Better Business, 6e (Solomon/Poatsy/Martin)
Chapter 1 Business Basics
ALL CHAPTERS ANSWERS INCLUDED
1) Which of the following occurs when company's revenue is greater than its expenses?
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
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E) The company must increase its productivity
Answer: A
E
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
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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,
C
depending on its business goals.
Diff: 1
AACSB: Reflective Thinking
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LO: 1.1: Define business, and list the factors of production.
Classification: Concept N
Learning Outcome: Explain how economic performance is monitored
N
2) What are the physical products that a business offers referred to as?
A) Goods
B) Services
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C) Assets
D) Devices
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E) Intangible
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Answer: A
Explanation: By definition, physical products that a business offers are called goods. Services
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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
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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
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not a device.
Diff: 1
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AACSB: Reflective Thinking
LO: 1.1: Define business, and list the factors of production.
Classification: Concept
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,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 and 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. Goods are typically
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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,
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such as services, can also be sold in a store or online.
Diff: 1
D
AACSB: Reflective Thinking
LO: 1.1: Define business, and list the factors of production.
Classification: Application
C
4) Jose called an electrician to repair some appliances in his home. Which of the following terms
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BEST describes the electrician's repairs?
A) A service
B) A good
C) Telecommuting
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N
D) Intellectual property
E) E-commerce
Answer: A
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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.
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Diff: 1
S
AACSB: Reflective Thinking
LO: 1.1: Define business, and list the factors of production.
S
Classification: Application
E
5) Some companies offer products that are both goods and services. Which of the following is an
example of a company that offers products that are both goods and services?
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A) A manufacturing plant
B) A green technology company
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C) A university
D) A parts supplier
E) A restaurant
Answer: E
Explanation: Some companies offer products that are both goods and services. Take, for
example, a restaurant franchises. When you order food, you're paying for the goods (the food) as
well as the service of preparing, cooking, and serving the food.
Diff: 2
AACSB: Application of Knowledge
LO: 1.1: Define business, and list the factors of production.
Classification: Application
2
,6) What do profits allow a company to do?
A) Increase productivity
B) Lower employee wages
C) Control expenses
D) Eliminate factors of production
E) Eliminate competitors
Answer: A
Explanation: Profits allow a company to reward employees, increase productivity, and expand
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into new areas. To maintain productivity, a company would need to remain concerned about
controlling expenses, and maintain or increase employee wages.
E
Diff: 2
AACSB: Reflective Thinking, Analytical Thinking
D
LO: 1.1: Define business, and list the factors of production.
Classification: Concept
Learning Outcome: Explain how economic performance is monitored
C
7) Nina's furniture store has had a successful year and made a significant profit. Which of the
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following actions using Nina's store profits would BEST increase productivity?
A) Pay for utilities and inventory in advance.
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B) Develop a website that would enable customers to shop and place orders online.
C) Hire more staff.
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D) Create an emergency fund.
E) Service her community through social and educational means.
Answer: B
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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
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customers, since the online store could carry more items than could be viewed in the store.
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Diff: 3
AACSB: Analytical Thinking
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LO: 1.1: Define business, and list the factors of production.
Classification: Application
E
Learning Outcome: Explain how economic performance is monitored
U
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, 8) Which of the following describes how profits are used in a non-profit organization?
A) To increase income for owners
B) To generate income in the economy
C) To expand services
D) To reduce labor costs
E) To reward stakeholders
Answer: C
Explanation: Non-profit organizations do not go into business to pursue profits for their owners.
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Instead, a non-profit organization seeks to serve its community through social, educational, or
political means. Any profits they generate are used to further the organizations' causes by
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expanding the services they provide.
Diff: 2
D
AACSB: Application of Knowledge
LO: 1.1: Define business, and list the factors of production.
Classification: Concept
C
Learning Outcome: Explain how economic performance is monitored
O
9) Which of the following include all the various resources used to create a company's goods and
services?
A) Raw materials
B) Factors of production
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N
C) Supplies
D) Inventory
E) Intellectual property
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Answer: B
Explanation: Factors of production are the resources used to produce goods and services. They
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include six factors: labor, natural resources, capital, entrepreneurial talent, technology, and
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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
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production.
Diff: 1
E
AACSB: Reflective Thinking
LO: 1.1: Define business, and list the factors of production.
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Classification: Concept
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