Skip to content
Exam Guides

Better Business 5th Edition Test Bank

Better Business 5th Edition Test Bank offers everything you need for thorough exam preparation, including solved questions and MCQs.

Preview 16 of 715 pages

See the first 16 pages exactly as they appear in the document.

  1. Page 1
    Read page 1 as text

    1 Better Business, 5e (Solomon/Poatsy/Martin) Chapter 1 Business Basics 1) When a company's revenue is greater than its expenses, it means that ________. A) the company earns a profit B) the company spends more than it earns C) the company's income is decreasing D) the company needs to increase its spending E) the company must increase its productivity Answer: A Explanation: A company earns a profit when it takes in more revenue (earnings) than it spends. If a company spends more than it earns, it does not make a profit. Instead, it suffers a loss. A company can make a profit even if its income is decreasing, as long as its earnings continue to exceed its expenses. A profitable company may or may not need to increase its spending, depending on its business goals. Diff: 1 AACSB: Reflective Thinking LO: 1.1: Define business and list the factors of production. Classification: Concept Learning Outcome: Explain how economic performance is monitored 2) The physical products that a business offers are called ________. A) goods B) services C) assets D) devices E) intangible Answer: A Explanation: By definition, physical products that a business offers are called goods. Services are intangible products, for example, hair styling or bookkeeping. A physical product may be an asset to the business or the purchaser, but it is a more general term that could include any valuable product or aspect of the business. A device is a physical product, but not all physical products are devices. For instance, pizza would be considered a physical product, but a pizza is not a device. Diff: 1 AACSB: Reflective Thinking LO: 1.1: Define business and list the factors of production. Classification: Concept

  2. Page 2
  3. Page 3
    Read page 3 as text

    2 3) Emma bought a tablet and a smartphone. These products are called goods because ________. A) they do a good job of satisfying a customer's needs B) they are physical or tangible products C) they are produced in an economical offshore factory D) they can be sold either in a store or online E) they are good at increasing a company's profit margin Answer: B Explanation: Goods are physical or tangible products offered by a business. They may or may not do a good job of satisfying a customer's needs, although they must do so if a business is to be successful. Goods are typically produced in a factory, but not in any particular location. It is true that goods can be sold either in a store or online, or by other means, such as direct marketing. However, other business offerings, such as services, can also be sold in a store or online. Diff: 1 AACSB: Reflective Thinking LO: 1.1: Define business and list the factors of production. Classification: Application 4) Jose called an electrician to repair some appliances in his home. Which of the following terms BEST describes the electrician's repairs? A) a service B) a good C) a benefit D) an appointment E) a liability Answer: A Explanation: An electrical repair is an example of a nontangible business product called a service . An electrical repair is not a good, which is a tangible physical product. Although the repair might involve the installation of a physical product, or good, the primary offering of the electrician is the service he or she provides by coming to a location, identifying the problem, and if necessary, making a repair. Such a service may be a benefit to the customer, but any business offering, physical or nontangible, could be a benefit. Although electricians typically provide services by appointment, "appointment" does not define the type of product the electrician provides. Diff: 1 AACSB: Reflective Thinking LO: 1.1: Define business and list the factors of production. Classification: Application

  4. Page 4
    Read page 4 as text

    3 5) Chris orders a salad at a restaurant. What is the BEST definition of what he is buying? A) Chris is buying a good. B) Chris is buying a service. C) Chris is buying a service, but not a good. D) Chris is buying neither a good nor a service. E) Chris is buying both a good and a service. Answer: E Explanation: Chris is buying a combination of products offered by the restaurant. He is buying a good (the salad) as well as the services of preparing and serving the salad. Diff: 1 AACSB: Reflective Thinking LO: 1.1: Define business and list the factors of production. Classification: Application 6) Profits allow a company to ________. A) increase productivity B) lower employee wages C) reduce its span of operations D) disregard concern about expenses E) lower standards of living for the entire society Answer: A Explanation: Profits allow a company to reward employees, increase productivity, and expand into new areas. To maintain productivity, a company would need to remain concerned about controlling expenses, and maintain or increase employee wages. Profits would be likely to allow for growth in its operations, not a reduction. Diff: 2 AACSB: Reflective Thinking, Analytical Thinking LO: 1.1: Define business and list the factors of production. Classification: Concept Learning Outcome: Explain how economic performance is monitored

