directly to the employees' bank accounts.

Chapter 15 - Money and the Financial System

88. _____ allow consumers to perform an ever-widening array of financial transactions from their personal or work computers. A. Online banking services B. Automated clearinghouses C. Automated teller machines D. Credit card terminals E. Magnetic stripe readers Online banking services allow consumers and small businesses to make a varied array of financial transactions at home or on the go 24 hours a day. Functioning much like a vast network of personal ATMs, companies like Google and Apple provide online banking services through mobile phones, allowing subscribers to make sophisticated banking transactions, buy and sell stocks and bonds, and purchase products and airline tickets without ever leaving home or speaking to another human being.

89. Which of the following factors has challenged the banking industry and forced it to undergo changes? A. Decrease in international trade B. Rapid technological innovations C. Dearth of human resources D. Stagnation of growth E. Political instabilities Rapid advances and innovations in technology are challenging the banking industry and requiring it to change. More and more banks, both large and small, are offering electronic access to their financial services.

AACSB: Analytic Accessibility: Keyboard Navigation Bloom's: Remember Difficulty: 1 Easy Learning Objective: 15-06 Investigate the challenges ahead for the banking industry. Topic: The Great Recession of 2008

Chapter 15 - Money and the Financial System

90. Which of the following actions did the Federal Reserve take during the most recent financial crisis between 2000 and 2008? A. It gave a directive to change the management of the banks that had to be bailed out. B. It compensated all investors who lost money in the crisis. C. It relaxed some of the regulations that had previously bound the financial industry. D. It kept the interest rates low to stimulate the economy. E. It issued a directive to keep all information regarding derivative products confidential. During the most recent financial crisis between 2000 and 2008, the Fed began to pay interest on reserves banks kept at the Fed, and it kept interest rates low to stimulate the economy and to help the banks regain their health. Because banks make money by the spread between their borrowing and lending rates, the Fed managed the spread between long- and short-term rates to generate a fairly large spread for the banks.

91. Which of the following actions did the Federal Reserve take during the financial crisis of 2007-2008? A. It gave a directive to change the management of the banks that had to be bailed out. B. It bought troubled assets from banks and lent money at the discount window to nonbanks. C. It compensated all investors who lost money in the crisis. D. It kept the discount rates high to discourage borrowing. E. It issued a directive to keep all information regarding derivative products confidential. During the financial crisis of 2007-2008, the Federal Reserve took unprecedented actions that included buying up troubled assets from the banks and lending money at the discount window to nonbanks such as investment banks and brokers. The Fed also entered into the financial markets by making markets in commercial paper and other securities where the markets had ceased to function in an orderly fashion.

Chapter 15 - Money and the Financial System

92. In reaction to the financial meltdown and severe recession, Congress passed the _____ to eliminate the ability of the banks to create the same problem in the future. A. Sarbanes-Oxley Act B. Celler-Kefauver Act C. Dodd-Frank Act D. Glass-Steagall Act E. Gramm-Leach-Bliley Act In reaction to the financial meltdown and severe recession, Congress passed the Dodd-Frank Wall Street Reform and Consumer Protection Act. The full name implies that the intent of the act is to eliminate the ability of banks to create this type of problem in the future.

93. _____ refers to companies performing banking functions of some sort that are not regulated by banking regulators. A. Online banking B. Digital banking C. Shadow banking D. Mobile banking E. Traditional banking Shadow banking refers to companies performing banking functions of some sort that are not regulated by banking regulators. Shadow banking activities are increasing.

Chapter 15 - Money and the Financial System

94. Which of the following is a peer-to-peer lender? A. Kickstarter B. Indiegogo C. RocketHub D. Prosper E. Crowdrise Prosper is a peer-to-peer lending company that matches investors and borrowers with loans between $2,000 and $35,000. Kickstarter funds creative projects in the worlds of art, film, games, music, publishing, and so on.

95. Which of the following is true of Kickstarter? A. It matches investors and borrowers. B. It raises money for health care issues. C. It funds creative projects in the world of art. D. It raises money for personal financing needs. E. It raises money for causes and charities. Kickstarter funds creative projects in the worlds of art, film, games, music, publishing, and so on. Prosper is a peer-to-peer lending company that matches investors and borrowers with loans between $2,000 and $35,000.

Chapter 16 - Financial Management and Securities Markets

Chapter 16 Financial Management and Securities Markets

True / False Questions 1. A marketable security is a temporary investment of cash. TRUE

Marketable securities are temporary investments of "extra" cash by organizations for up to one year in U.S. Treasury bills, certificates of deposit, commercial paper, or eurodollar deposits.

AACSB: Analytic Accessibility: Keyboard Navigation Bloom's: Remember Difficulty: 1 Easy Learning Objective: 16-01 Describe some common methods of managing current assets. Topic: Short-Term Assets and Liabilities

2. Eurodollar deposits can only be made at banks located in London. FALSE

The Eurodollar market is a market for trading U.S. dollars in foreign countries. Because the eurodollar market was originally developed by London banks, any dollar-denominated deposit in a non-U.S. bank is called a eurodollar deposit.

Chapter 16 - Financial Management and Securities Markets

3. The principal is the amount of money a business pays to use a bank's funds. FALSE The principal is the amount of money borrowed; interest is the amount of money a business pays to use a bank's funds. Banks pay depositors interest on savings accounts and some checking accounts.

AACSB: Analytic Accessibility: Keyboard Navigation Bloom's: Remember Difficulty: 1 Easy Learning Objective: 16-02 Identify some sources of short-term financing (current liabilities). Topic: Short-Term Assets and Liabilities

4. Serial bonds are a sequence of small bond issues of progressively longer maturity. TRUE Serial bonds are a sequence of small bond issues of progressively longer maturity. Firms pay off each of the serial bonds as they mature.

AACSB: Analytic Accessibility: Keyboard Navigation Bloom's: Remember Difficulty: 1 Easy Learning Objective: 16-04 Specify how companies finance their operations and manage fixed assets with long-term liabilities, particularly bonds. Topic: Methods of Business Financing

Chapter 16 - Financial Management and Securities Markets

5. New issues of stocks and bonds are sold directly to the public and to institutions in what is known as the primary market. TRUE New issues of stocks and bonds are sold directly to the public and to institutions in what is known as the primary market—the market where firms raise financial capital. The primary market differs from secondary markets, which are stock exchanges and over-the-counter markets where investors can trade their securities with other investors rather than the company that issued the stock or bonds.

