Bus Econ 1000 Review Q&A








Vol. I-II

Winter Semester (1-500)

Spring Semester (501-1000)




Table of Content

Table of Contents
CHAPTER 1 – Taking Risks and Making Profits within the Dynamic Business Environment (Questions 1 – 53) 3
CHAPTER 2 – Understanding how economics affects business. (Questions 54-111) 10
CHAPTER 3 – Doing global business in global market (Questions 112-165) 18
CHAPTER 4 – Demanding ethical and socially responsible behavior (Questions 166-194) 26
CHAPTER 5 – How to form a business (Questions 195-23) 30
CHAPTER 6 – Entrepreneurship and Starting a Small Business (Questions 237-280) 36
CHAPTER 7 – Management and Leadership (Questions 281-341) 43
CHAPTER 8 – Adapting Organizations to Today’s Markets (Questions 342-399) 50
CHAPTER 9 – Production and Operations Management of Goods and Services (Questions 400-449) 57
CHAPTER 10 – Motivating Employees (Questions 450-500) 63
CHAPTER 11 – Hiring Employees (Questions 501-539) 72
CHAPTER 12 – Dealing with Employee-Management Issues and Relationships (Questions 540-585) 78
CHAPTER 13 – Marketing: Helping Buyers Buy (Questions 586-644) 84
CHAPTER 14 – Developing and Pricing Goods and Services (Questions 645-685) 93
CHAPTER 15 – Distributing products (Questions 686-721) 99
CHAPTER 16 – Using effective promotions (Questions 722-771) 104
CHAPTER 17 – Understanding Accounting and Financial Information (Questions 772 -830) 111
CHAPTER 18 – Financial Management (Questions 831-880) 120
CHAPTER 19 – Using Securities Markets for Financing & Investing (Questions 881-944) 127
CHAPTER 20 – Money, financial institutions, and the Federal Reserve (Questions 945-1000) 134







CHAPTER 1 – Taking Risks and Making Profits within the Dynamic Business Environment

  • What are Goods and Services?
      1. Goods — Tangible products such as computers, food, clothing, cars and appliances.
  • What are Services?
      1. Services — Intangible products that can’t be held in your hand like, education, healthcare, insurance, recreation and travel.
  • How is defined success in business?
  • Success in business is often based on the strategy of finding a need and filling it.
  • What is a Business?
      1. Business — Any activity that seeks to provide goods and services to others while operating at a profit.
  • Who is an entrepreneur?
      1. Entrepreneur — A person who risks time and money to start and manage a business.
  • What’s revenue?
  • Revenue is the total amount of money a business takes in during a given period of time.
  1. What is profit?
  • Profit is the amount of money a business earns above and beyond what it spends for salaries and other expenses during a given period.
  1. What is Loss?
  2. Loss — Occurs when a business’ expenses are more than its revenues.
  3. What is the relationship of businesses profit to risk assumptions?
  4. Profit is money a business earns above and beyond the money that it spends for salaries and other expenses. Business people make profits by taking risks.
  5. Risk is the chance the business man takes of losing time and money on a business that may not be profitable. A loss occurs when a business’s costs and expenses are higher than its revenues.
  • How is Tax Money used?
  • It is used for all the following reasons:
  • Hospitals
  • Schools
  • Libraries
  • Playgrounds
  • Roads
  • Fire Protection
  • Police Protection
  • Environmental Programs
  • Support for People in Need


  • What’s the meaning of standard of living?
  • Standard of living is the amount of good and services a person can buy with the money they have.
  • What’s the meaning of quality of life?
  • Quality of life refers to the general well-being of society in terms of
  • its political freedom,
  • natural environment,
  • education,
  • health care,
  • safety,
  • amount of leisure,
  • rewards that add to the satisfaction
  • Joy that other goods and services provide.
  • What’s risk? How is it related to profit?
  • Risk is the chance an entrepreneur takes in losing time and money on a business that may not prove profitable.
  • Usually, entrepreneurs willing to take the most risk with make the highest profit.
  • What do the termstakeholders mean?
  • Stakeholders are all the people who stand to gain or lose by the policies and activities of a business and whose concerns the business needs to address. Stakeholders include:
  • Customers
  • Employees
  • Stockholders
  • Suppliers
  • Dealers
  • Bankers
  • Local community
  • Environmentalists
  • Elected government leaders
  • What do the term outsourcing mean?
  • Outsourcing is contracting with other companies (often in other countries) to do some or all the functions of a firm, like its production or accounting tasks.
  • What do the term insourcing mean?
  • Insourcing is when foreign companies set up design and production facilities in the United States.
  • What are the goals of business leaders?
  • The goals of business leaders are their duties and responsibilities in recognizing and responding to the needs of the stakeholders and still make a  profit
  • What is a non-profit organization?
  • Nonprofit Organization — An organization whose goals are for the betterment of the community, not financial gains.


  • What are some of the advantages of working for others?
  • Working for others someone else assumes the entrepreneurial risk and provides you with benefits (life health insurance, vacation time, etc.)
  • What are the benefits of working for others?
  • The benefits of working for others are
  • paid vacations,
  • health insurance,
  • secured salary,
  • social security and paid overtime,
  • career promotions and retirement schemes
  • What benefits do you lose as an entrepreneur? And what do you gain?
  • You have the freedom to make your own decisions, opportunity, and potential for wealth while sacrificing the benefits working for others often provides.
  • What are The Ups And Downs of Entrepreneurship?
  • The UPS
  • The freedom to succeed.
  • Make your own decisions.
  • High possibility of wealth.
  • Hire your own staff.
  • The DOWNS
  • The freedom to fail.
  • No paid vacations.
  • No health insurance.
  • No daycare.
  • What are the five factors of production? Which ones seem to be the most important for creating wealth?
  • The factors of production are:
  • land,
  • labor,
  • capital,
  • entrepreneurship,
  • Knowledge.
  • Of these, entrepreneurship and knowledge seem to be the most important.
  • Who are entrepreneurs?
  • Entrepreneurs are people who risk time and money to start and manage a business
  • What makes countries rich today?
  • It is a combination of entrepreneurship and the effective use of knowledge





  • What are four ways the government can foster entrepreneurship?
  • The government can foster entrepreneurship by:
  • Allowing private ownership of business,
  • passing laws that enable businesses to write enforceable contracts,
  • establishing a currency that tradable in world markets,
  • Minimize corruption in business and in its own ranks.
  • How government taxes can foster business development?
  • By keeping lower taxation and minimizing regulations the government encourage business development. From a business perspective, lower taxes mean lower risks, more growth, and thus more money for workers and the government.
  • What’s effectiveness?
  • Effectiveness means producing the desired results.
  • What’s efficiency?
  • Efficiency means producing goods and services using the least amount of resources.
  • What’s productivity?
  • Productivity is the amount of output you generate given the amount of input, such as the number of hours you work.
  • What’s empowerment?
  • Empowerment is allowing workers to make decisions essential to producing high-quality goods and services.
  • What are some of the major issues affecting the economy today?
  • Technology changes,
  • identity theft,
  • changing demographics,
  • diversity,
  • climate change,
  • war and terrorism
  • What are some of the major benefits of technology?
  • Technology — Everything from phones to copiers and the various software programs that make businesses more effective, efficient and productive.
  • Effectiveness — Producing the desired result.
  • Efficiency — Producing goods and services using the least amount of resources.
  • Productivity — The amount of output you generate given the amount of input (example: hours you work).
  • What major factor caused people to move from farming to industry and from industry to the service sector?
  • Efficiencies in agricultural led to the reduction in farms and growth in industry caused workers to leave the farm and come to the cities.
  • The growth of efficiencies in production had the same effect as in agriculture.
  • As factories became more efficient and technologically driven, workers migrated to the service sector.


  • What is e-commerce?
  • E-Commerce — The buying and selling of goods on the Internet.
  • B2C: Business to Consumer
  • B2B: Business to Business
  • What does the future look like for tomorrow’s college graduates?
  • The information-based global revolution will alter all sections of the economy. It will be an interesting opportunity for college graduates.
  1. What are databases?
  2. Databases — An electronic storage file that enables stores to monitor what you buy and helps them know what to carry in stock.
  3. What is identity theft?
  4. Identity Theft — Gathering of individuals’ personal information, such as Social Security and credit card numbers, for illegal purposes.
  5. What are the steps that can be taken for protection from identity theft?
  6. Protect your Social Security Number.
  7. Shred financial documents and items with personal information.
  8. Don’t give out personal information unless you know who you are dealing with.
  9. Use strong passwords.
  10. Never click links in suspicious emails.
  11. Monitor your credit report.
  12. How has technology benefited workers, businesses and consumers?
  13. Technology enables workers to be more effective, efficient and productive.
  14. What are some ways in which businesses meet and beat the competition?
  15. Some companies have found a competitive edge by focusing on making high quality products, all the way to zero defects.
  16. Companies seem also to exceed customer’s expectations.
  17. Others have implemented and encouraged empowerment of employees. In other words, front liners are given mote responsibility and authority in exceed customer’s demand for service
  18. What is Demography?
  19. Demography — The statistical study of the population in terms of size, density and characteristics like, age, race, gender and income.
  20. What are some important changes to the global environment?
  21. Growth of global competition
  22. Increase of free trade among nations
  23. More efficient distribution systems and communication advances.




  1. What are the increasing costs to the global environment?
  2. Wars, like those in Iraq and Afghanistan, cost billions of dollars.
  3. Tax money is diverted.
  4. Cost of security goes up.
  5. Cost of insurance goes up.
  6. What is thinking green?
  7. It’s not necessary to radically change your lifestyle to make an ecological difference. Here are a few ways to you can make small changes to help.
  8. Buy a reusable grocery bag
  9. Buy energy efficient light bulbs
  10. Recycle more
  11. Drive fewer miles or ride your bike
  12. Use less water
  13. Run less electrical equipment
  14. Buy local produce
  15. Buy a hybrid car
  16. How have social changes affected businesses?
  17. Diversity has come to mean much more than recruiting and keeping minority and female employees. Diversity efforts now include seniors, disable people, homosexuals, atheists, extroverts, introverts, married persons, singles, divorcees and devout.
  18. It also means dealing sensitively with workers and culture from around the world.
  19. Providing social security benefits to senior citizens in the future will draw huge amounts huge amount of money from the working populations
  20. That is why there is so much discussion about Social Security to the media today.
  21. What are the 4 evolution era of business?
  22. Agriculture Era
  23. Manufacturing Era
  24. Service Era
  25. Information-Based Era
  26. What do you know about Agriculture Era?
  27. In the 1800s, the agricultural industry led economic development.
  28. Technology, like the harvester and cotton gin, changed the farming industry making it more efficient.
  29. This led to fewer farmers with larger farms.
  30. What do you know about Manufacturing Era?
  31. Industrialization in the 19th and 20th centuries, moved jobs from farms to factories.
  32. As technology improved productivity, fewer workers were needed in factories.


  1. What do you know about Service Era?
  2. Services make up more 70% of the U.S. economy.
  3. Since the mid-1980s, the service industry generated almost all the increases in employment.
  4. More high-paying jobs in service than goods-producing industries.
  5. What do you know about Information Era?
  6. Information technology will affect all sectors of the economy:
  7. Agricultural
  8. Industrial
  9. Service
  10. Which countries are creating the greatest challenges?
  11. China and India are two major competitors
  12. What will be the impact of future wars and terrorism?
  13. Some businesses, such as those in the defense industry, may prosper. Others, such as tourism, may suffer. One way to minimize world tensions is to help the less fortunate countries to become more prosperous.



CHAPTER 2 – Understanding how economics affects business.

  1. What is economics?
  2. Economics is the science and study of how the society is going to employ resources to produce goods and services and distribute them for consumption among various competitive groups and individuals
  3. What’s macroeconomics?
  4. Macroeconomics looks at the operations of a nation’s economy as a whole.
  5. What’s microeconomics?
  6. Microeconomics looks at the behavior of people and organizations in markets for particular products or services.
  7. How can you be assured you have enough resources?
  8. Resources Development is the study of how to increase resources and create the conditions that will make better use of them
  9. What are some ways used to increasing resources?
  10. New energy sources – Hydrogen fuel
  11. New ways of growing foods – Hydroponics
  12. New ways of creating goods and services – Marine culture and Nanotechnology
  13. What’s better for an economy than teaching a man to fish?
  14. To create wealth in an economy, it is better to teach a man to start a fish farm, and he will be able to feed a village for a lifetime.
  15. What was the idea of economics of Thomas Malthus?
  16. Malthus believed that if the rich had most of the wealth and the poor had most of the population, resources would run out.
  17. This belief led the writer Thomas Carlyle to call economics “The Dismal Science.”
  18. Neo-Malthusians believe there are too many people in the world and believe the answer is radical birth control.
  19. What does Adam Smith’s term “invisible hand” mean? How does the invisible hand createwealth for a country?
  20. The invisible hand is the term used by Smith to describe the processes that turns self-directed gains into social and economic benefits for all.
  21. To become wealthy, people working in their own self-interest producing goods and services hire others providing employment.
  22. They also tend to reach out to help the less fortunate over time.
  23. Why population can be considered a resource just the opposite of the Malthusian theory?
  24. Contrary to Malthus, some economists believe a large population can be a resource.
  25. An educated population is a highly valuable.
  26. Business owners provide jobs and economic growth for their employees and communities as well as for themselves.


  1. What are the three principles of Adam Smith’s theory of the “invisible hand”?
  2. Smith believed that:
  3. Freedom was vital to any economy’s survival.
  4. Freedom to own land or property and the right to keep the profits of a business is essential.
  5. People will work hard if they believe they will be rewarded.
  6. What is the theory of the “Invisible Hand”?
  7. As people improve their own situation in life, they help the economy prosper through the production of goods, services and ideas.
  8. Invisible Hand — When self-directed gain leads to social and economic benefits for the whole community.
  9. How to explain the theory of the “Invisible Hand” is a simple way?
  10. A farmer earns money by selling his crops.
  11. To earn more, the farmer hires farmhands to produce more crops.
  12. When the farmer produces more, there is plenty of food for the community.
  13. The farmer helped his employees and his community while helping himself.
  14. Why corruption destroys economies?
  15. In many countries, a businessperson must bribe the government to gain permission to own land, build and conduct business operations.
  16. What is Capitalism?
  17. Capitalism is an economic system in which all or most of the means of production and distribution are privately owned and operated for profit.
  18. How does Capitalism create a climate for economic growth?
  19. Under capitalism, business people do not often deliberately set out to help others; they work mostly for their own prosperity and growth
  20. Yet by acting like that, people produce or facilitate the presence pan invisible hand, help the economy grow and prosper through the production of needed goods, services and ideas.
  21. What are the four basic rights that people have under free-market capitalism?
  22. The four rights are:
  23. the right to own private property,
  24. the right to own a business and keep all that business’s profits,
  25. the right to freedom of choice,
  26. The right to freedom of competition.
  27. What are Roosevelt’s four additional rights?
  28. Freedom of speech and expression.
  29. Freedom to worship in your own way.
  30. Freedom from want.
  31. Freedom from fear.


  1. How to describe a capitalist economy?
  2. Capitalism — All or most of the land, factories and stores are owned by individuals, not the government, and operated for profit.
  3. Who decides what to produce under capitalism?
  4. In a capitalistic system, business people decide
  5. What to produce
  6. How much to pay the workers
  7. How much t charge for goods and services
  8. Whether to produce certain goods in their own countries or in other countries
  9. Whether to export or import certain goods and services
  10. What is a free market?
  11. Free Market — Decisions about what and how much to produce are made by the market.
  12. Consumers send signals about what they like and how they like it.
  13. Price tells companies how much of a product they should produce. If something is wanted but hard to get, the price will rise until more products are available.
  14. Give an example of pricing?
  15. A seller may want to sell shirts for $50, but only a few people may buy them at that price.
  16. If the seller lowers the price to $30, more people buy the shirts.
  17. The seller establishes a price of $30 based on what consumers are willing to pay.
  18. How do businesspeople know what to produce and in what quantity?
  19. Decisions about what to produce and in what quantity are decided
  20. by the market,
  21. consumers sending signals about what to make,
  22. How many in what color, and so on.
  23. How are prices determined?
  24. Prices are determined by the economic concepts of supply and demand.
  25. What is a supply?
  26. Supply — The quantities of products businesses are willing to sell at different prices.
  27. What is demand?
  28. Demand — The quantities of products consumers are willing to buy at different prices.
  29. What is equilibrium?
  30. Market Price (Equilibrium Point) — Determined by supply and demand, this is the negotiated price.



  1. What are the basic rights people have under capitalism?
  2. The four basic rights under capitalism are:


  1. The right to private property
  2. The right to own a business and to keep all that business profits after taxes
  3. The right to freedom of competition
  4. The right to freedom of choice
  5. Can you mention some other economic freedom as in the thought of Franklin Delano Roosevelt?
  6. FDR thought that other economic freedoms were equally important like:
  7. Freedom of speech and expression
  8. Freedom to worship
  9. Freedom from want
  10. Freedom from fear
  11. What is the meaning of free market?
  12. The free market is one in which buyers and sellers negotiate prices for goods and services. Their negotiation influences the decision about what gets produced and in what quantities.
  13. Buyers’ decision in the workplace tell sellers what to produce and in what quantities. When buyers demand more goods the prices go up, signaling suppliers to produce more.
  14. The higher the price the more goods and services suppliers are willing to produce. Price is the mechanism that allows the markets to work.
  15. What are the four forms of competition and what are some examples of each?
  16. The four degrees of competition are:
  17. Perfect competition – such as a farmer’s market where good are indistinguishable. Today, however, there are no good examples of perfect competition.
  18. Monopolistic competition – such as fast-food restaurants where products are similar but consumers perceive the products to be different. Product differentiation is a key here.
  19. Oligopoly – a situation where just a few major producers dominate a market such as tobacco, gasoline, automobiles, etc. A few sellers dominate because the initial investment to enter such a market is significant.
  20. Monopoly – a situation where only one producer exists in a market. U.S. law prohibits the creation of monopolies.





  1. What are the benefits and limitations of the free market?
  2. Benefits: It allows for open competition among companies. Provides opportunities for poor people to work their way out of poverty.
  3. Limitations: People may start to let greed drive them.
  4. What is socialism?
  5. Socialism — An economic system based on the premise that some basic businesses, like utilities, should be owned by the government in order to more evenly distribute profits among the people.
  6. Entrepreneurs run smaller businesses
  7. Citizens are highly taxed
  8. Government is more involved in protecting the environment and the poor
  9. What led to the emergence of socialism?
  10. Socialists believe that the distribution of wealth should be more evenly distributed than in free-market capitalism.
  11. Government should be empowered to carry out the distribution of wealth.
  12. What are the benefits and drawbacks of socialism?
  13. Free education through college, free health care, and free child-care are some of the benefits of socialism.
  14. The key drawback of socialism is high taxes often causing a “brain drain” in the economy.
  15. Socialism also tends to inspire less innovation.
  16. What is Communism?
  17. Communism — An economic and political system in which the government makes almost all economic decisions and owns almost all the major factors of production.
  18. Prices don’t reflect demand which may lead to shortages of items, including food and clothing.
  19. Most communist countries today suffer severe economic depression and citizens fear the government.
  20. What countries still practice communism?
  21. Most nations have drifted away from communism but North Korea, Cuba still espouse communism.
  22. Russia, Vietnam, and China still have some communist ideals in place.
  23. What are the two major economic systems?
  24. Free-Market Economies — The market largely determines what goods and services are produced, who gets them, and how the economy grows.
  25. Command Economies — The government largely determines what goods and services are produced, who gets them, and how the economy will grow.




  1. What are the characteristics of a mixed economy?
  2. Mixed economies have systems where the allocation of resources is made by the market and some by the government.
  3. Like most nations of the world, the United States is a mixed economy.
  4. A mixed economy is part capitalist and part socialist. Some businesses are privately owned, but taxes tend to be high to distribute income nor evenly among the population


  1. What are the benefits of a mixed economy?
  2. A mixed economy has most of the benefits of wealthy creation generated by free markets plus the benefits of greater social equality and concern for the environment that socialism promotes
  3. Why countries are trending towards mixed economies?
  4. Communist governments are disappearing.
  5. Mostly socialist governments are cutting back on social programs, lowering taxes and moving toward capitalism.
  6. Mostly capitalist countries are increasing social programs and moving toward more socialism.
  7. What is GDP?
  8. Gross Domestic Product (GDP) — Total value of final goods and services produced in a country in a given year. As long as a company is within a country’s border, their numbers go into the country’s GDP (even if they are foreign-owned).When the GDP changes, businesses feel the effect.
  9. Name the three economic indicators and describe how well the U.S. is doing based on each indicator.
  10. The three key economic indicators are the Gross Domestic Product (GDP), the unemployment rate, and the price indexes.
  11. The GDP is the total value of final goods and services produced incountry in a given years.
  12. The unemployment rate refers to the percentage of civilians at least 16 years old who are unemployed and try to find a job within the most recent four weeks.
  13. The Consumer Price Index measures changes in the prices of about 400 goods and services that consumer buy and consider essential for a standard living
  14. The U.S. GDP is approximately about $14 trillion. Our high GDP allows citizens to enjoy a high standard of living.
  15. In 2000, the U.S. reached its lowest unemployment rate in over 30 years. However, the recession of 2008-2009 may lead unemployment to at least 10 percent.



  1. The consumer price index (CPI) has not risen to high levels keeping inflation in check. However the recession has caused fears of deflation.
  2. What is an unemployment rate?
  3. Unemployment Rate — The percentage of civilians at least 16-years-old who are unemployed and tried to find a job within the prior four weeks.
  4. What are the four types of unemployment?
  5. Four Types of Unemployment
  6. Frictional
  7. Structural
  8. Cyclical
  9. Seasonal
  10. What are the four phases of a business cycle?
  11. In an economic boom, businesses do well
  12. In a recession, prices fall, GDP declines, people purchase fewer products and businesses fail
  13. A depression is a severe recession
  14. Recovery occurs when the economy stabilizes and starts to grow
  15. What’s the difference between a recession and a depression?
  16. A recession is two or more consecutive quarters of decline in the GDP.
  17. A depression is a severe recession, usually accompanied by deflation.
  18. What is inflation?
  19. Inflation — The general rise in the prices of goods and services over time.
  20. What is deflation?
  21. Deflation — Prices are declining because too few dollars are chasing too many goods.
  22. What is disinflation?
  23. Disinflation — When the price increases are slowing (inflation rate declining).
  24. What is stagflation?
  25. Stagflation — Economy is slowing but prices are going up.
  26. What is Keynesian economics?
  27. The idea to increase government spending and cut taxes in order to stimulate economy when the economy is in a recession. When the economy seems to be growing too fast, the idea is to cut back on government spending and increase taxes
  28. What is a CPI?
  29. Consumer Price Index (CPI) — Monthly statistics that measure the pace of inflation or deflation.The government computes the costs of goods and services (housing, food, apparel, medical care, etc.) to see if they are going up or down.The wages, rent/leases, tax brackets, government benefits and interest rates of some citizens are based upon the CPI.



  1. How productivity is connected to the service sector?
  2. The higher the productivity, the lower the costs of producing goods and services. This helps lower prices.
  3. New technology adds to the quality of the services provided but not to the worker’s output.
  4. A new form of measurement needs to be created to account for the quality as well as the quantity of output.
  5. How does the government manage the economy using fiscal policy?
  6. Fiscal policy refers to the government’s efforts to keep the economy stable by increasing or decreasing taxes or government spending.
  7. What is a fiscal policy?
  8. Fiscal policy consists of government efforts to keep the economy stable by increasing or decreasing taxes or government spending
  9. What is the difference between national debts, national deficit and national surplus?
  10. National Deficit — The amount of money the federal government spends beyond what it gathers in taxes.
  11. National Debt — The sum of government deficits over time.
  12. National Surplus — When government takes in more than it spends.
  13. What is The Fed’s most visible role is increasing and lowering interest rates?
  14. When the economy is booming, the Fed tends to increase interest rates.
  15. When the economy is in a recession, the Fed tends to decrease the interest rates.
  16. What does the term monetary policy mean? What organization is responsible for monetary policy?
  17. Monetary policy is the management of the nation’s money supply and interest rates.
  18. The Federal Reserve controls the money supply in the United States.


CHAPTER 3 – Doing global business in global market

  1. What is importing?
  2. Importing — Buying products from another country.
  3. What is exporting?
  4. Exporting — Selling products to another country.
  5. Why global trade is important?
  6. Global trade allows countries to produce what they make best and buy what they need from others.
  7. Why should nations trade with other nations?
  8. No country is self sufficient
  9. Developing economies needs products and services which developed countries produce
  10. Productions resources, knowledge and skills are not evenly distributed among countries
  11. What are two of the main arguments favoring the expansion of U.S. businesses into global markets?
  12. One major argument is the sheer size of the global market; 6.7 billion people in the world are too large to ignore.
  13. Plus it’s hard for an economy, even one as large as the U.S. economy, to produce all the goods and services its citizen’s desire.
  14. How free trade benefits the world?
  15. Global trade has led the world in a new direction:
  16. Literacy rates worldwide have increased from 56% in 1950 to 84% in 2006.
  17. Life expectancy in less developed areas rose from 40.9 years in 1950 to 70.1 years in 2006.
  18. What’s comparative advantage? What are some examples of this concept at work in global markets?
  19. Comparative advantage theory was proposed by David Ricardo and simply states that a country should sell to other countries those products it produces most effectively and efficiently, and buy from other countries those products it cannot produce as effectively and efficiently.
  20. Examples include the U.S. producing goods and services such as software and engineering services and buying goods from other countries such as coffee and shoes from other nations.
  21. What is comparative advantage?
  22. Comparative Advantage — A country should sell the products it produces most efficiently and buy from other countries the products it cannot produce as efficiently.
  23. What is absolute advantage?
  24. Absolute Advantage — A country has a monopoly on producing a specific product or is able to produce it more efficiently than all other countries.