  5. Page 5
    Read page 5 as text

    4 7) Nina's furniture store has had a successful year and made a significant profit. Which of the following actions using Nina's store profits would BEST increase productivity? A) Pay for utilities and inventory in advance. B) Develop a website that would enable customers to shop and place orders online. C) Hire more staff. D) Create an emergency fund. E) Service her community through social and educational means. Answer: B Explanation: A website with an online shopping function would increase productivity by generating sales without requiring additional staff time. It might also provide more options for customers, since the online store could carry more items than could be viewed in the store. Hiring more staff could reduce productivity by increasing the labor costs associated with selling items. Paying for expenses in advance or creating an emergency fund would have neither a positive nor negative impact on productivity. While serving her community is a positive, it will not have a direct impact on productivity. Diff: 3 AACSB: Reflective Thinking LO: 1.1: Define business and list the factors of production. Classification: Application Learning Outcome: Explain how economic performance is monitored 8) Which of the following statements is TRUE of a not-for-profit organization? A) It pursues profits for its owners. B) It does not pay expenses. C) It can earn excess revenue. D) It cannot operate like a business. E) It rewards the proprietor of the organization with earned profits. Answer: C Explanation: These organizations do not go into business to pursue profits for their owners. Any excess revenue they generate is used to further the organizations' causes by expanding the services they provide. Diff: 2 AACSB: Reflective Thinking LO: 1.1: Define business and list the factors of production. Classification: Concept Learning Outcome: Explain how economic performance is monitored

  6. Page 6
    Read page 6 as text

    5 9) The various resources used to create a company's goods and services are collectively referred to as ________. A) raw materials B) factors of production C) supplies D) inventory E) intellectual property Answer: B Explanation: Factors of production are the resources used to produce goods and services. They include six factors: labor, natural resources, capital, entrepreneurial talent, technology, and intellectual property. Raw materials, supplies, inventory, and intellectual property might be included in the natural resources factor, but do not encompass all the resources needed for production. Diff: 1 AACSB: Reflective Thinking LO: 1.1: Define business and list the factors of production. Classification: Concept 10) Labor is a factor of production that refers to any physical or ________ work people contribute to a business's production. A) intellectual B) emotional C) unionized D) entrepreneurial E) technological Answer: A Explanation: Labor is a factor of production that refers to any physical or intellectual work that people contribute to a business's production. Entrepreneurial or technological work might be included in a company's labor costs, but such work could be either physical or intellectual, and therefore would not necessarily describe a type of work that was not physical. A company's labor force could be either unionized or nonunionized, independent of the type of work, whether physical or intellectual. Emotional work is not considered part of a business's labor requirements. Diff: 1 AACSB: Reflective Thinking LO: 1.1: Define business and list the factors of production. Classification: Concept