AACSB: Analytic Accessibility: Keyboard Navigation Bloom's: Remember Difficulty: 1 Easy Learning Objective: 16-05 Discuss how corporations can use equity financing by issuing stock through an investment banker. Topic: Methods of Business Financing

Multiple Choice Questions 6. Cash, investments, accounts receivable, and inventory are: A. retained earnings. B. current liabilities. C. long-term assets. D. long-term liabilities. E. current assets. Current or short-term assets are short-term resources such as cash, investments, accounts receivable, and inventory. Managing short-term assets and liabilities involves managing the current assets and liabilities on the balance sheet.

Chapter 16 - Financial Management and Securities Markets

7. Which of the following is a current asset? A. Accrued taxes B. Short-term bank loans C. Unsecured bonds D. Accounts receivable E. Long-term liabilities Current assets are short-term resources such as cash, investments, accounts receivable, and inventory. Managing short-term assets and liabilities is sometimes called working capital management because short-term assets and liabilities continually flow through an organization and are thus said to be "working."

8. Working capital management refers to _____. A. managing long-term liabilities B. managing long-term assets C. managing short-term assets and liabilities D. financing internal projects E. financing small business enterprises Managing short-term assets and liabilities is sometimes called working capital management because short-term assets and liabilities continually flow through an organization and are thus said to be "working." Managing short-term assets and liabilities involves managing the current assets and liabilities on the balance sheet.

Chapter 16 - Financial Management and Securities Markets

9. The chief goal of financial managers who focus on current assets and liabilities is to: A. maximize long-term loans. B. minimize returns on temporary investments of idle cash. C. maximize accrued taxes. D. minimize returns on bond issues. E. maximize returns on inventory. The chief goal of financial managers who focus on current assets and liabilities is to maximize the return to the business on cash, temporary investments of idle cash, accounts receivable and inventory. A crucial element facing any financial manager is effectively managing the firm’s cash flow.

AACSB: Analytic Accessibility: Keyboard Navigation Bloom's: Understand Difficulty: 2 Medium Learning Objective: 16-01 Describe some common methods of managing current assets. Topic: Short-Term Assets and Liabilities

10. In the context of managing cash in an organization, which of the following is true? A. Business organizations make money from idle cash. B. Corporate checking accounts typically earn interest. C. Money managers try to keep as much cash in their hands as possible. D. To manage a firm's cash, companies try to speed up cash collections from customers. E. Managers measure cash flow as the amount of cash the firm spends in a period of one year. To manage a firm's cash and ensure that enough cash flows through the organization quickly and efficiently, companies try to speed up cash collections from customers. To facilitate collection, some companies have customers send their payments to a lockbox, which is simply an address for receiving payments, instead of directly to the company's main address.

Chapter 16 - Financial Management and Securities Markets

11. Astute money managers try to keep just enough cash on hand to pay employee wages and utility bills. This cash is referred to as: A. long-term assets. B. marketable securities. C. transaction balances. D. retained earnings. E. secured bonds. Astute money managers try to keep just enough cash on hand, called transaction balances, to pay bills—such as employee wages, supplies, and utilities—as they fall due. Idle cash does not make money, and corporate checking accounts typically do not earn interest.

12. As idle cash does not make money, a manager may choose to invest this extra cash in temporary investments called: A. junk bonds. B. long-term assets. C. transaction balances. D. marketable securities. E. secured bonds. Sometimes cash is received faster than it is needed to pay bills; this idle cash is invested in marketable securities until it is needed to pay debt. Examples include U.S. Treasury bills, certificates of deposit, commercial paper, and eurodollar deposits.

Chapter 16 - Financial Management and Securities Markets

13. Which of the following is true of a lockbox? A. It is simply a box allocated to employees for keeping their valuables. B. It is simply an address for receiving payments. C. It is a box used to maintain transaction balances. D. It is a financial instrument used to pay off loans. E. It is a financial instrument used to manage long-term assets. To facilitate collection, some companies have customers send their payments to a lockbox, which is simply an address for receiving payments. To manage a firm's cash and ensure that enough cash flows through the organization quickly and efficiently, companies try to speed up cash collections from customers.

14. Why do companies use a lockbox? A. To effectively manage inventory balances B. To pay off long-term loans C. To manage long-term assets such as plants, building, and equipment D. To speed up cash collection from customers E. To maintain transaction balances To facilitate collection, some companies have customers send their payments to a lockbox. The manager of a lockbox, usually a commercial bank, collects payments directly from the lockbox several times a day and deposits them into the company's bank account.

Chapter 16 - Financial Management and Securities Markets

15. More and more companies are now using electronic funds transfer systems to pay and collect bills online because: A. it reduces the amount of tax they need to pay on their profits. B. it helps them collect more money than they can through checks. C. it reduces the amount of money they need to pay off their bills. D. it helps them increase the speed of collections and disbursements to one day. E. it helps them quickly pay out the cash that they collect. When companies use electronic funds transfers between buyers and suppliers, the speed of collections and disbursements increases to one day. Companies generally want to collect cash quickly but pay out cash slowly.

16. Organizations often invest the cash they earn in marketable securities, for periods as short as one day or for as long as one year, until it is needed. These investments include _____. A. certificates of deposit B. tradable equities C. transaction balances D. stock dividends E. cash deposits Certificates of deposit is an example of marketable securities. Organizations often invest the daily cash they earn, for periods as short as one day (overnight) or for as long as one year, until it is needed. Such temporary investments of cash are known as marketable securities.

Chapter 16 - Financial Management and Securities Markets

17. U.S. Treasury bills, certificates of deposit, commercial paper, and eurodollar deposits are examples of: A. marketable securities. B. tradable equities. C. transaction balances. D. stock dividends. E. cash deposits. U.S. Treasury bills, certificates of deposit, commercial paper, and eurodollar deposits are examples of marketable securities. Organizations often invest the cash they earn, for periods as short as one day (overnight) or for as long as one year, until it is needed. Such temporary investments of cash are known as marketable securities.

