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					CHAPTER 1 FINDING OPPORTUNITIES IN TODAY’S DYNAMIC BUSINESS ENVIRONMENT
TRUE/FALSE Describe how businesses and nonprofit organizations add to a country’s standard of living and quality of life.

Learning Goal 1

Level of Learning 1 (Knows basic terms and facts) 1-1. Any organization that produces a good or service can be classified as a business. Answer: False LG: 1/LL: 1 Page: 1 1-2. Businesses seek to earn a profit by providing goods and services to others. Answer: True LG: 1/LL: 1 Page: 2 1-3. Revenue is the amount a business earns above and beyond what it spends for expenses and costs. Answer: False LG: 1/LL: 1 Page: 2 1-4. An individual who organizes operates and assumes the risk of starting a business is known as an arbitrageur. Answer: False LG: 1/LL: 1 Page: 2 1-5. The United States has one of the highest standards of living in the world. Answer: True LG: 1/LL: 1 Page: 2 1-6. Freedom, a clean environment, and good schools all contribute to a high quality of life. Answer: True LG: 1/LL: 1 Page: 2 1-7. The knowledge and skills learned in business courses are seldom relevant to students who work for nonprofit organizations or volunteer groups. Answer: False LG: 1/LL: 1 Page: 3 1-8. Businesses and nonprofit organizations often strive to accomplish the same objectives. Answer: True LG: 1/LL: 1 Page: 2 Level of Learning 2 (Understands concepts and principles)

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1-9. Since businesses strive to earn a profit, they benefit their owners at the expense of the rest of society. Answer: False LG: 1/LL: 2 Page: 2 Rationale: In the pursuit of profit, businesses create jobs, produce goods and services that contribute to a higher standard of living, and pay taxes that support important government programs. Thus, businesses benefit others in society as well as their owners. 1-10. John earns the same amount of money this year as he did last year. Thus, his standard of living must be the same as it was last year. Answer: False LG: 1/LL: 2 Page: 2 Rationale: The standard of living refers to the amount of goods people can buy with the money they have. Thus it depends on the prices of goods and services as well as income. If the prices of goods and services have changed over the past year, John’s standard of living will change even if the amount of money he earns is the same. 1-11. Susan quit her job in a big city to take a less stressful position in a small town located in a scenic area. She earns less money at her new job and has had to cut back on her purchases of material goods, but she has more leisure time and really enjoys the clean air and scenic beauty of her new home. Susan has accepted a lower standard of living in order to enjoy a higher quality of life. Answer: True LG: 1/LL: 2 Page: 2-3 Rationale: The standard of living is the amount of goods people can buy with their income. The quality of life is a broader measure of social welfare that refers to the general well being of a nation’s citizens. If citizens benefit from a cleaner environment, more political and religious freedom, or more leisure time, their overall welfare (quality of life) may improve even if they are not able to purchase more goods and services with their incomes. 1-12. Political and religious freedom, quality education, good health care, and a clean environment are all factors that contribute to a high quality of life. Answer: True LG: 1/LL: 2 Page: 2 Rationale: The quality of life focuses on the general well-being of a society, and includes factors such as freedom, security, leisure time, and other factors beyond the goods and services people can buy with their incomes.

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1-13. On average, people living in the nation of Carpozia earn more money than people living in the country of Wagonia. Therefore, the citizens of Carpozia must have a higher standard of living than the citizens of Wagonia. Answer: False LG: 1/LL: 2 Page: 2 Rationale: The standard of living depends on the price level as well as the money income people earn. Thus, as our text points out, people in Germany and Japan may earn more money than Americans, but have a lower standard of living because the prices they pay for goods and services are higher. 1-14. A charitable organization, such as the Red Cross or Salvation Army, is best classified as a small business. Answer: False LG: 1/LL: 2 Page: 3 Rationale: A charitable organization is not classified as a business since it does not seek a profit. Charities are classified as nonprofit organizations. 1-15. Nonprofit organizations are similar to businesses in that they often provide goods and services that satisfy the needs of society. Answer: True LG: 1/LL: 2 Page: 3 Rationale: Businesses are not the only organizations that produce goods and services. Government agencies, public schools, and charities such as the Salvation Army provide goods or services, but are classified as nonprofit organizations rather than businesses. 1-16. One advantage of working for a nonprofit organization is that you do not have to learn basic business skills such as accounting, marketing, and financial management. Answer: False LG: 1/LL: 2 Page: 3 Rationale: In order to achieve their goals, nonprofit organizations need people with many of the same skills required by businesses. For example, even though nonprofit organizations do not seek a profit, they still may deal with large sums of money and must keep financial records. Nonprofit organizations also need people with leadership, marketing, and information management skills.

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Level of Learning 3 (Knows basic terms and facts) 1-17. The major difference between businesses and nonprofit organizations is that only businesses can increase the standard of living, while only nonprofit organizations can improve the quality of life. Answer: False LG: 1/LL: 3 Page: 3 Rationale: The standard of living refers to the amount of goods people can buy with their money income. Both businesses and nonprofit organizations can produce and distribute goods and services, so they both affect the standard of living. Similarly, both businesses and nonprofit organizations can have an impact on the physical environment, health care, and other determinants of the quality of life.

Learning Goal 2

Explain the importance of entrepreneurship to the wealth of an economy and show the relationship of profit to risk assumption.

Level of Learning 1 (Knows basic terms and facts) 1-18. Starting a business is a riskier path toward business success than working your way up the ranks of a large business. Answer: True LG: 2/LL: 1 Page: 3 1-19. Women own less than ten percent of all businesses. Answer: False LG: 2/LL: 1 Page: 4 1-20. The early 1990s saw a rapid increase in the number of businesses owned by Hispanics. Answer: True LG: 2/LL: 1 Page: 4 1-21. If a business’s costs and expenses are greater than its revenue, it will suffer a loss. Answer: True LG: 2/LL: 1 Page: 4-5 1-22. The profits of a business include the salaries paid to the owners and employees of that business. Answer: False LG: 2/LL: 1 Page: 4-5 1-23. The chance an entrepreneur takes of losing time and money on a business that is not profitable is known as the opportunity cost of the business. Answer: False LG: 2/LL: 1 Page: 5

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1-24. Money is one of the five basic factors of production. Answer: False LG: 2/LL: 1 Page: 6 1-25. Tools, machinery, and buildings are all types of capital resources. Answer: True LG: 2/LL: 1 Page: 6 1-26. Recent studies have shown that the major advantage rich nations have over poor nations is an abundance of land and labor. Answer: False LG: 2/LL: 1 Page: 6 1-27. Entrepreneurship is one of the five basic factors of production. Answer: True LG: 2/LL: 1 Page: 6 1-28. The two factors of production that are the most important for creating wealth are entrepreneurship and the effective use of knowledge. Answer: True LG: 2/LL: 1 Page: 6 Level of Learning 2 (Understands concepts and principles) 1-29. Robin has started her own Internet consulting firm. She knows there are risks involved in operating a business, but is willing to invest her time, effort, and money because she is confident her new firm will earn a profit. Robin is an example of an entrepreneur. Answer: True LG: 2/LL: 2 Page: 3 Rationale: An entrepreneur is someone who risks time and money to start and manage a company. 1-30. Julie Leveling is a recent college graduate who is interested in starting her own business. If she does so, she will be a pioneer, because women seldom choose to start their own firms. Answer: False LG: 2/LL: 2 Page: 4 Rationale: Over the past two decades there has been a rapid increase in the number of women-owned businesses. In 1980 about 3 million firms were owned by women, but by 2000 there were over 8 million women-owned firms. Women now own over a third of all businesses

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1-31. The only way for a firm to increase its profits is by increasing its sales revenue. Answer: False LG: 2/LL: 2 Page: 4-5 Rationale: Profit is found by subtracting costs and expenses from revenue. Thus a firm with stable or even declining sales might be able to improve profits by reducing costs. 1-32. The amount of profit or loss earned by a business can be found by subtracting its costs and expenses from its revenue. Answer: True LG: 2/LL: 2 Page: 4-5 Rationale: Profit is the difference between a firm’s revenue and its costs and expenses. 1-33. The Buckmaker Corporation had total revenues of $20 million dollars in 1995, and total costs of $17 million that same year. Buckmaker earned a profit of $3 million in 1995. Answer: True LG: 2/LL: 2 Page: 4-5 Rationale: The profit a firm earns is found by subtracting total costs from total revenue. 1-34. Poor countries remain poor primarily because they lack an adequate level of entrepreneurship and knowledge among workers. Answer: True LG: 2/LL: 2 Page: 6 Rationale: Poor countries often have plenty of labor and access to adequate capital. The two factors of production that are most critical in generating national wealth are entrepreneurship and knowledge. These are the two factors that most poor countries lack. 1-35. If they wish to become richer, poor nations should focus on policies that increase supplies of land, labor, and capital. Answer: False LG: 2/LL: 2 Page: 6 Rationale: Poor nations often have plenty of labor and land, and access to capital. Lack of entrepreneurship and the absence of knowledge workers seem to be the reasons most poor countries remain poor.

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Learning Goal 3

Examine how the economic environment and taxes affect businesses.