  7. Page 7
    Read page 7 as text

    6 11) Which of the following is an example of real capital? A) a business loan B) computer software C) natural gas D) a manufacturing plant E) personal savings Answer: D Explanation: Real capital refers to the physical facilities used to produce goods and services. Thus, a manufacturing plant would be an example of a business's real capital. Computer software is an example of the technology factor of production. Natural gas is an example of the natural resources factor of production. Business loans and personal savings are examples of capital, but of financial capital rather than real capital. Diff: 2 AACSB: Reflective Thinking LO: 1.1: Define business and list the factors of production. Classification: Application 12) Teresa and Luis are getting married next month. Which of the following elements of their wedding does NOT require a natural resource for its production? A) the wedding rings B) the wedding vows C) the wedding cake D) the bridesmaids' dresses E) the table centerpieces Answer: B Explanation: The wedding vows are intangible statements created in the minds of the bride and groom and do not require a physical raw material for their production. Wedding rings are composed of natural resources such as metal or gems. The cake is made from agricultural ingredients that depend on natural resources such as soil. The bridesmaids' dresses may be made from natural fabrics, such as cotton, which requires soil for growing, or synthetic fabrics whose production depends on water and natural energy sources. The table centerpieces could include natural floral elements, which require soil for growing, and manmade objects like vases and candles. Diff: 2 AACSB: Reflective Thinking LO: 1.1: Define business and list the factors of production. Classification: Application

  8. Page 8
    Read page 8 as text

    7 13) Robert wants to upgrade his real estate company's computer systems. Which of the following factors of production would Robert find LEAST useful for his project? A) financial capital B) technology C) real capital D) labor E) human resources Answer: C Explanation: Robert is not producing any products with his upgrade project, so he would not require real capital, that is, a facility for producing goods. Financial capital, labor (or human resources), and technology would all be necessary to develop or purchase and install the upgraded computer systems. Diff: 2 AACSB: Reflective Thinking LO: 1.1: Define business and list the factors of production. Classification: Application 14) Melinda is a store owner who buys items online to sell in her shop. Which of the following factors of production is BEST illustrated in Melinda's use of the Internet? A) capital B) labor C) technology D) entrepreneurs E) natural resources Answer: C Explanation: Technology refers to items and services such as smartphones, computer software, and digital broadcasting that make businesses more efficient. Melinda's use of the Internet for purchasing store inventory reflects her use of technology. Since Melinda is making the purchases herself, labor is not a factor. Capital may be involved in the purchase, but that would be true of any purchase, not specifically online purchases. Melinda may be an entrepreneur, but her online purchasing behavior is not a defining characteristic of entrepreneurship. Natural resources, raw materials provided by nature, are not part of her online purchases. Diff: 1 AACSB: Reflective Thinking LO: 1.1: Define business and list the factors of production. Classification: Application

  9. Page 9
    Read page 9 as text

    8 15) As more profit is generated, a company is able to increase its productivity. Answer: TRUE Explanation: As a company's profits increase, profits can be invested in actions that are likely to increase productivity, such as rewarding employees and upgrading facilities and equipment. Diff: 1 AACSB: Reflective Thinking LO: 1.1: Define business and list the factors of production. Classification: Concept Learning Outcome: Explain how economic performance is monitored 16) When a business is profitable, the whole society benefits. Answer: TRUE Explanation: When a business earns profits, many people benefit. Owners benefit, as do employees who may benefit from bonuses or pay increases. Society as a whole benefits from the employment opportunities the business provides, as well as the spending and income it generates in the economy. Diff: 1 AACSB: Reflective Thinking LO: 1.1: Define business and list the factors of production. Classification: Concept Learning Outcome: Explain how economic performance is monitored 17) Barbara owns a bakery in Boston. When her business reached a certain level of profit, she decided to open three more bakeries in the area. Many businesses, like Barbara's, are able to expand as they earn more profits. Answer: TRUE Explanation: Profit is the money left over after expenses are paid out of revenues. This money can be reinvested in the business in a variety of ways, including opening new retail locations, upgrading equipment, and hiring additional employees. Diff: 1 AACSB: Reflective Thinking LO: 1.1: Define business and list the factors of production. Classification: Application Learning Outcome: Explain how economic performance is monitored 18) Not all businesses provide a product. Answer: FALSE Explanation: All businesses provide a product. Some businesses offer physical products, which are referred to as goods . Other businesses offer nontangible products, called services . Diff: 2 AACSB: Reflective Thinking LO: 1.1: Define business and list the factors of production. Classification: Concept