  1. What terms are important to understand to understand global trade?
  2. Exporting is selling products to other countries
  3. Importing is buying products from other countries
  4. Balance of trade is the relationship of exports to imports
  5. Balance of payments is the balance of trade plus other money flows such as tourism and foreign aid
  6. Dumping is selling products much less in other countries than in own countries
  7. How are a nation’s balance of trade and balance of payments determined?
  8. The balance of trade is the difference in the total value of a nation’s exports compared to its imports.
  9. The balance of payments is the difference between money coming into a country (from exports) and money leaving the country (for imports) plus money flows coming into or leaving a country from other factors such as tourism, foreign aid, military expenditures, and foreign investment.
  10. The goal is to have more money flowing into a country than out – a favorable balance.
  11. An unfavorable balance is when more money flows out of a country.
  12. What is the difference between balance of trade, trade surplus and trade deficit?
  13. Balance of Trade — The total value of a nation’s exports compared to its imports measured over time.
  14. Trade Surplus — When the value of a country’s exports is more than that of its imports.
  15. Trade Deficit — When the value of a country’s exports is less than that of its imports.
  16. What are some ways in which a company can engage in global business?
  17. Ways of entering a global business includes: licensing, exporting, franchising, contract manufacturing, joint venture and strategic alliances and direct foreign investments
  18. What’s meant by dumping in global trade?
  19. Dumping is the selling of products in foreign countries at lower prices than those charged in the producing country.
  20. This tactic is sometimes used to reduce surplus products in foreign markets or gain a foothold in a new market.
  21. What are the advantages of using licensing as a method of entry in global markets? What are the disadvantages?
  22. The key advantages of using licensing as a method of entry are:
  23. A) A firm can often gain revenues in a market it would not have generated in its home market;
  24. B) Licensees must purchase start-up supplies and consulting services from the licensing firm;
  25. C) Licensors spend little or no money to produce and market their products.
  • Disadvantages to licensing include:

o   A) If a product is extremely successful in another market the licensor does not receive the bulk of the revenues

o   B) If the foreign licensee learns the company’s technology and product secrets, it may break the agreement and begin producing similar products on its own.

  1. What is an export assistance center?
  2. EACs provide hands-on exporting assistance and trade-finance support for small and medium-sized businesses that wish to directly export goods and services.
  3. What is an export trading centre?
  4. ETCs help companies engage in indirect exporting by:
  5. Matching buyers and sellers.
  6. Dealing with foreign customs offices, documentation, and conversions.
  7. What services are usually provided by an export-trading company?
  8. Export trading companies provide such services as
  9. assistance in associating and establishing the desired trading relationships,
  10. matching buyers and sellers from different countries,
  11. Help dealing with foreign customs offices, documentation, and weights and measures.
  12. What is a franchising? And who is a franchisor?
  13. Franchising — A contractual agreement whereby someone with a good idea for a business sells others the rights to use the name and sell a product/service in a given area.
  14. Franchisors need to be careful to adapt their product to the countries they serve.
  15. What is contract manufacturing?
  16. Contract Manufacturing — A foreign company produces private-label goods to which a domestic company then attaches its own brand name or trademark. A form of outsourcing.
  17. Contract manufacturing can be used to:
  18. Allow a company to experiment in a new market without incurring heavy start-up costs such as building a manufacturing plant.
  19. Temporarily meet an unexpected increase in orders.
  20. What’s the key difference between a joint venture and a strategic alliance?
  21. A joint venture is a partnership between two or more companies whereby they undertake a major project. Joint ventures generally involve:
  22. sharing technology and risk;
  23. sharing marketing and management expertise;
  24. Entry into markets where foreign companies are often not allowed unless goods are produced locally.
  25. In a strategic alliance partners do not share costs, risks, management, or even profits. The purpose is to gain advantages in building competitive market advantages.
  26. How do you define a FDI?
  27. Foreign Direct Investment (FDI) — The buying of permanent property and businesses in foreign nations.
  28. What is a foreign subsidiary?
  29. Foreign Subsidiary — A company owned in a foreign country by another company called the parent company. The most common form of FDI.
  30. Primary Advantage: Parent company maintains complete control over its technology or expertise.
  31. Primary Disadvantage: Must commit funds and technology within foreign boundaries.
  32. What makes a company a multinational corporation?
  33. A multinational corporation manufactures and markets products in many different countries and has multinational stock ownership and management.
  34. Only firms that have manufacturing capacity or other physical presence in other countries can be called multinational.
  35. What is a SWF?
  36. Sovereign Wealth Funds (SWFs) — Investment funds controlled by governments holding large stakes in foreign companies.
  37. The size of the funds and the fact that they are government-owned make some fear they might be used for:
  38. Geopolitical objectives.
  39. Gaining control of strategic natural resources.
  40. Obtaining sensitive technologies.
  41. Undermining the management of the companies in which they invest.
  42. What are four major hurdles to successful global trade?
  43. Four major hurdles to successful global trade are:
  44. sociocultural forces,
  45. economic and financial forces,
  46. legal and regulatory forces,
  47. Physical and environmental forces.


  1. What are some examples of culture differences among nations?
  2. To be involved in global trade, you must be aware of the cultural differences among nations including:
  3. Social Structures
  4. Religion
  5. Manners
  6. Values
  7. Language
  8. Personal
  9. Communication
  10. What does ethnocentricity mean and how can it affect global success?
  11. Ethnocentricity is an attitude that your nation’s culture is superior to other cultures.
  12. It can affect global trade because all nations are proud of their cultures and do not aspire to be like other countries.
  13. Thus it’s easy to offend potential customers by being ethnocentric.
  14. How would a low value of the dollar affect U.S. exports?
  15. A low value of the dollar would make U.S. exports cheaper in foreign markets and may lead to higher demand for U.S. products.
  16. What is an Exchange Rate?
  17. Exchange Rate — The value of one nation’s currency relative to the currencies of other countries.
  18. What does it mean the dollar can have high value or low value?
  19. High value of the dollar – Dollar is trading for more foreign currency; foreign goods are less expensive.
  20. Low value of the dollar – Dollar is trading for less foreign currency; foreign goods are more expensive.
  21. What does it mean a currency can float in value?
  22. Currencies float in value depending on the supply and demand for them in the global market.
  23. What is devaluation?
  24. Devaluation — Lowers the value of a nation’s currency relative to others.
  25. What is countertrading?
  26. Countertrading — Complex form of bartering in which several countries each trade goods or services for other goods or services.
  27. What are the legal concerns when investing overseas?
  28. There’s no global system of laws.
  29. Laws may be inconsistent.
  30. U.S. businesses must follow U.S. laws while conducting global business.
  31. The Organization for Economic Cooperation and Development (OECD) and Transparency International fight to end corruption and bribery in foreign markets and have had limited success.






  1. What are the environmental forces?
  2. Developing countries have transportation and storage systems that make international distribution difficult or impossible.
  3. Often, technological capabilities are far from those in the U.S. which make for a tough business environment.
  4. What are the advantages and disadvantages of trade protectionism and of tariffs?
  5. Trade protectionism is the use of government regulations to limit the import of goods and services.
  6. It can be a barrier to global trade.
  7. Trade protectionism often involves the use of tariffs or taxes on imported goods that makes them more expensive to buy.
  8. Protective tariffs can be an advantage to workers in certain industries since it makes the products they produce more cost competitive with imported products.
  9. American labor unions have sought certain protective tariffs.
  10. Revenue tariffs are designed as a source of revenue for the government.
  11. Most economists do not favor the use of tariffs instead are in favor of free trade.
  12. What are tariffs?
  13. Tariffs are taxes on foreign products. Protective tariffs raise the prices of imported goods and services. In this way, protective tariffs defend domestic industries, and the revenues from tariffs raise money for the government
  14. What is an import quota?
  15. Import Quota — Limits the number of products in certain categories a nation can import.
  16. What is an embargo?
  17. Embargo — A complete ban on the import or export of a certain product or the stopping of all trade with a particular country.
  18. How do you define GATT?
  19. General Agreement on Tariffs and Trade — A global forum for reducing trade restrictions on goods, services, ideas and cultural problems.
  20. What’s the primary purpose of the World Trade Organization (WTO)?
  21. The World Trade Organization (WTO) was established to mediate trade disputes among nations.
  22. Headquartered in Geneva, the WTO is an independent entity of 152 member nations whose purpose is to oversee cross-border trade issues and global business practices.
  23. How do you define a common market?
  24. Common Market — A regional group of countries with a common external tariff, no internal tariffs and coordinated laws to facilitate exchange among members.



  1. What’s the key objective of a common market like the EU?
  2. The purpose of a common market like the EU is to have common external tariffs, no internal tariff, and coordinate laws to facilitate exchange between member nations.
  3. This enables smaller nations to compete as a group against large economies like the United States, China, and Japan.
  4. How do yu explain the NAFTA?
  5. North American Free Trade Agreement — Ratified in 1994, created a free-trade area among the United States, Canada and Mexico.
  6. NAFTA’s objectives are:
  7. Eliminate trade barriers and facilitate cross-border movement of goods and services.
  8. Promote conditions of fair competition.
  9. Increase investment opportunities.
  10. Provide effective protection and enforcement of intellectual property rights.
  11. Establish a framework for further regional trade cooperation.
  12. Improve working conditions in North America.
  13. How do you define a CAFTA?
  14. Central American Free Trade Agreement — Passed in 2005, created a free-trade zone with Costa Rica, Dominican Republic, El Salvador, Guatemala, Honduras and Nicaragua.
  15. Free traders hope CAFTA will lead to the creation of a Free Trade Area of the Americas (FTAA).
  16. Which three nations comprise NAFTA? Which nations comprise CAFTA?
  17. NAFTA is comprised of the United States, Canada, and Mexico.
  18. CAFTA is a free trade zone with the United States, Costa Rica, the Dominican Republic, El Salvador, Guatemala, Honduras, and Nicaragua.
  19. How has the Internet impacted doing business in global markets?
  20. The Internet has made it possible to make global trade available to small as well as large companies.
  21. It has simplified and expanded trade opportunities across the globe.
  22. What is an embargo?
  23. An embargo prohibits the importing or exporting of certain products
  24. What is the future of global trade?
  25. China is the largest global consumer of steel, copper, coal and cement and second only to the U.S. in the consumption of oil.
  26. Multinationals are investing heavily in China.
  27. India has seen huge growth in information technology, pharmaceuticals and biotechnology.
  28. Russia is a large oil producing country with many multinationals interested in developing there.
  29. What are the economic risks of doing business in countries like China?
  30. China’s one-party political system, human rights abuses, underground economy with counterfeit goods, and other issues still make it a risky place to do business.
  31. What might be some important factors that will have an impact on global trading?
  32. Terrorism, nuclear proliferation, rogue states with dangerous dictators, and other issues cast a dark shadow on global markets and could inhibit global trade.
  33. How do you plan for your global career?
  34. Study foreign languages
  35. Learn about foreign cultures
  36. Take global business courses.
  37. What are the two primary concerns of offshore outsourcing?
  38. The key concern surrounding offshore outsourcing is the loss of jobs.
  39. Today such loss includes professional services as well as production jobs.
  40. Questions also linger about outsourcing sensitive products like airline maintenance and medical devices.
  41. Consumer’s fears about quality and product safety keep the issue center stage.


CHAPTER 4 – Demanding ethical and socially responsible behavior

  1. How do we restore trust in the free market system?
  2. Punish those who have broken the law.
  3. Make accounting records more transparent.
  4. Consider what is ethical, not just what is legal.
  5. How do we restore trust in the free market system?
  6. Punish those who have broken the law.
  7. Make accounting records more transparent.
  8. Consider what is ethical, not just what is legal.
  9. What are ethics?
  10. Ethics are society’s accepted standards of behavior. In other words behaviors accepted by society as right rather than wrong.
  11. Give some example of right and wrong social ethical behaviors?
  12. Right: Integrity, Respect for human life, Self-control, Honesty, Courage, Self-sacrifice
  13. Wrong: Cheating, Cowardice, Cruelty
  14. What are the questions you can ask yourself when facing ethical dilemma?
  15. Is it legal?
  16. Is it balanced?
  17. How will it make me feel about myself?
  18. What is plagiarizing?
  19. Plagiarizing from Internet materials is the most common form of cheating in schools today.
  20. Studies found a strong relationship between academic dishonesty and dishonesty at work.
  21. Why Ethics start at the top?
  22. Trust between workers and managers must be based on fairness, honesty, openness and moral integrity.
  23. Leadership can help instill corporate values in employees.
  24. What are the individual factors influencing managerial ethics?
  25. Values
  26. Work Background
  27. Family Status
  28. Personality
  29. What are the organizational factors influencing managerial ethics?
  30. Top Level Management Philosophy
  31. Firm’s Reward System
  32. Job Dimensions


  1. What are the social factors influencing managerial ethics?
  2. Competition
  3. Economic Conditions
  4. Social/Cultural Institutions
  5. How do ethics differ from legality?
  6. Ethics reflect people’s proper relationships with one another. Legality is narrower in that it refers to laws we have written to protect ourselves from fraud, theft, and violence.
  7. Ethics goes beyond obeying laws to include abiding by the moral standards accepted by the society.
  8. How can we tell if our business decisions are ethical?
  9. We can put our decisions through an ethics checks by asking three questions:
  10. Is it legal?
  11. Is it balanced?
  12. How will it make me feel?
  13. When faced with ethical dilemmas, what questions can you ask yourself that might help you make ethical decisions?
  14. It helps to ask the following questions when faced with an ethical dilemma: Is the proposed action legal? Is it balanced? Would I want to be treated this way? How will it make me feel about myself?
  15. What are compliance-based and integrity-based ethics codes?
  16. Compliance-based ethics codes emphasize preventing unlawful behavior by increasing control and penalizing wrongdoers. Integrity-based ethics codes define the organization’s guiding values, create an environment that support ethically sound behavior, and stress shared accountability.
  17. What is management’s role in setting ethical standards?
  18. Managers often set formal standards, but more important are the messages they send through their actions. Management’s tolerance or intolerance of ethical misconduct influences employees more than any written ethics codes
  19. What are the six steps to follow in establishing an effective ethics program in a business?
  20. The six steps many believe will improve U.S. business ethics are:
  21. (1) Top management must adopt and unconditionally support an explicit corporate code of conduct:
  22. (2) Employees must understand that expectations for ethical behavior begin at the top and that senior management expects all employees to act accordingly;
  23. (3) Managers and others must be trained to consider the ethical implications of all business decisions;
  24. (4) An ethics office must be set up with which employees can communicate anonymously;


  1. (5) Outsiders such as suppliers, subcontractors, distributors, and customers must be told about the ethics program;
  2. (6) The ethics code must be enforced with timely action if any rules are broken.
  3. What are the 8 steps to prevent unethical behaviors?
  4. Managers must communicate the organization’s vision on ethical behavior.
  5. Organizations must have a code of ethics.
  6. Policies have to be enforced regarding ethical offences.
  7. Ethical responsibility must be taught to all employees.
  8. Discussions of ethics must be included in the decision-making process.
  9. Accountability must be taken seriously at all levels in the organization.
  10. Organizations must act fast when a crisis occurs.
  11. Employees must know they have to defend and maintain the company’s reputation.
  12. What’s corporate social responsibility, and how does it relate to each of a business’s major stakeholders?
  13. Corporate social responsibility (CSR) is the concern businesses have for the welfare of society not just for their owners. CSR defenders believe that businesses owe their existence to the societies they serve and cannot succeed in societies that fail. CSR must be responsible to all stakeholders’ not just investors in the company.
  14. How companies demonstrate CSR towards stakeholders?
  15. Businesses demonstrate CSR in four ways:
  16. By satisfying customers with goods and services of real value
  17. By making money for the investors
  18. By creating jobs for the employees, keeping social security and job’s benefits and rewarding talent
  19. By creating new wealth for the society; promoting social justice and creating a better environment
  20. What is a corporate philanthropy?
  21. Corporate Philanthropy — Includes charitable donations.
  22. What are Corporate Social Initiatives?
  23. Corporate Social Initiatives — Includes enhanced forms of corporate philanthropy.
  24. What is corporate responsibility?
  25. Corporate Responsibility — Includes everything from hiring minority workers to making safe products, minimizing pollution, using energy wisely, and providing a safe work environment.
  26. What are the Four Types of Social Audit Watchdogs
  27. Socially conscious investors
  28. Environmentalists


  1. Union officials
  2. Customers
  3. What’s a social audit, and what kinds of activities does it monitor?
  4. A social audit is a systematic evaluation of an organization’s progress toward implementing socially responsible and responsive programs. Many feel a social audit should measure workplace issues, the environment, product safety, community relations, military weapons contracting, international operations and human rights, and respect for the rights of local people.
  5. What are the four basic rights of consumer emanated by President J.F.R. Kennedy?
  6. The Right to Safety
  7. The Right to be Informed
  8. The Right to Choose
  9. The Right to be Heard
  10. What is insider trading?
  11. Insider Trading — Insiders using private company information to further their own fortunes or those of their family and friends.
  12. Unethical behavior does financial damage to a company and investors are cheated.
  13. What is a company’s responsibility to employees?
  14. Create jobs and provide a chance for upward mobility.
  15. Treat employees with respect.
  16. Offer salaries and benefits that help employees reach their personal goals.
  17. How are U.S. businesses demanding socially responsible behavior from their international suppliers?
  18. Many U.S. businesses now demand that international suppliers do not violate U.S. human rights and environmental standards.
  19. Why is it unlikely that there will be a single set of international rules governing multinational companies soon?
  20. It’s unlikely there will be a single set of international rules governing multinational companies because of the widespread disparity among global nations as to what constitutes ethical behavior. For example, a gift in one culture can be a bribe in another. In some nations child labor is expected and an important part of a family’s standard of living. The fairness of adhering to U.S. standards of ethical behavior is not as easy as you may think.


CHAPTER 5 – How to form a business

  1. Most people who start businesses in the United States are sole proprietors. What are the advantages of sole proprietorships?
  2. The primary advantages of sole proprietors are:
  3. Ease of starting and ending the business,
  4. Being your own boss, pride of ownership.
  5. Leaving a legacy,
  6. retention of company profits,
  7. No special taxes.
  8. What are the disadvantage of sole proprietorship?
  9. Disadvantages include:
  10. Unlimited liability,
  11. limited financial resources,
  12. management difficulties,
  13. overwhelming time commitment,
  14. few fringe benefits,
  15. limited growth,
  16. Limited life span.
  17. Why would unlimited liability be considered a major drawback to sole proprietorships?
  18. With unlimited liability, the sole proprietor is liable for all debts and obligations of the business and must pay them even if it means selling your home, car, or whatever else you own.
  19. What are the three key elements of a general partnership?
  20. Common ownership
  21. Shared profits and losses
  22. Right to participate in managing the operation of the business
  23. Who is a general partner?
  24. A general partner is an owner who has unlimited liability and can be active in managing the firm.
  25. Who is a limited partner?
  26. A limited partner is an owner who invests money in the business, but does not have any management responsibility or liability for losses beyond his or her investment.
  27. Who is a master limited partner?
  28. Master Limited Partnership — A partnership that looks much like a corporation but is taxed like a partnership and thus avoids the corporate income tax.
  29. Who is limited liability partner?
  30. Limited Liability Partnership — Limits partners’ risk of losing their personal assets to the outcomes of only their own acts and omissions and those of people under their supervision.
  1. What does limited liability means?
  2. Limited liability means that corporate owners (stockholders) and limited partners are responsible for losses only up to the amount they invest. Their other personal assets are not at risk
  3. What is a master limited partnership?
  4. A master limited partnership is a partnership that acts like a corporation but is treated like a partnership
  5. What are some of the advantages of partnerships?
  6. Some of the advantages of partnerships are:
  7. More financial resources,
  8. shared management and pooled/complimentary skills and knowledge,
  9. longer survival,
  10. No special taxes.
  11. What are some of the disadvantages of partnerships?
  12. Disadvantages of partnerships include:
  13. Unlimited liability (for general partners),
  14. division of profits,
  15. disagreements among partners,
  16. Difficulty of termination.
  17. How do you pick a partner wisely?
  18. There is no such thing as a perfect partner but ask these questions when you try to find your best match:
  19. Do you share the same goals?
  20. Do you share the same vision for the company?
  21. What skills does he/she have? Are yours the same?
  22. What can he/she bring to the business?
  23. What type of decision maker is he/she?
  24. Do you trust each other?
  25. How does he/she problem solve?
  26. What is the definition of a Corporation?
  27. It is a state chartered legal entity with authority to act and have liability separate from its owners
  28. What are the major advantages of incorporating a business?
  29. Advantages of incorporating a business include:
  30. Limited liability,
  31. ability to raise more money for investment,
  32. size, perpetual life,
  33. ease of ownership change,
  34. ease of attracting talented employees,
  35. Separation of ownership from management.


  1. What are the major disadvantages of incorporating a business?
  2. Disadvantages of incorporating are:
  3. Initial cost,
  4. extensive paperwork,
  5. double taxation,
  6. two tax returns,
  7. size,
  8. difficulty to terminate,
  9. possible conflict with stockholders
  10. And board of directors.
  11. Why do people incorporate?
  12. Two important reasons for incorporating are special: tax advantages and limited liability
  13. Who can incorporate?
  14. Anyone – truckers, doctors, plumbers, athletes and small business owners can incorporate.
  15. Normally, stock is not issued when individuals incorporate so the advantages and disadvantages are not exactly the same as for large corporations.
  16. Major advantages are limited liability and possible tax benefits.
  17. What’s the role of owners (stockholders) in the corporate hierarchy?
  18. Stockholders do not have to be employees of the corporation. They are investors who have limited liability.
  19. Stockholders elect the board of directors of a company who select the management to control the company.
  20. If you buy stock in a corporation and someone gets injured by one of the corporation’sproducts, can you be sued? Why or why not?
  21. Stockholders in a corporation have limited liability meaning as owners they are responsible for its losses only up to the amount they invested.
  22. The corporation could be sued and forced out-of-business but the stockholder would only lose what he/she invested.
  23. What are the advantages of S Corporations?
  24. S Corporations have the advantages of limited liability (like Corporations) and simpler taxes (like a partnership).
  25. How a company can qualify for S Corporation?
  26. To qualify for S Corporation status, a company
  27. must have fewer than 100 stockholders (members of a family count as one stockholder),
  28. its stockholders must be individuals and estates, US citizens permanent residents,
  29. the company cannot derive more than 25% of its income from passive sources



  1. Why are so many new businesses choosing a limited liability company (LLC) form of ownership?
  2. Limited liability companies have become a popular way to form a business since all fifty states now recognize LLCs.
  3. Some of the advantages of LLCs are:
  4. Limited liability,
  5. choice of taxation (can be taxed as a partnership or corporation),
  6. flexible ownership rules,
  7. Flexible distribution of profit and losses, operating flexibility.
  8. What are the advantages of LLC?
  9. Limited liability
  10. Choice of taxation
  11. Flexible ownership rules
  12. Flexible distribution of profit and losses
  13. Operating flexibility
  14. What are the disadvantages of LLC?
  15. No stock, therefore ownership is nontransferable
  16. Limited life span
  17. Fewer incentives
  18. Taxes
  19. Paperwork
  20. What is a franchise?
  21. An arrangement to buy the rights to use the business name and sell its products and services in a given territory is called a franchise
  22. What is a franchise agreement?
  23. Franchise Agreement — An arrangement whereby someone with a good idea for a business (franchisor) sells the rights to use the business name and sell a product or service (franchise) to others (franchisees) in a given territory.
  24. Who is a franchisee?
  25. A franchisee is a person buying a franchise
  26. Who is a franchiser?
  27. A franchiser is a person selling a franchise
  28. What are some of the factors to consider before buying a franchise?
  29. Before buying a franchise be sure to check a company’s (franchisor’s) resources and reputation. Scams are all over franchising.
  30. What are some benefits of being a franchisee?
  31. Benefits include:
  32. Getting a nationally or internationally recognized name and brand
  33. Getting a proven management system
  34. A promotional assistance
  35. Pride of ownership


  1. What are some drawbacks of being a franchisee?
  2. Drawbacks include:
  3. High franchise fees
  4. Managerial regulations
  5. Shared profits
  6. Transfer of adverse effects if others franchisees fail
  7. What are the advantages and disadvantages of a home based franchise?
  8. Advantages:
  9. Relief from commuting stress
  10. Extra family time
  11. Low overhead expenses
  12. Main Disadvantage:
  13. Isolation
  14. How to choose a franchising?
  15. Focus on tried-and-true name brands.
  16. Stick to core goods and services.
  17. Be choosy about the site.
  18. Don’t pinch pennies.
  19. Have a fallback choice.
  20. Don’t assume the franchise will pay off.
  21. What opportunities are available for starting a global franchise?
  22. Successful franchising in global markets offers the same opportunities as in domestic markets.
  23. However, franchisors must be careful to adapt to the region where they wish to expand.
  24. McDonalds’ for example has more than 31,000 restaurants in 119 countries.
  25. What is a merger?
  26. A merger is the results of two firms forming one company. The three major types are
  27. vertical mergers,
  28. horizontal mergers and
  29. conglomerate mergers
  30. What is a vertical merger?
  31. Vertical Merger — Joins two firms in different stages of related business.
  32. What is a horizontal merger?
  33. Horizontal Merger — Joins two firms in the same industry and allows them to diversify or expand their products.
  34. What is a conglomerate merger?
  35. Conglomerate Merger — Unites firms in completely unrelated industries in order to diversify business operations and investments.
  36. What is an acquisition?


  1. Acquisition — One company’s purchase of the property and obligations of another company.
  2. What are leverage buyouts?
  3. Leveraged buyouts are attempts for managers and employees to borrow money and purchase the company
  4. Individual who, together or alone, buy all stock for themselves are said totake the company private
  5. What’s a cooperative?
  6. A cooperative is a form of business that is owned and controlled by the people who use it—producers, consumers, or workers with similar needs who pool their resources for mutual gain.
  7. Cooperatives are a major force in agriculture and other industries today.