Level of Learning 1 (Knows basic terms and facts) 1-36. Taxes and government regulations are part of the economic environment in which businesses operate. Answer: True LG: 3/LL: 1 Page: 7 1-37. Government ownership of businesses tends to reduce the incentive for people to work hard and create profit. Answer: True LG: 3/LL: 1 Page: 8 1-38. A trend in recent years has been for governments around the world to create more wealth by taking over major industries and operating them as nonprofit organizations. Answer: False LG: 3/LL: 1 Page: 8 1-39. One of the problems preventing Russia from entering world markets is that its government has not established a currency that is tradable in world markets. Answer: True LG: 3/LL: 1 Page: 8 1-40. Widespread corruption in government and business is a major factor limiting the development of a competitive business environment in many poor countries. Answer: True LG: 3/LL: 1 Page: 9 1-41. Laws that allow businesses to write enforceable contracts increase the risk of doing business. Answer: False LG: 3/LL: 1 Page: 8 Level of Learning 2 (Understands concepts and principles) 1-42. In rich countries such as the United States, changes in the level of taxation have little impact on the incentives of entrepreneurs. Answer: False LG: 3/LL: 2 Page: 9 Rationale: High taxes and excessive regulation tend to discourage entrepreneurship even in wealthy nations. In the United States, those states with the highest taxes and most burdensome regulations tend to drive out entrepreneurs while states with lower taxes and fewer regulations tend to attract them.

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1-43. The government of the small nation of Bingland is trying to achieve a high quality of life by imposing strict regulations to protect the environment and ensure safe working conditions in factories and mines. The government also has established ambitious programs to help the poor, financing them by setting high tax rates. These efforts by Bingland’s government should create an atmosphere that encourages entrepreneurship. Answer: False LG: 3/LL: 2 Page: 9 Rationale: One of the things a government can do to encourage entrepreneurship and the formation of wealth is to keep regulations and taxes to a minimum.

Learning Goal 4

Illustrate how the technological environment has affected businesses.

Level of Learning 1 (Knows basic terms and facts) 1-44. Though it has received a lot of attention, the development of the Internet has had less of an impact on the way businesses operate than many other technological changes over the past two centuries. Answer: False LG: 4/LL: 1 Page: 9 1-45. The Internet is more than a massive network of computers; it is a revolution in communication. Answer: True LG: 4/LL: 1 Page: 9 1-46. Despite all the hype, the number of Americans who actually have access to the Internet is likely to level off in the near future. Answer: False LG: 4/LL: 1 Page: 9 1-47. E-commerce is the buying and selling of products and services by businesses and consumers over the Internet. Answer: True LG: 4/LL: 1 Page: 9 1-48. One of the advantages that makes e-commerce attractive to businesses is that it lowers transactions costs. Answer: True LG: 4/LL: 1 Page: 10 1-49. The fact that goods sold over the Internet are subject to higher sales taxes than goods sold in retail stores is one of the disadvantages that limit the attractiveness of e-commerce. Answer: False LG: 4/LL: 1 Page: 10

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1-50. Firms engaged in business-to-consumer e-commerce typically have enjoyed higher profits than traditional stores. Answer: False LG: 4/LL: 1 Page: 10 1-51. The business-to-business segment of e-commerce is much larger than the business-to-consumer segment of e-commerce. Answer: True LG: 4/LL: 1 1-52. Bar codes allow retailers to scan information about the products that they sell directly into a database. Answer: True LG: 4/LL: 1 Page: 10 1-53. An electronic file where information is stored is called a CPU. Answer: False LG: 4/LL: 1 Page: 10 1-54. The main function of a firm’s chief information officer (CIO) is to determine the best way for a firm to finance its operations. Answer: False LG: 4/LL: 1 Page: 9 1-55. The databases of a business often include a great deal of information about the firm’s customers. Answer: True LG: 4/LL: 1 Page: 10 1-56. Information in databases allows firms to be more responsive to the needs of consumers. Answer: True LG: 4/LL: 1 Page: 10 Level of Learning 2 (Understands concepts and principles) 1-57. Niki Rinderer has joined with several other investors to form a new company that sells foot care products to consumers over the Internet. Niki has invested in a B2C e-commerce company. Answer: True LG: 4/LL: 2 Page: 10 Rationale: B2C companies specialize in selling goods to consumers over the Internet.

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1-58. The main difference between B2C and B2B e-commerce is that B2C uses only the Internet, while B2C combines e-commerce with traditional (bricks-and-mortar) outlets. Answer: False LG: 4/LL: 2 Page: 10 Rationale: The major difference between B2C and B2B is the customer. B2C stands for business to consumer. Businesses involved in B2C sell mainly to households. B2B stands for business to business. Businesses involved in B2B sell mainly to other businesses. 1-59. There is less risk involved in starting an e-commerce business from scratch than there is in trying to add e-commerce to a traditional (bricks-and-mortar) store. Answer: False LG: 4/LL: 2 Page: 9 Rationale: Although there is no question that Internet business will grow and prosper, it is also evident that many e-commerce firms will fail. At the time this text was written, most of the well-known e-commerce firms had yet to earn a profit, and many had gone out of business or seen the value of their stock drop tremendously. On the other hand, many traditional businesses have successfully expanded by incorporating e-commerce into their plans. 1-60. One of the major advantages to firms involved in e-commerce is that the technology is still so new that the Internet-based firms face very little of competition. Answer: False LG: 4/LL: 2 Page: 10 Rationale: The rise of e-commerce has led to intense competition. This competition is one of the main reasons many Internet-based firms have been less profitable than investors expected. 1-61. Centimints is a company that makes mints and other candies. Until recently it relied on wholesalers to distribute its products, but now it sells directly to customers through its website. This approach to selling its products has reduced Centimints reliance on intermediaries. Answer: True LG: 4/LL: 2 Page: 10 Rationale: Intermediaries are firms that help move goods and services between producers and customers. Wholesalers are one common type of intermediary. Many firms are eliminating intermediaries (or at least reducing their reliance on them) by selling directly to customers through the Internet.

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Learning Goal 5

Identify various ways in which businesses can meet and beat competition.

Level of Learning 1 (Knows basic terms and facts) 1-62. To remain competitive in today’s market, firms must produce a quality product and offer outstanding service at a reasonable price. Answer: True LG: 5/LL: 1 Page: 12 1-63. Today’s traditional stores have no real way to compete successfully against the new Internet firms. Answer: False LG: 5/LL: 1 Page: 11 1-64. One problem consumers have faced when buying from dot.com firms is the hassle involved in returning defective or unwanted merchandise. Answer: True LG: 5/LL: 1 Page: 11 1-65. Speedy service has become a crucial element in meeting and beating the competition. Answer: True LG: 5/LL: 1 Page: 11 1-66. The only stakeholders that firms should strive to please are its customers and its owners. Answer: False LG: 5/LL: 1 Page: 12 1-67. A business should concentrate on meeting the needs of its employees, even if it must do so at the expense of other stakeholders. Answer: False LG: 5/LL: 1 Page: 13 1-68. Because they will have less management oversight and will be required to accept more responsibility, lower-level workers will need more education and higher pay. Answer: True LG: 5/LL: 1 Page: 13 1-69. The goal of empowerment in the work environment is to give management more power and control over the actions of lower-level workers. Answer: False LG: 5/LL: 1 Page: 13

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1-70. Giving workers partial ownership of a business is one approach that large firms have used to compensate workers based on how well the firm performs. Answer: True LG: 5/LL: 1 Page: 14 1-71. Environmentalism is a social cause that concerns only those people who live near sources of pollution. Answer: False LG: 5/LL: 1 Page: 14 Level of Learning 2 (Understands concepts and principles) 1-72. Most successful firms do not worry about consumer preferences. They simply produce high quality goods and services and use advertising and salesmanship to convince people that they should buy them. Answer: False LG: 5/LL: 2 Page: 12 Rationale: Businesses are becoming customer-driven, meaning that they must listen to the wants and needs of customers and adjust their products, policies and practices to meet customer demands. 1-73. Customer service is a key area where traditional firms can compete successfully against Internet-based firms that enter their markets. Answer: True LG: 5/LL: 2 Page: 12 Rationale: Many traditional retailers are well-known for their emphasis on customer service. These firms can compete successfully against dot com firms by offering friendly, personalized service. For example, the text points out that many customers became frustrated with dot coms due to slow deliveries and poor service during recent Christmas seasons. Many customers of dot coms also dislike the hassles and delays they face when they try to return unwanted or defective merchandise. 1-74. Managers will need to watch and direct lower level workers more closely in the future than they did in the past. Answer: False LG: 5/LL: 2 Page: 13 Rationale: The movement toward empowerment suggests that lower level workers are likely to have less management oversight in the future. Managers will spend more time training, supporting, coaching, and motivating, and less time directly supervising lower level workers.

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Learning Goal 6

Demonstrate how the social environment has changed and what the reaction of the business community has been.