  10. Page 10
    Read page 10 as text

    9 19) Car insurance is an example of a good. Answer: FALSE Explanation: Car insurance is a nontangible product; therefore, it is a service, not a good, which is a physical product. Diff: 1 AACSB: Reflective Thinking LO: 1.1: Define business and list the factors of production. Classification: Application 20) Any profits generated by a not-for-profit organization must be turned over to the government. Answer: FALSE Explanation: Not-for-profit organizations seek to service their communities through social, educational, or political means. Any profits they generate are used to further their causes by expanding the services they provide. Diff: 1 AACSB: Reflective Thinking LO: 1.1: Define business and list the factors of production. Classification: Concept Learning Outcome: Explain how economic performance is monitored 21) To be successful, a company should keep pace with the latest technology. Answer: TRUE Explanation: Successful companies keep pace with technological processes, thereby harnessing new knowledge, information, and business strategies. Unsuccessful companies often fail because they have not kept pace with the latest technology and techniques. Diff: 1 AACSB: Information Technology, Reflective Thinking LO: 1.1: Define business and list the factors of production. Classification: Concept Learning Outcome: Identify the different types of technologies used in business and describe their uses 22) Real capital refers to the money used to facilitate a business enterprise. Answer: FALSE Explanation: Real capital refers to the physical facilities, such as a manufacturing plant, used to produce goods and services. The money used to facilitate a business' operations is referred to as financial capital. Diff: 2 AACSB: Reflective Thinking LO: 1.1: Define business and list the factors of production. Classification: Concept

  11. Page 11
    Read page 11 as text

    10 23) In what ways is a multinational corporation, like Google, similar to a local business, such as a Chinese restaurant? In what ways are these two businesses different? Answer: Both Google and a local Chinese restaurant are businesses – entities that offer goods and services to their customers in order to earn a profit. Google and the Chinese restaurant are different in that one is an innovative online business that attracts millions of visitors, while the other is a small town establishment with a smaller local customer base. Diff: 2 AACSB: Reflective Thinking LO: 1.1: Define business and list the factors of production. Classification: Application Learning Outcome: Explain the benefits and challenges of engaging in international business 24) What do businesses generally do with profits? Answer: As more profit is generated, a company generally opts to use some portion of its profits to reward its employees, increase its productivity, or expand its business into new areas. Diff: 2 AACSB: Reflective Thinking LO: 1.1: Define business and list the factors of production. Classification: Concept Learning Outcome: Explain how economic performance is monitored 25) How do the profits of a single business benefit society in general? Answer: A successful business benefits society by providing the goods and services we need and want. Businesses also provide employment opportunities for members of the community. Because they offer desired goods and services, provide employment, and generate income and spending in the economy, successful businesses contribute to the quality of life by creating higher standards of living for the entire society. Diff: 2 AACSB: Reflective Thinking LO: 1.1: Define business and list the factors of production. Classification: Concept

  12. Page 12
    Read page 12 as text

    11 26) Grace loves working with children and plans to start a school for children with disabilities. She would like to invest at least some of the money she makes after expenses back into the school. Discuss the advantages and disadvantages of forming the school as either a for-profit or a not-for-profit organization. Answer: A not-for-profit organization would be the most common structure for an enterprise whose primary mission is to provide educational services to the community. If Grace plans to use all excess revenues from the school on activities that support the school's mission, her best option is to form a not-for-profit organization. However, there are some schools that seek to provide high-quality educational services while still making a profit for their ownership. Grace might consider whether she can accomplish her mission of serving children with disabilities within a for-profit business. A for-profit business structure would allow Grace's school to earn a profit that Grace could use for any purpose she chose. However, given Grace's emphasis on serving children with disabilities, it is likely that the best choice for her would be to form a not- for-profit organization. Diff: 3 AACSB: Reflective Thinking LO: 1.1: Define business and list the factors of production. Classification: Application Learning Outcome: Explain how economic performance is monitored 27) Ron plans to open his own café. He wants to offer a variety of coffees, sandwiches, and salads. He also plans to hire employees who will prepare food and serve customers. What type of product would Ron's customers be offered? Answer: Ron's customers would be paying for both physical goods, that is, the food items Ron would offer, and nonphysical services , that is, the preparation and serving of the food items. Diff: 2 AACSB: Reflective Thinking LO: 1.1: Define business and list the factors of production. Classification: Application