18. _____ are marketable securities that are short-term debt obligations sold by the U.S. government to raise money. A. Commercial certificates of deposits B. U. S. Treasury bills C. Eurodollar deposits D. Secured loans E. Trade credits Many large companies invest idle cash in U.S. Treasury bills (T-bills), which are short-term debt obligations the U.S. government sells to raise money. Issued weekly by the U.S. Treasury, T-bills carry maturities of between one week and one year.

Chapter 16 - Financial Management and Securities Markets

19. _____ are issued by commercial banks and brokerage companies, are available in minimum amounts of $100,000, and may be traded prior to maturity. A. Trade credits B. U.S. Treasury bills C. Serial bonds D. Commercial loans E. Commercial certificates of deposit Commercial certificates of deposit (CDs) are issued by commercial banks and brokerage companies. They are available in minimum amounts of $100,000 but are typically in units of $1 million for large corporations investing excess cash. Unlike consumer CDs, which must be held until maturity, commercial CDs may be traded prior to maturity.

20. _____ is a written promise from one company to another to pay a certain amount of money. A. Commercial paper B. U.S. Treasury bill C. Certificate of deposit D. Secured bond E. Trade credit Commercial paper is a written promise from one company to another to pay a specific amount of money. Because commercial paper is backed only by the name and reputation of the issuing company, sales of commercial paper are restricted to only the largest and most financially stable companies.

Chapter 16 - Financial Management and Securities Markets

21. Which of the following is true of commercial paper? A. It is the most popular long-term investment for small businesses. B. It acts as a verbal promise to pay a specific amount of money. C. It is backed only by the name and reputation of the issuing company. D. It is only sold to sole proprietors and small businesses. E. It is only sold for durations of two years or more. Commercial paper is backed only by the name and reputation of the issuing company, and sales of commercial paper are restricted to only the largest and most financially stable companies. Commercial paper is a written promise from one company to another to pay a specific amount of money.

22. Which of the following statements is true of the eurodollar market? A. It refers to any dollar-denominated deposit in a U.S. bank. B. It offers risk-free investments as they are backed by the U.S. government. C. It is used by companies to invest idle cash in international markets. D. It was originally developed by American banks. E. It is used to trade the euro in the U.S. markets. The eurodollar market, which was originally developed by London banks, is a market for trading U.S. dollars in foreign countries. Because the eurodollar market was originally developed by London banks, any dollar denominated deposit in a non-U.S. bank is called a eurodollar deposit, regardless of whether the issuing bank is actually located in Europe, South America, or anyplace else.

Chapter 16 - Financial Management and Securities Markets

23. Which of the following is money owed to a business by credit customers? A. Accounts receivable B. Accounts payable C. Trade credit D. U.S. Treasury bill E. Secured bond Accounts receivable is money owed to a business by credit customers. Many businesses make the vast majority of their sales on credit, so managing accounts receivable is an important task.

24. Which of the following is one of the utilities of the radio frequency identification (RFID) technology? A. It is used for office communication with the help of radio waves. B. It is used to track stock exchange developments. C. It is used to better manage inventory by tracking inventory shipments. D. It is used by consumers to pay bills from any chosen location. E. It is used to relay radio signals for business promotion through radio broadcasting. One way that companies are optimizing inventory is through the use of radio frequency identification (RFID) technology. Companies such as Walmart better manage their inventories by using RFID tags. An RFID tag, which contains a silicon chip and an antenna, allows a company to use radio waves to track and identify the products to which the tags are attached. These tags are primarily used to track inventory shipments from the manufacturer to the buyer's warehouses and then to the individual stores.

Chapter 16 - Financial Management and Securities Markets

25. Which of the following is money that an organization owes to suppliers for goods and services? A. Accounts receivable B. Accounts payable C. Trade credit D. U.S. Treasury bill E. Secured bond Accounts payable is money an organization owes to suppliers for goods and services. Just as accounts receivable must be actively managed to ensure proper cash collections, so too must accounts payable be managed to make the best use of this important liability.

26. Which of the following is the most important account payable? A. Commercial paper B. Trade credit C. Treasury bills D. Commercial certificates of deposit E. Marketable securities The most widely used source of short-term financing, and therefore the most important account payable, is trade credit—credit extended by suppliers for the purchase of their goods and services. While varying in formality, depending on both the organizations involved and the value of the items purchased, most trade credit agreements offer discounts to organizations that pay their bills early.

Chapter 16 - Financial Management and Securities Markets

27. _____ is the credit extended by suppliers for the purchase of their goods and services. A. Commercial paper B. Trade credit C. Line of credit D. Commercial certificate of deposit E. Marketable security Trade credit is the credit extended by suppliers for the purchase of their goods and services. It is the most widely used source of short-term financing, and therefore the most important account payable.

28. Dan bought three new trucks with a loan obtained from the First National Bank. If he fails to repay the loan, the bank will repossess the trucks. The trucks typically represent: A. a line of credit. B. a lockbox. C. collateral. D. accounts payable. E. retained earning. In the given scenario, the trucks typically represent collateral. Secured loans are backed by collateral that the bank can claim if the borrowers do not repay the loan.

AACSB: Reflective Thinking Accessibility: Keyboard Navigation Bloom's: Apply Difficulty: 2 Medium Learning Objective: 16-02 Identify some sources of short-term financing (current liabilities). Topic: Short-Term Assets and Liabilities

Chapter 16 - Financial Management and Securities Markets

29. A boat manufacturer orders 50 units of fiberglass material and promises to pay the supplier at a later date. The boat manufacturer will record the amount to be paid as: A. a secured loan. B. accounts receivable. C. a serial bond. D. accounts payable. E. a Treasury bill. The boat manufacturer will record the amount to be paid as accounts payable. The most important account payable is trade credit, which is credit extended by suppliers for the purchase of their goods and services.