Level of Learning 1 (Knows basic terms and facts) 1-75. The statistical study of the human population to learn its size, density, and characteristics is known as econometrics. Answer: False LG: 6/LL: 1 Page: 14 1-76. Although the population of the United States is likely to increase significantly in the next several decades, the percentages of Hispanics and Asians in the population is likely to fall. Answer: False LG: 6/LL: 1 Page: 14 1-77. All in all, the diversity of the population in the United States strengthens the business sector. Answer: True LG: 6/LL: 1 Page: 14 1-78. The attempt to optimize the contributions of people from different cultures is known as ethnocentism. Answer: False LG: 6/LL: 1 Page: 14 1-79. Businesses that cater to older citizens will have tremendous opportunities for growth in the first few decades of the 21st century. Answer: True LG: 6/LL: 1 Page: 15 1-80. Telecommuting makes it more difficult for mothers and fathers to raise a family while working full time. Answer: False LG: 6/LL: 1 Page: 15 1-81. New welfare rules have made it easier for single parents to remain at home with their young children without being required to seek employment. Answer: False LG: 6/LL: 1 Page: 15 1-82. One approach used by businesses to respond to the diverse needs of their workers is to offer “cafeteria benefits” packages. Answer: True LG: 6/LL: 1 Page: 15

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1-83. A “cafeteria benefits” package reduces the number of benefits options offered to employees in order to simply and standardize their choices. Answer: False LG: 6/LL: 1 Page: 15 Level of Learning 2 (Understands concepts and principles) 1-84. Demographic studies can help businesses answer questions dealing with how we live, where we live, and what we are likely to buy. Answer: True LG: 6/LL: 2 Page: 14 Rationale: Demography is the statistical study of the human population to learn its size, density and characteristics. Since many goods and services appeal to customers with specific demographic characteristics (such as age or income), studying demographic trends can help businesses determine whether the demand for a good is likely to rise or fall. 1-85. One of the problems that reduces the competitiveness of American businesses is the fact that we are a demographically diverse society. Answer: False LG: 6/LL: 2 Page: 14 Rationale: The U.S. society is diverse, but this diversity is considered a strength rather than a weakness. A diverse population can provide different ideas and perspectives, thus enriching the business environment. The interaction of all of these different views can encourage new perspectives and creative approaches to solving problems. 1-86. Demographic trends suggest that businesses will find a continuing need to offer flexible work schedules, elder care, and child care to meet the needs of their employees. Answer: True LG: 6/LL: 2 Page: 15 Rationale: The rise in the number of two-income households is an important demographic trend. In order to meet the needs of these two-income households, businesses will have to implement programs like those described in this question. 1-87. Sue Traynor is a mother with two small children. Her employer is asking employees in Sue’s department to participate in an experimental telecommuting program. Since Sue has small children, she is unlikely to benefit from this type of program. Answer: False LG: 6/LL: 2 Page: 15 Rationale: Telecommuting allows employees to work from home using computers. This can allow parents to stay at home and raise a family while working full time. Thus, Sue might find this type of arrangement beneficial.

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1-88. Businesses have found that the benefits they have offered to help two-income families have met with little resistance from employees that do not use these benefits. Answer: False LG: 6/LL: 2 Page: 15 Rationale: Benefits such as child care services are often expensive and cause resentment from older employees whose children are grown and other employees who do not have children. These employees are likely to believe that two income families are getting special treatment. 1-89. The term “cafeteria benefits package” refers to benefits that deal primarily with providing employees with less expensive but more nutritional meals at work. Answer: False LG: 6/LL: 2 Page: 15 Rationale: Cafeteria benefits packages refer to efforts to provide employees with a “menu” of benefits from which to select. Offering such a selection allows employees to tailor their benefits in a way that best suits their individual needs.

Learning Goal 7

Analyze what businesses must do to meet the global challenge.

Level of Learning 1 (Knows basic terms and facts) 1-90. A major change in the global environment in recent years has been the increase in free trade among nations. Answer: True LG: 7/LL: 1 Page: 28 1-91. The wages of factory workers in China and Mexico have now risen to a level that is equal to, or higher than, that of workers in the United States. Answer: False LG: 7/LL: 1 Page: 16 1-92. Manufacturers in nations such as China, India and Mexico pose little threat to U.S, manufacturers because they are unable to produce products that meet the level of quality expected by American and European consumers. Answer: False LG: 7/LL: 1 Page: 16 1-93. American firms continue to lose ground in the race to become world-class competitors. Answer: False LG: 7/LL: 1 Page: 16 1-94. U.S. workers in many industries are now more productive than workers in Japan and other nations. Answer: True LG: 7/LL: 1 Page: 16

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1-95. Productivity is measured by dividing total output of goods in a given time period by work hours. Answer: True LG: 7/LL: 1 Page: 16 1-96. In recent years, many U.S. firms have sought ways to cooperate with international firms. Answer: True LG: 7/LL: 1 Page: 16 1-97. In order to be successful in a business environment characterized by global trade and global competition, employees will need to engage in continuous learning. Answer: True LG: 7/LL: 1 Page: 29 Level of Learning 2 (Understands concepts and principles) 1-98. In most industries, the only producers that pose a serious threat to U.S. manufacturers are those in Japan and Western Europe. Answer: False LG: 7/LL: 2 Page: 16 Rationale: Producers in countries like China, India, Mexico, and South Korea have been able to improve the quality of their goods significantly, in part because they have learned quality concepts from Germany, Japan, and the United States. 1-99. U.S. firms that are successful in global markets compete against foreign firms rather than attempting to cooperate with them. Answer: False LG: 7/LL: 2 Page: 29 Rationale: Global cooperation has the potential to create rapidly growing world markets and prosperity. Many successful U.S. firms have gone beyond simply competing with organizations in other countries and have sought out ways to cooperate with them. 1-100. A major road block facing firms that want to engage in global business is the recent trend toward trade restrictions that make it difficult for firms to sell their goods in foreign countries. Answer: False LG: 7/LL: 2 Page: 17 Rationale: Perhaps the most important trend in the global environment has been the growth in global competition and increase in free trade.

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1-101. Over the past several years, workers in the small nation of Rainland have enjoyed an increase in the number of holidays and a reduction in the average length of the work day that has reduced the total number of hours they work each year. However, the output per worker in Rainland is higher now than it was before the reduction in hours. These facts suggest that productivity in Rainland has increased. Answer: True LG: 7/LL: 2 Page: 29 Rationale: Productivity is measured by dividing total output by work hours. Since output is higher while work hours have dropped, productivity must be higher. 1-102. After several years of study as a part-time student, Joan Reynolds recently earned a degree in marketing at her local community college. The growth in global markets may increase Joan’s job opportunities, but it will also require her to continually update her skills or seek further education. Answer: True LG: 7/LL: 2 Page: 18-19 Rationale: As businesses expand to serve global markets, new jobs will be created. But global markets will also create more competition. In order to remain competitive, U.S. workers will have to continually update their knowledge and skills. Learning Goal 8 Review how trends from the past are being repeated in the present and what such trends will mean for the service sector.

Level of Learning 1 (Knows basic terms and facts) 1-103. Tangible products, such as the food we eat and the cars we drive, are called goods. Answer: True LG: 8/LL: 1 Page: 20

1-104. While the proportion of workers employed in agriculture has remained relatively constant for almost a century, the average size of farms has steadily decreased. Answer: False LG: 8/LL: 1 Page: 20 1-105. Declining employment in agriculture reflects the fact that improved efficiency enables fewer farmers to feed us today than it took to feed a smaller population in the past. Answer: True LG: 8/LL: 1 Page: 20 1-106. The legal advice provided to a lawyer’s clients is an example of a service. Answer: True LG: 8/LL: 1 Page: 21

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1-107. Most of the growth in employment opportunities since the mid-1980s has been generated by the service sector. Answer: True LG: 8/LL: 1 Page: 21 1-108. Although employment in the service sector has increased fairly rapidly in recent years, the vast majority of workers are still employed in the goods producing sector. Answer: False LG: 8/LL: 1 Page: 21 1-109. The service sector will probably grow more rapidly in the future than it has in the recent past. Answer: False LG: 8/LL: 1 Page: 21 1-110. The best employment strategy for today’s college graduates is to remain flexible, watch for changes in employment trends and move when appropriate. Answer: True LG: 8/LL: 1 Page: 21 1-111. The service era in the United States already appears to be giving way to a new era of global competition and cooperation. Answer: True LG: 8/LL: 1 Page: 21 1-112. The transition from an agricultural economy to a manufacturing economy to a service based economy has resulted in a serious increase in long-term unemployment. Answer: False LG: 8/LL: 1 Page: 20-21 Level of Learning 2 (Understands concepts and principles) 1-113. The declining number of workers employed in manufacturing in the United States . Answer: True LG: 8/LL: 2 Page: 20 Rationale: One reason many American manufacturing firms have downsized is that they have become more efficient, so they need fewer workers. 1-114. The continuing increase in the number of U.S. workers in the service sector means that more and more workers are employed in low-wage positions. Answer: False LG: 8/LL: 2 Page: 21 Rationale: Some jobs in the service sector do pay low wages, but there are actually more high-paying jobs in the service sector than in the goods-producing sector. Service jobs include high wage positions in such industries as health care, accounting, architecture, law, and telecommunications.

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1-115. Dee Duction is a financial planner who helps people find ways to save for retirement and lower their taxes. Dee is employed in the service sector of the economy. Answer: True LG: 8/LL: 2 Page: 21 Rationale: The service sector produces intangible goods. Financial planning is one type of service. 1-116. One problem with services is that, unlike goods, they cannot be exported. Answer: False LG: 8/LL: 2 Page: 21 Rationale: Certain services can be exported. In fact, travel and tourism, part of the service sector, is now our nation’s largest export. 1-117. A general trend in the U.S. economy has been for jobs lost in one sector to be replaced by increased jobs in other sectors. Answer: True LG: 8/LL: 2 Page: 20-21 Rationale: The history of our nation’s economy shows that as jobs were lost in agriculture earlier this century, displaced farm workers were often able to find employment in the growing manufacturing sector. More recently, declines in manufacturing employment have been offset by rapid growth in the service sector.

MULTIPLE CHOICE

Learning Goal 1

Describe how businesses and nonprofit organizations add to a country’s standard of living and quality of life.

Level of Learning 1 (Knows basic terms and facts) 1-118. An activity which seeks to earn a profit by providing a good or service is known as a(n): A) industry B) corporation C) business D) service Answer: C LG: 1/LL: 1 Page: 1

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1-119. ____________ is the amount a business earns over and above what it spends for salaries, expenses and costs. A) Profit B) Revenue C) Interest D) Retained earnings Answer: A LG: 1/LL: 1 Page: 2 1-120. The ___________ refers to the general well-being of a society in terms of freedom, safety, education, a clean environment, and other factors which contribute to the satisfaction of members of society. A) standard of living B) quality of life C) gross national income D) social satisfaction index Answer: B LG: 1/LL: 1 Page: 2 1-121. The amount of goods and services people can buy with the money they have is called their: A) nominal income. B) consumer price index. C) profit margin. D) standard of living. Answer: D LG: 1/LL: 1 Page: 3 1-122. The knowledge and skills students acquire in business courses will be useful to them: A) only if they work for a major corporation. B) only if they work for a nonprofit organization. C) only if they start their own businesses. D) if they work for any organization that produces goods and services, including nonprofit and volunteer organizations as well as businesses. Answer: D LG: 1/LL: 1 Page: 3 Level of Learning 2 (Understands concepts and principles) 1-123. A key characteristic of an entrepreneurs is that they: A) are willing to accept the risks involved in starting and managing a business. B) have a high level of scientific and technical expertise. C) possess a great deal of personal wealth. D) experience in running large, complex organizations. Answer: A LG: 1/LL: 2 Page: 4 Rationale: An entrepreneur is a person who risks time and money to start and manage a business.