CHAPTER 6 – Entrepreneurship and Starting a Small Business

  1. What is entrepreneurship?
  2. It is the acceptance of taking risks in starting a business. The higher the risk, the higher the profit.
  3. Why are people willing to take the risks of entrepreneurship?
  4. The primary reasons people are will to take the risk of entrepreneurship are:
  5. Opportunity to share in the American dream.
  6. Profit, the potential to become wealthy and successful.
  7. Independence, becoming you own boss.
  8. Challenge, the desire to take a chance.
  9. What are the attributes of successful entrepreneurs?
  10. They are
  11. self-directed
  12. self-nurturing
  13. action minded
  14. highly energetic
  15. tolerant of uncertainty
  16. What does it take to be an entrepreneur?
  17. Self-directed
  18. Self-nurturing
  19. Action-oriented
  20. Highly energetic
  21. Tolerant of uncertainty
  22. When a business idea is good for business opportunity?
  23. It fills customers’ needs.
  24. You have the skills and resources to start a business.
  25. You can sell the product or service at a reasonable price and still profit.
  26. You can get your product or service to customers before the window of opportunity closes.
  27. You can keep the business going.
  28. What have modern entrepreneurs done to ensure longer terms of management?
  29. They have formed entrepreneurial teams with expertise in the most of the skills needed to start and manage a business operation
  30. What are the advantages of entrepreneurial teams?
  31. Whereas an entrepreneur has to wear many hats and take huge responsibility, a team allows members to combine creative skills with production and marketing skills right from the start.
  32. Having a team can also ensure more cooperation and coordination later among functions in the business.


  1. How do micropreneurs differ from other entrepreneurs?
  2. Most entrepreneurs are committed to the quest for growth in their business.
  3. Micropreneurs know they can be content even if their companies never appear on a list of top-ranked businesses.
  4. Many micropreneurs are home-based businesses.
  5. What is a home based business?
  6. Computer technology has leveled the playing field.
  7. Corporate downsizing has led many to venture on their own.
  8. Social attitudes have changed.
  9. New tax laws have loosened restrictions on deducting expenses for home offices.
  10. Many micropreneurs are home-based business owners – writers, consultants, video producers, architects, bookkeepers, etc.
  11. Nearly 60% of home-based micropreneurs are men.
  12. Who is an intrapreneur?
  13. Intrapreneur is someone who establish entrepreneurial centers within a large firm where people can innovate and develop new product ideas internally
  14. What are some opportunities and risks of web-based businesses?
  15. The Internet has opened the world of entrepreneurship wider than ever.
  16. Online sales have grown six times faster than retail sales and in 2007 topped over $165 billion.
  17. Today anything that can be offered in a retail environment can be offered online.
  18. However, a Web-based business is not an automatic ticket to success. It can often be a shortcut to failure.
  19. Web-based businesses must remember that they need to offer unique products or services that customers cannot easily purchase at retail locations.
  20. What are the benefits of home based businesses?
  21. Ability to start your business immediately
  22. Minimal startup capital needed
  23. No rent or excessive set-up charges
  24. Comfortable working conditions
  25. Reduced wardrobe expenses
  26. No commuting
  27. Tax benefits
  28. Elimination of office politics
  29. Low risk for trial and error
  30. What are the downsides of home based businesses?
  31. Difficult to establish work habits
  32. Limited support system
  33. Isolation
  34. Work space may be limited


  1. Disruption of personal life
  2. Clients may be uncomfortable coming to your home
  3. Zoning restrictions
  4. Success is based 100% on your efforts
  5. Why has there been an increase in the number of home based and web based businesses in the last few years?
  6. The increase in power and decrease in price of computer technology has leveled the field and made it possible for small businesses to compete against larger companies –regardless of location
  7. What is affiliate marketing?
  8. Affiliate Marketing — An Internet-based marketing strategy in which a business rewards individuals or other businesses for each visitor or customer the affiliate sends to its website.
  9. What are the major business functions?
  10. Planning
  11. Financing
  12. Knowing customers
  13. Managing employees
  14. Keeping records
  15. What is a business plan?
  16. Business Plan — A detailed written statement that describes the nature of the business, the target market, the advantages the business will have over competition, and the resources and owners qualifications.
  17. A business plan forces potential owners to be specific about what they will offer.
  18. A business plan is mandatory for talking with bankers or investors.
  19. Can you describe at least five sections of a business plan?
  20. A business plan needs to start with a strong cover letter. The nine key sections are:
  21. Executive summary.
  22. Company background.
  23. Management team.
  24. Financial plan.
  25. Capital Required.
  26. Marketing plan.
  27. Location analysis.
  28. Manufacturing plan.
  29. Appendix.
  • Why do many small businesses fail?
  • Many small businesses fail because managerial incompetence and inadequate financial planning


  • Why do many small businesses avoid doing business overseas?
  • Key reasons why many small businesses avoid doing business overseas include:
  • Financing is often difficult to find.
  • Would-be exporters don’t know how to get started and do not understand the cultural differences between markets.
    1. The bureaucratic paperwork can threaten to bury a small business.
  1. What is an enterprise zone?
  2. Enterprise Zones — Specific geographic areas to which governments attract private business investment by offering lower taxes and other government support.
  • What is an incubator?
  • Incubators — Offer new businesses low-cost offices with basic services
  • What hints would you give to someone who wants to start or learn how to manage a small business?
  • First learn from others. Take courses and talks with some small business owners.
  • Second, get some experience working for others
  • Third, take over a successful firm
  • Fourthly, study the latest in small business management techniques, including the use of computers for businesses like payroll, inventory control, and mailing lists
  • What sources of fund should someone consider investigating in order to start a business?
  • A new enterprise has several potential sources of capital:
  • Personal savings
  • Relatives
  • Former employers
  • Banks
  • Finance companies
  • Venture Capital Organizations
  • Government Agencies
  • How to define a small business?
  • Small Business — Independently owned and operated, not dominant in its field of operation and meets certain standards of size.
  • Businesses are “small” in relationship to other businesses in their industries.
  • What are the advantages of small businesses over big businesses?
  • More personal customer service.
  • The ability to respond quickly to opportunities.
  • Why actual business failures are less than the reported number of failures?
  • Owner closing a business to start another is reported as a “failure.”
  • Changing forms of ownership is reported as a “failure.”
  • Retirement is reported as a “failure.”



  • What are some of the special problems that small business owners have in dealing with employees?
  • Small businesses often have difficulty finding competent employees and grooming employees for management responsibilities
  1. Where can budding entrepreneurs find help in starting new businesses?
  • Help can come from many sources:
  • Accountants
  • Lawyers
  • Marketing researchers
  • Loan officers
  • Insurance agents
  • SBA, SBDCs and even college professors
  • How to learn about small businesses?
  • Learn from others – Investigate your local colleges for classes on small business and entrepreneurship; talk to and work for successful local entrepreneurs.
  • Get Some Experience – Gain three years of experience in the field; then start a part-time small business.
  • Take Over a Successful Firm – Serve as an apprentice and eventually take over once the owner steps down.
  • What are the criteria to be followed in writing a business plan?
  • A good plan takes a long time to prepare.
  • A good executive summary catches interest and tempts potential investors to read on.
  • Getting the plan into the right hands is almost as important as getting the right information in it.
  • What must be considered before starting a family business?
  • Clarify Expectations – What will each person contribute?
  • Discuss Work/Family Boundaries – What is the line that separates work from personal relationships?
  • Develop Good Communication – Agree about types of decisions you’ll make jointly and on own.
  • Clarify Long-Term Intentions – Discuss how long everyone will work full time and goals for the business.
  • Have an Escape Hatch – Have a Plan B.
  • What are possible sources of capital?
  • Personal savings
  • Relatives
  • Former employers
  • Banks & finance companies
  • Government agencies
  • Angel investors



  • Venture capitalists — Individuals or companies that invest in new businesses in exchange for partial ownership.
  • What is and what is the function of SBA?
  • Small Business Administration (SBA) — A U.S. government agency that advises and assists small businesses by providing management training and financial advice.
  • SBA started a microloan program in 1991 that provides very small loans to small business owners.
  • Program judges worthiness on belief of the borrower’s integrity and soundness of their business ideas.
  • What is and what is the function of SBIC?
  • Small Business Investment Company (SBIC) — A program through which private investment companies licensed by the SBA lend money to small businesses.
  • A SBIC must have a minimum of $5 million in capital and can borrow up to $2 from the SBA for each $1 of capital it has.
  • SBICs are able to identify a business’s trouble spots early, giving entrepreneur’s advice, and in some cases rescheduling loan payments.
  • What are SBDCs and what is their role?
  • SBDCs are able to evaluate the feasibility of your idea, develop your business plan and complete your funding application – for no charge.
  • What does it mean know your market and your customers?
  • Consumers with unsatisfied wants and needs who have both resources and willingness to buy.
  • Set out to fill the market’s needs by offering top quality and great service at a fair price.
  • One of the great advantages of small businesses is the ability to know the market and quickly adapt to market needs.
  • What are some examples of managing employees?
  • Hiring, training and motivating employees is critical.
  • Employees of small companies are often more satisfied with their jobs – they feel challenged and respected.
  • Entrepreneur best serve themselves and the business if they recruit and groom employees for management positions.
  • Why a business needs a good accounting assistance?
  • Computers simplify the process by helping with inventory control, customer records and payroll.
  • A good accountant can help in:
  • Deciding whether to buy or lease equipment.
  • Deciding whether to own or rent a building.
  • Tax planning.


  • Financial forecasting.
  • Choosing sources of financing.
  • Writing requests for funds.
  • What is a legal help?
  • Owners need outside consulting advice early in the process.
  • Small and medium-sized firms cannot afford to hire experts as employees.
  • A competent lawyer can help with:
  • Leases
  • Contracts
  • Partnership agreements
  • Protection against liabilities


  • What is a marketing research?
  • Marketing decisions need to be made long before introducing a product or opening a store.
  • A marketing research study can help you:
  • Determine where to locate.
  • Whom to select as your target market.
  • What is an effective strategy for reaching the market?
  • How a commercial loan officer can help your business?
  • A commercial loan officer can help:
  • Design an acceptable business plan.
  • Give financial advice.
  • Lend money.
  • How an insurance agent can help your business?
  • An insurance agent can help you:
  • Know the risks associated with the business.
  • How to cover risks with insurance.
  • How to prevent risks with safety devices.
  • What are some of the advantages small businesses have over large businesses in selling in global markets?
  • Small businesses have several advantages over large businesses in global markets. These include:
  • Overseas buyers often enjoy dealing with individuals rather than with large corporate bureaucracies.
  • Small companies can usually begin shipping much faster.
  • Small companies can provide a wide variety of suppliers.
  • Small companies can give global customers personal service and undivided attention because each overseas account is a major source of business to them.




CHAPTER 7 – Management and Leadership

  1. What is management?
  2. Management — The process used to accomplish organizational goals through planning, organizing, leading and controlling people and other organizational resources.
  3. How does the management look like today?
  4. Once managers were called bosses, and their job consisted in telling people what to do, watch over them to make sure they did it, and reprimanding those who did not do it.
  5. Many, if not most, of the managers behave like that way even today.
  6. Today, however, some managers tend to be more progressive by emphasizing team and team building, by creating drop in centers, team spaces, and open work areas. They tend to guide, support, motivate and train employees rather than telling them what to do
  7. What are some characteristics of today’s managers?
  8. Younger and more progressive.
  9. Growing numbers of women.
  10. Fewer from elite universities.
  11. Emphasis is on teams and team building.
  12. Managers need to be skilled communicators and team players.
  13. What reasons can be given to increase changes in management?
  14. Leaders of Fortune 100 companies today tend to be younger; more of them are female, and lesser of them were educated at higher universities.
  15. They know that many of their employees know more about technology and other practice that they do. Therefore, they tend to put more emphasis on motivation, teamwork and cooperation.
  16. Managers in the future are more likely to assume completely new roles in the firm. For one thing they will be taking leadership role in adapting to climate change. And they will be doing more expansion overseas.
  17. What are the primary functions of management?
  18. They are planning, organizing, leading and controlling
  19. How you define planning?
  20. Planning includes
  • Anticipating trends
  • Determining the best strategies and tactics to achieve organizational goals and objectives





  1. How do you define organizing?
  2. Organizing includes
  • Designing the structure of the organization
  • Creating conditions and systems in which everyone and everything works together
  1. How do you define leading?
  2. Leading includes
  • Creating a vision for the company
  • Communicating
  • Guiding
  • Training
  • Coaching
  • Motivating
  1. How to define controlling?
  2. Controlling includes
  • Measuring that what actually occur is according the management plan
  1. What is flexibility?
  2. Flexibility is the key to successfully expanding abroad.
  3. What is a vision?
  4. Vision — More than a goal, it’s a broad explanation of why the organization exists and where it’s trying to go.
  5. What is a goal?
  6. Goals are broad long term achievements that organizations aims to accomplish
  7. What are objectives?
  8. Objectives are specific, short term plans made to help to reach the goals
  9. What is the situation now?
  10. SWOT Analysis — Analyzes the organization’s Strengths, Weaknesses, Opportunities and Threats.
  11. How can you get your goals from here?
  12. Strategic planning
  13. Tactical planning
  14. Operational planning
  15. Contingency planning
  16. What is strategic planning?
  17. Strategic planning is long and broad range planning that outlines the goals of the organization
  18. What is tactical planning?
  19. Tactical planning is specific short term planning that lists the objectives of the organization



  1. What is operational planning?
  2. Operational planning is part of tactical planning and sets specific timetables and standards
  3. What is contingency planning?
  4. Contingency planning is developing an alternative set of plans in case the first set does not work out
  5. What is a mission statement?
  6. Mission Statement — Outlines the organization’s fundamental purposes. It includes:
  7. The organization’s self–concept.
  8. Its philosophy.
  9. Long–term survival needs.
  10. Customer needs.
  11. Social responsibility.
  12. Nature of the product or service.
  13. What does a company analyze when it does a SWOT analysis?
  14. In today’s rapidly changing business environment, managers must think of planning as a continuous process.
  15. What is SWOT analysis?
  16. The SWOT analysis is an important part of the planning process as it evaluates an organization’s strengths, weaknesses, opportunities and threats.
  17. What are the differences between strategic, tactical and operational planning?
  18. Strategic planning is the process top management uses to determine the major goals of the organization, and the policies, procedures, strategies, and resources the organization will need to achieve them.
  19. Tactical planning is the process of developing detailed, short-term statements about what is to be done, who is to do it, and how. This type of planning is typically completed by managers at lower levels of the organization whereas strategic planning is done by the top managers. 
  20. The final type of planning is operational. Operational planning is the process of setting work schedules and standards necessary to complete the organization’s tactical objectives.  This type of planning is the department manager’s tool for daily and weekly operations. 
  21. What are internal potential STRENGTHS
  22. Core competencies in key areas
  23. An acknowledged market trader
  24. Well-conceived functional area strategies
  25. Proven management
  26. Cost advantages
  27. Better advertising campaigns



  1. What are internal potential WEAKNESSES?
  2. No clear strategic direction
  3. Obsolete facilities
  4. Subpar profitability
  5. Lack of managerial depth and talent?
  6. Weak market image
  7. Too narrow a product line?
  8. What are external potential OPPORTUNITIES?
  9. Ability to serve additional customers groups
  10. Expand product lines
  11. Ability to expand skills and technology to new products
  12. Falling trade barriers in attractive foreign markets
  13. Complacency among rival firms
  14. Ability to grow due to increases in market demands
  15. What are potential external threats?
  16. Entry of lower cost foreign competitors
  17. Rising sales of substitute products
  18. Slower market growth
  19. Costly regulatory requirements
  20. Vulnerability to recession and business cycles
  21. Changing of buyer’s needs and tastes
  22. How to define decision making?
  23. Decision Making — Choosing among two or more alternatives
  24. What are the seven Ds in decision making?
  25. The seven Ds in decision making are as follows:
  26. Define the situation.
  27. Describeand collect needed information.
  28. Develop alternatives.
  29. Develop agreement among these involved.
  30. Decide which alternative is best.
  31. Do what is indicated and start the implementation.
  32. Determine whether the decision was a good one and follow up.
  • What is problem solving?
  • Problem Solving — The process of solving the everyday problems that occur; less formal than decision making and needs quicker action.
  • What are two problem solving techniques?
  • Problem-solving techniques include brainstorming and PMI — Listing all the pluses for a solution in one column, all the minuses in another and the implications in a third.




  • What is an organizational chart?
  • It is a visual device that shows relationship among people and divides the organization’s work.
  • It shows who is accountable for the completion of specific work and who reports to whom
  • What are the different levels of management?
  • Top level management
  • Middle level management
  • Supervisory level management
  • Non-supervisory
  • How to define top level management?
  • Top Management — The highest level, consists of the president and other key company executives who develop strategic plans.
  • How to define middle level management?
  • Middle Management — Includes general managers, division managers, and branch and plant managers who are responsible for tactical planning and controlling.
  • How to define supervisory level management?
  • Supervisory Management — Those directly responsible for supervising workers and evaluating daily performance.
  • How does enabling help achieve empowerment? 
      1. Enabling is the key to successfully empowering employees.  Enabling means giving workers the education and the tools they need to make decisions. 
  • What is the difference between a manager and a leader?
  • Manager plans, organizes and controls functions within an organization
  • Leader has vision and inspire others to grasp the vision while promoting corporate values and ethics and does not fear changes
  • What is the role of a CEO?
  • Chief Executive Officer (CEO) – Introduces change into an organization
  • What is the role of a COO?
  • Chief Operating Officer (COO) – Implements CEO’s changes.
  • What is the role of a CFO?
  • Chief Financial Officer (CFO) – Obtains funds, plans budgets, collects funds, etc.
  • What is the role of a CIO?
  • Chief Information Officer (CIO) – Gets the right information to the right people so decisions can be made.
  • What is knowledge management?
  • It consists in finding the right information, keeping the information in a readily accessible place, and making the information known to everyone in the firm





  • What are the five steps in the control process? 
      1. Controlling incorporates:
        1. (1) setting clear standards,
        2. (2) monitoring and recording performance,
        3. (3) comparing performance with plans and standards,
        4. (4) communicating results and deviations to employees,
        5. (5) Providing positive feedback for a job well done and taking corrective action necessary.
  • Which leadership style is the best?
  • The most effective leadership style depends on the people and situation but the trend is towards the formation of self-empowered well managed teams.
  • What qualities must standards possess to measure performance?
  • Standards must be specific, attainable and measurable
  • What are the three levels of management in a corporate hierarchy?
  • Top management (highest level) consisting of the president and other key company executives who develop strategic plans
  • Middle management consisting of general managers, division managers and plant managers who are responsible for tactical planning and controlling
  • Supervisory management consisting of first line managers and supervisors who monitor and evaluate workers’ daily performances
  • What skills do managers need?
  • Technical skills
  • Human relations skills
  • Conceptual skills
  • What are technical skills?
  • Technical Skills — The ability to perform tasks in a specific discipline or department
  • What are human relations skills?
  • Human Relations Skills –the skills that involve communication and motivation; they enable managers to work through and with people.
  • What are conceptual skills?
  • Conceptual Skills –the skills that involve the ability to picture the organization as a whole and the relationship among its various parts.
  • Are these skills equally important at all management levels?
  • Managers at different levels need different skills
  • Top managers rely heavily on human relations and conceptual skills and rarely use technical skills
  • First line supervisors need strong technical and human relations skills but use conceptual skills less often
  • Middle managers need to have a balance of all three skills


  • What is staffing?
  • Staffing — Recruiting, hiring, motivating and retaining the best people available to accomplish the company’s objectives.
  • Recruiting good employees is critical.
  • Many people are not willing to work at companies unless they are treated well with fair pay.
  • What is the meaning of leadership?
  • Leaders must:
  • Communicate a vision and rally others around that vision.
  • Establish corporate values.
  • Promote corporate ethics.
  • Embrace change.
  • Stress accountability and responsibility
  • What is transparency?
  • Transparency — The presentation of the company’s facts and figures in a way that is clear and apparent to all stakeholders.
  • What is autocratic leadership?
  • Autocratic Leadership — Making managerial decisions without consulting others.
  • What is democratic or participative leadership?
  • Participative or Democratic Leadership — Managers and employees work together to make decisions.
  • What is free rein leadership?
  • Free-Rein Leadership — Managers set objectives and employees are free to do whatever is appropriate to accomplish those objectives.
  • What is empowerment?
  • Progressive leaders give employees the   authority to make decisions on their own without consulting a manager.
  • Customer needs are handled quickly.
  • Manager’s role becomes less of a boss and more of a coach.
  • What is knowledge management?
  • Knowledge Management — Finding the right information, keeping the information in a readily accessible place and making the information known to everyone in the firm.
  • What’s the difference between internal and external customers? 
    1. Not all customers come from outside the organization. 
    2. Internal customers are defined as individuals and business units within the firm that receive services from other individuals or units.  For example, the field salespeople are the internal customers of the marketing research units that prepare market reports for them. 
    3. External customers are more traditional and include dealers, who buy products and sell to others, and ultimately customers who buy products for their own personal use. 



CHAPTER 8 – Adapting Organizations to Today’s Markets

  • What are the principles of organization management?
  • Structuring an organization means devising a division of labor (sometimes resulting in specialization)
  • Setting up teams and departments
  • Assigning responsibilities and authority
  • Allocating resources
  • Assigning specific tasks
  • Establishing procedures for accomplishing organizational goals and objectives
  • Making ethical decisions about how to treat workers
  • What does it mean making ethical decisions?
  • You own a lawn-mowing business and are aware of the hazards in the job. But, you’ve seen other companies save money by eliminating safety equipment. You’d also like to make more money.
  • What do you do?
  • Save money with less safety precautions?
  • What are the consequences?
  • Why organizations must change?
  • Often change in organizations is due to evolving business environments:
  • More global competition
  • Declining economy
  • Faster technological change
  • Pressure to protect the environment
  • Customer expectations have also changed –Consumers today want high-quality products with fast, friendly service and all at low cost.
  • How production can change organization design?
  • Mass production of goods led to complexities in organizing businesses.
  • What are economies of scales?
  • Economies of Scale — Companies can reduce their production costs by purchasing raw materials in bulk.
  • How average cost of goods is linked to production levels?
  • The average cost of goods decrease as production levels rise.
  • Why are organizations becoming flatter? 
      1. Over the last 25 years businesses have adopted flatter organizations with fewer layers of management and a broader span of control in order to quickly respond to customer demands. 
      2. A flatter organization gives lower-level employees the authority and responsibility to make decisions directly affecting customers. 
  • What were Fayol’s basic principles?
  • Fayol introduced principles such as
  • unity of command


  • hierarchy of authority
  • division of labor
  • subordination of individual interests to the general interests
  • authority
  • clear communication channels
  • order and equity
  • How to define organizations based on Fayol principles?
  • Organizations in which employees have no more than one boss; lines of authority are clear.
  • Rigid organizations that often don’t respond to customers quickly.
  • What principles did Weber add?
  • Weber added
  • Principle of bureaucracy
  • Job description
  • Written rules
  • Decision guidelines
  • Consistent Procedures
  • Stuffing
  • Promotions based on qualification
  • What is hierarchy?
  • Hierarchy — A system in which one person is at the top of an organization and there is a ranked or sequential ordering from the top down.
  • What is chain of command?
  • Chain of Command — The line of authority that moves from the top of the hierarchy to the lowest level.
  • How you define bureaucracy?
  • Bureaucracy — An organization with many layers of managers who set rules and regulations and oversee all decisions.
  • It can take weeks or months to have information passed down to lower-level employees.
  • Bureaucracies can annoy customers.
  • How you define centralized authority?
  • Centralized Authority — When decision-making is concentrated at the top level of management.
  • How do you define decentralized authority?
  • Decentralized Authority — When decision-making is delegated to lower-level managers and employees more familiar with local conditions than headquarters
  • What are some reasons for having a narrow span of control in an organization? 
    1. Span of control refers to the number of subordinates a manager supervises. 
    2. Generally, the span of control narrows at higher levels of the organization, because work becomes less standardized and managers need more face-to face communication.
  • What are the advantages of departmentalization? 
      1. The advantages of departmentalization includes:
        1. Departmentalization may reduce costs, since employees should be more efficient,
        2. employees can develop skills in depth and progress within a department as they master more skills;
        3. the company can achieve economies of scale by centralizing all the resources it needs and locating various experts in that particular area;
        4. Employees can coordinate work within the function, and top management can easily direct and control various departments’ activities.
  • What are the disadvantages of departmentalization? 
      1. The disadvantages of departmentalization include:
        1. Communication is inhibited;
        2. employee’s may identify with their department’s goals rather than the organization’s;
        3. the company’s response may be slowed by departmentalization; employee’s tend to be narrow specialists;
        4. Department members may engage in groupthink and may need input from the outside to become more competitive.
  • How do you define span of control?
  • Span of Control — The optimal number of subordinates a manager supervises or should supervise.
  • When work is standardized, broad spans of control are possible.
  • Appropriate span narrows at higher levels of the organization.
  • The trend today is to reduce middle managers and hire better low-level employees.
  • What are the various ways a firm can departmentalize?
  • An organization can elect to departmentalize in the following ways: 
  • customer group,
  • product,
  • functional,
  • geographic,
  • process,
  • Hybrid. 
  • What is a structure?
  • Structures determine the way the company responds to employee and customer needs
  • What are tall organizational structures?
  • Tall Organization Structures — An organizational structure in which the organization chart would be tall because of the various levels of management.


