Business Basics Chapter 1 Review

Which of the following occurs when company's revenue is greater than its expenses?

• The company earns a profit

• The company spends more than it earns

• The company's income is decreasing

• The company needs to increase its spending

• The company must increase its productivity

Answer 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.

What are the physical products that a business offers referred to as?

• Goods

• Services

• Assets

• Devices

• Intangible

Answer 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.

Emma bought a tablet and a smartphone. These products are called goods because _______.

• they do a good job of satisfying a customer's needs

• they are physical and tangible products

• they are produced in an economical offshore factory

• they can be sold either in a store or online

• they are good at increasing a company's profit margin

Answer explanation

Goods are physical or tangible products offered by a business. 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.

Jose called an electrician to repair some appliances in his home. Which of the following terms BEST describes the electrician's repairs?

• A service

• A good

• Telecommuting

• Intellectual property

• E-commerce

Answer 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.

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?

• A manufacturing plant

• A green technology company

• A university

• A parts supplier

• A restaurant

Answer 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.

What do profits allow a company to do?

• Increase productivity

• Lower employee wages

• Control expenses

• Eliminate factors of production

• Eliminate competitors

Answer 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.

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?

• Pay for utilities and inventory in advance.

• Develop a website that would enable customers to shop and place orders online.

• Hire more staff.

• Create an emergency fund.

• Service her community through social and educational means.

Answer explanation

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.

Which of the following describes how profits are used in a non-profit organization?

• To increase income for owners

• To generate income in the economy

• To expand services

• To reduce labor costs

• To reward stakeholders

Answer explanation

Non-profit organizations do not go into business to pursue profits for their owners. 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 expanding the services they provide.

Which of the following include all the various resources used to create a company's goods and services?

• Raw materials

• Factors of production

• Supplies

• Inventory

• Intellectual property

Answer 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.

Which factor of production refers to the intellectual work people contribute to a business's production?

• Labor

• Capital

• Resources

• Entrepreneurial talent

• Technology

Answer 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.