AACSB: Reflective Thinking Accessibility: Keyboard Navigation Bloom's: Apply Difficulty: 3 Hard Learning Objective: 16-02 Identify some sources of short-term financing (current liabilities). Topic: Short-Term Assets and Liabilities

30. Pooja is an entrepreneur who starts an IT firm with limited funds. In order to conduct her business, she acquires 12 laptops, 15 desktops, and other accessories from a local electronics retailer. The retailer understands her financial situation and allows her to pay for the computers and accessories in installments. In this scenario, the type of funding obtained by her can be regarded as a _____. A. line of credit B. trade credit C. logbook loan D. non-recourse loan E. personal loan In the given scenario, the type of funding obtained by Pooja can be considered a trade credit. The most important account payable is trade credit, which is credit extended by suppliers for the purchase of their goods and services.

Chapter 16 - Financial Management and Securities Markets

31. The most widely used source of short-term financing is: A. an unsecured loan. B. a certificate of deposit. C. commercial paper. D. a Treasury bill. E. trade credit. Trade credit is credit extended by suppliers for the purchase of their goods and services; thus, it is the most widely used source of short-term financing. While varying in formality, depending on both the organizations involved and the value of the items purchased, most trade credit agreements offer discounts to organizations that pay their bills early.

32. Which of the following is an arrangement by which a bank agrees to lend a specified amount of money to an organization upon request? A. A trade credit B. A floating-rate bond C. A junk bond D. A lockbox E. A line of credit A line of credit is an arrangement by which a bank agrees to lend a specified amount of money to an organization upon request—provided that the bank has the required funds to make the loan. In general, a business line of credit is very similar to a consumer credit card, with the exception that the preset credit limit can amount to millions of dollars.

Chapter 16 - Financial Management and Securities Markets

33. Maria wants to start a restaurant of her own. As she does not have any savings, she approaches her bank for money and enters an agreement with the bank. According to the agreement, the bank agrees to lend her $5000 upon request provided it has sufficient funds to loan the amount. In this scenario, the type of funding obtained by Maria can be regarded as a _____. A. line of credit B. trade credit C. logbook loan D. non-recourse loan E. personal loan In the given scenario, the type of funding obtained by Maria can be regarded as a line of credit. A line of credit is an arrangement by which a bank agrees to lend a specified amount of money to the organization upon request—provided that the bank has the required funds to make the loan.

34. If a real estate developer borrows $100,000 from a bank and ends up paying back $120,000, the $100,000 represents the: A. collateral. B. interest. C. down payment. D. principal. E. trade credit. The $100,000 in the given scenario represents the principal. The principal is the amount of money borrowed; interest is the amount of money the bank charges a company to use its funds.

Chapter 16 - Financial Management and Securities Markets

35. If Linda Wilson borrows $20,000 to buy a car and ends up paying the lender a total of $24,000, the $20,000 represents the: A. principal. B. collateral. C. trade credit. D. discount. E. interest. The $20,000 in the given scenario represents the principal. The principal is the amount of money borrowed; interest is the amount of money the bank charges a company to use its funds.

36. Zainab borrows $20,000 from a bank to pay for her education. The bank charges her five percent of the amount she borrowed, that is, $1,000. In this scenario, the five percent represents the: A. principal. B. collateral. C. trade credit. D. discount. E. interest. In the given scenario, the five percent represents the interest. Principal is the amount of money borrowed, while interest is a percentage of the principal the bank charges a company to use its funds.

Chapter 16 - Financial Management and Securities Markets

37. The _____ is the interest rate commercial banks charge their best customers for short-term loans. A. factor rate B. over-the-counter rate C. prime rate D. credit rate E. trade rate The prime rate is a relatively low interest rate that commercial lenders charge their best customers, usually large corporations. While for many years, loans at the prime rate represented funds at the lowest possible cost, the rapid development of the market for commercial paper has dramatically reduced the importance of commercial banks as a source of short-term loans.

38. If the interest rate on a loan changes according to the daily average of the prime rate over the life of the loan, the interest rate is said to be: A. floating. B. non-variable. C. unsecured. D. sporadic. E. flexible. A variable or floating-rate loan increases when interest rates increase and decreases when interest rates decrease following the volatility of prime rates. High-interest bonds, or junk bonds as they are popularly known, offer relatively high rates of interest because they have higher inherent risks.

Chapter 16 - Financial Management and Securities Markets

39. A finance company that buys other companies' accounts receivable for less than they are worth and assumes the responsibility for collecting the debt is known as a: A. lockbox. B. factor. C. collateral. D. brokerage. E. conciliator. A factor is a finance company that buys other companies' accounts receivables for less than they are worth and assumes the responsibility for collecting the debt. For example, a factor might pay $60,000 for receivables with a total face value of $100,000 (60 percent of the total).

40. Plants, offices, and equipment are considered: A. long-term assets. B. marketable securities. C. common stock. D. short-term liabilities. E. current assets. Long-term or fixed assets, such as production facilities, offices, equipment, and automobiles, are expected to last for many years. In today's fast-paced world, companies need the most technologically advanced, modern facilities and equipment they can afford.

AACSB: Analytic Accessibility: Keyboard Navigation Bloom's: Remember Difficulty: 1 Easy Learning Objective: 16-03 Summarize the importance of long-term assets and capital budgeting. Topic: Risk-Return Relationship

Chapter 16 - Financial Management and Securities Markets

41. Long-term assets are also called _____ assets. A. current B. floating C. unsecured D. fixed E. junk Long-term assets, also called fixed assets, include production facilities, offices, equipment, and automobiles and are expected to last for many years. In today's fast-paced world, companies need the most technologically advanced, modern facilities and equipment they can afford.

42. AMZ Inc., a company that deals with bikes, has its own manufacturing unit. The equipment used in the manufacturing unit of the company is an example of a: A. current asset. B. fixed asset. C. junk bond. D. short-term asset. E. floating-rate bond. The equipment used in the manufacturing unit of AMZ Inc. is an example of a fixed asset. Long-term assets, also called fixed assets, include production facilities, offices, equipment, and automobiles and are expected to last for many years.