  • What are flat organizational structures?
  • Flat Organization Structures — An organizational structure that has few layers of management and a broad span of control.
  • What are the four ways to structure an organization?
  • Line Organizations
  • Line-and-Staff Organizations
  • Matrix-Style Organizations
  • Cross-Functional Self-Managed Teams
  • What is a line organization?
  • Line Organization — Has direct two-way lines of responsibility, authority and communication running from the top to the bottom. Everyone reports to one supervisor.
  • There are no specialists, legal, accounting, human resources or information technology departments.
  • Line managers issue orders, enforce discipline and adjust the organization to changes.
  • What are the four major choices in structuring organizations?
  • Centralization versus decentralization
  • Breadth of span of control
  • Tall versus flat organization structure
  • Type of departmentalization
  • What does it mean line personnel?
    1. Line personnel are responsible for directly achieving organizational goals.
  1. Line personnel include production workers, distribution people, and marketing personnel.
  • What does it mean staff personnel? 
  1. Staff personnel advise and assist line personnel in meeting their goals.
  • What are the latest trends in structuring?
  • Departments are often replaced or supplemented by matrix organizations and cross-functional teams that decentralize authority
  • The span of control becomes larger as employees become self-directed
  • Another trend is to eliminate managers and flatten organizations
  • How do you define a matrix organization?
  • Matrix Organization — Specialists from different parts of the organization work together temporarily on specific projects, but still remain part of a line-and-staff structure.
  • Where does a matrix organization place more emphasis?
  • Emphasis is on product development, creativity, special projects, communication and teamwork.
  • What management principle does a matrix-style organization challenge? 
    1. The flexibility inherent in the matrix-style organization directly challenge the rigid line and line-and-staff organization structures. 
  • What are the key alternatives to the major organizational models?
  • Matrix organizations assign people to projects temporarily and encourage inter-organizational cooperation and team work
  • Cross-functional teams have all the benefit of the matrix style and are long term
  • What are the main advantages of a matrix organization?
  • Managers have flexibility in assigning people to projects.
  • Inter-organizational cooperation and teamwork is encouraged.
  • Creative solutions to product development problems are produced.
  • Efficient use of organizational resources.
  • What are the disadvantages of a matrix organization?
  • It’s costly and complex.
  • Employees may be confused about where their loyalty belongs.
  • Good interpersonal skills and cooperative employees are a must.
  • It’s a temporary solution to a possible long-term problem.
  • Teams are not permanent.
  • What’s the main difference between a matrix-style organization’s structure and the use of cross-functional teams? 
      1. The main difference between matrix-style organization and cross-functional teams is that cross-functional teams tend to be long-lived as compared to the temporary and fluid nature of teams in a matrix-style organization. 
  • Why cross functional teams go beyond organizational boundaries?
  • Cross-functional teams work best when the voice of the customer is heard.
  • Teams that include customers, suppliers and distributors goes beyond organizational boundaries.
  • Government coordinators may assist in sharing market information beyond national boundaries.
  • What are the important conditions to build small successful teams?
  • Clear purpose
  • Clear goals
  • Correct skills
  • Mutual accountability
  • Shift roles when appropriate
  • What is the meaning of real time business?
  • Real Time — The present moment or actual time in which something takes place.
  • What is transparency?
  • Transparency — When a company is so open to other companies that electronic information is shared as if the companies were one.
  • What is virtual corporation?
  • Virtual Corporation — A temporary networked organization made up of replaceable firms that join and leave as needed.



  • What are two major organizational models?
  • Line organizations.
  • They have clearly defined responsibility and authority
  • They are easy to understand
  • They provide each worker with ne supervisor
  • Line-and-staff organizations
  • The expert advice of staff assistance in a line-and-staff organizations helps in areas such as safety, quality control, computer technology, human resources management, and investing
  • What does it mean that a company must adapt to market changes?
  • Change isn’t easy. Employees like to do things the way they always have.
  • Get rid of old, inefficient facilities and equipment.
  • Use the Internet to get to know your customers and sell directly to them.
  • What does it imply the word restructuring?
  • Restructuring — Redesigning an organization so it can more effectively and efficiently serve its customers.
  • What’s an inverted organization? 
      1. Some service-oriented organizations have elected to turn the traditional organizational structure upside down. 
        1. An inverted organization has employees who come into contact with customers at the top of the organization and the chief executive officer at the bottom. 
        2. A manager’s job is to assist and support frontline people, not tell them what to do. 
  • What is the manager’s job?
  • The manager’s job is to assist and support frontline workers, not boss them.
  • What is networking?
  • Networking uses communications technology and other means to link organizations and allow them to work together on common objectives
  • What is virtual cooperation?
  • A virtual corporation is a networked organization of replaceable firms that join and leave as needed.
  • What are the major concepts involved in interfirm communications?
  • The company may outsource to companies that perform  its weaker functions more effectively and efficiently
  • The functions that are left are the company’s core competencies
  • What is benchmarking?
  • Benchmarking tells firm how their performance measures up to that of their competitors in specific functions




  • Why do organizations outsource functions?
      1. In the past organizations have often tried to do all functions themselves, maintaining departments for each function including: accounting, finance, marketing, and production. 
      2. If an organization is not able to efficiently perform the function themselves they will outsource the function. 
  • What is outsourcing operations to an external company?
      1. Outsourcing is the process of assigning various functions, such as accounting, production, security, maintenance, and legal work, to an outside firm. 
      2. The goal is to retain the functions that the organization considers its core competencies. 
  • What is a formal organization?
      1. Formal Organization — Details lines of responsibility, authority and position.
      2. The formal system is often slow and bureaucratic but it helps guide the lines of authority.
  • No organization can be effective without formal and informal organization
  • What is an informal organization?
  • Informal Organization — The system of relationships that develop spontaneously as employees meet and form relationships.
  • Informal organization helps foster camaraderie and teamwork among employees.
  • What are the limits of informal organizations?
  • The informal system is too unstructured and emotional on its own.
  • Informal organization may also be powerful in resisting management directives.
  • What are some examples of informal group norms?
  • Do your job but don’t produce more than the rest of your group.
  • Don’t tell off-color jokes or use profanity.
  • Everyone is to be clean and organized at the workstation.
  • Respect and help your fellow group members.
  • Drinking is done off the job – NEVER at work.
  • How a big company can keep up the feeling of small companies’ operations?
  • Informal networks are easier to maintain in small businesses.
  • Communication among large corporate units isn’t managed as well, inhibiting innovation.
  • Large corporations could form cross-departmental sports teams or sponsor cross-departmental parties to get ideas flowing in more informal settings.
  • What’s organizational culture? 
    1. Organizational or corporate culture is the widely shared values within an organization that create unity and cooperation. 
    2. Usually the culture of an organization is passed to employees via stories, traditions, and myths.   


CHAPTER 9 – Production and Operations Management of Goods and Services

  1. Why the Green Movement is growing?
  2. The Green Economy is worth more than $200 billion annually and is expected to reach $1 trillion by 2020.
  3. Consumers like products that say “all natural,” “locally grown,” “energy efficient,” etc.
  4. The market for new green products and services is almost endless.
  5. The Green Movement, however, is only beginning.
  6. What have U.S. manufacturers done to regain a competitive edge?
  7. Manufacturers have regained a competitive advantage by focusing on the following:
  8. the needs of customers,
  9. maintaining a close relationship with suppliers to make sure they are meeting customer needs,
  10. Practicing continuous improvement,
  11. focusing on quality,
  12. Saving on costs through better site selection,
  13. using new technologies such as the internet,
  14. Adopting new production techniques.
  15. What must U.S. companies do to continue to strengthen the country’s manufacturing base?
  16. To strengthen the nation’s manufacturing base will require an adjustment and recognition of the new realities in manufacturing.
  17. This will require focusing on new technologies such as the green ventures discussed in your textbook.
  18. What led companies to focus on operations management rather than production?
  19. The nature of business has changed dramatically in the past twenty years forcing companies to focus on operations management.
  20. One change is the shift from a manufacturing economy to one dominated by the service industry.
  21. Operations management is a more specialized area of management that converts resources into useful outputs.
  22. What is production?
  23. Production — The creation of goods using land, labor, capital, entrepreneurship and knowledge (the factors of production).




  1. What is production management?
  2. Production Management — All the activities managers do to help firms create goods.
  3. What is operations management?
  4. A specialized area in management that converts or transforms resources into goods and services.
  5. What does operations management include?
  6. Operations management includes:
  7. Inventory management
  8. Quality control
  9. Production scheduling
  10. Follow-up services
  11. What does the production process involve?
  12. Inputs
  13. Production controls
  14. Outputs
  15. What are the inputs in the production process?
  16. Land
  17. Labor
  18. Capital
  19. Entrepreneurship
  20. Knowledge
  21. What are the outputs in the production process?
  22. Goods
  23. Services
  24. Ideas
  25. What’s form utility?
  26. Form utility is the value producers add to materials in the creation of finished goods and services.
  27. For example, when a company transforms raw steel into the body of an automobile they are creating form utility.
  28. What are Grove’s basic production requirements?
  29. To build and deliver products in response to the demands of the customer.
  30. To provide an acceptable quality level.
  31. To provide everything at the lowest possible cost.
  32. What is process manufacturing?
  33. Process manufacturing physically or chemically changes materials such as turning sand into glass or computer chips.
  1. What is assembly process?
  2. The assembly process puts together components to create a product.
  3. For example, cars are made through an assembly process that puts together the frame, engine and other parts.
  4. What is continuous process?
  5. Continuous process involves long production runs turning out finished goods over time.
  6. For example, a plant that makes plastic cups is run on a continuous process.
  7. What is an intermittent process?
  8. Rather than using long runs, an intermittent process involves short runs that respond directly to specific customer orders. An example of this process would include manufacturers of men’s custom business suits.
  9. What do you call the integration of CAD and CAM?
  10. The integration of CAD and CAM is referred to computer-integrated manufacturing or CIM.
  11. What are the latest developments making companies more competitive?
  12. Computer-aided design and manufacturing
  13. Flexible manufacturing
  14. Lean manufacturing
  15. Mass customization
  16. What is CAD?
  17. Computer-Aided Design (CAD) — The use of computers in the design of products.
  18. What is CAM?
  19. Computer-Aided Manufacturing (CAM) — The use of computers in the manufacturing of products
  20. What is flexible manufacturing?
  21. Flexible Manufacturing — Designing machines to do multiple tasks so they can produce a variety of products.
  22. What is lean manufacturing?
  23. Lean Manufacturing — Using less of everything than in mass production.
  24. Compared to others, lean companies:
  25. Take half the human effort.
  26. Have half the defects in finished products.
  27. Require one-third the engineering effort.
  28. Use half the floor space.
  29. Carry 90% less inventory.
  30. What’s mass customization?
  31. Mass customization is the process of tailoring products to meet the demands of a large number of individual customers.
  32. One example of this process is NIKEiD which allows customers to design athletic shoes by choosing from a variety of colors and designs.
  1. For more information on this process go to http://www.nike.com.
  2. What are the major criteria for facility location?
  3. Like most business related decisions managers must always consider
  4. the customer and
  5. the impact on customers’ ability to use the company’s services and
  6. To communicate about their needs.
  7. Other criteria that need to be considered include:
  8. labor costs, availability of resources,
  9. access to transportation,
  10. proximity to customers,
  11. suppliers,
  12. crime rates,
  13. quality of life for employees and
  14. Cost of living to mention but a few.
  15. What’s MRP?
  16. Materials requirement planning or (MRP) is a computer-based operations management system that uses sales forecasts to make sure needed parts and materials are available at the right time and place.
  17. What’s ERP?
  18. Enterprise resource planning (ERP), a newer version of MRP, combines the computerized functions of all the divisions and subsidiaries of the firm into a single integrated software program that uses a single database.
  19. What problems can be solved through the use of operations management planning?
  20. Operations management planning helps solve problems like:
  21. Facility location
  22. Facility layout
  23. Materials requirement planning
  24. Purchasing
  25. Inventory control
  26. Quality control
  27. How can we define a facility location?
  28. Facility Location — The process of selecting a geographic location for a company’s operations.
  29. What does it mean conducting operations management through the internet?
  30. Sometimes businesses outsource engineering, design and manufacturing to other companies.
  31. Often these relationships are managed through the Internet.
  32. Many companies are developing Internet-focused strategies.




  1. What does it mean tele-commuting?
  2. Telecommuting — Working from home via computer and modem.
  3. What does it mean “facility layout”?
  4. Facility Layout — The physical arrangement of resources, including people, to most efficiently produce goods and provide services.
  5. Facility layout depends on the processes performed:
  6. Service: Help customers find products
  7. Manufacturing: Improve efficiency
  8. What is an assembly line layout?
  9. Assembly Line Layout – Workers do only a few tasks at a time.
  10. What is a process layout?
  11. Process Layout – Similar equipment and functions are grouped together.
  12. What is a fixed position layout?
  13. Fixed-Position Layout – Allows workers to congregate around the product.
  14. What is a modular layout?
  15. Modular Layout – Teams of workers produce more complex units of the final product.
  16. What is an assembly layout?
  17. Assembly Line Layout – Workers do only a few tasks at a time
  18. What’s just-in-time inventory control?
  19. One major expense in the production process is the holding of parts.
  20. The goal of just-in-time inventory is to eliminate or reduce that cost.
  21. Just-in-time inventory system keeps a minimum of inventory on the premises and only delivers parts just as they are needed on the factory floor.
  22. What is quality?
  23. Quality — Consistently producing what the customer wants while reducing errors before and after delivery.
  24. What are Six Sigma quality?
  25. Six Sigma is a quality-control standard which sets a benchmark of no more than 3.4 defects per million opportunities.
  26. What is the Baldrige Award?
  27. The Baldrige Award was created in 1987 to promote a standard for overall quality in the following areas:
  28. manufacturing,
  29. services,
  30. small business,
  31. education,
  32. Health care.
  33. The award was named after Malcolm Baldrige the late U.S. secretary of commerce.
  1. What is ISO 9000?
  2. ISO 9000 is the common name given to quality management and assurance standards, while ISO 14000 is a collection of the best practices for managing an organization’s environmental impact.
  3. What is ISO 14000?
  4. ISO 14000 is a collection of the best practices for managing an organization’s environmental impact.
  5. What is purchasing?
  6. Purchasing — The function that searches for high-quality material resources, finds the best suppliers and negotiates the best price for goods and services
  7. What is statistical quality control SQC?
  8. Statistical Quality Control — A process used to continually monitor all phases of the production process.
  9. What is statistical quality process SQP?
  10. Statistical Process Control — A process of testing statistical samples of product components at each stage of production.
  11. What is the meaning of PERT?
  12. Program Evaluation and Review Technique (PERT) — A method for analyzing the tasks involved in completing a given project and estimating the time needed.
  13. What are the steps involved in PERT?
  14. Analyzing and sequencing tasks
  15. Estimating the time needed to complete each task
  16. Drawing a PERT network illustrating the first two steps
  17. Identifying the critical path
  18. What is a critical path?
  19. Critical Path — The sequence of tasks that takes the longest time to complete.
  20. How could you use a Gantt chart to keep track of production?
  21. A Gantt chart is a scheduling mechanism used by manufacturers for measuring production progress.
  22. This chart will give management a clear idea as to the status of the project and how much has been completed at any given time.



CHAPTER 10 – Motivating Employees

  • What are intrinsic rewards?
  • Intrinsic Rewards — Personal satisfaction felt for a job well done.
  • Kinds of Intrinsic Rewards:Pride in your performance, Sense of achievement
  • What are extrinsic rewards?
  • Extrinsic Rewards — Something given as a recognition of good work.
  • Kinds of Extrinsic Rewards: Pay Raises, Promotions, Awards
  • What is the idea of scientific management of Taylor?
  • Scientific Management — Studying workers to determine the most efficient ways of doing things and then teaching those techniques.
  • Three Key Elements to Increase Productivity
  • Time
  • Methods of Work
  • Rules of Work
  • What are the four keys principles of Taylor?
  • Study how a job is performed.
  • Gather time & motion information.
  • Check different methods.
  • Codify the best method into rules.
  • Choose workers whose skill matches the rules.
  • Establish a fair level of performance and pay.
  • What are the Taylor’s time-motion studies?
  • Frederick Taylor’s time-motion studies measured output.  Taylor inspired the Hawthorne studies. 
  • What is the principle of motion economy?
  • Principle of Motion Economy —Every job can be broken down into a series of elementary motions; developed by Frank and Lillian Gilbreth.
  • What can be considered warnings of employee’s stress?
  • Negative attitudes about work
  • Drops in productivity
  • Chronic lateness
  • Absenteeism
  • Careless with details
  • Unable to work with others
  • Withdrawal from co-workers
  • Easily upset or angered
  • What are the purposes and results of Hawthorne’s studies?
  • Researchers studied worker efficiency under different levels of light.
  • Productivity increased regardless of light condition.
  • Researchers decided it was a human or psychological factor at play.



  • What is the Hawthorne effect?
  • Hawthorne Effect —People act differently when they know they are being studied.
  • What are the Mayo’s Hawthorne studies?
  • Originally Elton Mayo wanted to determine the optimal level of lighting necessary to increase production on the factory floor which is a type of scientific management. He later determined that people who were empowered worked harder.  Ultimately his study brought about behavioral management.
  • How did Mayo’s findings influence scientific management?
  • The findings at Hawthorne plant in Cicero, Illinois completely changed how people thought about employees and motivation.  One finding was that money was not a primary motivator.  These new assumptions led to many theories about the human side of motivation. 
  • How do you explain Maslow’s Hierarchy of Needs?
  • Hierarchy of Needs —Theory of motivation based on unmet human needs from basic physiological needs to safety, social and esteem needs to self-actualization needs.
  • Needs that have already been met do not motivate.
  • If a need is filled, another higher-level need emerges.
  • What are Maslow five different categories of needs?
  • Self-actualization needs
  • Esteem needs
  • Social needs
  • Safety needs
  • Physiological needs
  • What are the two fundamental questions of Herzberg research?
  • Herzberg’s research centered on two questions:
  • What factors controlled by managers are most effective in increasing worker motivation?
  • How do workers rank job-related factors in order of importance related to motivation?
  • What are job content factors for Herzberg?
  • Herzberg found job content factors were most important to workers – workers like to feel they contribute to the company.
  • Why motivators are important for Herzberg?
  • Motivators — Job factors that cause employees to be productive and that give them satisfaction.
  • Explain what Herzberg called motivators factors.
  • As Herzberg studied the results of his research study he concluded that motivators made employees productive and gave them satisfaction.  These factors related to job content. 



  • Explain what Herzberg called hygiene factors.
  • Hygiene factors related to the job environment and could, if left unattended, cause employee dissatisfaction but would not provide long term motivation.  Hygiene factors include such things as pay and working conditions. 
  • What are several steps firms can take to increase internal communications and motivations?
  • To increase communication managers can:
  • Reward listening across the organization,
  • train supervisors and managers to listen use effective questioning techniques,
  • remove barriers to communication,
  • avoir vague and ambigus communication,
  • make it easy to communicate,
  • And ask employees what is important to them.
  • Focusing on communication is important, but managers can also focus on job enrichment such as skill variety and task significance.
  • What problems may emerge when firms try to implement participative management?
  • Participative management if implemented properly can be successful, but like everything in life, there are benefits and weaknesses to this type of management style. One problem with this approach is that it is difficult to implement and workers may spend more time formulating suggestions than actually solving the problem at hand.  
  1. Why is it important to adjust motivational styles to individual employees?
  2. In today’s multicultural workplace managers cannot use one motivational formula for all employees. While they must adjust motivational styles, it is essential that managers give all employees the keys to do a good job
  3. Are there any general principles of motivation that today’s managers should follow?
  4. Right information, and the right amount of cooperation. Motivating employees across cultures and generations can be simple if managers acknowledge a job well done. 
  • Briefly explain the managerial attitudes behind Theories X, Y and Z. 
    1. Douglas McGregor developed Theories X and Y after observing that managers’ attitudes fall into one of two different assumptions. 
      1. Theory X assumes the following: People dislike work and will avoid work. Workers must be forced, controlled, directed or threatened with punishment to make them work towards the organization’s goals, average worker prefers to be directed, wishes to avoid responsibility, has little ambition and wants security, and the primary motivators are fear and money.  


  • Briefly explain the managerial attitudes behind Theories Y.
  • Theory Y managers have completely different views on managing people.  Theory Y managers believe: Most people like to work, depth of a person’s commitment to goals depends on the perceived rewards for achieving them., under certain circumstances people will seek responsibility., employees tend to be imaginative, creative, and clever, and employees are motivated by a variety of rewards
  • Briefly explain the managerial attitudes behind Theories Z.
  • Theory Z was developed by William Ouchi of UCLA and is a blending of American management style, Theory A, with Japanese management style, Theory J into Theory Z.
  • Explain goal-setting theory. 
      1. The idea behind goal-setting theory is the process of setting attainable goals to motivate employees and improve performance.  The key to goal-setting theory is that the goals must be accepted and accompanied by feedback to truly be effective.
  • Evaluate expectancy theory.   When could expectancy theory apply to your efforts or lack of effort? 
  • Victor Vroom created the expectancy theory. 
  • His central premise was the amount of effort employees exert on a specific task depends on their expectations of the outcome. 
  • He contends that employees will ask three specific questions before committing maximum effort:
  • Can I accomplish the task?
  • If I do accomplish it, what’s my reward?
  • Is the reward worth the effort?
  • Like goal-setting theory the key to expectancy theory is setting attainable goals.  If the goal is not attainable employees will simply give up, thus reducing motivation. 
  • Explain the principles of equity theory. 
      1. Equity theory looks at how employee’s perceptions of fairness affect their willingness to perform. 
      2. Employees will try to balance or maintain equity between what they put into the job and what they get out of it, comparing those inputs and outputs to those of others in similar positions. 
  • How did Researchers Nadler and Lawler modifythe expectancy theory?
  • Researchers Nadler and Lawler modified expectancy theory and suggested five steps for managers:
  • Determine what rewards employees value.
  • Determine worker’s performance standard.
  • Make sure performance standards are attainable.
  • Tie rewards to performance.


  • Be sure employees feel rewards are adequate.
  • What is the reinforcement theory?
  • Reinforcement Theory — Positive and negative reinforcers motivate a person to behave in certain ways.
  • What is positive reinforcement?
  • Positive reinforcement includes praise, pay increases and recognition.
  • What is negative reinforcement?
  • Negative reinforcement includes reprimands, reduced pay, and layoff or firing.
  • What is extinction response?
  • Extinction is a way of trying to stop behavior by not responding to it.
  • What are several steps firms can take to increase internal communications and motivations? 
  • To increase communication managers can:
  • Reward listening across the organization,
  • train supervisors and managers to listen use effective questioning techniques,
  • remove barriers to communication,
  • avoir vague and ambigus communication,
  • make it easy to communicate,
  • And ask employees what is important to them.

Focusing on communication is important, but managers can also focus on job enrichment such as skill variety and task significance.

  • What problems may emerge when firms try to implement participative management? 
  • Participative management if implemented properly can be successful, but like everything in life, there are benefits and weaknesses to this type of management style. 
  • One problem with this approach is that it is difficult to implement and workers may spend more time formulating suggestions than actually solving the problem at hand.   
  • What is MBO?
  • Management by Objectives (MBO) — Involves a cycle of discussion, review and evaluation of objectives among top and middle-level managers, supervisors and employees.
  • Managers formulate goals in cooperation with everyone.
  • Need to monitor results and reward achievement.
  • What is job enrichment?
  • Job Enrichment — A motivational strategy that emphasizes motivating the worker through the job itself.
  • What are the key characteristics of work?
  • Skill Variety
  • Task Identity


  • Task Significance
  • Autonomy
  • Feedback
  • What is job enlargement?
  • Job Enlargement — A job enrichment strategy that involves combining a series of tasks into one challenging and interesting assignment.
  • What is job rotation?
  • Job Rotation — A job enrichment strategy that involves moving employees from one job to another.
  • What does it mean open communication?
  • Create a culture that rewards listening.
  • Train managers to listen.
  • Use effective questioning techniques.
  • Remove barriers to open communication.
  • Ask employees what’s important to them.
  • What are big motivators for small businesses?
  • Things like weekly trips to the movies and after-work parties help keep employees motivated.
  • Communication, mentoring and group bonding are key elements to success.
  • Open communication and increased responsibility for employees makes them feel a real part of the firm.
  • How to recognize good work?
  • Raises are not the only ways to recognize an employee’s performance. Recognition can also include:
  • Paid time off
  • Flexible scheduling
  • Work from home opportunities
  • Paid child or elder care
  • Stock options or profit sharing
  • Company awards
  • Company events or teams
  • What are the keys for productive teamwork?
  • Have a common understanding of your task.
  • Clarify roles and responsibilities.
  • Set rules.
  • Get to know each other.
  • Communicate openly and often.
  • What did motivate Baby Boomers?
  • Baby Boomers (1946 – 1964) – Experienced great economic prosperity, job security, optimism about their future




  • What did motivate Generation X?
  • Generation X (1965 – 1980) – Raised in dual-career families, attended day care, feeling of insecurity about jobs
  • What did motivate Generation Y?
  • Generation Y or Millennials (1980 – 2000) – Raised by indulgent parents, used to many comforts like computers and cell phones
  • How does behave Generation X in the workplace?
  • Desire economic security but focus more on career security more than job security.
  • Good motivators as managers due to emphasis on results rather than work hours.
  • Tend to be flexible and good at collaboration and consensus building.
  • Very effective at giving employee feedback and praise.
  • How do Millennials behave in the workplace?
  • Tend to be impatient, skeptical, blunt and expressive.
  • Are tech-savvy and able to grasp new concepts.
  • Able to multi-task and are efficient.
  • Highlight a strong sense of commitment.
  • Place a high value on work-life balance.
  • Fun and stimulation are key job requirements.
  • Why is it important to adjust motivational styles to individual employees?
      1. In today’s multicultural workplace managers cannot use one motivational formula for all employees. 
      2. While they must adjust motivational styles, it is essential that managers give all employees the keys to do a good job:  the tools, right information, and the right amount of cooperation. 
  • Are there any general principles of motivation that today’s managers should follow? 
    1. Motivating employees across cultures and generations can be simple if managers acknowledge a job well done.  