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1-124. Which of the following is the best example of a business? A) A community college B) The Salvation Army C) The Methodist Church D) Wal-Mart Answer: D LG: 1/LL: 2 Page: 1 Rationale: Wal-Mart is the only one of the organizations listed which seeks to earn a profit. All of the others are nonprofit organizations. 1-125. Public schools, charities and government agencies are not classified as businesses because they: A) have not been incorporated. B) do not seek to earn a profit. C) provide services rather than goods. D) do not have any stockholders. Answer: B LG: 1/LL: 2 Page: 3 Rationale: Although schools, charities, and government agencies often provide goods and services, they do not seek a profit. Therefore, they are nonprofit organizations rather than businesses. 1-126. A similarity between businesses and organizations such as charities and government institutions such as schools is that both businesses and these other organizations: A) satisfy the needs of people within society. B) seek to earn a profit. C) have a limited life. D) must be controlled by a board of directors. Answer: A LG: 1/LL: 2 Page: 3 Rationale: A business is an activity that seeks profit by providing goods and services to others. Charities and government agencies also provide goods and services which satisfy the needs of people within a society, but they do not seek a profit. 1-127. The standard of living for a nation’s people depends mainly on: A) the quality of the natural environment. B) how much political freedom they have. C) their incomes and the prices of the goods and services they buy. D) the amount of labor and capital available employed in the manufacturing sector. Answer: C LG: 1/LL: 2 Page: 2 Rationale: The standard of living of a country refers to the amount of goods and services people can buy with the money they have.

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Level of Learning 3 (Applies principles) 1-128. Which of the following is the most accurate statement about the impact of business on society? A) When businesses earn a profit for their owners, they usually do so at the expense of the rest of society. B) While businesses often improve the standard of living within a society, they can do little to improve the quality of life. C) Businesses often improve the quality of life, but can do little to improve the standard of living of most people. D) Businesses can have a significant and positive impact on both the standard of living and the quality of life within a society. Answer: D LG: 1/LL: 3 Page: 2 Rationale: Businesses are part of an economic system that helps create a higher standard of living and quality of life for everyone. 1-129. Jane Gramm’s income has remained stable over the past few years while the prices of the goods and services have gone up. Nevertheless, Jane feels better off because the environment is cleaner, the crime rate has declined, she has more leisure time, and the quality of medical care has improved. If Jane’s experience is typical, we can conclude that the standard of living has: A) increased, but the quality of life has decreased B) increased, and so has the quality of life C) declined, but the quality of life has increased D) declined, and so has the quality of life Answer: C LG: 1/LL: 3 Page: 2 Rationale: The standard of living refers to how much people can buy with their income. Since prices have gone up faster than her income, Jane’s standard of living has declined. However, quality of life refers to a broader measure of general well-being. The improved quality of the environment, safer streets, increased leisure time, and improved medical care would all contribute to an improvement in general well-being, and hence would increase the quality of life.

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Learning Goal 2

Explain the importance of entrepreneurship to the wealth of an economy and show the relationship of profit to risk assumption.

Level of Learning 1 (Knows basic terms and facts) 1-130. Between 1980 and 2000, the number of women business owners: A) remained relatively constant. B) slowly increased. C) increased dramatically. D) decreased slightly. Answer: C LG: 2/LL: 1 Page: 3 1-131. _________ is the money a business earns from selling goods and services. A) Profit B) Interest C) Equity D) Revenue Answer: D LG: 2/LL: 1 Page: 4 1-132. A business incurs a ___________ if its costs and expenses exceed its revenues. A) Loss B) Liability C) Debit D) Dividend Answer: A LG: 2/LL: 1 Page: 4 1-133. __________ is the chance a business owner will lose the time and money invested in a business that proves to be unprofitable. A) Depreciation B) Risk C) Fallibility D) Redundancy Answer: B LG: 2/LL: 1 Page: 5 1-134. The resources businesses use to create wealth are known as: A) production coefficients. B) factors of production. C) production technologies. D) production aggregates. Answer: B LG: 2/LL: 1 Page: 5

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1-135. Which of the following is a factor of production? A) bonds B) interest C) knowledge D) service. Answer: C LG: 2/LL: 1 Page: 6 1-136. As a factor of production, the term capital includes: A) stocks and bonds issued by corporations. B) natural resources such as land and water. C) tools, machinery, and buildings. D) services provided by the government that enable businesses to be more productive. Answer: C LG: 2/LL: 1 Page: 6 1-137. The two factors of production that seem to contribute the most to making countries rich are: A) land and labor. B) land and capital. C) entrepreneurship and labor. D) entrepreneurship and knowledge. Answer: D LG: 2/LL: 1 Page: 6 Level of Learning 2 (Understands concepts and principles) 1-138. In order to make an intelligent investment decision, investors should: A) limit their options to those business investments that are backed by the U.S. government. B) invest in businesses that have generated a stable rate of profit for at least past ten years. C) Invest only in business opportunities where it is possible to take an active role in management. D) compare the risks of potential investments to their expected profits and find the right balance between profit and risk. Answer: D LG: 2/LL: 2 Page: 5 Rationale: Those companies with high risk also often possess the potential for high profits. Investors must weigh risk and profit and find the right balance.

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1-139. Elizabeth Alexander has started up a new printing business. The printers, computers, and copying machines she has bought and leased are examples of: A) natural resources B) intangible resources C) current assets D) capital Answer: D LG: 2/LL: 2 Page: 6 Rationale: As a factor of production, capital includes tools, machinery, equipment, such as the printers, computers, and copying machines mentioned in this question. Level of Learning 3 (Applies principles) 1-140. Last year, MacTeck Enterprises had total revenues of $24 million while its total costs and expenses were $22 million. Based on this information allows, MacTeck: A) earned a profit of $2 million. B) earned a profit of $24 million. C) suffered a loss of $2 million. D) suffered a loss of $22 million. Answer: A LG: 2/LL: 3 Page: 4-5 Rationale: Profits are found by subtracting costs and expenses from revenues, so MacTeck’s profits are $24 million - $22 million = $2 million. 1-141. Shelley Lawson recently opened a new restaurant specializing in fast foods prepared with less fat and calories for health-conscious diners who are in a hurry. Shelley knows that there are some risks associated with opening and managing a restaurant, but she is confident that she can earn a profit. Shelley is an example of a(n): A) arbitrageur. B) entrepreneur. C) speculator. D) account manager. Answer: B LG: 2/LL: 3 Page: 4 Rationale: An entrepreneur is a person who takes the risk of starting and managing a business.

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1-142. Stewart Wynne has just inherited some money from a distant relative. He could put this money into a certificate of deposit at his bank, where he could earn a guaranteed 6% rate of return. However, he would like to earn a higher return. Stewart should keep in mind that to earn a significantly higher return on his money he: A) will have to invest overseas. B) should invest in a business that has a very stable and predictable rate of return. C) will probably have to accept a higher level of risk. D) will probably have to engage in illegal activities. Answer: C LG: 2/LL: 3 Page: 29 Rationale: Investing in a certificates of deposit at a bank entails very little risk, but earns a relatively small return. Business opportunities that offer the potential for high profits are often associated with a high level of risk. An investor must weigh the potential profit of an investment with its risk. 1-143. According to the Legal Briefcase box in Chapter 1, which of the following statements about economic and political freedom is the most accurate? Nations with a high level of political and economic freedom: A) usually have very unstable economies with high rates of unemployment. B) tend to create a higher level of wealth for their citizens than nations with less freedom. C) typically have economic systems that adhere to socialist principles. D) are becoming less common as dictatorships take over many third world nations. Answer: B LG: 2/LL: 3 Page: 7 Rationale: This question is based on the Legal Briefcase box in Chapter 1. This box points out that a recent study found that the freer a country is, the wealthier its citizens are. 1-144. Which of the following statements about factors of production is the most accurate? A) The four major factors of production are energy, capital, labor, and money. B) Most poor nations are hampered chronic shortages of labor. C) All resources are equally important in creating wealth. D) The two factors of production that seem to contribute most to creating wealth are entrepreneurship and knowledge. Answer: D LG: 2/LL: 3 Page: 6 Rationale: There are five major categories of factors of production: land, labor, capital, entrepreneurship and knowledge. Poor nations often have plenty of labor and land, but lack entrepreneurship and knowledge resources. Thus, the only accurate statement is that knowledge and entrepreneurship are the most important factors of production for the creation of wealth.

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1-145. Nadiria is a small and poor nation, but its current president has a genuine desire to create more wealth for Nadiria’s citizens. The president has received recommendations from several advisors. Some of the suggestions she is considering are listed below. Which of these policies is likely to create the most wealth for Nadiria? A) Acquire more land by invading a neighboring country that is even poorer and weaker than Nadiria. B) Use foreign aid from other nations to produce or purchase more tools and machinery. C) Establish a business environment that promotes and rewards entrepreneurship D) Establish barriers to trade to protect Nadirian businesses from foreign competition. Answer: C LG: 2/LL: 3 Page: 6 Rationale: The factors of production that seem to contribute most to the generation of wealth are entrepreneurship and information. Thus one key to promoting wealth creation is to foster entrepreneurship. Learning Goal 3 Examine how the economic environment and taxes affect businesses.