AACSB: Reflective Thinking Accessibility: Keyboard Navigation Bloom's: Apply Difficulty: 2 Medium Learning Objective: 16-03 Summarize the importance of long-term assets and capital budgeting. Topic: Risk-Return Relationship

Chapter 16 - Financial Management and Securities Markets

43. Sprocket and Widget is a garment manufacturing company. Which of the following would be a fixed asset for Sprocket and Widget? A. U.S. Treasury bills B. Temporary workers C. $5,000 in Treasury bills D. $1000 trade credit E. Office furniture Office furniture would be a fixed asset for Sprocket and Widget. Long-term or fixed assets, such as production facilities, offices, equipment, and automobiles, are expected to last for many years.

AACSB: Reflective Thinking Accessibility: Keyboard Navigation Bloom's: Apply Difficulty: 3 Hard Learning Objective: 16-03 Summarize the importance of long-term assets and capital budgeting. Topic: Risk-Return Relationship

44. Which of the following involves paying a fee for usage rather than owning a particular asset? A. Leasing B. Factoring C. Purchasing D. Acquiring E. Merging Leasing involves paying a fee for usage rather than owning a particular asset. There are two kinds of leases: capital leases and operating leases.

Chapter 16 - Financial Management and Securities Markets

45. Which of the following is a short-term cancelable lease that does not show up on a balance sheet? A. A capital lease B. A serial bond C. A transaction balance D. A line of credit E. An operating lease An operating lease is a short-term cancelable lease and does not show up on the balance sheet. Leasing involves paying a fee for usage rather than owning a particular asset.

46. The process of analyzing the needs of a business and selecting the assets that will maximize its value is called _____. A. working capital management B. factoring C. risk assessment D. capital budgeting E. investment banking The process of analyzing the needs of a business and selecting the assets that will maximize its value is called capital budgeting. The capital budget is the amount of money budgeted for investment in such long-term assets.

Chapter 16 - Financial Management and Securities Markets

47. The amount of money budgeted for the purchase of long-term assets is called the: A. master budget. B. commercial budget. C. current budget. D. fixed budget. E. capital budget. The capital budget is the amount of money budgeted for investment in long-term assets that will maximize the value of the business. The process of analyzing the needs of a business and selecting the assets that will maximize its value is called capital budgeting.

48. When a company invests a lot of money in a particular project, it is concerned about the amount of risk involved. In general, if the expected life of a project is longer, its potential risk is: A. negligible. B. constant. C. greater. D. secondary. E. nonexistent. The longer a project or asset is expected to last, the greater its potential risk because it is hard to predict whether a piece of equipment will wear out or become obsolete in five or 10 years. Predicting cash flows one year down the road is difficult, but projecting them over the span of a 10-year project is a gamble.

AACSB: Analytic Accessibility: Keyboard Navigation Bloom's: Understand Difficulty: 1 Easy Learning Objective: 16-03 Summarize the importance of long-term assets and capital budgeting. Topic: Risk-Return Relationship

Chapter 16 - Financial Management and Securities Markets

49. Based on qualitative assessments, which of the following potential investment projects is the most risky? A. Adding to an existing product line B. Introducing a new product in a foreign market C. Expanding into a new market D. Buying new equipment for an established market E. Repairing old equipment Introducing a new product in a foreign market has the highest risk due to the political climate and the economic stability of the country or region. When considering investments overseas, risk assessments must include the political climate and economic stability of a region.

50. Of the following potential investment projects, the project that poses the least risk is: A. adding to a product line. B. introducing a new product in a foreign market. C. expanding into a new market. D. buying new equipment for an established market. E. repairing old equipment. Based on qualitative assessments, repairing old machinery poses the least risk. Every investment carries some risk.

AACSB: Analytic Accessibility: Keyboard Navigation Bloom's: Understand Difficulty: 2 Medium Learning Objective: 16-03 Summarize the importance of long-term assets and capital budgeting. Topic: Risk-Return Relationship

Chapter 16 - Financial Management and Securities Markets

51. The board of directors of a leading automobile company wants to opt for an investment project that has the least risk. Which of the following projects is the board most likely to undertake? A. Introducing a new car in a new market B. Expanding their automobile business into a new market C. Repairing the old manufacturing equipment D. Buying new manufacturing equipment E. Adding a new car to their existing line of automobiles The board is likely to undertake the repairing of old manufacturing equipment. Based on qualitative assessments, repairing old machinery poses the least risks.

52. Which of the following is an example of a long-term liability? A. Commercial paper B. A serial bond C. A Treasury bill D. A certificate of deposit E. Trade credit A long-term liability is a long-term debt obligation, such as a bank loan or a bond issue. Long-term assets do not come cheaply, and few companies have the cash on hand to open a new store across town, build a new manufacturing facility, research and develop a new lifesaving drug, or launch a new product worldwide.

Chapter 16 - Financial Management and Securities Markets

53. Long-term liabilities are: A. marketable securities. B. debts that will be repaid over a number of years. C. frequently traded in the eurodollar market. D. trade credits. E. generated internally, like retained earnings. Long-term liabilities are debts that will be repaid over a number of years, such as long-term loans and bond issues. Long-term assets do not come cheaply, and few companies have the cash on hand to open a new store across town, build a new manufacturing facility, research and develop a new life-saving drug, or launch a new product worldwide.

AACSB: Analytic Accessibility: Keyboard Navigation Bloom's: Understand Difficulty: 2 Medium Learning Objective: 16-04 Specify how companies finance their operations and manage fixed assets with long-term liabilities, particularly bonds. Topic: Methods of Business Financing

54. Which of the following is a long-term debt instrument that requires the issuer to repay the lender in regular interest payments until the loan is repaid on or before the specified maturity rate? A. A bond B. Trade credit C. A Treasury bill D. Commercial paper E. A certificate of deposit Bonds are an example of long-term financing. The annual interest rate of a bond, often called the coupon rate, is the guaranteed percentage of face value that the company will pay to the bond owner every year.

Chapter 16 - Financial Management and Securities Markets

55. Factors such as a bond's face value, maturity date, and interest rate are specified in the: A. indenture. B. interest prospectus. C. equity contract. D. commercial paper. E. lockbox portfolio. The indenture or bond contract specifies the basic terms of the bond, such as its face value, maturity date, and annual interest rate. It can run more than 100 pages.