CHAPTERS 11 – 20

Questions (501-1000)

Vol. II





CHAPTER 11 – Hiring Employees

  • What’s human resource management
    1. Human resource management is the process of determining the needs of the organization and then recruiting, selecting, developing, motivating, evaluating, compensating, and scheduling employees to achieve organizational goals.
  1. Why the role of HRM has grown in importance inside an organization?
  2. Increased recognition of employees as a resource.
  3. Changes in law that rewrote old workplace practices.
  • How it is possible to develop the firm’s ultimate resources?
  1. Service and high-tech manufacturing requires employees with highly technical job skills.
  2. Such workers are scarce, making recruiting and retention more important and more difficult.
  3. The human resource job is now the job of all managers in an organization.
  • What did Title VII of the Civil Rights Act of 1964 achieve? 
  1. Title VII prohibits discrimination in hiring, firing, compensation, apprenticeships, training, terms, conditions, or privileges of employment based on race, religion, creed, sex, or national origin. At a later date age discrimination was added to the act.
  • Why is important the 1972 EQUAL EMPLOYMENT OPPORTUNITY ACT (EEOA)?
  1. Strengthened the Equal Employment Opportunity Commission (EEOC).
  2. Gave EEOC the right to issue workplace guidelines for acceptable employer conduct.
  3. EEOC could mandate specific recordkeeping procedures.
  4. EEOC was vested with the power of enforcement.
  • What’s the EEOC and what was the intention of affirmative action? 
  1. The Equal Employment Opportunity Commission was created by the Civil Rights Act
  2. The EEOC was permitted to issue guidelines for acceptable employer conduct in administering equal employment opportunity.
  3. Affirmative action is the most controversial policy of the EEOC and was designed to “right past wrongs” by increasing opportunities for minorities and women.
  • What are the challenges in finding high level workers?
  1. A shortage of trained workers in key areas
  2. Worker shortage in skilled trades
  3. Changes in employee attitudes about work
  4. A declining economy with fewer full-time jobs
  5. Expanding global markets with low-wage workers
  6. Increasing benefit demands and benefit costs
  7. A decreased sense of employee loyalty


  • What is the difference between Affirmative Action and Reverse Discrimination?
  1. Affirmative Action- Policy designed to “right past wrongs” by increasing opportunities for minorities and women in the workplace.
  2. Reverse Discrimination-Discrimination against whites or males in hiring or promoting. This policy has been at the center of many debates and lawsuits.
  • What is the CIVIL RIGHTS ACT of 1991?
  1. Civil Rights Act of 1991 – Amended Title VII and gave victims of discrimination the right to a jury trial and possible damages.
  • What is the OFCCP?
  • Office of Federal Contract Compliance Programs (OFCCP) – Ensures that employers doing business with the federal government comply with the nondiscrimination and affirmative action laws.
  • What are the laws protecting the employees with disabilities?
  1. Americans with Disabilities Act of 1990 requires employers to give applicants with physical or mental disabilities the same consideration for employment as people without disabilities.
  2. Also requires “reasonable accommodations” for employees with disabilities.
  3. Passage in 2008 of Americans with Disabilities Amendments Act expanded protection.
  1. Protects workers 40 and over from employment and workplace discrimination in hiring, firing, promotion, layoff, compensation, benefits, job assignments and training.
  • What does “accommodations” mean in the American with Disabilities Act of 1990? 
  1. Employers are required to make “reasonable accommodations” for employees with disabilities, such as modifying equipment or widening doorways.
  • What are the five steps in human resource planning? 
  1. The five steps in human resource planning are:
      1. Preparing a human resource inventory of the organization’s employees,
      2. preparing a job analysis,
      3. assessing future human resource demand,
      4. assessing future labor supply and
      5. Establishing a strategic plan.
  • What factors make it difficult to recruit qualified employees? 
  1. Some factors that make it difficult to recruit qualified employees include:
      1. organizational policies that demand promotions from within,
      2.  union regulations,
      3. And low wages.
  • What is the difference among Job Description, Job Definition and Job Analysis?
  1. Job Analysis — A study of what employees who holds various job titles do.
  2. Job Description–Specifies the objectives of the job, the type of work, the responsibilities and duties, working conditions and relationship to other jobs.
  3. Job Specifications —A summary of the minimal education and skills needed to do a particular job.
  • What does it mean “minding the law for HRM?
  1. Employers must know the law and act accordingly.
  2. Legislation affects all areas of HRM.
  3. Court cases highlight that sometimes it’s proper to go beyond providing equal rights.
  4. Changes in law and legislation occur regularly.
  • What are the six steps in the selection process? 
  1. (1) Obtaining complete application forms,
  2. (2) conducting initial and follow-up interviews,
  3. (3) giving employment tests,
  4. (4) conducting background investigations,
  5. (5) obtaining results from physical exams, and
  6. (6) Establishing trial period.
  • How can we define Recruitment?
  1. Recruitment- The set of activities for obtaining the right number of qualified people at the right time.
  • Who is considered a contingent worker and why do companies hire such workers? 
  1. Contingent workers include
  2. part-time workers,
  3. temporary workers,
  4. seasonal workers,
  5. independent contractors,
  6. interns, and
  7. Co-op students.

Contingent workers are sometimes hired in an uncertain economic climate, when full-time workers are on leave, when there is peak demand for labor or products and finally when quick service is necessary. 

  • Name and describe four training techniques. 
  1. Off-the-job training
  2. An apprenticeship program
  3. Vestibule training or near-the-job training or Job simulation
  4. What is Off-the-job-training, Apprenticeship program and vestibule training?
      1. Off-the-job training occurs away from the workplace and consists of internal or external programs to develop any of a variety of skills or to foster personal development.
      2. An apprenticeship program involves a student or apprentice working alongside an experienced employee to master the skills and procedures of a craft. 
      3. Vestibule training or near-the-job training is done in a classroom with equipment similar to that used on the job so employees learn proper methods and safety procedures before assuming a specific job assignment.
  • What is a Job simulation?
      1. Job Simulation is the use of equipment that duplicates job conditions and tasks so trainees can learn skills before attempting them on the job. 
  • Why it is not easy being small?
  1. To survive, small businesses must recruit and retain qualified workers.
  2. Unfortunately, they lack the resources of larger companies to compete for employees.
  3. Small businesses need innovations like:
  4. Letting staff help recruit and select candidates.
  5. “Test-Drive” an employee.
  6. Seek out publicity through local media.
  • What’s the primary purpose of a performance appraisal
  1. The primary purpose of a performance appraisalis to determine whether workers are doing an effective and efficient job, with a minimum of errors and disruptions. 
  • What are the six steps in a performance appraisal
  1. (1) Establishing performance standards,
  2. (2) communicating those standards,
  3. (3) evaluating performance,
  4. (4) discussing results with employees,
  5. (5) taking corrective action, and
  6. (6) Using the results to make decisions.
  • Name and describe five alternative compensation techniques.
  1. Commission Plans
  2. Bonus Plans
  3. Profit Sharing Plans
  4. Gain-Sharing Plans
  5. Stock Options
  • What are Commission Plans, Bonus Plans, Profit Sharing Plans, Gain Sharing Plans and Stock Options Plans?
  • Commission Plans – rewarding employees with a percentage of sales
  • Bonus Plans – rewarding employees with payment based on achievement of a predetermined goal
  1. Profit Sharing Plans– giving employees the ability to share in a percentage of the company’s profit.
  2. Gain-Sharing Plans– bonus is based on improvements over previous performance.
  3. Stock Options Plansare plans granting employees shares of stocks based on performance.
  4. What advantages do compensation planssuch as profit sharing plans in an organization?
  5. The hope is that profit sharing planswill motivate employees to think like owners. 
  • What is Selection?
  1. SelectionThe process of gathering information and deciding who should be hired, under legal guidelines, to fit the needs of the organization and individuals.
  • What is the difference between training and developing employees?
  1. Trainingand Development — All attempts to improve productivity by increasing an employee’s ability to perform.
  2. Training focuses on short-term skills.
  3. Development focuses on long-term abilities.
  • What are the 3 steps of training an employee?
  1. Assessing organization needs and employee skills to develop appropriate trainingneeds.
  2. Designing trainingactivities to meet identified needs.
  3. Evaluating the training’s effectiveness.
  • What is the difference between management development and management training?
  1. Management DevelopmentThe process of training and educating employees to become good managers and tracking the progress of their skills over time.
  2. Management trainingincludes: – On-the-job coaching, Understudy positions, Job rotation, Off-the-job courses and training
  • What does it mean ‘Using Networks” and “Using Mentors”?
  1. NetworkingEstablishing and maintaining contacts with key managers in and out of the organization and using those contacts to develop relationships.
  2. MentorsManagers who supervise, coach and guide selected lower-level employees by acting as corporate sponsors
  • What are the six steps of performance appraisal?
  1. Establishing performance standardsthat are understandable, measurable and reasonable.
  2. Clearly communicating those standards.
  3. Evaluating performance against the standards.
  4. Discussing the results with employees.
  5. Taking corrective action.
  6. Using the results to make decisions.
  • What are the major uses of performance appraisals?
  1. Identify trainingneeds
  2. Use as a promotion tool
  3. Recognize worker’s achievements
  4. Evaluate the firm’s hiring process
  5. Judge the effectivenessof the firm’s orientation process
  6. Use as a basis for possible terminationof a worker
  • What are the benefits and challenges of flextime
      1. Flextime benefits include allowing employees to adjust to work/life demands.
      2. Challenges of flextime include not being applicable for all businesses, making communication more difficult, and creating the possibility of resentment if employees abuse the system
  • What is Telecommuting? 
      1. Telecommuting benefits include cost saving for employers and allows employees to manage work/life demands. Challenges of telecommuting includes that it requires disciplined employees to stay focused and communication with employees may suffer.
  • What is Job sharing? 
  1. Job sharing benefits include employment opportunities for those who cannot (or prefer not to) work full-time, reduced absenteeism and tardiness, retention of experienced workers and ability to schedule workers during peak times.
  2. Challenges of job sharing include the need to hire, train, motivate, and supervise at least twice as many employees.


CHAPTER 12 – Dealing with Employee-Management Issues and Relationships

  1. What are the goals of organized work?
  2. To work with fair and competent management.
  3. Be treated with human dignity.
  4. Receive a reasonable share of wealth in the work it generates
  5. What are unions and what they are responsible for?
  6. UnionsEmployee organizations whose main goal is to represent members in employee-management negotiations of job-related issues
  7. Labor unionswere responsible for:
  8. Minimum wage laws
  9. Overtime rules
  10. Workers’ compensation
  11. Severance pay
  12. Child-labor laws
  13. Job-safety regulations
  14. What is a Craft Union?
  15. Craft UnionAn organization of skilled specialists in a particular craft or trade.
  16. What was the name of the first labor union?
  17. Knights of LaborFirst national labor union; formed in 1869.
  18. What was AFL?
  19. American Federation of Labor (AFL)An organization of craft unions that championed fundamental labor issues; formed in 1886.
  20. What are industrial unions?
  21. Industrial UnionsLabor unions of unskilled or semiskilled workers in mass production industries
  22. What is CIO?
  23. Congress of Industrial Organizations (CIO)Union organization of unskilled workers; broke away from the AFL in 1935 and rejoined in 1955.
  24. What is collective bargain?
  25. Collective BargainingThe process whereby union and management representatives form an agreement, or contract, for employees.
  26. What is NRLB?
  27. The National Labor Relations Board (NLRB)was created to oversee labor-management issues and provide guidelines for unionization.
  28. What is Certificationprocess with NRLB?
  29. CertificationThe formal process by which a union is recognized by the NLRB as the bargaining agent for a group of employees


  1. What is Decertificationprocess with NRLB?
  2. DecertificationThe process whereby employees take away a union’s right to represent them
  3. Why join a union?
  4. Pro-union attitudes
  5. Poor management/employee relations
  6. Negative organizational climate
  7. Poor work conditions
  8. Union’s reputation
  9. Job security
  10. What is a labor contract?
  11. Negotiated Labor-Management Agreement(Labor Contract) — Sets the terms under which labor and management will function over a period of time.
  12. What is a union security clause?
  13. Union Security ClauseStipulates workers who reap union benefits must either join the union or pay dues to the union
  14. What is difference between closed shop agreement, union shop agreement and agency shop agreement?
  15. Closed Shop AgreementSpecified workers had to be members of a union before being hired for a job.
  16. Union Shop AgreementDeclares workers don’t have to be members of a union to be hired but must agree to join the union within a specific time period
  17. Agency Shop AgreementAllows employers to hire nonunion workers who don’t have to join the union but must pay fees
  18. What are the right-to-work laws?
  19. Right-to-Work LawsLegislation that gives workers the right, under an open shop, to join or not to join a union
  20. What is an open shop agreement?
  21. Open Shop AgreementAgreement in right-to-work states that gives workers the right to join or not join a union, if one exists in their workplace.
  22. What are grievances?
  23. GrievancesA charge by employees that management isn’t abiding by the terms of the negotiated agreement.
  24. What are shop stewards?
  25. Shop StewardsUnion officials who work permanently in an organization and represent employee interests on a daily basis
  26. What are bargaining zones?
  27. Bargaining ZoneThe range of options labor and management have between initial and final contract offers that each side will consider before an impasse is reached.



  1. What is the difference between mediation and arbitration?
  2. MediationThe use of a third party to encourage both sides to keep negotiating to resolve key contract issues.
  3. ArbitrationAn agreement to bring in a third party to render a binding agreement
  4. What are the tactics used in conflict?
  5. Weapons used by labor unions include:
  6. Strikes
  7. Boycotts
  8. Work Slowdowns
  9. Pickets
  10. What is the difference between strikes, primary boycotts and secondary boycotts?
  11. StrikesA strategy in which workers refuse to go to work.
  12. Primary BoycottWhen a union encourages both its members and the general public to not buy the products of a firm in a labor dispute
  13. Secondary BoycottAn attempt by labor to convince others to stop doing business with a firm that’s the subject of a primary boycott
  14. What are the major laws that affected union growth?
  15. The Norris-LaGuardia Act.
  16. The National Labor Relations Act or Wagner Act.
  17. The Fair Labor Standards Act.
  18. The Labor-Management Relations Act or Taft-Hartley Act
  19. The Labor-Management Report and Disclosure Act or Landrum-Griffin Act
  20. What are tactics used in conflicts?
  21. LockoutAn attempt by management to put pressure on workers by closing the business thus cutting off workers’ pay.
  22. InjunctionA court order directing someone to do something or refrain from doing something.
  23. What are strikebreakers?
  24. StrikebreakersWorkers hired to do the work of striking workers until the labor dispute is resolved; called scabs by unions
  25. What are givebacks?
  26. GivebacksGains from labor negotiations are given back to management to help save jobs.
  27. What is the future for labor unions?
  28. Union membershipwill include more white-collar, female and foreign-born workers than in the past.
  29. Unionswill take on a greater role in training workers, redesigning jobs and assimilating the changing workforce.
  30. Unionswill seek more job security, profit sharing and increased wages.
  31. How are executives going to be compensated in the future?
  32. Boards of directorsare being challenged concerning executive contracts.
  33. Government and shareholders are putting pressure to overhaul executive compensation.
  34. Financial crisisof 2008-2009 strengthened the argument of shareholders concerning limits on compensation.
  35. What does the Norris-LaGuardia Act cover?
  36. The Norris-LaGuardia Actprohibited employers from using contracts that forbid union activities and paved the way for union growth in the United States
  37. What does the National Labor relations Act or Wagner Actcover?
  38. The National Labor Relations Act or Wagner Actallowed collective bargaining and created the National Labor Relations Board. 
  39. What does the Fair Labor Standards Act cover?
  40. The Fair Labor Standards Actset a minimum wage and maximum basic hours for work
  41. What does the Labor Management Relations Act or Taft-Hartley Actcover?
  42. The Labor-Management Relations Act or Taft-Hartley Actamended the Wagner Act and permitted states to pass laws prohibiting compulsory union membership, set up methods to deal with strikes that impact national health and safety, closed-shop agreements and prohibited wage payments for work not performed (featherbedding).  This law weakened union power in the U.S
  43. What does the Labor-Management Report and Disclosure Act or Landrum-Griffin Act cover?
  44. The Labor-Management Report and Disclosure Act or Landrum-Griffin Actamended the Taft-Hartley Act and Wagner Act, guaranteed individual rights of union members in dealing with their union such as the right to nominate candidates for union office, vote in union elections, attend and participate in union meetings, vote on union business and examine union records and accounts.  The goal of this legislation was to eliminate union corruption
  45. How do changes in the economy affect the objectives of unions?
  46. Unionsand their objectives have frequently shifted with social and economic trends. 
  47. In the 1970s the primary objective was additional pay and benefits; while in the 1980s unions focused on job security.
  48. During the 1990s and 2000s job security remained a key issue as unions tried to cope with global competition and outsourcing.
  1. What are the major tactics used by unions and by management to assert their power in contract negotiations?
  2. The major tactics used by unions include: strikes, boycotts, work slowdowns and pickets. 
  3. Management tactics include: lockouts, injunctions and bringing in strikebreakers. 
  4. What types of workers do unions hope to organize in the future?
  5. To remain relevant, unions must attract new members.
  6. This includes more professional, female and foreign born workers.
  7. Both the Teamsters Union and Service Employees International Union have started to target workers in health care, technology and finance.
  8. How does top-executive pay in the U.S. compare with top-executive pay in other countries?
  9. Executive pay in the U.S. is significantly higher than in other countries. For example, the typical European CEO earns only about 40 percent what their U.S. counterpart makes. 
  10. What’s the difference between pay equityand equal pay for equal work
  11. Equal pay for equal workrefers to giving equal pay to men and women who do the same job.  This concept was codified in the 1963 Equal Pay Act
  12. Pay equity goes beyond this concept and says people in jobs that require similar levels of education, training, or skills should receive equal pay. For example, the pay of an occupation traditionally considered a women’s job such as a bank teller should pay the same as a truck driver typically considered a man’s job.  
  13. How is the term sexual harassment defined? And when does sexual behavior become illegal?
  14. Sexual harassmentrefers to any unwelcome sexual advance, requests for sexual favors, and other verbal or physical conduct of a sexual nature that creates a hostile work environment. 
  15. This behavior is considered illegal if the conduct unreasonably interferes with a workers’ job performance or creates an intimidating, hostile, or offensive work environment.
  16. It is also considered illegal if the sexual harassment constitutes a quid pro quo.
  17. What are some of the issues related to childcare and elder care and how are companies addressing those issues?
  18. Issues of childcare or elder careare of concern to employers, since these issues account for reduced productivity, absenteeism and high turnover. 
  19. Another issue to consider is who pays for the care of a child or an aging parent.
  20. Companies are addressing these issues
  21. by arranging discounts at national child care chains, subsidizing payment for childcare,
  22. developing referral servicesto identify high quality providers of care,
  23. creating on-site child care centersor sick-child centers,
  24. offering health-spending accounts
  25. Allowing workers to set aside pretax dollarsfor elder-care expenses and offering flexible work schedules.
  26. What is quid pro quo?
  27. Quid pro quo sexual harassmentinvolves threats like “Go out with me or you’re fired.” An employee’s job is based on submission
  28. What is hostile work environment?
  29. Hostile work environment sexual harassment is conduct that interferes with a worker’s performance or creates an intimidating or offensive work environment.
  30. What is the use of drugs in the workplace?
  31. Alcohol is the most widely used drug – 6.2% of full time employees are considered heavy drinkers. Over 8% of workers aged 18-49 use illegal drugs and are more likely to be in workplace accidents.
  32. Drug abuse costs the U.S. economy $276 billion in lost work, healthcare costs and crime. Over 70% of major companies’ drug test workers.
  33. How is the violence situation in the workplace?
  34. OSHA reports homicides account for 16% of workplace deaths.
  35. Violence is the number one cause of death for women in the workplace.
  36. Companies have taken action to deal with potential problems by using focus groups and other interactions.
  37. What are the warning signs of possible workplace violence?
  38. Unprovoked outbursts of anger or rage
  39. Threats or verbal abuse
  40. Repeated suicidal comments
  41. Paranoid behavior














CHAPTER 13 – Marketing: Helping Buyers Buy

  1. What is marketing?
  2. Marketing — The activity, set of institutions and processes for creating, communicating, delivering, and exchanging offerings with value for customers, clients, partners, and society at large
  3. Simply put, marketing is activities buyers and sellers perform to facilitate mutually beneficial exchanges.
  4. What is the focus of contemporary marketing?
  5. Marketing today involves helping the buyer buy through:
  6. Websites that help buyers find the best price, identify product features, and question sellers.
  7. Blogs and social networking sites that cultivate consumer relationships.
  8. What are the 4 eras of Marketing?
  9. Production Era
  10. Selling Era
  11. Marketing Concept Era
  12. Customer Relationship Era
  13. What is the difference between Production Era, Selling Era, Marketing Era and Customer Relationship Era?
  14. Production Era – The general philosophy was “Produce what you can because the market is limitless.”
  15. Selling Era – After mass production, the focus turned from production to persuasion.
  16. Marketing Era – After WWII, a consumer spending boom developed. Businesses knew they needed to be responsive to consumers if they wanted their business.
  17. Customer Relationship Management (CRM) — Learning as much as you can about customers and doing what you can to satisfy or exceed their expectations. Organizations seek to enhance customer satisfaction building long-term relationships.
  18. How do you apply the marketing concept?
  19. The Marketing Concept includes three parts:
  20. Customer Orientation — Finding out what customers want and then providing it.
  21. Service Orientation — Making sure everyone in an organization is committed to customer satisfaction.
  22. Profit Orientation — Focusing on the goods and services that will earn the most profit




  1. What is nonprofit marketing?
  2. Nonprofit marketing tactics include:
  3. Fundraising
  4. Public Relations
  5. Special Campaigns
  6. Ecological practices
  7. Changing public opinions and attitudes
  8. Increasing organizational membership
  9. What are the marketing strategies of nonprofit organizations?
  10. Fundraising
  11. Public Relations
  12. Special Campaigns
  13. Ecological practices
  14. Changing public opinions and attitudes
  15. Increasing organizational membership
  16. What are the three key elements needed to develop a product?
  17. Product — A good, service, or idea that satisfies a consumer’s want or need.
  18. Test Marketing — Testing product concepts among potential product users.
  19. Brand Name — A word, letter, or a group of words or letters that differentiates one seller’s goods from a competitor’s.
  20. What does it mean pricing the product?
  21. Pricing products depends on many factors:
  • Competitors’ prices
  • Production costs
  • Distribution
  • High or low price strategies
  1. Who does the placing of the product?
  2. Middlemen are important in place strategies because getting a product to consumers is critical.
  3. What is promotion management? And what are the key factors?
  4. Promotion — All the techniques sellers use to inform people about their products and motivate them to purchase those products. Promotion includes:
  5. Advertising
  6. Personal selling
  7. Public relations
  8. Viral marketing
  9. Sales promotions
  10. What does it mean to “help the buyer buy?”
  11. In the past marketing focused entirely on helping the seller sell the product. Today marketing has changed from selling to instead helping the buyer buy.
  12. It is critical today that organizations do everything to help buyers make decisions. 
  13. What are the three parts of the marketing concept?
  14. The three parts of the marketing concept are:
  15. customer orientation,
  16. service orientation,
  17. profit orientation
  18. What are the Four P’s of the Marketing Mix?
  19. The Four P’s of the marketing mix are:
  20. Product,
  21. Price
  22. Place
  23. Promotion
  24. What is a marketing research?
  25. Marketing ResearchAnalyzing markets to determine challenges and opportunities, and finding the information needed to make good decisions
  26. Why is important to conduct research in marketing?
  27. Research is used to identify products consumers have used in the past and what they want in the future.
  28. Research uncovers market trends and attitudes held by company insiders and stakeholders.
  29. Why does marketing research help in understanding customers’ needs?
  30. To understand customer wants and needs, it is critical to conduct market research. Good market research will identify products consumers have used, want to use in the future and market trends. 
  31. What are the 4 steps in marketing research process?
  32. Defining the problem or opportunity and determining the present situation.
  33. Collecting research data.
  34. Analyzing the data.
  35. Choosing the best solution and implementing it.
  36. What are the 4 key questions a businessman must ask to define a problem or an opportunity in business?
  37. What’s the present situation?
  38. What are the alternatives?
  39. What information is needed?
  40. How should the information be gathered?
  41. How relevant can be secondary data in marketing research?
  42. Secondary research is cheaper and often easier to gather than primary research, but may be outdated.
  43. Secondary data incurs no expense and is usually easily accessible
  44. Secondary data doesn’t always provide all the needed information for marketers.
  45. What is the difference between primary and secondary data?
  46. Primary Data — In-depth information gathered by marketers from their own research.
  47. Secondary Data — Existing data that has previously been collected by sources like the government.
  48. What are the ways to collect primary data? And what are their advantages and disadvantages?
  49. Telephone, online and mail surveys, personal interviews, and focus groups are ways to collect primary data.
  50. Primary data is timely but can be expensive and time consuming to gather.
  51. How to define a focus group?
  52. Focus Group — A group of people who meet under the direction of a discussion leader to communicate opinions.
  53. How do you explain the meaning of analyzing the data and implementing the decisions?
  54. Marketers must turn data into useful information. They must use their analysis to plan strategies and make recommendations. Finally, marketers must evaluate their actions and determine if further research is need.
  55. How has the Internet changed the way market research is being conducted?
  56. The Internet has made gathering both primary and secondary information easier and quicker. Also, information can now be gathered via blogs and social networks.
  57. What are the key benefits of marketing research?
  58. Analyze customer needs and satisfaction.
  59. Analyze current markets and opportunities.
  60. Analyze the effectiveness of marketing strategies.
  61. Analyze marketing process and tactics currently used.
  62. Analyze the reasons for goal achievement or failure.
  63. What are the ways to find out what the customers think?
  64. Conduct informal consumer surveys.
  65. Host a customer focus group.
  66. Listen to competitor’s customers.
  67. Survey your sales force.
  68. Become a “phantom” customer.
  69. What is environmental scanning?
  70. Environmental scanning is the process of identifying factors that affect marketing success. The environment of marketing is changing faster than at any time in history.  Companies that don’t keep up, fail to survive. 
  71. Today’s marketing environment is influenced by the global marketplace and the explosion of the information age.
  72. To be fully prepared, a company must recognize and understand:
  73. The cultural influences;
  74. the governmental and political influences;
  75. the demographic and lifestyle trends;
  76. the local, national, and world economic trends;
  77. the strengths of multi-national competition
  78. The influence of technology on physical distribution.
  79. What are the factors involved in environmental scanning?
  80. Factors involved in the environmental scan include:
  81. Global factors
  82. Technological factors
  83. Sociocultural factors
  84. Competitive factors
  85. Economic factors
  86. What is the ABG of Marketing?
  87. Always be customer-focused.
  88. Benchmark against the best firms.
  89. Continuously improve performance.
  90. Develop the best value package.
  91. Empower your employees.
  92. Focus on relationship building.
  93. Goal achievement is the reward.
  94. How to define consumer market?
  95. Consumer Market — All the individuals or households that want goods and services for personal use and have the resources to buy them.
  96. What is B2B?
  97. Business-to-Business (B2B) — Individuals and organizations that buy goods and services to use in production or to sell, rent, or supply to others
  98. What are the four steps in the marketing research process?
  99. The steps in the marketing research process are as follows:
  100. Define the problem and determine the present situation,
  101. Collect the research data,
  102. Analyze the research data, and
  103. Choose the best solution and then implement it.
  104. What does it imply marketing to consumers?
  105. The size and diversity of the consumer market forces marketers to decide which groups they want to serve.
  106. What is marketing segmentation?
  107. Market Segmentation — Divides the total market into groups with similar characteristics.
  108. What is target marketing?
  109. Target Marketing — Selecting which segments an organization can serve profitably.
  110. What are the 5 main types of market segmentation?
  111. Geographic Segmentation — Dividing the market by cities, counties, states, or regions
  112. Demographic Segmentation — Dividing the market by age, income, education, and other demographic variables.
  113. Psychographic Segmentation — Dividing the market by group values, interests, and opinions
  114. Benefit Segmentation — Dividing the market according to product benefits the customer prefers
  115. Volume (Usage) Segmentation — Dividing the market by the volume of product use.
  116. What is Niche Marketing? And how does it differ from 1-0-1 marketing, mass marketing and relationship marketing?
  117. Niche Marketing — Identifies small but profitable market segments and designs or finds products for them.
  118. One-to-One Marketing– Developing a unique mix of goods and services for each individual consumer
  119. Mass Marketing — Developing products and promotions to please large groups of people. Mass marketing uses little market segmentation.
  120. Relationship Marketing– Rejects the idea of mass production and focuses toward custom-made goods and services for customers. The goal of relationship marketing is to keep customers happy by offering products that meet exact expectations
  121. How is built effective relationship marketing?
  122. Effective relationship marketing is built on:
  123. Open communication
  124. Consistently reliable service
  125. Staying in contact with customers
  126. Trust, honesty, and ethical behavior
  127. Showing that you truly care


