Test Prep Test Prep Certifications BUSINESS-ENVIRONMENT-AND-CONCEPTS Questions & Answers

• Question 281:

  Having identified their mission, overall strategy, and critical success factors, organizations often review the internal and external factors that will contribute to their success. This analysis is often referred to as:

  A. TOC evaluation.

  B. Brainstorming.

  C. Balanced scorecard review.

  D. SWOT analysis.

  Correct Answer: D

  Choice "d" is correct. Evaluation of internal and external factors contributing to an organization's success is referred to as Strengths, Weaknesses, Opportunities and Threats (SWOT) analysis. Strengths and weaknesses focus on internal factors while opportunities and threats relate to external factors. Choice "a" is incorrect. The acronym TOC stands for Theory of Constraints, which is an evaluation technique for optimizing throughput time, it does not relate to overall strategy evaluation. Choice "b" is incorrect. Brainstorming is a meeting technique used to generate ideas. Although brainstorming could be used as part of an organization's approach to SWOT analysis, it is not, itself, the evaluation of internal and external factors. Choice "c" is incorrect. A review of the balanced scorecard, which summarizes measures of achievement of critical success factors, does not represent the objective review of internal and external factors that may impact achievement of strategy.

• Question 282:

  Economic theory identifies two basic types of goods: inferior goods and superior goods. As consumer income rises, a lower percentage of earnings are expended on inferior goods while a higher percentage of earnings are spent on superior goods. Overall strategies for achieving organizational missions would most likely match with types of goods as follows:

  A. Cost leadership strategies for superior goods, differentiation strategies for inferior goods.

  B. Cost leadership strategies for inferior goods, differentiation strategies for superior goods.

  C. Cost leadership strategies would most likely be used for both inferior and superior goods.

  D. Differentiation strategies would most likely be used for both inferior and superior goods.

  Correct Answer: B

  Rule: Overall strategies are divided into two different types that are defined as follows: Cost leadership: Organization seeks to capture market share through maintaining the lowest cost. Differentiation: Organization seeks to capture market share by demonstrating product value. Choice "b" is correct. Organizations that sell economically inferior goods (necessities such as cotton swabs, light bulbs, etc.) are more likely to posture themselves as cost leaders than organizations that sell economically superior goods (luxuries such as cruise packages, fine china, jewelry, etc.) who will likely seek to differentiate the value of their product as part of their strategy. Choice "a" is incorrect. Economically inferior products would likely be associated with cost leadership, not differentiation while economically superior products would likely be associated with differentiation. Choice "c" is incorrect. Economically inferior products would likely be associated with cost leadership, not differentiation while economically superior products would likely be associated with differentiation. Choice "d" is incorrect. Economically inferior products would likely be associated with cost leadership, not differentiation while economically superior products would likely be associated with differentiation.

• Question 283:

  Strategic planning activities normally involve which of the following efforts:

  I. Strategic Positioning.

  II. Value Chain Analysis.

  III.

  Balance Scorecard Development.

  A.

  I.

  B.

  I and II.

  C.

  I and III.

  D.

  I, II, and III.

  Correct Answer: D

  Choice "d" is correct. Strategic planning activities are normally acknowledged to include each of three operations including: I. Strategic positioning. Strategic positioning includes the process of identifying mission, identifying overall strategy, identifying factors critical to succeeding given the assumed strategy and identifying internal and external factors that contribute or detract from achieving the strategy.

  II. Value chain analysis. Value chain analysis includes the process of identifying the functional characteristics of an organization and the manner in which each one of those functions adds value to the firm's customers. III. Balanced scorecard development. Development of a balanced scorecard identifies measurements of value that are both financial and non-financial to be used to monitor and evaluate performance.

  Choice "a" is incorrect. All three activities are integral to strategic planning. Choice "b" is incorrect. All three activities are integral to strategic planning. Choice "c" is incorrect. All three activities are integral to strategic planning.

• Question 284:

  A government price support program will:

  A. Lead to surpluses.

  B. Lead to shortages.

  C. Improve the rationing function of prices.

  D. Not influence the rationing function of prices.

  Correct Answer: A

  Choice "a" is correct. A government price support program acts as a subsidy that will encourage suppliers

  to increase supply beyond an equilibrium point (the point where supply and demand curves intersect). This

  excess of supply over demand will create surpluses in the market.

  Choices "b", "c", and "d" are incorrect, per the above Explanation.