56. Which of the following statements is true of bonds? A. They must be repaid according to the terms set in the indenture. B. They can be defaulted without penalty. C. They are the same as preferred stock. D. They typically represent the fixed assets of a firm. E. They denote a firm's current liabilities. Bonds must be repaid according to the terms set in the indenture. The bond contract or indenture includes repayment methods, interest payment dates, procedures to be followed in case the organization fails to make the interest payments, conditions for the early repayment of the bonds, and any conditions requiring the pledging of assets as collateral.

Chapter 16 - Financial Management and Securities Markets

57. The face value of a bond is typically _____. A. $1 B. $10 C. $100 D. $1,000 E. $10,000 The typical face value of a bond is $1,000. The actual price of the bond will, however, fluctuate in the open market.

58. _____ are also called debentures and are not backed by specific collateral. A. Dividends B. Treasury bills C. Unsecured bonds D. Trade credits E. Commercial certificates of deposit Unsecured bonds are debentures that are not backed by specific collateral. such bonds are termed debentures.

Chapter 16 - Financial Management and Securities Markets

59. _____ are best described as a sequence of small bond issues of progressively longer maturity. A. Floating-rate bonds B. Junk bonds C. Secured bonds D. Serial bonds E. Debenture bonds Serial bonds, which are different from secured bonds, are actually a sequence of small bond issues of progressively longer maturity. The firm pays off each of the serial bonds as they mature.

60. Which of the following statements is true of floating-rate bonds? A. They are also called serial bonds. B. They offer interest payments much above the prevailing rates. C. They do not have fixed interest payments. D. They have progressively longer maturity. E. They are often associated with startup firms with limited track records. Floating-rate bonds do not have fixed interest payments; instead, the interest rate changes with current interest rates otherwise available in the economy.

AACSB: Reflective Thinking Accessibility: Keyboard Navigation Bloom's: Understand Difficulty: 2 Medium Learning Objective: 16-04 Specify how companies finance their operations and manage fixed assets with long-term liabilities, particularly bonds. Topic: Bonds

Chapter 16 - Financial Management and Securities Markets

61. CorpoNeeds is an e-commerce company that sells office supplies. In an attempt to raise long-term funds, the company decides to issue bonds to lenders. These bonds do not have fixed interest payments, and the rate of interest changes depending on economic conditions. The bonds issued by CorpoNeeds are examples of: A. floating-rate bonds. B. junk bonds. C. secured bonds. D. serial bonds. E. debenture bonds. The bonds issued by CorpoNeeds are examples of floating-rate bonds. Floating-rate bonds do not have fixed interest payments; instead, the interest rate changes with current interest rates otherwise available in the economy.

62. The interest rate for _____ changes with current interest rates otherwise available in the economy. A. floating-rate bonds B. junk bonds C. secured bonds D. serial bonds E. debenture bonds Floating-rate bonds do not have fixed interest payments; instead, the interest rate changes with current interest rates otherwise available in the economy. Bonds are debt instruments that larger companies sell to raise long-term funds.

Chapter 16 - Financial Management and Securities Markets

63. Which of the following types of bonds offer relatively high rates of interest because they have higher inherent risks? A. Secured bonds B. Serial bonds C. Unsecured bonds D. Junk bonds E. Floating-rate bonds Junk bonds are a special type of high interest-rate bonds that have higher inherent risks. Bonds are debt instruments that larger companies sell to raise long-term funds.

64. Which of the following statements is true of junk bonds? A. They are short-term liabilities. B. They are a sequence of small bond issues of progressively longer maturity. C. They have low inherent risks. D. They are typically associated with companies in good financial health. E. They offer relatively high rates of interest. Junk bonds are a special type of high interest-rate bonds that have higher inherent risks. Bonds are debt instruments that larger companies sell to raise long-term funds.

AACSB: Analytic Accessibility: Keyboard Navigation Bloom's: Understand Difficulty: 1 Easy Learning Objective: 16-04 Specify how companies finance their operations and manage fixed assets with long-term liabilities, particularly bonds. Topic: Bonds

Chapter 16 - Financial Management and Securities Markets

65. Historically, _____ have been associated with companies in poor financial health and/or startup firms with limited track records. A. secured bonds B. serial bonds C. unsecured bonds D. junk bonds E. floating-rate bonds Historically, junk bonds have been associated with companies in poor financial health and/or startup firms with limited track records. Junk bonds are a special type of high interest-rate bonds that have higher inherent risks.

66. _____ is the single most important source of capital for most new companies. A. Commercial paper B. Common stock C. A floating-rate bond D. A Treasury bill E. Trade credit Common stock is the single most important source of capital for most new companies. On the balance sheet, the common stock account is separated into two basic parts—common stock at par and capital in excess of par.

Chapter 16 - Financial Management and Securities Markets

67. The dollar amount printed on a stock certificate is known as its: A. dividend yield. B. capital in excess of par value. C. market value. D. par value. E. prime rate. The dollar amount printed on a stock certificate is known as its par value. It has no relation to its actual market value.

68. If the par value of a stock is $5 and the offering price of the stock is $2, the capital in excess of par is: A. $10.00. B. $3.50. C. $7.00. D. $2.00. E. $3.00. If the par value of a stock is $5 and the offering price of the stock is $2, the capital in excess of par is $3.00. The difference between a stock's par value and its offering price is called capital in excess of par.

AACSB: Analytic Accessibility: Keyboard Navigation Bloom's: Understand Difficulty: 2 Medium Learning Objective: 16-05 Discuss how corporations can use equity financing by issuing stock through an investment banker. Topic: Methods of Business Financing

Chapter 16 - Financial Management and Securities Markets

69. If the offering price of a stock is $2 and its capital in excess of par is $3, the par value of the stock is: A. $10.00. B. $3.50. C. $7.00. D. $2.00. E. $5.00. If the offering price of a stock is $2 and its capital in excess of par is $3, the par value of the stock is $5.00. The difference between a stock's par value and its offering price is the capital in excess of par. Hence, par value of a stock equals offering price of the stock plus capital in excess of par.