  1. What are the Keys to Successful Relationship Marketing?
  2. Relationship marketing is all about moving away mass production and toward custom-made goods and services.
  3. The goal of relationship marketing is to retain individual customers over time by offering them new products that meet their expectations.
  4. Nike uses relationship marketing creating custom made-shoes via NikeiD.
  5. What are the steps in steps in the consumer decision-making process?
  6. Problem recognition
  7. Search for information
  8. Evaluating alternatives
  9. Purchase decision
  10. Post purchase evaluation
  11. How is structured the consumer decision making process and outside influences?
  12. It is made of the following parts:
  13. Marketing mix influencing factors
  14. Socio cultural influencing factors
  15. Psychological influencing factors
  16. Situational influencing factors
  17. What are the steps of the consumer decision making process?
  18. Problem recognition
  19. Information search
  20. Alternative evaluation
  21. Purchase decision or no purchase
  22. Post purchase evaluation (cognitive dissonance)
  23. What are marketing mix influencing factors?
  24. Product
  25. Price
  26. Place
  27. Promotion
  28. What are the socio cultural influencing factors?
  29. Reference groups
  30. Family
  31. Social class
  32. Culture
  33. Subculture



  1. What are the psychological influencing factors?
  2. Perception
  3. Attitude
  4. Learning
  5. Motivation
  6. What are the situational influencing factors?
  7. Types of purchase
  8. Social surrounding
  9. Physical surrounding
  10. Previous experiences
  11. What are the key factors in consumer decision making process?
  12. Learning
  13. Reference Groups
  14. Culture
  15. Subcultures
  16. Cognitive Dissonance
  17. How do you define learning in consumer decision making process?
  18. Learning – Creates changes in consumer behavior through experiences and information.
  19. How do you define reference groups in consumer decision making process?
  20. Reference groups – Reference points in forming beliefs, attitudes, values or behaviors.
  21. How do you define culture in consumer decision making process?
  22. Culture – The set of values, attitudes and ways of doing things passed from generations.
  23. How do you define subculture in consumer decision making process?
  24. Subculture – Values, attitudes and ways of doing things from belonging to a certain group.
  25. How do you define cognitive dissonance in consumer decision making process?
  26. Cognitive dissonance – Psychological conflict that may occur after a purchase.
  27. How to define business to business B2B market?
  28. B2B marketers include:
  29. Manufacturers
  30. Wholesalers and retailers
  31. Hospitals, schools and charities
  32. Government
  33. Products are often sold and resold several times before reaching final consumers.


  1. What are the differences inB2B Market?
  2. There are relatively few customers.
  3. Customers tend to be large buyers.
  4. Markets are geographically concentrated.
  5. Buyers are more rational than emotional.
  6. Sales are direct.
  7. Promotions focus heavily on personal selling.
  8. Define the terms consumer market and business-to-business market.
  9. The consumer market consists of all the individuals or households that want goods and services for personal consumption or use and have the resources to buy them.
  10. Business-to-business markets consist of all the individual and organizations that want goods and services to use in producing other goods and services or to sell, rent, or supply goods to others.
  11. Name and describe five ways to segment the consumer market.
  12. Geographic segmentation is the process of dividing the market by cities, counties, states, or regions.
  13. Demographic segmentation involves dividing the market by age, income, education level, religion, race, and occupation.
  14. Psychographic segmentation is the process of dividing the market by values, attitudes, and interests.
  15. Benefit segmentation involves determining which benefits to promote.
  16. Volume or usage segmentation is the process of determining how your customers purchase and use the product.
  17. What’s niche marketing and how does it differ from one-to-one marketing?
  18. Niche marketing is identifying small but profitable market segments and designing or finding products for them.
  19. One-to-one marketing means developing a unique mix of goods and service for each individual customer.
  20. What are four key factors that make B2B markets different from consumer markets?
  21. Customers in B2B market are relatively few as compared to households in the consumer market,
  22. B2B customers tend to be geographically centered,
  23. B2B sales tend to be direct, and
  24. In the B2B marketplace sales are based on selling.



CHAPTER 14 – Developing and Pricing Goods and Services

  1. What is the meaning of value?
  2. According to the American Marketing Association, value is a foundation of marketing.
  3. Explain in short the meaning of value?
  4. Value — Good quality at a fair price.
  5. What is product development?
  6. Adapting products to new markets is an ongoing challenge.
  7. Product development is a key activity in any modern business.
  8. What are the untouchable products still purchased by consumer during a recession?
  9. Internet service
  10. Cell phone service
  11. Cable television
  12. Discount apparel
  13. Haircuts and coloring
  14. Fast-food
  15. What are the expendable products during a recession which are not purchased by the consumer during a recession?
  16. Luxury handbags
  17. Satellite radio
  18. Specialty apparel
  19. High-end cosmetics
  20. Facials
  21. What is a total product offer?
  22. Total Product Offer — Everything consumers evaluate when deciding whether to buy something.
  23. What value enhancers may be included in a total product offer?
  24. Some value enhancers that may be included in the total product offering include:
  25. brand name,
  26. warranty,
  27. service,
  28. store surroundings, and
  29. Speed of delivery.
  30. How products are evaluated?
  31. Products are evaluated on many different dimensions, both tangible and intangible



  1. What is the role of marketers?
  2. Marketers must think like and talk to consumers to find out what’s important.
  3. What’s a product line? And what is a product mix?
  4. Product line refers to the group of products that are physically similar or intended for a similar market. These products may face similar competition. 
  5. For example, you can purchase a Diet Coke, Diet Coke with Splenda etc.
  6. The product mix is the total of the product lines offered by a particular company.
  7. The text uses the example of Procter and Gamble.
  8. What is product differentiation?
  9. Product Differentiation — The creation of real or perceived product differences.
  10. Marketers use a mix of pricing, advertising and packaging to create different images. Examples include:
  11. Bottled water, Aspirin, Fast-food, Laundry detergent, Shampoo
  12. Name the four classes of consumer goods and services and give examples of each.
  13. The four classes of consumer goods and services include:
  14. Convenience goods and services – candy, gum and milk
  15. Shopping goods and services – clothes, shoes and appliances
  16. Specialty goods and services – fur coats, imported chocolates and business consultants
  17. Unsought goods and services – burial service, insurance and emergency drain cleaning
  18. Describe three different types of industrial goods.
  19. Installation goods consist of major capital equipment.
  20. Capital items are expensive products that last a long time.
  21. Accessory equipment consists of capital items that are not quite as long-lasting or expensive as installations and include
  22. computers,
  23. copy machines, and
  24. Various tools.
  25. Why packaging is important in marketing?
  26. Companies often use packaging to change and improve their basic product. Examples include:
  27. Microwave popcorn
  28. Tuna pouches
  29. McDonald’s green packaging
  30. Good packaging can also make a product more attractive to retailers.



  1. What six functions does packaging now perform?
  2. The six functions packaging performs include:
  3. attract the buyer’s attention,
  4. protect the goods inside,
  5. be easy to open,
  6. describe and give information,
  7. explain the benefits of the good inside, and
  8. Provide information on warranties, warnings and other consumer matters.
  9. What’s a brand name? And what is a trademark?
  10. Brand names consist of a word, letter or group of words or letters that set it apart from other goods and services.
  11. A trademark is a brand that has exclusive legal protection for both its brand name and design.
  12. Explain a manufacturers’ brand, a dealer brand, a generic brand, and a knockoff brand
  13. A manufacturers’ brand represents manufacturers that distribute their products nationally such as Xerox or Dell.
  14. A dealer brand is often referred to as a private label and will not carry the manufacturer’s name, but rather carries the name of the distributor instead.
  15. For example, Kenmore is a dealer brand sold via Sears.
  16. A generic brand is the name of an entire product category.
  17. Knockoff Brands — Illegal copies of national brands.
  18. What is brand loyalty?
  19. Brand Loyalty — The degree to which consumers are satisfied and are committed to further purchases
  20. What are the key elements of brand equity?
  21. Brand equity is the value of the brand name and associated symbols.
  22. The elements of brand equity include:
  23. brand loyalty,
  24. brand awareness, and
  25. Brand association.
  26. What is brand awareness? Brand preference? And brand insistence?
  27. Brand Awareness — How quickly or easily a given brand name comes to mind when someone mentions a product category.
  28. Consumers reach a point of brand preference when they prefer one brand over another.
  29. When consumers reach brand insistence, they will not accept substitute brands.


  1. What are the six steps in the new-product development process?
  2. The six steps in the new-product development process include:
  3. Idea generation,
  4. development,
  5. product screenings,
  6. testing,
  7. product analysis, and
  8. Commercialization.
  9. Explain brand association
  10. Brand Association — Linking a brand to other favorable images, like celebrities or a geographic area.
  11. Who is a brand manager?
  12. Brand Manager — Person responsible for a particular brand and handles all the elements of the brand’s marketing mix.
  13. What’s product screening? Product analysis? And concept testing?
  14. During the product screening process the number of new-product ideas a firm is working on is reduced, so that it may focus on the most promising ideas.
  15. Product analysis occurs after screening and involves making cost estimates and sales forecasts to get a feeling for the profitability of new-product ideas.
  16. Concept Testing — Takes a product idea to consumers to test reactions.
  17. What is commercialization?
  18. Commercialization — Promoting the product to distributors and retailers and developing the promotional campaign.
  19. What are the two steps in commercialization?
  20. The two steps in commercialization involve
  21. promoting the product to distributors and retailers, and
  22. The development of strong advertising and sales campaigns.
  23. What’s the theory of the product life cycle?
  24. The product life cycle is a theoretical model which explains what happens to sales and profit for a product over a particular period of time. This model has four stages:
  25. introduction,
  26. growth,
  27. maturity, and
  28. Decline.
  29. What are the pricing objectives?
  30. Achieving a target return on investment or profit
  31. Building traffic
  32. Achieving greater market share
  33. Creating an image
  34. Furthering social objectives both short-run and long-run
  35. List two short-term and two long-term pricing objectives. Can the two be compatible?
  36. Short-term pricing objectives include loss leaders and is designed to build traffic as well as achieving greater market share.
  37. Long-term pricing objectives include achieving a target return on investment and creating a certain image.
  38. It is important that marketing managers set pricing objectives in context of other marketing decisions, since the pricing objectives may differ greatly. 
  39. What is a cost based pricing system?
  40. Cost-based pricing measures cost of producing a product including materials, labor, and overhead
  41. What is target costing?
  42. Target Costing — Making the final price of a product an input in the product development process by estimating the selling price consumers will pay.
  43. What are the limitations of a cost-based pricing system?
  44. The limit of a cost-based pricing system is that in the long run it is not the producer that establishes price but rather the market place.
  45. To effectively establish price, the producer must take into
  46. account competitor prices,
  47. marketing objectives,
  48. actual cost, and
  49. The expected cost of product updates.
  50. What is a competition based pricing?
  51. Competition-Based Pricing — A strategy based on what the competition is charging for its products.
  52. What is break even analysis?
  53. Break-Even Analysis — The process used to determine profitability at various levels of sales. The break-even point is where revenues equals cost.
  54. What are total fixed costs? And variable costs?
  55. Total Fixed Costs — All costs that remain the same no matter how much is produced or sold.
  56. Variable Costs — Costs that change according to the level of production.
  57. What is a skimming price strategy?
  58. Skimming Price Strategy — Pricing new products high to recover costs and make high profits while competition is limited.
  1. What is a penetration price strategy?
  2. Penetration Price Strategy — Pricing products low with the hope of attracting more buyers and discouraging other companies from competing in the market.
  3. What is an everyday low pricing strategy?
  4. Everyday Low Pricing (EDLP) — Setting prices lower than competitors with no special sales.
  5. What is a high low pricing strategy?
  6. High-Low Pricing — Using regular prices that are higher than EDLP except during special sales when they are lower.
  7. What’s psychological pricing?
  8. Psychological pricing involves setting the price of goods or services at price points that make the product appear less expensive.
  9. For example, a TV may be priced at $999, since it sounds less expensive than $1,000.



CHAPTER 15 – Distributing products

  1. What’s a channel of distribution and what intermediaries participate in it?
  2. A channel of distribution consists of agents, brokers, wholesalers, and retailers that join together to transport and store goods in their path or channel. A group of marketing intermediaries that joining together to transport and store goods from producers to consumers.
  3. Who are market intermediaries? And why do we need them?
  4. Marketing Intermediaries — Organizations that assist in moving goods and services from businesses to businesses (B2B) and from businesses to consumers (B2C).
  5. Marketing intermediaries perform tasks such as transporting, storing, selling, advertising and relationship building. They are able to perform these tasks faster and more cheaply than most manufacturers creating a cost savings.
  6. List 3 facts about market intermediaries?
  7. Marketing intermediaries can be eliminated but their activities can’t.
  8. Intermediaries perform marketing functions faster and cheaper than other organizations can.
  9. Marketing intermediaries add costs to products but they’re generally offset by the values they provide.
  10. How are agents, brokers, wholesalers and retailers defined?
  11. Agents and Brokers — Intermediaries who bring buyers and sellers together and assist in negotiating an exchange but do not take title to the goods they offer.
  12. Wholesaler — An intermediary that sells products to other organizations such as retailers, manufacturers, and hospitals.
  13. Retailer — An organization that sells products to ultimate customers.
  14. How many types of channel distribution can be found in the market?
  15. Channels of distribution for consumer goods
  16. Channels of distribution for industrial goods
  17. Name the different channels of distribution for consumer goods in the market?
  18. This channel is used for cars, furniture and clothing.
  19. This channel is used for consumer goods such as groceries, drugs and cosmetics
  20. This channel is used for food items such as produces
  21. This channel is used for service like real estate, stocks and bonds, insurance and nonprofit groups
  22. This channel is used by nonprofit organizations to raise funds such museums, government services and zoos




  1. How would you defend intermediaries to someone who said getting rid of them would save consumers millions of dollars?
  2. The reason that marketing intermediaries have not been eliminated is they add value that greatly exceeds their cost.
  3. What are the different types of distribution channels for industrial goods?
  4. This channel is used for industrial goods such as glass, tires and paint for automobiles
  5. This is the industrial low cost items such as supplies. The wholesaler is called industrial distributor
  6. What is a retail sale? What is a wholesale sale?
  7. Retail sales are sales of goods and services to customers for their own use.
  8. Wholesale sales are sales of goods and services to other businesses for use in the business or resale.
  9. Who are merchant wholesalers? How many types of merchant wholesalers there are in the market?
  10. Merchant Wholesalers — Independently owned firms that take title to the goods they handle
  11. Full-service wholesalers perform all distribution functions
  12. Limited-function wholesalers perform only selected distribution functions.
  13. How many types of limited function wholesalers there are in the market?
  14. Rack jobbers furnish racks full of merchandise like toys, health and beauty aids to retailers. They display the items and sell them on consignment, keeping title to the goods until they are sold.   
  15. Drop shippers solicit orders and have the merchandise shipped directly from producer to the buyer. They own the merchandise but do not handle it, stock it or deliver it. 
  16. Cash-and-Carry Wholesalers — Serve mostly smaller retailers with a limited assortment of products.
  17. What are the six types of utility provided by intermediaries?
  18. Form utility
  19. Time utility
  20. Place utility
  21. Possession Utility
  22. Information utility
  23. Service Utility
  24. What is form utility?
  25. Form utility occurs when raw materials are changed into useful products. For example, retail butchers cut pork chops from a larger piece of meat.


  1. What is time utility?
  2. Time utility is added to products by making them available to consumers when they want them. Convenience stores like 7-Eleven and Quick Trip provide time utility since they are open 24 hours a day.
  3. What is place utility?
  4. Place utility occurs when products are placed where people want them. Again 7-Eleven and Quick Trip provide place utility, since they are in easy to reach locations. 
  5. What is possession utility?
  6. Possession utility is added by doing whatever is necessary to transfer ownership from one party to another. Activities associated with possession utility include delivery, installation, guarantees, and follow-up service. 
  7. What is information utility?
  8. Information utility is created by opening two-way flows of information between marketing participants. Newspapers, websites, and salespeople all provide information utility.
  9. What is service utility?
  10. Service utility is added by providing fast, friendly service before and after the sale. This is a critical area for most retailers, since without service utility they would lose business to the Internet or to catalogs.   
  11. Who is an agent?
  12. Agents generally maintain long-term relationships with the clients they represent.
  13. How many types of agent there are in the market?
  14. Manufacturer’s agents represent several manufacturers in a specific territory.
  15. Sales agents represent a single client in a larger territory.
  16. Brokers usually represent clients on a temporary basis
  17. What are the fastest growing retail categories?
  18. Video games
  19. Sports and fitness
  20. Home, garden, and furniture
  21. Event tickets
  22. Consumer electronics
  23. What kinds of products would call for intensive distribution strategy?
  24. Intensive distribution includes convenience items such as gum, magazines, candy and cigarettes.
  25. What kinds of products would call for selective distribution strategies?
  26. Selective distribution includes items such as appliances, furniture, and clothing.
  27. What kinds of products would call for exclusive distribution strategies?
  28. Exclusive distribution includes specialty products such as fly-fishing gear or equipment for snow skiing.
  29. What’s the Correct Retail Strategy for These Products?
  30. Ralph Lauren Polo Shirts, Diet Pepsi, Rolls Royce Automobiles, Calloway Golf Clubs, Snickers Candy Bars, Steinway Pianos
  • Ralph Lauren Polo Shirts – selective strategy
  • Diet Pepsi – intensive strategy
  • Rolls Royce Automobiles – exclusive strategy
  • Calloway Golf Clubs – selective strategy
  • Snickers Candy Bars – intensive strategy
  • Steinway Pianos – exclusive strategy
  1. What four systems have evolved to tie together members of the channel of distribution?
  2. The four systems that have emerged to tie firms together are
  3. Corporate Distribution Systems — Exist when one firm owns all the organizations in a channel of distribution.
  1. Contractual Distribution Systems — Exist when members are bound to cooperate through contractual agreements.
  1. Administered Distribution Systems — Exist when producers manage all the marketing functions at the retail level.
  1. Supply Chain — All the linked activities various organizations must perform to move goods and services from the source of raw materials to ultimate consumers.
  2. Explain Supply Chain Management
  3. Supply Chain Management — The process of managing the movement of raw materials, parts, work in progress, finished goods, and related information through all the organizations in the supply chain.


  1. How to define logistics? And How to define distribution?
  2. Logistics is the planning, implementing, and controlling of the physical flow of materials, final goods, and related information from points of origin to points of consumption to meet customer requirements at a profit.
  3. Distribution is much less complex than logistics and simply involves moving the product from the manufacturer to the end consumer.
  4. Why logistics is often outsourced to companies?
  5. Firms may outsource to companies specializing in trade compliance to determine what is needed to market products to global customers.
  6. What is material handling?
  7. Materials Handling — Movement of goods within a warehouse, from warehouse to the factory floor and from the factory floor to workstations.
  8. What is inbound logistics? What is outbound logistics? 
  9. Inbound logistics is the process of bringing raw materials, packaging, other goods and services, and information from suppliers to producers.
  10. Outbound logistics manages the flow of finished products and information to business buyers and them to consumers.
  11. What is reverse logistics?
  12. Reverse logistics brings goods back to the manufacturer because of defects or for recycling.
  13. Who is a freight forwarder?
  14. Freight Forwarder — Puts many small shipments together to create a single large shipment that can be transported cost-effectively by truck or train
  15. Explain intermodal shipping?
  16. Intermodal Shipping — Uses multiple modes of transportation to complete a single long-distance movement of freight.
  17. Piggybacking: Truck trailers placed on trains
  18. Fishybacking: Truck trailers placed on ships
  19. Birdybacking: Truck trailers placed on planes
  20. How do you keep your carbon footprint low?
  21. Many consumers buy local products to help reduce the carbon footprint.
  22. However, few studies support that claim.
  23. Methods of transportation and how food is grown often make a significant difference.
  24. What kinds of different warehouses are used for the storage of goods?
  25. Storage warehouses hold products for a relatively long period of time.
  26. Distribution warehouses are used to gather and redistribute products such as:
  27. Beer and soft drinks
  28. Package deliveries

CHAPTER 16 – Using effective promotions

  1. What is a promotion mix?
  2. Promotion Mix — The combination of promotional tools an organization uses to increase the sales of its products
  3. What are the four traditional elements of the promotion mix?
  4. The four traditional elements of the promotion mix include:
  5. advertising,
  6. personal selling,
  7. public relations, and
  8. Sales promotion.
  9. What is Integrated Market Communication (IMC)?
  10. Integrated Marketing Communication (IMC) — Combines the promotional tools into one comprehensive strategy. Integrated marketing communication combines the various promotional tools to reach the consumer.
  11. Why is it useful to use IMC?
  12. IMC is used to:
  13. Create a positive brand image.
  14. Meet the needs of consumers.
  15. Meet the strategic marketing and promotional goals of the firm.
  16. What are the 6 steps in a promotional campaign?
  17. Identify a target market
  18. Define objectives
  19. Determine a promotional budget
  20. Develop a unifying message
  21. Implement the plan
  22. Evaluate the plan
  23. What are the three most important advertising media in order of dollars spent?
  24. Direct mail,
  25. broadcast television, and
  26. Newspapers.
  27. Why direct mail is the number one form of advertising?
  28. Direct-mail is the number one form of advertising because it does account for 21.6% of all ad dollars spent.
  29. The cost of direct-mail and the ability to target specific demographic groups make direct-mail a popular choice.)
  30. What is advertising?
  31. Advertising — Paid, non-personal communication through various media by organizations and individuals who are in some way identified in the message.
  32. What are the goals of advertising?
  33. Major goals of advertising are:
  34. Inform
  35. Persuade
  36. Remind
  37. What is the difference between advertising and public relations?
  38. Advertising is different from public relations, since advertising is paid and public relations is free
  39. Why consumers benefit from advertising?
  40. Consumers benefit because production costs of TV programs, radio programs, newspapers and magazines are paid for by advertisers.
  41. What are the benefits of using sports personalities for product endorsements? And what are the drawbacks?
  42. America’s love of sports and sports figures will help promote a particular product.
  43. Michael Phelps smoking bong photo and/or Tiger Woods not qualifying for British Open and how these events disappoint fans and make sponsors less likely to continue supporting these athletes.
  44. What are the major categories of advertising?
  45. Retail
  46. Trade
  47. B2B
  48. Institutional
  49. Product
  50. Advocacy
  51. Comparative
  52. Interactive
  53. Online
  54. Mobile
  55. What is the channel of promotion for the retail category?
  56. It is a form of advertising from retail stores to consumers
  57. What is the channel of advertising for the trade category?
  58. It is a form of advertising from manufacturers to wholesalers and retailers
  59. What is B2B advertising?
  60. It is a form of advertising from manufacturers to other manufacturers
  61. What is institutional advertising?
  62. It is a form of advertising which creates a desirable image for an organization
  63. What is category advertising?
  64. It is a form of advertising which creates a desirable image for a product or service
  65. Advocacy
  66. Comparative
  67. Interactive
  68. Online
  69. Mobile
  70. What is advocacy advertising? Comparativeadvertising? Interactiveadvertising? Onlineadvertising? Mobile advertising?
  71. Advocacy Advertising – It is a form of advertising which supports a particular view of an issue
  72. Comparative Advertising – It is a form of advertising which compares competing products
  73. Interactive Advertising – It is a form of advertising with customer-oriented ads that allows customers to choose information to receive
  74. Online Advertising – It is a form of advertising with computer ads featured on different sites
  75. Mobile Advertising – It is a form of advertising with ads that reach consumers on cell phones
  76. What are the seven steps in the B2B the selling process?
  77. The seven steps in the B2B selling process are:
  78. prospecting and qualifying,
  79. pre-approach,
  80. approach,
  81. make presentation,
  82. answer objections,
  83. close sale, and
  84. Follow-up.
  85. What are the three steps in setting up a public relations program?
  86. The three steps in a public relations program include:
  87. Listen to the public,
  88. develop policies and procedures in the public interest, and
  89. Tell people you’re being responsive to their needs.
  90. What are the sales promotion programs used to reach consumers?
  91. External sales promotions to consumers rely on samples, coupons, cents-off deals, displays, store demonstrators, premiums, and other incentives.
  92. What sales promotion programs are used to reach businesses?
  93. Internal sales promotion activities include sales training, sales aids, audiovisual displays, and trade shows.
  94. What’s viral marketing?
  95. Oral marketing is a broad term that describes everything from paying customers to say positive things on the internet to setting up multilevel selling schemes whereby consumers get commissions for directing friends to specific Web sites.
  1. What are the main challenges to TV Media advertising?
  2. TV advertising is still the dominant media.
  3. Digital Video Recorders (DVRs) challenge TV advertising because viewers can skip them.
  4. What is an infomercial advertising?
  5. Infomercial — A full length TV program devoted exclusively to promote a particular product.
  6. What are online advertisements?
  7. Online ads are attempts to get potential customers to a website to learn about a product.
  8. What is an interactive promotion?
  9. Interactive Promotion — Allows marketers to open a dialogue between buyers and sellers and let them work together to create a beneficial exchange.
  10. Why are infomercial aired on the radio?
  11. Simple, they work. It is estimated that infomercials make up 25 percent of all television commercials and that 66 percent of adults have watched them.
  12. What is product placement?
  13. Product Placement — Advertisers pay to put their products into TV shows and movies where the audience will see them.
  14. What is global advertising?
  15. Requires marketers to develop a single product and promotional strategy to implement worldwide.
  16. Problems can arise in global markets with using one advertising campaign in all countries – especially bad translations.
  17. Culturally sensitive advertising is key to successful international marketing
  18. What it means finding a competitive advantage in sustainability? Give two examples.
  19. Marketers are gaining a competitive advantage by touting their efforts for the environment.
  20. Mars Drinks promotes its efforts to use less water, send less waste to landfills and help customers reduce their own energy waste.
  21. First Global Direct competes with large rivals because of their efforts to make operations more eco-friendly.
  22. What is selling?
  23. Selling is about more than trying to convince someone to buy a product; it is about listening to the needs of the customer. Salespeople need to listen to customer needs, help reach a solution and do everything possible to make the transaction as simple as possible.