Level of Learning 1 (Knows basic terms and facts) 1-146. All around the world, countries are trying to create more wealth by: A) raising taxes. B) selling government-owned businesses to private individuals. C) restricting trade with other countries in order to protect local businesses. D) attempting to attain more gold through foreign trade. Answer: B LG: 3/LL: 1 Page: 8 1-147. In countries where businesses are government owned: A) there is less incentive to work hard. B) the right amount of each good is produced. C) profits tend to be higher. D) the quality of goods is high but profits are low. Answer: A LG: 3/LL: 1 Page: 8 1-148. High tax rates tend to: A) promote economic development. B) make a nation’s currency tradable. C) discourage entrepreneurship. D) reduce the amount of money created by the government. Answer: C LG: 3/LL: 1 Page: 9

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Level of Learning 2 (Understands concepts and principles) 1-149. Taxes and government regulations are part of the ________________ environment of business. A) economic B) competitive C) social D) technological Answer: A LG: 3/LL: 2 Page: 7 Rationale: The economic environment includes those factors that influence the risks and rewards of entrepreneurship. The level of taxation and regulation is part of that environment. 1-150. All of the following policies would tend to foster entrepreneurship except: A) establishing a currency that is tradable on world markets. B) establishing more regulations to protect the environment. C) developing policies to reduce corruption in business and government. D) allowing private ownership of businesses. Answer: B LG: 3/LL: 2 Page: 8-9 Rationale: Establishing regulations tends to increase the cost and red tape associated with operating a business. This would discourage entrepreneurship. 1-151. In the United States, the level of taxes and types of government regulations in different states and cities: A) influence where entrepreneurs locate their businesses. B) do not vary much. C) seem to have no effect on the creation of wealth. D) have little or no effect on the incentives of entrepreneurs. Answer: A LG: 3/LL: 2 Page: 9 Rationale: Some cities and states in the U.S. have much higher taxes and more restrictive regulations than other areas. Areas that have high taxes and restrictive regulations tend to drive entrepreneurs out; areas with lower taxes and fewer regulations tend to attract them.

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Level of Learning 3 (Applies principles) 1-152. Which of the following government policies would be least likely to encourage entrepreneurship? A) Passage of laws that enable businesspeople to write enforceable contracts. B) Establishment of a currency that is tradable in world markets. C) Establishment of strict regulations to protect the natural environment and ensure safe products. D) Passage of laws that eliminate corruption in government and business. Answer: C LG: 3/LL: 3 Page: 9 Rationale: One of the things governments can do to encourage entrepreneurship is keep business regulations to a minimum. Regulations may be desirable in other respects, but they tend to discourage entrepreneurship by making the formation and management of businesses more difficult and expensive. 1-153. The decisions of entrepreneurs about where to locate new or existing businesses within the United States suggest that: A) entrepreneurs seem to like cold weather. B) entrepreneurs respond to differences in tax rates and government regulations C) risk has no bearing on where businesses locate their operations. D) entrepreneurs almost always start their businesses within 25 miles of their hometown. Answer: B LG: 3/LL: 3 Page: 9 Rationale: States and local areas with high taxes or excessive regulations are losing businesses, while those with lower taxes and less regulations are attracting more businesses. Learning Goal 4 Illustrate how the technological environment has affected businesses.

Level of Learning 1 (Knows basic terms and facts) 1-154. The Internet and telecommunications equipment are important parts of the ___________ environment in which businesses operate. A) economic B) technological C) competitive D) global Answer: B LG: 4/LL: 1 Page: 9

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1-155. In the first few years of the 21st century, the percentage of Americans online is expected to: A) remain stable. B) drop slightly. C) increase significantly. D) decrease significantly. Answer: C LG: 4/LL: 1 Page: 16 1-156. ___________ is the buying and selling of products and services by businesses and consumers over the Internet. A) E-commerce B) Intrapreneurship C) Telecommuting D) I-commerce Answer: A LG: 4/LL: 1 Page: 17 1-157. The two main types of e-commerce are: A) online and offline. B) M2M and M2N. C) wholesale and retail. D) B2B and B2C. Answer: D LG: 4/LL: 1 Page: 18 1-158. When businesses sell to other businesses over the Internet, these transactions are known as: A) telecommuting. B) Intertailing. C) B2B transactions. D) intermediate e-commerce transactions. Answer: C LG: 4/LL: 1 Page: 18 1-159. Companies that sell goods to consumers over the Internet are engaging in: A) B2C transactions. B) ICU transactions. C) electronic exporting. D) Y2K transactions. Answer: A LG: 4/LL: 1 Page: 18

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1-160. The series of lines on a product package that the cashier scans when you check out at a grocery store or discount store is called a: A) bar code. B) zip code. C) scan code. D) laser code. Answer: A LG: 4/LL: 1 1-161. An electronic storage file where firms keep information is known as a(n): A) ASCII file. B) cellular bank. C) database. D) e-mail server. Answer: C LG: 4/LL: 1 Page: 10 1-162. Many firms now have a _________________, who is responsible for getting workers and managers the information they need to be world-class competitors. A) Chief Information Officer B) Public Relations Director C) Knowledge Czar D) Chief Systems Engineer Answer: A LG: 4/LL: 1 Page: 10 Level of Learning 2 (Understands concepts and principles) 1-163. Which of the following statements about e-commerce is most accurate? A) Most firms engaged in e-commerce become profitable after one or two years of operations. B) One of the advantages of e-commerce that has lured businesses into e-commerce is the prospect of lower transactions costs. C) E-commerce firms that emphasize B2C transactions have grown at a much faster rate than firms that emphasize B2B transactions. D) A major advantage e-commerce firms have over traditional retailers is in the area of customer service. Answer: B LG: 4/LL: 2 Page: 9 Rationale: One advantage of e-commerce is that it allows firms to automate the ordering process and customer service, thus lowering costs. The other statements are not true.

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1-164. The major responsibility of a company’s CIO is to: A) keep the firm’s financial records up to date. B) develop a successful marketing plan that includes the proper mix of advertising, publicity and personal selling. C) provide workers and managers with the information they need to succeed in a competitive economy. D) provide legal advice to the owners of the firm. Answer: C LG: 4/LL: 2 Page: 10 Rationale: The CIO is a company’s chief information officer. This person is responsible for getting workers and managers the information they need to become world-class competitors. 1-165. The main difference between B2B and B2C transactions is that B2B e-commerce: A) involves transactions where the buyers and sellers are both businesses, while B2C involves transactions between businesses and consumers. B) focuses on financial transactions while B2C e-commerce focuses on the sale of manufactured goods. C) is carried out by nonprofit organizations while B2C e-commerce is carried out by business firms seeking to earn a profit. D) involves sales in foreign markets while B2C e-commerce is restricted to domestic markets. Answer: A LG: 4/LL: 2 Page: 18 Rationale: B2B stands for business-to-business and B2C stands for business-to-consumer. Level of Learning 3 (Applies principles) 1-166. According to the From the Pages of Business Week Magazine box in Chapter 1, which of the following statements describes a current characteristic of e-commerce? A) Web sites have become so cluttered with text and graphics that most people do not even notice the advertisements. B) Now that the Internet is well-established, most firms engaged in e-commerce have become more profitable than traditional stores selling the same types of goods. C) B2C firms are growing much more rapidly than B2B firms. D) A wide variety of consumer goods is now sold over the Internet, including many that analysts believed simply could not be sold by e-commerce firms. Answer: D LG: 4/LL: 3 Page: 11 Rationale: This question is based on the From the Pages of Business Week box in Chapter 1. The box points out that a few years ago many analysts believed that certain types of goods could not be sold over the Internet. Time has proven these analysts wrong. Today products as diverse as furniture, car parts, groceries, computer hardware, and office supplies are all sold by e-commerce firms.

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1-167. Ntercon is an Internet-based company that provides online support services for businesses that need help in setting up and maintaining their websites. Ntercon is an example of a company that is engaged in: A) B2C e-commerce. B) N2Y e-commerce. C) Y2K e-commerce. D) B2B e-commerce. Answer: D LG: 4/LL: 3 Page: 10 Rationale: Since Ntercon is providing services to other businesses over the Internet, it is engaging in business-to-business (B2B) transactions. 1-168. Summit Gifts, Inc., is a mail order firm that specializes in expensive and unusual gifts for all occasions. Summit keeps a large file of information on all of its regular customers, including names, addresses, the types of gifts they have ordered in the past, and the size and frequency of their orders. The electronic file in which this information is stored in an example of a(n): A) spreadsheet. B) ASCII file. C) PERT file. D) database. Answer: D LG: 4/LL: 3 Page: 10 Rationale: A databank is an electronic storage file where information is kept. 1-169. Which of the following predictions about the impact of e-commerce on traditional businesses is likely to be most accurate? A) E-commerce will have little impact on most traditional businesses, because only a few types of products can be sold effectively over the Internet. B) E-commerce will create serious challenges for traditional intermediaries as more firms use the Internet to sell directly to their customers. C) E-commerce will prove to be very successful in competing against traditional firms in B2C markets, but will have much less success in B2B markets. D) Firms that combine a traditional bricks-and-mortar approach with Internet sites will be less successful than firms that use either an entirely traditional or an entirely Internet-based approach. Answer: B LG: 4/LL: 3 Page: 10 Rationale: Intermediaries are firms that help move goods and services between producers and consumers. As more firms use the Internet to sell directly to their customers, there will be less need for traditional intermediaries to help move their goods.

