Question 1

Personal opinions and casual observations about the external environment provide exactly the kind of information that managers should use when formulating strategies.

Accepted Answer

Personal opinions and casual observations may be biased and subjective, which can lead to flawed strategic decisions. It is important for managers to obtain objective and comprehensive data through market research and analysis before developing strategies.

Question 2

Substitute products pose a strong threat when they are more effective and priced lower than your existing products.

Accepted Answer

Substitute products become a threat when they are able to offer greater effectiveness and lower price than the existing products. This poses a strong risk of customers shifting to the substitute product, leading to loss of market share for the existing product.

Question 3

One reason that managers analyze conditions in the external environment is to help them select a strategy to implement.

Accepted Answer

Managers analyze the external environment to understand the factors that may impact their organization's operations, such as changes in customer needs, technological advancements, and competitors' moves. Based on this analysis, managers can choose a strategy that aligns with their organization's mission, objectives, strengths, and weaknesses while taking advantage of opportunities and mitigating threats.

Question 4

Licensing and permit requirements in liquor retailing and banking are examples of barriers to entry that are based on government policy.

Accepted Answer

Licensing and permit requirements are regulated by government policies, which can create barriers to entry for new businesses in these industries.

Question 5

Powerful suppliers can either increase the price of their product or reduce the quality while selling it at the same price.

Accepted Answer

Powerful suppliers have the ability to control the market by increasing the price of their product or reducing the quality while keeping the price the same. This can result in higher profits for the supplier and limited options for buyers.

Question 6

Electronic Arts (EA) is a powerful supplier in the electronic game industry. As a result, EA's actions can reduce the profit potential of companies that make electronic game boxes, such as Sony, Microsoft and Nintendo.

Accepted Answer

EA's dominance in the electronic game industry can impact the profit potential of companies that manufacture game boxes, like Sony, Microsoft and Nintendo, by creating competition and potentially limiting the distribution of their products.

Question 7

IN the United States there has been a geographic shift in the population as people have migrated from the south and west to the northern and eastern parts of the country.

Accepted Answer

The statement is false. There has been a population shift from the northern and eastern parts of the country to the south and west in recent decades, commonly referred to as the "Sun Belt migration."

Question 8

Imagine that you are in your final semester of college and you decide to transfer to a different school. This decision probably involves few, if any switching costs.

Accepted Answer

Switching schools in your final semester of college would likely involve a variety of switching costs, such as the need to transfer credits, adjust to a new campus culture and policies, potentially lose existing scholarships or financial aid, and more.

Question 9

Changes in lifestyles, population size, society's attitudes, educational status and marital status are all examples of demographic trends in the general environment.

Accepted Answer

These are examples of sociocultural trends. Demographic trends specifically refer to changes in the structure of populations, such as age, race, gender, income level, and employment status.

Question 10

By keeping up with technological trends a company may be able to identify and incorporate cutting edge technology developed in other industries into its own products.

Accepted Answer

By staying aware of technological trends and advancements, a company may be able to adopt innovative technology from other industries and incorporate it into their own products, enabling them to remain competitive and relevant.

Question 11

Economies of scale and capital requirements are two of the barriers to entry that companies might try to establish in order to reduce the chances that a new competitor might enter the industry.

Accepted Answer

Economies of scale and capital requirements can increase the cost of entry for new competitors, making it more difficult for them to compete against established companies.

Question 12

Economic trends affect customers' purchasing decisions and how firm's allocate their resources.

Accepted Answer

Economic trends such as changes in inflation rates, interest rates, and levels of consumer spending can directly impact consumers' buying behavior and the strategies businesses use to manage their resources. For example, during a recession, consumers may be more price-sensitive and focus on buying essential items, while firms may cut back on investments and expenses to conserve resources.

Question 13

The process of transforming state-owned firms to privately owned companies is known as deregulation.

Accepted Answer

The process of transforming state-owned firms to privately owned companies is not known as deregulation, it is known as privatization. Deregulation refers to the removal or reduction of government regulations in a particular industry or sector.

Question 14

Subprime mortgages are the leading cause of the 2007-2008 financial crisis in the US.

Accepted Answer

Subprime mortgages were given to borrowers who had poor credit scores and a higher risk of defaulting on their loans. These high-risk loans were packaged together and sold to investors as mortgage-backed securities. When the housing market collapsed, many borrowers defaulted on their loans, causing a ripple effect throughout the financial system. The widespread default of subprime mortgages was a major contributor to the financial crisis.

Question 15

Changes in a society's attitudes and cultural values reflect demographic trends.

Accepted Answer

Changes in a society's attitudes and cultural values are more related to social, economic, and political factors rather than demographic trends, which refer to statistical characteristics of populations.

Question 16

Home Depot and Lowes' installation service businesses are expected to grow as the population ages.

Accepted Answer

As the population ages and becomes less physically capable of completing home improvement projects themselves, they are more likely to turn to Home Depot and Lowes' installation services. This is expected to result in the growth of their installation service businesses.

Question 17

Income growth or decline, savings rates, and currency exchange rates are examples of economic trends.

Accepted Answer

Income growth or decline, savings rates, and currency exchange rates are widely studied and analyzed economic trends.

Question 18

When companies like Home Depot and Lowes analyze the external environment they are trying to understand how demographic trends might impact future profitability.

Accepted Answer

Home Depot and Lowes are interested in understanding demographic trends in order to anticipate changes in customer demand and tailor their strategies accordingly, which ultimately affects their profitability.

Question 19

Between 2000-2020 the percentage of Americans over age 65 will decrease by approximately seven percent.

Accepted Answer

According to the United States Census Bureau, the percentage of Americans over age 65 is projected to increase from 12.4% in 2000 to 19.6% in 2020, meaning an increase of approximately 7%. Therefore, the statement is false.

Question 20

Firms can exercise a moderate amount of direct control over the demographic and economic trends in the general environment.

Accepted Answer

Firms have no control over demographic and economic trends in the general environment as these are largely shaped by external factors such as government policies, technology, and global economic conditions. Firms can only adapt and respond to these trends.

Quiz 3: Analyzing the External Environment