  1. What is personal selling?
  2. Personal Selling — The face-to-face presentation and promotion of a product, including the salesperson’s search for new prospects and follow-up service.
  3. What is prospecting in B2B selling?
  4. Prospecting — Researching potential buyers and choosing those most likely to buy.
  5. What is qualifying in B2B selling?
  6. Qualifying — Making sure customers have a need for a product, the authority to buy and the willingness to listen to a sales message.
  7. A key to B2B selling is qualifying customers, so that time is not wasted on customers who do not have a need
  8. List some successful selling strategies.
  9. Know your competition
  10. Understand your customer’s business
  11. Differentiate your product or service
  12. Sell to the people most likely to buy
  13. Build relationships
  14. Put the right people in the right selling spots
  15. List some sales slip ups
  16. Not feeling the customer’s pain
  17. Making money is the only goal
  18. Seeing sales as just a job
  19. Getting upset during the presentation
  20. Failing to properly prepare or over-preparing
  21. Not being yourself
  22. Neglecting the relationship
  23. What are blogging? And podcasting?
  24. Blogging is a web log and is an online diary that allows the user to create and update with text, photos, or links to other sites.
  25. Podcasting is a means of distributing audio and video programs via the internet.
  26. What are the steps in B2C advertising?
  27. Approach
  28. Ask questions
  29. Make presentation
  30. Close sales
  31. Follow ups




  1. What are public relations? And what are the 3 steps of a good PR Advertising?
  2. Public Relations (PR) — Evaluates public attitudes, changes policies and procedures in response to the public, and executes a program of action and information to earn public understanding and acceptance.
  3. 3 steps of a good PR program:
  4. Listen to the public
  5. Change policies and procedures
  6. Inform people you’re responsive to their needs
  7. What is publicity? What are the advantages of publicity advertising?
  8. Publicity —Any information about an individual, product or organization that’s distributed to the public through the media and is not paid for or controlled by the seller.
  9. The advantages are:
  10. Free
  11. Reaches people who would not look at an advertisement
  12. More believable than advertising
  13. What are the disadvantages of publicity advertising?
  14. No control over whether the media will use a story or when they may release it.
  15. It can be good or bad.
  16. Once a story has been run, it isn’t likely to run again.
  17. What is sales promotion? List two categories of Sales Promotions.
  18. Sales Promotion — The promotional tool that stimulates consumer purchasing and dealer interest by means of short-term activities. Promotion needs to tie into the overall marketing strategy of the product being sold.
  19. B2B Sales Promotions
  20. Consumer Sales Promotions
  21. List some key consumer’s promotions?
  22. Coupons
  23. Demonstrations
  24. Sampling
  25. Sweepstakes
  26. In-store Displays
  27. Contests
  28. What is word-of-mouth advertising?
  29. According to marketing consultant Jay Conrad Levinson, authentic advertising is like word-of-mouth which is often the most powerful form of promotion.
  30. Word-of-Mouth Promotion — People tell others about products they have purchased.
  31. For which products or services word-of-mouth promotion is ideal?
  32. Word-of-Mouth is important for products like:
  33. Restaurants
  34. Daycare and Eldercare
  35. Car Repair Shops
  36. Hair Stylists
  37. Hotels
  38. What is viral marketing?
  39. Viral Marketing — Paying customers to say positive things on the Internet or setting up multiple selling schemes whereby consumers get commissions.
  40. What are SWAGS?
  41. People who promote through viral marketing often receive SWAG which can include free tickets, shirts, and other merchandise.
  42. Describe a push strategy a pull strategy and a pick strategy
  43. In a push strategy, the producer uses advertising, personal selling, sales promotion, and all other promotional tools to convince wholesalers and retailers to stock and sell merchandise
  44. A pull strategy directs all advertising and sales promotion toward the consumer.
  45. The pick strategy refers to those consumers who pick their products out from online outlets.


CHAPTER 17 – Understanding Accounting and Financial Information

  • What is accounting?
  • Accounting — Recording, classifying, summarizing and interpreting of financial events and transactions in an organization to provide interested parties needed financial information.
  • Who are the outside parties?
  1. Outside parties – like employees, owners, creditors, unions, investors and the government – make use of a firm’s accounting information.
  • What are the 3 parts of phases on an accounting system?
  1. Inputs
  2. Processing Data
  3. Output
  • What are inputs? What are processing data? What are output
  1. Inputs – Sales documents, purchasing documents, payroll records travel expenses, etc.
  2. Processing – Entries are made to journals; then transferred into ledgers; and finally summarized and reviewed to compile a trial balance.
  3. Outputs – Development of financial statements such as the balance sheet, income statement, and statement of cash flows, prepared for management personnel within the company as well as interested parties outside the company.
  • What’s the key difference between managerial and financial accounting? 
  1. Managerial accounting provides information and analysis to the managers inside the organization and helps them make better informed decisions.
  2. What is of major concern to managerial accounting?
  3. Managerial accounting is concerned
  4. with measuring and reporting cost of production,
  5. marketing, and other functions such as preparing budgets;
  6. Making sure business units stay within their budgets and designing strategies to minimize taxes.
  7. What are the goals of managerial accounting?
  8. Managerial accounting is involved with:
  9. Costs of production
  10. Costs of marketing

                                                    iii.      Preparation and control of budgets

  1. Minimizing tax liabilities
  2. What are accounting procedures?
  3. Accounting procedures are the foundation for controlling mechanisms that businesses put in place to measure performance and plan for the future.


  1. How important is accounting in decision making?
  2. Accounting influences decisions for managers in the following ways:
  3. Understanding cost behavior and perform cost-volume profit analysis
  4. Using cost allocation in planning and control
  5. Using job-order-costing and process-costing to track the flow of costs to products
  6. Using relevant information to make marketing and production decisions
  7. Using capital budgeting techniques to make long-term capital investment decisions
  8. How does correct accounting information help in competitiveness?
  9. Accounting information can improve a company’s ability to compete by:
  10. Using competitor information and sales analysis to bring new concepts to the financial planning process
  11. Learning to spot financial trends to predict strategic business decisions
  12. Learning how to integrate technology into decision-making
  13. Does Financial Accounting differ from managerial accounting?
  14. Financial accounting differs from managerial accounting in that financial accounting generates information for people primarily outside the organization.
  • What is an annual report?
  1. Annual Report — A yearly statement of the financial condition, progress, and expectations of the firm.
  • How’s the job of a private accountant different from that of a public accountant?
  1. The private accountant works for a single firm, government agency, or nonprofit organization.
  2. While public accountants work for accounting firms that provide accounting services for a fee. Public accountants provide services to individuals or businesses that include
  3. designing an accounting system,
  4. Selection of software to run the accounting system. and
  5. Analyzing an organization’s financial performance.
  • Who is a CPA?
  1. Certified Public Accountants (CPAs) — Accountants who have passed a series of examinations established by the American Institute of Certified Public Accountants (AICPA) and met a state’s requirements for education and experience.




  • Who are the balance sheet Sherlocks?
  1. When a company is suspected of fraud or other accounting wrongdoings a court will commission a forensic accountant to search for foul play.
  2. Forensic accountants look for proof a company is “cooking the books.”
  3. Problems within Enron, WorldCom, and our federal government were found by forensic accountants.
  • What’s the job of an auditor? 
  1. Auditors are responsible for examining the financial health of the organization as well as looking into the operational effectiveness and efficiencies of the organization.
  • What is auditing and how it differs from an independent audit?
  1. Auditing — Reviewing and evaluating the information used to prepare a company’s financial statements.
  2. Independent Audit — An evaluation and unbiased opinion about the accuracy of a company’s financial statements.
  • Who are CIAs and how different they are from Tax Accountants?
  1. Certified Internal Auditors (CIAs) — Accountants who have a bachelor’s degree and two years of experience in internal auditing and pass an exam administered by the Institute of Internal Auditors.
  2. Tax Accountants — Accountants trained in tax law and are responsible for preparing tax returns or developing tax strategies.
  • Define Government and not-for-profit accounting
  1. Government and Not-for-Profit Accounting — Support for organizations whose purpose is not generating a profit, but serving others according to a duly approved budget.
  • How did the federal government react to counter attack fraud in financial reporting?
  1. The federal government has reacted with the passage of Sarbanes-Oxley. This law which went into effect in 2002 has five major components:
  • What are the different sections of the Sarbanes Oxley Law?
  1. Section 302 – Periodic statutory financial reports are to include certifications that: The signing officers have reviewed the report; the report does not contain any material untrue statements or material omission or be considered misleading; the financial statements and related information fairly present the financial condition and the results in all material respects; the signing officers are responsible for internal controls and have evaluated these internal controls within the previous ninety days and have reported on their findings; a list of all deficiencies in the internal controls and information on any fraud that involves employees who are involved with internal activities; and any significant changes in internal controls or related factors that could have a negative impact on the internal controls
  2. Section 401 – Financial statements published by issuers are required to be accurate and presented in a manner that does not contain incorrect statements.
  3. Section 404 – Issuers are required to publish information in their annual reports concerning the scope and adequacy of the internal control structure and procedures for financial reporting
  4. Section 409 – Issuers are required to disclose to the public, on an urgent basis, information on material changes in their financial condition or operations
  5. Section 802 – Imposes penalties or fines and/or up to 20 years imprisonment for altering, destroying, mutilating, concealing, falsifying records, documents or tangible objects with the intent to obstruct, impede or influence a legal investigation
  • What do we call the formula for the balance sheet?
  1. The formula for the balance sheet is referred to as the fundamental accounting equation.
  • What three accounts does the balance sheet include?
  1. This equation includes the following three accounts: assets, liabilities and owners’ equity.   
  • What does it mean to list assets according to liquidity? 
  1. Assets on the balance sheet are listed according to how quickly they can be converted to cash. Therefore as you move down the balance sheet it becomes more difficult to convert the assets into “liquid” cash. 
  • What’s included in the liabilities account on the balance sheet? 
  1. Liabilities are what the business owes to others.
  2. In what accounts is divided the liability account?
  3. The liability account is divided into
  4. current and
  5. Long-term liabilities.
  6. In what accounts is divided the common liability account?
  7. Common liability accounts include:
  8. accounts payable,
  9. notes payable and
  10. Bonds payable.
  • What’s owners’ equity and how do we determine it? 
  1. Owners’ equity is the amount of the business that belongs to the owners, minus any liabilities the business owes.
  2. The formula for owners’ equity is assets minus liabilities.


  • What is an accounting cycle?
  1. Accounting Cycle — A six-step procedure that results in the preparation and analysis of the major financial statements.
  • What are the 6 steps of the accounting cycle’s procedures?
  1. Analyze source documents
  2. Record transactions in journals
  3. Transfer or post entries to ledger
  4. Take a trial balance
  5. Prepare financial reports
  6. Balance sheet
  7. Income statements
  8. Statements of cash flow
  9. Analyze financial statements
  • Can you explain the differences between accounting and bookkeeping?
  1. Accounting is the collection and analysis of all financial data
  2. Bookkeeping is the posting of the financial data into the ledger and all the related accounts and to verify they do balance before posting them and generating the financial reports
  • What’s the difference between an accounting journal and a ledger?
  1. An accounting journal is a specific report for a specific accounting data
  2. The ledger is a general report formed by the posting of all the transactions before they are posted in their specific accounts.
  • Why does a bookkeeper prepare a trial balance?
  1. Because he needs to summarize all the data in the account ledger to show whether the figures are correct and balanced
  • What is bookkeeping and how differs from double entry bookkeeping?
  1. Bookkeeping — The recording of business transactions. Bookkeepers divide a firm’s transactions into meaningful categories and post them into a record book or computer program called a journal.
  2. Double-Entry Bookkeeping — Bookkeepers record all transactions in two places so they can check one list of transactions against the other for accuracy.
  • What is the difference between ledger, trial balance and financial statement?
  1. Ledger — A specialized accounting book or program where all information is in one place.
  2. Trial Balance — A summary of all the information in the account ledgers.
  3. Financial Statement — A summary of all the financial transactions that have occurred over a particular period.



  • What are the Key financial statements of any business
  1. They are:
  2. Balance sheet
  3. Income statement
  4. Statement of cash flows
  • What is the Fundamental Accounting Equation?
  1. Fundamental Accounting Equation — The basis for the balance sheet.
  2. The equation must always be balanced and includes the formula:
  • Assets = Liabilities + Owners Equity
  • What is the difference between assets and liquidity?
  1. Assets — Economic resources owned by a firm. Items can be tangible or intangible.
  2. Liquidity — Ease with which assets can be converted into cash.
  • How do you classify the assets?
  1. Current assets
  2. Fixed assets
  3. Intangible assets
  • What is the difference between assets accounts?
  1. Current Assets — Items that can or will be converted to cash within one year.
  2. Fixed Assets — Long-term assets that are relatively permanent such as land, buildings, or equipment.
  3. Intangible Assets — Long-term assets that have no physical form but do have value such as patents, trademarks, and goodwill.
  • How do you classify liabilities?
  1. Current Liabilities
  2. Accounts Payable
  3. Note Payable
  4. Bonds payable
  • What is the difference between the Liabilities accounts?
  1. Liabilities — What the business owes to others – its debts.
  2. Accounts Payable — Current liabilities a firm owes for merchandise or services purchased on credit.
  3. Notes Payable — Short or long-term liabilities a business promises to pay by a certain date.
  4. Bonds Payable — Long-term liabilities that the firm must pay back.






  • How do you classify owner’s equity accounts?
  1. Owner’s Equity
  2. Retained Earnings
  • Define the differences in the owner’s equity accounts?
  1. Owners’ Equity — The amount of the business that belongs to the owners minus any liabilities of the owners.
  2. Retained Earnings — Accumulated earnings from the firm’s profitable operations that are reinvested in the business.
  • What is the difference between an Income Statement and the net income/net loss?
  1. Income Statement — The financial statement that shows a firm’s bottom line – that is, its profit after costs, expenses, and taxes.
  2. Net Income/Net Loss — The revenue left over or depleted.
  • What is the formula for the income statement?
  1. Revenue
  2. Minus
  3. Cost of Goods Sold
  4. Equals
  5. Gross Profit
  6. Minus
  7. Operating Expenses
  8. Equals
  9. Net Income before Taxes
  10. Minus
  11. Taxes
  12. Equals
  13. Net Income or Net Loss
  • What is the difference between revenues, cost of goods sold, gross profit and operating expenses?
  1. Revenues is the monetary value a firm received for goods sold, services rendered or other payments.
  2. Cost of Goods Sold (or Manufactured) — Measures the cost of merchandise the firms sells or the cost of raw materials and supplies it used in producing items for resale.
  3. Gross Profit — How much a firm earned by buying (or making) and selling merchandise.
  4. Operating Expenses — Expenses a firm incurs in selling goods and services such as rent, salaries and supplies.
  • What is depreciation?
  1. Depreciation — The systematic write-off of the cost of a tangible asset over its estimated useful life. While depreciation is an expense, it is a non-cash expense for the company.
  2. What are the GAAPs?
  3. Generally Accepted Accounting Principles (GAAP) sometimes permits accountants to use different method of accounting for inventory.
  • What is the difference between FIFO and LIFO?
  1. FIFO: First-In, First-Out
  2. LIFO: Last-In, Last-Out
  • What are statements of cash flows?
  1. Statement of Cash Flows — Reports cash receipts and cash disbursements related to the three major activities of a firm:
  2. Operations
  3. Investments
  4. Financing
  • What is cash flow?
  1. Cash Flow — The difference between cash coming in and cash going out of a business.
  2. Managing cash flow is a key consideration of a business and can be particularly challenging for small and seasonal businesses.
  • What’s the primary purpose of performing ratio analysis using the firm’s financial statements? 
  1. Ratio analysis is the assessment of a firm’s financial condition, using calculations and financial ratios.
  2. In what way financial ratios are useful?
  3. Financial ratios are especially useful in comparing the company’s performance to its financial objectives and to the performance of others in the industry.
  • What are the four main categories of financial ratios? 
  1. The four main categories are as follows:
  2. liquidity,
  3. leverage,
  4. profitability and
  5. Activity.
  • What are the most commonly used ratios?
  1. Liquidity ratios measure a firm’s ability to turn assets into cash to pay its short-term debts.
  2. Two key ratios are:
  3. Current ratio
  4. Acid-test ratio
  5. This information is found on the firm’s balance sheet.
  6. The acid-test ratio is sometimes referred to as the quick ratio.
  • What are leverage ratios?
  1. Leverage ratios measure the degree to which a firm relies on borrowed funds in its operations.
  2. Key ratios include:
  3. Debt to Owner’s Equity Ratio
  4. This information is found on the firm’s balance sheet.
  • What are profitability ratios?
  1. Profitability ratios measure how effectively a firm’s managers are using the firm’s various resources to achieve profits.
  2. Key ratios include:
  3. Basic earnings per share
  4. Return on sales
  5. Return on equity
  6. This information is found on the firm’s balance sheet and income statement.
  • What are activity ratios?
  1. Activity ratios measure how effectively management is turning over inventory.
  2. Key ratios include:
  3. Inventory turnover ratio
  4. This information is found on the firm’s balance sheet and income statement.


CHAPTER 18 – Financial Management

  • What is the function of finance in a business?
  • Finance — The function in a business that acquires funds for a firm and manages them within the firm.
  • What do finance activities include?
  • Finance activities include:
  • Preparing budgets
  • Creating cash flow analyses
  • Planning for expenditures
  • What is financial management?
  • Financial Management — The job of managing a firm’s resources to meet its goals and objectives.
  • What are the responsibilities of financial managers?
  • Financial Managers — Examine financial data and recommend strategies for improving financial performance. Financial managers are responsible for:
  • Paying company bills
  • Collecting payments
  • Staying abreast of market changes
  • Assuring accounting accuracy
  • Name three finance functions important to the firm’s overall operations and performance. 
  • Financial planning,
  • budgeting, and
  • The establishment of financial control. 
  • What three primary financial problems cause firms to fail? 
  • Undercapitalization,
  • poor control of cash flow, and
  • Inadequate expense control.
  • What are the most important functions of CFOs?
  • The CFOs responsibilities are rooted in the functions of “control” and “treasury.” 
  • Can you define the control function
  • The control function has its basis in the budgeting process:
  • The budget represents the quantification of the goals and missions of the company as manifested by the resources required to attain those goals.
  • The budget becomes the scorecard by which the company as a whole is measured.



  • Can you define the treasury function?
  • The other area of responsibility for CFOs is the treasury function.
  • Procurement of financial resources available to the company.
  • Ongoing communication with financial sources, investors, and debt holders who must be kept apprised of the firm’s financial performance.
  • Allocation of resources within the context of the company budget.
  • What worries CFOs?
  • Consumer demand for their firm’s products
  • Credit markets and interest rates
  • Financial regulations from the government
  • Volatility of the dollar
  • Foreign competition
  • Environmental regulations
  • Why CFOs are very well compensated?
  • Financial managers are required to wear many hats in the organization. 
  • While specific responsibilities of a CFO will vary between large and small companies, and public and closely held companies, the principles of control and treasury responsibilities transgress all boundaries.
  •  The number of issues that financial managers face is one reason why they are so well compensated. 
  • What are the top financial concerns of CFOs>
  • Ability to accurately forecast financial results
  • Maintaining productivity during an economic downturn
  • Balance sheet weakness
  • Rising cost of healthcare
  • Attracting and retaining top quality employees
  • What is financial planning?
  • Financial planning involves analyzing short-term and long-term money flows to and from the company.
  • What are the 3 keys of financial planning?
  • Three key steps of financial planning:
  • Forecasting the firm’s short-term and long-term financial needs.
  • Developing budgets to meet those needs.
  • Establishing financial controls to see if the company is achieving its goals.
  • Who is who in finance?
  • CFO — Chief Financial Officer
  • CFP — Certified Financial Planner
  • CFA — Chartered Financial Analyst
  • Comptroller — Chief Accounting Officer



  • What are the different forecast we find in finance management?
  • Short-Term Forecast — Predicts revenues, costs and expenses for a period of one year or less.
  • Cash-Flow Forecast — Predicts the cash inflows and outflows in future periods, usually months or quarters.
  • Long-Term Forecast — Predicts revenues, costs, and expenses for a period longer than one year and sometimes as long as five or ten years.
  • What is budgeting?
  • Budget — Sets forth management’s expectations for revenues and allocates the use of specific resources throughout the firm.
  • Budgets depend heavily on the balance sheet, income statement, statement of cash flows and short-term and long-term financial forecasts.
  • The budget is the guide for financial operations and expected financial needs.
  • Budgeting is critical for the organization to control expenses and to understand revenue expectations. 
  • Think of a budget as a guidepost or a reference point for the organization’s managers.  
  • What are the different types of budgets?
  • Capital Budget — Highlights a firm’s spending plans for major asset purchases that often require large sums of money.
  • Cash Budget — Estimates cash inflows and outflows during a particular period like a month or quarter.
  • Operating (Master) Budget — Ties together all the firm’s other budgets and summarizes its proposed financial activities.
  • What is financial control?
  • Financial Control — A process in which a firm periodically compares its actual revenues, costs and expenses with its budget.
  • What’s the purpose of preparing budgets? Identify the different types. 
  • A budget sets forth management’s expectations for revenues and becomes the organization’s primary guide for the financial operations as well as expected financial needs. 
  • The three types of budgets are: 
  • capital,
  • cash, and
  • Operating.
  • What are the key needs for operational funds in a firm?
  1. Managing day-by-day needs of the business
  2. Controlling credit operations
  3. Acquiring needed inventory
  4. Making capital expenditures
  5. What are the common ways to raise start up capitals?
  6. Seek out a microloan from a micro lender
  7. Use asset-based lending or factoring
  8. Turn to the web and seek out peer-to-peer lending
  9. Research local banks
  10. Sweet-talk vendors you want to do business with
  11. How can small businesses improve their cash flows?
  12. Be more aggressive in collecting accounts receivable.
  13. Offer customers discounts by paying early.
  14. Take advantage of special payment terms from vendors.
  15. Raise prices.
  16. Use credit cards discriminately
  17. Why are accounts receivable a financial concern of the firm?
  • Providing credit to customers is often necessary to keep current customers happy and to attract new customers. 
  • The problem with selling on credit is that as much as 25 percent of the firm’s assets could be tied up in accounts receivable. 
  • This forces the business to use its own funds to pay for goods or services sold to customers who bought on credit. 
  • What’s the primary reason an organization spends a good deal of its available funds on inventory and capital expenditures?  
  • To attract customers a firm must purchase inventory as well as invest
  • in tangible long-term assets such as
  • land,
  • buildings, and
  • equipment, or
  1. intangible assets such as
  • patents,
  • trademarks, and
  • Copyrights.
  • What is debt financing?
  • Debt Financing — The funds raised through various forms of borrowing that must be repaid.
  • What is equity financing?
  • Equity Financing — The funds raised from within the firm from operations or through the sale of ownership in the firm (such as stock).


  • What’s the difference between debt and equity financing? 
  • The primary difference is that debt must be repaid at maturity while there is no obligation to repay equity financing. 
  • Interest must be paid on debt while the company is under no obligation to issue dividends on equity financing. 
  • The interest paid is tax deductible while dividends are not. 
  • Finally, debt holders do not have the right to vote on company matters as equity holders do.
  • What is short term financing?
  • Short-Term Financing — Funds needed for a year or less.
  • What is long term financing?
  • Long-Term Financing — Funds needed for more than a year.
  • What are the types of short term financing?
  • Trade Credit — The practice of buying goods or services now and paying for them later. Businesses often get terms 2/10 net 30 when receiving trade credit.
  • Promissory Note — A written contract agreeing to pay a supplier a specific sum of money at a definite time.
  • What are the different form of short term loans?
  • Commercial banks offer short-term loans like:
  • Secured Loans — Backed by collateral.
  • Unsecured Loans — Don’t require collateral from the borrower.
  • Line of Credit — A given amount of money the bank will provide so long as the funds are available.
  • Revolving Credit Agreement — A line of credit that’s guaranteed but comes with a fee.
  • What is commercial paper?
  • Commercial Paper — Unsecured promissory notes in amounts of $100,000+ that come due in 270 days or less.
  • Since commercial paper is unsecured, only financially stable firms are able to sell it. The commercial paper market is an important source of funding for financially stable companies. 
  • During the financial crisis which started in 2008, this important market completely shut down, forcing financially stable companies to seek alternative sources of funding. 
  • How does a company set long term financially objectives?
  • Three questions of financial managers in setting long-term financing objectives:
  • What are the organization’s long-term goals and objectives?
  • What funds do we need to achieve the firm’s long-term goals and objectives?
  • What sources of long-term funding (capital) are available, and which will best fit our needs?
  • What is long term financing?
  • Long-term financing loans generally come due within 3 -7 years but may extend to 15 or 20 years.
  • Term-Loan Agreement — A promissory note that requires the borrower to repay the loan with interest in specified monthly or annual installments.
  • A major advantage of debt financing is the interest the firm pays is tax deductible.
  • What are the 5 Cs of credit?
  • The character of the borrower.
  • The borrower’s capacity to repay the loan.
  • The capital being invested in the business by the borrower.
  • The conditions of the economy and the firm’s industry.
  • The collateral the borrower has available to secure the loan.
  • What are the two major forms of debt financing available to a firm? 
  • A company could issue and sell bonds or they could borrow from financial institutions and individuals.
  • How does debt financing differ from equity financing? 
  • The primary difference is that debt must be repaid at maturity while there is no obligation to repay equity financing. 
  • Interest must be paid on debt while the company is under no obligation to issue dividends on equity financing. 
  • The interest paid is tax deductible while dividends are not.  Finally, debt holders do not have the right to vote on company matters while equity holders do have voting rights.
  • What are the major forms of equity financing available to a firm? 
  • A business can obtain equity financing from the sale of company stock, from retained earnings, or from venture capital firms.
  • What is leverage, and why do firms choose to use it? 
  • Leverage is borrowing funds to invest in expansion, major asset purchases, or research and development. 
  • Firms use leverage in an effort to increase the firm’s profit. 
  • How to use long term debt financing?
  • Long-term financing loans generally come due within 3 -7 years but may extend to 15 or 20 years.
  • A major advantage of debt financing is the interest the firm pays is tax deductible.