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1-170. Pam Simpson holds a high-level position at Wilkens Electronics. She has the ultimate responsibility for getting the company’s workers and managers the information they need to help Wilken’s become a world-class competitor. Pam’s title is likely to be: A) comptroller. B) chief information officer. C) certified public accountant. D) information auditor. Answer: B LG: 4/LL: 3 Page: 9 Rationale: The primary responsibility of the chief information officer (CIO) is to ensure that workers and managers receive the information they need to turn their company into a world-class competitor.

Learning Goal 5

Identify various ways in which businesses can meet and beat competition.

Level of Learning 1 (Knows basic terms and facts) 1-171. To be successful in today’s markets, businesses have found that they must: A) provide the greatest variety of products to the consumer. B) spend more money on advertising and personal selling than they do on actual production. C) focus all of their resources on achieving the goal of zero defects. D) produce a quality product and offer outstanding service at a competitive price. Answer: D LG: 5/LL: 1 Page: 10-11 1-172. Today, business is becoming driven by the wants and needs of: A) customers. B) managers. C) creditors. D) bureaucrats. Answer: A LG: 5/LL: 1 Page: 12 1-173. Collectively, the customers, employees, stockholders, suppliers, creditors, and people in the local communities in which a business operates are that business’s: A) market. B) economic environment. C) stakeholders. D) social dependents. Answer: C LG: 5/LL: 1 Page: 12

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1-174. In the future, lower-level workers will need: A) more education. B) lower wages and simpler jobs. C) less training. D) a specific set of written regulations to guide every aspect of their work. Answer: A LG: 5/LL: 1 Page: 13 1-175. In the future, managers will focus more on __________________ lower-level employees. A) directly supervising B) training, supporting, coaching, and motivating C) simplifying the jobs of D) reducing the time spent training Answer: B LG: 5/LL: 1 Page: 13-14 Level of Learning 2 (Understands concepts and principles) 1-176. Larger companies sometimes give employees partial ownership of the firm. This strategy is one way to: A) compensate employees based on performance. B) eliminate unions. C) convince workers to go along with downsizing. D) reduce the total amount paid to workers. Answer: A LG: 5/LL: 2 Page: 14 1-177. World-class business organizations of the future will attempt to meet the needs of : A) their customers, even if it comes at the expense of employees and other stakeholders in the business. B) their employees, even if it means shortchanging customers by charging higher prices. C) all of their stakeholders. D) only their owners, since they are ultimately the ones who pay the bills. Answer: C LG: 5/LL: 2 Page: 13 Rationale: Stakeholders are all of the people affected by a business. World-class firms of the future will attempt to meet the needs of all of their stakeholders.

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1-178. Which of the following statements about the competitive environment is most accurate? A) Firms that produce a quality product will almost always succeed in the marketplace. B) In the future, traditional firms will be unable to successfully compete against the new Internet firms. C) Firms that allow frontline workers to respond to customer requests without close supervision by management usually perform poorly in the competitive environment. D) Speedy service is becoming a key to business success in the competitive environment. Answer: D LG: 5/LL: 2 Page: 22 Rationale: In today’s world, customers have come to demand prompt, speedy service. Companies that provide such speedy services are the ones that are winning. 1-179. Jack is a salesperson for Bi-State Direct. One thing he really likes about his job is the amount of freedom and flexibility Bi-State gives its sales people to meet the needs of their customers. Jack’s experience suggests that Bi-State has adopted the philosophy of: A) centralized management. B) outsourcing. C) enfranchisement. D) empowerment. Answer: D LG: 5/LL: 2 Page: 13 Rationale: Empowerment means giving front-line workers more freedom to respond quickly to customer requests. 1-180. One impact of the use of self-managed teams has been: A) a reduction in the amount of empowerment. B) less emphasis on meeting the needs of customers. C) the elimination of some management positions. D) lower pay for lower-level employees. Answer: C LG: 5/LL: 2 Page: 24 Rationale: Self-managed teams work without close supervision. This has eliminated the need for some management positions.

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1-181. For environmentalism to succeed: A) government must enact extremely strict laws and vigorously enforce them to ensure compliance. B) It must have widespread support rather than be a social cause of a few. C) the U.S. will have to adopt a socialist economic system. D) U.S. consumers will have to cut back on the amount of goods they consume by at least 25 percent. Answer: B LG: 5/LL: 2 Page: 14 Rationale: In order to succeed, environmentalism must be a social goal of everyone, not just a few. Level of Learning 3 (Applies principles) 1-182. Mildred Turner is a production manager at Western Widgets, Inc., a major manufacturing corporation that sells its products world wide. Thanks in part to Mildred’s efforts, Western Widgets has dramatically improved the quality of its products. Mildred believes that the high quality of its output will give Western Widgets a competitive edge that will last well into the next century. Mildred’s view is: A) exactly right. Producing high quality goods is the key to remaining competitive in the future. B) not completely wrong, but it is too limited. Consumers have come to expect high quality in most products, so competitive firms also must offer outstanding service and reasonable prices. C) completely wrong. The typical consumer cares little about quality as long as the price is low. D) completely wrong. The best strategy for market success is to develop new products quickly and get them to the market before the competition, even if quality suffers a bit. Answer: B LG: 5/LL: 3 Page: 12 Rationale: Consumers not only care about high quality; they have come to expect it. In today’s highly competitive business environment, providing a quality product is no longer enough. Consumers and industrial buyers now expect good service and competitive prices as well.

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1-183. Which of the following statements best describes how firms must treat their front-line workers in order to remain competitive? Front-line workers must be: A) given the freedom to respond quickly to meet the needs of customers. B) closely supervised to ensure that they adhere to the increasingly strict health and safety regulations recently passed by the government. C) replaced with automated equipment at every opportunity. D) given simple and repetitive tasks in order to reduce the risk of error and keep the cost of training low. Answer: A LG: 5/LL: 3 Page: 13 Rationale: In order to meet the needs of customers, firms must give their front-line workers more freedom to respond quickly to customer requests. This is the concept of empowerment, which is an important theme throughout the text. 1-184. Max Wisnieski is in charge of disposing of toxic materials at Dryfield Chemicals, the largest employer in a New England town. He has thought little about environmental issues in the past and wonders if such concern is necessary today. Max should: A) not worry about environmental issues, since that is the job of government officials. B) realize that concern for the environment can only succeed if it has broad public support. C) realize that privately owned businesses create too little pollution to actually harm the environment. D) wait out the current focus on the environment, since most experts predict environmentalism is a fad that will quickly lose its appeal. Answer: B LG: 5/LL: 3 Page: 14 Rationale: The decisions of business managers can have a major impact on the environment. The issue of environmental quality is important enough to merit the concern of all members of society.

Learning Goal 6

Demonstrate how the social environment has changed and what the reaction of the business community has been.

Level of Learning 1 (Knows basic terms and facts) 1-185. The statistical study of human population to learn its size, density, and characteristics is called: A) sociographics. B) econometrics. C) demography. D) xenometry. Answer: C LG: 6/LL: 1 Page: 14

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1-186. The population of the United States is diverse, including people from many different racial and ethnic groups. Optimizing the contributions of these various cultural groups is known as: A) multiculturalism. B) ethnocentrism. C) macrocentrism. D) social Darwinism. Answer: A LG: 6/LL: 1 Page: 14 1-187. Over the next three decades, the number of older Americans is expected to: A) decline significantly. B) remain relatively constant. C) rise slightly. D) increase significantly. Answer: D LG: 6/LL: 1 Page: 26 1-188. Currently, the richest group in the United States consists of people between the ages of: A) 25 and 34. B) 35 and 44. C) 45 and 54. D) 55 and 64. Answer: C LG: 6/LL: 1 Page: 26 1-189. The high cost of housing and of maintaining a comfortable lifestyle have contributed to a dramatic growth in: A) unemployment. B) two-income families. C) divorce rates. D) government subsidy programs. Answer: B LG: 6/LL: 1 Page: 15 1-190. Some companies allow workers to ___________, using computers to do their work at home. This benefits workers with children since it allows them to stay at home and raise a family while still earning an income. A) compucommute B) subcontract C) net-work D) telecommute Answer: D LG: 6/LL: 1 Page: 15

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Level of Learning 2 (Understands concepts and principles) 1-191. Which of the statements about demography is most accurate? Demographic studies: A) focus on factors that have great political relevance, but little relevance to business firms. B) suggest that the number of two-income families will decline in the future. C) provide business and individuals with insights into business and career opportunities of the future. D) are an important source of information about weather and climate. Answer: C LG: 6/LL: 2 Page: 14 Rationale: Demography is the statistical study of the human population to learn its size, density, and characteristics. Demographics can provide important insights into which markets are growing and which are declining. 1-192. Which of the following statements represents the most likely changes in the size and composition of the U.S. population by the year 2050? A) The total population of the United States will more than double, but there will be little or no change in the percentages of the population found in various racial and ethnic groups. B) The total population will increase slightly, but the makeup of the population will be characterized by fewer Hispanics and Asians. C) Neither the size of the population nor its makeup will change significantly. D) The size of the population will increase about 50 percent, and the percentage of both Hispanics and Asians will increase significantly. Answer: D LG: 6/LL: 2 Page: 14 Rationale: The Bureau of the Census predicts that the U.S. population in the year 2050 will be very different from what it is today. The total population will increase by almost 50 percent, with Hispanics and Asians making up much larger percentages of the population than they do today.