• Question 285:

  If the federal government were to regulate a product or service in a competitive market by setting a maximum price that is below the equilibrium price, then in the long run this action will:

  A. Result in a surplus.

  B. Result in a shortage.

  C. Cause a decrease in price.

  D. Have no effect on the market.

  Correct Answer: B

  Choice "b" is correct. Setting a maximum or ceiling price, which is below the equilibrium price dictated by a

  competitive market, would result in a shortage as a result of excess demand.

  Choices "a", "c", and "d" are incorrect, per the above Explanation.

• Question 286:

  In the long run in a competitive market, a maximum or ceiling price set below the equilibrium price will:

  A. Cause a surplus to be produced.

  B. Have no effect on the market.

  C. Cause a shortage to be created.

  D. Result in a decrease in price.

  Correct Answer: C

  Choice "c" is correct. Setting a ceiling price below the price dictated by market forces (which is the

  equilibrium price set by the supply and demand curves) would create excess demand for the product (at its

  reduced price) and, consequently, a shortage.

  Choice "a" is incorrect. A surplus would be produced if a floor price (under which no supplier could sell)

  were set above the equilibrium price, because suppliers would supply excess product at the inflated price.

  Choices "b" and "d" are incorrect, per the above Explanation.

• Question 287:

  Long Lake Golf Course has raised green fees to a nine-hole game due to an increase in demand.

  

  Which of the following is correct?

  A. The regular weekday and weekend demand is inelastic.

  B. The regular weekday and weekend demand is elastic.

  C. The senior citizen and weekend demand is inelastic.

  D. The senior citizen demand is elastic and weekend demand is inelastic.

  Correct Answer: D

  Choice "d" is correct. Demand is elastic if a decline in price (P) results in an increase in total revenue (TR);

  or if an increase in P results in a decline in TR. On the other hand, if demand is inelastic, a decline in P will

  result in a decline in TR or an increase in P will result in an increase in TR.

  First, the total revenues at both the new and the previous rate must be computed. The (new or previous)

  rate* average games played (AGP) = the total revenue. As a result, TR at the previous rate (PR) is 800 for

  regular weekday (RW), 900 for senior citizen (SC), and 3315 for the weekend (WE). TR at the new rate

  (NR) is 770 for RW, 656 for SC, and 4460 for WE.

  So, demand for RW and SC is elastic because the increase in P results in a decline in total revenue. The

  demand for WE is inelastic because the increase in P results in an increase in TR.

  As a result, choices "a", "b", and "c" are incorrect.

  Note: if TR remains constant after a change in P, the demand is unit elastic.

• Question 288:

  Demand for a product tends to be price inelastic if:

  A. The product is considered a luxury item.

  B. Few good complements for the product are available.

  C. People spend a large share of their income on the product.

  D. Few good substitutes are available for the product.

  Correct Answer: D

  Choice "d" is correct. Demand for a product tends to be price inelastic if few good substitutes are available for the product. Even if price increases, consumers are then unable to switch to substitute goods, because there aren't any. Choice "a" is incorrect. Luxury items may have good substitutes available. Choice "b" is incorrect. Complementary goods are those whose demand fluctuates in unison; substitute goods are more relevant here. Choice "c" is incorrect. If consumers spend a large share of their income on the product, they will be very sensitive to any price changes and hence product demand would be more "elastic".

• Question 289:

  In the pharmaceutical industry where a diabetic must have insulin no matter what the cost and where there is no substitute, the diabetic's demand curve is best described as:

  A. Perfectly elastic.

  B. Perfectly inelastic.

  C. Elastic.

  D. Indifferent.

  Correct Answer: B

  Choice "b" is correct. When a good is demanded, no matter what the price, demand is described as perfectly inelastic. The demand "curve" is a vertical line at the quantity demanded with price making no difference. Choices "a" and "c" are incorrect. There is no such thing as perfect elasticity. However, the more elastic demand is, the greater the change in quantity demanded for price changes. Choice "d" is incorrect. Diabetics are indifferent to changes in the price of insulin, and to economists, this is perfectly inelastic demand.

• Question 290:

  A perfectly inelastic supply curve in a competitive market:

  A. Means the equilibrium price must be zero.

  B. Implies a vertical demand curve.

  C. Exists when firms cannot vary input usage.

  D. Says the market supply curve is horizontal.

  Correct Answer: C

  Choice "c" is correct. Price elasticity of supply is calculated the same way as demand except that quantity supplied is measured:

  

  Perfectly inelastic supply curves are also vertical representing that supply is insensitive to changes in price; i.e., the quantity supplied will not change as price changes. Perfectly inelastic supply curves would exist if firms cannot vary input usage. Regardless of price, the firm has to use all inputs if it produces at all. Choices "a", "b", and "d" are incorrect, as they are far-out distractors.