70. If the par value of a stock is $5 and the capital in excess of par is $3, then its offering price is: A. $2.00. B. $3.50. C. $7.00. D. $4.00. E. $5.00. If the par value of a stock is $5 and the capital in excess of par is $3, then its offering price is $2.00. The difference between a stock's par value and its offering price is the capital in excess of par. Hence, offering price of a stock equals par value of the stock minus capital in excess of par.

Chapter 16 - Financial Management and Securities Markets

71. _____ is the price at which a particular common stock is currently trading. A. Beta score B. Alpha score C. Par value D. Market value E. Capital value Actual market value is the price at which a particular common stock is currently trading. The par value of a stock is simply the dollar amount printed on the stock certificate and has no relation to actual market value.

72. Which of the following is called capital in excess of par? A. The dollar amount printed on the stock certificate B. The difference between a stock's par value and its offering price C. The price at which the common stock is currently trading D. The difference between a stock's par value and its estimated price E. The potential price of the common stock The difference between a stock's par value and its offering price is called capital in excess of par. Except in the case of some very low-priced stocks, the capital in excess of par account is significantly larger than the par value account.

Chapter 16 - Financial Management and Securities Markets

73. The _____ is an analysts' consensus of the potential stock price of a company. A. market value B. par value C. target price D. beta score E. market cap The target price is an analysts' consensus of the potential stock price of a company. Common stock is the single most important source of capital for most new companies.

74. Stockholders who are prioritized in the distribution of a firm's dividends but cannot vote are called: A. common stockholders. B. proxy stockholders. C. preemptive stockholders. D. secured stockholders. E. preferred stockholders. Unlike common stockholders, preferred stockholders do not receive voting rights but are first in line for dividend payouts. The primary advantage of owning preferred stock is that it is a safer investment than common stock.

Chapter 16 - Financial Management and Securities Markets

75. The primary advantage of owning preferred stock is that: A. it offers more voting rights than common stock. B. it yields higher profits than common stock. C. it offers more business control than common stock. D. it is a cheaper investment than common stock. E. it is a safer investment than common stock. The primary advantage of owning preferred stock is that it is a safer investment than common stock. Unlike common stockholders, preferred stockholders do not receive voting rights but are first in line for dividend payouts.

76. _____ are reinvested in the assets of the firm and belong to the owners in the form of equity. A. Dividend yields B. Secured bonds C. Retained earnings D. Transaction balances E. Trade credits Retained earnings are earnings after expenses and taxes that are reinvested in the assets of the firm and belong to the owners in the form of equity. Retained earnings are an important source of funds and are, in fact, the only long-term funds that the company can generate internally.

Chapter 16 - Financial Management and Securities Markets

77. The cash return as a percentage of a stock's price is called its: A. capital in excess of par value. B. dividend yield. C. price-earnings ratio. D. retained earnings. E. par value. The dividend yield is the cash return as a percentage of the stock price and does not reflect the total return an investor earns on an individual stock. If the dividend yield is 12.76 percent on Campbell Soup and the stock price increases by 10 percent from $45.26 to $49.79 then the total return would be 12.76 percent.

78. Which of the following statements is true of dividend yield? A. When the dividend of a stock is subtracted from the par value, the result is the dividend yield. B. When the market value of a stock is subtracted from the dividend, the result is the dividend yield. C. When the dividend of a stock is divided by the price, the result is the dividend yield. D. When the dividend of a stock is divided by the market cap, the result is the dividend yield. E. When the capital of a stock is added to the dividend, the result is the dividend yield. When the dividend of a stock is divided by the price, the result is the dividend yield. The dividend yield is the cash return as a percentage of the price but does not reflect the total return an investor earns on the individual stock.

AACSB: Analytic Accessibility: Keyboard Navigation Bloom's: Understand Difficulty: 1 Easy Learning Objective: 16-05 Discuss how corporations can use equity financing by issuing stock through an investment banker. Topic: Methods of Business Financing

Chapter 16 - Financial Management and Securities Markets

79. If the dividend of a stock is $20 and its price is $4, then its dividend yield is: A. $2 B. $8 C. $5 D. $1 E. $3 If the dividend of a stock is $20 and its price is $4, then its dividend yield is $5. When the dividend of a stock is divided by the price, the result is the dividend yield.

AACSB: Reflective Thinking Accessibility: Keyboard Navigation Bloom's: Apply Difficulty: 2 Medium Learning Objective: 16-05 Discuss how corporations can use equity financing by issuing stock through an investment banker. Topic: Methods of Business Financing

80. If the price of a stock is $4 and its dividend yield is $5, then the dividend of the stock is: A. $20 B. $80 C. $50 D. $10 E. $30 If the price of a stock is $4 and its dividend yield is $5, then the dividend of the stock is $20. When the dividend of a stock is divided by the price, the result is the dividend yield. Hence, dividend of a stock equals price of the stock multiplied by its dividend yield.

Chapter 16 - Financial Management and Securities Markets

81. If the dividend of a stock is $20 and its dividend yield is $5, then the price of the stock is: A. $2 B. $8 C. $4 D. $1 E. $3 If the dividend of a stock is $20 and its dividend yield is $5, then the price of the stock is $4. When the dividend of a stock is divided by the price, the result is the dividend yield. Hence, price of a stock equals dividend of the stock divided by its dividend yield.

82. The first-time sale of stocks and bonds directly to the public is called a: A. primary sale. B. new issue. C. follow-on offering. D. preliminary bid. E. fresh deal. The first-time sale of stocks and bonds directly to the public is called a new issue. Companies that already have stocks or bonds outstanding may offer a new issue of stock to raise additional funds for specific projects.

Chapter 16 - Financial Management and Securities Markets

83. The markets where firms raise financial capital are known as _____. A. primary markets B. secondary markets C. futures markets D. over-the-counter markets E. currency markets New issues of stocks and bonds are sold directly to the public and to institutions in what is known as the primary market—the market where firms raise financial capital. The primary market differs from secondary markets, which are stock exchanges and over-the-counter markets where investors can trade their securities with other investors rather than the company that issued the stock or bonds.