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Level of Learning 3 (Applies principles) 1-193. Jill Redden is looking into the possibility of opening up a day care center in her community, because she is aware of many two-income families that need a place for their children to stay while the parents work. However, she is concerned about the long-term prospects for such a business. Jill believes the future of her center will depend on whether birth rates and the number of two-income families remain high. These concerns illustrate how businesses can be affected by: A) econometric trends. B) demographic trends. C) holographic trends. D) psychometric trends. Answer: B LG: 6/LL: 3 Page: 14 Rationale: Demography is the statistical study of the human population to learn its size, density and characteristics. Birth rates and the number of two-income families are both demographic factors. 1-194. Denise Horton is a manager at the marketing department of a discount shoe store chain. Employees from several different ethnic and cultural backgrounds work in her office. Denise tries to take advantage of the wealth of ideas and viewpoints this diversity generates, and maximize the contributions each worker. Denise’s approach to managing these workers is an example of: A) multiculturalism. B) xenocentrism. C) ethnocentrism. D) cultural egalitarianism. Answer: A LG: 6/LL: 3 Page: 14 Rationale: Multiculturalism is the process of optimizing the contributions of people from different cultural backgrounds. 1-195. Mostly Mirrors, Inc. is considering a program that would allow some of its workers to telecommute. One group of workers who would probably benefit from telecommuting is: A) workers who do not have access to computers at home. B) workers who have little self-motivation. C) front-line workers who must frequently meet with customers who visit the office. D) workers with young children who want to earn income while staying at home. Answer: D LG: 6/LL: 3 Page: 15 Rationale: Telecommuting is the practice of allowing employees to work from home using computers. This practice can allow parents to stay at home while continuing to work and earn income.

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Learning Goal 7

Analyze what businesses must do to meet the global challenge.

Level of Learning 1 (Knows basic terms and facts) 1-196. Today, high quality products are produced: A) only in North America. B) only in high wage nations such as the U.S., Japan, and a few Western European nations. C) only in Japan, North America, and a few nations in Europe and southeast Asia. D) in nations throughout the world, including some nations in which labor costs are very low. Answer: D LG: 7/LL: 1 Page: 16 1-197. ____________ is measured by dividing the output produced in a given time period by work hours. A) Elasticity B) Productivity C) Proficiency D) Marginal output Answer: B LG: 7/LL: 1 Page: 16

1-198. Today, the productivity of U.S. workers: A) exceeds that of workers in Canada and Mexico, but in most industries it lags far behind that of workers in Japan. B) is lower than that of any other industrial nation. C) exceeds that of workers in Japan and other countries in many industries. D) is rising in service industries, but is dropping in manufacturing and agriculture. Answer: C LG: 7/LL: 1 Page: 28

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Level of Learning 2 (Understands concepts and principles) 1-199. The severe banking problems in Asian countries such as Thailand, Malaysia, and South Korea during the late 1990s demonstrated that: A) the U.S. economy should isolate itself from the global marketplace. B) these countries are not yet developed enough to compete in international markets. C) the U.S. dollar is the world’s only true tradable currency. D) the world’s economies have become very interdependent. Answer: D LG: 7/LL: 2 Page: 28 Rationale: The banking crisis among Asian countries created a major upheaval in global markets, demonstrating how problems in a few countries can create problems (and opportunities) for other countries as well. 1-200. Cooperation among firms from different nations is: A) likely to become a thing of the past as competition among nations heats up. B) illegal and unethical. C) a way to expand world markets and achieve greater world prosperity. D) likely to result in a loss of jobs in poor nations as production shifts to wealthier countries. Answer: C LG: 7/LL: 2 Page: 16 Rationale: Businesses have gone beyond simply competing with organizations in other nations. They have begun to cooperate in ways that have the potential to create growing world markets and promote peace and prosperity. Level of Learning 3 (Applies concepts) 1-201. According to the Reaching Beyond Our Borders box in Chapter 1, which of the following statements is most accurate? A) The development of the Internet has made it more difficult for small firms to compete against large international firms in the global marketplace. B) Selling on the Internet allows firms engaged in global business to avoid such problems as dealing with different languages and converting different currencies. C) The Internet has opened up global business to small firms by breaking down barriers between nations. D) People who buy on the Internet seem to actually prefer buying from firms located in foreign countries. Answer: C LG: 7/LL: 3 Page: 18 Rationale: The material in the Reaching Beyond Our Borders box in Chapter 1 describes how the Internet has helped small businesses compete in the global marketplace by removing invisible barriers between nations.

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1-202. Mark Firestone recently graduated with honors from his college. He has bragged to his friends that his fine academic performance has prepared him so well for a successful career that he can forget school or training in his future. In evaluating the workplace of the future, Mark is: A) exactly right. His past performance should carry him to success. B) completely wrong. Studies show that a college education has little to do with success. C) over confident. Global competition means that continuous learning will be needed in the future to adapt to rapid changes. D) probably right. Specialized training today is a key to continued success in the future. Answer: C LG: 7/LL: 3 Page: 19 Rationale: The highly competitive nature of the global economy and rapid changes in technology mean that students must keep their skills and knowledge up to date even after they graduate.

Learning Goal 8

Review how trends from the past are being repeated in the present and what such trends will mean for the service sector.

Level of Learning 1 (Knows basic terms and facts) 1-203. The part of society that produces tangible products such as automobiles, furniture, and clothing is called the: A) industrial sector. B) truck jobbers . C) service sector. D) second tier sector. Answer: A LG: 8/LL: 1 Page: 20 1-204. Health care, legal advice, transportation and other intangible products are provided by the: A) goods-producing sector B) service sector. C) manufacturing sector. D) high-wage sector Answer: B LG: 8/LL: 1 Page: 21

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1-205. Since the beginning of the 1900s, the agricultural sector of the United States has: A) seen the number of family farms more than double. B) become less and less competitive in the global economy. C) seen relatively little change in the amount of output per farm. D) experienced a big drop in employment, mainly because of tremendous improvements in efficiency. Answer: D LG: 8/LL: 1 Page: 20 1-206. In recent years, almost all new job creation in the United States has occurred in the ________________ sector: A) service B) manufacturing C) agricultural D) telecommunications Answer: A LG: 8/LL: 1 Page: 21 1-207. Today, the U.S. economy seems to be moving into a period that could be described as: A) the service era. B) an era of global expansion that will affect all sectors of the economy. C) a manufacturing renaissance. D) a return to protectionism and isolationism. Answer: B LG: 8/LL: 1 Page: 21 Level of Learning 2 (Understands concepts and principles) 1-208. Appliance repair firms, tax consultants, law firms, and insurance companies are all business firms that are part of the: A) skilled sector. B) management sector. C) neo-industrial sector. D) service sector. Answer: D LG: 8/LL: 2 Page: 21 Rationale: All of these companies provide an intangible product. Thus, they are included in the service sector.

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1-209. In recent years, many manufacturing firms in the United States have laid off workers. The best explanation of this trend is that: A) U.S. firms have been trying to weaken unions by reducing their reliance on labor. B) Workers in U.S. manufacturing firms have become less productive and are no longer able to compete in the global economy. C) U.S. firms in many industries have become so efficient that they need fewer workers. D) the U.S. economy has been in a prolonged depression that has lasted more than a decade. Answer: C LG: 8/LL: 2 Page: 20 Rationale: While layoffs in manufacturing seem to imply that American firms are becoming less competitive, the opposite is actually the case. The layoffs are the result of tremendous improvements in productivity in recent years, which have enabled U.S. manufacturing firms to produce more goods with fewer workers. 1-210. Which of the following best describes job growth in the service sector in recent years? A) The service sector has generated almost all new jobs in the American economy since the mid 1980’s, but the rate of job growth in services has slowed in recent years. B) Jobs in the service sector have increased slowly over the past decade, but most new jobs are still created in the manufacturing industries. C) Employment in the services has declined in recent years, and this decline is expected to continue into the next decade. D) There has been little change in the number of jobs in the service sector in recent years, and this stability is likely to continue in the future. Answer: A LG: 8/LL: 2 Page: 21 Rationale: The service sector has grown rapidly over the past two decades. However, the growth rate has slowed in recent years. Level of Learning 3 (Applies principles) 1-211. Which of the following organizations would be considered a part of the goods-producing sector of the economy? A) General Motors B) Kansas State University C) Belleville Memorial Hospital D) Jim’s Tax Consulting Answer: A LG: 8/LL: 3 Page: 20 Rationale: Firms in the goods-producing sector produce tangible products. Of the organizations listed in this question, only General Motors produces a tangible product.

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1-212. Over the last century, certain sectors of the U.S. economy have seen tremendous declines in employment. Typically, the jobs lost in these sectors have been: A) the result of declining productivity in these sectors. B) offset by job growth in other sectors. C) a warning sign that the U.S. economy can no longer compete effectively in the world markets. D) almost totally the result of socialistic policies adopted by the U.S. government. Answer: B LG: 8/LL: 3 Page: 20 Rationale: History shows that as employment in farming declined, the manufacturing sector expanded, providing jobs for many of the displaced farm workers. More recently, an expanding service sector has provided jobs for many workers displaced by downsizing in the manufacturing sector. ESSAY 1-213. Describe four ways that governments in less developed nations can foster entrepreneurship and encourage the creation of wealth. Answer: The text identifies four things a government of a less developed nation can do to foster entrepreneurial growth: The government can pass laws that enable businesses to write enforceable contracts, thus reducing the risk of starting a business. The government can establish a currency that is tradable in world markets, making it possible enabling firms to compete in world markets. The government can pass laws that reduce corruption among government officials and businesses. Corrupt practices such as the need to bribe government officials to get contracts approved not only make it more expensive to do business, they also tend to undermine competition by giving the corrupt firms an unfair advantage. The government can keep taxes and regulations to a minimum. High taxes and burdensome regulations increase the cost of doing business and undermine incentives to work hard and take risks. The impact of taxes and regulations is even apparent in developed nations such as the United States. Entrepreneurs tend to favor those states and local areas where taxes are lowest and regulations are less restrictive.