  13. Page 13
    Read page 13 as text

    12 28) Identify and describe the factors of production. Answer: 1) Labor. Obviously businesses need people to gets things produced. Labor is the human resource that refers to any physical or intellectual work people contribute to a business's production. 2) Natural resources. Most workers who provide the labor to produce a good need something tangible to work with. Natural resources are the raw materials provided by nature that are used to produce goods and services. Soil used in agricultural production, trees used for lumber to build houses, and coal, oil, and natural gas used to create energy are all examples of natural resources. 3) Capital. There are two types of capital: real capital and financial capital. Real capital essentially refers to the physical facilities used to produce goods and services. Financial capital, on the other hand, is money used to facilitate a business enterprise. Financial capital can be acquired via business loans, from investors, or through other forms of fundraising, or even by tapping into personal savings. 4) Entrepreneurial talent. An entrepreneur is someone who assumes the risk of creating, organizing, and operating a business and directs all the business resources. Entrepreneurs are a human resource, just like labor, but what sets entrepreneurs apart from labor is not only their willingness to bear risks but also their ability to manage an enterprise effectively. Successful entrepreneurs are rewarded with profits for bearing risks and for their managerial expertise. 5) Intellectual property. This consists of privately owned, intangible assets developed as a result of people's intellect and creativity. Drug patents, copyrights to songs, and trademarks for products are examples. 6) Technology. Technology refers to items and services such as smartphones, computer software, and digital broadcasting that make businesses more efficient and productive. Diff: 2 AACSB: Reflective Thinking LO: 1.1: Define business and list the factors of production. Classification: Concept 29) Why is technology such an important factor of production? Answer: Effective use of technology can make the difference between a successful and an unsuccessful business. Successful companies are able to keep pace with technological progresses and harness new knowledge, information, and strategies. Unsuccessful organizations often fail because they have not kept pace with the latest technology and techniques. Diff: 2 AACSB: Information Technology, Reflective Thinking LO: 1.1: Define business and list the factors of production. Classification: Concept Learning Outcome: Identify the different types of technologies used in business and describe their uses

  14. Page 14
    Read page 14 as text

    13 30) Explain the similarities and differences between the different types of capital. Answer: There are two types of capital: real capital and financial capital. Real capital refers to the physical facilities used to produce goods and services. Financial capital, on the other hand, is money used to facilitate a business enterprise. Financial capital can be acquired via business loans, from investors, or through other forms of fundraising, or even by tapping into personal savings. Though real capital and financial capital are different types of resources, the two types of capital are similar in that they both support a company's ability to conduct its business operations. Diff: 2 AACSB: Reflective Thinking LO: 1.1: Define business and list the factors of production. Classification: Concept 31) The economy of the United States is BEST described as ________. A) market-based B) government-owned C) socialistic D) not-for-profit E) noncompetitive Answer: A Explanation: The United States' economy is market-based, that is, there is an emphasis on economic freedom and a limit on government intervention. Therefore, the U.S. economy would not be considered either government-owned or socialistic. The private enterprise system in the United States is predicated on the fact that competition benefits consumers because it motivates businesses to produce a wider variety of better and cheaper goods and services. The U.S. economy is intended to support profitable business, and a country's economy, unlike an individual organization, would not be labeled "not-for-profit." Diff: 1 AACSB: Reflective Thinking LO: 1.2: Explain how competition, the social environment, globalization, and technological changes challenge and provide business opportunities to business owners. Classification: Concept Learning Outcome: Compare and contrast different economic systems