84. Stock exchanges and over-the-counter markets where investors can trade their securities with others are known as: A. prediction markets. B. secondary markets. C. primary markets. D. futures markets. E. foreign exchange markets. Secondary markets are stock exchanges and over-the-counter markets where investors can trade their securities with other investors rather than the company that issued the stock or bonds. New issues of stocks and bonds are sold directly to the public and to institutions in what is known as the primary market—the market where firms raise financial capital.

Chapter 16 - Financial Management and Securities Markets

85. Corporations usually employ _____ to help sell their securities in the primary market. A. investment banking firms B. capital budgeters C. commercial banks D. over-the-counter agencies E. stock brokers Corporations usually employ an investment banking firm to help sell their securities in the primary market because it helps firms set appropriate offering prices and takes care of the details involved in the sale of securities to the public.

86. _____ make it possible for owners to sell their stocks and bonds to other investors. A. Prediction markets B. Securities markets C. Primary markets D. Futures markets E. Foreign exchange markets Securities markets provide a mechanism for buying and selling securities. They make it possible for owners to sell their stocks and bonds to other investors.

Chapter 16 - Financial Management and Securities Markets

87. The two biggest stock markets in the United States are the: A. American Stock Exchange and the New York Stock Exchange. B. Chicago Stock Exchange and the International Securities Exchange. C. New York Stock Exchange and the NASDAQ market. D. Southeast Regional Stock Exchange and the Chicago Board Options Exchange. E. American Stock Exchange and the NASDAQ market. The two biggest stock markets are the New York Stock Exchange and the NASDAQ market. There are multiple stock markets in the United States such as the Chicago Stock Exchange.

AACSB: Analytic Accessibility: Keyboard Navigation Bloom's: Remember Difficulty: 1 Easy Learning Objective: 16-06 Describe the various securities markets in the United States. Topic: Securities and Stock Markets

88. Which of the following is a similarity between the New York Stock Exchange (NYSE) and the NASDAQ market? A. Recently, both have become privately traded companies. B. Previously, they were for-profit companies, but now, they are not-for-profit organizations. C. Both exchanges bought or merged with electronic exchanges. D. Traditionally, both have been electronic markets. E. Traditionally, both have been floor-traded markets. Exchanges used to be divided into organized exchanges and over-the-counter markets, but during the past several years, dramatic changes have occurred in the markets. Both the NYSE and NASDAQ became publicly traded companies. They were previously not-for-profit organizations but are now for-profit companies. Additionally, both exchanges bought or merged with electronic exchanges.

AACSB: Analytic Accessibility: Keyboard Navigation Bloom's: Understand Difficulty: 1 Easy Learning Objective: 16-06 Describe the various securities markets in the United States. Topic: Securities and Stock Markets

Chapter 16 - Financial Management and Securities Markets

89. The over-the-counter securities market: A. does not trade corporate bonds. B. accounts for the least total dollar value of all of the secondary markets. C. does not include illiquid bank stocks. D. does not have a central location. E. is similar to organized stock exchanges. Unlike the organized exchanges that have a central location, the over-the-counter market is a network of dealers all over the country linked by computers, telephones, and Teletype machines. It also trades most corporate bonds and U.S. government securities.

AACSB: Analytic Accessibility: Keyboard Navigation Bloom's: Understand Difficulty: 2 Medium Learning Objective: 16-06 Describe the various securities markets in the United States. Topic: Securities and Stock Markets

90. _____ are a network of dealers all over the country linked by computers, telephones, and Teletype machines. A. Stock markets B. Primary markets C. Over-the-counter markets D. Foreign exchange markets E. Futures markets Unlike the organized exchanges that have a central location, the over-the-counter market is a network of dealers all over the country linked by computers, telephones, and Teletype machines. It also trades most corporate bonds and U.S. government securities. Today, the over-the-counter market consists of small stocks, illiquid bank stocks, penny stocks, and companies whose stocks trade on the "pink sheets."

Chapter 16 - Financial Management and Securities Markets

91. Which of the following markets regularly accounts for the largest total dollar value of all of the secondary markets? A. Stock markets B. Currency markets C. Over-the-counter markets D. Foreign exchange markets E. Futures markets Since most corporate bonds and all U.S. securities are traded over the counter, the over-thecounter markets regularly account for the largest total dollar value of all of the secondary markets. Unlike the organized exchanges that have a central location, the over-the-counter market is a network of dealers all over the country linked by computers, telephones, and Teletype machines.

92. _____ and _____ are measures that are used to measure stock market performance. A. Assets; liabilities B. Indexes; averages C. Dividend yields; current yields D. Profit ratios; loss percentages E. Prime rates; coupon rates Indexes and averages are used to measure stock prices. An index compares current stock prices with those in a specified base period, such as 1944, 1967, or 1977. An average is the average of certain stock prices.

Chapter 16 - Financial Management and Securities Markets

93. Which of the following statements is true of indexes? A. They compare current stock prices with those in a specified base period. B. They are expressed as the average of certain stock prices. C. They compare the market value of different companies. D. They measure the difference between the par value and market value of a stock. E. They are expressed as price of a stock and its dividend yield. Indexes and averages are used to measure stock prices. An index compares current stock prices with those in a specified base period, such as 1944, 1967, or 1977. An average is the average of certain stock prices.

94. Which of the following statements is true of contrarian stock market investors? A. They perform better by keeping an eye on short-term fluctuations. B. They ignore the long-term trend line while investing. C. They invest when the number of investors in a market are high. D. They invest when the prices of stocks are low. E. They invest more when the market is very stable. Contrarian investors buy when everyone else is panicked and prices are low because they play the long-term trends. Investors perform better by keeping an eye on the long-term trend line and not the short-term fluctuations.

Chapter 16 - Financial Management and Securities Markets

95. _____ were responsible for the huge increase in stock prices in the period between 1982 and 2000. A. Manufacturing stocks B. Automobile stocks C. Banking stocks D. Clothing stocks E. Technology stocks Technology stocks and new Internet companies were responsible for the huge increase in stock prices. The Dow Jones Industrial Average climbed from 860 in August 1982 to a high of 11,497 in the beginning of 2000.