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1-214. What is demography? Identify several demographic trends in the United States and discuss how they will impact U.S. businesses. Answer: Demography is the statistical study of populations to learn about their size, density and characteristics. The United States is experiencing several demographic trends that will have important impacts on how and where we live, what we buy and how we spend our time: One major trend is that the U.S. population is expected to continue growing substantially. By the year 2050 the population of the U.S. is expected to increase by about 50 percent over its current level. Obviously, this growing population will mean an increase in the demand for goods and services, creating more jobs. A second trend is the increasingly multicultural nature of our society. The percentage of Asian and Hispanics in our population is projected to increase dramatically. Businesses will need to sensitive to these cultural changes and find ways to optimize the contributions of people from different ethnic and cultural backgrounds. If handled correctly, this diversity can be a source of strength for American businesses. A third trend is the large increase in the number of older Americans that will occur over the next few decades. This is the result of the aging baby-boom generation. As America ages, the markets for products that appeal to middle-aged and elderly consumers will grow. Thus, there should be a boom in the demand for medicine, retirement homes, home health care, and a variety of recreational goods. Another major demographic trend that is likely to continue is the large proportion of households in which both the husband and wife work. The high cost of housing and the desire for a more comfortable lifestyle have made it very difficult for many households to survive on just one income. As more families have both spouses working, the demand for day care, pregnancy benefits, flexible work schedules and elder care will grow. Businesses will have to find ways to meet the needs of workers in two- income families without alienating other workers. The text mentions the rise in the use of part time workers and telecommuting as ways businesses can give this group more flexibility to meet their parental and other responsibilities. One final trend has been the rapid growth in the number of single-parent households. Single parents have encouraged businesses to offer programs such as flexible work schedules and family leave that will allow the parent to remain home with sick children.

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1-215. Competition among businesses has never been greater. Identify and describe several ways that businesses can compete, both now and in the future. Answer: Among the ways businesses can compete are by pleasing the customer, by offering fast service, by being responsive to the needs of employees, meeting the needs of the community, and by showing concern for the natural environment. Businesses are becoming more customer-driven. They are putting the wants and needs of customers first, and adjusting their products, policies and practices to make sure that customers are satisfied. Keeping the customer happy means producing a good quality product, providing great service, and keeping prices low. Another way businesses can compete is by providing speedy service. People are in a hurry these days, and firms that offer prompt service, fast shipping, and quick response to changing conditions and opportunities are often winning in the market place. Businesses also compete by responding to the needs of their employees. In order to be more flexible and more responsive, many businesses have empowered their lower level employees, allowing them to make decisions and respond to the needs of customers without consulting management. In order for empowerment to work, managers must do a better job training, supporting, and motivating frontline workers. Managers will have to give up some of their authority and find ways to encourage workers to accept more responsibility. One approach is to design performance-based compensation systems. For example, some larger businesses give employees partial ownership of the firm. Businesses may also need to develop new organizational structures. Many firms are now using self-managed cross-functional teams. Businesses are also trying to be sensitive to the needs of all of their stakeholders. Stakeholders are all people who are affected by an organization. Thus, the stakeholders of a business include its customers, employees, suppliers, dealers, stockholders, creditors, and the people who live in the local communities where the business operates. It is sometimes difficult to reconcile all of these different groups. Trying to do so will require world-class workers and leaders. Finally, businesses can compete by showing concern for our natural environment. The production and distribution of goods and services can have a profound effect on the natural environment. For environmentalism to succeed, it must have widespread support.

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1-216. Trace the evolution of American business. Identify the key trends, and discuss the implications these trends have for the future. Answer: For most of our nation’s history, the agricultural sector led the way. At the beginning of the 1900s there were about 5.7 million farms. However, at the beginning of the 21st century the number of farms had dropped to less than 2 million, and the number of farm workers had dropped to a small fraction of the number a century earlier. This loss of farm workers was not a sign that farming was a declining industry. Rather, it reflected tremendous improvements in efficiency and productivity. By the beginning of the 21st century American agricultural workers were so productive that more food could be produced with a small fraction of the workers employed a century earlier. Many of the workers displaced by the rising productivity in agriculture found employment in the manufacturing sector, which expanded rapidly during the early 1900s. However, technological breakthroughs in manufacturing led to higher productivity. Eventually manufacturing firms were able to produce more output with fewer workers, and employment in manufacturing began to fall, just as in farming. Again, this was a sign of strength rather than decline. Many workers who lost jobs in manufacturing found employment in the service sector. Since the mid-1980s this sector has generated almost all of the new job growth in the American economy. This is a very broad sector, and many (but certainly not all) jobs pay quite well. In fact, there are more high paying jobs in service industries than in manufacturing. Although the service sector is likely to continue to grow, the rate of growth is likely to slow. The U.S. economy now seems to be leaving the service era and moving into an era that can be characterized as on of global competition and cooperation. These trends suggest several lessons to keep in mind. First, declines in employment are often a sign of increased efficiency and improved productivity rather than declining competitiveness. Second, declines in employment in one sector do not necessarily mean the economy as a whole will suffer from higher unemployment of a loss of wealth. Historically, as employment in one sector declines, workers are able to move into other sectors where employment is growing. This transition can be painful, but it may benefit society as a whole and create more wealth in the long run. Finally, the evolution of the American business sector is not over. Workers today must be aware of the possibility of changes in the job market. The best strategy is to remain flexible, watch trends, and be ready and willing to move to where the jobs are.

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Mini-Case

Questions 217 through 221 refer to the following situation.

Morton Gage is employed by Bigbux National Bank, which is one of the largest banks in the Midwest. He is a loan officer, specializing in home equity loans. Uncle Timothy, Mort’s favorite (and wealthiest) relative, passed away last month and left Mort a sizable amount of money. Mort is looking at the best way to invest his newly acquired wealth. He is considering many options, ranging from simply putting the money into a savings account to the possibility of starting his own business. Although his bank job pays well and offers pleasant working conditions, Mort is frustrated because he has little freedom or flexibility to deal with customers. Every decision he makes must be approved by his supervisor. Besides, he’s a bit bored and looking for a challenge. He thinks he might get a lot of satisfaction from owning his own business. Mort has not made a definite decision yet, but has talked to a lot of people searching for a good idea for a new business. If he can come up with an idea he likes, he might just quit his current job and use his inheritance to go into business for himself! 1-217. As he explores his options, Mort has noticed that some opportunities appear to be much riskier than others. When considering various opportunities, Mort should keep in mind that: A) he will be better off picking a low risk investment, since the safest investments are usually the most profitable as well. B) even though some opportunities appear riskier than others, the level of risk actually varies little from one opportunity to another. C) high risk business opportunities often have the potential for high returns as well. D) government regulations are in place to protect investors and entrepreneurs from failure, so there is no need to worry about risk. Answer: C LG: 2/LL: 3 Page: 5 Rationale: In many cases, business opportunities that have the potential for earning high profits also carry a high level of risk. Investors must weigh profit and risk and choose opportunities that offer an acceptable trade-off between the two. 1-218. Mort’s frustration with his lack of freedom and flexibility indicates that Bigbux: A) prefers the use of cross-functional teams rather than individual initiative. B) has not adopted a strategy of empowerment. C) knows that the best way to ensure good customer service is to closely monitor its lower-level employees. D) is trying to please customers at the expense of other stakeholders. Answer: B LG: 5/LL: 3 Page: 24 Rationale: Empowerment means giving lower-level workers the freedom and flexibility to respond quickly to customers without consulting with managers.

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1-219. Some friends have approached Mort with a proposal to start a day care center for young children in his community. Mort does not know much about this type of business and wonders about its long term potential. An important trend for Mort to consider is that: A) the service sector is likely to decline in significance in the next few years. B) the number of young children in the U.S. will decrease significantly over the next few years as the population of the country levels off. C) the number of two-income families is likely to remain high, thus providing a strong demand for this type of business. D) incomes are increasing so rapidly in two-income families that most such households soon will be able to afford private baby sitters thus reducing the demand for day care. Answer: C LG: 6/LL: 3 Page: 15 Rationale: There has been a dramatic increase in the number of two-income households, and the number of such households is likely to remain high. This trend reflects both the desire of women to seek careers outside the home, and the fact that high costs of housing and the desire for a comfortable lifestyle make it almost impossible for many middle class families to live on one income. With both spouses working, two-income families will continue to need child care services in the future. 1-220. As he explores his options for starting a new business, Mort has looked into the tax implications and government regulations that he would encounter. He has discovered that some nearby states offer fewer regulations and lower taxes than his home state and wonders whether it would be smart to locate his business in one of these states. These concerns indicate Mort’s decision will be influenced by the: A) demographic environment. B) technological environment. C) socio-religious environment. D) economic environment. Answer: D LG: 3/LL: 3 Page: 9 Rationale: The economic environment includes taxes and government regulations. As the text points out, entrepreneurial decisions about where to locate their businesses can be strongly influenced by differences in taxes and government regulations.

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1-221. If Mort does start his own business, his firm’s activities and policies will impact many different groups and individuals, including employees, customers, creditors, suppliers, and people living in the community where his business is located. Which of the following statements represents how Mort should deal with these various groups? Mort should: A) take the needs of all of these groups into account, and try to satisfy each group as much as possible. B) concentrate on meeting the needs of his customers, since they are crucial to the success of his business, but ignore the needs of other groups in order to keep costs low. C) satisfy whichever group complains the loudest, using the “squeaky wheel gets the grease” philosophy. D) concentrate on maximizing his own profits and let everyone else look out for themselves. Answer: A LG: 5/LL: 3 Page: 13 Rationale: All of the groups mentioned in this question are stakeholders in a business. All of them are affected by the products, policies, and practices of the firm and their concerns need to be addressed.

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