Better Business, 5e (Solomon/Poatsy/Martin) ANSWERS INCLUDED
Chapter 1: Business Basics
ALL CHAPTERS
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
M
D) the company needs to increase its spending
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
D
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
O
LO: 1.1: Define business and list the factors of production.
Classification: Concept N
Learning Outcome: Explain how economic performance is monitored
N
2) The physical products that a business offers are called .
A) goods
O
B) services
C) assets
D) devices
I
E) intangible
S
Answer: A
Explanation: By definition, physical products that a business offers are called goods. Services
S
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
E
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
R
AACSB: Reflective Thinking
LO: 1.1: Define business and list the factors of production.
Classification: Concept
Page 1 of 716
,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
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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
E
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.
D
Diff: 1
AACSB: Reflective Thinking
LO: 1.1: Define business and list the factors of production.
C
Classification: Application
O
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
N
N
C) a benefit
D) an appointment
E) a liability
O
Answer: A
Explanation: An electrical repair is an example of a nontangible business product called a
I
service. An electrical repair is not a good, which is a tangible physical product. Although the
S
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
S
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
E
services by appointment, "appointment" does not define the type of product the electrician
provides.
U
Diff: 1
AACSB: Reflective Thinking
R
LO: 1.1: Define business and list the factors of production.
Classification: Application
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,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
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good (the salad) as well as the services of preparing and serving the salad.
Diff: 1
E
AACSB: Reflective Thinking
LO: 1.1: Define business and list the factors of production.
D
Classification: Application
6) Profits allow a company to _ .
C
A) increase productivity
B) lower employee wages
O
C) reduce its span of operations
D) disregard concern about expenses
E) lower standards of living for the entire society
Answer: A
N
Explanation: Profits allow a company to reward employees, increase productivity, and expand
N
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
O
for growth in its operations, not a reduction.
Diff: 2
I
AACSB: Reflective Thinking, Analytical Thinking
S
LO: 1.1: Define business and list the factors of production.
Classification: Concept
S
Learning Outcome: Explain how economic performance is monitored
E U
R
Page 3 of 716
, 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
M
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
E
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
D
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.
C
Diff: 3
AACSB: Reflective Thinking
O
LO: 1.1: Define business and list the factors of production.
Classification: Application
N
Learning Outcome: Explain how economic performance is monitored
8) Which of the following statements is TRUE of a not-for-profit organization?
N
A) It pursues profits for its owners.
B) It does not pay expenses.
O
C) It can earn excess revenue.
D) It cannot operate like a business.
I
E) It rewards the proprietor of the organization with earned profits.
S
Answer: C
Explanation: These organizations do not go into business to pursue profits for their owners. Any
S
excess revenue they generate is used to further the organizations' causes by expanding the
services they provide.
E
Diff: 2
AACSB: Reflective Thinking
U
LO: 1.1: Define business and list the factors of production.
Classification: Concept
R
Learning Outcome: Explain how economic performance is monitored
Page 4 of 716
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