Question 1

Some in the Sponeto government would like the country to appeal to the World Bank for funding toward economic development, rather than short-term monetary stimulation. Which of the following, if True, would strengthen the case for this course of action?

Accepted Answer

E) The World Bank would be able to help address poverty with long-term loans toward economic development. Choices A and C do not relate to Sponeto's economic needs, and weaken the case that they could receive international aid without addressing other problems. Choice B weakens the case that Sponeto is in need of international aid. Choice D suggests that Sponeto needs immediate material aid rather than long-term economic aid.

Question 2

Which of the following, if True, would weaken the argument for competing in the Chinese market?

Accepted Answer

B) While the Chinese market sounds attractive, it would be less attractive if Choice B were True and the government could hold up development while sorting out licensing issues. Choice A is on the wrong subject. The issue here is whether expansion into China is a good idea, not the specifics of how to expand. Choice C would only strengthen the argument by suggesting that demand will be strong. Choice D makes no clear difference, because we can't tell whether The Hungry Cow is positioned to offer the benefits that Chinese customers seek. Choice E is a reason not to expand everywhere, but that is not a reason to avoid China entirely.

Question 3

Assume that Allied has required Cicada to not handle any of Allied's competitors' products. Which of the following most strongly suggests that this arrangement is legal?

Accepted Answer

B) Exclusive arrangements are most likely to be illegal when they lessen competition, create a monopoly, or are not entered voluntarily. Choice B suggests that Allied has active and successful competitors, which in turn suggests that there's no monopoly here, making it more likely that the arrangement is legal. Choice A suggests a lessening of competition, which could only make the arrangement sound illegal. Choice C doesn't matter. The number of sellers in the supply chain isn't an important factor when it comes to exclusive dealing. Choice D could only suggest some kind of secret connection between the companies, which wouldn't help in the defense of the requirement. Choice E doesn't matter, because monopolistic competition is not encouraged in this context.

Question 4

Which of the following is best supported by the statements above?

Accepted Answer

E) The only safe inference here is Choice E. Enterprise started small and had modest aims, but it is now the largest car rental company. So the case of Enterprise is evidence for the notion that your initial goals don't determine your ultimate fate. Choice A goes too far. It's not even clear that Enterprise avoided confrontation as long as possible, and even if it did, Choice A's claim is too strong. The case is about Enterprise and not what must be the case for all companies. Choice B: We don't know if Enterprise took on competitors one at a time or all at once. Choice C goes against the passage; Enterprise started local. Choice D: This might be a good example, but there may be better ones out there.

Question 5

Another manager at AB Distributor, Shawna, suggests that if the company's revenue had not increased, it would not have been able to increase its profits. Which of the following points out a flaw in Shawna's reasoning?

Accepted Answer

E) Profitability is revenue minus costs, so there are two ways of increasing profits: increasing revenue or lowering costs. Choice A is an issue that is not directly relevant to how AB Distributors can increase its profits. Choice B is incorrect because revenue is always relevant to figuring profitability. Choice C is not relevant to whether or how the company can increase its profits. Choice D is not necessarily True, and if it were True it would support Shawna's contention that increasing revenue was necessary to increase its profits.

Question 6

Which of the following, if True, would weaken the argument for a price increase?

Accepted Answer

E) If the quantity demanded changes greatly with price, as Choice E indicates, an increase in prices will lead to greatly reduced sales. Choice A suggests that the pressure to raise prices is going to increase in the future. This sounds like it would strengthen the case for a price increase, but even so Choice A doesn't do the job because it doesn't tell us how consumers will react. Choices B, C, and D would strengthen the argument for a price increase by suggesting that customers would be willing to pay a higher price, Choice B, or that customers will have less access to low-cost options, Choices C and D.

Question 7

Which of the following, if True, would strengthen the argument in favor of a price increase?

Accepted Answer

C) If overall demand is expected to go up, Choice C, people will be more willing to pay high prices. So Choice C supports the case for a price increase. Choice A weakens the argument. If substitutes are available, people would be more likely to choose those substitutes if Anon raised its prices. Choice B is relevant to the supply curve but not the demand curve. Increased supply costs do not by themselves make customers willing to pay more. Choice D, if anything, goes against the price increase argument by suggesting that consumers will have lower-priced options. Choice E would normally result in more options (often, lower-priced options) for consumers. This would undercut the case for a price increase.

Question 8

Many in the Sponeto government agree that increasing the money supply to the nation's economy would be of significant help to the country. The national bank's reserve, however, is short on the funds needed, and suggests asking for them from the International Monetary Fund (IMF). Which of the following, if True, would strengthen the case for this course of action?

Accepted Answer

C) This describes Sponeto's economic situation, and indicates that the IMF's mission would be well suited to its needs. Tariffs (Choice A) and nationalized companies (Choice B) may or may not represent long-term drags on Sponeto's economy, but it's a disadvantage of taking IMF funds if the result is loss of national control over such basic economic decisions. Choices D and E also describe potential, if uncommon, disadvantages to accepting funds from the IMF.

Question 9

The Sponeto national bank advocates increasing the money supply to encourage investment within the country. Which of the following, if True, would strengthen the case that this will cause inflation?

Accepted Answer

B) Increasing the money supply would cause banks to lower interest rates, since money is less scarce, which tends to lead to higher prices and inflation. The creation of jobs (Choice A) in a growing economy may be accompanied by inflation but does not in itself cause inflation. Choices C and D would not be associated with an inflationary economic environment. Choice E would not strengthen the case that increasing the money supply would cause inflation.

Question 10

Assuming other factors remain constant, Anon would have the most power to raise prices if Widgets were which of the following?

Accepted Answer

A) Companies have the most power to charge high prices when their products or services are absolutely necessary. People will be more likely to pay high prices when their health is at stake, so Anon would have the most power if Widgets were life-saving drugs, Choice A. The other choices involve goods that have plenty of substitutes and/or are not clearly necessary.

Question 11

Based on the information above, Tata most likely believed that as a result of recent changes in India's economy, what would be True of a growing number of Indian consumers?

Accepted Answer

B) The changes to India's economy produced a growing middle class and rising incomes. Tata responded to the new demand by producing a new car that sells for 100,000 rupees. Therefore, Tata must believe that a growing number of Indian consumers are willing and able to pay 100,000 rupees for a car, as Choice B indicates. Choice A goes against the discussion, and Indians have more money now. Choice C brings in concern for the environment, which is possible but not mentioned by the passage. Choice D speculates about the future, but the passage doesn't. Choice E, if anything, goes against the passage because the Tata sounds like a fuel-efficient car, but not necessarily a safe one.

Question 12

Which of the following, if True, would strengthen the argument for competing in the Chinese market?

Accepted Answer

D) Expanding into the Chinese market is a complicated decision involving many factors. One of those is the cost of reaching new customers. If Choice D is True, then the cost of reaching customers in emerging markets (China is one of those markets) is relatively low, and so Choice D strengthens the argument. Choice A suggests that expanding would be risky, which doesn't help the argument. Choice B suggests that The Hungry Cow would have to make some changes in order to compete in China, which makes entering China sound harder. Choice C tells us nothing about China or the opportunities there. Choice E refers to the wrong subject. The issue here is expansion into China.

Quiz 1: The Us Business Environment