  15. Page 15
    Read page 15 as text

    14 32) Which of the following is NOT a benefit of business competition? A) It may lead to a wider variety of goods and services. B) It may lead to higher quality goods and services. C) It may lead to a limited variety of goods and services. D) It may lead to lower priced goods and services. E) It may lead to increased customer satisfaction. Answer: C Explanation: The United States' private enterprise system is based on the belief that competition benefits consumers because it motivates businesses to produce a wider variety of better and lower priced goods and services. Therefore, competition would not benefit consumers if it resulted in a limited variety of goods and services. Diff: 1 AACSB: Reflective Thinking LO: 1.2: Explain how competition, the social environment, globalization, and technological changes challenge and provide business opportunities to business owners. Classification: Concept Learning Outcome: Compare and contrast different economic systems 33) Which of the following BEST describes competition? A) Two or more companies compete with one another for greater federal, state, and local subsidies. B) Two or more companies compete with one another to attract customers and gain an advantage. C) Two or more companies compete with one another to maintain a monopoly. D) Two or more companies compete with one another to influence trade policy. E) Two or more companies compete with one another to limit the variety of goods and services. Answer: B Explanation: Competition arises when two or more businesses contend with one another to attract customers and gain an advantage. Even in a free-market economy, it is possible that two or more businesses might be competing for preferential government treatment such as tax breaks, though that is not a defining characteristic of competition, which is primarily focused on attracting customers. Two or more businesses might cooperate with one another, rather than compete, to maintain a shared monopoly position or attempt to influence trade policies. Diff: 1 AACSB: Reflective Thinking LO: 1.2: Explain how competition, the social environment, globalization, and technological changes challenge and provide business opportunities to business owners. Classification: Concept Learning Outcome: Compare and contrast different economic systems

  16. Page 16
    Read page 16 as text

    15 34) Leroy owns a small hardware store that is known for its high level of customer service. A large chain home improvement store has just opened up in his community. Which of the following would BEST help Leroy deal with his new competitor? A) paying his employees "under the table" to avoid costly payroll taxes and keep prices lower B) closing the business, since small stores cannot compete effectively with chain stores C) advertising aggressively to increase consumer awareness of his reputation for service D) moving his store in order to be farther away from the large store E) raising his prices, to show that their customer service is worth paying a premium for Answer: C Explanation: Leroy's first step should be to advertise aggressively to remind customers of the benefits of patronizing his store. Violating tax laws (paying employees "under the table") can have severe consequences, including losing the business. Moving his store would be costly and might not improve Leroy's competitive position. Closing the business should be undertaken only if Leroy is unable to convince customers that the high quality and convenience his store offers is more valuable than the lower prices offered by the larger store. Diff: 2 AACSB: Analytical Thinking LO: 1.2: Explain how competition, the social environment, globalization, and technological changes challenge and provide business opportunities to business owners. Classification: Application 35) Competition affects companies in all of the following ways EXCEPT ________. A) forcing them to deliver customer satisfaction B) forcing them to improve their products C) forcing them to aggressively promote their brands D) forcing them to lower their prices E) forcing them to increase their production levels Answer: E Explanation: Competition does not force companies to increase their output. Producing more products would be of no competitive advantage unless the products were of high quality and there was sufficient demand to justify increased production levels. In order to compete more effectively, companies must either improve their products or lower their prices, or both, relative to their competition. They must also promote their products aggressively to convince consumers that their product is better or cheaper than that of their competitors. Diff: 2 AACSB: Reflective Thinking LO: 1.2: Explain how competition, the social environment, globalization, and technological changes challenge and provide business opportunities to business owners. Classification: Concept

699 more pages in the full document

Unlock it once and it stays in your library, ready to chat with or turn into flashcards.

Unlock the full document

More Business Management study materials

See all

Study this document with CramX

Once it is in your library, every tool can work from it.