  1. What is a term loan agreement?
  • Term-Loan Agreement — A promissory note that requires the borrower to repay the loan with interest in specified monthly or annual installments.
  1. How is possible to solve debt financing by issuing bonds?
  2. Bonds are a form of debt issued by companies. The terms debt, bond, and loan are all four letter words and basically mean the same thing.
  3. What are the different types of bonds?
  4. Indenture Terms
  5. Secured Bond
  6. Unsecured (Debenture) Bond
  7. What are indenture Terms?
  8. Indenture Terms — The terms of agreement in a bond issue.
  9. What are secured bonds?
  10. Secured Bond — A bond issued with some form of collateral (i.e. real estate).
  11. What are unsecured bonds?
  12. Unsecured (Debenture) Bond — A bond backed only by the reputation of the issuing company.
  13. How can a company ensure equity financing?
  14. A company can secure equity financing by:
  15. Selling shares of stock in the company.
  16. Earning profits and using the retained earnings as reinvestments in the firm.
  17. Attracting Venture Capital — Money that is invested in new or emerging companies that some investors believe have great profit potential.
  18. What is leverage?
  19. Leverage — Raising funds through borrowing to increase the firm’s rate of return.
  20. What is Cost of Capital?
  21. Cost of Capital — The rate of return a company must earn in order to meet the demands of its lenders and expectations of equity holders.







CHAPTER 19 – Using Securities Markets for Financing & Investing Opportunities

  • What are the basics of securities markets?
  • Securities markets are financial marketplaces for stocks and bonds and serve two primary functions:
  • Assist businesses in finding long-term funding to finance capital needs.
  • Provide private investors a place to buy and sell securities such as stocks and bonds.
  • Define the two types of securities markets?
  1. Securities markets are divided into primary and secondary markets:
  2. Primary markets handle the sale of new securities.
  3. Secondary markets handle the trading of securities between investors with the proceeds of the sale going to the seller.
  • What is IPO?
  • Initial Public Offering (IPO) — The first offering of a company’s stock.
  • Who are investment bankers?
  • Investment Bankers — Specialists who assist in the issue and sale of new securities.
  • Who are institutional bankers?
  • Institutional Investors — Large organizations such as pension funds or mutual funds that invest their own funds or the funds of others.
  • In what ways investment bankers help businesses?
  • Investment bankers help companies by: (1) gaining approval from the SEC for a firm to issue stocks or bonds and (2) underwriting.
  • What are the different types of stock exchanges?
  • Stock Exchange
  • Over-the-Counter (OTC) Market.
  • Define stock exchange
  • Stock Exchange — An organization whose members can buy and sell securities on behalf of companies and individual investors.
  • Define OTC
  • Over-the-Counter (OTC) Market — Provides companies and investors with a means to trade stocks not listed on the national securities exchanges.
  • Define NASDAQ
  • NASDAQ — A telecommunications network that links dealers across the nation so they can exchange securities.
  • What’s the primary purpose of a stock exchange? 
  • The primary purpose of a stock exchange is to allow members of the exchange to buy or sell securities on behalf of investors.



  • Can you name the world’s largest stock exchange? 
  • NYSE Euronext is the largest stock exchange with exchanges in six different countries. 
  • What does NASDAQ stand for? How does this exchange work? 
  • National Association Securities Dealers Automated Quotations.  This exchange is completely electronic allowing for orders to be quickly matched up via computers. 
  • What is SEC?
  • Securities and Exchange Commission (SEC) — The federal agency responsible for regulating the various stock exchanges; created in 1934 through the Securities and Exchange Act.
  • What is a Prospectus?
  • Prospectus — A detailed registration statement that includes extensive economic and financial information that must be sent to prospective investors.
  1. What is the Securities and Exchange Act?
  2. The Securities and Exchange Act also prohibits insider trading by using knowledge or information gained through a person’s position in a firm that allows them to benefit unfairly.
  3. What is the difference between stocks, stock certificate and dividends?
  • Stocks — Shares of ownership in a company.
  • Stock Certificate — Evidence of stock ownership.
  • Dividends — Part of a firm’s profits that the firm may distribute to stockholders as either cash or additional shares.
  • What are the advantages of issuing stocks?
  • Stockholders are owners of a firm and never have to be repaid their investment.
  • There’s no legal obligation to pay dividends.
  • Issuing stock can improve a firm’s balance sheet since stock creates no debt.
  • What are the disadvantages of issuing stocks?
  • Stockholders have the right to vote for a company’s board of directors.
  • Issuing new shares of stock can alter the control of the firm.
  • Dividends are paid from after-tax profits and are not tax deductible.
  • The need to keep stockholders happy can affect management’s decisions.
  • Define the 2 classes of stock?
  • Common Stock — The most basic form; holders have the right to vote for the board of directors and share in the profits if dividends are approved.
  • Preferred Stock — Owners are given preference in the payment of company dividends before common stock dividends are distributed. Preferred stock can also be:
  • Callable
  • Convertible
  • Cumulative
  • Name at least two advantages and disadvantages of issuing stock as a form of equity financing. 
  • Advantages:  equity never has to be repaid and the company is under no legal obligation to pay dividends.        
  • Disadvantages:  equity holders have the right to vote and dividends are not tax deductible.
  • What are the major differences between common stock and preferred stock? 
  • Common stock holders have the right to vote, while preferred stock holders do not. 
  • Preferred stock holders have rights if the company enters bankruptcy.  Preferred stock holders receive a fixed dividend, while common holders are not guaranteed to be paid a dividend. 
  • What is a bond?
  • Bond — A corporate certificate indicating that an investor has lent money to a firm.
  • What is bond interest?
  • Interest — The payment the bond issuer makes to the bondholders to compensate them for the use of their money. Unlike dividends, interest payments are tax deductible. 
  • What are the advantages of issuing bonds?
  • Bondholders are creditors, not owners of the firm and can’t vote on corporate matters.
  • Bond interest is tax deductible.
  • Bonds are a temporary source of funding and are eventually repaid.
  • Bonds can be repaid before the maturity date if they contain a call provision.
  • What are the disadvantages of issuing bonds?
  • Bonds increase debt and can affect the market’s perception of the firm.
  • Paying interest on bonds is a legal obligation.
  • If interest isn’t paid, bondholders can take legal action.
  • The face value of the bond must be repaid on the maturity date.
  • Why bonds are considered a form of debt financing? 
  • Bonds are considered debt financing, since they must be paid back when the bond matures. 
  • What does it mean if a firm issues a 9% bond due in 2025? 
  • The bond has a coupon rate or interest rate of 9 percent and matures in 2025.
  • What are the 2 kinds of bonds that can be issued by a Corporation?
  • Corporations can issue two classes of bonds:
  • Unsecured bonds (debenture bonds): not backed by specific collateral.
  • Secured bonds: backed by collateral (land or equipment).
  • Explain the difference between an unsecured and secured bond. 
  • A secured bond is backed by some form of collateral. 
  • While an unsecured bond or debenture is not backed or secured by any collateral.


  • Why are convertible bonds attractive to investors? 
  • Convertible bonds are attractive, because they give bondholders the option to convert their bonds into equity. 
  • This is attractive since equity tends to appreciate faster than bonds do.
  • What are special features in bond issued?
  • Sinking Fund — Reserve account set up to ensure that enough money will be available to repay bondholders on the maturity date.
  • Callable bonds permit bond issuers to pay off the principal before the maturity date.
  • Convertible bonds allow bondholders to convert their bonds into shares of common stock.
  • Who is a stockbroker?
  • Stockbroker —A registered representative who works as a market intermediary to buy and sell securities for clients
  • What are the primary investment services most needed by the consumers?
  • Savings and investing advice
  • Help with 401k plans
  • Retirement planning
  • Tax planning
  • Estate planning
  • Education expense planning
  • What’s the key advantage of investing through online brokers? What’s the key disadvantage?  
  • The main advantage to investing through online brokers is that the fees charged tend to be lower than traditional brokers. 
  • The key disadvantage is that investors must generally do their own research and make their own investment decisions without direct assistance from their broker. 
  • What are the 5 investment criteria?
  • Investment risk
  • Yield
  • Duration
  • Liquidity
  • Tax consequences
  • What is Capital Gain?
  • Capital Gains — The positive difference between the price at which you bought a stock and what you sell it for.
  • What is stocks strategy?
  • Investors can also choose stocks according to their strategy:
  • Blue-chip stocks
  • Growth stocks
  • Income stocks
  • Penny stocks


  • What’s the primary purpose of diversifying investments?
  •  The goal of diversification is to reduce the overall risk an investor assumes. 
  • What’s a stock split? Why do companies sometimes split their stock? 
  • When a company splits its stock 2 for 1 the shareholders receive two shares of stock for each share they own. 
  • The current share price is cut in half, so the number of shares increases, the total value of the investment remains the same. 
  • A board may decide to split their stock 2 for 1, 3 for 2 or any other ratio they determine is appropriate. 
  • The reason that a company splits its stocks is to reduce the price of the stock which will hopefully increase the demand for the stock.  
  • What is an important point to keep in mind during stock split?
  • An important point to note is investment value does not change immediately after the stock split.
  •  The investor has the same original dollar value as before the split.
  •  The hope for the investor is that as the demand for the stock increases, the value of the stock rises (which will increase their total investment value since they have more shares due to the stock split).
  •  Dividend rates are also divided according to the degree of split.  Most stock splits are two-for-one splits. 
  • Since 1980, Wal-Mart has split their shares on eight different occasions.  If an individual investor purchased 100 shares in 1980 they would own 25,600 shares after adjusting for splits!
  • What does it mean buying stock on margin?
  • Buying Stock on Margin — Borrowing some of the stock’s purchase cost from the brokerage firm.
  1. What is margin?
  2. Margin is the portion of the stock’s purchase price that the investor must pay with their own money.
  3. What is a broker issues a margin call?
  4. If a broker issues a margin call, the investor has to come up with money to cover losses.
  • What does buying stock on margin mean? 
  • When an investor buys on margin they use money borrowed from their broker to purchase stock.
  • What are mutual funds and ETFs?  
  • A mutual fund is an investment fund that buys stock and bonds then sells shares in those securities to the public. 
  • The pooling of funds allows small investors to invest in a broader selection of stocks and bonds. 
  • Most mutual funds are professionally managed. ETFs are similar to mutual funds, but are traded on exchanges like individual stocks and are passively managed.  


  • What are some important questions when buying bonds?
  • First-time bond investors generally ask two questions:
  • Do you have to hold a bond until the maturity date?
  • How can I assess the investment risk of a particular bond issue?
  • What are junk bonds?
  • Junk Bonds — Bonds that have a high risk and high default rates.
  • What is a Mutual Fund?
  • Mutual Fund — An organization the buys stocks and bonds and then sells shares in those securities to the public. The fund pools investors’ money and buys stocks according to the fund’s purpose.
  • What is an ETF?
  • Exchange-Traded Fund (ETF) — Collections of stocks and bonds that are traded on securities exchanges but themselves are traded more like stocks than mutual funds.
  • What are the 3 varieties of ETFs?
  • ETFs have numerous benefits when compared to mutual funds. 
  • Traditional ETFs
  • Niche ETFs
  • Exotic ETFs
  • What is a traditional ETF?
  • Traditional ETFs include:  SPY which tracks the S&P 500 and TIP which tracks inflation protected government bonds.
  • What is a Niche ETF?
  • Niche ETFs include:  IXJ which tracks the S&P Global Healthcare Sector.
  • What is an exotic ETF?
  • Exotic ETFs include:  FXA which tracks the Australian Dollar and GLD which tracks the price of gold.
  • What does it mean investing with integrity?
  • A number of socially responsible investment funds (SRIs) are prospering.
  • SRIs invest only in companies with exceptional environmental, social and governance practices.
  • SRIs are good investments for long-term investors – they’re lower risk than alternative investments.
  • Why households want to invest in mutual funds?
  • People may get into investing for the right reasons and with right intentions (retirement, savings for college, vacations, home buying, etc.). However, it is very important to maintain discipline. 
  • Many people, if not most, deviate from these investment objectives and start to invest based on the so-called “hot tip.”
  • Mutual funds should be treated as investments which you commit to base on researched information and not hot tip or quick hit gambling.



  • What’s the key benefit to investors in investing in a mutual fund or ETF? 
  • The key benefit to investing in a mutual fund or ETF is that the investor gets instant diversification.  
  • What does the Dow Jones Industrial Average measure? Why is it important?
  • The Dow Jones Industrial Average is the average price of 30 specific stocks.
  • It is important because it allows followers of the market to track the general direction of the stock market. 
  • What is the Dow Jones Industrial Average?
  • Dow Jones Industrial Average — The average cost of 30 selected industrial stocks.
  • Critics say the 30-company Dow is too small a sample and suggest following the S&P 500.
  1. What is S&P 500?
  2. S&P 500 tracks the performance of 400 industrial, 40 financial, 40 public utility, and 20 transportation stocks.
  3. Who created the Dow Jones Index?
  4. The Dow Jones Industrial Average is the oldest index which was originally created in 1896 by Charles Dow and Edward Jones. The original average had twelve companies one of which, GE, is still in the Dow Jones Industrial average after all these years.
  • Explain the most important market turmoil in the finance market.
  • October 29, 1929 – Black Tuesday; the market lost 13% of its value.
  • October 19, 1987 – The market suffered its worst one-day drop when it lost 22% of its value.
  • October 27, 1997 – Fears of an economic crisis in Asia cause widespread panic and losses.
  • The market collapsed into a deep decline in 2000-2002 with the dot-com bubble burst.
  • Investors lost $7 trillion in market value.
  • In 2008-2009, the collapse of the real estate market sent financial markets into panic.
  • The U.S. government made significant investments in private banks and offered a large stimulus package to re-energize the economy.
  • Why do the 30 companies comprising the Dow change periodically? 
  • The Dow will delete and add new companies to the Dow Jones Industrial Average to reflect increased economic importance of a particular company or industry.
  •  Recently, Cisco and Travelers replaced Citi and GM. 
  • Explain program trading and the problems it can create. 
  • Program trading occurs when investors give instructions to their computers to execute a sell order if the stock price dips to a certain point. 
  • Many attribute the stock market crash of 1987 to program trading as computer sell orders caused many stocks to fall to incredible levels. 


CHAPTER 20 – Money, financial institutions, and the Federal Reserve

  1. What’s money?
  2. Money can be anything that people accept as payment for goods and services.
  3. What is barter?
  4. Barter — The direct trading of goods or services for other goods or services.
  5. What are the five characteristics of useful money?
  6. Portability, divisibility, stability, durability, and uniqueness.
  7. Define portability of money
  8. Money should be portable. For a money system to be effective, money should be easy to handle and carry. 
  9. Define visibility of money
  10. Money should be divisible. A good system makes exchange simple and easy in terms of daily transactions. (For example, prior to the introduction of the Euro, the French money supply system was difficult, because they had two kinds of money:  money of account which is theoretical money with no coinage and money of exchange which has coins.  The French system was not easily divisible and not easy to understand.)
  11. Define durability of money
  12. Money should be durable. U.S. currency does wear out, but only after considerable usage and transfers.
  13. There has been continued discussion and several attempts towards making the dollar bill into a coin.
  14. Cost savings is the motivation behind this movement, since bills stay in circulation less than two years, and coins can last upwards of 20 years.
  15. Define difficulty in counterfeiting
  16. Money should be difficult to counterfeit. This is very important because easily duplicated currency could lead to a significant eroding of the value of a country’s currency
  17. What’s the money supply, and why is it important?
  18. The money supply is the amount of money available for people to buy goods and services.
  19. It is important to manage the money supply, since too much money could cause inflation and too little money may cause deflation.
  20. What is money supply?
  21. Money Supply — The amount of money the Federal Reserve makes available for people.
  22. How money supply is referred to?
  23. The money supply is referred to as:
  24. M1 — Money that can be accessed quickly (coins, paper money, travelers’ checks, etc.).
  25. M2 — M1 + money that may take a little time to obtain (savings accounts, mutual funds, etc.).
  26. M3 — M2 + big deposits like institutional money market funds.
  27. How Long Does Paper Money Last?
  28. The largest denomination ever printed was a $100,000 gold certificate.
  29. Some interesting facts regarding U.S. currency:
  30. Originally, U.S. currency included denominations of $500, $1,000, $5,000, and $10,000.  No currency printed today is greater than $100 dollars.
  31. The percent of U.S. counterfeit currency in circulation is estimated to be .02%.
  32. U.S. Currency bills are 2.61 inches wide, 6.14 inches long, thickness of .0043 inches and weighs 1 gram.
  33. It costs 4.2 cents to produce a U.S. bill.
  34. The Bureau of Engraving prints about 16,650,000 one dollar bills per day.
  35. How the dollar is exchanged globally?
  36. Falling dollar value: The amount of goods and services you can buy with a dollar decreases.
  37. Rising dollar value: The amount of goods and services you can buy with a dollar increases.
  38. What makes the dollar fall or rise is the position of the U.S. economy relative to other global economies.
  39. What could be an impact on global finance of a falling dollar?
  40. Overseas demand for U.S. products rise.
  41. A favorable exchange rate for U.S. companies earning profits in foreign markets is provided.
  42. U.S. tourism increases which is good for hotels, resorts, theme parks, and retailers that serve international travelers.
  43. A declining dollar will eventually result in the following:
  44. Higher interest rates on government and consumer debt.
  45. Higher inflation due to a rise in the price of imports, and commodity prices increase since most are priced in terms of U.S. dollars.
  46. What are the parts of the Federal Reserve System?
  47. The Board of Governors
  48. The Federal Open Market Committee
  49. 12 Federal Reserve Banks
  50. 3 Advisory Councils
  51. The member banks of the system


  1. Can you define the Federal Reserve?
  2. The Federal Reserve is a quasi-governmental agency not under the direct control of the U.S. government.
  3. How does the Federal Reserve control the money supply?
  4. To control the money supply the Federal Reserve can increase or decrease the reserve requirement, buy or sell government securities, or change the discount rate.
  5. What are the 3 main tools the Federal Reserve use to manage the money supply?
  6. The Fed uses three basic tools:
  7. Reserve Requirement
  8. Open-Market Operations
  9. Discount Rate
  10. What is a reserve requirement?
  11. Reserve Requirement — A percentage of commercial banks’ checking and savings accounts they must keep in the bank or in non-interest-bearing deposits at the local Federal Reserve district bank.
  12. What are open market operations?
  13. Open-Market Operations — The buying and selling of government bonds.
  14. What is a discount rate?
  15. Discount Rate — The interest rate the Fed charges for loans to member banks.
  16. What are the major functions of the Federal Reserve? What other functions does it perform?
  17. The Federal Reserve is responsible for creating an environment that fosters stable prices and full employment.
  18. It attempts to manage these two goals with monetary policy. As if that was not enough, the Federal Reserve is also responsible for the clearing of checks.  
  19. What are the various financial institutions of the US banking system?
  20. Commercial banks
  21. Savings and loan associations
  22. Credit unions
  23. Nonbanks
  24. What is a commercial bank?
  25. Commercial Bank — A profit-seeking organization that receives deposits from individuals and corporations in the form of checking and savings accounts and uses those funds to make loans.
  26. What are the 2 types of customers of a commercial bank?
  27. A commercial bank has two types of customers:
  28. Depositors
  29. Borrowers
  30. What are the different deposit services offered by commercial bank?
  31. Demand Deposit
  32. Time Deposit.
  33. Certificate of Deposit
  34. What is a Demand Deposit?
  35. Demand Deposit — The technical name for a checking account; money is available on demand from the depositor.
  36. What is a Time Deposit?
  37. Time Deposit — A savings account; a bank can require a prior notice before you make a withdrawal.
  38. What is a certificate deposit?
  39. Certificate of Deposit — A savings account that earns interest, to be delivered on the certificate’s maturity date.
  40. Why did the U.S. need a Federal Reserve Bank?
  41. The Federal Reserve emerged after the banking crisis of 1907 and was organized originally to be a lender of last resort.
  42. What’s the difference between a bank, a savings and loan association, and a credit union?
  43. After bank deregulation the services offered by banks and S&Ls are now similar. They both offer many of the same services. 
  44. Credit Unions are tax-exempt member-owned cooperatives that operate like banks.
  45. What other services are offered by commercial banks?
  46. Commercial banks also offer
  47. credit cards,
  48. financial counseling,
  49. automatic payment of bills,
  50. brokerage services,
  51. safe-deposit boxes,
  52. travelers checks, and
  53. Individual retirement accounts (IRAs).
  54. What is a saving and loan association?
  55. Savings and Loan Associations (S&Ls) — A financial institution that accepts both savings and checking deposits and provides home mortgage loans.
  56. Often known as thrift institutions because their original purpose was to promote customer thrift and home ownership.



  1. What is a credit union?
  2. Credit Unions — Nonprofit, member-owned financial cooperatives that offer the full variety of banking services to their members.
  3. As nonprofits, credit unions enjoy an exemption from federal income taxes.
  4. Due to their exemption from federal income taxes, the fees are typically less and the interest rates paid on deposits are higher at credit unions.
  5. What are non-banks?
  6. Nonbanks — Financial institutions that accept no deposits, but offer many of the services provided by regular banks. Nonbanks include:
  7. Life insurance companies
  8. Pension funds
  9. Brokerage firms
  10. Commercial finance companies
  11. Corporate financial services
  12. What’s a consumer finance company?
  13. Consumer finance companies offer short-term loans to those who cannot meet the credit requirements of regular banks.
  14. What attracts customers to online banking?
  15. Free identity theft protection
  16. Free credit score monitoring
  17. Personal financial management
  18. Instant messaging service
  19. Bank’s blog
  20. How banking crisis can affect small businesses?
  21. The tightening of loan money led small businesses to seek alternative sources of funds.
  22. Angel investors can be a source of funds for some firms, especially high-growth firms in technology or biotech.
  23. Peer-to-peer lending is an alternative source of capital.
  24. What are some of the causes for the banking crisis of 2008-2009?
  25. After the internet bubble of the late 1990s, the Federal Reserve lowered interest rates creating a situation in which mortgage rates were low thus fueling a housing boom.
  26. Banks relaxed their underwriting standards and created mortgage-backed securities and sold them to organizations throughout the world.
  27. The government did not regulate these transactions well and banks collapsed as housing values fell and individuals defaulted on their loans.
  28. What are the agencies responsible for money deposits?
  29. The Federal Deposit Insurance Corporation (FDIC)
  30. The Savings Association Insurance Fund (SAIF)
  31. The National Credit Union Administration (NCUA)
  32. What is the FDIC?
  33. The Federal Deposit Insurance Corporation (FDIC) —An independent agency of the U.S. government that insures bank deposits up to $100,000 ($250,000 until December 2013).
  34. What is the SAIF?
  35. The Savings Association Insurance Fund (SAIF) — Insures holders of accounts in savings and loan associations.
  36. What is NCUA?
  37. The National Credit Union Administration (NCUA) — Provides up to $100,000 coverage per individual depositor per institution.
  38. What’s the role of the FDIC?
  39. The role of the FDIC is to insure bank deposits if a bank were to fail.
  40. Bank deposits are currently insured up to $250,000 (until December 2013).
  41. What are some technological innovations in banking?
  42. Electronic Funds Transfer System.
  43. Debit Card.
  44. Smart Card
  45. What is an Electronic Fund Transfer System?
  46. Electronic Funds Transfer System — Messages about a transaction are sent from one computer to another so firms can transfer funds quickly and more economically.
  47. What is debit card?
  48. Debit Card — Serves the same function as a check; it withdrawals funds from a checking account.
  49. What is a smart card?
  50. Smart Card — A combination of a credit card, debit card, phone card, driver’s license, and more.
  51. How does a debit card differ from a credit card?
  52. Unlike a credit card a debit card functions as a check, withdrawing funds directly from a checking account.
  53. The debit card only allows you to spend money that is in your account; once the balance is zero the card cannot be used.
  54. If the card is used with a zero balance, it will result in overdrafts.
  55. What are some examples of international financial transactions?
  56. Letter of Credit
  57. Banker’s Acceptance
  58. Money exchange
  59. What is a letter of credit?
  60. Letter of Credit — A promise by the bank to pay the seller a given amount if certain conditions are met.
  61. What is a banker’s acceptance?
  62. Banker’s Acceptance — A promise the bank will pay some specified amount at a particular time.
  63. What is money exchange?
  64. Money exchange allows companies to go to a bank and exchange currencies to use in a particular country (i.e. dollars for euros).
  65. What are the 2 most influential global banking institutions?
  66. The World Bank
  67. The International Monetary Fund
  68. What’s the World Bank and what does it do?
  69. The World Bank also called the International Bank for Reconstruction and Development is responsible for financing economic development.
  70. What’s the IMF and what does it do?
  71. The IMF was established to assist the smooth flow of money among nations.
  72. Nations must join the IMF and
  73. allow for flexible exchange rates,
  74. inform the IMF of changes in a countries monetary policy, and
  75. To modify policies on the advice of the IMF.



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